Indymac moves toward a uniformed loan modification proceedure.

This is from Indymac, a widely publicized financial institution that has collapsed. Indymac has made literally hundreds of thousands of Alt-A loans to people with low or no down payment, no income verification but excellent credit scores. Like nearly every other Alt-A lender, their outlook is disasterous as these loans begin to reset. This news release is a positive note and I hope that uniform regulations can be adopted to facilitate this happening.

FDIC Chairman Sheila C. Bair today announced that IndyMac Federal Bank, FSB will implement a new program to systematically modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. This in turn will maximize value for the FDIC as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages. The new program will help IndyMac Federal improve its mortgage portfolio and servicing by modifying troubled mortgages, where appropriate, into performing mortgages.

"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. The modified loans will be underwritten to an affordable debt-to-income (DTI) ratio. By providing long-term sustainable payments, this program will reduce future defaults, improve the value of the mortgages, and cut servicing costs. 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."

Chairman Bair continued, "Foreclosure is often a lengthy, costly and destructive process. Avoiding foreclosure not only strengthens local neighborhoods where foreclosures are already driving down property values, it makes good business sense. This is a 'win-win' program all around."

The former IndyMac Bank, F.S.B. Pasadena, California, was closed on July 11th by the Office of Thrift Supervision and the FDIC was appointed as receiver. On the same day, the FDIC was named as conservator for a new institution, IndyMac Federal Bank, FSB.


IndyMac Federal is focusing first on helping those borrowers with mortgages that are seriously delinquent or in default, but will seek to work with others who are unable to pay their mortgages due to payment resets or changes in the borrowers' repayment capacities. Based on this analysis, IndyMac Federal will extend proposed modification offers to borrowers for modifications or other loss mitigation designed to achieve affordable, long-term payments. IndyMac Federal will send an estimated 4,000 modification proposals to borrowers this week and thousands of additional proposals in the coming weeks. Once a borrower receives a modification proposal, he or she should begin making the modified payments and provide information to verify his or her income. Finalization of the modification agreement is contingent on the borrower providing information to allow verification of income to confirm that he or she qualifies for the proposed modification.

Under the IndyMac Federal program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages. Modifications would be designed to achieve sustainable payments at a 38 percent DTI ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and principal forbearance. Interest rate reductions below the current Freddie Mac survey rate may be made for a period of five years where such reductions are necessary to achieve a 38 percent DTI, and the reduced rate is consistent with maximizing net present value. For these loans, after five years, the interest rate would increase by no more than one percent per year until it is capped at the Freddie Mac survey rate where it would remain for the balance of the loan term. Other modification features could be combined with an interest rate reduction, as necessary and consistent with maximizing the value of the mortgage, to achieve sustainable payments.

IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal or for investors in securitized or whole loans. Modification offers will be provided consistent with agreements governing servicing for loans serviced by IndyMac Federal for others. The modification program does not guarantee a modification offer for IndyMac Federal borrowers.

About Property Auctions in Los Angeles

This is borrowed from Brock Harris, esteemed Silverlake broker.

Big-time Los Angeles real estate auction coming up this Saturday. I’m registered and ready to bid on 5 properties after looking at about 200 hundred.

Spending all this week researching, figuring resale value then taking 65% of that – that’s the highest bid price I’m willing to pay. Lots of paperwork. Bo-ring. I’m ready for the bidding. They say prices are now at 2004 levels. Good. I didn’t buy enough back then. Time to stock up.

First, the nittygritty:
-All sales are final.
-You need $5000 cashier’s check, and you have to write a personal check for the remainder of the 3% deposit. If you can’t close the house, you don’t get it back.
-the auctioneer tacks on 5% of the price for their commission. You pay it.
-You have 30 days to close after winning the property and can get normal loans (mostly – skip the “all cash” deals, they are effed).
-Most sales still have to go through “lender approval.” So when you win the auction, you still don’t know if you got it for two weeks. I know, stupid, right?

And here are some other things I’ve learned about auctions:
-a bunch of dudes in tuxes, hopped up on Red Bull, try to pump up the bidding. Ignore them.
-nice houses get bid up to full retail. Only takes 2-3 couples and the price shoots up.
-most properties at auction have been on the MLS and didn’t sell. There is no point going to auctions but not shopping the MLS. I’ve said it once, I will say it again – every successful real estate investor I know buys 95% of their houses off the MLS. Most buyers are better off bargain-hunting the MLS than attending auctions.
-they are still largely underattended. I attribute this to the hassle and expense of going to an auction, when there are thousands of bank-owned properties already for sale on the MLS.

When’s the bottom everyone keeps asking me. Answer: the “bottom” is not a day, or week. No one rings a bell. Bottoms last about 18 months…and I believe we just got started. In Silver Lake alone, 118 properties have sold in the last 90 days. Buying windows are historically very short, so don’t let it pass you by.

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