IndyMac May Serve as Template for Modifications.(IndyMac Bancorp Inc.)

Byline: Ted Cornwell

Washington-The FDIC has started a program to systematically modify thousands of troubled alt-A home loans from IndyMac, and the effort may help set parameters for large-scale, streamlined modifications across the industry.

The FDIC is also hoping to avoid a fire sale of troubled assets at a time when the market for distressed mortgages is weak. In a conference call with reporters, FDIC chairman Sheila Bair said that historically, nonperforming loans have sold at 32% of face value, on average, while performing loans have yielded 87% in the market.

The FDIC and IndyMac Federal Bank, which was seized by regulators on July 11, have decided that the crux of the loan modification effort should be to bring payments down to 38% of income for seriously delinquent and defaulted borrowers. Payments would be fixed for five years on the plan at the prevailing Freddie Mac survey rate or below, and then would adjust upward to that prevailing rate gradually after five years.

Ms. Bair made it clear that she thinks the FDIC/IndyMac modification model may serve as a template for the industry at a time when loan servicers are struggling to streamline a growing default management workload and facing pressure to avoid foreclosure whenever possible.

"It is my hope that this program will serve as a catalyst to create more modifications across the country," she said. "I think a lot of servicers will frankly welcome the program."

In part, that's because a ...