It's been all over the news! Calilfornia Indymac bank has been driven out of business by the credit crisis and is now in the hands of Federal Regulators. Indymac specialized in stated income mortgages. As the property values continued to drop, buyers defaulted in record numbers and the bank lost big money. This is the second largest bank failure in United States history and customers could lose up to a half billion in uninsured deposits. How did it get to this point?
Indymac has been on the brink of collapse for months. CNN says U.S. Senator Charles E. Schumer bears some of the blame. Back in June, he spoke of his concerns regarding ‘Indymac's financial deterioration possessing significant risks to both taxpayers and borrowers.' Within a day, panicked customers rushed to the bank, closed their accounts and withdrew over $1.3 billion. On Monday, July 7th, Indymac reported massive losses and warned of bigger ones to come. On Tuesday, the bank told U.S. Regulators they were no longer well capitalized. Indymac fired more than half of their staff saying, "they were getting out of the mortgage business." By Friday, Investors had given up, with stock closing at just .28 cents. The government moved in to seize the bank putting the FDIC in charge.
For Indymac borrowers, the shutdown will have little impact. They will still have to make their mortgage payments. For the people with bank accounts or individual retirement accounts at Indymac it is a different story. Most bank accounts in the U.S. are automatically insured up to $100,000 by the FDIC; IRA's are insured up to $250,000. For now, customers with Indymac accounts can still get money out of ATM's, but cannot bank online or by phone until Monday morning. Customers with less than one hundred thousand dollars are fully insured and have full access to their money when they visit Indymac Federal on Monday.
The FDIC say's that about 10,000 customers have more than the insured amount with the bank. Those. customers can claim the $100,000 insured amount plus half of the uninsured remainder. They may get more later depending on how much the FDIC gets when it sells the bank's assets. The total loss to customers could end up being more than $500 million. This news is very unsettling. This is now the fifth bank, this year to fail in this country. What's next? Should we all be worried about what little nest egg we have left?
Now we just have to wait and see what happens to freddie and fannie. Interesting history!
Mykel,
Thanks for the post. Clearly, there are signs that it will get worse before it gets better.