An effort by the Federal Deposit Insurance Corp. to sell the failed IndyMac Bank raises a tricky question: How much does IndyMac owe to the government-backed mortgage company Fannie Mae?
People familiar with the situation say that Fannie believes IndyMac has obligations to repurchase around $1 billion of home mortgages that failed to meet Fannie's standards. Banks that sell loans to Fannie or its smaller rival, Freddie Mac, must make "representations and warranties" that those loans meet certain quality standards. If not, the lenders can be forced to buy the loans back.
A spokesman for Fannie said the company is working with the FDIC in an effort to resolve the issue. "We are awaiting information from the FDIC," the spokesman said.
The large amount of IndyMac loans that Fannie says are flawed is the latest indication of the failures in screening mortgages that have plagued Fannie, Freddie and many major lenders. Fannie and Freddie buy loans that are made by mortgage lenders and turn many of those loans into securities for sale to other investors. Federal regulators took control of the managements of Fannie and Freddie in September as heavy default losses raised questions about their ability to survive without stronger government support.
IndyMac was the ninth-largest U.S. mortgage lender in terms of loan volume in 2007, according to trade publication Inside Mortgage Finance. But it wasn't until the second half of 2007 that IndyMac began selling the bulk of its loans to Fannie and Freddie. Before that, the Pasadena, Calif.-based lender sold most of its loans through Wall Street firms.
Buyout investor J. Christopher Flowers, hedge-fund operator John Paulson and the chairman of private-equity firm Dune Capital Management LP are partners in a company that is seeking to buy IndyMac from the FDIC. The FDIC seized control of IndyMac in July and has been seeking a buyer.
