IndyMac stops new loans, will cut 3,400 jobs

Michael Perry, the chief executive of the Pasadena, California-based firm said in a statement that job cuts would cut its operating expenses by about 60 percent.

"[C]learly these are the largest and most difficult staff reductions we have ever had to make," he said.

Perry said the lender has not been able to raise additional capital so far and will not be able to raise more until the housing and mortgage markets become more stable.

Instead of depleting capital further by "fire-selling" assets, IndyMac will shrink its balance sheet and its servicing rights assets by cutting back on most new loan production, Perry said.

The company also said expects its loss for the second quarter to be larger than that of its first quarter deficit of $184.2 million.

The firm was asked by regulators to submit a new business plan for approval and was directed to begin executing key parts which have already been agreed to.

Components included in the company's business model will include: being a reverse mortgage lender, a loan servicing operation with a retention production unit, and a Southern California retail branch network.

The company says it hopes to invest in mortgage loans and mortgage-backed securities once it returns to health and could re-enter the national forward mortgage production business.

The company's employee severance program will also be cut, Perry said.

Employees will be given a minimum 30-day notice of termination with employees under the Federal WARN Act and similar state statutes receiving 60 days advance notice.