Maribel Carrillo is one of the new, happy-ending stories for bank regulators who hope to stem the foreclosure pandemic by modifying delinquent mortgages in bulk.
Carrillo, 32, lost her $150,000-a-year job managing a record label in Los Angeles earlier this year. With her family's construction business sputtering, she and her husband soon fell behind on their home loan on their four-bedroom home in Los Angeles.
After missing three payments, the Carrillos owed $9,800 in back mortgage payments and penalties to IndyMac Bank. But after the Federal Deposit Insurance Corp. seized IndyMac, the bank agreed to modify Carrillo's loan, dropping her monthly payment from about $3,000 to about $1,600 for five years.
Under the FDIC's orders, about 4,000 IndyMac borrowers have been given more affordable mortgages so far. By this weekend, the bank expects to have sent out more than 15,000 modification offers to borrowers, who are saving $430 a month on average.
IndyMac's efforts, which are designed to save the FDIC money by curbing losses on foreclosed homes, are being closely watched nationwide. In fact, Bank of America Corp. is taking a similar approach with newly acquired Countrywide Financial Corp. as part of an $8.4 billion, 12-state legal settlement reached this month.
And now some congressional Democrats and state officials say the FDIC's approach should be replicated as the Treasury Department buys billions in troubled mortgage debt as part of a $700 billion financial industry bailout.
“The country is in crisis,” said Iowa Attorney General Tom Miller. “This is something that everybody should do.”
And frankly, with home prices off 18 percent nationally from their peak in mid-2006, and more in places like California, Nevada and Florida, aggressive loan modifications now make more financial sense for lenders, said Steve Bailey, a former Countrywide executive who heads up Bank of America's loan administration division.
IndyMac's mounting losses on risky loans sparked a run on the bank in July and forced the government to take control of the lender. Looking over the books, the FDIC found that roughly 8 percent of the bank's 742,000 loans were either delinquent or in foreclosure.
The agency says modifying many of those loans – which include lowering interest rates to as little as 3 percent for the initial five-year period – must make economic sense, especially because the agency is soliciting offers from other banks to purchase all or part of IndyMac.
“This is not a social program,” said Michael Krimminger, a senior adviser to FDIC Chairman Sheila Bair. “It's designed to recover the maximum amount of money.”
Still, the program's success isn't guaranteed.
While IndyMac has received responses from about 70 percent of the initial 7,500 letters it sent out in late August, the first group of borrowers contacted by IndyMac may turn out to be low-hanging fruit because the bank first targeted borrowers who already had updated their financial information with the bank.
Others may prove harder to reach. Delinquent borrowers are inundated with collection calls and mail, and often give up hope about holding onto their homes.
“The biggest hurdle is getting people to open these letters to read about the modification offer,” said Evan Wagner, spokesman for the renamed IndyMac Federal Bank.
In addition, borrowers need to provide proof of their incomes to participate, and that may be impossible for those who originally exaggerated their income or assets to qualify for a loan.
The IndyMac program is currently designed to help only homeowners on the verge of foreclosure: those who are at least 60 days delinquent.
“We're starting to look at options for people who are current borrowers but who are circling the drain,” Wagner said.