IndyMac Bank goes kablooie

[J]

Bloomberg link

IndyMac Seized by U.S. Regulators Amid Cash Crunch (Update2)

By Ari Levy and David Mildenberg

July 11 (Bloomberg) -- IndyMac Bancorp Inc. became the second-biggest federally insured financial company to fail today after a run by depositors left the California mortgage lender short on cash.

The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mail today. Customers will have access to funds this weekend via automated teller machines.

The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.

``Given their focus on Alt-A and a heavy concentration in California, they would have suffered meaningful losses in almost any scenario,'' Brian Horey, president of Aurelian Management LLC in New York, said before the seizure was announced. Aurelian is short-selling IndyMac shares to gain from declines.

IndyMac becomes the largest OTS-regulated savings and loan to fail and second-biggest financial institution to close behind Continental Illinois in 1984, according to the FDIC.

The lender racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.

Needed `Common Sense'

Had IndyMac ``applied some common sense and changed their approach to underwriting as the housing market peaked, they might have lived to see the next cycle,'' Horey said.

After peaking at $50.11 on May 8, 2006, IndyMac shares lost 87 percent of their value in 2007 and another 95 percent this year. The stock fell 3 cents to 28 cents at 4 p.m. New York time today.

IndyMac came under fire last month from U.S. Senator Charles Schumer, who said lax lending standards and deposits purchased from third parties left it on the brink of failure. In the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the OTS said.

``This institution failed due to a liquidity crisis,'' OTS Director John Reich said in the statement. ``Although this institution was already in distress, I am troubled by any interference in the regulatory process.''

IndyMac announced on July 7 that it was firing half its employees. The lender agreed to sell most of its retail mortgage branches to Prospect Mortgage, giving the Northbrook, Illinois based-company more than 60 branch offices with 750 employees. IndyMac also has a retail bank network with 33 branches and $18 billion in deposits, mostly insured by the FDIC.

Toast. Done. Stick a fork in it. The worst part is there's a lot of other banks in the US with similar loan portfolios and operations, and once a few more of them go kaput there's a good chance it'll domino through the system and run the FDIC out of funds. And that will not be pretty.

[Admiral Valdemar]

With Freddie and Fannie in the state they're in, it seems ever more clear now that September/October is going to be where this matter comes to a head.

[SirNitram]

Maybe the total collapse of the banks involved, but if you think this is going to be done then aside from a lingering recession, that's nonsense. Someone's still holding the bag by buying those structured investments. They probably realize it by now and are desperately trying to recapitalize and hide this for now.

[Col. Crackpot]

Ahhh... Stated Income deals. What glorious memories. I once wrote TANDEM $200K stated income HELOC's (home equity lines or credit) to a guy who said he was a "Steamship Captain". The lender actually had a code for "Steamship Captains" and an income table for "Steamship Captains". The scary part is that my employer is one of the MOST CONSERVATIVE mortgage lenders in the country.

Now I need rights to your first born to borrow more than ten grand.

[aerius]

You gotta love those NINJA loans, where an unemployed bum on welfare somehow qualifies for a $500k mortgage.

[Col. Crackpot]

Maybe the total collapse of the banks involved, but if you think this is going to be done then aside from a lingering recession, that's nonsense. Someone's still holding the bag by buying those structured investments. They probably realize it by now and are desperately trying to recapitalize and hide this for now.

Wait until some of the big boys start to burn. I'm making a prediction. In the next several months Sovereign Bankcorp will be gobbled up or melted down.

[Col. Crackpot]

You gotta love those NINJA loans, where an unemployed bum on welfare somehow qualifies for a $500k mortgage.

granted it would need to be a welfare bum with a 760 mid FICO score.

[Admiral Valdemar]

Think maybe this will actually knock some sense into our fiscal masters, or will we see such a clusterfuck again in the future decades? If the system is determined to fall apart, why prop it up? These people suddenly see how stupid they were and now it will cost them unless they turn socialist. How nice.

[J]

Someone's still holding the bag by buying those structured investments. They probably realize it by now and are desperately trying to recapitalize and hide this for now.

Oh they know...they know, that's why they're trying to move everything into Level 3 assets otherwise known as mark to model assets, where the darn things are worth whatever the holders claim they are, nevermind that they're illiquid for the most part and worth diddly squat on the open market. Also of note is how every single bank claiming that they're doing well and don't need to recapitalize turn around and either sell a bunch of their assets, a load of new shares, and hit up one of the Fed's loan facilities a few days later. Even funnier is how some banks have claimed, and I quote, "we're just testing the loan facilities and markets to see if they work" after using the Fed's various loan facilities.

[J]

And a picture of their website. This is one of the last things you'll want to see when trying to do your online banking.

[SirNitram]

Maybe the total collapse of the banks involved, but if you think this is going to be done then aside from a lingering recession, that's nonsense. Someone's still holding the bag by buying those structured investments. They probably realize it by now and are desperately trying to recapitalize and hide this for now.

Wait until some of the big boys start to burn. I'm making a prediction. In the next several months Sovereign Bankcorp will be gobbled up or melted down.

I'm thinking GM and it's lending portions will finally hit bottom. Freddie and Fannie are on the chop block. And Phil Gramm will continue to feign ignorance to his role perpetrating this, and blame it all on psychosomatic reaction.

[Col. Crackpot]

I'm thinking GM and it's lending portions will finally hit bottom. Freddie and Fannie are on the chop block. And Phil Gramm will continue to feign ignorance to his role perpetrating this, and blame it all on psychosomatic reaction.

finger pointing aside, the US Government will not allow Fannie Mae or Freddie Mac to collapse, regardless of cost. to due so would cause an overnight spike in mortgage rates and a collapse in real estate values (a real on this time, not the comparatively moderate correction we have seen up to date)which affects local govenments ability to collect taxes. The cost of the bailout will raise eyebrows for sure, but they wont allow a collapse.

[Admiral Valdemar]

That means the public held debt doubles overnight and the dollar becomes even less useful. Sixty percent of this debt is due by 2011. The US cannot pay it back. How will they survive being unable to import the billions daily they need in order to keep the lights on? The loan auctions are already empty of interest as no foreign state wants to prop up such extravagant American spending any more. At the very least that means Iraq is a commitment the White House will have to cut loose.

[J]

finger pointing aside, the US Government will not allow Fannie Mae or Freddie Mac to collapse, regardless of cost.

Looks like you're right on this one, the bailout package is already in the works.

Times Online link

US Treasury rescue for Fannie Mae and Freddie Mac
Treasury secretary looks at $15 billion cash injection for crisis-hit mortgage lenders
Iain Dey and Dominic Rushe

US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.

Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.

The potential rescue comes as investors are braced for more bad news from the financial sector. Citigroup is expected to reveal further writedowns of at least $8 billion with its second-quarter results, and Merrill Lynch is forecast to reveal writedowns of some $4 billion.

Both banks are expected to post sizeable losses for the second quarter, and reveal plans to sell off billions of pounds worth of assets.

A number of US regulators and politicians have been attempting to restore confidence in the two mortgage agencies.

Paulson and President George Bush stepped in to give vocal support to the two firms on Friday. “Freddie Mac and Fannie Mae are very important institutions,” said Bush, adding that he had spoken with Paulson who had “assured me that he and Ben Bernanke [the Federal Reserve chairman] will be working this issue very hard”.

Paulson killed off speculation that the government would renationalise the two agencies, a move that would have pitched the US public accounts into a new state of crisis.

However, Paulson pledged to support the two companies “in their current form”. He is said to have been concerned about the prospect of a rescue plan benefiting shareholders.

The capital injection would also see both lenders granted permission to use the Federal Reserve’s discount window - a short-term emergency funding source.

Freddie Mac has a $3 billion short-term funding line that comes up for renewal tomorrow. The short-term debt is one of the hundreds of funding lines that the two agencies use.

The funding lines allow Freddie and Fannie to buy mortgages from America’s commercial banks, which it then sells on to bond investors through securitisations. A government guarantee on the company’s debts allows it to raise money cheaply, making mortgages cheaper to finance for US banks.

Some in Wall Street believe a rescue plan may be announced ahead of tomorrow’s US market opening to calm nerves and support the debt auction.

Howard Shapiro, a Wall Street analyst at Fox-Pitt Kelton, said: “I think it will happen over the weekend. There will be government action but it will be far short of the dire scenarios that people are envisioning.” He said there was “no question” that the two firms were fundamentally sound.

He added that Paulson would have to move in order to “change the psychology” of the market and put Fannie and Freddie back on a stable footing.

David Buik, partner at BGC Partners, said: “These agencies are the backbone of financial society in the US. They simply cannot be allowed to fail, and the government won’t allow them to fail. Whatever the solution is to this problem, I can’t imagine it will be good for shareholders.”

He added: “In London we may see a dead-cat bounce on Monday, especially if we get a rescue. But that’s all it will be - shares may pop up 50 points or so, but then they will head down again.”

In the UK markets, HBOS will this week complete its £4 billion rights issue in a move that could see underwriters Morgan Stanley and Dresdner Kleinwort lumbered with more than £1 billion of the bank’s stock.

More than 13% of the HBOS shares in issue have been sold short by hedge funds - a bet that the bank’s share price will fall.

Bradford & Bingley will also put its lifesaving £400m rights issue to a shareholder vote.

Robert Parkes, UK equity strategist at HSBC, said: “It’s a seller’s market - we’re generally advising clients to sit on the sidelines until all the current issues blow over.”

Might as well renationalize Freddie & Fannie now and get it over with since with the way things are going they're likely going to have to do that eventually.

[Sea Skimmer]

Ahhh... Stated Income deals. What glorious memories. I once wrote TANDEM $200K stated income HELOC's (home equity lines or credit) to a guy who said he was a "Steamship Captain". The lender actually had a code for "Steamship Captains" and an income table for "Steamship Captains". The scary part is that my employer is one of the MOST CONSERVATIVE mortgage lenders in the country.

Now I need rights to your first born to borrow more than ten grand.

While I’d doubt it was true, it perfectly well could be, any vessel powered by steam that’s non nuclear is a steamship (you need different qualifications to command vessels with different power sources) and plenty of them still ply the seas and inland waterways of the world.

[Fingolfin_Noldor]

You know the "analysts" saying that the "worst is over" are lying jackasses or ignorant morons when things like this keep happening. The same applies to politicians, be it in US, or else where.

[Admiral Valdemar]

You know the "analysts" saying that the "worst is over" are lying jackasses or ignorant morons when things like this keep happening. The same applies to politicians, be it in US, or else where.

They're causing more harm that way by letting people invest in things they reckon will be cyclical. "Oh, it's only as bad as 1990. Don't worry, it'll pick up again. I suggest buying..." and so on. They've been saying it's getting better for, what?, four months now or something. Yet we hear even more bad news. Clearly these people have not a clue, as evidenced by this gem.

[The Grim Squeaker]

You know the "analysts" saying that the "worst is over" are lying jackasses or ignorant morons when things like this keep happening. The same applies to politicians, be it in US, or else where.

They're causing more harm that way by letting people invest in things they reckon will be cyclical. "Oh, it's only as bad as 1990. Don't worry, it'll pick up again. I suggest buying..." and so on. They've been saying it's getting better for, what?, four months now or something. Yet we hear even more bad news. Clearly these people have not a clue, as evidenced by this gem.

Well, it might only be as bad as the Asian financial crisis . (Which had far worse currency woes, but a better financial climate to bring it up to speed again, and more "real" prior growth. /Economist away!)

[Fingolfin_Noldor]

You know the "analysts" saying that the "worst is over" are lying jackasses or ignorant morons when things like this keep happening. The same applies to politicians, be it in US, or else where.

They're causing more harm that way by letting people invest in things they reckon will be cyclical. "Oh, it's only as bad as 1990. Don't worry, it'll pick up again. I suggest buying..." and so on. They've been saying it's getting better for, what?, four months now or something. Yet we hear even more bad news. Clearly these people have not a clue, as evidenced by this gem.

I'd bet it's a combination of desperation, insidious interests and greed that's driving it. A lot of these analysts probably lost lots on the market and are desperate for people to get back to investing again.

[Admiral Valdemar]

If you look at that clip with Simmons explaining the oil situation with his prognosis, you see they go from elitist, full of themselves investment types, to jaw open, wide-eyed wrecks and then back again. They can't believe what they hear from someone who advised the POTUS, though they still revert to ignoring his advice at the end. You can see they ignore everything with that douche at the end going on about cyclical movements when Simmons just told the fucker it's something without precedent!

There is at least one guy who shows a shit-eating grin of know-it-all proportions even when others are probably seriously questioning their own propaganda (and that really is all CNBC is: propaganda for stockbrokers).

[Phantasee]

I never could take CNBC seriously when I watched it, my father thought it was the good shit for quite a while though. Thanks for the clip.

[Stuart Mackey]

You know the "analysts" saying that the "worst is over" are lying jackasses or ignorant morons when things like this keep happening. The same applies to politicians, be it in US, or else where.

They're causing more harm that way by letting people invest in things they reckon will be cyclical. "Oh, it's only as bad as 1990. Don't worry, it'll pick up again. I suggest buying..." and so on. They've been saying it's getting better for, what?, four months now or something. Yet we hear even more bad news. Clearly these people have not a clue, as evidenced by this gem.

I love the jaw dropped silence when he says that they will run out of usable petrol and diesel, and will then have the great American disaster when they run out of food within a week..that was priceless.

[Darth Wong]

Well, it's not as if banks will disappear. They've been around for centuries after all; the business model of banking does not require an industrial economy or cheap oil. But some of the sillier banking industry practices might have to go the way of the do-do.

[J]

Well, it's not as if banks will disappear. They've been around for centuries after all; the business model of banking does not require an industrial economy or cheap oil. But some of the sillier banking industry practices might have to go the way of the do-do.

Well, if they don't stop their monkey business the market will stop it for them. By making them go the way of the dodo. One way or another the monkey business will stop, the only question is how painful it will be and how many taxpayers & innocent parties get taken down with them.



And an update on IndyMac.

Reuters link

FDIC halts foreclosure on IndyMac mortgages: Bair
Mon Jul 14, 2008 7:09pm EDT


WASHINGTON (Reuters) - The Federal Deposit Insurance Corp has temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac's portfolio, FDIC Chairman Sheila Bair said on Monday.

Bair has scolded mortgage lenders for being too slow to help distressed borrowers restructure their home loans.

"Modified loans will be worth more than foreclosed loans," she said in an interview on CNBC television.

IndyMac, which the FDIC took over after it failed on Friday, had a $200 billion mortgage servicing portfolio.

Bair has repeatedly urged the mortgage industry to refinance loans rather than foreclose on properties when borrowers fall behind on their payments.

She said the "overwhelming majority" of U.S. banks are "safe and sound."

Capital levels are strong at U.S. banks, but she warned that the industry will see the number of troubled banks and failures grow in the coming months.

"The number is going to go up," Bair said. "Banks do fail and there's nothing unusual about that."

She declined to comment on a RBC Capital Markets report on Sunday that said 300 U.S. banks might fail over the next three years because of credit losses and tight capital markets.

But Bair said U.S. banks were well-positioned going into the credit crisis and will continue maintaining strong capital levels. "They're still in a very good position to weather it."

(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)

<sarcasm> Hmmm...maybe I should arrange a mortgage with a troubled bank which is about to go under, and when it goes belly up I can live in my home for free without being foreclosed!

[SirNitram]

I'm surprised no one mentioned that IndyMac Federal got a bank run today.

LA Times Blog

This is Santa Monica this morning, where about 100 customers were lined up when the IndyMac Federal branch on Wilshire opened for its very first day of business. Judging by what I saw and heard, a number of customers have decided not to do their banking with the federal government.

"We're gonna close a couple of accounts," Jack Freed, of Stevenson Ranch, told me. "We're just nervous. Not that any other bank would be any better, but as least they haven't been taken over by the FDIC."

The line looks shorter than it is -- it takes a left turn and snakes back into an alley, which at least offers some shade. I spoke with four customers, all were cleaning out their accounts. One guy figured he would lose $50,000 -- he says a teller had told him his money would be safe as long as no single account held more than $100,000. The guy holding the umbrella and sitting down near the left says he was first in line -- at 3:50 a.m.

The same source earlier today cited freezing of all HELOCs.