FDIC to help IndyMac mortgage borrowers : US Business

By Karey Wutkowski

WASHINGTON (Reuters) - Thousands of homeowners with distressed mortgage loans linked to failed lender IndyMac may soon be able to avoid foreclosure under a program announced on Wednesday by U.S. banking regulators.

The Federal Deposit Insurance Corp, which seized Pasadena, California-based IndyMac on July 11, said 4,000 mortgage modification proposals were going out this week and it hoped to send out 25,000 modification notices over the next few weeks.

"Our goal is to get the greatest recovery possible on loans in default or in danger of default, while helping troubled borrowers remain in their homes," FDIC Chairman Sheila Bair said in a statement.

IndyMac has about 740,000 loans that it either owns directly or it services for others, the regulator said.

The modification program will be available to most borrowers who have a first mortgage owned or securitized and serviced by IndyMac, if the borrower is seriously delinquent or in default.

The offers apply only to a borrower's primary residence.

Modified loans will be permanently capped at an interest rate of about 6.5 percent, the current Freddie Mac survey rate for conforming mortgages, but rates for many loans will be lower to achieve a debt-to-income ratio of 38 percent.

Bair said foreclosure was a costly and destructive process and modifying troubled mortgages would maximize value for the FDIC as well as improve returns for IndyMac's creditors.

She said performing loans will also fetch a higher price than nonperforming loans when the FDIC finds a buyer for IndyMac's loan portfolio. "By turning troubled loans into performing loans, they enhance their overall value," Bair said during a call with reporters.

For months Bair has scolded other mortgage lenders for being too slow to help distressed borrowers restructure their home loans.

Shortly after assuming control of IndyMac, the FDIC said it had temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac's portfolio.

The FDIC said on Wednesday that IndyMac overall has a $184 billion mortgage servicing portfolio.

IndyMac was the fifth of eight banks to fail so far this year and was the third-largest insolvency in U.S. banking history.

The FDIC has said it expects that IndyMac's failure will cost its $53 billion insurance fund between $4 billion and $8 billion.

(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)

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