The Federal Deposit Insurance Corp.'s program to lower loan payments for struggling borrowers with mortgages from IndyMac Bank has been lauded by consumer advocates and government leaders as a model of foreclosure prevention.
But when the FDIC, which is running IndyMac, mailed out 35,000 letters offering homeowners a chance to rework the terms of their mortgages, more than half the borrowers were apparently so discouraged, scared or stressed out that they didn't bother to respond.
"Anecdotally, what you hear is that a lot of people kind of hunker down when they're getting into trouble with their mortgages, and maybe just stop opening the mail," said Mike Krimminger, a special policy advisor to FDIC Chairwoman Sheila C. Bair.
"Some people have contacted us previously but then just decide they can't handle it anymore and go silent," he said. "And some have maybe just walked away from the home. So it's a combination of things."
The FDIC's experience has implications beyond IndyMac because the loan-modification program there is being looked at as one of the templates for an emerging government plan to help stem foreclosures. That plan would offer loan guarantees to encourage loan companies to alter as much as $500 billion in mortgages to make them more affordable to struggling homeowners.
But you can't help borrowers if you can't reach them. Despite the difficulties it has encountered, the FDIC appears at IndyMac to have been more successful at reaching them than most mortgage companies have been. Horror stories about elusive homeowners abound in the mortgage industry.
Bank of America's Countrywide unit tried to contact one delinquent borrower 150 times before the homeowner called -- in response not to the deluge of letters and phone calls but to news accounts of a new Bank of America plan to modify loans, said Steve Bailey, a mortgage executive at the bank.
The FDIC, which was appointed IndyMac's receiver when soured mortgages toppled the Pasadena savings and loan in July, announced a plan in August to aggressively reduce payments for borrowers who had fallen behind on their first mortgages.
The intent wasn't charity, Bair said; instead, she reasoned, it would be easier to find a buyer for the thrift if more borrowers were current on their loans.
The goal is to reduce the monthly payment on a loan, including taxes and insurance, to no more than 38% of the borrower's pretax income. To reach the target, the FDIC is prepared to take as many of the following steps as necessary:
