IndyMac Wreck Could Lead to S&L Pile-Up

On June 26, Sen. Charles Schumer (D., N.Y.) leaked to The Wall Street Journal copies of letters he sent to the OTS, the Federal Home Loan Bank of San Francisco and the Federal Housing Finance Board, the regulator of the Federal Home Loan Bank System, expressing concern about the condition of IndyMac.

This leak set off a bit of a firestorm, with IndyMac acknowledging the following Monday that it had experienced over $100 million in deposit withdrawals following the Journal's article. IndyMac also stated that "96% of our approximate total of $19 billion in deposits" was fully insured by the FDIC.

Still, Monday's announcement shows that pressure mounted for the OTS to take action. Since IndyMac is no longer considered well-capitalized, it faces a possible liquidity crisis, since under FDIC rules, it can't gather new deposits through brokers or renew brokered CDs. Brokered deposits comprised 37% of total deposits as of March 31.

IndyMac is waiting on word from the FDIC on its application to have the brokered deposits rule waived.

Bitter Steps

Acknowledging that it would be unable to sell assets -- and thus boost the capital ratios -- without incurring even larger net losses, IndyMac said Monday it would "curtail most new loan production." While the company will fund new loans with rates already locked-in, it will no longer accept most retail and wholesale mortgage applications.

Going forward, the lender will focus on originating FHA-guaranteed reverse mortgages, under its Financial Freedom lending program. IndyMac will also continue to run its 33 S&L branches in California and its loan-servicing operations.