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FDIC Takes Over IndyMac Bank
This morning's top news stories exhibited continued concerns and more bad news for the mortgage industry, as the federal government scrambled for ways to alleviate the faltering housing market.

The FDIC and Office of Thrift Superivsion (OTS) announced on Friday that it had taken control of IndyMac Bank after a deposit run endangered that bank's ability to continue operating. The OTS, the primary regulator of all Federal and state-chartered savings institutions, actually released a statement indicating that the deposit run was prompted by the public release of a letter from Senator Charles Schumer (D-NY) that expressed concerns regarding the viability of the bank.

OTS director John Reich said that “although this institution was already in distress, I am troubled by any interference in the regulatory process." After the letter was released on June 26^th, depositors withdrew more than $1.3 billion from the bank in 11 consecutive days.

The Senator responded saying that, “If OTS had done its job as a regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today."

According to Brian Horey, president of Aurelian Management LLC, IndyMac's location in Southern California, a region with one of the highest foreclosure rates in the nation, coupled with the institution's focus on Alt-A mortgages, where borrowers need not disclose their incomes, put IndyMac in a precarious position.

Some analysts are predicting that even more banks are at risk and may require FDIC intervention, as banks' assets are increasingly comprised of foreclosed homes with depreciating values.

U.S. Treasury and Fed Outline Freddie Mac and Fannie Mae Plan

In addition the FDIC stepping in to salvage the remains of IndyMac, which they hope they can sell within 90 days, the federal government also announced a plan to prop of mortgage giants Freddie Mac and Fannie Mae after both GSEs' shares dropped last week. The Federal Reserve and the Treasury laid out plans to offer loans at discount rates to maintain the GSEs liquidity to relieve pressures to sell early this week.

U.S. Treasury Secretary Henry Paulson is seeking approval from Congress to increase its current $2.25 billion line of credit to each company. Investors, however, remain wary, as although the market was buoyed on last night's news that the government would step in to aid the GSEs, concerns regarding not only their liquidity but their long term solvency remain.

What is to be done? IndyMac customer lined up today in California to withdraw their deposits, while some float the idea of the totally nationalizing Freddie Mac and Fannie Mae.

Senate Passes Federal Housing Rescue Legislation

And finally, the Senate voted 63-5 to send H.R. 3221, the legislative federal housing rescue plan back to the house to iron out differences before it is reviewed by the White House. The struggle to pass the plan quickly has been resumed, as Senators Dodd and Shelby worked to include provisions that would appeal to all parties.

Are interventions softening the blow of the housing crisis or are they pushing off the market's correction and introducing protracted ambiguity for investors, lenders and borrowers?

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