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Ex-Con Shares Thoughts on Today's Fraud
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February 10, 2009
A former fraudster is now the president of a South Florida consulting firm that focuses on helping people who have been victims of predatory lending. He offers his thoughts on how lenders are dealing with the current fraud environment.
Michael Sichenzia believes banks aren't doing enough assessment when it comes to determining risk.
His thoughts:
- Banks are complaining that they can’t possibly analyze each and every delinquency situation that comes across their desks. That’s just not true when banks have always analyzed each and every loan application that came across their desks. They should be doing the same today, recognizing that every situation is different with some people deserving eviction while others just need a break.
- The system must be capable of analyzing the difference between good and bad borrowers and good and bad banks.
- If borrowers used equity lines to pay off credit cards or take vacations, they’re probably not a good risk for a bank today. If they used an LOC to improve the property, then lenders should look at them as reliable. If delinquency resulted from a job loss, they, too should be viewed with some compassion.
- Did banks implement predatory practices? Lending to people who couldn’t speak English, had severe learning disabilities? These borrowers should get a break.
- Neither banks nor borrowers ever considered the long-term ramifications of these adjustable loans.
- The key to qualifying current homeowners for loan modification is to adapt the loan so that PITI (principal, interest, taxes, insurance) is no more than 40 percent of income. It can be done.
- Solutions include:
1. Defer payments
2. Reduce payments on second mortgages
3. Extend terms (40, 50 years)
4. Structure an exit strategy that requires banks to give borrower a release from the note.
- Sichenzia predicts that there will be severe changes to the current bankruptcy laws. Current law doesn’t allow banks to speak about loan modification with individuals who are filing for bankruptcy. New law should allow this, making it similar to Chapter 11 filings for businesses. He says that the new law will require people to exhaust loan modification process as a condition of bankruptcy.
- The current plans are foolish in that the Federal government is giving “bailout” money to the very people who abused the situation – the mortgage and banking industries. The focus should be on giving reliable homeowners a break through increased tax benefits and, for example, requiring people to live in the home for at least five years if they receive breaks.
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