The regulators operating failed IndyMac Bank said Wednesday that they would try to modify about 25,000 troubled mortgages by slashing interest rates to as low as 3% for five years, extending payments over 40 years and in some cases charging interest on only part of the loan balance.
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.
In a call with reporters, Bair said she wanted to reduce foreclosures because of the damage they caused to individuals and neighborhoods and because failed loans were harder to sell than loans on which payments were being made. When the FDIC took over the thrift July 11, it said it hoped to find a buyer for IndyMac within 90 days. That remains the goal.
While offering hope to a large class of troubled borrowers, the plan also leaves out large numbers and underscores the difficulties that have so far plagued efforts to modify loans en masse.
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.
Soon after it took over IndyMac, 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.
FDIC officials said their first duty was to protect the deposit insurance fund and that foreclosure might be the best financial option even for some of the IndyMac-owned loans. That would include cases in which homes are vacant or were purchased by speculators, or because owners can't afford even a modified loan.
