How IndyMac is Helping Consumers

Due to the current economic crisis and high number of foreclosures, approximately 2.66 million as of October 2008, many banks and financial institutions are helping consumers on a case-by-case basis. The process is very slow, resource intensive and frustrating.

IndyMac services more than 60,000 loans that are either more than 60 days past due, in bankruptcy or in foreclosure. Approximately 40,000 customers are eligible for the IndyMac program to help consumers with their mortgages. More than 3,500 IndyMac customers have had their loans modified reducing their mortgage payments on average by $380.

Establishing standard rules that a lender can apply can speed up the process and the lender will be able to help thousands of customers and restore the housing market at a faster rate.

Using IndyMac's program lenders modify a loan so that the borrower's new mortgage payment, including insurance and taxes, is no more than 38% of their pre-tax income as known as the debt-to-income ratio which was as high as 50% during the housing boom.

IndyMac can achieve this by lowering the interest rate, extending the life of the loan, deferring some principal to the latter years of the loan, or a using a combination of these methods to help customers.

To simplify the process for customers IndyMac sends loan paperwork overnight with a signature required upon receipt. The paperwork explains the customer's new loan terms, the interest rate and monthly payments over the life of the loan. The customer signs and returns the documents along with the initial lower monthly payment. The IndyMac program does not forgive debt.

IndyMac's program is now being applied to many delinquent loans owned by Fannie Mae and Freddie Mac. Bank of America has also developed a similar program that will launch in December 2008. The Bank of America plan was instituted as part of a settlement with state attorney general offices that sued Countrywide for predatory lending practices, which was acquired by Bank of America.

Bank of America hopes the program will help approximately 400,000 customers. The Bank of America plan will use a 34% debt-to-income ratio to calculate an affordable monthly payment for its customers, and may write down the principal balance of some negative amortizing loans.

Some housing economists warn that lenders should look at a borrower's other assets in addition to their debt-to-income ratio before restructuring a loan because "they will include people who shouldn't really qualify, and might exclude people who do".
"A customer with substantial additional assets and no other debt may have taken out a big mortgage that accounts for 45% of his income. The program will help this customer and not someone with a smaller mortgage and no other assets who also have student and car loans".

FDIC Chairwoman Bair thinks this foreclosure prevention program can also work for other banks.