So Much for Reform, Recovery and Enforcement

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Struggling Mortgage Lender Taken Over by Regulators
IndyMac to Reopen Monday Under Federal Control

By Dina ElBoghdady and Renae Merle
Washington Post Staff Writer
Saturday, July 12, 2008; D01
Federal regulators yesterday took over struggling mortgage lender IndyMac Bank, the second-largest failure ever of a U.S. financial institution.
IndyMac, which staggered this week under a run on deposits, will reopen on Monday under federal control as IndyMac Federal Bank FSB. Insured deposits there are safe. Regulators estimated that the IndyMac failure will cost the federal bank insurance fund between $4 billion and $8 billion.

IndyMac, one of the nation’s largest lenders, got caught in the mortgage meltdown that has led to a global credit crisis.

. . .
IndyMac, which is not related to mortgage giants Freddie Mac or Fannie Mae, thrived during the housing boom. It made Alt-A mortgages, which cater to borrowers who provide less documentation about income or employment than traditional loans require.

–read entire article–

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“Got caught in the mortgage meltdown” did they? Or was IndyMac a major cause?

(Wikipedia) There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

  • Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
  • Borrower debt to income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
  • Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
  • Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

In this way, Alt-A loans are “alternatives” to the gold standard of conforming, GSE-backed mortgages.

Oh, an ‘alternative mortgage.’ One of those now-famous ‘fill in your own numbers and we won’t check them (wink,wink)’ mortgages. Yeah, I can understand why a few of those might go bad.
Michael Perry, the IndyMac CEO, has done OK while all this liar-loaning was going on, knocking down $16 million in 2006, when the paint was first beginning to peel off the ceiling. Forty-three years old and a hot-shot within the bank-fraud community (#4 in compensation), Mike has a BS degree from Cal State Sacramento.
I wasn’t aware that colleges gave degrees in BS, but I guess it makes sense. Hard to think of a business where there’s been more BS than the mortgage ‘industry.’
John M. Reich, the guy who’s director of the Office of Thrift Supervision (OTS) blames Senator Charles Schumer for setting the fire that has become IndyMac’s funeral pyre, but it’s a bum rap. Schumer sent a letter to regulators questioning the thrift’s viability and Reich blames that for a run by depositors to get their dough that “stymied efforts to sell the institution by spooking potential investors.”
I guess, in Reich’s opinion, it’s better to cover up the bodies in the basement and hand off the whole mess to the unsuspecting. Been a lot of that thinking lately, all the way from Bernanke to Paulson.
The OTS is (by act of Congress) responsible for supervising savings and loan holding companies (SLHCs) and some state-chartered institutions as well, which covers IndyMac. That act came after the Lincoln Federal S&L meltdown back in the 1980s.

(Wikipedia) It (Reich’s OTS) supervises holding companies as well as thrift institutions. This results in OTS providing consolidated supervision for such well-known firms as General ElectricAIG, Inc., Ameriprise Financial, American Express, Morgan Stanley, Merrill Lynch and Lehman Brothers.

Well, we know how well they’ve been watching the store over at AIG, Countrywide and Lehman. Blaming Chuck Schumer is sort of like blaming the guy who hollered “watch out,” for being hit by a car.
Too late for Reform, no chance of Recovery, but there’s still a chance for Enforcement and the jail terms that result from enforcement. If only John Reich would get down to business and do what’s left of his derelict duties instead of whining and pointing fingers. Of course Reich holds a B.S. degree as well (Southern Illinois University) and has only to try to keep everyone running in place until January 20, 2009.

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