FDIC implements loan modification program for distressed IndyMac mortgage loans MortgagePress.comFDIC, IndyMac Bank, loan modifications, loss mitigation, foreclosures, IndyMac Federal Bank FSB
FDIC Chairman Sheila C. Bair has announced that IndyMac Federal
Bank FSB will implement a new program to systematically modify
troubled mortgages. The program is designed to achieve affordable
and sustainable mortgage payments for borrowers and increase the
value of distressed mortgages by rehabilitating them into
performing loans. This in turn will maximize value for the FDIC as
well as improve returns to the creditors of the former IndyMac Bank
and to investors in those mortgages. The new program will help
IndyMac Federal improve its mortgage portfolio and servicing by
modifying troubled mortgages, where appropriate, into performing
mortgages.
"I have long supported a systematic and streamlined approach to
loan modifications to put borrowers into long-term, sustainable
mortgagesachieving an improved return for bankers and investors
compared to foreclosure," said Chairman Bair. "The program we are
announcing today will provide affordable mortgages for eligible
borrowers primarily in the so-called 'Alt-A' market. It provides a
systematic approach for modifying troubled loans with payment
resets due to negative amortization and other resets -- a market
where we are seeing growing defaults and foreclosures. The modified
loans will be underwritten to an affordable debt-to-income (DTI)
ratio. By providing long-term sustainable payments, this program
will reduce future defaults, improve the value of the mortgages,
and cut servicing costs. Our goal is to get the greatest recovery
possible on loans in default or in danger of default, while helping
troubled borrowers remain in their homes. I believe we achieve that
with this framework."
Chairman Bair continued, "Foreclosure is often a lengthy, costly
and destructive process. Avoiding foreclosure not only strengthens
local neighborhoods where foreclosures are already driving down
property values, it makes good business sense. This is a 'win-win'
program all around."
The former IndyMac Bank FSB of Pasadena, Calif., was closed on
July 11 by the Office of Thrift Supervision and the FDIC was
appointed as receiver. On the same day, the FDIC was named as
conservator for a new institution, IndyMac Federal Bank FSB.
IndyMac Federal is focusing first on helping those borrowers
with mortgages that are seriously delinquent or in default, but
will seek to work with others who are unable to pay their mortgages
due to payment resets or changes in the borrowers' repayment
capacities. Based on this analysis, IndyMac Federal will extend
proposed modification offers to borrowers for modifications or
other loss mitigation designed to achieve affordable, long-term
payments. IndyMac Federal will send an estimated 4,000 modification
proposals to borrowers this week and thousands of additional
proposals in the coming weeks. Once a borrower receives a
modification proposal, he or she should begin making the modified
payments and provide information to verify his or her income.
Finalization of the modification agreement is contingent on the
borrower providing information to allow verification of income to
confirm that he or she qualifies for the proposed modification.
Under the IndyMac Federal program, eligible mortgages would be
modified into sustainable mortgages permanently capped at the
current Freddie Mac survey rate for conforming mortgages.
Modifications would be designed to achieve sustainable payments at
a 38 percent DTI ratio of principal, interest, taxes and insurance.
To reach this metric for affordable payments, modifications could
adopt a combination of interest rate reductions, extended
amortization, and principal forbearance. Interest rate reductions
below the current Freddie Mac survey rate may be made for a period
of five years where such reductions are necessary to achieve a 38
percent DTI, and the reduced rate is consistent with maximizing net
present value. For these loans, after five years, the interest rate
would increase by no more than one percent per year until it is
capped at the Freddie Mac survey rate where it would remain for the
balance of the loan term. Other modification features could be
combined with an interest rate reduction, as necessary and
consistent with maximizing the value of the mortgage, to achieve
sustainable payments.
IndyMac Federal will only make modification offers to borrowers
where doing so will achieve an improved value for IndyMac Federal
or for investors in securitized or whole loans. Modification offers
will be provided consistent with agreements governing servicing for
loans serviced by IndyMac Federal for others. The modification
program does not guarantee a modification offer for IndyMac Federal
borrowers.
For more information on the Indymac Federal Bank FSB loan
modification program, click
here.
