Yesterday Indymac Bank (IMB) ceased accepting new loan files in both Retail and Wholesale.
They cited the usual rhetoric of the difficult financial marketplace and turbulent times. This is on the heels of the Schumer story.
They also cited, (and this is the really important part)
Lack of Liquidity
"Yet in this environment, where either there are no bids for most of IMB's mortgage loans and securities or the bid/ask spreads are abnormally wide, fire-selling assets would actually deplete capital further. "
Every large bank needs to be able "securitize" and "monetize" their mortgage assets. Indymac ran out of that ability.
Think of it this way, Indymac has a vault. That vault has piles of money in it. When Indymac gives Mr. Johnson a loan to buy a house, they take the money out of their vault and pay the previous homeowner.
As you can imaging, mortgages are big ticket items, and it doesn't take long to empty that vault. If the vault is empty, the bank can't possibly make new loans. That's why they sell the loans they have already done. While Mr. Johnson may continue to pay for his new loan, Indymac needs to sell the ownership of that loan. The proceeds of selling that note put money back into the vault.
Now, when Mrs. Jones comes in for a loan, Indymac has money to loan. 
It's a little more complicated than that - but that's gist of the story.
The Financial Sector and the Housing Sector are both in a heap of trouble and that's going to have a direct impact on you.
Liquidity
The house across the street from me is for sale.
As more and more banks run out of liquidity the ability for them to fund loans also diminishes.
Can you guess what loans they'll choose to fund if any? Yup, the highly qualified and the ultra highly qualified (forget about the plain old qualified buyers)
The house across the street might be worth $500,000 in a regular open market. But that assumes that the buyer can get a loan for that home (or has cash). As the lack of liquidity rises, the number of approved buyers drops, and the price that the home sells for also drops. (simple supply and demand).
You see, finally in desperation the seller accepted a low ball offer for $250,000 cash. When they did that can you guess what just happened to the value of my home?
So while we tend to think these big banks are evil money machines that don't deserve our pity, we also forget the very real impact their demise has on us. That lack of their liquidity will hurt you!
Another one bites the dust.....I've said it before and I'll say it here, the government needs to step in and do something real to fix the credit markets! It really wouldn't be that difficult or that expensive. Actually, if the government did something along the idea of what I'm suggesting, then it might even make a buck or two for it's efforts!
Drop me an email and I'll be happy to post a link to my article that addresses these issues!
Bob Mitchell
ValueList Real Estate Services, Inc.
Hopefully that problem will improve soon. Our prices have been holding in Hawaii, but if the lending side continues to spiral, they can drag is in the mess with everyone else.
Mike, thanks for the very simple and straightforward discussion. Since you posted your IndyMac information yesterday, I've been following it closely. We keep hearing there are billions more that will shake out as losses. What's your take?
Thanks, Mike. I was a little surprised although anyone is vulnerable these days. Expect a few more before things stabilize.
Paul
Prospect mortgage picks up another orphan...they purchased the retail mortgage arm of IMB. Didn't they just pull CTX from the ashes not too long ago?
Bob - I probably would have let the whole thing go but I've been following Brian Brady's similar post on BHB. Toss your link in here too! Yes we do need some help here.
Randy - This problem isn't going away - it going to get worse. Much worse.
Gretchen - Like I just said to Randy - it's gonna get WORSE!
Hi Paul - Vulnerable? Not to alarm you but the whole financial world is close to collapse. I'm not even a bubble blogger.
Rich - Not sure. What do you know? love to hear it.
Incidentally, my reason for this particular post was due to thoughts just like this: (found on BHB)
Dave Barnes, you should care because it'll have an impact on you directly!
I predict Countrywide will exit wholesale before the end of the month..... any takers?
Lewis... - Countrywide? They're already gone.
Mike,
Do you think IndyMac ceasing wholesale operations has any impact other than headlines?
They had ceased, in my mind, being a significant player in the market some time ago. The run on the bank and the drop in stock price is significant for those impacted, but as a bank in this market hadn't their position already fallen such that this impact is minimal?
There are larger issues of the stability of markets, but I just do not think this news is significant beyond giving the media another headline.
The impact of Indymac's failure had taken place several months ago. My thoughts.
I'd like to hear your thoughts on the Fed comments and decisions to guarantee student loans. So much has happened the last couple days and I have been to distracted to follow. It is going to take some time to catch up with things.
I interpret this as a message to investors that the federal government is willing to step and guarantee liquidity, in return for some changes in lending practices.
And how do you find all this tech stuff. Veoh TV. Looks good. And with you it looks so easy.
Richard
Mike - Countrywide wholesale is not gone yet.... but it is my belief that B of A has their site set on one out of every 5 mortgages originated going through them.....
Mike, the loss of IMB blows, but more importantly we all need to keep our focus on Fannie and Freddie. Based on today's Bloomberg story, things are looking really grim for the two GSE's...
@ Richard - The Fed funded buy-out of Bear Stearns made clear to investors that the Fed would be the liquidity backstop. Given Fed comments this week of extending access to the discount window to investment banks through next year, furthers their liquidity pledge.
Michael,
Concerns over the GSE's are upmost. About the Fed commentts sending a message, it just seemed more of a policy statement that the Bear Sterns action.
That seemed like everyone was caught off guard and someone had to step in to do something quick. The new comments seem to me to be more of a thought out policy, and pointed to keep investors in the game to help with the liquidity that Michael addresses.
Thanks,
Richard
IMB retail mortgage was picked up by Prospect...who knows if it will go through seeing that Prospect pulled out of the CTX acquisition deal yesterday.
Who in the Heck is Prospect?