Under a new plan from federal regulators thousands of troubled home borrowers with loans from IndyMac Federal Bank will be able to switch to fixed-rate mortgages, which seized the bank last month after it became the largest regulated thrift to fail.
The Federal Deposit Insurance Corporation said Wednesday, most IndyMac borrowers who are seriously delinquent or in default on their mortgages and can document their situation will be able to switch into loans capped at an interest rate around 6.5%. Unchanged from the previous two weeks, the average U.S. rate on 30-year, fixed-rate mortgages was at 6.52% last week.
Since July 11, the FDIC has been operating the Pasadena, California based bank, which was called IndyMac Bank, under a conservatorship.
According to the FDIC, more than 60,000 of the bank's home borrowers are 60 or more days behind on their payments. Based on current income information they provided, thousands of delinquent borrowers will receive proposed offers for modifications in the coming weeks. About 4,000 will go out this week in the first batch to borrowers with an average $359,844 balance owed.
The changes are designed to achieve sustainable payments by borrowers at a 38 percent debt-to-income ratio of principal, interest, taxes and insurance, under the FDIC's "streamlined loan modification plan,” the agency said.
In the mortgage industry it is customary that the loan payment, taxes and insurance shouldn't exceed 28% of the borrower's gross monthly income, and total long-term debts shouldn't exceed 36%.
This new plan applies to troubled mortgages with higher interest-rate resets, mainly in the category of so-called Alt-A loans, which traditionally were made to borrowers with solid credit but little proof of their incomes, or small or no down payments.
The FDIC said, only mortgages on primary residences are eligible, and borrowers must demonstrate their financial hardship by documenting their income. The bank also will try to work with those who are unable to make their mortgage payments because of resets or changes in their ability to repay, besides borrowers whose loans are seriously delinquent or in default.
When it took over the bank, the FDIC temporarily froze all mortgage foreclosures for IndyMac borrowers. It said Wednesday there will be no fees for the loan revision and all unpaid late charges will be waived.
Rather than doing so on a loan-by-loan basis, FDIC Chairman Sheila Bair has been urging mortgage lenders and firms that service mortgages to develop comprehensive plans for modifying unaffordable loans.
The agency's mortgage plan for IndyMac could be a key test case for that policy. The bank owns about 40,000 home loans directly and services 597,000 for other lenders.
Bair said, avoiding the lengthy and costly process of foreclosure can help neighborhoods and makes good business sense.
Advocates of Consumer housing applauded the move.
IndyMac borrowers can call 1-800-781-7399 to find out if they qualify for a loan modification under the program or other alternatives. Borrowers also can go to the bank's Web site at http://www.imb.com.
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