Indymac America 's Northern Rock Goes Bust as US Housing Market Implodes

By: Nadeem_Walayat

One of America 's biggest savings and loans mortgage banks, Indymac goes bust as regulators stepped in to seize the banks assets on Friday. The bank saw panicking savers withdraw more then $1.3 billion in deposits in one day alone as the bank teetered on the brink of collapse under the weight of mortgage defaults as result of the meltdown in the US housing market in similar style to Britains Northern Rock bank run during September 2007.

The financial hemoraging of the bank as depositors withdrew funds prompted Federal regulators to seize the banks assets on Friday as the bank ran out of cash. In the United States savers deposits are secured up to $100,000 (£50,000) under the Federal Deposit Insurance Corporation (FDIC) which plans to re-open the banks operations on Monday. An estimated 10,000 savers had funds deposited over the insured limit, totaling $1 billion in uninsured funds who may suffer a loss. The expectation is that part of the uninsured funds will be paid on a percentage basis, probably in the region of 50%.

IndyMac is the second largest federally insured bank to be seized by regulators, the costs of which could exceed $8 billion. The bank had assets of $32 billion and deposits of $17 billion. IndyMac lost $184.2 million in the first quarter and announced on Monday that it was expecting a wider loss for the second quarter as a consequence of the US housing market depression.

The bank specialized in providing mortgages termed as Alt-A or liar loan's where borrowers were not required to provide 'reliable' proof of their incomes, during the boom years these tended to generate huge profits as premium fees and higher interest rates were charged over that to prime borrowers. However the housing bust has seen a growing number of delinquencies and foreclosures leaving the bank with properties worth far less than the mortgages.

The banks share price has collapsed from a high of $45 to just 28cents before the banks assets were seized by the federal regulators. The collapse is indicative of the depression gripping the US housing market and banking sector resulting in the ever escalating write downs as estimated losses have mushroomed from just $100 billion 12 months ago to now more than $1.6 trillions. The truth of the true state of affairs has been reflected in the stock price charts rather than in the reassuring statements issued by the banks representatives as we witnessed with Bear Stearns and now with Indymac where as recently as 2 weeks ago, the bank rebutted warnings by Sen. Charles Schumer that Indymac was on the brink of collapse, which the share price confirmed having lost 98.5% of its value.

Indymac's failure followed hot on the heals of the collapse in the share prices of mortgage giants Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), on speculation that the Federal regulators would step in to bail them out from a potential collapse as the banks were seen as too big to fail representing 50% of the US mortgage market in terms of loan guarantees of over $5 trillion. Officials calmed markets following the morning crash, after statements that the two banks were able to finance day to day borrowings.

With the US housing market bottom no where in sight the expectations are that Indymac won't be the last big US bank to go bust as Fridays panic involving Fannie Mae and Freddie Mac warned of a potential financial catastrophe as the US would be forced to take on liabilities of more than $5 trillion therefore increasing the national debt by 54% from $9.4 trillion to 14.5 trillion which would result in severe consequences for the US dollar and the US bond market in terms of loss of confidence. Therefore setting the scene for a US recession turning into a Depression.

By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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