On Saturday, Nov. 22, I spoke with Evan Wagner, Vice President and Director of Corporate Communications of IndyMac Bank, at a Home Preservation Day event held in Van Nuys, CA.

This Home Preservation Day was the first of its kind in California. The bank has been trying to contact its customers who are in default by mail, but most of them have not responded. Homeowners must be at least 60 days in default on their payments in order to qualify for help.

The bank, which has been owned by the FDIC since July 11, 2008, has started a pilot program to try to help those homeowners who qualify restructure their mortgages and avoid foreclosure. Part of this pilot program involves holding large events at a public place in the hopes of encouraging homeowners in trouble to come out, speak with bank representatives, and find out what can and cannot be done to help them.

Mr. Wagner stated that IndyMac Bank has been both a direct lender and a mortgage servicer. 93% of the mortgages it administers are service accounts. For this reason, not all of the mortgages it services will be able to be restructured. Those mortgages held wholly by IndyMac stand the best chance of being restructured, but those mortgages held by other lenders, that 93%, are subject to contractual and legal obligations specified by the note holder and may not be able to be restructured.

I asked Mr. Wagner if he could give me any idea of what percentage of that 93% would be able to be renegotiated. He didn’t have any precise figures on that.

I asked him how exactly they restructure the debt, for example, do they turn a 30-year mortgage into a 40-year mortgage? Mr. Wagner also did not offer any specifics on that. He emphasized that the bank works with homeowners on a “case by case” basis and every situation is different. However, he did state that the mortgage payments are sometimes reduced by the use of negative amortization.

What is negative amortization?

For example: Let’s say the balance on your mortgage is $300,000. You can no longer afford your mortgage payments on this $300,000 loan due to a job loss or other financial losses. You show your financial evidence to the bank and the bank determines you can afford payments on a mortgage of $150,000.

Do they then forgive the remaining $150,000 of your mortgage balance? No they do not. They calculate a new payment for you based on $150,000 and then add the other half of your balance, that other $150,000, on to the back end of your loan.

I spoke with some of the homeowners while they were waiting. Lee Strong, 54, of Palmdale, CA, lives in a home that he and his family bought for $398,000 in 2005. He estimates it’s worth about $270,000 today. Two of the income earners in his household have passed away in the past year.

He said his mortgage payment is $1,700 a month now but it is scheduled to increase to $3,500 a month next year. He was there to see if he could get his loan restructured in order to avoid that big payment jump looming ahead of him.

“This is the first time in a long time that me and my wife had to ask ourselves, like teenagers, ‘What are we going to do next month?’ You’re not going to believe this, but I have had four heart attacks in the past two years from this---stressing and stressing and stressing,” said Mr. Strong.

I told him I believed him.

Another man, Mr. Constantine Metallinos, 59, from Agua Dulce, CA says the value of his home dropped 40% this year alone. He bought his home for $800,000 in January 2008 and he said it’s worth about $529,000 now.

He is angry at the whole idea of negative amortization for some of these loans. “What kind of help are they giving with this? What are they doing—teasing the people? Bringing them down here—for what?”

He also feels that offering restructuring to homeowners who bit off more debt than they could chew during the real estate market rush is morally wrong.

“People who couldn’t afford the house to begin with are being rewarded and the people who have been good citizens, paying their monthly payment, they get penalized by dropping home values because they have been good,” said Mr. Metallinos.

Armin and Alma DeFranco, both in their 40s, from Glendale, CA were there with their young daughter to ask IndyMac representatives a few questions about a loan modification they had already received. They said they told the lender not to add their property taxes onto their mortgage payment because they planned to pay the taxes separately.

Instead the bank added the taxes, divided into 12 equal payments, onto their monthly mortgage payment. This is called paying your property taxes through an impound account.

I asked if they knew if this was a requirement of the new loan they received. They did not know. “It’s too much,” said Mrs. DeFranco.

“We’ve asked people to bring documentation of their income and their expenses. Loan modification is not about giving you a better deal, it’s not about giving you the best deal, it’s not about seeing how low the bank can go. It’s not really a negotiation. It’s about finding out how much you can afford,” said Mr. Wagner.

Mr. Wagner also stated, “No one’s getting a free lunch. Even if you get a loan modification we’re not erasing principal. Whatever you signed up for is still what you’re responsible for paying. Whatever you were past due on is actually getting rolled back into the loan, so, in fact, your principal balance is actually going to increase.”

“The average savings is $380 a month or roughly 20% of someone’s payment,” Mr. Wagner added.

There were about 150 to 200 people waiting to speak to bank representatives when I was there at about 11a.m. Saturday. IndyMac has another Home Preservation Day scheduled for the Inland Empire area in the early part of December 2008.