IndyMac to stop most mortgage loans and cut 3,800 jobs
By Jonathan Stempel
Monday July 7, 5:47 pm ET
NEW YORK (Reuters) - IndyMac Bancorp Inc (NYSE:IMB), one of the largest U.S. mortgage lenders, said on Monday it will eliminate 3,800 jobs and stop making most home loans after regulators concluded it was no longer "well-capitalized."
In a letter to shareholders and employees, Chief Executive Michael Perry said Pasadena, California-based IndyMac will stop accepting most applications and locking rates on retail and wholesale mortgages. IndyMac plans to honor existing rate-locked loan commitments.
The job cuts will affect 53 percent of IndyMac's 7,200 person work force and be made in the next couple of months, reducing operating expenses by 60 percent, Perry said. They are in addition to about 2,700 cuts already made this year.
Perry said regulators have directed IndyMac to follow a new business plan designed to bolster capital, but the company does not expect to raise capital "until there is more stability and less uncertainty in the housing and mortgage markets."
IndyMac plans to focus on its mortgage servicing unit, its 33-branch southern California thrift with $18 billion of deposits and its Financial Freedom reverse mortgage unit.
The company made $77 billion of mortgage loans in 2007, ranking ninth nationwide, according to the Inside Mortgage Finance newsletter.
In addition, IndyMac expects its second-quarter loss to be larger than the $184.2 million, or $2.27 per share, it lost in the first quarter. Analysts on average expected a quarterly loss of 96 cents per share, according to Reuters Estimates. IndyMac lost $896 million in the nine months ending March 31.
"It shows the environment for mortgage lending remains extraordinarily challenged," said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey mortgage information publisher. "IndyMac had been a well- regarded player in mortgages, but given how the market is, it may be easier to restart such a business in the future than maintain one now."
Perry also said he asked IndyMac's board to reduce his base salary by 50 percent. His annual salary is capped at $1 million, a regulatory filing shows. Perry was unavailable for comment, spokesman Grove Nichols said.
IndyMac is the largest independent, publicly-traded U.S. mortgage company, following last week's roughly $2.5 billion purchase of Countrywide Financial Corp by Bank of America Corp (NYSE:BAC - News). It joins more than 100 mortgage companies to curtail lending or go bankrupt since the start of 2007.
CAUGHT UP IN MORTGAGE BOOM
IndyMac long specialized in making "Alt-A" home loans, which fall between prime and subprime in quality and which typically go to borrowers who cannot verify income or assets.
While IndyMac typically sold many loans it made, it was hit hard as mounting delinquencies and defaults caused the market for most nontraditional home loans to disappear.
IndyMac in the second half of 2007 refocused on making smaller, safer loans that it could sell to government-sponsored enterprises Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE ).
The changes, however, came too late. IndyMac said its ratio of nonperforming assets to total assets increased sixfold to 6.51 percent in the year ending March 31, as its mortgage industry market share fell to 1.7 percent from 4.08 percent.
A June 30 report by the nonprofit Center for Responsible Lending said IndyMac, like many rivals, got caught up in "the overheated atmosphere of the mortgage boom" by making too many unsuitable loans in the quest for short-term profit.
On June 27 and 28, IndyMac said it suffered a mini bank run as customers withdrew about $100 million of deposits.
The withdrawals came after Sen. Charles Schumer, a New York Democrat who chairs the Joint Economic Committee, wrote to banking regulators that IndyMac could fail. IndyMac said on June 30 that Schumer's concerns created the "wrong impression."
Reverse mortgages let people, mainly 62 years and up, borrow against equity in their homes. Advances are not taxable, and loans typically need not be repaid during homeowners' lifetimes.
IndyMac Letter to Shareholders
