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IndyMac to stop most mortgage loans, cut 3,800 jobs

7/07/2008 - 23:50

By Jonathan Stempel

NEW YORK (Reuters) - IndyMac Bancorp Inc , 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."

The job cuts affect 53 percent of the lender's 7,200-person work force over the next couple of months, reducing operating expenses by 60 percent, Chief Executive Michael Perry said in a letter to shareholders and employees. They are in addition to about 2,700 cuts already made this year.

Perry said regulators directed the company to follow a new business plan, but IndyMac does not expect to raise capital "until there is more stability and less uncertainty in the housing and mortgage markets."

IndyMac said it will no longer accept most applications on retail and wholesale mortgages but will honor rate-locked loan commitments. It 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 was once one of the fastest-growing U.S. mortgage lenders, specializing in "Alt-A" home loans that often go to people who cannot document income or assets. It made $77 billion of mortgage loans in 2007, ranking ninth with a 3.2 percent share, according to the Inside Mortgage Finance newsletter.

But credit problems caused IndyMac's ratio of nonperforming assets to total assets to increase sixfold to 6.51 percent in the year ended March 31. The company expects its remaining units to make $5 billion to $10 billion of loans annually. Shares of IndyMac are down 98 percent in the last year.

"IndyMac still has a sizable book of poorly performing loans. That's its biggest problem," said Jason Arnold, an analyst at RBC Capital Markets in San Francisco. "Our best guess is that IndyMac winds up in receivership."

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 expect a loss of 96 cents per share, according to Reuters Estimates. IndyMac lost $896 million in the nine months ending March 31.

Perry said he also asked IndyMac's board to halve his base salary, which is capped at $1 million. He 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 . It joins more than 100 mortgage companies to curtail lending or go bankrupt since the start of 2007.

CAUGHT UP IN MORTGAGE BOOM

IndyMac in the second half of 2007 refocused on making smaller, safer loans that it could sell to government-sponsored enterprises Fannie Mae and Freddie Mac .

While IndyMac typically sold many loans it made, the change came too late for it to avoid the disappearance of the market for most nontraditional home loans.

"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," said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey-based mortgage information publisher.

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 profit.

Pasadena, California-based IndyMac said it suffered a mini bank run on June 27 and 28 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 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 shares closed up 4 cents at 71 cents, New York Stock Exchange data show. The company announced the cutbacks after U.S. markets closed.

(Editing by Mark Porter and Andre Grenon)

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