IndyMac Customers Line Up to Withdraw Money

July 15, 2008 12:00:00 AM PDT
The majority of home loans processed in the Valley are covered by Fannie Mae and Freddie Mac.From the east coast, to the west coast, the pain of America' s historic credit crisis and mortgage meltdown is evident. In Pasadena, California, Monday hundreds waited to enter the federally seized IndyMac bank ten at a time to take out their money.

"I have no confidence now in our government or the system," said one IndyMac customer.

"I was very concerned. My husband was praying for three days," said another IndyMac customer.

IndyMac had a questionable history of subprime loans. Friday it was taken over by the FDIC, the agency that insures banks.

"This is actually now as safe and sound as any bank in the United States," said CEO of IndyMac John Bovenzi.

But things are hardly safe and sound on Wall Street. Even after the government announced an extraordinary rescue plan of Fannie Mae and Freddie Mac; by the end of the day, Monday, prices were down again on shares of Fannie and Freddie stock.

Stuart Hoffman, Chief Economist, PNC said, "It doesn't bring oil prices down. Unfortunately, the U.S. economy has other demons bothering it right now."

Regulators predict more than a hundred banks could go under in the next year . Most of them are regional institutions that specialized in riskier loans before the housing bubble burst. "We believe that most of the bank failures that people are talking about are going to be names of banks that nobody even knows today, small institutions that may have started up at the wrong time," said Frederick Cannon, Equity Strategist with Keefe, Bruyette & Woods.

A lot more grim news is expected. Several banks and airlines report their earnings this week.

The majority of home loans processed in the Valley are covered by Fannie Mae and Freddie Mac. With those two lending giants in financial trouble, home buyers here in the Valley are finding it much more difficult to get pre-qualified. Loan officers say it's because lending institutions are now imposing much tighter requirements. "Consider lending like a big watering hole. There was a huge vast of lenders that were lending money left and right. Now that watering hole has shrunk to the point where it's harder because everyone else is going to that same water hole," said Loan Officer Paul Salazar.

Salazar said on average homes now are staying on the market for 2-3 months; some as long as six months before they sell.

The Fed chief will also be on Capitol Hill Tuesday morning. Ben Bernanke is expected to offer more details on how the fed plans to crackdown on shady mortgage lending practices.

The Federal Reserve has adopted new rules designed to protect homebuyers from deceptive mortgage lenders. The new rules would restrict pre-payment penalties imposed on borrowers who pay off a loan early.

The Fed is also barring mortgage companies and brokers from making loans without proof of a borrower's income and requiring risky clients have set aside money for property taxes and insurance.

Most of the new regulations go into effect on October 1st of 2009.


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