The aim of the program is help struggling borrowers get back on track with affordable mortgages while increasing the value of Indymac’s mortgage portfolio for the sake of its outstanding creditors (what is a loan modification program?).
“I have long supported a systematic and streamlined approach to loan modifications to put borrowers into long-term, sustainable mortgages—achieving an improved return for bankers and investors compared to foreclosure,” said Chairman Bair.
“The program we are announcing today will provide affordable mortgages for eligible borrowers primarily in the so-called ‘Alt-A‘ market. It provides a systematic approach for modifying troubled loans with payment resets due to negative amortization and other resets — a market where we are seeing growing defaults and foreclosures.”
Monthly mortgage payments will be designed to achieve a sustainable debt-to-income ratio of 38 percent (income must be verified), which may involve interest rate reductions, extended amortization, and principal forbearance.
Mortgage rates below the current Freddie Mac surveyed rate may be made for up to five years if necessary to keep the DTI at acceptable levels, with annual interest rate caps of no more than one percent, up until the current survey rate.
Indymac will only provide loan modifications to borrowers when doing so will benefit Indymac Federal or its investors.
An estimated 4,000 modification proposals will be sent to borrowers this week, with those most severely delinquent or in default served first.
“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. I believe we achieve that with this framework,” Bair concluded.