IndyMac Bancorp Inc. announced Monday that it’s no longer considered "well capitalized" by regulators, has stopped accepting new loan submissions or rate locks, and will lay off 3,800 employees — about half of its workforce.

IndyMac Chairman and CEO Michael W. Perry promised the company will honor all existing rate-locked loans and will continue to fund the loans in coming weeks. Falling home prices and rising delinquencies and foreclosures have reduced the value of IndyMac’s mortgage-related assets, and the company hasn’t been able to raise additional capital through investment banks, Perry said in a letter to shareholders.

The "traditional way" to raise capital is "to sell assets and shrink the balance sheet," Perry said. Because there are no bids for most of IMB’s mortgage loans and securities, or the offers are so low, “fire-selling” assets would "actually deplete capital further. As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset … is to curtail most new loan production."

IndyMac produced $9.6 billion in new mortgage loans in the first quarter, down 62 percent from a year ago, while nonperforming loans held for investment climbed to $1.8 billion, or 6.51 percent of total assets. The former alt-A lender trimmed its losses from $509 million in fourth-quarter 2007 to $184 million in the first quarter of 2008 after switching most originations to loans eligible for purchase or guarantee by Fannie Mae and Freddie Mac (see story). Perry said Monday that second quarter losses are likely to exceed those for the first by an unspecified amount.

IndyMac plans to concentrate on its reverse mortgage unit, Financial Freedom, and loan servicing. Combined, those units are expected to produce $5 billion to $10 billion per year of new loans backed by FHA, Fannie Mae or Freddie Mac. IndyMac will continue to operate its Southern California retail bank branch network, including 33 branches and roughly $18 billion in deposits, of which over 96 percent is covered by FDIC insurance.

When the housing and mortgage crisis abates, IndyMac hopes to be an investor in mortgage loans and mortgage-backed securities, and might re-enter mortgage lending on a low-cost, non-commission-based business model.

By cutting back from 7,200 employees to about 3,400, IndyMac expects to cut operating expenses by 60 percent. The company will retain about 1,100 employees in loan servicing in Kalamazoo, Mich., and Austin, Texas; 350 in a servicing retention group in Irvine, Calif., and Kansas City; 800 at Financial Freedom, primarily in Atlanta, Irvine, and Sacramento, Calif.; 400 in the company’s Southern California retail and Web bank; 500 in portfolio management and administration, largely in Pasadena, Calif.; and 250 in discontinued businesses.

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