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Viewpoint: Questions Arise Over IndyMac Loan Mods
...Perhaps the single largest question for anyone watching the unfolding saga over loan modifications, and the political posturing on Capitol Hill and by regulators over the need to “do more” to help troubled homeowners, has been this: what about IndyMac Federal Bank?

The bank, seized by regulators and placed into the hands of the Federal Deposit Insurance Corp. in August after an Alt-A lending binge left it too vulnerable to a collapse of much of the U.S. mortgage market, has become the veritable poster child for government-led intervention into troubled mortgages. On August 20, FDIC officials rolled out an ambitious plan for mortgage modifications, one they said at the time would set the example for how aggressive loan modifications should work. Implicit in the program was an indictment of existing servicers, who ostensibly weren’t doing enough to help their borrowers....

...Nonetheless, a 50 percent recidivism rate on loan modifications suggests that loan modifications — IndyMac led or not — aren’t usually the sort of world-saving panacea that many regulators and lawmakers expect.

As for the performance results, file them under “patently obvious” to any mortgage market participant that has ever been around loan servicing before. More than a few people versed in the field — myself included — rolled our eyes at the insinuation that the FDIC could do better than other loan servicers at modifying troubled mortgages. While we still don’t know for sure, this type of data is exactly the reason why. It’s not that anyone wishes the FDIC fails in its attempt; Ms. Bair’s heart is in the right place, after all. It’s just that we know better...

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Modified mortgages often re-default
...The FDIC has already modified more than 5,000 delinquent mortgages owned or serviced by failed lender IndyMac /quotes/comstock/11i!idmcq (IDMCQ 0.03, 0.00, -1.54%) and Bair's broader proposal is modeled on those efforts.

Under the IndyMac program, eligible homeowners have been offered more affordable monthly payments through reduced interest rates on the loans, extended amortization and deferred principal payments.

Lender Processing Services told analysts at Keefe, Bruyette & Woods that the results of such modification are often uninspiring.

"Industry evidence indicates that in a majority of instances loan modifications simply delay the timeline from default to foreclosure but don't prevent them from taking place," Nathaniel Otis and William Clark, analysts at KBW, wrote in a note to investors on Tuesday.

For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts. ...