What Really Caused IndyMac Collapse?

Sub-Prime Loans - NO - IndyMac didn't do Sub Prime loans!

Sub Prime mortgage loan failures at other lenders - YES

Our Government - Yes - It did a lot that led to IndyMac failure!

The overall economy - YES

The story begins with loose money made available from the Federal Reserve at lower than normal rates. Our Federal Government also insisted that lenders provide more mortgages to people who don't qualify under ordinary standards.

IndyMac made a lot of Alt-A mortgage loans. These are just below prime mortgage qualifications, but nowhere as risky as subprime loans. IndyMac was the SEVENTH LARGEST mortgage originator in the United States. Their mortgage business was out of proportion to their other banking functions.

U.S. Senator Charles Schumer's office apparently deliberately leaked his criticism of both IndyMac and regulators. This caused a run of 1.3 billion in withdrawals from the bank in just two weeks! ($100 million a day)! All these bank depositors got all their money out. After the bank's failure - depositors having over $100,000 in their name only got 50% over $100,000. (It was possible to have different types of accounts eligible for over the one $100,000 limit).

When the housing market began to collapse, IndyMac turned to "brokered accounts" with higher interest rates. Brokered accounts are expensive for a bank, but were needed to back up its loan portfolio.

As many as 150 more banks or more could fail within the next year.

What can you do to reduce your risk?

• 1. Keep below Federal Insurance Corporation (FDIC) limits in any one bank. Check out FDIC website for limits
• 2. Don't keep all your funds in any one bank.
• 3. Consider putting part of your deposits in a credit union.
• 4. Ask your CPA or other trusted advisor to analyze your risk.

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