Regulators Step Forward To Help Foreclosure Victims of Indymac
There was a recent announcement that thousands of foreclosure victims who have been impacted by the failure of IndyMac Bank will get help from US banking regulators.On July 11th 2008, The FDIC (Federal Deposit Insurance Corporation) of Pasadena, California seized IndyMac – it being the third largest bank in the country. Modification proposals for 4,000 mortgage holders under threat of foreclosures are being considered. It is expected that within the next few weeks modification notices will be sent out to 25,000 borrowers.
Shiela Bair, the chairperson of FDIC said that their goal is to “get the greatest recovery possible on loans in default or in danger of default, while helping troubled borrowers to remain in their homes.”
In 2007 IndyMac was the 9th largest mortgage lender according to Inside Mortgage Finance. It has under its umbrella 740,000 loans either directly or through the services of others. The mortgage portfolio amounts to $184 billion. For many months Bair had been pulling up banks for not speeding up the process of loan modifications. Now is the turn of FDIC itself to practice what it has been so far preaching. Bair thinks that most of the modified mortgages of IndyMac will exceed its foreclosure value. She wants FDIC to play the part of a role model for other financial bodies to emulate.
The modified loans will be for most of the borrowers who are on their first mortgage either directly owned by IndyMac or serviced by it. It will be for those who are seriously in default. It will be only for the borrower’s primary residence. The modified loans will come with an interest of 6.5% – this being the current rate of Freddie Mac for similar mortgages. But rates will be lower for some other mortgages. The goal is to achieve a ratio of debt to income amounting to 38%.
Bair commented that the foreclosure process is costly as well as destructive. By modifying the mortgages at risk from foreclosures, the value of FDIC will be maximized making it easier to find a buyer for IndyMac. Simultaneously the returns to the creditors of IndyMac will improve.
Immediately after taking over the reins of IndyMac, FDIC had for the time being halted all foreclosures amounting to $15 billion mortgage loans. Bair said that servicers had been reluctant to proceed with modifications apprehending reaction from the investors. She is hopeful that with this new approach, confidence will be built up for all sides concerned.
