Proposed law gives hope to uninsured IndyMac depositors

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Note: A previous version of this story said more than 6,400 depositors lost $233 million when IndyMac failed. This version corrects that those people were in California only and adds another 2,300 underinsured depositors in other states and countries. It also increases the total loss to $266 million, per FDIC records.

Federal Deposit Insurance Corp. Chairman Sheila Bair said last year that underinsured depositors would need an act of Congress to recover money lost when IndyMac Bank went under in the mortgage meltdown.

Distraught then, the depositors were hopeful Friday after two Southern California members of Congress introduced a bill to repay much of their losses.

‘I am walking on a cloud,’ said Gina Martelli, who lost $63,000 -- money from a disability settlement -- that was above the FDIC’s $100,000-per-depositor limit when IndyMac was seized July 11, 2008.

FDIC data show that former IndyMac customers have losses totaling more than $266 million after receiving payment from the federal agency of 50 cents for every uninsured dollar in addition to 100% of their insured deposits.

IndyMac was an early catastrophe of the financial crisis, having specialized in issuing high-yielding certificates of deposit to fund stated-income home loans. The Pasadena thrift became a ward of the FDIC, which eventually sold its remains to a group of hedge-fund billionaires and wealthy investors, including George Soros and Michael Dell.

More than 6,400 IndyMac depositors in California lost money because it was only later that year that Congress raised the FDIC insurance limit to $250,000, Reps. David Dreier (R-San Dimas) and Jane Harman (D-Venice) said in a statement.

Another 2,300 depositors in other states and countries also were underinsured, said Lisa Marshall, a leader of a group of former IndyMac customers who have pressed Bair and Congress to recover their funds.

The bill introduced Thursday by Dreier and Harman would retroactively extend the $250,000 ceiling to deposits at banks that failed beginning Jan. 1, 2008. The largest of those by far was IndyMac.

“Their losses were no less difficult and no less tragic than those that occurred later that same year,’ Dreier said in a statement.

The legislation also would help depositors burned by the failures of five smaller financial institutions earlier in 2008: Hume Bank of Hume, Mo.; ANB Financial of Bentonville, Ark.; First Priority Bank of Bradenton, Fla.; Columbian Bank and Trust of Topeka, Kan.; and Silver State Bank of Henderson, Nev.

In an interview, Harman declined to predict the chances of the legislation but said she hoped it would be added as an amendment to the massive financial overhaul bill that is nearing final passage by Congress.

A similar measure, which she and Dreier tried to attach to the legislation that created the Consumer Financial Protection Agency in December, was voted down.

Steve Adamske, a spokesman for House Financial Services Chairman Barney Frank, said Frank supported the measure and had worked to help shape it with assistance from the FDIC.

“The FDIC’s support in this helped their cause,” Adamske said, adding that it wasn’t clear whether the measure, drafted as stand-alone legislation, would become part of the overhaul package.

The repayments would come from the FDIC deposit insurance fund, which raises money by charging banks premiums for insurance.

Because IndyMac depositors already have gotten back 50 cents for every dollar of uninsured deposits, a person who had $200,000 in an account would already have received $150,000. If the measure becomes law, the additional $50,000 would be refunded.

A depositor who had $300,000 in an account would already have been repaid $200,000 -- the $100,000 in insurance, plus half of the uninsured funds. If the measure becomes law, an additional $50,000 would be refunded, bringing the total to the $250,000 limit and leaving the depositor $50,000 short of full recovery.

One of the contentions of underinsured IndyMac depositors was that bank employees misinformed them about insurance limits, how to set up multiple accounts under different combinations of names, and who could be named a beneficiary of trust accounts.

Many of the depositors set up multiple accounts, and the losses of some exceeded $1 million, FDIC officials said.

The Dreier-Harman legislation would only enable each depositor to recover a maximum of $250,000, said Harman and the FDIC.

-- E. Scott Reckard