The Federal Deposit Insurance Corp. (FDIC) is reducing average monthly payments by $400 when it modifies troubled loans from IndyMac's portfolio, FDIC Chairman Sheila Bair said Wednesday in congressional testimony.

The IndyMac Bank receivership has already identified 7,400 loans that are eligible for loan modifications, and 1,200 of the homeowners have already accepted the offers, Bair told the House Financial Services Committee. The IndyMac modification program is targeted to borrowers in default who cannot afford to continue payments on their loans, many of which are adjustable-rate or hybrid loans that face resets.

It aims to modify these loans into 30-year fixed-rate loans at the Freddie Mac survey rate, but the interest rate can be lowered further to ensure that borrowers are not spending more than 38% of their income on principal, interest, taxes, and insurance. Bair said James Lockhart, director of the Federal Housing Finance Agency, has decided that Fannie Mae and Freddie Mac will participate in the IndyMac loan modification program.

"That will help us qualify several thousand more borrowers," she testified. Bair said she hopes the FDIC, working with Fannie and Freddie, will provide loan modification models that can provide "cover" to private mortgage servicers to adopt similar efforts.

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