IndyMac Bancorp Inc., a major nationwide home lender based in Pasadena, said Tuesday that it would eliminate 2,400 jobs, or 24% of its remaining workforce, in reaction to "gut-wrenching" changes in the mortgage business.
The cuts are in addition to 1,600 jobs slashed by IndyMac last fall. And Mike Perry, chief executive of the savings and loan, said he would probably have to fire an additional 500 to 1,000 employees in the next six months.
Perry cited a "survival of the fittest" environment caused by the deflation of the housing bubble.
"The bottom-performing real estate and mortgage professionals are having a tough time staying in the business, and most are realizing that they have to find different careers," he said in a letter to employees that estimated that 100,000 home-loan workers in the U.S. had lost jobs in the upheaval triggered by soaring defaults on sub-prime loans.
It was an all-too-familiar lesson in Southern California, historically a booming home to mortgage lenders but a region where scores of such companies have closed up shop, gone bankrupt or been sold or downsized drastically over the last year.
Just last week, Calabasas-based Countrywide Financial Corp., the No. 1 mortgage lender, announced that it had agreed to be acquired for $4 billion by Charlotte, N.C.-based Bank of America Corp.
At Countrywide, which is finishing up a round of 12,000 job cuts, Chief Executive Angelo Mozilo said in announcing the Bank of America takeover that the housing and mortgage sectors were being strained "as never seen since the Great Depression."
Also Tuesday, Santa Monica-based FirstFed Financial Corp., a specialist in adjustable-rate mortgages with extremely low starting payments, said its provision for loan losses in the fourth quarter would be $20 million to $23 million, up from $4.5 million in the third quarter. Shares of the company, the parent of First Federal Bank of California, fell $3.51, or 10%, to $31.59.
IndyMac's announcement came after the close of trading. Its stock had fallen 27 cents, or 5.7%, to $4.49 earlier in the day. The stock is down 25% in the last two weeks and 89% from a year ago.
In announcing the latest layoffs, IndyMac contrasted its situation and its employees' plight with that of other firms that have closed entirely.
"We are still here. We are still in business. We are fighting our way through this tough market," said Grove Nichols, IndyMac's communications director. "We continue to have a significant capital cushion and strong liquidity. That is going to allow us to fight our way through it."
Nichols described the company's funding sources, which include deposits held by the savings and loan, as strong.
"We are optimistic that we are going to be a survivor and learn how to make money in the current market," he said.
IndyMac specialized in making loans without verifying borrowers' earnings, mostly to homeowners with good credit scores. It kept some of those loans as investments but sold many to Wall Street for conversion into mortgage bonds and more complicated debt securities.
As mortgage delinquencies have skyrocketed, it has become impossible to sell not just "stated income" loans but also any mortgages with unusual characteristics, Perry said in his letter to employees, posted on the company's website. The unsalable loans include "jumbo" mortgages, which are common in high-cost California and were an IndyMac specialty. Jumbo loans, which exceed $417,000, can't be sold to government-sponsored loan investors Freddie Mac and Fannie Mae.
In announcing the results of the first round of buyouts and layoffs Oct. 12, Perry had told employees, "I believe that we are largely done with staff reductions at this time except for some small, targeted layoffs over the next 30 days . . . unless, of course, the mortgage market takes another turn for the worse."
Since then, the situation has deteriorated, Perry said, as the private market for loan sales "remains virtually frozen" and Freddie Mac and Fannie Mae, which buy mainly traditional "plain vanilla" mortgages, have reported large losses and tightened their guidelines for what they would buy.
Given what has been going on in the market, the layoffs announced Tuesday surprised few IndyMac employees despite the previous assurances, Nichols said.
"People are not dumb," he said. "They see what's happened to our stock price and to everyone else's. They read about Countrywide and Citibank and Bear Stearns."
Nichols said he couldn't provide a geographic breakdown of the layoffs, but said many employees in Pasadena had lost their jobs.
The IndyMac cuts extend a wave of job losses in housing and mortgage lending that are affecting the health of the region's economy, said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
"Things are a little bit shaky," he said. "Our one big growth industry is likely to be the legal profession, which is likely to get a bonanza of business from the sub-prime mess."
Steve Foster, president of Vista Financial, a North Hollywood-based mortgage broker, said he didn't expect the mortgage industry to show any improvement until 2009.
"This is the worst I've seen it in the 18 years I've been in this business," he said.
In his letter, IndyMac's CEO cast the market conditions as a normal, though painful, part of economic change.
"What we see happening in our industry today is the direct result of our capitalist, market-based, free enterprise system," Perry wrote, "where resources (people, capital, etc.) are constantly being redeployed from industry to industry, often in an abrupt and gut-wrenching way."