OneWest Bank is a bank with locations throughout Southern California. It was created on March 19, 2009, from the remains of the former IndyMac Bank, which was seized by the FDIC in July 2008.
"IndyMac" was a generally accepted contraction of the formal name Independent National Mortgage Corporation . Before its failure, IndyMac Bank was the largest savings and loan association in the Los Angeles area and the seventh largest mortgage originator in the United States. The failure of IndyMac Bank on July 11 , 2008 , was the fourth largest bank failure in United States history, and the second largest failure of a regulated thrift. IndyMac Bank's parent corporation was IndyMac Bancorp (Pink Sheets: IDMCQ) until the FDIC seized IndyMac Bank . IndyMac Bancorp has filed for Chapter 7 bankruptcy.
History
IndyMac Bank was founded as Countrywide Mortgage Investment in 1985 by David S. Loeb and Angelo Mozilo as a means of collateralizing Countrywide Financial loans too big to be sold to Freddie Mac and Fannie Mae. In 1997, Countrywide spun off IndyMac as an independent company. "Mac" is an established contraction for "Mortgage Corporation", usually associated with Government sponsored entities such as "Freddie Mac" (Federal Home Loan Mortgage Corporation) and "Farmer Mac" (Federal Agricultural Mortgage Corporation). Indymac, however, had always been a private corporation with no relationship to the government.
In July 2000, IndyMac Mortgage Holdings, Inc. acquired SGV Bancorp, the parent of First Federal Savings and Loan Association of San Gabriel Valley. IndyMac changed its name to IndyMac Bank and became the ninth largest bank headquartered in California. IndyMac Bank, operating as a combined thrift and mortgage bank, provided lending for the purchase, development, and improvement of single-family housing. IndyMac Bank also issued secondary mortgages secured by such housing, and other forms of consumer credit.
IndyMac Bancorp, a holding company headquartered in Pasadena, California, eventually acquired:
- Financial Freedom, an originator and servicer of reverse mortgage loans, on July 16, 2004;
- New York Mortgage Company, an East Coast mortgage bank, on April 2, 2007;
- Barrington Capital Corporation, a West Coast mortgage bank, in September 2007.
Decline
The primary causes of IndyMac’s failure were largely associated with its business strategy of originating and securitizing Alt-A loans on a large scale. This strategy resulted in rapid growth and a high concentration of risky assets. From its inception as a savings association in 2000, IndyMac grew to the seventh largest savings and loan and ninth largest originator of mortgage loans in the United States. During 2006, IndyMac originated over $90 billion of mortgages.
IndyMac’s aggressive growth strategy, use of Alt-A and other nontraditional loan products, insufficient underwriting, credit concentrations in residential real estate in the California and Florida markets, and heavy reliance on costly funds borrowed from the Federal Home Loan Bank (FHLB) and from brokered deposits, led to its demise when the mortgage market declined in 2007.
IndyMac often 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. As an Alt-A lender, IndyMac’s 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. Ultimately, loans were made to many borrowers who simply could not afford to make their payments. The thrift remained profitable only as long as it was able to sell those loans in the secondary mortgage market. IndyMac resisted efforts to regulate its involvement in those loans or tighten their issuing criteria: see the comment by Ruthann Melbourne, Chief Risk Officer, to the regulating agencies.
Turning Point
May 12 , 2008 , in a small note in the "Capital" section of its what would become its last 10-Q released before receivership, IndyMac revealed - but did not admit - that it was no longer a well-capitalized institution and that it was headed for insolvency.
IndyMac reported that during April 2008, Moody's and Standard & Poor's downgraded the ratings on a significant number of Mortgage-backed security (MBS) bonds including $160 million of those issued by Indymac and which the bank retained in its MBS portfolio. Indymac concluded that these downgrades would have negatively impacted the Company's risk-based capital ratio as of June 30, 2008. Had these lowered ratings been in effect at March 31, 2008, Indymac concluded that the bank's capital ratio would have been 9.27% total risk-based. Indymac warned that if its regulators found its capital position to have fallen below "well capitalized" (minimum 10% risk-based capital ratio) to "adequately capitalized" (8-10% risk-based capital ratio) the bank might no longer be able to use brokered deposits as a source of funds. Indymac further warned that if its level of deposit liquidity was reduced in this way, the bank anticipated that it would reduce its assets and, most likely, curtail its lending activities.
Senator Charles Schumer (D-NY) would later point out that brokered deposits made up more than 37 percent of Indymac's total deposits and ask the Federal Deposit Insurance Corporation (FDIC) whether it had considered ordering IndyMac to reduce its reliance on these deposits. With $18.9 billion in total deposits reported on March 31 , Senator Schumer would have been referring to a little over $7 billion in brokered deposits. While the breakout of maturities of these deposits is not known exactly, a simple averaging would have put the threat of brokered deposits loss to IndyMac at $500 million a month, had the regulator disallowed IndyMac from acquiring new brokered deposits on June 30.
IndyMac had suffered its third-consecutive quarterly loss. The bank reported that nonperforming loans totaled $1.85 billion as of March 31, increasing 40.56% from just the previous quarter. In the 10-Q filing, the company stated it expected "to have an even higher level of non-performing loans in the future due to the continued market disruption."
IndyMac was taking new measures to preserve capital, such as deferring interest payments on some preferred securities. Dividends on common shares had already been suspended for the first quarter of 2008, after being cut in half the previous quarter. The company still had not secured a significant capital infusion nor found a ready buyer.
According to IndyMac's 10-Q, the bank's risk-based capital ratio had dropped to 10.26% as of March 31, from 10.81% the previous quarter. This ratio, which factors in asset quality and loan-loss reserve coverage, needs to be at least 10% for an institution to be considered well-capitalized under regulatory guidelines. IndyMac reported that the bank's risk-based capital was only $47 million above the minimum required for this 10% mark. But it did not reveal some of that $47 million it claimed it had as of March 31, 2008 was actually a fiction.
Collapse
When home prices declined in the latter half of 2007 and the secondary mortgage market collapsed, IndyMac was forced to hold $10.7 billion of loans it could not sell in the secondary market. Its reduced liquidity was further exacerbated in late June 2008 when account holders withdrew $1.55 billion or about 7.5% of IndyMac's deposits... This “run” on the thrift followed the public release of a letter from Senator Charles Schumer to the FDIC and OTS. The letter outlined the Senator’s concerns with IndyMac. While the run was a contributing factor in the timing of IndyMac’s demise, the underlying cause of the failure was the unsafe and unsound manner in which the thrift was operated.
On June 26 , 2008 , Senator Charles Schumer (D-NY), a member of the Senate Banking Committee, chairman of Congress' Joint Economic Committee and the third-ranking Democrat in the Senate, released several letters he had sent to regulators, which warned that "the possible collapse of big mortgage lender IndyMac Bancorp Inc. poses significant financial risks to its borrowers and depositors, and regulators may not be ready to intervene to protect them". Some worried depositors began to withdraw money.
On July 7 , 2008 IndyMac announced on the company blog that it:
- Had failed to raise capital since its May 12, 2008 quarterly earnings report;
- Had been notified by bank/thrift regulators that IndyMac Bank was no longer deemed "well-capitalized";
IndyMac announced the closure of both its retail lending and wholesale divisions, halted new loan submissions, and cut 3,800 jobs.
On July 8 , 2008 , IndyMac announced the sale of its Retail Lending Group to Prospect Mortgage Company, LLC. That day, the bank's shares closed at $0.44 in trading on the New York Stock Exchange, a loss of over 99% from its high of $50 in 2006. Additionally, analyst Paul J. Miller Jr. cut his price target on IndyMac to $0 from $1, rating the company's share pri
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