MBA (8/21/2008 ) Sorohan, Mike
The Federal Deposit Insurance Corp., which last month took over the former IndyMac Bank, announced yesterday a loss mitigation program for IndyMac mortgage loans classified as “distressed.”
The FDIC said IndyMac, now known as IndyMac Federal Bank FSB, will implement the program to “systematically modify troubled mortgages.” The FDIC said the new program will help IndyMac Federal improve its mortgage portfolio and servicing by modifying troubled mortgages, where appropriate, into performing 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, said FDIC Chairman Sheila Bair. She added that 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 program we are announcing today will provide affordable mortgages for eligible borrowers primarily in the so-called 'Alt-A' market,” Bair said. “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 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."
The Office of Thrift Supervision closed IndyMac Bank, based in Pasadena, Calif., on July 11 following a run on the bank’s deposits amid concerns about the bank’s viability. Following release of a June 26 letter to OTS and the FDIC from Sen. Charles Schumer, D-N.Y., depositors withdrew more than $1.3 billion from their accounts.
The FDIC was appointed receiver and conservator. At the time, IndyMac had more than 200,000 customers and $18 billion in deposits. The FDIC takeover marked one of the largest government assumptions of a financial institution; by FDIC estimates, IndyMac held .2 percent of banking industry assets.
Bair said IndyMac Federal will focus 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. The bank will extend proposed modification offers to borrowers for modifications or other loss mitigation designed to achieve affordable, long-term payments.
FDIC officials estimated that IndyMac Federal will send an up to 4,000 modification proposals to borrowers this week and thousands of additional proposals in the coming weeks. Once borrowers receive a modification proposal, they can begin making the modified payments and provide information to verify their 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.
Bair said 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.
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