Why did indymac implode

FBC of Troy, Mich. WM of Seattle. Federal regulators seized IndyMac this month after the bank buckled under the pressure of mounting consumer loan delinquencies and depleting capital reserves.

The news sent shockwaves down Wall Street as investors dumped banking stocks and nervously wondered which bank might collapse next. The falling share prices made it tougher for them to raise capital, which sparked market fears that they might be unable to cover losses among the trillions of dollars of loans that they own or guarantee.

The Federal Reserve stepped in to calm investor jitters by opening its discount window to the two agencies. In addition, the Bush administration unveiled plans for the government to buy billions of dollars in Fannie Mae and Freddie Mac shares over the next two years and to boost their credit lines at the Department of the Treasury.

The moves aim to reassure stock and bond investors that the two companies will have the liquidity to weather the crisis. As a result of all this turmoil, industry experts are recalculating the time it will take for the housing sector to bottom and rebound.

Bob Curran, managing director and lead home-building analyst at Fitch Ratings Ltd. Curran said. As a result, he predicted that falling home prices, tighter mortgage standards, poor buyer psychology, high inventories and surging foreclosures will likely continue into at least next year. VanderPal predicts that the housing market will bottom in the spring or summer of next year. From there, the recovery will take anywhere from two to eight years to rebound to values, with markets that took the biggest hit taking the longest to recover, he said.

Bratsafolis thinks that it will be late before the sector bottoms unless the government introduces better initiatives, such as profit-sharing mortgages, where the lender and homeowner share in the appreciation when a home is sold in exchange for a more affordable mortgage rate now.

There is another round of interest rate resets on adjustable mortgages on the horizon that will push more homeowners into foreclosure, he said. For reprint and licensing requests for this article, click here. Group Subscription.

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