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IndyMac Halts New Business

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The company formerly owned by Countrywide is taking drastic steps to survive, including laying off nearly 4,000 employees.

IndyMac Bancorp Chairman and Chief Executive Officer Michael W. Perry today disclosed to shareholders that federal banking regulators have advised the company that it is no longer “well capitalized.” A projected second-quarter loss will exceed the first-quarter loss, which was reported at $184 million.

The results are a stark reversal from May, when Perry told shareholders “I believe we have turned a corner and that our business is improving.” He noted at the time that the company had become profitable under a slimmed down operating model.

He explained in May that the company was profitable in March, with “all of our 9 regional wholesale centers and 104 of our 152 retail lending branches being profitable.” But today’s statement indicated, “these units are not currently profitable due to the continuing erosion of the housing and mortgage markets.”

Perry said IndyMac will immediately implement a business plan that will bolster capital ratios.

The Pasadena, Calif.-based firm has been unable to raise capital through stock offerings. In addition, because there are essentially no buyers for the assets it holds, selling off mortgage loans and securities would only deplete capital further.

“As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset … is to curtail most new loan production,” Perry said on a Web site posting. “We have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel.”

He also said the Federal Deposit Insurance Corporation has prohibited IndyMac from accepting new brokered deposits and from renewing or rolling over existing brokered deposits.

Existing rate-lock loans will be honored, according to the statement.

The CEO noted the company will continue to operate reverse mortgage subsidiary Financial Freedom Senior Funding Corp. in addition to refinancing its existing conventional loan portfolio. Between $5 billion and $10 billion in annual originations are projected for the remaining units.

Approximately 3,800 employees will be laid off as a result of today’s actions. The job cuts will occur during “the next couple of months.”

While it had previously been the company’s policy to give laid off employees one month of pay and one month of health insurance, “we can no longer afford this program given our need to preserve capital and return to profitability.” Instead, affected employees will be given between 30 and 60 days’ notice. Employees with at least five years’ of service will receive a minimum of $20,000 in severance, including compensation paid during the notice period.

IndyMac will reportedly retain 3,400 employees, as follows:

  • 1,100 loan servicing employees in Kalamazoo, Mich., and Austin, Texas;
  • 350 servicing retention employees in Irvine, Calif., and Kansas City;
  • 800 Financial Freedom employees primarily in Irvine, Sacramento, Calif., and Atlanta;
  • 400 retail and web bank employees in Southern California;
  • 500 positions in portfolio management and administration, largely in Pasadena; and
  • 250 employees for discontinued businesses.

“When this housing and mortgage crisis abates and we return to health, we would also hope to be an investor in mortgage loans and mortgage-backed securities and might re-enter the national forward mortgage production business with a low-cost, non-commissioned-based business model,” Perry stated.

He added that he will ask the board of directors to reduce his own base salary by 50 percent. In 2007, Perry was paid $1 million in salary.

IndyMac Bank was created in July 2000 when IndyMac Mortgage Holdings Inc. acquired SGV Bancorp Inc. and contributed all of its assets to the entity. In 1998, the company was wholly owned by Countrywide.

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