Shares of Washington Mutual slid 35 percent Monday to their lowest level in more than 17 years after IndyMac Bancorp's collapse spurred concern more lenders are vulnerable to bad home loans.

Shares of Washington Mutual slid 35 percent Monday to their lowest level in more than 17 years after IndyMac Bancorp’s collapse spurred concern more lenders are vulnerable to bad home loans.

WaMu’s stock ended regular trading down $1.72 at $3.23, though it rebounded a bit after hours to $3.51. Not since February 1991 had its shares fallen so low.

“IndyMac’s failure has people worried about others,” Mark Fitzgibbon, a principal at Sandler O’Neill & Partners told Bloomberg News. “The mindset is, ‘Throw the baby out with the bathwater.’ “

The Seattle-based thrift said in a statement after the market closed that it exceeds all regulator minimums and will provide more details when it reports earnings July 22.

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In a letter to its customers dated July 2008, WaMu President Steve Rotella stressed that the company has enough cash on hand to meet the needs of its depositors while covering daily operations.

“This is a very challenging time for the financial markets and for WaMu. But we have managed through difficult times in the past, and we’ll do so again,” Rotella wrote. Rotella also reminded customers that deposits with WaMu are insured “to the limits established by the FDIC.”

Spokeswoman Darcy Donahoe-Wilmot said there hadn’t been any unusual depositor activity Monday.

But Lanse Jones, a small-business owner who lives in Edmonds with his wife, Jennifer, said he was concerned enough about WaMu’s viability to meet with a local branch manager.

He said he was somewhat reassured after the 30-minute meeting, in which the manager emphasized the financial differences between IndyMac and WaMu and criticized the current “fear-mongering” climate.

Things seem normal

“The bank seemed to be operating normally,” said Jones, who has checking and savings accounts with WaMu. “It seems like they’re not going under today or tomorrow.”

An Eastside couple, sitting in their pickup truck Monday outside a WaMu branch at Bellevue’s Crossroads Mall, said they keep their savings with WaMu.

“Sure I’m worried,” said Don, a 74-year-old retired government employee who declined to give his last name. His wife, Carol, added: “Everything we have is there, and if it gets taken away from us, we’re through.”

Eliman Bah, a 50-year-old health-care worker from Kent, wasn’t so worried. “I’m not moving my money because I don’t have much,” he said standing outside a Factoria branch in Bellevue.

Like Bah, Denise Kraft said she doesn’t have enough money in her WaMu checking and savings accounts to be concerned about the bank’s dire financial forecasts.

“I’m not real worried about it … but I don’t feel regular customers should have to pay for the lack of planning on the part of WaMu executives,” Kraft said.

Banks and mortgage companies are the worst performers in the Standard & Poor’s 500 this year, and Merrill Lynch strategists said Monday the stocks will continue to lag. WaMu, the biggest U.S. savings and loan, and National City Corp., Ohio’s largest bank, led the worst one-day decline in the S&P 500 Banks Index since its was created in 1989. Shares of National City dropped 14 percent, to $3.77.

First Horizon National Corp., Tennessee’s largest bank, declined 25 percent, while Regions Financial Corp., Alabama’s biggest, fell 17 percent.

Investors are speculating about which banks may fail after the demise of Pasadena, Calif.-based IndyMac, once ranked as the second-biggest U.S. mortgage company.

National City said in June it signed an accord with federal regulators tied to capital, risk and liquidity management.

The bank says it’s well-capitalized after raising $7 billion in May from investors led by Corsair Capital Management.

The collapse of IndyMac and deterioration in the construction-, mortgage- and auto-lending markets indicate losses at regional banks will force dividend cuts and additional capital raising, said analysts at Goldman Sachs and CreditSights.

Washington state’s Division of Banks regulates 92 financial institutions, though not WaMu, which falls under the purview of the U.S. Treasury’s Office of Thrift Supervision.

Although the division does not consider any of the institutions it regulates to be in imminent danger of failure, it has seen the number of “problem institutions” — defined as those with some significant identified area of weakness — increase from “very few to over 15 percent,” said Director Brad Williamson.

“Many Washington banks have significant concentrations of land-development and home-construction loans. As that market segment has slowed, those banks have started to see asset problems rise,” Williamson said.

“As long as the market does not significantly decrease, the problems likely are at manageable levels.”

Several Puget Sound regional banks also saw their stocks tumble Monday. Sterling Financial fell 28.7 percent to $2.53; Frontier Bank dropped 12.6 percent to $8.85; and American West Bankcorp fell 11 percent to $1.95.

The turmoil surrounding Fannie Mae and Freddie Mac may worry some homebuyers, but it won’t affect their ability to get mortgages, Seattle-area lenders predicted.

Stabilize two giants

Government pledges to increase financial credit to the two mortgage giants “will help stabilize Fannie and Freddie, which is pretty essential for the whole housing industry,” said Robert Story Jr., vice chairman of the national Mortgage Bankers Association and president of Seattle Financial Group. “We should not see any disruption in terms of getting a loan.”

Dave Erickson, president of the Washington Association of Mortgage Brokers and owner of Mortgage Broker Associates in Lynnwood, said Fannie’s and Freddie’s declining stock values, not the quality of their mortgage business, caused the concern.

“As their stock price was devalued they needed to bolster their capital, i.e. go the Fed. That’s what’s happening,” Erickson said. “Loans will still be made.”

Seattle Times staff writers Amy Martinez, Elizabeth Rhodes and Sara Jean Green contributed to this report. Bloomberg News contributed comments from analysts and stock information.