The collapse of Pasadena mortgage lender IndyMac Bancorp to date has cost the Federal Deposit Insurance Corp. $10.7 billion more than $1 billion higher than previous estimates according to a new government audit.
The U.S. Treasury Department Office of the Inspector General, which released the 83-page report Thursday, faulted the Office of Thrift Supervision for repeatedly failing to act upon warning signs that IndyMac was headed for trouble.
"We found that OTS identified numerous problems and risks, including the quantity and poor quality of nontraditional mortgage products. However, OTS did not take aggressive action to stop those practices from continuing to proliferate," the report said. "The thrift's high-risk business strategy warranted more careful and much earlier attention."
IndyMac, which was spun off from former subprime lending giant Countrywide Financial Corp., specialized in Alt-A mortgage loans for borrowers with less-than-perfect credit. As housing prices climbed to record heights in the early 2000s, IndyMac grew into the nation's seventh-largest thrift and ninth-largest mortgage originator.
But as the housing market cratered in late 2007 and the secondary market for securitized loans dried up, the company was stuck with more than $10 billion in loans it was unable to sell. Despite the company's inherently risky business strategy, the report said, regulators repeatedly failed to acknowledge the potential vulnerability of the company in a down market.
"OTS viewed growth and profitability as evidence that IndyMac management was capable," the Treasury said in the report.
The thrift was seized by regulators July 11 following a billion-dollar run on the bank run by depositors. Though the OTS initially blamed New York Sen. Charles Schumer, who had written a letter questioning IndyMac's viability, for causing the failure, the audit determined that the thrift was already headed for collapse.
The FDIC initially estimated the failure would cost its insurance fund between $4 billion and $8 billion, a figure later raised to $9 billion.
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