Indymac, the nation's largest independent mortgage company after the recent purchase of Countrywide by Bank of America, stated today that it was slashing its workforce by over half and ceasing almost all forward-looking mortgage lending.
In a statement issued by the company, Indymac revealed that recent efforts to raise fresh capital have failed, and that the federal banking regulators have advised the thrift that it has fallen below "well-capitalized" levels.
Facing a need to shrink its balance sheet, Indymac immediately has ceased almost all mortgage lending. The bank, from this point forward, will only lend as part of its "service retention" loss mitigation activities. It will also continue to originate reverse mortgages through its Financial Freedom subsidiary.
Retail and wholesale mortgage production channels have been closed, and the bank is no longer accepting any new loan submissions or rate locks, although existing loans in progress are planned to be honored.
The announced moves will also cost the jobs of some 3,800 employees.
Most telling was Indymac's statement regarding the sale of its mortgages and mortgage-backed securities.
"An important element of our plan is to improve our capital ratios. Without an external capital raise, the traditional way to improve safety and soundness is to sell assets and shrink the balance sheet, which in normal times generally has the effect of improving capital ratios and bolstering liquidity. Yet in this environment, where either there are no bids for most of IMB's mortgage loans and securities or the bid/ask spreads are abnormally wide, "fire-selling" assets would actually deplete capital further. As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production."
For an industry caught in the throes of a crisis of confidence, the explicit revelation by the nation's largest independent mortgage company that its mortgage-backed securities are, for all intents and purposes, worthless indicates that the problems facing the mortgage industry may be much more significant and severe that many have previously thought.
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