Fannie's little orphans

"This is the real-estate bubble right here. This is where we went crazy. Look at this — it makes no financial sense!"

I am standing not in some penthouse shimmering in the sky. Or in a wine-cellared mega-mansion. I'm in the boxy confines of one of those houses that for decades has made up the vertebrae of this city.

The war-era bungalow. Two bedrooms on the main. A finished basement. About 1,300 of the squarest square feet on a lot not much larger.

Only this one, in Seattle's Greenwood neighborhood, is $550,000 in hock.

"They'll be lucky to get 370, 380 for it now. It got so far out of whack. Insane!"

That's Nova Shank, 30. He calls himself "Seattle's foreclosure specialist." He's kind of a repo middle man. He hunts "distressed houses" — on which the owner has defaulted — in hopes of scrounging one for a client to buy on the cheap.

Shank took me on a macabre tour of this city's casualties in the U.S. financial carnage:

"There's one where a guy was trying to flip it but defaulted on $635,000 in loans. The bank sold it off for 435. About the right price for that place all along, in my opinion."

"A couple rehabbed that place to the hilt, put a fortune in it. You know the top cause of divorce? Money stress! So they're gone. Someone got it for a hundred grand less than what was owed on it."

"There's one for you. Someone defaulted on a Fannie Mae mortgage, so Fannie Mae owns that town house. Which means you and I own it now!"

It goes on like this, around North Seattle. A trail of real-estate tears. What's left from a slew of bad loans, bad marriages, bad choices, bad luck.

Seattle is supposedly one of the healthier spots. But you can see the root of the big problem here: People asking for, and banks granting, ridiculous loans on the idea that there's only one direction: up.

Says the repo middle man: Forget the bailout. Banks, homeowners: They mostly don't deserve it.

"You know what homes are in foreclosure? The ones where people sucked all the equity out," Shank says. "They went to Vegas. They bought Suburbans. They didn't think past whatever day it was."

We stop at another Greenwood one-story, gutted down to the studs. Shank pauses.

"Now here, they deserved help. They were shafted."

It was a Laotian family. The parents barely spoke English. They got into an adjustable-rate mortgage, which ballooned to 12 percent.

"They didn't know what hit 'em," Shank says. "They were crying, their realtor was crying, I was crying. I gotta say, though, in two years of doing this, that's the only time I've thought somebody was truly wronged out of their home."

We go on. Who has fallen? Mostly the middle class, Shank says, "who stretched too far."

Then we stop in Laurelhurst. At a 4,000-square-foot cedar-shake Tudor. With a turret.

Bought for $925,000 in 2001, it now has debt on it totaling $1.52 million. They're 70 grand behind on the payments.

Shank shrugs: "Rich people go broke, too."

They're calling this crisis a crash. Like it was an accident. But it feels more like a very rough landing back on Earth.

Danny Westneat's column appears Wednesday and Sunday. Reach him at 206-464-2086 or dwestneat@seattletimes.com.