IMPEACH BUSH

The federal government has agreed to sell the skeleton of IndyMac Bank, the aggressive California mortgage lender whose July failure portended the autumn crisis of the financial system, to a group of private investors.

It is the first failed bank in almost two decades that the Federal Deposit Insurance Corp. has sold to a buyer outside the banking industry, underscoring both the dearth of banks able to bid and the increased interest of wealthy investors in the ailing but historically lucrative industry.

The investing group, IMB HoldCo, is led by Steven Mnuchin, a former Goldman Sachs executive, and includes the veteran banking investor J. Christopher Flowers, computer maker Michael S. Dell and hedge fund manager John Paulson, who made billions betting on the very collapse of the mortgage market that killed IndyMac.

The sale of IndyMac has a total value to the government of about $13.9 billion. That is mostly the value of liabilities that the investors will take off the government's books, plus a cash payment for the balance.

The FDIC estimates that even after that payment, IndyMac's failure ultimately will cost the agency between $8.5 billion and $9.4 billion, consistent with the agency's earlier estimate of $8.9 billion. There is no direct cost to taxpayers because the agency is funded by fees collected from the banking industry.

The deal is consistent with the FDIC's emerging model for selling failed banks, hammered out over a string of recent failures. The agency agreed to limit the buyer's potential losses on a portfolio of IndyMac's outstanding loans by promising to cover almost all losses in excess of 20 percent of the portfolio. In exchange, the buyer is required to offer mortgage modifications to IndyMac customers on terms specified by the FDIC.

The agency already has modified mortgages for 8,500 IndyMac customers, generally by reducing interest rates to make monthly payments more affordable. The agency said 9,500 modifications are in process and at least another 28,500 borrowers are eligible. The FDIC, which wants the program adopted nationwide, said it calculates the modifications will save $423 million by avoiding foreclosures.

"The FDIC and IndyMac staff accomplished a tremendous amount of work in a short period of time to help thousands of struggling homeowners stay in their homes," said John Bovenzi, who will end a turn as IndyMac's chief executive and return to his role as the FDIC's chief operating officer.

IndyMac's collapse was the fourth-largest bank failure in U.S. history and the second-largest this year behind Washington Mutual's in September.

IndyMac was weakened by massive and mounting losses on its portfolio of home mortgage loans, then finished when depositors lost confidence in its viability and drained more than $1 billion in deposits, leaving it without enough money to cover its obligations.

The Treasury Department's inspector general reported last week that a senior official of the Office of Thrift Supervision knowingly allowed IndyMac to conceal the depth of its financial problems only weeks before it failed by falsifying a key financial filing.

Since the seizure, the FDIC has operated the bank as a government subsidiary, gradually winding down its operations. The bank, which held roughly $18 billion in deposits at the time of its failure, now holds about $6.5 billion.

IndyMac's remaining value is in its network of 33 branches in the Los Angeles area, a profitable national business as a "reverse mortgage" lender helping seniors tap the equity in their homes, and a considerable portfolio of loans that borrowers continue to repay. IMB HoldCo also agreed to inject $1.3 billion into the bank when the deal closes, which is expected to happen at the end of the first quarter.

Regulators prefer to sell failed banks to healthy banks, which are best equipped to operate them. An FDIC spokesman declined to comment on whether banks submitted bids, saying only that the investor group was the highest bidder. But the industry's financial problems increasingly have limited the ranks of banks that are in a position to close such a large deal.

Recognizing that reality, federal regulators sought to attract private equity and hedge funds in September by easing restrictions on bank owners, including allowing companies that buy banks to continue investing in other areas, and exempting private investors from some oversight and disclosure requirements.

Regulators said they view private investors as a prime source of needed money. Critics warn that some investors will use federally subsidized banking subsidiaries to finance high-risk investment activities. The last experiment in the early 1990s produced mixed results.

IndyMac continues to face demands from Fannie Mae and Freddie Mac that it provide compensation for problematic loans it sold the two companies, but an FDIC spokesman said those negotiations had no impact on the sale of the company.

The spokesman, David Barr, said the deal was signed on New Year's Eve, as expected, but the announcement was delayed until today because the buyers could not complete a required escrow deposit before the bank closed.