The Busted Homes Behind a Big Bet

By CARRICK MOLLENKAMP , MARK WHITEHOUSE And ANTON TROIANOVSKI
WSJ
ABERDEEN TOWNSHIP, N.J.—The government's civil-fraud allegation against Goldman Sachs Group Inc. centers on a deal the firm crafted so that hedge-fund king John Paulson could bet on a collapse in U.S. housing prices.

It was a dizzyingly complex transaction, involving 90 bonds and a 65-page deal sheet. But it all boiled down to whether people like Stella Onyeukwu, Gheorghe Bledea and Jack Booket could pay their mortgages.

They couldn't, and Mr. Paulson made $1 billion as a result.

A $652,500 mortgage on this home in Middletown, N.J., was among the nearly 500,000 loans, spread across 48 states and the District of Columbia, on which investors in Abacus made their bets.

Mr. Booket, a 44-year-old heating and air-conditioning repairman, owed $300,000 on his three-bedroom home in Aberdeen Township. His house was one of thousands that wound up in a pool of mortgages that were referenced in the so-called collateralized debt obligation, or CDO, which Goldman created for Mr. Paulson. The hedge-fund manager invested heavily in a form of insurance that could yield huge gains if the borrowers grew unable to pay.

In 2006, Mr. Booket got hit by a car while riding a motorcycle from a late-night party, was unable to find much work and couldn't pay the bank. In October 2008, he lost the house to foreclosure and plans to move out by next week. He says he bears no grudge against Mr. Paulson and Goldman.

(More here.)