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FDIC Rescues IndyMac Home Borrowers

IndyMac Bankcorp Inc. was a prolific mortgage specialist that helped fuel the housing boom by issuing home loans with minimal documentation requirements to borrowers. Last month, federal regulators swooped in and seized the California-based banking institution after it became the third largest regulated thrift to fail in U.S. history. It is now operating as IndyMac Federal Bank under Federal Deposit Insurance Corp supervision.

According to the FDIC, more than 60,000 IndyMac home borrowers are over 60 days delinquent on their mortgages. A new plan (streamlined loan modification) has been developed to rescue thousands of home borrowers who are seriously delinquent and can document their situation. The FDIC “streamlined loan modification 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.

Under the “streamline loan modification plan,” thousands of IndyMac home borrowers will be able to switch to fixed-rate loans capped at an interest rate around 6.5 percent. The changes are designed to achieve sustainable payments by borrowers at a 38 percent debt-to-income ratio of principal, interest, taxes and insurance. Borrowers must demonstrate their financial hardship by documenting their income. Only mortgages on primary residences are eligible.

Besides borrowers whose loans are seriously delinquent or in default, the FDIC 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. The FDIC temporarily froze all mortgage foreclosures for IndyMac borrowers when it took over the bank. It said no fees will be charged for the loan modifications and all unpaid late charges will be waived.

Loan modification offers will be sent to thousands of home borrowers in the coming weeks. The first batch of about 4,000, with an average $359,844 balance owed, will be mailed by week's end.

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