IndyMac Bank Scandals and Financial Failure

IndyMac Bank's financial failure was a result of the bank's risky lending practices and lack of oversight.

The bank's subprime mortgage portfolio was a significant contributor to its financial woes.

IndyMac's executives had a history of ignoring warnings from regulators and auditors about the bank's financial health.

In 2008, IndyMac was seized by the FDIC after it was revealed that the bank had been hiding its true financial condition from regulators.

The bank's collapse led to a significant loss for depositors, with many losing their life savings.

IndyMac was a California-based bank that was founded in 1985 by Mark Telsey. It was initially a mortgage bank that specialized in subprime lending.

The bank's focus on subprime lending led to significant growth, with IndyMac's assets increasing from $1.9 billion in 2003 to $32 billion in 2007.

IndyMac's aggressive lending practices were fueled by the housing market bubble of the mid-2000s.

IndyMac faced significant scrutiny after its collapse. The Treasury Department's inspector general concluded that federal regulators failed to catch warning signs that presaged the bank's collapse.

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The inspector general found that the Office of Thrift Supervision, IndyMac's regulator, recognized red flags but did nothing to stop them. The regulator identified numerous problems and risks, including the quantity and poor quality of non-traditional mortgage products.

The report also cleared Sen. Charles Schumer of much of the blame he faced for making public a letter questioning IndyMac's ability to stay afloat. The inspector general found that Schumer's letter was a contributing factor in the timing of IndyMac's collapse, but that the underlying cause was the bank's unsafe and unsound operations.

A separate investigation was launched into the Office of Thrift Supervision's actions on backdating banks' capital injections. The regulator's acting director was removed and placed on leave, and the agency's deputy director was named acting director.

The Backdating Scandal at IndyMac Bank was a major issue that led to the bank's downfall. IndyMac backdated an $18 million contribution from its parent company to preserve its appearance as a "well-capitalized" institution.

This irregular contribution allowed IndyMac to hide the fact that it was already struggling with its brokered deposits. In fact, the bank was at risk of having its capital slip below the minimum level required by regulators, putting $6.8 billion in deposits at risk.

The backdating also enabled IndyMac to lure new customers with higher deposit rates, exceeding the limitations set by FDIC regulations. In the final two months before IndyMac was placed into receivership, it brought in at least $90 million in new uninsured deposits.

This was not an isolated incident, as investigators reported similar backdating at four other institutions. The leniency shown by Mr. Dochow, the bank's regulator, highlighted the Office of Thrift Supervision's (OTS) reluctance to take charge.

Mr. Dochow's actions were not without precedent, as he had played a central role in the Savings and Loan crisis of the 1980s. He had overridden a recommendation to seize Lincoln Savings, a giant savings and loan owned by Charles Keating, which ultimately collapsed.

This leniency had serious consequences, as William K. Black, a senior bank regulator during the savings and loan crisis, noted. He stated that the OTS did nothing effective to regulate specialized large nonprime lenders, leading to an "epidemic of mortgage fraud" by 2004.

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The Treasury Department IG investigation into IndyMac Bank's collapse was a significant event in 2009. The investigation concluded that federal regulators failed to catch warning signs that indicated the bank's impending collapse.

The Treasury Department's inspector general found that IndyMac pursued an overly aggressive growth strategy, including failing to verify borrowers' income and relying on expensive deposits to fund its operations. This led to a course of probable failure for the bank.

The Office of Thrift Supervision, IndyMac's regulator, identified numerous problems and risks, including the quantity and poor quality of non-traditional mortgage products. However, they did not take aggressive action to stop these practices.

The investigation also cleared Sen. Charles Schumer of much of the blame, stating that his public letter questioning IndyMac's ability to stay afloat was only a contributing factor in the timing of the bank's collapse.

The Treasury Department IG is also reviewing actions by the Office of Thrift Supervision on backdating banks' capital injections. This investigation led to the removal and placement on leave of the regulator's acting director, Scott Polakoff.

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The OTS permitted five banks, including IndyMac, to revise capital reports for the first quarter to show higher levels after the period ended. This allowed lenders to avoid further regulatory restriction.

Here are some key findings of the Treasury Department IG investigation:

The collapse of IndyMac was a major event in American financial history. It was the largest bank failure since the 1980s, with assets of $32 billion as of late March.

The bank's troubles began when it was unable to sell a portion of its Alt-A mortgage loans, which go to homeowners with good credit. This was a significant issue, as IndyMac was relying on these loans to stay afloat.

The bank's customers, however, were not aware of these internal struggles, and instead were driven by fear after a critical letter from Senator Charles Schumer. This letter caused a run on the bank, with customers withdrawing an average of $100 million a day, or a total of $1.3 billion, in the days following its release.

IndyMac's aggressive growth strategy led to its demise when the mortgage market declined in 2007.

The thrift originated over $90 billion of mortgages in 2006, with a focus on Alt-A loans and other nontraditional products. This rapid growth came at the cost of concentrating risky assets.

IndyMac made loans without verifying borrowers' income or assets, and to those with poor credit histories. Appraisals on underlying collateral were often questionable.

The thrift's business model relied heavily on selling loans in the secondary mortgage market, which it was able to do as long as the market remained strong. However, when the market declined, IndyMac was left with a large portfolio of bad loans.

IndyMac resisted efforts to regulate its involvement in those loans or tighten their issuing criteria.

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The turning point in the collapse was marked by a devastating storm that ravaged the coast, causing widespread destruction and loss of life. This event was a direct result of the rising sea levels and more frequent natural disasters that had been predicted by experts.

The storm surge was particularly destructive, inundating coastal cities and towns, and leaving millions without access to basic necessities like food, water, and shelter.

In the aftermath of the storm, the government declared a state of emergency, mobilizing troops and emergency responders to aid in the relief efforts. The infrastructure was severely damaged, with roads, bridges, and buildings destroyed or severely damaged.

The collapse of the power grid was a major concern, with widespread power outages leaving people in the dark. The grid was severely overloaded, causing a cascade of failures that spread throughout the region.

As the situation continued to deteriorate, the government struggled to maintain order, with looting and violence becoming increasingly common. The rule of law began to break down, and society teetered on the brink of chaos.

IndyMac Bank placed into conservatorship by US Government. This marked the beginning of a series of events that would lead to one of the largest bank failures in U.S. history.

The bank's failure was largely due to its aggressive growth strategy, which involved originating and securitizing Alt-A loans on a large scale. This strategy resulted in rapid growth and a high concentration of risky assets.

IndyMac originated over $90 billion of mortgages in 2006, and its business model was to offer loan products to fit the borrower's needs, using an extensive array of risky option-adjustable-rate-mortgages (option ARMs), subprime loans, 80/20 loans, and other nontraditional products.

The bank made loans without verification of the borrower's income or assets, and to borrowers with poor credit histories. Appraisals obtained by IndyMac on underlying collateral were often questionable as well.

IndyMac's customers withdrew an average of $100 million a day from the bank after a critical letter from Senator Charles Schumer, Democrat of New York, questioning the viability of the institution. This caused a run on the bank and scared away potential acquirers.

The bank's assets totaled $32 billion as of late March, making it one of the largest bank failures in U.S. history.

Here are some key statistics about the IndyMac failure:

The financial impact of IndyMac's collapse was significant. IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, in the days after Senator Charles Schumer's critical letter was released.

This massive withdrawal of funds put a strain on the bank's resources and ultimately contributed to its collapse. IndyMac held $32 billion in assets as of late March, making it one of the largest bank failures in American history.

The bank's failure also had a ripple effect on the economy, with only five local and regional banks shutting their doors in the past year, and IndyMac being the largest of them.

If you had an account at Indymac Bank that failed, you might be wondering what happens to your deposits. Any deposits that have not been claimed within 18 months of the failure will be sent to the FDIC by One West Bank.

The FDIC has a hotline you can call to inquire about unclaimed deposits: (888) 206-4662. This is a great resource if you're trying to track down a missing deposit.

If the FDIC can't locate the deposit customer, the unclaimed funds will eventually be escheated to the state or according to Federal Law (12 U.S.C., 1822(e)).

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The FDIC has determined that insufficient assets exist in the receivership of IndyMac Bank to make any distribution to general unsecured claims.

In 2008, IndyMac Bank was closed by the Office of Thrift Supervision and the FDIC was appointed as its receiver. The FDIC then organized IndyMac Federal Bank, a new federal savings bank, and transferred IndyMac Bank's assets to it.

The FDIC has determined that the assets of IndyMac Bank are insufficient to make any distribution on general unsecured claims and therefore, such claims will recover nothing and have no value.

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The FDIC has also determined that the assets of IndyMac Federal are insufficient to make any distribution on general unsecured claims and therefore, such claims will recover nothing and have no value.

The FDIC made its determination on November 12, 2009, after IndyMac Federal was placed in receivership and substantially all of its assets were sold.

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In July 2008, IndyMac was placed into Conservatorship, and the FDIC estimated that the ultimate resolution would result in a 50% recovery of uninsured deposits.

This estimate led to an advance dividend payment of 50% to uninsured depositors at the time.

The sale of IndyMac to IMB Management Holdings is consistent with this original estimate, and no additional dividend is expected as a result.

The FDIC will continue to review the receivership's financial condition to determine if there's additional cash for dividend distributions.

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IndyMac was a California-based bank that failed in 2008, marking the largest bank failure in U.S. history at the time.

The bank's failure was a result of a combination of factors, including a significant decline in the value of its mortgage assets and a lack of liquidity.

IndyMac was heavily exposed to the subprime mortgage market, which had begun to collapse in 2007.

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Your checks will be processed as usual, and all outstanding checks will be paid against your available insured balance(s) just like before.

IndyMac Federal Bank will contact you soon about any changes to your account terms, so keep an eye out for that. If a merchant refuses to accept your check, you can call IndyMac Federal Bank's Customer Service Department at 800-998-2900 to clear up any confusion.

All interest accrued through Friday will be paid at your same rate, and you'll be notified of any changes to your interest rate in the future.

Your automatic direct deposit(s) and/or automatic withdrawal(s) will be transferred automatically to IndyMac Federal Bank, so no need to worry about a thing. If you have any questions or special requests, you can contact a representative at 800-998-2900.

IndyMac Bank, a high-flying mortgage lender, specialized in exotic and risky loans called Alt-A loans. These loans often didn't require borrowers to provide documentation of income, which led to a liquidity crisis when home prices started falling.

The bank's collapse was one of the biggest in U.S. history, with over $1.3 billion withdrawn by depositors in just 11 business days. This was likely triggered by a letter written by Senator Charles Schumer two weeks prior, which highlighted the bank's lax lending standards.

Depositors who had $100,000 or less in the bank won't suffer any loss, but those with uninsured deposits totaling $1 billion will take a big hit, receiving a payment equal to half the uninsured amount. This is because the bank's operations were transferred to the Federal Deposit Insurance Corp.

The IndyMac collapse is a stark example of the risks associated with exotic loans and the housing crisis. The bank's failure is expected to have a ripple effect, with more bank failures likely to follow.