14 Feb Is The FDIC Paying OneWest Bank Not to Modify Loans?
Home loan modification is a frequent topic of discussion with clients facing foreclosure. Many homeowners are in difficult financial straits but loan modification is a scarce commodity. In bankruptcy circles a rumor was passed around that the FDIC was paying OneWest bank to foreclose rather than modify loans.
No, the FDIC is NOT paying OneWest a bonus if they avoid loan modification. Despite the allegations of a recently circulated internet video, the FDIC agreement with OneWest Bank does not provide a financial incentive to encourage short sale rather than the modification of delinquent home loans. In fact, OneWest Bank is contractually required to participate in the Home Affordable Modification Program (HAMP) by its loss share agreement with the FDIC. Yet, bankruptcy may still be the only option for many homeowners.
The FDIC OneWest Bank Factsheet sets out details of the purchase, by OneWest Bank, of IndyMac F.S.B., after IndyMac was declared insolvent. It is important to note that the acquisition was competitively bid. According to the FDIC, the deal with OneWest Bank for purchase of IndyMac Bank was in the best interests of the FDIC which is funded with fees paid by member banks, not taxpayer money.
With respect to HAMP loan modifications, OneWest is contractually required to do the following:
- follow HAMP procedures to develop affordable loan modification terms for the borrower
- determine whether the recovery on a modified loan is higher than the recovery from a short sale or foreclosure
- modify the loan using HAMP guidelines if the recovery of a modification is higher than the recovery of a short sale or foreclosure
- loss share coverage cannot be factored into any recovery calculation for loan modification, short sale or foreclosure.
The FDIC states that it has not yet made a single loss share payment to OneWest. Only 7% of the loans OneWest Bank is servicing are owned by OneWest and are part of the loss share agreement with FDIC.
This is not to say that the HAMP loan modification program is working. Loan modifications have been a terrible disappointment to many distressed homeowners. However, it is wrong to say that the FDIC is collatorating with OneWest Bank to make a bad situation worse and bilk the taxpayers in the process.
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