More than two decades in the making, IndyMac Bancorp’s story is coming to a close just weeks after that of its former parent.
Born out of Countrywide Financial Corp., IndyMac built itself into one of the nation’s leading mortgage lenders. But in its rush to expand, IndyMac got tangled in a web of bad loans, eventually collapsing, like Countrywide, under the weight of the mortgage meltdown.
Pasadena-based IndyMac, seized July 11 by federal regulators in what is being called the nation’s second largest bank failure, waits to be sold just as the last vestiges of Countrywide fade away under new management. Bank of America Corp. acquired Calabasas-based Countrywide July 1.
IndyMac got its start more than two decades ago as a three-person real estate investment trust housed within Countrywide. In 1985, Countrywide founders Angelo Mozilo and David Loeb set up the trust, then known as Countrywide Mortgage Investment, through a $127 million public offering of collateralized mortgage obligations.
The unit served as a purchaser of Countrywide’s jumbo mortgage loans at the time those exceeding $153,100 which were too large to sell to Fannie Mae or Freddie Mac.
Mozilo said at the time that the unit, which took the loans to the public market, provided liquidity to the company and allowed it to streamline its jumbo loan program because it did not have to worry about selling the loans to the public.
In 1992, Mozilo appointed Michael Perry to head up the subsidiary. Perry would helm the unit until it was taken over by federal regulators.
Within a year of Perry’s arrival, the subsidiary took a major step forward, changing from a passive investor in residential mortgage loans into a nationwide lender through brokers and a securitizer of prime and subprime mortgage loans.
On July 1, 1997, amid substantial growth, Countrywide Mortgage Investment split from its parent company and adopted the moniker Independent National Mortgage Co. Within a year, the company was renamed IndyMac Mortgage Holdings, but its connection to Countrywide remained strong. Loeb served as IndyMac’s chairman and several of Mozilo’s children worked for the company.
IndyMac, which eventually opened 33 branches across Southern California, saw its growth take off nationally as it took advantage of the Internet and moved quickly into Web-based lending.
And in 2000, the company purchased SGV Bancorp Inc., the parent of First Federal Savings and Loan Association of San Gabriel Valley, so it could enter traditional banking by gathering deposits.
The company cited “the global liquidity crisis in the fourth quarter of 1998” as its impetus for becoming a deposit bank. “The merger represents the culmination of IndyMac’s transition to a consumer depository institution,” the company said in a regulatory filing.
In 2004, IndyMac expanded further, acquiring Financial Freedom Holdings Inc., the nation’s top provider of reverse mortgages, which taps home equity to provide regular income to elderly homeowners. Meanwhile, it worked feverishly to build itself into a large-scale lender, emphasizing loan quantity and quick turnover. At its peak in 2006, the company produced more than $91 billion in loans.
“Throughout 2006 and into 2007 IndyMac was pushing forward to get more market share and benefit from other competitors falling by the wayside,” said Michael Hudson, a researcher for the nonpartisan Center for Responsible Lending.
But that strategy fed what critics later said was a culture of deception and irresponsibility within its lending operations that led to its failure.
However, the bank and regulators said a run on the bank and its fast collapse was sparked by a June 26 letter written by New York Democratic Sen. Charles Schumer questioning IndyMac’s financial state.
Still, according to a June 30 report by the center, IndyMac frequently misled borrowers and pushed them into accepting loans they could not afford to repay in an effort to inflate loan volumes. “IndyMac was pushing through loans based on bogus data,” said Hudson, the lead author of the report, titled “IndyMac: What Went Wrong?” “There was a lot of pressure to grow loan volume, to get bigger and bigger.”
The problems, he said, became more significant in the past two years as the mortgage market flattened but IndyMac’s loan volumes continued to grow.
IndyMac lashed out against the report at the time, calling it a “hit piece” filled with questionable sources. “The report relies entirely on unsubstantiated anecdotal evidence,” said spokesman Grove Nichols in a July 1 statement just 10 days before the bank went under.
