The fall of Indymac Part II
Yesterday Indymac Bank (IMB) ceased accepting new loan files in both Retail and Wholesale.
They cited the usual rhetoric of the difficult financial marketplace and turbulent times. This is on the heels of the Schumer story.
They also cited, (and this is the really important part)
Lack of 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. "
Every large bank needs to be able "securitize" and "monetize" their mortgage assets. Indymac ran out of that ability.
Think of it this way, Indymac has a vault. That vault has piles of money in it. When Indymac gives Mr. Johnson a loan to buy a house, they take the money out of their vault and pay the previous homeowner.
As you can imaging, mortgages are big ticket items, and it doesn't take long to empty that vault. If the vault is empty, the bank can't possibly make new loans. That's why they sell the loans they have already done. While Mr. Johnson may continue to pay for his new loan, Indymac needs to sell the ownership of that loan. The proceeds of selling that note put money back into the vault.
Now, when Mrs. Jones comes in for a loan, Indymac has money to loan. 
It's a little more complicated than that - but that's gist of the story.
The Financial Sector and the Housing Sector are both in a heap of trouble and that's going to have a direct impact on you.
Liquidity
The house across the street from me is for sale.
As more and more banks run out of liquidity the ability for them to fund loans also diminishes.
Can you guess what loans they'll choose to fund if any? Yup, the highly qualified and the ultra highly qualified (forget about the plain old qualified buyers)
The house across the street might be worth $500,000 in a regular open market. But that assumes that the buyer can get a loan for that home (or has cash). As the lack of liquidity rises, the number of approved buyers drops, and the price that the home sells for also drops. (simple supply and demand).
You see, finally in desperation the seller accepted a low ball offer for $250,000 cash. When they did that can you guess what just happened to the value of my home?
So while we tend to think these big banks are evil money machines that don't deserve our pity, we also forget the very real impact their demise has on us. That lack of their liquidity will hurt you!
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