A group of investors who have agreed to put up $1.3 billion in cash to acquire IndyMac Bank are expected to continue an FDIC mortgage loan modification program that aims to help nearly 50,000 borrowers avoid foreclosure.
The FDIC said it will continue to share losses on loans made by IndyMac and provide secured financing to the new owners, who are expected to acquire the failed bank’s $16 billion loan portfolio and $6.9 billion in securities in late January or early February.
The final cost of "resolving" the July 11 failure of IndyMac Bank will be between $8.5 billion and $9.4 billion, the FDIC said in announcing its intent to sell the bank to investors led by former Goldman Sachs Group Inc. partner Steven Mnuchin, now chairman and co-CEO of Dune Capital Management.
The FDIC has agreed to share losses on a portfolio of qualifying loans with "New IndyMac," which will consist of a retail bank headquartered in Pasadena, Calif., and 33 branches located primarily in the Los Angeles area. New IndyMac will have $6.5 billion in deposits, a loan portfolio of $16 billion, and servicing rights to an additional $157.7 billion in mortgages. The deal also includes IndyMac’s reverse mortgage platform, Financial Freedom, with $1.5 billion of reverse mortgages and servicing rights to $20.2 billion in loans.
Continued loss-sharing by FDIC is contingent on New IndyMac’s continued implementation of a streamlined loan modification program the government says has prevented $423 million in foreclosure-related losses at the bank under the government’s management.
The FDIC says 46,500 IndyMac mortgage loans are eligible the program, which is designed to get borrowers’ monthly payments down to as little as 31 percent of income through interest-rate reductions, extension of loan terms, and principal forbearance.
So far, the FDIC says it’s mailed out 32,274 mortgage modification offers, completed 8,512 loan modifications, and received verbal acceptances on another 9,480 offers.
IndyMac got into trouble making stated-income and other "aggressively underwritten" loans in areas with rapidly escalating home prices, particularly in California and Florida, the FDIC said.
Losses at IndyMac were also driven by the bank’s reliance on higher-cost brokered deposits and secured borrowing. The FDIC said losses to its Deposit Insurance Fund include $341.4 million in prepayment fees to the Federal Home Loan Bank of San Francisco — the price tag for paying off $6.3 billion in FHLB advances to IndyMac.
Many of the 25 banks that failed last year had a "heavy reliance" on Federal Home Loan Bank advances, the FDIC said, and those secured borrowings and their associated prepayment penalties increase the costs of failure to the FDIC and uninsured depositors.
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