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Audit Report
OIG-09-032SAFETY AND SOUNDNESS: Material Loss Review of IndyMacBank, FSBFebruary 26, 2009
Office ofInspector General
Department of the Treasury
This report was reposted on March 4, 2009, to reflect a changein the text on page 24, since the original version was posted onFebruary 26, 2009. The original version of the report incorrectlystated “IndyMac’s internal review found several problems,including (1) a $517 million bridge loan for which an appraisalwas not obtained….” The report should have stated $517,000instead of $517 million. This correction does not affect any of thefindings, conclusions, or recommendations contained herein.
 
 
 
 
Contents
Material Loss Review of IndyMac Bank, FSB (OIG-09-032) Page i
Audit Report
................................................................................................. 1Results in Brief....................................................................................... 2Causes of IndyMac’s Failure..................................................................... 6High Risk Business Strategy and Aggressive Growth.............................. 6Lack of Core Deposits ........................................................................ 9Inadequate Loss Reserves .................................................................. 10Unsound Underwriting Practices........................................................... 11Impact of Senator Schumer’s Letter on the Thrift................................... 12OTS’s Supervision of IndyMac.................................................................. 14OTS Conducted Regular and Timely Examinations but Did NotAlways Address Key Areas of the Thrift................................................ 15Concerns About Nontraditional Loans................................................... 18OTS Did Not Require Correction of IndyMac’s Poor LoanUnderwriting...................................................................................... 21OTS Did Not Issue an Enforcement Action Until June 2008..................... 26OTS Should Have Taken Prompt Corrective Action Earlier....................... 29OTS’s Lessons Learned Review............................................................ 30Concluding Remarks and Recommendations............................................... 33
Appendices
 Appendix 1: Objectives, Scope, and Methodology...................................... 37Appendix 2: Background.......................................................................... 40Appendix 3: Glossary of Terms................................................................ 46Appendix 4: Chronology of Events............................................................ 55Appendix 5: OTS InydMac Examinations and Enforcement Actions............... 63Appendix 6: Examples of Delinquent Loans and Underwriting Weaknesses.... 71Appendix 7: Management Response......................................................... 75Appendix 8: Major Contributors To This Report.......................................... 78Appendix 9: Report Distribution................................................................ 79
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