In testimony Thursday on Capitol Hill, Federal Deposit Insurance Corp.
chairman Sheila Bair provided the first public update on the FDIC's loan modification program put into place at IndyMac Federal Bank
since it was introduced roughly two months ago. The agency took over IndyMac in July, and announced the loan modification program on Aug. 20
; Bair has said that FDIC analysts estimated that 40,000 or so of the 60,000 mortgages more than 60 days in arrears at IndyMac would qualify for a loan modification under the program.
IndyMac holds a $200.7 billion servicing portfolio, and roughly $21 billion of that total is in the form of whole loans owned by the bank; the rest is servicing on loans that have been sold or securitized.
"Initially, the program was applied only to mortgages either owned by IndyMac Federal or serviced under IndyMac Federal's pre-existing securitization agreements, which provided sufficient flexibility," she said in prepared remarks
to the Senate Committee on Banking, Housing and Urban Affairs
. "However, with their agreement, we are now applying the program to many delinquent loans owned by Freddie Mac, Fannie Mae, and other investors."
While Bair did not identify "other investors," the fact that Fannie Mae (FNM)
and Freddie Mac (FRE)
agreed to allow the FDIC to pursue principal reductions on loans serviced by IndyMac is a likely outcome of the decision by U.S. Treasury
secretary Henry Paulson to place both GSEs into federal conservatorship; both firms are now essentially managed directly by the government, although formal nationalization of either entity would require an act of Congress.
Consumer advocates have been pressing in recent weeks to see all loans owned or guaranteed by the GSEs managed to the standards being set at the FDIC, as well as seeking government intervention to force mortgages in private-party securitizations to be managed similarly. Bair expressed her hope that rewriting mortgages to "affordability" criteria will become more prevalent outside of government-managed loans.
"Let me emphasize that securitization agreements typically provide servicers with sufficient flexibility to apply the IndyMac Federal loan modification approach," she said. "In fact, the agreements at IndyMac Federal were more restrictive than those that apply to many other securitizations."
Bair also noted that 3,500 borrowers have preliminarily accepted the FDIC's offer for a loan modification, although it's unclear how many will ultimately end up with a modified loan.
"Through this week, IndyMac Federal has mailed more than 15,000 loan modification proposals to borrowers, and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures," she said. "While it is still early in our implementation of the program, over 3,500 borrowers have accepted the offers and many more are being processed."
Accepting the FDIC's offer involves signing a modification agreement and mailing in a check for the new payment amount, along with information needed to verify income. It's unclear how many of the 3,500 that have accepted the offer will ultimately see their loans modified based on verification of their income. Bair did not comment further on the specifics of the modification program in her remarks to the Senate on Thursday.
"Our hope is that the program we announced at IndyMac Federal will serve as a catalyst to promote more loan modifications for troubled borrowers across the country," she said.
It's a hope clearly shared by some key lawmakers as well, including Housing Financial Services Committee chairman Barney Frank (D-MA), who recently sent a letter to President Bush suggesting that Bair be appointed to a formal role involving foreclosure mitigation under the Emergency Economic Stabilization Act of 2008.
Read Bair's full prepared remarks >>
Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.