Last year “was a terrible year for our industry, for Indymac and for you, our owners,” IndyMac Bancorp Inc. Chief Executive Officer Michael Perry said today in a letter to shareholders as the alt-A lender reported a $509 million fourth-quarter loss.

Increased provisions for future credit losses drove IndyMac’s fourth-quarter loss, with credit reserves growing 71 percent from the previous quarter, to $2.4 billion — a more than four-fold increase from a year ago. IndyMac also reported losing $321.8 million on the sale of $13.4 billion in loans during the fourth quarter.

“As I write this note, over 225 independent mortgage companies have failed and over 100,000 jobs have been lost in our industry,” Perry said in the letter, which also noted the pending sale of Countrywide Financial Corp. to Bank of America, and billions of losses at Fannie Mae and Freddie Mac.

IndyMac’s losses for the year totaled $609 million, the first annual loss in the company’s 23-year history. Although the company expects to return to profitability in the second quarter, it must raise capital and downsize to survive the downturn.

To raise capital, IndyMac will eliminate dividends to shareholders and shrink its balance sheet, Perry said. Having already raised $676 million in capital during the fourth quarter, he said the company remains adequately capitalized for now.

After implementing a hiring freeze in 2006, IndyMac laid off 382 workers in July, with another 1,165 employees accepting voluntary severance packages in September. That was followed by the announcement last month that IndyMac was closing six regional mortgage centers and eliminating 2,563 positions (see Inman News story).

IndyMac said it has stopped making the loans that accounted for 90 percent of 2007 net losses, including home equity, subprime, conduit and builder construction loans.

But 2008 could also turn out to be a better year for IndyMac than projected, as the company’s loss mitigation efforts improve and if low interest rates spark a refinancing boom. IndyMac also expects to benefit from an agreement by Congress and the Bush administration to give Fannie, Freddie and FHA the go-ahead to back bigger loans that formerly exceeded their limits (see Inman News story), and the potential for investors to return to the secondary market for private-label mortgages.

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