FDIC becomes landlord to thousands

Regulator to help IndyMac mortgage borrowers (August 20 - Reuters WASHINGTON)


Thousands of homeowners with distressed mortgage loans linked to failed lender IndyMac may soon be able to avoid foreclosure under a program announced on Wednesday by U.S. banking regulators.

The Federal Deposit Insurance Corp, which seized Pasadena, California-based IndyMac on July 11 in the third-largest bank failure in U.S. history, said 4,000 mortgage modification proposals were going out this week and it hoped to send out 25,000 modification notices over the next few weeks.

"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," FDIC Chairman Sheila Bair said in a statement.

IndyMac, the ninth-largest U.S. mortgage lender in 2007, according to the Inside Mortgage Finance newsletter, has about 740,000 loans that it either owns directly or it services for others in a $184 billion mortgage portfolio. Bair has scolded banks for months to speed up loan modifications. Now the FDIC has a chance to practice what it has been preaching.

Oh, this is nice. Now the FDIC is getting into the mortgage business. This is a serious departure from their past activities, skill sets, and possibly charter. To date, we have the Federal Reserve accepting bad mortgages in exchange for cash and Treasuries; the FHLB sporting a $1.5 trillion mortgage portfolio, where it was barely half that a few years ago; and Fannie and Freddie, with absolutely frightening growth in their own guaranteed and retained mortgage portfolios.

In short, every possible government program is already neck-deep in this mess and steadily getting in deeper. The galling thing about this FDIC act is that they are re-working some of these mortgage terms in very extreme ways. This is good if you happen to hold one of these mortgages and you get your payment cut in half. It is painful if you happen to have been less reckless or happened to bank with someone else besides the most reckless bank in CA, because you don’t get any such break. Where, again, does the constitution allow the government to bestow such disproportionate good luck upon a select few?

This is a companion discussion topic for the original entry at https://peakprosperity.com/fdic-becomes-landlord-to-thousands-2/