Some Good News: An IndyMac Update

In the midst of all the market turmoil, one innovative program to deal with the underlying housing and mortgage issues is moving ahead smartly. You will recall that, fast upon the heels of its takeover of IndyMac, the FDIC announced an aggressive program to modify loans owned or serviced by IndyMac to prevent avoidable foreclosures. Initially, the FDIC wrote almost 5,000 borrowers and proposed to modify their loans and reduce their payments-all they needed to do was send back a check in the new payment amount, sign a modification agreement, and grant permission to check the borrower's tax return. (Where the tax return information does not conform to information in IndyMac's files, the FDIC requires further verification of borrower income.) One of the best aspects of the program for borrowers is that the letter they received included a specific new payment amount, not just an invitation to call their servicer.

So far IndyMac has sent out thousands more modification proposals and, to date, the FDIC has gotten more than a 70% response rate to these mailings. Several thousand loans have now been restructured. The FDIC has worked within IndyMac's existing servicing agreements and with the owners (or trustees for owners) of mortgages IndyMac was servicing to allow quite aggressive modifications, including deferral of principal until the property is sold or refinance-a strategy that prevents a borrower newly relieved of excessive mortgage obligations from getting back into trouble by releveraging. Next up, working with non-profits to do outreach to 19,000 borrowers who the FDIC believes will be harder to reach.

What's particularly exciting about this is not only that borrowers and their communities are being saved and the FDIC and its insurance fund are meeting their least-cost obligation, it's also serving as a model. When Bank of America announced a settlement with 11 state Attorneys General on Sunday in which it pledged to modify mortgages at a cost of $8.4 billion, it was following the FDIC's lead. Really. A government agency showing the private sector how to do something constructive. I suspect we'll see a good deal more of that in the next several years.