As thousands of customers waited hours in the heat Monday to withdraw deposits from failed IndyMac Bank, investors dumped the stocks of many mortgage lenders, precipitating the steepest one-day decline in banking shares since 1989.
Southern California fixtures Downey Financial Corp. and FirstFed Financial Corp., specialists in the nontraditional mortgages that fueled the housing boom, were among the hardest hit, with their stock prices down 24% and 19% respectively. Shares of Washington Mutual Inc., the biggest savings and loan, fell nearly 35%.
Keefe, Bruyette & Woods bank analyst Frederick Cannon said one big fear for the banks was that depositors, seeing what was happening on Wall Street, would begin to pull their funds out. That, he said, could create risks for even a reasonably healthy bank in a hurry.
Branches of Pasadena-based IndyMac, which federal regulators seized late Friday, were thronged by customers, many of them elderly, seeking to withdraw deposits, even though most were fully insured by the Federal Deposit Insurance Corp.
The FDIC, which was running the bank on Monday, sought to reassure depositors with less than $100,000 held in a single name or $250,000 in a retirement account that their money was safe.
But an estimated 10,000 IndyMac customers had deposits that exceeded those limits. Among them was 70-year-old Charles Tengeri, a retired teacher from Pasadena, who arrived at IndyMac's headquarters at 4 a.m. and grabbed one of the first spots in line.
Tengeri had more than $200,000 in five certificate of deposit accounts -- his life savings, he said. After waiting five hours, he left with a check for $171,000.
"It's not 100%, but it's better than nothing," said Tengeri, who still has more than $50,000 tied up in the bank. "It's not fair. . . . I'm praying for it, I'm crossing my fingers for it, but I don't know."
Lines moved slowly at many branches, and after a woman fainted in the heat at the Pasadena headquarters, a row of white tents was set up to shield customers from the sun. Officials distributed ice and bottled water. By midafternoon, about 150 people were in line, and many more were turned away and told to return today.
The FDIC acknowledged that it needed to improve the way it processed customers.
"We did expect that there would be large crowds," said FDIC Chief Operating Officer John Bovenzi, newly installed as chief executive of IndyMac. "But we need to do better."
He said he had ordered the bank's hours to be extended by two hours starting today, so branches would be open 8 a.m. to 6 p.m. And he said there would be about 100 additional employees -- some from IndyMac, some from the FDIC -- to speak to depositors.
Customers concerned about uninsured deposits were advised to call a toll-free number, (866) 806-5919, for an appointment to discuss their accounts. But a number of depositors complained Monday of being unable to get through to anyone on the hotline.
In another move to assist customers, FDIC spokesman Andrew Gray said IndyMac would put foreclosure proceedings on hold and attempt to modify troubled mortgages to keep borrowers in their homes.
That will be easiest to do with about $15 billion of loans that IndyMac owns outright. But the agency also hopes to modify troubled loans among $185 billion in mortgages that have been bundled into securities and sold to investors, with IndyMac as the servicer, or bill collector.
"We do believe that there's significant flexibility to modify the terms of these securitized loans," he said.
IndyMac was hobbled by massive defaults on loans made at the height of the real estate market and a huge outflow of deposits that began late last month. Some regulatory officials have suggested that Sen. Charles E. Schumer (D-N.Y.) sparked the run on the bank by publicly questioning IndyMac's financial health.
IndyMac had been a leader in "alt-A" mortgages, which were made to borrowers with decent credit who often weren't required to verify their incomes to get the loans.
Downey Savings, based in Newport Beach, and First Federal Bank of California, based near Playa Vista, were specialists in so-called option-ARM loans -- the adjustable-rate mortgages that let borrowers pay so little that their loan balances would rise instead of going down. Washington Mutual was a major option-ARM lender as well.
Most option-ARM borrowers had passable credit scores, but Downey and WaMu also made loans to borrowers with blemished credit. Those subprime mortgages began defaulting in large numbers in late 2006, and option-ARM delinquencies have risen sharply in the last year.
Downey was at the top of a list of banks and thrifts with high ratios of defaulting and foreclosed loans, with 13.9% of its loans in those categories as of March 31, according to an analysis by Richard X. Bove of Ladenburg Thalmann. That was up from 1.1% a year before.
FirstFed was No. 5 on the list, at 6.7%, up from 0.5% a year earlier. Washington Mutual was No. 12, at 3.9%, up from 1.6% a year earlier.