Maribel Carrillo is one of the new, happy-ending stories for bank regulators who hope to stem the foreclosure pandemic by modifying delinquent mortgages in bulk.
Carrillo, 32, lost her $150,000-a-year job managing a record label in Los Angeles earlier this year. With her family's construction business sputtering, she and her husband soon fell behind on their home loan on their four-bedroom ranch home in Los Angeles.
After missing three payments, the Carrillos owed $9,800 on their mortgage with IndyMac Bank. But after the Federal Deposit Insurance Corp. seized IndyMac, the bank agreed to modify Carrillo's loan, dropping her monthly payment from about $3,000 to about $1,600 for five years.
Under the FDIC's orders, about 4,000 IndyMac borrowers have been given more affordable mortgages so far. By this weekend, the bank expects to have sent out more than 15,000 modification offers to borrowers, who are saving $430 a month on average.
IndyMac's efforts, which are designed to save the FDIC money by curbing losses on foreclosed homes, are being closely watched nationwide. In fact, Bank of America Corp. is taking a similar approach with newly acquired Countrywide Financial Corp. as part of an $8.4 billion, 12-state legal settlement reached this month.
And now some Congressional Democrats and state officials say the FDIC's approach should be replicated as the Treasury Department buys billions in troubled mortgage debt as part of a $700 billion financial industry bailout.
"The country is in crisis," said Iowa Attorney General Tom Miller. "This is something that everybody should do."
And frankly, with home prices off 18 percent nationally from their peak in mid-2006, and more in places like California, Nevada and Florida, aggressive loan modifications now make more financial sense for lenders, said Steve Bailey, a former Countrywide executive who heads up Bank of America's loan administration division.
IndyMac's mounting losses on risky loans sparked a run on the bank in July and forced the government to take control of the lender. Looking over the books, the FDIC found that roughly 8 percent of the bank's 742,000 loans were either delinquent or in foreclosure.
The agency says modifying many of those loans — which include lowering interest rates to as little as 3 percent for the initial five year period — must make economic sense, especially because the agency is soliciting offers from other banks to purchase all or part of IndyMac.
"This is not a social program," said Michael Krimminger, a senior adviser to FDIC Chairman Sheila Bair. "It's designed to recover the maximum amount of money."
Still, the program's success isn't guaranteed.
While IndyMac has received responses from about 70 percent of the initial 7,500 letters it sent out in late August, the first group of borrowers contacted by IndyMac may turn out to be low-hanging fruit because the bank first targeted borrowers who already had updated their financial information with the bank.
Others may prove harder to reach. Delinquent borrowers are inundated with collection calls and mail, and often give up hope about holding onto their homes.
"The biggest hurdle is getting people to open these letters to read about the modification offer," said Evan Wagner, spokesman for the renamed IndyMac Federal Bank.
In addition, borrowers need to provide proof of their incomes to participate, and that may be impossible for those who originally exaggerated their income or assets to qualify for a loan.
The IndyMac program is currently designed to help only homeowners on the verge of foreclosure: those who are at least 60 days delinquent on their mortgage.
Of course, that raises the danger that some borrowers may skip paying their mortgages intentionally in order to qualify.
Wagner, nevertheless, said IndyMac is looking for ways to allow more people to qualify. It's analyzing borrowers' payment history to look for those who are not yet behind on their loans, but are showing signs of trouble.
"We're starting to look at options for people who are current borrowers but who are circling the drain," Wagner said.
That is what the FDIC wants all lenders to do.
The level of loan modifications varies dramatically in the industry, according to a Credit Suisse report released this month. Among 18 loan servicers, modification rates among subprime loans made since 2005 ranged from under 2 percent to nearly 18 percent as of August. Meanwhile, foreclosures have continued to soar.
Plus, many borrowers continue to have problems, even after a modification. Roughly one-third of all loans modified in the third quarter of last year re-defaulted within 10 months, the Credit Suisse report said. However, that rate dropped to 15 percent among loans where interest rates were frozen and not allowed to reset at higher levels.
Bair, a Republican who has been mentioned as a potential Treasury secretary after President Bush leaves office in January, has won praise from Congressional Democrats for her early response to the foreclosure crisis at a time when other government officials were downplaying its significance.
At a mortgage industry conference a year ago, Bair urged executives to get aggressive about modifying loans.
"Keep it at the starter rate," she said. "Convert it into a fixed rate. Make it permanent. And get on with it," she said at the time.
This week, Reps. Barney Frank, D.-Mass., the chairman of the House Financial Services Committee, and Maxine Waters, D-Calif., both urged President Bush to appoint Bair to lead a government-wide effort to assist homeowners.
Doing so, they wrote, would "improve the effectiveness of the efforts of the federal government at a time when prompt and efficient action is most urgently needed."
For Carrillo, who got her loan modified last week, that action couldn't have come a moment sooner. She says, "I can breathe easily."