Mortgage Advice from an Ex-Conby
Michael Sichenzia served four years in a New York State penitentiary for mortgage fraud. Today the founder of Deerfield Beach, Florida’s Dynamic Consulting Enterprises has positioned himself as an advocate for homeowners trying to break out of a prison of debt. Businesses such as Sichenzia’s, which charge a fee to desperate homeowners to renegotiate their mortgages with banks, have been controversial. Loan negotiators have been accused by law enforcement authorities of charging borrowers thousands of dollars in fees while not doing any work. Similar services are available for free at non-profits such as the Neighborhood Assistance Corp. of America and NeighborWorks America. Last October a new law in Florida prohibited mortgage “rescue” companies from collecting fees in advance for their services. While we can’t vouch for Sichenzia’s results, his thoughts on the evolving business of loan modifications are worth hearing.
BW: How does your business work?
We re-negotiate loans on behalf of homeowners. We’re able to get someone a loan modification that reduces their rate, extends their term, gets a lower payment and, in rare cases, a principal reduction. We charge a flat fee of $550. We have 680 active files and a staff of 15.
I thought Florida law now prohibits loan negotiators from charging up front?
Most people aren’t able to get to their package of info together. The banks ask for financial statements, tax returns, pay stubs, thirteen things. Most people send them in drips and drabs. Or they don’t send the hardship letter. And they are not able to get help. We charge for putting the package together. All the negotiations are done for free.
Wouldn’t people be better off just going to non-profit counseling services that don’t charge a fee?
You can go to a non-profit, but the non-profits lack the expertise. There’s no training out here. This became the new social service. Many of the non-profits carved out $200 million from the (banking industry-led) Hope Now alliance. Many of the local dollars ended up in unsophisticated and ill-trained agencies that didn’t have the expertise, which is why you see such poor results from Hope Now.
We keep hearing banks don’t want to renegotiate loans?
The banks are negotiating to the extent that they own the loans. The first thing we do is ask the servicer who the owner of the loan is, so we’re negotiating both ends. It’s an onion and you have to peel back the layers.
Can anyone renegotiate their loan? Do you have to be in dire straits?
If I had a mortgage today I’d be negotiating a loan. Everything is on the table. Everything is negotiable. If there’s a reasonable expectation I can’t pay my loan you can negotiate. Do not just stop paying your mortgage and have it ruin your credit rating. Show the bank why you’re not going to be in shape to make the payment in the future. We like to see payments of principal, taxes and insurance less than 33% of the borrower’s gross monthly income. Anything over that and you can make an argument.
Does the owner of the loan make a huge difference in the outcome?
The difference can be night and day. If I have loan which Chase owns I can get an 8.5% interest rate dropped to 4%. A 30-year loan turned into a 40-year. You may even get a deferral of principal. That will drastically change your monthly payments. If it’s through Aurora, which is a huge servicer, I’ll never get that deal. They don’t have the ability to negotiate because they can’t get all the investors to agree. You’ll get a half to one point reduction in the rate for maybe five years.
Why is there such a huge difference?
Right now there’s no incentive on the part of the servicer to modify the loan. In fact, they run the risk of being sued by the investors. We need to give them a piece of the game and incentivize the investors too. Most of the early payments go toward interest. If we started paying principal down faster, everyone would get paid back faster. If we threaten to put a moratorium on foreclosures, that would get the investors to go along.
What other ways can we get out of this mess?
The next step is industry-wide guidelines about what a loan modification should look like. We have no industry guidelines. The closest thing is what the F.D.I.C. did with IndyMac, which was great in my opinion. You need to take into consideration the budget of the borrower today, and the total debt to income ratio. Not gross income, after tax income. If you don’t’ take holistic approach, it’s bound to default in six months.
What should a borrower look for if they’re considering hiring a loan negotiator?
You shouldn’t be spending more than $550. If they’ve only been in business a year they likely don’t have the experience. It can take 3 to 6 months to do one of these modifications. If they don’t have ten people working there they can’t service more than 50 clients.
What’s your opinion of some of the big players in the business, Countrywide, Golden West Savings?
Most of what we are working on is Countrywide-originated loans. Countrywide produced a product, it was an addictive drug. They unleashed an army of non-salaried employees. This was a very quick way to build a business. Same thing with World Savings, which was the name Golden West used. They had the audacity to sponsor the Center for Responsible Lending. World was the guy you went to when you couldn’t go anywhere else. Wachovia bought it. Whoever did the due diligence was really asleep at the helm.
You spent four years in prison for mortgage fraud?
I originated loans and sold them in the secondary market. Those were mistakenly overstated. I committed mortgage fraud and served time from 2002 to 2005.
So are you in this now for the money or as some sort of Karmic pay-back?
We’re running a for-profit company on a non-profit basis. I did a lot of bad in my life. I made a lot of money doing it. I’m open about my past, everyone knows about it. I had a couple senior citizens. They owned a house for 30 years. They got a $176000 loan from Countrywide. They’re on fixed income. They needed a couple of thousand to pay their taxes and the guy walked them into a loan that they’ll never pay back. Those are the people I want to fight for. They get blown away by the loan mitigation process.