House Of Gain

Countrywide Financial. Fannie Mae. Alan Greenspan. Barney Frank.

There's plenty of blame to go around for the current mortgage mess. And plenty of names that qualify for dishonorable mention.

Now you can add one more to that list: Aleksey Kalenichenko.

Kalenichenko, a 33-year-old Russian immigrant with clear blue eyes and ruddy cheeks, prides himself on his honesty and his closeness to Jesus, attending the Pentecostal Church of Truth in Vancouver, Wash., with his wife and two young kids twice a week.

But Kalenichenko, who has lived in Vancouver for 16 years, played his own role in the housing bust that's shattered the global economy like a cheap piñata.

Kalenichenko wasn't a crooked lender who cheated honest homeowners. Nor was he one of the financial wizards who bought up subprime loans and bundled them as mortgage-backed securities.

He's been convicted of no crime. He hasn't even been charged with one. But a WW investigation of public records—and interviews with real-estate professionals and mortgage-fraud experts—paints a picture of Kalenichenko as a man who took extraordinary advantage of banks' eagerness to lend money during the housing boom.

And now, after defaulting on those loans, he's lost his home and savings and, in his own small way, contributed to the credit crisis that's strangling every sector of our economy.

"It kind of really hurts me to start talking about it," Kalenichenko says, sitting at his kitchen table with his wife, Ludmila, as tears well in his eyes. "We worked for 15 years. We worked hard, saved money, and lost everything completely."

One Vancouver real-estate agent familiar with Kalenichenko's situation has a different view, however.

"It's unbelievable what he did," says the agent, who declined to be named for this story out of fear of Kalenichenko. "He was scary."

"Wow," says Ken Perry, a full-time mortgage-fraud consultant from Vancouver, when he was told about Kalenichenko. "It looks like one of the most creative things that I've ever seen, and I've seen a lot of creativity."

For Kalenichenko, the maneuvering brought him a couple of hundred thousand dollars that he never paid back to the banks. Small potatoes in the context of a $700 billion taxpayer bailout for Wall Street's mortgage addiction.

But consider the ease with which Kalenichenko raised that money, multiply it by millions of homeowners, and experts say you'll be closer to understanding the source of much of the nation's bad mortgage debt.

Put another way: If a former car mechanic from Russia could extract enough money from the banks to become a small-time real-estate czar, it's no wonder we're so screwed right now.

Today, Kalenichenko lives in a four-bedroom home in a neighborhood of identical homes, set four feet apart, in the Kimball Hills subdivision on the eastern outskirts of Vancouver. Kalenichenko's battleship-green version features prints of abstract paintings on the walls and an Ikea lamp in the front room that resembles a metallic octopus.

That house and another like it a few blocks away, which Kalenichenko is trying to sell, are all that remain of about 15 homes in Vancouver and Florida that Kalenichenko either built or bought during the housing boom that ended locally in 2007.

The market crash has left Kalenichenko's family on the verge of declaring bankruptcy. He denies any wrongdoing. But he admitted the desperate measures he took to try to stave off his losses and continue to provide for his family.

"We don't have any money to buy bread," he says. "That was a bad time, and people can blame me. They can't understand. Nobody knows what I'm going through."

The generally accepted story of the housing bubble and how it burst boils down to this: Wall Street had such a hunger for mortgage-backed securities that banks would give a loan to anyone who could fog a mirror. So crooked lenders lured unsuspecting borrowers into mortgages they couldn't afford. When they started defaulting, the whole structure came tumbling down.

That's called predatory lending, and it's only part of the story. The other piece is mortgage fraud, perpetrated by borrowers against the banks.

While the scam takes many forms, they essentially boil down to the same thing: deceiving banks into lending more money than they otherwise would.

Such schemes may have cost banks upward of $171 billion nationwide, says Rachel Dollar, a mortgage-fraud expert in Santa Rosa, Calif. That's more than the market value of all the real estate in Multnomah County.

In many cases, the banks were willing victims—aggressively marketing loans to anyone with a home and a pulse. But fraudsters also did widespread damage by artificially inflating the value of their homes so they could squeeze more money out of them. That drove up prices across the entire market, causing new buyers to pay far more than they should have and feeding rampant speculation.

Now that the bubble has burst, one in five Americans with a mortgage is left owing more money than their home is worth. Plus, all of us are paying for a multibillion-dollar bailout for Wall Street.

"They started out taking advantage of the banks," says Ken Hines, head of IRS criminal investigations in the Northwest. "But the real victims are the United States taxpayers because of the bailout."

You can't call what Kalenichenko did mortgage fraud, because he has not been charged with any crime. But law-enforcement officials and mortgage-fraud experts say what he did closely resembles schemes they've seen before.

Mortgage fraud runs the gamut from outright crooks buying dozens of homes through straw buyers, down to homeowners who commit seemingly innocuous indiscretions like fudging their income to qualify for a bigger loan.

They could be your neighbor. Or you. But these folks have received little public attention. Perhaps because recognizing them requires looking in the mirror.

Kalenichenko has had a lot of time to look in the mirror since his world fell apart almost exactly one year ago. It was a sudden fall from what had been a long, grueling climb.

Born in Maykop, a small industrial city in the foothills of Russia's Caucasus Mountains, Kalenichenko was the youngest of six children raised by his portrait-photographer father and janitor mother.

His family are devout Pentecostal Christians, a religious minority that experienced significant discrimination under Soviet rule. Kalenichenko says his grandfather died in prison after he was jailed by the Russians during World War II for refusing to disavow his faith.

Kalenichenko moved to Vancouver with his parents in 1992. It was a year after the breakup of the Soviet Union, and a time when Russian Protestants were fleeing by the thousands to the United States. Granted refugee status, they received green cards soon after their arrival under a program started by President Ronald Reagan.

Kalenichenko was 17 when he arrived. In Russia, he had obtained a trade-school degree in auto repair, but in the U.S., with no English skills, he took a $4.15-an-hour dishwasher job at Denny's. He was soon working construction as well, putting in 16-hour days between the two jobs.

"It was hard time to start here, especially with no English. [But] I know how to work hard," Kalenichenko says. His English is proficient now, but his grammar is choppy, and an accent makes his H's scrape against the back of his throat.

He moved from one construction job to another, turning a willingness to work into ever-growing paychecks. In 1998, he married Ludmila, a quiet but strong-willed woman who had arrived in Vancouver the year before from Ukraine. Now with a family to support, Kalenichenko became a builder and real-estate speculator.

It's a career many Russian immigrants choose. For those with a hunger for the American dream but no accredited education, construction and real estate provide a way to get ahead if you have brains and are willing to work.

Most of Kalenichenko's investments were in Vancouver, where he built $800,000 homes, some for customers, some on speculation. The real-estate boom finally gave him a taste of success. He was clearing about $200,000 a year, he says, and constantly reinvesting his profits in new properties, sometimes pooling his money with that of other members of the Russian community.

After his first son arrived, he built a three-bedroom home for his family in Vancouver's upscale First Place subdivision in 2003. He didn't skimp on the house, which included a koi pond with two waterfalls in back, a burbling fountain in front, and a bedroom for baby Jesse painted with palm trees and leaping dolphins.

"That's the one we built for ourself, put all our hearts in it," Kalenichenko says. "I put so many special things in there."

It's what Kalenichenko took out of the house that proved his undoing.

Early in 2004, Kalenichenko says his brother, who was living in Florida, persuaded him to invest in a gated community called Venetian Golf Club in the Gulf Coast town of Venice. Developers were building a series of 2,400-square-foot ranch homes about five miles from the beach, each with a pool in back. They were looking for equity investors.

Kalenichenko says he was interested in building two homes and taking a 50 percent stake in four others. To do that he needed $400,000. So, like many homeowners at the time who were convinced the housing market had nowhere to go but up, he put his single greatest asset on the line—his family's home.

Kalenichenko still owed Riverview Community Bank more than $300,000 on the original construction loan for the house, according to Clark County property records. The home had an assessed value of $392,500 at the time. (In Washington state, assessed values are much closer to real market value than in Oregon.) If the banks appraised it at roughly the same price, that means he probably would have qualified for less than $100,000 if he refinanced with a second mortgage.

Instead, beginning in March 2004, Kalenichenko says he went "shopping" to different banks for a home-equity line of credit. This sort of loan became extremely popular during the housing boom. Borrowers whose home is worth more than when it was purchased can keep their first mortgage and take out an additional home-equity line of credit against the home's appreciated value. Many homeowners use such second loans for extras like vacations, remodels or college tuition.

Four financial institutions—Columbia Credit Union, Bank of America, U.S. Bank Trust Co. and Wells Fargo Bank—contacted Kalenichenko, offering loans of $54,000 to $118,000.

Kalenichenko says he and Ludmila talked it over and, rather than choose which line of credit to take, decided to accept all four offers.

"I didn't even think about why we shouldn't," Kalenichenko recalls. "We didn't see any problem."

The problem is, it's nearly unheard of. Real-estate professionals and law-enforcement officials say it's highly unusual that four banks approved loans for Kalenichenko. No bank would want to be third, fourth or fifth in line behind Riverview to collect.

The mystery, they say, is how Kalenichenko pulled it off.

"Nobody goes to four different lenders to get four different lines of credit on their house," says Ken Perry, a mortgage-fraud consultant in Vancouver. "They would have shut him down in a heartbeat. The second one would have said, 'No way!'"

Banks require loan applicants to state all their outstanding debts. Many also pay a title-insurance company to double-check the number of lenders of record on a home before signing the final documents.

But using data available to title agents, Dennis Gish, manager at Columbia Title Agency in Vancouver, says it doesn't appear title companies were used by Bank of America, U.S. Bank Trust Co. and Wells Fargo Bank—the last three banks to open home-equity lines of credit with Kalenichenko.

"A lot of banks don't necessarily use a title company for small home-equity loans," Gish says. "Especially back in the day when the market was rolling and everyone was giving money away."

The loans all closed between March 24 and April 16, 2004, totaling $382,000. Added to his original mortgage, Kalenichenko now had outstanding loans against his house for at least $680,000—nearly $300,000 more than its assessed value.

Investigators have even coined a term to describe when borrowers mislead banks by simultaneously taking out multiple loans on one property. Known as "shotgunning," it had its heyday for several years until 2006, when banks caught on and put stricter checks in place before closing on a loan.

"I see it as an attempt to defraud, no different than selling your car to four different people and taking money from all of them," says Hines, the IRS investigator. "Does it run on the lines of other real-estate fraud transactions that we've seen? Yes. Is that what he was doing? I don't know."

Kalenichenko says he did nothing dishonest. He says he simply took what the banks gave him.

"I thought somebody was gonna give me one or two," he says. "I didn't know they were all going to give the money."

Asked if they knew Kalenichenko was borrowing money elsewhere when they approved the loans, the four banks involved either declined to comment on the specifics or did not respond to interview requests by press time.

Wells Fargo spokesman Tom Unger had only this to say by email:

"Wells Fargo does not tolerate fraudulent misrepresentations in the loan underwriting process. It is considered misrepresentation (i.e., fraud) when a homeowner simultaneously obtains multiple home equity loans on a property without disclosing this information to the lenders involved. Wells Fargo has put systems in place for prompt detection of incidents involving this type of activity."

Kalenichenko says the banks never asked if he was going out for other loans.

"I'm assuming," he says, "they know what they are doing."

Kalenichenko says he invested his $382,000 windfall in the Florida properties. Almost immediately, the walls of his miniature empire came tumbling down.

One by one, he says, his investments in Vancouver began to sour. Homes lingered on the market or sold for less than he'd paid to build them. He paid $200,000 for land in Dove Hill overlooking the Columbia River but lost it in a bank foreclosure, he says. Meanwhile, he jetted back and forth building the Florida properties, only to see them sit unsold on the market.

Kalenichenko says he relied not only on bank borrowing, but also on money from the Russian community to make down payments on other investments. By 2006, he was facing payments of up to $20,000 a month to banks, he says, and looking down the barrel of $800,000 in debts to his friends.

Kalenichenko says he stopped making payments on his various bank loans in early 2007. Banks began calling, five or six of them each day, asking him for money. He went for days at a time without sleep, he says, becoming detached from his family and losing all motivation. Eventually, he says, he was diagnosed with depression.

In April 2007, Ludmila says she was home taking care of Jesse when a woman walked up and taped a notice to their door. It was from Riverview Bank, which held the original mortgage. Their house was going into foreclosure and would be put up for sale at a public auction.

The sale went forward on Friday, Nov. 2, 2007. The Kalenichenkos say they moved out the day before. But they weren't going away empty-handed.

Their last day in the house, Thursday, Nov. 1, was sunny but cold, Kalenichenko recalls. It was also the day that he says he resorted to a desperate act that several in the Vancouver real-estate community still remember with disbelief.

"It was brazen—one of the worst things I've seen," says the Vancouver real-estate agent who feared being identified.

Kalenichenko hired a moving van, he says, and he and Ludmila spent the day stripping the home of everything they could take. They removed the toilets, the sinks, the faucets, the fridge, the furniture, the $1,500 chandelier in the foyer. They even ripped out the trees and shrubs in the yard, leaving gaping pits behind. Everything was loaded into the moving van, they say.

Kalenichenko admits all of this with disarming candor.

"Those were my things. It was my house," he says without apology. "It was built for my family."

Kalenichenko says he got the idea from news reports of similar occurrences in foreclosed homes around the country. Richard Hagar, an appraiser and mortgage-fraud expert in Seattle, says house-stripping is not uncommon.

"We call them termites," he says.

Such an act is not against the law, says Kevin Demer, a Multnomah County deputy district attorney.

"We get calls about this," he says. "Until the day of the foreclosure, he can do that. As long as it's your house, you're not committing theft."

When the auction took place under the gazebo in front of the Clark County Public Services Building in downtown Vancouver, Kalenichenko was there. He says he offered to sell the fixtures back to one investor interested in the house. Instead, the home went to Wells Fargo Bank, which resold it to another couple in March of this year. The new owners declined to comment.

Losing his home, Kalenichenko was forced to move his family into his sister's house a few miles away. The humiliation would be enough to scare some investors away from real estate for good, especially with the cataclysms in the market today.

But Kalenichenko hasn't stopped speculating. Currently he's trying to flip a rental house he bought at a public auction last summer, paying 25 percent down with money borrowed from his sister.

"I'm kind of risky person," Kalenichenko says. "Why not risking one more time, you know?"

Now both the lender and his sister have liens on the rental house, which, he says, has proved difficult to sell. And Kalenichenko is again three months behind on mortgage payments on his family's residence, the threshold at which banks typically start the foreclosure process. Such a notice could again be taped at any time on the door of his new house in Kimball Hills.

Now he says he's planning to file for bankruptcy. He's out of work. But sipping yerba mate at his kitchen table, he vows to persevere.

"If this happened to some people, I don't know," he says. "They could be under a bridge drinking or doing drugs. But praise the Lord, I have my family, and God will show me the way.

"I'm gonna be back on my feet, and I'm gonna be working, wherever it's needed."

WWeek 2015