Michael Sichenzia knows the tell-tale signs of mortgage fraud when he sees them.

“Say you only make 50 grand a year,” the New York City native proposes in a rough-and-ready Brooklyn accent. “Well, what about your furniture and your jewelry? Let's list those as 75 grand in additional assets. Hey, look, the computer says you qualify!” It's just one of the hundreds of “creative and exotic” financing tricks used in the darker side of subprime lending that enables borrowers to qualify for loans that they otherwise should not get. Taken to the extreme, the techniques become mortgage fraud, Sichenzia says. He should know: He bilked borrowers, mortgage companies and investors out of hundreds of thousands of dollars in subprime-related real estate schemes. Twice.

After a plea bargain with Orange County, N.Y., prosecutors in 2002, Sichenzia spent four years behind bars at Attica and the Ogdensburg State Correctional Facility. As a result, he missed out on the subprime lending fever that infected for-sale residential real estate markets for the last five years—the same market that has recently come crashing down as record numbers of borrowers default on their loans. Fraud, of course, is only a small percentage of the overall subprime debacle where borrower, broker, and backer are sometimes equally to blame for pushing lending beyond its legal limits. Regardless, the end game is the same—loan delinquencies snowballing into an avalanche of foreclosures.

In the first quarter of 2007, a record 300,000 to 320,000 loans entered the foreclosure process, according to data released June 14 by the Washington, D.C.-based Mortgage Bankers Association. And relief isn't expected anytime soon. During a conference call following the release of the report, Doug Duncan, MBA chief economist and senior vice president of research and business development, said the association did not expect the foreclosure rate to peak until sometime in 2008.

For multifamily executives, the meltdown brings a mixed bag of opportunities and challenges to every facet of the business. Take occupancy rates. Certainly the sucking noise as residents were hoovered out of apartments and into the for-sale market is quieted for the time being, and general industry expectation is that turnover rates should fall substantially as the class of renters qualified for homeownership sits tight. Simultaneously, lease activity likely will increase, but those returning to the rental market with damaged credit may not pass pre-qualification muster, and the so-called “shadow market” of foreclosed homes and condos hitting the rental market will increase competition. On the money side, investment in multifamily could get a boost as financiers get bullish on rentals, but underwriting across all sectors is expected to be under greater scrutiny as bad blood from the subprime market continues to spill and get ink in the mainstream media.

MARKET RETURNS Ric Campo, CEO of Camden Property Trust, says the biggest subprime effect that the Houston-based REIT has seen is in turnover. “On the way up, we were getting a lot of anecdotal info from residents who were moving out with subprime no-downs, low-downs, no-docs, and people clearly stretching the truth on their income,” Campo says. “These were people who were having trouble making their rent, let alone having the ability to buy a house.” From a 2005 high of 26 percent, the share of Camden properties turning over due to home purchases has fallen to 18 percent.

Part of that is due to the tightening of credit standards, but Campo says another factor is the evolving psychology of owning a home today [see “Greener Pastures,” below]. “Two years ago if you were at a cocktail party and talked about renting versus owning, people would say ‘Are you stupid? My house just went up $50,000 bucks.' Now the conversation leans more toward ‘Oh, you just bought a home? Hmmm. What are you going to do if you have to move? Is the price going down?'”