Now that Countrywide Financial is about to be taken over by Bank of America (the deal is set to close tomorrow), the nation's largest independent mortgage company is Pasadena-based IndyMac - and in case you haven't noticed, IndyMac is in a heap of trouble. At last check, its stock was trading around
7562 cents a share, and there's growing concern about the company's solvency if depositors keep withdrawing their funds. A new report by the Center for Responsible Lending finds that IndyMac engaged in the now-familiar pattern of loosey-goosey lending practices that fueled the mortgage boom. The non-profit organization says it interviewed former employees who spoke of the pressure to cut deals with little regard for their customers' ability to repay the loans. "I would reject a loan and the insanity would begin," said a former underwriter. "It would go to upper management and the next thing you know it's going to closing. . . . I'm like, 'What the Sam Hill? There's nothing in there to support this loan.' " IndyMac CEO Michael Perry has taken responsibility for making mistakes - creative home loan lending, he said, "went too far" because "lenders were "too close to it, but mostly because objective evidence of this credit risk did not show up in our delinquencies and financial performance until it was too late." He’s also cut back on his compensation – a symbolic gesture, but more than the Countrywide folks were doing. That aside, the CRL wonders why IndyMac wasn’t more responsive to all kinds of early warnings.
IndyMac waited years in some cases before clamping down on mortgage brokers that had fed the company bad loans. In 2007, for instance, IndyMac sued a Nevada-based broker, Silver State Mortgage, after 35 out of 36 borrowers in one pool of loans failed to make their first payment.63 Many of the loans were made as early as 2005 and IndyMac waited at least a year to demand the broker repurchase the earliest ones – and continued taking on loans from Silver State even after dicey nature of Silver State-sponsored mortgages became apparent, attorneys in a California lawsuit have alleged.
IndyMac’s story suggests that, in the absence of rigorous oversight, there’s little to stop lenders from getting swept up by market frenzies and embracing reckless practices. This should be uppermost in policymakers’ and citizens’ minds as federal and state governments work to clean up the mortgage mess – and to design rules that will prevent such disasters from happening again.
For the moment, IndyMac is just fighting to stay alive. You have to wonder if any other Bank of America types are willing to swallow a bunch of bad loans - not to mention lawsuits - for the sake of the company's substantial mortgage lending operation. From the Pasadena Star-News:
IndyMac ranks among the 30 largest companies in terms of total annual revenue in the San Gabriel Valley, according to research conducted by this newspaper. In 2007, it employed 10,000 workers and had revenue of $2.8 billion. A financial collapse could leave scores of employees without jobs. At one point IndyMac employed about 3,000 workers in Pasadena, but that number has shifted several times as the bank has sought to "right-size" its operations.