IndyMac; A failure for the ages!

I was really wanting to talk about something positive for the housing community today however, in light of the IndyMac collapse and just how rare this phenomenon is I thought it better served to talk about just that, a failure for the ages!

It's official starting today the former bank called IndyMac Bancorp will now be operating as IndyMac Federal Bank. Why? Because the FDIC (Federal Deposit Insurance Corporation) took the bank over effective today Monday July 14, 2008. This was the fifth U.S. Bank to fail so far this year and had assets of $32 billion as of March 31st. It will rank as the third largest bank failure ever in the U.S. and the biggest in two decades; following those of Continental Illinois National Bank & Trust Company, which went down in 1984 and the collapse of American Savings & Loan Association in 1988.

Behind much discretionary talk are the reasons for the failure and a letter addressed to the FDIC and the OTS (Office of Thrift Supervision) by U.S. Senator Charles Schumer was made public on June 26th concerning the banks viability given today's economic woes. By July 10th the bank had lost $1.3 billion in deposits. This "run on deposits" put a HUGE financial strain on the bank that was already in financial distress due to the credit crunch, rising delinquencies and foreclosures, and liquidity crisis! However the letter by Senator Schumer was received by much criticism both by the general public and those in power. Director of the OTS John Reich was quoted as saying "the institution failed today due to a liquidity crisis. Although the institution was already in distress. I am troubled by any interference in the regulatory process." Senator Charles Schumer then countered by saying "had the OTS done its job as a regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today." Instead of "pointing fingers of blame, OTS should start doing its job to prevent future IndyMac's." Another prominent professional stated that "Schumer's letter did have an impact, IndyMac's collapse was only a matter of time. What Schumer did was wrong and irresponsible and I'm not sure what he was trying to accomplish but IndyMac was already well-known to be a forthcoming failure."

It's projected that this banking failure will result between $4-8 billion or more than 1/10th of the FDIC's insurance deposit fund. IndyMac's shares were trading at 11 cents this morning compared to $29.91 one year ago.

Like I stated earlier in the post this is truly bad news for the mortgage community as IndyMac was a prominent U.S. "wholesaler" of mortgages for broker's however like everything else we have been faced with we will "roll with the punches" and move forward.

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