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IndyMac Blasts Schumer

Run on deposits blamed on senator's letter

June 30, 2008

By MortgageDaily.com staff


IndyMac Bancorp Inc. said a run on its deposits over the weekend has abated and blamed a U.S. senator for sparking the panic.

IndyMac today commented on a letter sent last week from Sen. Charles Schumer, a Democrat, to bank regulators.

In its statement, the Pasadena, Calif.-based company acknowledged that depositors withdrew around $100 million on Friday and Saturday. The level of withdrawals represented around 0.5 percent of its total deposits.

"While branch traffic is somewhat elevated this morning, it is substantially lower than on Saturday, and we are hopeful that this issue appropriately abates soon," IndyMac said.

The elevated withdrawals were attributed to Schumer's letter.

Schumer's staff last week promised but failed to provide MortgageDaily.com with a copy of the letter.

IndyMac admitted that its business and financial position has deteriorated since last quarter but noted Schumer's letter did not give the impression that its regulators were adequately apprised of its position. It also indicated that, contrary to the impression Schumer's letter left, the Federal Home Loan Bank of San Francisco has been diligent in boosting margin requirements on mortgage loans and mortgage securities.

The company also criticized Schumer's inference that IndyMac utilized brokered deposits to rapidly and irresponsibly grow from Dec. 31, 2006, to March 31, 2008.

"When the credit markets collapsed last summer, we, like many financial institutions, raised deposits (both retail and brokered) to improve our operating liquidity, to meet the higher margin requirements imposed by the FHLB and to pay off completely all of our market funding sources," IndyMac stated. "While insured, brokered deposits were used from an expediency perspective, we have since worked on raising retail deposits and expect that brokered deposits as a percentage of our overall funding will decline substantially over the next several quarters.

"Contrary to Sen. Schumer's inference, our use of insured, brokered deposits has lowered the risk for IndyMac Bank and improved our safety and soundness during this turbulent period."

The Center for Responsible Lending today announced a new report that accuses IndyMac of blatantly ignoring sound underwriting and also of condoning mortgage fraud. The group said it based the report on court documents and interviews with 19 former employees.

"I would reject a loan, and the insanity would begin," an unnamed underwriter was quoted as saying. "It would go to upper management and the next thing you know it's going to closing."

The author of CRL's report wrote, "IndyMac's current problems appear to be largely the legacy of top-down pressures that valued short-term growth over making responsible lending decisions."

The Washington, D.C.-based group is calling for more government action in mortgage lending.

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