It not only can stave off foreclosures but also provide a blueprint for how the industry can tackle troubled home loans

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Federal Deposit Insurance Corp. executive John Bovenzi tries to assure again customers waiting to pierce a newly reopened IndyMac thwart upon July 14, 2008 David McNew/Getty Images

by Christopher Palmeri

When Mark Akers got an offer from his mortgage lender in September to slash his monthly payments down to $2,500, from $4,200, he jumped at the fall out. The Norco (Calif.) resident ran into trouble earlier this year after his wife got indisposed and he lost his job managing a factory that made doors for houses. The 53-year-old Akers could have become not the same foreclosure statistic if his bank, IndyMac, had not stepped forward to divide into two equal parts the interest rate onward his fixed-rate lend to 3%, for a circle of time of five years. In swap, the bank will add Akers missed payments to the loan principal, hiking it to $611,000. Akers says he’s grateful. "Our neighbor thwart the street conscientious lost his dwelling," he says. "I said to my wife of one’s bosom: ‘We’ve got a dwelling we’ll die in.’"

Akers is single of more than 3,000 borrowers who have signed on to a fast-track loan modification program launched by the agency of IndyMac, the bankrupt California-based lender seized by the feds in July. Officials from the Federal Deposit Insurance Corp. have moved quickly to tackle the 60,000 delinquent mortgages in IndyMac’s 742,000-loan portfolio. In tardily August letters went out to 7,500 distressed borrowers, offering new articles of agreement. IndyMac says those taking part have seen their monthly payments lowered by $430, on average.

FDIC Chairman Sheila Bair is hoping the IndyMac initiative will contribute a blueprint for the rest of the industry. Lenders be delivered of been under fire from politicians and consumer advocates for not doing enough to stave off foreclosures, which spiked 72% in the first moiety of the year. At Hope Now, an alliance of banks and mortgage servicers formed to speed up lend negotiation efforts, foreclosures are still running at twice the level of loan modifications.

If fortunate, programs such as IndyMac’s not only could keep people liking the Akers kindred in their homes but likewise help arrest the corruption in the complex, mortgage-backed securities market that precipitated the worldwide financial meltdown. Indeed, the $700 billion financial rescue promissory note passed by Congress on Oct. 3 includes terms modeled in part on the FDIC’s efforts at IndyMac. It encourages the Treasury to offer new loan-payment terms in the van of foreclosing on mortgage estate it buys from banks. "Theirs is the first systematic effort to truly simplify the loan modification process," says Austin King, director of the financial equity one at Acorn, an advocacy group that represents low- and middle-income Americans. "That is the solution to the mortgage crisis."

Like it or not, more lenders may be compelled to negotiate novel terms with delinquent customers. On Oct. 6, Bank of America (BAC) announced it would modify loans for nearly 400,000 troubled borrowers. This is work of a legal settlement reached with authorities in 11 states that had been looking into allegations of plundering lending practices at Countrywide Financial, the troubled mortgage lender Bank of America acquired earlier this year.

Bankers have long argued that there is no one-size-fits-all solution to the mortgage mess. Loan workouts, they say, must be done on a case-by-case basis. Yet the IndyMac program was designed around a veracious formula: Borrowers’ monthly home payments should amount to not one more than 38% of their aggregate income. "The key is to make the new loans affordable," says John Bovenzi, the senior FDIC executive now serving as CEO at IndyMac.