The FDIC said 4,000 mortgage modification proposals are being mailed this week to IndyMac customers, with 25,000 modification notices expected to mail over the next few weeks.
The modified loans will be available to most borrowers with a first mortgage either owned by, or securitized and serviced by, IndyMac. The loan program is available to borrowers who are seriously delinquent or in default and apply only to a borrower's primary residence.
The modified loans will be permanently capped at an interest rate of about 6.5 percent, the current Freddie Mac survey rate for conforming mortgages, but rates for many modified loans will be lower, to achieve a debt-to-income ratio of 38 percent.
Said FDIC Chairman Sheila Bair, "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."
Bair says that in most cases, "We believe the net present value of loan modifications will exceed the foreclosure value. It will decrease our costs, not increase them." Bair says she hope the program "can serve as a model for other servicers."
Bair says other mortgage servicers have been slow to roll out systematic loan modification programs, fearing investors' negative reactions. But she said the FDIC's IndyMac program could prove that such an approach can be valuable to all parties involved.
Shortly after assuming control of IndyMac, the FDIC temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac's portfolio. Bair says foreclosure is a costly and destructive process, and laws require the FDIC to take a lowest cost approach. If it is cheaper to foreclose a loan than to modify it, the FDIC is obligated to foreclose. Yet modifying troubled mortgages would maximize value for the FDIC when the agency finds a buyer for IndyMac's portfolio, and improve returns for IndyMac's creditors.
Pasadena, California-based IndyMac was the ninth-largest mortgage lender in the nation in 2007, with about 740,000 loans that it either owns directly or it services for others in a $184 billion mortgage portfolio according to the newsletter Inside Mortgage Finance.
IndyMac was the fifth of eight banks to fail so far this year. The FDIC estimates IndyMac's failure will cost its $53 billion insurance fund between $4 billion and $8 billion.