March 22, 2007
Now we've come full circle - Casey Serin and iamfacingforeclosure.com make The Economist - the poster boy of a system run amok
When HP originally broke the iamfacingforeclosure.com story back on September 21, 2006, just six months ago, I had an inkling that the kid would end up getting worldwide pub, and eventually (after a stint in jail) rich from being the poster boy of the late great housing ponzi scheme and everything that went wrong with a corrupt REIC and a financial system designed for a meltdown.
Ah, the American dream...
Well, now the kid has hit The Economist. No, seriously, Casey Serin has hit The Economist. No, seriously. I'm not kidding. Seriously. Yes, the magazine who wrote the best housing bubble story of all time - In Come the Waves. Yes, the world's greatest magazine. That Economist. And now Casey Serin....
Cracks in the façade - America's riskiest mortgages are crumbling. How far will the damage spread?
CASEY SERIN knows all about the excesses of America's housing bubble. In 2006 the 24-year old web designer from Sacramento bought seven houses in five months. He lied about his income on “no document” loans and was not asked for anything so old-fashioned as a deposit. Today Mr Serin has debts of $2.2m. Three of his houses have been repossessed; others could share that fate. His website, Iamfacingforeclosure.com, has become a magnet for those whose mortgages are in trouble.
Mr Serin and people like him are Wall Street's biggest uncertainty just now. How many Americans are saddled with mortgages they cannot afford on houses that are losing value? The answer matters to anyone who bought high-yielding mortgage-backed securities when a booming property market made mortgages look safe. It also matters to investment banks, which packaged the securities and often own subsidiaries that originate mortgages. It may determine whether America's economy falls into recession. It could even affect the outcome of next year's elections.
Lenders got the demand for loans that they wanted—and more fool them. Amid the continuing boom, some 40% of all originations last year were subprime or Alt-A. But as these mortgages were reset to higher rates and borrowers who had lied about their income failed to pay up, the trap was sprung. A new study by Christopher Cagan, an economist at First American CoreLogic, based on his firm's database of most American mortgages, calculates that 60% of all adjustable-rate loans made since 2004 will be reset to payments that will be 25% higher or more. A fifth will see monthly payments soar by 50% or more.
A glut of unsold homes will also push down prices, particularly in areas such as California and Florida, which had a disproportionate share of riskier loans. House prices have already been falling in parts of both states, as they have in Midwestern states, such as Michigan, where manufacturing industry has shed jobs in recent years. Will those declines accelerate and spread?
Few doubt that the subprime mess was, in part, a regulatory failure. But now the mistakes have been made, the biggest risk is that populist politicians rewrite the rules hamfistedly. Fraudulent activity should be punished. The vulnerable need protection from predatory lenders. But an ill-conceived swathe of new “consumer protection” could easily make matters worse. If restrictive regulation scared investors away from the subprime market for good, that really would hurt the poor.