Introduction

2.0 History

IndyMac was born in 1985 but it was originally called Countrywide Mortgage Investment
by David Loeb and Angelo Mozilo. It was built to collateralize Countrywide Financial loans that
were too large to be sold to Fannie Mae or Freddie Mac. In 1997, Countrywide Mortgage
Investment was spun off and became IndyMac. The Mac in IndyMac is short for Mortgage
Corporation. So, while the "Mac" may sound like Freddie Mac or some of the other government
loan mortgage corporations, IndyMac was always a private company with no ties to the
government. (These government agencies suffered problems of their own. See Fannie Mae,
Freddi Mac and the Credit Crisis Of 2008 for more insight) (Devcic, 2017).

In 1999, IndyMac loaned out record amounts - $1.6 billion in the first quarter alone. In
July of 2000, IndyMac became IndyMac Bank when it acquired SGV Bancorp. The total
acquisition cost was $62.5 million and it made IndyMac Bank into the ninth largest bank at the
time. IndyMac was also the 28th biggest lender in the country. In 2004, IndyMac expanded by
buying a company called Financial Freedom, a company in the business of creating and servicing
reverse mortgage loans. Two more acquisitions for IndyMac came in 2007; first up was New
York Mortgage Company, which was an East Coast mortgage bank. Later that year the company
bought Barrington Capital Corporation, which was a mortgage bank located on the West Coast
(Devcic, 2017).

While it is usually difficult to pinpoint why certain companies failed when it came to
IndyMac, there are two suspects: Alt-A loans and reverse mortgages. So, while IndyMac's
meteoric rise is impressive, the questionable loans that help it get there are one of the biggest
reasons it came crashing down. (Devcic, 2017)

One of the many factors that caused banks’ failures at that time was the global financial
crisis that caused deprecation in the secondary market for mortgages which was mainly due to
their securitization.
Literature Review
Framework

Definitions

-Three Pillars:

Credit

Operational

Market

Supervisory Review

During the quarter ended March 31, 2008, IndyMac’s external auditors, Ernst &Young
(E&Y), noticed some capital deficiencies (unbeknownst to IndyMac) during their review
of the financial statements.  These capital deficiencies were large enough that they
would cause IndyMac to lose their OTS-designated ‘well-capitalized’ status.  If IndyMac
lost its well-capitalized status, it would not be able to accept any brokered deposits
from third parties, which at the time comprised a large portion of their deposit
portfolio.  More than a month after the quarter ended, in light of the potential impact,
IndyMac requested that the OTS allow them to backdate a capital infusion from their
parent company so they could maintain their well-capitalized status (even though they
were not well-capitalized).  The OTS, led by western regional director Darrel Dochow,
obliged and allowed IndyMac to post the backdated entry, which effectively misled
investors even further.

Market discipline
Conclusion and Recommendations

Indymac and the several other banks that failed this year held significant amounts of brokered deposits.
Well capitalized banks are under no restrictions on acceptance, renewal or roll over of brokered
deposits. However, as noted above, well capitalized status under the PCA does not mean a bank
necessarily has sufficient liquid assets to meet customer demands.

The failure of Indymac is yet another example of how FDIC deposit insurance works to protect the
average depositor’s funds.
References
Devcic, J. (2017). Too Good To Be True: The Fall Of IndyMac. [online] Investopedia. Available
at: https://www.investopedia.com/articles/economics/09/fall-of-indymac.asp [Accessed 9 Dec.
2017].