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Paul Kiesel
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FDIC Loan Modification Criteria for Troubled IndyMac Borrowers

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Below are excerpts from a Los Angeles Times article explaining how troubled IndyMac borrowers are eligible to have their loans modified. According to the FDIC, the most important thing borrowers facing default must do: Answer the phone when a FDIC/IndyMac representative calls — it could be the good news you’ve been waiting for, as we all know that 2008 has mostly been a bad news year for everyone involved in the mortgage industry (lenders and borrowers).

The plan, aimed at about 37% of IndyMac’s seriously delinquent borrowers, is the start of a modification program that eventually could involve thousands of other borrowers at the savings and loan. Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said she hoped it would become a model for the reeling mortgage industry [. . .]

Many troubled borrowers aren’t responding to phone calls and letters from lenders trying to discuss their loans, and Bair said she hoped publicity about the modification plan would lead some elusive customers to call the bank.

“We really need the borrowers to respond,” she said, to help the program “become a catalyst” for modifications industrywide.

[. . .] the FDIC said it was freezing foreclosures on the almost 40,000 loans still owned by the thrift. Those loans amount to 6% of the 637,000 existing IndyMac-serviced mortgages at the end of July. The FDIC also has broad powers to change the terms of 225,000 loans that were pooled to back debt securities under the IndyMac name. 

But the remaining 372,000 mortgages serviced by IndyMac, nearly 60%, can’t be modified easily because of complications in the terms under which they were sold to investors or bought or guaranteed by mortgage finance giants Fannie Mae and Freddie Mac.

Initial letters are going out this week to about 4,000 borrowers whose loans are owned by IndyMac and are at least 60 days delinquent in payment. The next phase, which the FDIC said could take a few more weeks, will involve 21,000 borrowers, also at least 60 days delinquent, whose loans back IndyMac “private label” mortgage bonds. Additional borrowers in these categories are expected to be helped later as their loans go bad [. . .]

IndyMac officials and the FDIC said the program differed from modification plans employed by many private loan servicers because regulators were more motivated to quickly modify loans and the offering was more detailed.

To achieve the 38% debt-to-income ratio, the FDIC may extend the loan term to 40 years and reduce the interest rate — now typically 7.51% on IndyMac-owned loans — to as low as 3%. After five years, the rate would rise by 1 percentage point a year until it reached the current Freddie Mac survey rate for conforming mortgages, now about 6.5%, where it would be permanently capped. (Los Angeles Times, 8/20/08)