IndyMac

IndyMac was an American savings bank and mortgage lender headquartered in Pasadena, California. Its name originated as a contraction of Independent National Mortgage Corporation, a mortgage-finance business established in 1985 by David S. Loeb and Angelo Mozilo. The original purpose was to securitize and fund large mortgage loans that could not readily be sold to government-sponsored enterprises such as Fannie Mae and Freddie Mac. Countrywide Financial later separated IndyMac from the parent organization, and the business became an independent public company in 1997 under chief executive Mike Perry. The company expanded rapidly by combining traditional thrift banking with high-volume mortgage origination and securitization. In 2000, IndyMac Mortgage Holdings acquired SGV Bancorp, the parent of First Federal Savings and Loan Association of San Gabriel Valley. The transaction helped establish IndyMac Bank as a major California institution. It subsequently broadened its platform through acquisitions including Financial Freedom, a reverse-mortgage originator and servicer, New York Mortgage Company, and Barrington Capital Corporation. Before its collapse, IndyMac was the largest savings and loan association in the Los Angeles area and one of the leading mortgage originators in the United States. Its growth depended heavily on Alt-A and other nontraditional residential mortgage products. These included option adjustable-rate mortgages, loans with limited documentation, subprime loans, and high loan-to-value structures. The model generated substantial volume while housing prices and the secondary mortgage market remained strong, but it left the bank highly exposed to falling property values, borrower defaults, deteriorating mortgage-backed securities, and the inability to sell newly originated loans. Concentration in California and Florida residential real estate, reliance on brokered deposits and Federal Home Loan Bank funding, and weaknesses in underwriting and collateral valuation intensified the vulnerability. The deterioration became public in 2008. IndyMac reported successive quarterly losses, rising nonperforming loans, and a capital ratio close to the regulatory threshold for a well-capitalized institution. In June, Senator Charles Schumer publicly released letters expressing concern about the bank's condition. Depositors subsequently withdrew approximately 7.5 percent of deposits, although later official reviews concluded that the institution was already fundamentally unsound and that the public letters were not the underlying cause of failure. IndyMac stopped being considered well-capitalized, closed its retail and wholesale lending divisions, announced thousands of job cuts, and attempted to sell portions of its lending operation. On July 11, 2008, the Office of Thrift Supervision placed IndyMac Bank into conservatorship, and the Federal Deposit Insurance Corporation established IndyMac Federal Bank, FSB, as a bridge institution. The failed bank had approximately $32 billion in assets, making its collapse one of the largest U.S. bank failures of the period. The FDIC later auctioned most of the business to IMB HoldCo LLC, which operated the acquired franchise as OneWest Bank, while remaining assets and liabilities were retained in a separate FDIC-controlled entity for liquidation. IndyMac Bancorp filed for Chapter 7 bankruptcy on July 31, 2008. The bank therefore survives primarily as a case study in mortgage-credit concentration, securitization dependence, liquidity risk, and regulatory failure during the global financial crisis.

IndyMac began in 1985 as Countrywide Mortgage Investment, founded by David S. Loeb and Angelo Mozilo. It was designed to collateralize and securitize large mortgage loans that were too large or otherwise unsuitable for sale to Fannie Mae and Freddie Mac. Countrywide later spun the operation off, and IndyMac became an independent company in 1997. Mike Perry served as chief executive from the spin-off until the bank's failure. The company entered deposit-taking and thrift banking through its July 2000 acquisition of SGV Bancorp, the parent of First Federal Savings and Loan Association of San Gabriel Valley. The combined organization adopted the IndyMac Bank identity and became one of California's largest banking institutions. It provided mortgage loans for home purchases, development, and improvement, along with secondary mortgages, consumer credit, and deposit products. IndyMac grew particularly quickly through Alt-A mortgage lending and mortgage securitization. Its underwriting platform offered borrowers a broad range of products, including option ARMs, limited-documentation mortgages, subprime loans, and high loan-to-value loans. The business also expanded into reverse mortgages through its 2004 acquisition of Financial Freedom. New York Mortgage Company was acquired in 2007, followed by Barrington Capital Corporation later that year. In 2006, IndyMac originated more than $90 billion in mortgages and ranked among the leading U.S. mortgage originators. The same strategy created substantial risk. Many loans depended on continued house-price appreciation and functioning secondary markets. Income and asset verification was sometimes limited, collateral appraisals were criticized, and the bank accumulated concentrated exposure to California and Florida housing. It also relied significantly on brokered deposits and Federal Home Loan Bank advances. When housing prices fell and mortgage-backed securities lost value in 2007 and 2008, IndyMac could no longer sell or finance loans at the previous pace and was forced to retain approximately $10.7 billion of loans. By spring 2008, capital and liquidity were deteriorating. The bank reported its third consecutive quarterly loss, rising nonperforming loans, and a risk-based capital ratio only slightly above the threshold associated with being well-capitalized. It suspended common-stock dividends, deferred some preferred-security interest payments, and sought capital without finding a viable investment or buyer. In June, public letters from Senator Charles Schumer raised concerns about the bank's condition. Depositors withdrew approximately $1.55 billion, or about 7.5 percent of deposits, accelerating the liquidity crisis. Later Treasury and inspector-general reviews concluded that IndyMac was already unsound and that the withdrawals were not the fundamental cause of its failure. On July 11, 2008, federal regulators placed IndyMac Bank into conservatorship. The FDIC established IndyMac Federal Bank, FSB, to operate the insured deposit business and selected assets and liabilities. With approximately $32 billion in assets, the failure was among the largest in U.S. banking history at that time. The FDIC sold most of the operating franchise to IMB HoldCo LLC, which turned it into OneWest Bank, while a residual institution was used to wind down assets and liabilities that were not transferred. IndyMac Bancorp entered Chapter 7 bankruptcy on July 31, 2008. The institution's collapse became a prominent example of how aggressive mortgage origination, securitization dependence, weak underwriting, concentrated real-estate exposure, and unstable funding could combine into a systemic liquidity failure.

1. 2008Bank placed into conservatorship

   The FDIC took control on July 11 and established IndyMac Federal Bank as a bridge institution.

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2. 2008Holding company filed for bankruptcy

   IndyMac Bancorp filed for Chapter 7 bankruptcy on July 31.

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3. 2007Mortgage-market deterioration intensified

   Falling housing prices and a collapsing secondary market exposed IndyMac's concentration in nontraditional residential mortgages.

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4. 2006Reached peak mortgage origination scale

   IndyMac originated more than $90 billion in mortgages during the year, supported by its high-volume Alt-A and securitization model.

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5. 2004Acquired Financial Freedom

   The company acquired a reverse-mortgage originator and servicer, broadening its mortgage product range.

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6. 2000Entered thrift banking

   IndyMac Mortgage Holdings acquired SGV Bancorp, parent of First Federal Savings and Loan Association of San Gabriel Valley, and expanded its banking platform.

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7. 1997Spun off as an independent company

   Countrywide separated IndyMac from the parent organization, with Mike Perry becoming its chief executive.

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8. 1985Mortgage-finance business founded

   David S. Loeb and Angelo Mozilo founded Countrywide Mortgage Investment to finance and securitize large mortgage loans that could not readily be sold to Fannie Mae or Freddie Mac.

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A high-volume U.S. residential mortgage lender and savings bank serving consumers and the housing-finance market.

• Residential mortgagesMortgage lending1985

  IndyMac's central business was originating and servicing residential mortgages for home purchase, development, and improvement. The bank emphasized volume and secondary-market distribution, leaving it exposed when mortgage investors stopped buying newly originated loans.

• Alt-A mortgagesMortgage lending

  Alt-A loans occupied an intermediate position between prime and subprime lending and often involved reduced documentation or nonstandard underwriting. IndyMac built much of its growth around this category, making it unusually sensitive to weakening borrower performance and falling collateral values.

• Reverse mortgagesMortgage lending2004

  Through Financial Freedom, IndyMac originated and serviced reverse mortgages, which allow eligible homeowners, typically older borrowers, to draw against home equity. This acquisition gave IndyMac a specialized business alongside its conventional mortgage operations.

• Savings and retail bankingDeposit banking2000

  After becoming a thrift institution, IndyMac offered deposit accounts and other retail banking services. Deposits included a substantial brokered-deposit component, which provided funding but increased liquidity risk when regulators and markets questioned the bank's capitalization.

• 2008Closed major lending divisionsStrategy

  After failing to raise capital and losing its well-capitalized status, IndyMac faced severe liquidity constraints and a collapsing mortgage market.

  What changed. The company halted new loan submissions, closed its retail and wholesale lending divisions, and announced approximately 3,800 job cuts.

  Aftermath. The measure did not prevent the bank from entering FDIC conservatorship three days later.

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• 2008FDIC conservatorship and bridge-bank resolutionOther

  IndyMac faced a depositor run, impaired mortgage assets, and insufficient liquidity after the secondary mortgage market deteriorated.

  What changed. The FDIC took control of IndyMac Bank and created IndyMac Federal Bank, FSB, to preserve access to insured deposits and operate transferred assets and liabilities.

  Aftermath. Most of the operating franchise was later sold to IMB HoldCo LLC and became OneWest Bank; residual assets and liabilities were wound down separately.

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• 2008Sale of retail lending businessM&A

  IndyMac was shrinking its mortgage platform before the bank was seized.

  What changed. The Retail Lending Group was sold to Prospect Mortgage Company LLC.

  Aftermath. The transaction formed part of the unsuccessful effort to preserve liquidity and reduce the company's operating footprint.

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• 2008Backdated capital contributionControversy

  An $18 million contribution from IndyMac's parent was recorded as though it had been received by the end of the March 2008 quarter, although it arrived later. Regulators later scrutinized the approval of this treatment as part of broader supervisory failures surrounding the bank's reported capitalization.

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• 2008Regulatory failure and delayed corrective actionControversy

  A later Treasury inspector-general review concluded that IndyMac was already a failing institution and that prompt corrective action should have been taken earlier. The review rejected the idea that Senator Schumer's public letters were the fundamental cause of the collapse.

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• 2009FDIC sells most of IndyMac franchise to IMB HoldCo

  Most of the failed institution's banking business was sold to IMB HoldCo LLC and subsequently operated as OneWest Bank, while residual assets and liabilities remained under FDIC control.

  M&A
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• 2008IndyMac closes retail and wholesale lending divisions

  After losing its well-capitalized regulatory status and failing to raise new capital, IndyMac halted new loan submissions, closed major lending divisions, and announced approximately 3,800 job cuts.

  Leadership changeOther
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• 2008FDIC places IndyMac Bank into conservatorship

  The FDIC seized control of IndyMac Bank because of severe liquidity problems and created IndyMac Federal Bank as a bridge institution for insured deposits and selected assets and liabilities.

  BankruptcyRegulation
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• 2008IndyMac Bancorp files for Chapter 7 bankruptcy

  The holding company filed for liquidation bankruptcy after the bank had entered FDIC receivership.

  Bankruptcy
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1. IndyMac