The Federal Deposit Insurance Corporation (FDIC) has announced the sale of failed S&L IndyMac to a new owner, IMB HoldCo. Included in the transaction is Financial Freedom, the huge reverse mortgage lender.

The FDIC took over IndyMac on July 11th and promptly instituted one of, if not the most, successful mortgage modification program in the country. The FDIC also poured a lot of money into the IndyMac project, somewhere between $8.5 billion and $9.4 billion.

The real gem held by IndyMac is its Financial Freedom subsidiary. The FDIC says Financial Freedom is a reverse mortgage platform “with $1.5 billion of reverse mortgages and MSRs representing an unpaid principal balance of $20.2 billion.” (MSRs = mortgage servicing rights)

For reverse mortgage borrowers the continuation of Financial Freedom should be seen as a positive event because more competition is always good for borrowers and Financial Freedom has been a major player in the reverse mortgage marketplace. In addition, you can bet that the FDIC will hover over the company because the government has a financial stake in the potential outcome.

Here’s why.

The purchase price will be roughly $13.9 billion. Given that the FDIC has already spent $9.4 billion, it might seem as if the government is getting a fat profit for just a few months of ownership. However, the government will guarantee certain future IndyMac losses if they arise.

The FDIC says it “has agreed to share losses on a portfolio of qualifying loans with New IndyMac assuming the first 20% of losses after which the FDIC will share losses 80/20 for the next 10% of losses and 95/5 thereafter.” What this means in potential cash liabilities for the FDIC is unclear. The new owners will also put in $1.3 billion in fresh capital.

In addition, the new owners will continue the FDIC’s existing loan modification program and the FDIC will receive a majority of all cash flows generated from approximately $2 billion portfolio of construction and other loans.

This entry was posted on Monday, January 5th, 2009 at 3:11 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.