IndyMac reopened under the control of federal regulators yesterday and there was little doubt who was in charge.
The failed California bank stopped all pending foreclosures at the direction of Federal Deposit Insurance Corp. (FDIC) chair Sheila Bair, who has been prodding lenders to find more ways to keep financially-troubled homeowners in their homes.
Bair said that IndyMac Federal will "very aggressively pursue loan-modification strategies" for homeowners who are stuck with mortgages they can't afford. She said the goal would be to make those mortgages "affordable on a long-term sustainable basis."
When the FDIC seized it Friday, IndyMac had about $15 billion in outstanding mortgages. It was also servicing another $185 billion. The FDIC won't have as much flexibility with the loans the bank was servicing but Bair said the agency would "look at each one" to try to find a solution that would stave off foreclosure.
While that may be good news for borrowers, depositors weren't as pleased. Long lines stretched down the street at many IndyMac branches as consumers rushed to withdraw their funds when the bank reopened yesterday.
It wasn't really necessary for depositors to withdraw their funds, as deposits of up to $100,000 -- more in some cases -- are guaranteed by FDIC, but many customers were taking no chances.
Whatever steps FDIC takes to clean up the bank's operations will be temporary, as its primary goal is to sell the bank's assets within 90 days.
Motormouth?
While the IndyMac clean-up continued, so did the blame game. The office of Thrift Supervision yesterday pinned blame for the bank's failure on Sen. Chuck Schumer (D-NY).
Agency officials didn't leak their opinion, or have it attributed to "a senior official" within the agency. No, they put it right in their press release.
"The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York," the news release stated. "The letter expressed concerns about IndyMac's viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts."
If that wasn't plain enough, OTS Director John Reich underlined the point.
"This institution failed today due to a liquidity crisis," Reich said. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."
For his part, Schumer didn't take the criticism lying down. The senior senator from New York fired back that if OTS and the Federal Deposit Insurance Corporation had been doing their jobs, the meltdown might have been avoided.
IndyMac had been in a precarious financial situation that was caused, in part, by an unprecedented stress in the residential real estate market, combined with the evaporation of the non-agency secondary mortgage market in August of 2007. The OTS said it had significant concerns with the bank's funding strategy, had directed appropriate changes and was finalizing a new set of enforcement actions to address its numerous problems.
As a result of an OTS examination that began in January 2008, the OTS said it deemed IndyMac to be in troubled condition. An overwhelming majority of problem institutions are able to successfully modify their operations and business plans, work closely with their regulator and eventually return to a healthy condition, the agency said.
IndyMac had reacted to market conditions and OTS concerns in November 2007 by changing its operations and business plan to build a foundation for recovery, the OTS said, adding that IndyMac was actively seeking to arrange a significant capital infusion or find a buyer.
"The recent release of the senator's letter undermined the public confidence essential for a financial institution and took away the time IndyMac needed to pursue a recovery," the agency said in its news release.
