The Federal Deposit Insurance Corp. (FDIC) says 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 process, 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 mortgages – achieving an improved return for bankers and investors compared to foreclosure,’ says FDIC Chair Sheila 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,’ she continues.
Under the IndyMac Federal program, eligible mortgages will 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% debt-to-income 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
IndyMac Federal notes that it 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.
Source: Federal Deposit Insurance Corp.