WASHINGTON–The FDIC has introduced a plan that would modify tens of thousands of loans at IndyMac Federal Bank. The goal is to the failed thrift's sale value and spurring more modifications across the industry. The FDIC has long advocated large-scale modifications to avoid foreclosures and said it is offering modified loans for 4,000 borrowers this week, part of an initial phase to target 25,000 troubled IndyMac borrowers for possible loan changes.
"It is my hope that this program will serve as a further catalyst to promote more loan modifications for troubled borrowers throughout the country," FDIC Chairman Sheila Bair said in a conference call with reporters.
The FDIC, which control of the $32 billion IndyMac Bancorp in July, is proposing to lower interest rates for borrowers who live in their home and are "seriously delinquent or in default" on their first mortgage. Under the program, modified loans will be capped at the Freddie Mac prime survey rate of 6.5%, and must achieve a debt-to-income ratio, including taxes and insurance, of 38%. In addition to interest rate reductions, modified loans may also receive principal forbearance and an extension of payment terms.
While the exact number of loans to be modified is unclear, the program has set some goals. This week, proposals will be sent to about 4,000 borrowers for new, beneficial payment plans. Borrowers can then make the modified payments, and provide income verification to prove their qualification and finalize the new loan terms.
Mailings to as many as 25,000 borrowers will follow, with a wider net cast at a later stage. In an e-mail to IndyMac employees last week, John Bovenzi, a top FDIC official now serving as the thrift's chief executive, said IndyMac would target 60,000 borrowers, who had fallen 60 days or past due on their loans, for possible loan modifications.
It is being estimated that the cost to clean-up IndyMac will be between $4 billion and $8 billion.
