Michael Sichenzia spent four years in prison for mortgage frauds he committed in the late 1980s as a home builder in Suffolk County, N.Y.
Today, he's president of Dynamic Consulting Enterprises, a Deerfield Beach, Fla., company that helps troubled homeowners renegotiate loans with banks.
"I get a lot of people who come in here and say, "I don't want to pay what I owe,'" said Sichenzia, 49.
Banks, confronting unprecedented mortgage defaults and foreclosures, are increasingly willing to listen.
Rewarding failure, after all, is what they do -- whether it's for their top executives who've helped destroy the global economy, or just some guy in South Florida who bought way too much condo.
Homeowners living on the edge can call their bank or mortgage-servicing company and beg for mercy. But it helps to miss a couple of payments to really get a financial institution's attention.
"You certainly are going to get more traction... if you are behind in your payments," said Tim Mackey, an attorney who helps people with loan modifications in Arizona.
It typically takes Mackey's firm 50 to 60 hours to get the job done because most loan modification departments are thinly staffed.
Eventually, though, with a lot of persistence, troubled homeowners may get their loan re-amortized at 40 years or their interest rate dropped as low as 4%, significantly reducing their monthly payments.
President Barack Obama's Homeowners Affordability and Stability Plan will help millions more people do this.
I guess sometimes, it pays to not pay the mortgage. And what's in it for responsible homeowners who keep making their payments? Not a lower payment monthly payment. But maybe the slim hope that their property values will stop plunging after their deadbeat neighbors get a loan modification instead of a foreclosure notice.
Even more twisted in the loan modification universe is a polar shift in the economic incentive to cheat on a financial statement.
Not long ago, borrowers would exaggerate their incomes and the value of their assets to get financed. Now, however, they can get a better deal by exaggerating their poverty.
It's kind of like a liar loan in reverse.
"Whenever there's this much money in play, there will be attempts at fraud," said Jame Cofran, who heads the global banking and financial markets group at CGI Group Inc.
Many financial institutions are scantly prepared for the rising tide of loan modification requests. They did a sloppy job of collecting information when they made the loans in the boom, and they may do no better as they modify these loans in the bust.
Some institutions are so difficult to deal with, Sichenzia said he wonders whether they even care. Why deal with troubled borrowers when it's increasingly likely that the federal government will just buy up all the bad loans, anyway?
"It's a poker game, and they're holding," he said. "Why not just wait and dump it all on the government?"
Nevertheless, CGI, an information technology and business process service company, is rolling out systems to help financial institutions deal with the thickening onslaught of loan modification requests.
By electronically verifying income statements, tax returns, credit reports and other data, and organizing it in a computer file, CGI hopes to help banks avoid making loan modifications to people who exaggerate their financial hardships. It may be 2009, but many mortgage makers are still using paper files, leaving plenty of cracks to slip through, Cofran said.
Sichenzia said he will have no part of a loan modification unless it's for a client with a real hardship.
He said his company, with a staff of 25, thoroughly investigates its clients' claims and gets them to sign a notarized affidavit.
"I don't want some bank to come back and say to me, "Hey, you helped this person commit fraud,'" he said.
He's done enough time, already. Besides, there are too many people traipsing through his office who really do need a loan modification. He charges a flat fee of $550 for his service. Sometimes, he works free.
Many of his clients, after all, are elderly or disabled, and were clearly the targets of predatory lending practices. But now they don't have enough income to qualify for a loan modification, Sichenzia said.
"They are going to lose their homes," he said. "I see that every week, here. And it kills me."
--(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. He can be reached at 201-938-5266 or by email at al.lewis@dowjones.com or on his blog, tellittoal.com.)
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