Today, IndyMac Bank was seized by the federal government after cash reserves fell too low and the bank was no longer able to operate. The fall of IndyMac, a major HELOC lender, is reported to be the second largest bank failure in the history of the U.S.

Consumer Affairs reports:

“IndyMac was founded in 1985 and became the leader in “alt-A” mortgages, those written to consumers whose credit was good if not outstanding, on terms that included adjustable interest rates, flexible pay plans and other features that often meant consumers’ loan balances grew instead of declining over time.

The company was also heavily into subprime and home-equity loans and often required little or no documentation of borrowers’ income, critics said.

The Center for Responsible Lending, a consumer advocacy organization, said IndyMac’s decline was caused by “unsound and abusive lending” practices.”

One question some IndyMac borrowers are asking: “Do I still need to make my HELOC / mortgage payments?” The answer is an unequivocal “yes.”

Although some customers may lose money by saving more than the FDIC insurable $100,000, mortgage clients are still responsible for the full amounts of their loan. The bank will be held by the government and then sold - not paying on time can result in foreclosure.

See Also:

HELOC Freeze 

Tags | FDIC, Heloc, home equity line of credit, IndyMac, mortgage crisis