New Federal / FDIC Loan Modification Plan
The FDIC Loan Modification model was first established after the Federal Deposit Insurance Corporation took over IndyMac Bank, now IndyMac Federal Bank. With the expansion of the FDIC program, the goal is to establish a standard method for servicers and investors to modify mortgages.
On January 28, 2009 the United States Treasury and Federal Reserve announced they will begin to implement the FDIC loan modification model with all mortgages now owned by the federal government as a result of investments made in the banking system. For example, the bailouts and TARP money provided to AIG, Chase, Merrill Lynch, Bank of America, etc. In general, if your mortgage investor took government bailout money, you could be eligible for these programs.
The premise of the program is to provide struggling homeowners with “Time-Out” that allows them to catch their breath, get back on their feet, and stay in their home. This is accomplished by first establishing a cap on your interest rate based on your income and expenses. This cap rate will be the highest rate you pay for the term of your loan.
To help you gain your financial footing, the program then calls for a reduced interest rate for the first 5 years of the loan. This effectively lowers your payment for the first 5 years. After the initial 5 year period, the loan will slowly adjust about 1% per year until you have reached the established cap rate.
To help lower your payment further, the FDIC Loan Modification will often provide for an extended term of the mortgage, usually an additional 10 years. However, the maturity date of your mortgage will not change. This means that you will continue to make monthly payments until the original maturity of your mortgage, but since payments are now calculated over an extended term, a substantial balloon payment will be due when your loan matures.
Finally, to lower your payments even further, the FDIC Loan Modification often provides for a deferment of a portion of the principal on your mortgage. You will not need to repay this deferred amount until you sell your house, refinance your mortgage, or the maturity date of mortgage. There is usually no interest accrued on the deferred principal.
Here is an example of an FDIC Loan Modification with the interest rate, and monthly payments modified as follows:
Qualification and Program Guidelines
The FDIC Loan Modification will only offer 30-year fixed rate mortgages – so with exception to the initial reduced interest rates, the payments will not change. In addition, this program will require that the modified terms be based on a family’s long-term ability to repay the mortgage.
Here are the basic qualification guidelines for FDIC Loan Modification as we understand them thus far. If you are unsure of how to interpret these, please use our online service and you will receive your qualification results via e-mail HERE.
- FDIC Loan Modification is voluntary. Both lender(s) and borrower(s) must agree to participate.
- You must qualify for the modified terms by verifying your income. This is done with tax return transcripts and your two most current pay stubs.
- You must make all of your modified mortgage payments on time.
Frequently Asked Questions
Where Do I apply for FDIC Loan Modification? The first place to start is to contact your lender / servicer to find out if they will be participating in the new FDIC program. Since this program will be new for almost all lenders, you are likely to get very little information initially. You should check back with your lender periodically as the program gains speed. If you want to get a head start on the process, we are advising our clients to begin the standard Loan Modification process as a prelude to the program. You may do this on your own by contacting your loan servicing company, or utilize a third party service such as helpUmodify
I contacted my lender and they are not participating in this program. Can I apply with another lender? No, this program can only be initiated through your current lender / servicer. If they are not offering this program, you should seek other workout remedies. Please contact us for assistance.
My lender has started foreclosure proceedings. Can I still apply for FDIC Loan Modification? Yes, however, time is of the essence and since this program is just in it’s infancy stage, if your lender is not yet participating you should seek an alternative workout remedy ASAP.
I recently filed for bankruptcy. Am I still able to apply for the FDIC Loan Modification? No, you cannot have filed for bankruptcy prior to completion of the modification.
I started a Loan Modification with my lender, can I still qualify for the FDIC Loan Modification? Yes, in fact your lender may recommend the FDIC program as there are incentives for your lender / servicer to participate in the program. Keep working towards your loan modification and talk to your lender about moving to the FDIC program as soon as it becomes available to them.
I have a first and second mortgage on my home. Can I still apply for the FDIC Loan Modification? Yes, however, you will need to go through the modification process separately with both lenders / servicers.