Southern California depositors could lose $500 million in IndyMac bank failure

When the 33 branches reopened Monday morning as IndyMac Federal Bank, they were greeted by thousands of retirees, workers and professional people, many having already stood in line for hours. The crowds waited in sweltering heat to withdraw whatever funds they could in scenes recalling the financial panic that gripped the country during the Great Depression.

Police were called to the Encino branch in the San Fernando Valley Tuesday to control a line of people, many of whom had been waiting since Monday to withdraw funds.

A spin-off of Countrywide Finance Corporation founded by Countrywides recently retired CEO Angelo Mozilo, IndyMac in the first years of the decade played a key role in the Southern California housing bubble by providing high-interest Alt-A home mortgages to purchasers with good credit ratings who were not asked to provide documentation of their income and assets. These so-called liar loans exemplified the speculative frenzy that created a vastly inflated housing boom which enabled mortgage lenders, banks and big investors to amass huge profits by buying and selling securities backed by such dubious assets.

While home prices were rising, sometimes at rates of more than 10 percent a year, purchasers refinanced their equity or flipped properties to make up deficits. With the collapse in home values, some 15 percent of IndyMac mortgages have gone into default or foreclosure, with many more losses on the way.

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