IndyMac Bank Falls In Housing Crisis.
July 13, 2008US housing crisis is continuing entailing new and new victims. IndyMac Bank that was a high-flying mortgage lender specializing in exotic and risky loans falls in housing crisis now.
“It worked great during the housing boom. They made hundreds of millions of dollars in profits for a couple of years,” Ydstie says. “But when home prices started falling and loans began to go sour, they fell very hard.”
Weekend Edition Saturday, July 12, 2008 ยท On a day in which fear and turmoil swept through the financial markets, the biggest victim was a bank that specialized in risky mortgages. IndyMac Bank was seized by federal regulators late Friday. The bank is the largest mortgage lender to fail during the housing crisis and is one of the biggest banks to collapse in U.S. history.
“IndyMac was a high-flying mortgage lender specializing in exotic and risky loans sometimes called Alt-A loans,” NPR’s John Ydstie tells Weekend Edition guest host Linda Wertheimer. For some of those loans, IndyMac didn’t require borrowers to provide documentation of income.
“It worked great during the housing boom. They made hundreds of millions of dollars in profits for a couple of years,” Ydstie says. “But when home prices started falling and loans began to go sour, they fell very hard.”
John Reich, director of the federal Office of Thrift Supervision, said Friday that IndyMac “failed due to a liquidity crisis,” that is, it ran out of money. The OTS said it transferred IndyMac’s operations to the Federal Deposit Insurance Corp. because it did not think IndyMac could meet its depositors’ demands.
Depositors who had $100,000 or less in the bank won’t suffer any loss, but those who had deposits totaling $1 billion that were not insured are going to take a big hit: They’ll get a payment equal to half the uninsured amount.
Reich suggested interference by a U.S. senator may have played a role in the collapse. Two weeks ago, New York Democrat Charles Schumer wrote a letter contending that lax lending standards and deposits purchased from third parties had left the bank on the brink of failure.
Within 11 business days of the letter, there was a run on the bank: Depositors withdrew more than $1.3 billion. Reich charged that Schumer “gave the bank a heart attack.”
According to the FDIC, depositors will have access to their money this weekend through ATMs, debit cards and checks.
“IndyMac will open on Monday as a new entity under government control,” Ydstie says.
Those with multiple accounts under $100,000 are probably screwed. During the S & L mess I had a friend with three accounts each under $100,000 that totaled $230,000. She was reimbursed a total of $100,000. Those at the S & L assured her all the money was insured. There was another S & L across the street. She lobbied Congress to no avail.