Mortgage Lender IndyMac Slashes Work Force

Mortgage lender IndyMac Bancorp Inc. said Tuesday it will slash its work force by 24 percent, laying off 2,403 employees in a bid to cut costs as it tries to weather the worsening housing slump and problems selling home loans to investors.

The job cuts include a significant reduction in temporary vendor staffs, mainly in India, the Pasadena-based company said.

Around 1,000 of the employees targeted by the company were being cut immediately with one to three months of severance pay. Others leaving the company include some who accepted early buyout packages, voluntarily resigned or are expected to resign by the end of March, the company said.

As a result of the job cuts, IndyMac was also closing wholesale mortgage lending centers in cities including Tampa, Fla., Philadelphia, Boston, and Columbia, S.C., with the aim of consolidating the operations in other locations.

"This action is clearly painful, but it is necessary in our drive to return IndyMac to profitability soon," Mike Perry, IndyMac's chief executive, said in a memo to employees that was filed with the Securities and Exchange Commission.

The latest round of layoffs follows a reduction of about 1,600 workers last year through voluntary resignation. The company ended 2007 with a work force of 9,938.

Perry added he anticipates further cutbacks of between 500 and 1,000 other employees worldwide, primarily in the first half of 2008.

"These significant cost reductions, combined with future reductions and our other core strategies, give us a realistic shot of returning to profitability by the second half of 2008," Perry said.

IndyMac was ranked eighth largest among mortgage loan servicers in 2007, according to Inside Mortgage Finance, an independent trade publication.

The mortgage sector has shed thousands of jobs as the housing downturn has worsened and home loan defaults soared, driving scores of mortgage lenders out of business.

IndyMac said the job cuts were necessary because the company still faces a lack of demand for home loans on the secondary market and tighter access to capital due to the credit crunch that followed the collapse of the subprime mortgage market in August.

Perry noted the company has "a significant capital cushion and strong liquidity" but needs to keep costs down because it has been unable to sell its prime jumbo home loans on the secondary market and must keep them on its balance sheet.

IndyMac's pipeline of home loans - loans in progress that have not been funded - shrank 28 percent to $7.7 billion at the end of December versus $10.7 billion in the previous month. The company said it is forecasting its loan volume this year will fall to $43 billion, down from $78 billion last year and $92 billion in 2006.

The company said it would take a pretax charge to earnings for severance and other expenses related to the work force cuts of about $25 million in the first quarter, among other charges still to be determined.

The company expects to save $136 million annually in labor costs, in addition to other savings from vacated office space.

The lender posted a loss of $202.7 million during the third quarter, which ended Sept. 30.

Last month, Perry said in a statement that he expected the company to report a loss in the fourth quarter and was hoping it can be profitable again by the second half of 2008.

IndyMac - which primarily originated alt-A loans for customers who cannot provide documentation like traditional, prime borrowers

has come under increasing pressure like other lenders as delinquencies and defaults among mortgages rose in recent months.

Because of the rising delinquencies, investors shied away from purchasing mortgages in the secondary market. Lenders like IndyMac rely on secondary markets to replenish capital to originate new loans.

While lenders can sell loans to mortgage finance companies Fannie Mae and Freddie Mac, those government-backed companies can't buy jumbo loans - a term for loans that exceed Fannie and Freddie's current limit of $417,000. That's far below the median sale price in expensive states such as California.

IndyMac shares slipped 27 cents, or 5.6 percent, to $4.49 on Tuesday.