Sen. Charles Schumer, D-N.Y., sent letters to federal regulators asking them to monitor more closely the financial health of IndyMac Bancorp Inc., a mortgage lender and thrift operator based in Pasadena, Calif.
Schumer wrote that he is "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac or minimize the damage should such a failure occur."
The letters, drafts of which were viewed by The Wall Street Journal, were sent Tuesday to the Federal Deposit Insurance Corp. and the Office of Thrift Supervision, which regulate IndyMac, as well as to the Federal Housing Finance Board. The finance board regulates the 12 regional Federal Home Loan Banks, which are owned by banks and thrifts but chartered by Congress. Because of their congressional charter and role in providing funds for home loans, investors assume that the government would stand behind the home loan banks in a crisis.
IndyMac had $10.4 billion of loans, or "advances," from the Federal Home Loan Bank of San Francisco at the end of the first quarter. Such loans are backed by collateral, typically mortgage loans. Schumer's letters asked the bank and finance board whether the credit and collateral terms for IndyMac "accurately reflect the associated risks." He also asked whether the San Francisco bank plans "actions to mitigate the risks of its exposure to IndyMac."
Schumer also said it is "troubling" that deposits placed by brokers account for about 37% of IndyMac's total deposits. Brokered deposits are considered more susceptible to sudden withdrawals.
A spokeswoman for IndyMac said she hadn't seen the letters and had no immediate comment.
IndyMac's share price has collapsed amid growing investor fears over the effects of rising defaults and falling home prices on it and other mortgage lenders. IndyMac shares early Thursday afternoon were trading at 90 cents, down from about $31 a year earlier.
In May, IndyMac posted a $184.2 million loss for the first quarter and said it was considering moves to raise capital. At that time, IndyMac also warned that it could fall below the minimum level of capital needed to be classified as "well capitalized" and that the regulatory response to that was unknown. The IndyMac spokeswoman said Thursday she had no update on efforts to raise capital.
IndyMac's risk-based capital was 10.26% of assets at the end of the first quarter, just above the 10% minimum needed to be classified as "well capitalized," but IndyMac said it aimed to raise that to 11% as soon as possible.
In the first quarter, IndyMac was the 11th-largest producer of U.S. home mortgages, according to Inside Mortgage Finance, a trade publication.
The company has said it doesn't expect to return to profitability until "home-price declines decelerate." Dropping home prices worsen losses stemming from defaults, and many second-lien loans are being written off.
During the housing boom, IndyMac specialized in Alt-A loans, a category between prime and subprime that typically involves borrowers who don't fully document their incomes or assets. As defaults soared, investors stopped buying such loans from lenders last year.
IndyMac has been forced to shrink drastically and focus on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac or insured by the Federal Housing Administration.
