Indy Mac Collapse Causes Chain Reaction

July 12, 2008 12:00:00 AM PDT
The country's mortgage crisis is a little deeper tonight after the second biggest collapse of a financial institution in American history.All eyes were no lending giants Fannie Mae and Freddie Mac Friday after fears of a potential government bailout. But it was Indy Mac bank that failed. It will reopen on Monday under control of the federal government.

"It is the second largest failure in recent memory and they are the 7th largest residential lender in the country so this will probably have reverberations around the industry," said USC Professor of Finance Tracey Seslen.

Indy Mac is the latest victim of the housing market crisis. With skyrocketing foreclosures, the bank racked up losses of more than $900 million dollars in home mortgage loans. Regulators said it failed due to a crisis caused by a surge on withdrawals.

"I'm very angry, very upset about this. I wanted to withdraw my money, I've got a CD, I've got approximately 100-thousand dollars in Indy Mac," said Indy Mac customer Steve Knieerein.

There are still continued fears that Fannie Mae and Freddie Mac will be taken over by the government, even though company officials denied there is a crisis, and the White House dismissed reports that it was planning a bail out.

"If the government is gonna pay more money, we all are paying more money," said Greg McBride with Bankrate.com.

Next week the Federal Reserve Chairman is scheduled to brief lawmakers on the outlook of the economy and major financial institutions like Wells Fargo, Merriyll Lynch and Citigroup are expected to release their earnings report.


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