Lowest Common Denominator LawsAnd the Subprime Lending Market

In the United States, laws are typically written for and around the very small percentage of the population who, for some reason, need to be told very basic things. It’s truly unfortunate that some in our society do need laws and penalties to prevent or punish them for things the rest of us would simply never think of doing. And I truly think that the majority should not accept this any longer.

In the small California town where I grew up, the Fourth of July parade used to be a thing of wonder for children. Not for the parade itself, but because all of the families in town used to pitch tents in the wide grassy medians that separated the north and south-bound lanes of the town’s main road.

Everyone would bring their picnic baskets, sundries, and toys. Children ran around playing tag during this town-wide slumber party, and adults would discreetly sip wine or beer from plastic cups. These July 3rd evenings were so uneventful that there was rarely even any good gossip to talk about the next day.

As time went on, folks from other towns started crossing over into the community to participate. They too brought their tents and sleeping bags, but their foreign presence changed the environment. The first evidence of this was that ‘stranger danger’ at the campout meant that parents felt the need to always have their kids in sight.

The newcomer adults inevitably took the lax police enforcement of open containers to mean that this was more Mardi Gras than town social. For the first time, there were fights and arrests for disorderly conduct. I’m sure you can figure out what happened next. Alcohol was quickly banned, a decision that the town of course supported. Within a few years, camping on the median was also a thing of the past.

I wanted to share this example because, as you can see, when the town had to shift their standard operating procedure for July 3rd and 4th, it wasn’t a reflection of the town itself. It became necessary because of the small percentage of folks who came into town and couldn’t or wouldn’t behave within the established codes.

I like to call these kinds of shifts “Lowest-Common Denominator Laws.” They’re created in response to the small but powerful number of folks who throw a wrench into the works. And by extension, the rest of us get locked into this new norm, even when we can and always have handled the extra burden of responsibility like good citizens and intelligent adults.

The L.A. Times this week points out that the same trend is happening with mortgages. The article points out that the more relaxed lending standards are responsible for allowing a record number of Americans the opportunity to own their homes.

As the “Lowest Common Denominator” rule goes, not everyone is living up to the responsibility. And now Congressmen and Presidential candidates alike want to legislate their way out of the problem.

I’ve got several problems with that. The first is that private industries gauged their risk tolerance and (one would think) moved forward with due diligence. It is worth noting that not all subprime lenders are in the same boat. Obviously, some managed their risks better than others. But because some firms jumped in head-first, this is another instance of “Lowest Common Denominator” thinking.

My second problem with legislating our way out of the subprime mortgage downtick is that fully NINE out of TEN subprime borrowers are paying their notes.
So why should it be acceptable that the 10% who either cannot or will not meet their obligations now become the standard for lending?

Future borrowers will no doubt be held to a standard that is designed to protect against 10% of the population. The 90% of marginal borrowers who own their homes are not even factored into the equation. And thanks to this, 100% of future borrowers will be disallowed the opportunity that 90% of previous borrowers have lived up to, but 10% have ruined for everyone.

Blog Carnival "Foreclosure Central" #1

This month the news has been packed with doomsday talk about subprime loans, mortgage fraud, and market correction. It seemed like a logical time to start a "Foreclosure Central" blog carnival.

The reality is, foreclosure rates have been steadily rising over the past six months. Many Americans are looking to the originators of these loans for their culpability. After talking to a few mortgage brokers I know, I do understand their origination thoughts.

Historically, lenders counted on the fact that home ownership is the cornerstone of the American Dream. They knew that the vast majority of us would subsist off of pancakes and ramen noodles for years on end to make the note each month. I know many white-collar professionals in southern California who have been doing just that.

Unfortunately, a number unscrupulous lenders preyed on this fact and "helpfully" refinanced people into notes they could never meet five years later. The broker got his hefty commission and called it a day. Some people who hold these notes did so to meet the demands of a life crisis. Others did it because they didn't read the fine print and thought they were getting a deal (in which case, I think they should refrain from signing any other contracts in the future).

Still others willingly and knowingly committed mortgage fraud. And now we're all up in arms over this fact, as it makes the "soft landing" that much further out of reach.

But while the inevitable foreclosure boom follows the home ownership boom, a lot of good people will get caught in the undercurrent. This is really unfortunate, and I know we're all pulling for the folks who face some serious belt-tightening in the coming months.

For the benefit of home owners, investors, and real estate professionals, here is what the blogosphere would like for you to know about foreclosure:

FORECLOSURE CENTRAL #1

TOP HONORS

Silicon Valley Blogger gets the (very subjective) First Place award for the article "6 Ways 6 Ways To Protect Yourself From Different Types Of Mortgage Fraud". The articles at http://thedigeratilife.com are always well written, and this one is no exception.

This is a great article for consumers, who can protect themselves from becoming unwitting co-conspirators in any number of fraudulent schemes. The article walks us through the different types of fraud and includes some great links on identifying and reporting mortgage fraud and abusive lending.


FOR CONSUMERS

Michael Emilio Rodriguez offers the article "8 Steps to Getting Your Finances in Order for a Mortgage. It's a good primer for first-time homeowners, particularly since those 100% loans seem to be going the way of the dodo.

I would add one piece to Michael's checklist. Since many homeowners will be paying more to own a home than they are paying in rent, start paying that higher amount now while you're planning to buy. Take the excess and put it into your house fund. Not only is this a way to cushion your savings for the home purchase, but you will acclimate to paying the higher amount now, rather than after close of sale.


Michael Cook writes in with "Influence Real Estate Appraisals: How an appraiser values your home can increase your property's worth". If you're selling your home this season, Michael offers some solid pointers on getting the most out of your appraisal.


Alvaro wants homeowners to know that foreclosures are difficult and emotional situations, and shares some exercises and tips for better stress management. Certainly, if you are facing foreclosure, you will want to check out the article "Stress Management Workshop for International Women's Day".


FOR INVESTORS AND REAL ESTATE PROFESSIONALS

Walt offers a great reminder that "If You Want To Be Great, Money Should Not Be The Motivation". This is a wonderful reality check to the myriad "get rich quick" schemes in the world, and is certainly not limited to real estate.

Walt's piece underscores the reality that, in this life, we are all going to stumble and sometimes fall. Some days, the only reward is the work itself. Setting out with the intention of "getting rich" is akin to "getting famous." If you don't have some degree of passion for the endless work load, it's not going to pan out.


I was excited to see Craig S. Higdon join this carnival. As a 14-year veteran of commercial real estate lending, Higdon is uniquely qualified to speak to the investment side of real estate. Everyone should read his article "Commercial Real Estate Loan Myth Debunked!"

Goodness knows we like debunking myths around here, so Craig's article is a great addition to the carnival. As commercial real estate has remained strong in contrast to the residential market, I imagine he's had more and more people showing up in his office to do some similarly creative financing for commercial properties. If you're shifting into the commercial side, get thyself to Craig S. Higdon's website now.


THE LIGHTER SIDE

We get to wrap this up with a bit of a chuckle, thanks to the BiggerPockets.com Real Estate Investing Community. Check out "A Few (really crappy) Real Estate Domains You Could have Had". My personal favorite is www.thishousewilldrainyourwallet.com


A big thank you to everyone who contributed to Foreclosure Central #1. This will be an ongoing carnival for a little while, with deadlines on the 1st and 15th of each month.

If you would like to contribute to the next Foreclosure Central blog carnival, please use this Submission Form.

FBI Issues Mortgage Fraud Warning

Last week, the FBI issued a strong statement regarding mortgage fraud. The announcement confirmed that the agency is working with the Mortgage Bankers Association to prevent and prosecute mortgage fraud.

The action is reminiscent of the early whistleblower channels that were established in order to more effectively prosecute corporate misdeeds. It also sounds like the warning shot to offenders that mortgage fraud will be the high-priority, high-profile topic for 2007.

And with 2008 being an election year, I expect this will become at least a minor topic on the campaign circuit. A Congressional action similar to Sarbanes-Oxley cannot be too far behind.


FBI ISSUES MORTGAGE FRAUD NOTICE IN CONJUNCTION WITH MORTGAGE BANKERS ASSOCIATION

Washington, D.C. – Today the FBI and the Mortgage Bankers Association (MBA) entered into an agreement to combat Mortgage Fraud. The FBI and the MBA will make available a Mortgage Fraud Warning Notice as a proactive means of educating consumers and mortgage-lending professionals of the penalties and consequences of this criminal activity.

“Mortgage Fraud is clearly becoming a problem that requires the unified efforts of law enforcement, regulators, and industry,” said Karen Spangenberg, Section Chief of the Financial Crimes Section, Criminal Investigative Division, who signed on behalf of the FBI. “The FBI is pleased to have worked with the Mortgage Bankers Association in the development and distribution of this advisory as we continue to strengthen our relationship with such key organizations to combat Mortgage Fraud.”

Mortgage Fraud Suspicious Activity Reports (SARs) referred to law enforcement by financial institutions increased from 17,127 SARs in Fiscal Year 2004 to 35,617 SARs in Fiscal Year 2006, reflecting estimated losses of $946 million. FBI Mortgage Fraud investigations have focused on large-scale frauds perpetrated by organized crime and industry insiders, including attorneys, brokers, appraisers, and realtors. Since September 2002, the number and types of investigations have increased from 436 to 1,036. Of these current cases, 51% involve expected losses in excess of $1 million, and 57% involve our federally insured financial institutions as victims.

Combatting significant fraud in this area is a priority, because mortgage lending and the housing market have a significant overall effect on the nation’s economy. The FBI works closely with national associations such as the MBA, as well as with individual lenders, in a continual effort to define and combat the growing Mortgage Fraud problem. The newly developed Mortgage Fraud Warning Notice enhances the FBI’s endeavors to do so by putting potential perpetrators on notice in an effort to stop potential crime before it is committed.

“We wish to thank the FBI for working with us to provide mortgage lenders another item in the toolbox to help combat fraud against lenders,” said John M. Robbins, CMB, Chairman of the Mortgage Bankers Association. “Fraud against lenders costs the mortgage industry billions of dollars each year, affecting everyone in the mortgage process, including consumers and the communities we are trying to help build.”

The Media's Mishandling of the Casey Serin Story

If you missed our previous primer on Casey and Galina Serin, I would encourage you to go back and read "Mortgage Fraud: Why Lenders Need to Know Casey Serin." My friend Aspeth and I are trading off blog posts on this story, and she picked up today's meme. I've cleaned up the content a tad, as Aspeth has been known to make sailors blush. For this portion of the thread, Aspeth wanted to focus on how the so-called "Old Media" has covered this debacle.


Traditional media's handling of the Casey Serin story has been grim, and it certainly lends credence to folks getting their information from alternative sources. At the very least, the Old Media folks should have cross-referenced their stories by speaking to law enforcement officials to give readers a full picture of the scope and potential punishment of Casey and Galina Serin's crimes.

It's lazy journalism, plain and simple. Anyone who has spent a brief amount of time actaully reading and researching Casey Serin's story is immediately struck by the extenxive chain of fraud that occurred. But print and glossy media has persisted in portraying Casey Serin (and by extension, his wife Galina Serin) as poor victims of the real estate bubble, predatory lending, or any other real estate buzzword of the day.

I find this particularly offensive. Casey and Galina Serin are not innocent victims of the real estate industry. They are the perpetrators of multiple crimes against various banks, lenders, and creditors!!!!

Bloggers have gone out of their way to alert government agencies and creditors alike to Casey Serin's illegal activities. This includes tracking the complicity of his wife Galina Serin and other 'known associates'.

The rage in these posts, and in the comments, is palpable. But it's easy to understand why. People who have followed Casey Serin's story for any length of time are not just content to see him arrested. Nothing short of a ridiculously long prison term and FULL REPAYMENT of "every dirty penny" will suffice.

Whether writing about the complexity of mortgage fraud, deconstructing Casey's attempts to dodge responsibility, or pointing out Galina's complicity, the blogosphere is just the beginning of the impending public response to Casey Serin.

So CHEERS to the bloggers. And a big "Boo! Hiss!" to the Old Guard. Here's our list of media sources that totally dropped the ball in fully informing the public about Casey Serin. In chronological order, here is the Casey Serin Media Hall of Shame:

San Francisco Chronicle
On October 6, 2006, the SF Gate posts a laughably optimistic story about Casey Serin's role in the real estate bubble. His ill intent is glossed over; instead, he is held up as some sort of poster-boy for failing markets and dodgy lenders.

"But by offering himself up as a penitent whipping boy of real estate, Serin has unwittingly offered us a glimpse into the fast-approaching future in which those high-flying real estate trade secrets come home to roost."

Wow. We surely cannot be referencing the same Casey Serin. Casey Serin is anything but "penitent."


USA Today
This is the one that brought Casey Serin into the national spotlight. In the October 22, 2006 edition, Noelle Knox writes If there's a poster child for everything that went wrong in the real estate boom, it just might be Casey Serin.

Rather than paying attention to Casey Serin's extensive mortgage fraud, much less say what else might lie beneath the surface, Noelle Knox writes basically that 'a lot of things can go wrong in real estate.' For a nationally syndicated newspaper, this certainly falls short of breaking the story wide open.


Inman News
Matt Carter writes that Casey Serin bought eight homes in six states using 100 percent stated income loans, getting $15,000 to $50,000 cash back on every loan. First, this is the only time I've seen mention of six states. Judging from the depth of fraud committed, that could very well be true.

But since it has not come up anywhere else in print or online media, I question the voracity. Secondly, I would expect that the highbrow, real estate-only news bureau Inman would delve much more deeply into the casually typed phrase "15,000 to $50,000 cash back on every loan."


New York Magazine
As recently as February 12, 2007, Emily Nussbaum had evidently done enough research into Casey Serin to include him in her piece on twentysomethings revealing their lives on the internet. But she paints a plucky portrait of young Casey, merely writing a few paragraphs about his online confessional.

That he is confessing to multiple felonies doesn't seem to faze Ms. Nussbaum. In fact, that element is never mentioned. Perhaps she never got past the title of Casey Serin's blog to actually read one of the numerous instances where he details his crimes. That's quite a shame, because she, too, missed the story entirely.


CBS 5 San Francisco
The most recent incident of a no-research fluff piece on Casey Serin occurred on March 7, 2007. John Lobertini presented yet another piece of Casey-Serin-as-victim-of-big-real-estate. Lobertini's piece is similar to the other 'Casery Serin-lite' pieces, where journalists follow right down the path that Casey leads them.


And while this is far from 'old media', it is worth noting that mortgage broker Niles Swaby has put out several press releases, positing himself as the authoritative source on Casey Serin. Niles Swaby chose the self-important headline Aspiring Web Journalist Lands Real Estate Story of the Year.

Well, that's really stretching it, isn't it? As you can tell from the timeline above, two major news outlets had already "landed" the story when he issued this press release on Halloween of 2006. (And regarding the timing, it's just too easy...I'm leaving that one alone.)


One last thing....I stumbled across an old blog of Casey Serin's. It was interesting in that was supposedly written on his 25th birthday. This was news, in a sense, since everyone thinks he's 24. But what really struck me was this:



Wait a minute....am I reading that correctly?!?!

Casey Serin was born on SEPTEMBER 11 ?!?!?!?

Talk about your 'day that will live in infamy'......

Mortgage Fraud Why Lenders Need to Know the Name"Casey Serin"

Real estate practitioners are often slow in adapting to new technologies. I understand why--most successful real estate professionals spend very little time in an office, much less say in front of a computer.

But this is a compelling reason why you should keep up to date with basic technologies: SAFETY. Real estate practitioners have often been encouraged to follow safety guidelines when dealing with a potential client, such as making a copy of their drivers' licenses before driving them around.

Allow me to offer another step. GOOGLE ANY POTENTIAL CLIENT.

This is certainly something that Casey Serin's lenders, realtors, and other lien-holders should have done. Because some of them may have just been 'doing their jobs', but that will be a hard row to hoe when the authorities sort the difference between them and the co-conspirators.

I am loath to give this guy any more publicity. But suffice to say that we at The RE Forum have joined the list of folks who have contacted law enforcement agencies about this con artist. We have forwarded information to the U.S. Attorney's Office, FBI, the District Attorney and Police Departments of each relevant property. We know that others have already contacted the IRS.

Unfortunately, if you're a real estate professional and haven't heard of Casey Serin, you're doing yourself a great disservice.

In short, Casey's story goes like this: In 2006, at the age of 24, Casey Serin acquired at least 8 (known) properties in 4 states. He committed mortgage fraud to obtain the loans by lying about owner-occupancy, lying about his income (he had quit his job), inflating the value of the properties, and getting cash back at close. By his own admission, the banks were not aware of his cash-back schemes, where he received anywhere from $15,000-$50,000 per closing.

The properties that Casey Serin has admitted to owning (there may be more) are:
??? Calla Way, Sacramento, CA SOLD
6842 Burdett Way, Sacramento, CA 95823 FACING FORECLOSURE
6021 Guadalajara Dr NE, Rio Rancho, NM 87144 FACING FORECLOSURE
??? Sonora Ave, Albuquerque, NM SOLD
1910 Muncy Drive, Modesto, CA 95350 FACING FORECLOSURE
6656 W 10250 N, Highland, UT 84003 MULTIPLE ATTEMPTS TO WRAP
6500 Larchmont Dr, North Highlands, CA 95660 FORECLOSED
9524 Angleridge Rd, Dallas TX 75238 FORECLOSED

Those "cash back" monies were used in a classic pyramid scheme. Each closing brought more money to keep loans current on his existing properties. They also allowed Casey Serin and his wife Galina Serin to live an extravagant lifestyle. Casey and Galina Serin blew through the money quickly, and within months he was facing foreclosure on all 8 properties.

With deflating markets in many of the areas where Casey Serin bought homes, he has been unable to "flip" them as he intended and is now $2.2 million in debt. Serin hopes to file for bankruptcy to avoid paying his debts, but has been advised that the fraudulent manner in which they were acquired means that he will almost certainly be prosecuted for felony fraud.

While this is all interesting, this is why you should be very aware of this story. Casey Serin is today still trying to make real estate deals. As he is a multi-state offender, Casey Serin may appear in your office in some form.

Casey Serin repeatedly makes reference in his blog to making offers on other homes, and is reportedly even shopping for an apartment complex. So he may be contacting residential and commercial brokerages.

Watchful observers have pointed out that Casey Serin has used several aliases and known associates. Some of these may be straw buyers; others may be simply a front to hide his own identity. He and his wife have also registered two known DBA's.

It is also known that Casey used the name Alesky Serin in 1997 to run his first pyramid scheme--at the ripe old age of 14!!!

Per Casey Serin's own admissions through his blog, here are some other names you should know:

KNOWN ALIASES, POTENTIAL CO-CONSPIRATORS, POTENTIAL STRAW BUYERS:
Casey Konstantin Serin, Casey Serin's full name.
Galina Serin, Casey's wife, maiden name Suprun.
Finch Properties, Owned by Casey Serin and Galina Serin
Able Buyer, Owned by Casey Serin and Galina Serin
Alesky Serin (Casey's father. Casey has reportedly bought and/or transferred properties to this name) Sacramento, CA. Other known cities: Fair Oaks CA, Rancho Cordova CA
Anna Serin (Casey's monther. Casey has reportedly bought and/or transferred properties to this name) Sacramento, CA. Other known cities: Fair Oaks CA, Rancho Cordova CA

KNOWN ASSOCIATES:
Nigel Swaby, Mortgage Broker, Integrity First Financial, Salt Lake City, UT. Other known cities: Sandy UT, Salem OR, Portland OR, Beaverton OR
Duane LeGate, President, House Buyer Network, Atlanta, GA. Other known cities: Marietta GA, Midland GA, Columbus GA, Orange Park FL, Cedar Grove WV
Paul Prestwich, Secure Tomorrow - Asset Protection, Sacramento, CA

One of these associates has said that Casey Serin has recently partnered with a California "investor" referred to as simply "G". They traveled to Salt Lake City together, and it is unclear if the duo were reconciling Casey's existing properties or searching for new ones.

Casey Serin typically used smaller, independent lenders. No doubt he thought that his approach might be caught by larger, nationwide lenders. If you have had any real estate dealings with Casey Serin, we encourage you to contact authorities immediately.

As con artist Casey Serin continues to weave a web of deceipt and leave a trail of debt in his wake, you will not only be saving other potentailly defrauded lenders. At this point, a proactive call to police will also help authorities separate those who unknowingly assisted Casey from his willing co-conspirators.

Call For Carnival Submissions"Foreclosure Central"

Unfortunately, we've had a significant amount of request for foreclosure information. With that in mind, we are opening the floor to submissions from homeowners, investors, and real estate/mortgage professionals to share what they know on this topic.

This will be an ongoing carnival, with submission deadlines at midnight (Eastern) on the first and fifteenth of each month.

Sumbit your Foreclosure article here.

Thank you in advance for your participation. We look forward to seeing your foreclosure information submissions!

Innovative Marketing Ideas

Since there are plenty of real estate agents and investors who come to this page, I thought I'd include a great marketing story I found this week. It struck me as an opportunity to remind ourselves to continually reinvent the way we do business.

Against all standard business advice, an Atlanta woman has generated an incredible buzz around her product. In this day and age, when it becomes more and more difficult to get the attention of potential customers, this story has really stuck with me.

I hope that marketing professionals such as real estate agents will be inspired to push their creative limits after reading this. And it's frankly the best human interest story I've found in quite a long time.

Sounds like good Sunday reading to me.

Lisa Campbell is an Atlanta radio personality, who seemingly took every chance possible to travel with her daughter. Fellow travelers know that our foreign excursions often touch us in ways we'd never imagined; that we take away impressions and ideas more often than trinkets.

Lisa Campbell was no different. In Jamaica, she was introduced to a memorable cup of South African rooibos tea. In England, she left the country deeply impressed with the variety and pageantry that tea offered.

She went home and started mixing and infusing teas, presenting them like designer cocktails to her friends who came to visit. She began selling her blends online. Folks in her community wanted to know why she didn't have a shop they could visit.

Today, there is a specialty store called the Urban Tea Party within Atlanta's hip and happening neighborhood of Virginia-Highlands. But Lisa Campbell isn't the owner. She was, until two months ago. But then she literally "gave away the store."

What would be, by any standard, a bad business decision is probably anything but. Lisa opened the Urban Tea Party, and its devotees came in droves. But she was still a full-time news personality on local radio. After two years, the pace became too much.

She planned to sell the business. But as the story now goes, she saw an Oprah episode, where the talk show host passed out $1,000 to each of her audience members and asked them to do something significant for someone they didn't know.

Lisa says she woke up one night and realized, "I'm going to give the store away." She wanted to find a wanna-be entrepreneur who had the desire and talent to run a business, but couldn't find the necessary start-up money.

As a radio personality, Lisa knows the media. She put the word out to the "communiTEA", asking interested parties to compile a one-page business plan. She assembled a team of business-savvy associates to evaluate the applications that came in.

Expecting about 75 applications, she was overwhelmed to receive exactly 457. She was under the gun, as she wanted her new owner to be installed in time for the lucrative Christmas shopping season.

She narrowed the field to 10, and then brought them in to interview, round-robin style, with her search "commitTEA". (Yes, Lisa's got the wordplay down pat.) Sherolyn Sellers was the candidate who stood out to the entire team, and she received the keys to the store, including its extensive stock and existing customer base, on December 4, 2006.

So how is this good business? Well, Lisa still owns the parent company,
Urban Tea Company, and still sells tea online. She plans on franchising the business between 2008 and 2010. And she's publishing a book, also called "Urban Tea."

The word of mouth about Lisa's decision has traveled across the country. And no doubt if Oprah comes calling to have Lisa Campbell tell her story on daytime television, sales will go through the roof. This is certainly an out-of-the-box marketing idea that would flip Madison Ave on its head.

But her campaign doesn't seem contrived. In fact, she could have generated a lot more PR if she had extended the application period. Instead, she made it clear that there would only be about two months for the process to unfold, as her new owner had to get that profitable Christmas season to allow her to be successful in her first year.

Lisa's passion for tea is apparent. As a rabid coffee drinker, I have to say that, after perusing her pages, she's definitely drawn me in. On her website, Lisa expounds for pages about the history, flavors, and types of teas. As someone who loves the nuances in wines, I'm intrigued. I'll admit, I've got tea listed on this week's grocery list.

The new owner of the Urban Tea Party in Virginia-Highlands obviously has big shoes to fill. But Lisa remains in constant contact with Sherolyn Sellers, advising her on every element of the business.

People will certainly be talking about this transaction. I know that the next time I'm scheduled to fly through Hartsfield-Jackson, I'll organize my flights so that I have time to go check this place out.

Millions of advertising dollars probably wouldn't cause me to say that. But a weird and wild business idea has. So, contrary to standard b-school thinking, it turns out that giving away the store really is good business.

How can you profit from doing the unexpected?