US mortgage lender closes doors after capital warning

Indymac Bancorp, one of the largest mortgage providers in the US, closed its doors to new business and announced deep job cuts yesterday, blaming the continuing crisis in the mortgage-backed securities market.

In a letter to stakeholders, chief executive Michael Perry said the Pasadena-based lender's regulator, the Office of Thrift Supervision (OTS), has "advised us that we are no longer well-capitalised". In May, the lender reported $184.2 million in losses for the first quarter of the year, warning that "we do not expect that Indymac will be able to return to overall profitability until the current decline in home prices decelerates". Losses for the second quarter will be larger still, Perry said - this contrasts with his forecasts in May of declining quarterly losses for the rest of the year.

In other ways, too, the lender seems to have underestimated the severity of the continuing mortgage crisis. It has failed to raise new capital this quarter as it planned, Perry said, and continuing illiquidity and wide spreads in the mortgage-backed security market mean that selling off assets "would actually deplete capital further".

The OTS decision means Indymac will no longer be able to accept new deposits, and it will close its doors to new mortgage business and lay off 3,800 of its 7,200 workers, focussing instead on servicing existing loans, its Financial Freedom reverse mortgage unit, and its existing retail banking operation in California. Regulators ordered Indymac to close to new business in order to shrink its balance sheet, as an alternative to selling off assets at fire-sale prices, Perry said.

The lender left the Alt-A mortgage business in 2007, deciding to focus on 'conforming' mortgages, which can be sold on to government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. The GSEs, however, are themselves struggling - they posted massive first-quarter losses in May, and both saw their shares drop, by 16% to $15.74 and 18% to $11.91 respectively, yesterday after press and analyst reports suggested accounting changes could compel them to raise up to $75 billion in new capital

See also: $2.2 billion loss as Fannie Mae mortgage purchases continue 
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