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IndyMac

IndyMac Bank, FSB was a Pasadena, California-based federally chartered thrift institution that specialized in originating, purchasing, and securitizing alternative mortgage products, particularly low- or no-documentation loans and option adjustable-rate mortgages (ARMs), which fueled its expansion but exposed it to severe risks during housing market downturns.^[1]^[2] Founded in 1985 as a mortgage real estate investment trust affiliated with Countrywide, it transitioned into active lending operations in the 1990s, acquiring a savings and loan entity to form IndyMac Bank and achieving substantial growth as one of the largest independent mortgage originators by assets exceeding $30 billion.^[3]^[4] The bank's defining characteristics included an aggressive business model reliant on producing mortgages for resale as securities, with a heavy emphasis on products allowing deferred interest payments that masked borrower overextension until interest rates rose and home prices fell.^[1] This approach enabled rapid scaling but lacked sufficient underwriting rigor, leading to elevated delinquency rates—reaching over 20% on its loan portfolio by mid-2008—and vulnerability to securitization market disruptions.^[5]^[3] IndyMac's failure on July 11, 2008, when the Office of Thrift Supervision revoked its charter amid a liquidity crisis and depositor run, marked the largest thrift collapse in U.S. history up to that point, imposing a $12.4 billion estimated loss on the FDIC's Deposit Insurance Fund due to inadequate capital buffers against real estate concentration risks.^[6]^[7] Post-seizure, operations continued briefly as a bridge bank before sale to private investors in 2009, highlighting causal links between lax lending incentives and systemic fragility rather than isolated externalities.^[8]^[3]

Founding and Early Development

Establishment as Independent National Bank

Independent National Mortgage Corporation was formed on July 1, 1997, via the spin-off of Countrywide Mortgage Investment from its parent company, Countrywide Financial Corporation.^[9] This restructuring transformed the entity from a subsidiary focused on collateralizing nonconforming loans—originally established in 1985 by Countrywide co-founders David S. Loeb and Angelo R. Mozilo—into an autonomous mortgage banking operation specializing in loan origination, securitization, and whole loan sales.^[10]^[9] The separation addressed growth constraints under Countrywide's umbrella, where the unit had handled mortgages too large for sale to Fannie Mae and Freddie Mac, allowing Independent National Mortgage Corporation to pursue independent funding strategies and expand its market presence.^[11] As an independent national entity, it operated primarily as a mortgage conduit, purchasing loans from originators and securitizing them into private-label mortgage-backed securities sold to investors.^[12] By leveraging advances from the Federal Home Loan Banks for short-term funding, the corporation minimized on-balance-sheet risk while generating fees from servicing retained interests.^[3] This model positioned it as a key player in the non-agency mortgage sector, distinct from traditional depository institutions, though it later acquired banking charters to support deposit-taking and retail operations.^[6] The 1997 independence facilitated rapid scaling, with assets growing from subsidiary levels to billions in mortgage assets within years, underscoring its viability as a standalone national mortgage bank.^[13]

Transition to IndyMac Bancorp

In 1999, IndyMac Mortgage Holdings, Inc., operating as a real estate investment trust (REIT) focused on passive mortgage investments, pursued a strategic shift to an active banking model by announcing the acquisition of SGV Bancorp, the holding company for San Gabriel Valley Bank, for $62.5 million in cash and stock.^[14] This transaction enabled IndyMac to convert from a non-depository REIT into a federally insured thrift institution, gaining access to retail deposits, Federal Home Loan Bank (FHLB) funding, and broader operational capabilities beyond securitization of purchased loans.^[1] The deal closed in early 2000, after which IndyMac contributed substantially all its assets and operations to the acquired subsidiary savings association, renaming it IndyMac Bank, F.S.B., while the parent entity reorganized as IndyMac Bancorp, Inc., a taxable holding company.^[4] By July 2000, the Office of Thrift Supervision approved the full transformation from REIT status to a savings and loan association charter, allowing IndyMac Bancorp to diversify funding sources and originate loans directly rather than relying solely on wholesale markets.^[1] This restructuring positioned IndyMac as a hybrid thrift-mortgage bank, with the holding company overseeing origination, securitization, and servicing activities through its banking subsidiary.^[15] The transition mitigated limitations of the REIT structure, such as restrictions on operational involvement and tax inefficiencies, enabling growth into one of the largest independent mortgage originators by leveraging low-cost deposits—comprising about 40% of funding by the mid-2000s—and expanding branch networks for customer acquisition.^[16] However, this shift also introduced dependencies on housing market stability and regulatory oversight as a depository institution, setting the stage for later vulnerabilities during economic downturns.^[1]

Business Model and Operations

Emphasis on Alt-A and Non-Agency Mortgages

IndyMac's mortgage origination strategy heavily emphasized Alt-A loans, which bridged prime and subprime categories by extending to borrowers with solid credit but insufficient documentation for fully conforming products.^[8] The bank positioned itself as a leader in this segment, originating nontraditional products including option adjustable-rate mortgages (option ARMs) allowing deferred principal payments, stated-income loans, no-documentation loans, and 80/20 piggyback structures that combined first- and second-lien mortgages to avoid private mortgage insurance.^[1] Adjustable-rate mortgages, predominantly Alt-A variants, constituted approximately 75% of IndyMac's loan originations from 2004 to 2006.^[1] This focus drove explosive growth, with annual loan production escalating from $29 billion in 2003 to a peak of $90 billion in 2006, of which nearly 80% comprised Alt-A volume.^[17] By 2006, IndyMac ranked first in Alt-A originations nationwide, capturing 17.5% of the market with $70 billion in volume.^[17] Underwriting standards loosened progressively; by the first quarter of 2007, full-documentation loans represented just 21% of production, while securitized pools like a $354 million issuance in June 2006 contained less than 10% such loans.^[17] IndyMac securitized the bulk of these Alt-A loans into private-label, non-agency mortgage-backed securities for resale to investors, retaining servicing rights to generate ongoing fees while offloading credit risk.^[1] This non-agency approach diverged from agency-conforming loans eligible for purchase by government-sponsored enterprises, relying instead on Wall Street demand for higher-yielding, documentation-light products.^[1] The strategy supported rapid expansion but exposed the bank to secondary market volatility; the non-agency market's collapse in August 2007 stranded $10.7 billion in unsellable Alt-A loans on IndyMac's balance sheet by late that year.^[1]^[8]

Origination, Securitization, and Funding Strategies

IndyMac's origination strategy emphasized high-volume production of Alternative-A (Alt-A) mortgages, which targeted borrowers with good credit but required minimal documentation, such as stated income or no-income verification loans. In 2006, the bank originated over $90 billion in mortgages, capturing a leading 17.5% market share in Alt-A lending.^[1]^[17] These products included option adjustable-rate mortgages (option ARMs), where at least 75% of minimum payments in 2006 deferred principal and sometimes interest, resulting in negative amortization, as well as 80/20 piggyback loans combining an 80% first mortgage with a 20% second to avoid private mortgage insurance.^[1] Underwriting practices often featured lax verification, with only 21% of loans fully documented in early 2007, contributing to rapid asset growth from $5 billion in the mid-2000s to over $30 billion by early 2008.^[1]^[17] The bank pursued an originate-to-distribute model, securitizing the majority of originated loans into mortgage-backed securities (MBS) for sale to investors, while retaining mortgage servicing rights to generate ongoing fee income.^[1] This process involved packaging pools of Alt-A loans—such as a $354 million securitization in June 2006 with less than 10% full documentation—into asset-backed securities marketed through Wall Street channels.^[17] Securitization enabled quick capital recycling but masked underlying loan quality risks, as originators like IndyMac faced incentives to prioritize volume over scrutiny; by late 2007, a collapsed secondary market left $10.7 billion in unsold loans transferred to the held-to-maturity portfolio.^[1] The strategy amplified exposure when delinquency rates surged, with 12.2% of $11.2 billion in non-conforming loans delinquent by May 2008.^[1] Funding relied heavily on wholesale sources rather than stable retail deposits, given the bank's limited network of 33 branches. By March 2008, liabilities totaled approximately $29.3 billion, with 94% comprising $18.9 billion in deposits (largely brokered) and $10.4 billion in Federal Home Loan Bank (FHLB) advances, the latter collateralized by mortgage assets and peaking at $9 billion (34% of total assets) by September 2006.^[1]^[17] Short-term warehouse lines provided revolving credit for loan origination until securitization, but dependence on volatile brokered deposits and FHLB borrowings—restricted by regulators in July 2008 due to risk—exacerbated liquidity vulnerabilities amid rising delinquencies and market distrust.^[1] This leveraged approach supported aggressive expansion but left minimal buffers, as core deposits remained low relative to the high-risk asset concentration.^[1]

Growth and Expansion

Acquisitions and Branch Network Buildout

In July 2000, IndyMac Mortgage Holdings, Inc. completed its acquisition of SGV Bancorp, Inc., the parent company of First Federal Savings and Loan Association of San Gabriel Valley, for approximately $62.5 million.^[14]^[2] This transaction enabled IndyMac to convert from a real estate investment trust to a federally insured depository institution, operating as IndyMac Bank, FSB, and provided an initial network of branches primarily in Southern California.^[1] Subsequent growth included the acquisition of 93.75% of Financial Freedom Holdings Inc., a reverse mortgage originator and servicer, announced in May 2004 for $125 million.^[18]^[19] While this expanded IndyMac's product offerings into reverse mortgages, it did not directly contribute to retail branch expansion. In the second quarter of 2007, IndyMac acquired the retail mortgage lending platform of New York Mortgage Company for $13.4 million, including operating assets focused on Eastern U.S. markets, which bolstered retail origination capabilities but primarily enhanced non-branch distribution channels rather than physical branches.^[20]^[21] IndyMac's branch network buildout emphasized organic expansion in California to support deposit gathering, particularly for certificates of deposit. Following the SGV acquisition, the bank operated an initial ten-branch network.^[2] By June 2005, it had grown to 22 branches through new openings, reflecting an addition of 11 offices since the early post-acquisition period.^[1] This expansion continued amid the housing boom, reaching 33 branches by mid-2008, concentrated in the Los Angeles area to facilitate local retail banking and mortgage operations.^[22] The strategy prioritized cost-efficient deposit funding over aggressive nationwide branching, aligning with IndyMac's hybrid thrift-mortgage banker model.^[16]

Peak Performance in the Housing Boom

During the mid-2000s housing boom, characterized by low interest rates and appreciating home prices, IndyMac Bancorp achieved record mortgage loan production volumes, expanding its role as a major player in the Alt-A segment. Mortgage production reached $30 billion in 2003, up 44% from the prior year, amid industry-wide highs of $3.8 trillion.^[23] By 2004, IndyMac's volumes increased 30% to approximately $39 billion, contrasting with a 25% industry decline as the refinance wave subsided.^[16] This growth accelerated, culminating in a peak of $90 billion in single-family residential mortgage production in 2006, an increase that boosted its overall market share by 78 basis points from the previous year.^[4] The surge in origination volumes translated into robust financial performance, with net revenues rising to $1.347 billion in 2006 from $1.106 billion in 2005.^[24] Net earnings followed suit, reaching $343 million in 2006, a 17% increase from $293 million in 2005, reflecting efficient securitization of loans into mortgage-backed securities and favorable spreads in a low-default environment.^[24] IndyMac's emphasis on adjustable-rate mortgages, which comprised nearly three-quarters of its originations from 2004 to 2006, capitalized on borrower expectations of continued price appreciation and stable teaser rates, enabling higher volumes than traditional prime lenders.^[1] Total assets expanded aggressively, more than doubling from $13 billion in mid-2005 to approximately $31 billion by late in the decade, supported by retained loan servicing rights and wholesale funding.^[3] This peak era positioned IndyMac as the ninth-largest U.S. mortgage originator by 2007, with a 3.2% national market share based on $77 billion in production that year, though volumes began softening as housing momentum waned.^[25] The bank's performance metrics, including diluted earnings per share of $4.82 in 2006, underscored its operational scale during the boom, driven by a originate-to-distribute model that minimized on-balance-sheet risk initially.^[24] However, this reliance on non-agency loans amplified sensitivity to market shifts, as later evidenced by rising delinquencies.^[1]

Vulnerabilities in the Subprime Crisis

Exposure to Declining Housing Markets

IndyMac's business model, centered on originating high volumes of Alt-A mortgages with features like option adjustable-rate mortgages (ARMs) and limited documentation, exposed it to significant risks from the housing market downturn starting in mid-2007. The bank's mortgage portfolio expanded rapidly from $5 billion in mid-2000 to over $30 billion by the first quarter of 2008, with nearly 80% of its 2006 mortgage volume—peaking at $90 billion in originations—consisting of Alt-A loans, in which IndyMac held a 17.5% market share as the leading issuer.^[17]^[1] These products, while targeted at borrowers with credit scores typically above 620, relied on sustained home price appreciation and borrower ability to refinance or sell, assumptions undermined by national home price declines of approximately 10% from peak levels by late 2007.^[26] Geographic concentration amplified this vulnerability, as a substantial portion of IndyMac's loans were in high-risk bubble markets such as California and Florida, where property values plummeted—California median home prices fell 15% year-over-year by mid-2008. This led to sharp increases in delinquencies and defaults, with non-conforming loans reaching $11.2 billion by May 2008 and 12.2% of them 90 days or more past due.^[1] Non-performing assets escalated from $184 million (0.63% of total assets) in 2006 to $2.1 billion (6.51%) by the first quarter of 2008, reflecting the causal link between eroding collateral values and borrower defaults on negatively amortizing loans.^[17] The freezing of the private-label secondary market for mortgage-backed securities in late 2007 further intensified exposure, compelling IndyMac to warehouse unsold loans on its balance sheet rather than securitizing and offloading them as in prior years. This shift resulted in a $600 million write-down on $10.7 billion in transferred loans during the fourth quarter of 2007, alongside a $474 million provision for estimated credit losses, as declining home prices eroded recovery values on foreclosed properties—examples included loans appraised at $1.43 million dropping to $599,000 in foreclosure value.^[1] Nationwide, Alt-A delinquency rates (30+ days, foreclosure, or repossession) reached one in seven loans by February 2008, mirroring IndyMac's portfolio deterioration and underscoring the institution's overreliance on housing market stability without adequate hedging or diversification.^[17]

Liquidity and Capital Pressures

IndyMac Bank's business model relied heavily on non-deposit funding sources, including Federal Home Loan Bank (FHLB) advances, which comprised 32 to 34 percent of total assets by March 2008, and brokered deposits totaling $6.9 billion at that time, due to its limited network of only 33 branches generating core deposits.^[1] This funding structure exposed the institution to liquidity risks, as it depended on short-term wholesale markets and securitization for refinancing mortgage originations, rather than stable retail deposits. The collapse of the secondary mortgage market in late 2007 forced IndyMac to retain approximately $10.7 billion in loans on its balance sheet that it could no longer securitize or sell, straining liquidity and increasing funding costs.^[1] Capital pressures intensified in 2007 amid deteriorating housing markets and rising loan delinquencies, with the bank recording a $509.1 million loss in the fourth quarter alone, contributing to year-end core capital ratio of 6.24 percent and total risk-based capital ratio of 10.50 percent.^[27] By March 31, 2008, the total risk-based capital ratio stood at 10.26 percent, but adjustments for downgraded securities would have reduced it to 9.27 percent, reflecting inadequate provisioning for loan losses and an insufficient allowance for loan and lease losses (ALLL) that had declined as a percentage of total loans prior to 2007.^[1] Non-conforming mortgage loans, totaling $11.2 billion by May 2008, exhibited delinquency rates of 12.2 percent (90+ days past due), driven by lax underwriting standards such as no-documentation and stated-income loans, which eroded capital through $600 million in write-downs during the fourth quarter of 2007.^[1] Liquidity deteriorated further in mid-2008 as access to FHLB advances and brokered deposits became restricted; on July 1, 2008, the Office of Thrift Supervision (OTS) barred additional brokered deposits, and the FHLB reduced IndyMac's credit line by $80 to $90 million on July 10.^[1] Projections as of June 25, 2008, indicated Tier 1 core capital at 4.46 percent (adequately capitalized) and total risk-based capital at 7.28 percent (undercapitalized), prompting OTS to issue a cease-and-desist order on July 3 requiring 7 percent Tier 1 and 13 percent total risk-based capital by year-end.^[1] These pressures culminated in net deposit outflows of $1.55 billion from June 27 to July 11, 2008, with daily peaks reaching $250 million, as funding markets seized amid broader credit conditions and institution-specific concerns.^[1]

Triggering Events and Collapse

Senator Schumer's Letter and Resulting Bank Run

On June 26, 2008, U.S. Senator Charles Schumer (D-NY) sent letters to Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair, Office of Thrift Supervision (OTS) Director John Reich, and the Federal Home Loan Bank of San Francisco, expressing concerns over IndyMac Bancorp's financial health.^[28]^[29] In the correspondence, Schumer warned that IndyMac's deteriorating condition, including heavy reliance on short-term funding and exposure to falling home prices, posed "significant risks to both taxpayers and borrowers" and could lead to a depositor run that would "greatly destabilize the institution."^[28]^[26] He urged regulators to intervene promptly to protect depositors and ensure the bank's stability, citing publicly available data on IndyMac's liquidity pressures and mortgage losses.^[30]^[31] The letters were released publicly shortly after, on June 26 or 27, 2008, amplifying market anxiety amid the ongoing subprime mortgage crisis.^[32]^[33] This disclosure triggered a rapid bank run, with depositors withdrawing approximately $1.3 billion over the ensuing 11 business days, averaging about $100 million daily.^[33]^[34] IndyMac, which had already been classified as in "troubled condition" by OTS following an examination that began in January 2008, relied heavily on non-deposit funding sources like Federal Home Loan Bank advances and brokered deposits, making it vulnerable to such outflows.^[8]^[1] OTS Director John Reich attributed the liquidity crisis directly to Schumer's letter, stating it "caused a bank run" by eroding public confidence in IndyMac's solvency.^[31]^[35] Schumer countered that his warnings highlighted pre-existing issues known to regulators and investors, including IndyMac's $2.4 billion in reported losses from option ARMs and other non-traditional mortgages, and accused officials of deflecting blame from supervisory shortcomings.^[31]^[36] The run depleted IndyMac's liquidity, forcing it to draw down nearly all available Federal Home Loan Bank lines and exhaust other funding, culminating in the OTS's decision to seize the bank on July 11, 2008.^[30]^[8] This event marked one of the largest bank failures in U.S. history up to that point, with estimated FDIC costs exceeding $9 billion initially.^[32]^[1]

Federal Seizure by OTS and FDIC

On July 11, 2008, the Office of Thrift Supervision (OTS) closed IndyMac Bank, F.S.B., after determining the institution was operating in an unsafe and unsound condition amid a severe liquidity crisis.^[8] OTS Director John Reich stated that "this institution failed today due to a liquidity crisis," emphasizing IndyMac's inability to meet ongoing obligations despite prior supervisory efforts to address funding vulnerabilities identified in a January 2008 examination.^[8] The thrift, which held approximately $32 billion in assets and specialized in originating and securitizing Alt-A mortgages, had faced mounting pressures from the collapse of the non-agency mortgage-backed securities market since August 2007 and deteriorating real estate conditions.^[8] In response, OTS appointed the Federal Deposit Insurance Corporation (FDIC) as conservator for a newly chartered entity, IndyMac Federal Bank, F.S.B., effective July 14, 2008.^[8] The FDIC transferred all insured deposits—covering up to $100,000 per depositor, or $250,000 for certain retirement accounts—and substantially all of IndyMac's assets to this conservatorship vehicle, enabling seamless continuity of banking operations.^[37] Depositors retained immediate access via ATMs, debit cards, and checks over the weekend of July 12–13, with branches reopening under the new FDIC-supervised entity on Monday; no insured funds were lost.^[37] Uninsured depositors, facing potential shortfalls, received an advance dividend equivalent to 50% of their claim value, with further recoveries anticipated from asset liquidations.^[37] The seizure marked one of the largest bank failures in U.S. history by asset size, second only to Continental Illinois National Bank in 1984, and imposed an initial estimated cost of $4 billion to $8 billion on the FDIC's Deposit Insurance Fund.^[38] This action underscored the broader vulnerabilities in institutions heavily exposed to housing market downturns, though OTS maintained that IndyMac's core issues stemmed from its aggressive funding strategies rather than isolated events.^[8] The conservatorship facilitated an orderly transition, preventing immediate systemic disruption while setting the stage for subsequent resolution efforts.^[37]

Corporate and Governance Scandals

Stock Option Backdating Affair

In May 2008, the Office of Thrift Supervision (OTS) approved IndyMac Bank's request to backdate an $18 million capital contribution from its parent company, IndyMac Bancorp, recording it as occurring on March 31, 2008, rather than the actual date of May 9, 2008.^[39] This adjustment addressed a capital deficit identified by auditors Ernst & Young in the bank's first-quarter financial reports, enabling IndyMac to report itself as "well capitalized" and avert immediate restrictions on accepting brokered deposits, which comprised $6.8 billion or 37% of its total deposits.^[39]^[40] The backdating was authorized by OTS Western Regional Director Darrel Dochow, who permitted the amendment to the Thrift Financial Report after consultations with IndyMac's CEO and auditors.^[41] In 2011, former IndyMac Chairman and CEO Michael W. Perry alleged that Dochow explicitly directed the retroactive entry to preserve the bank's regulatory standing, following an earlier $70 million infusion in the first quarter that proved insufficient.^[42] The maneuver delayed scrutiny but masked deepening liquidity strains amid the subprime downturn, contributing to perceptions of lax oversight.^[43] The incident surfaced in a December 2008 Treasury Department inspector general probe, which criticized OTS for enabling the deception and prompted Dochow's reassignment.^[39]^[44] Analysts viewed it as undermining trust in IndyMac's solvency disclosures, exacerbating the bank's vulnerability just months before its July 2008 failure, which incurred $12.95 billion in FDIC losses.^[42] No criminal charges directly stemmed from the backdating, but it highlighted governance lapses, including inadequate internal controls over financial reporting.^[40]

Executive Compensation and Risk Management Failures

IndyMac's executive compensation structure emphasized short-term performance metrics tied to loan origination volumes and revenue growth, which incentivized aggressive lending practices during the housing boom. In 2007, CEO Michael W. Perry received a base salary of $1 million and total compensation of approximately $1.4 million, reflecting incentives aligned with production targets rather than long-term risk mitigation.^[12] The Office of Thrift Supervision (OTS), in its January 2007 Report of Examination, directed IndyMac to re-evaluate senior management contracts to better align incentive compensation with risk management responsibilities, citing evidence that existing structures contributed to excessive risk-taking in underwriting and portfolio management.^[1] Risk management at IndyMac was subordinated to growth objectives, with enterprise risk management (ERM) treated as a support function rather than a core constraint on lending. Perry, as CEO and board chair, articulated a philosophy that ERM should prioritize operational details over speculative future risks, stating in a 2005 internal email that it "works for the CEO" and should avoid "excessive worry over what the future holds."^[45] This approach enabled the production of over $10 billion in high-risk Alt-A and option ARM loans between April and October 2007, despite deteriorating secondary market liquidity and early delinquency signals, resulting in loans being warehoused on the balance sheet and subsequent $600 million in losses.^[45] Underwriting standards were lax, featuring unverified stated income loans and inflated appraisals, which OTS examinations from 2004 onward repeatedly flagged as inadequate but failed to enforce corrections on until 2008.^[1] These failures culminated in regulatory actions and litigation holding executives accountable for negligence. The FDIC sued Perry and other officers, alleging breaches of duty in risk oversight that directly caused the bank's insolvency, leading to Perry's 2012 settlement of $1 million plus insurance recovery and a lifetime ban from the banking industry.^[46] A separate FDIC jury verdict in 2012 awarded $168.8 million against three former officers for similar risk management lapses, underscoring how misaligned incentives and deficient controls amplified IndyMac's vulnerability to the subprime downturn.^[47] Perry admitted in early 2008 that the mounting losses were "100% operating management’s fault (from me on down)," highlighting internal recognition of these systemic shortcomings.^[45]

Regulatory Oversight and Investigations

Office of Thrift Supervision's Supervisory Lapses

The Office of Thrift Supervision (OTS), responsible for examining and regulating federally chartered thrift institutions like IndyMac Bank, FSB, identified recurring risks in its annual full-scope examinations from 2001 to 2008 but consistently failed to enforce timely corrective actions.^[1] For instance, a 2001 examination rated IndyMac a composite 2 but downgraded it to 3 due to asset quality and management weaknesses, yet subsequent reviews through 2007 did not escalate oversight despite ongoing issues with aggressive growth, volatile funding, and high-risk mortgage products.^[1] An examination initiated in January 2008 ultimately assigned a composite 5 rating—indicating critical weaknesses—by June 20, 2008, but this came after significant deterioration had already occurred.^[1] OTS enforcement was notably delayed, with no formal actions taken until a memorandum of understanding (MOU) was executed on June 26, 2008, despite supervisory concerns dating back to 2005 regarding poor underwriting standards, such as no-documentation loans and inadequate appraisals.^[1] A proposed cease-and-desist order on July 3, 2008, addressing capital inadequacy and risk management failures, was not implemented before IndyMac's closure on July 11, 2008.^[1] This hesitation allowed IndyMac to continue originating and retaining nontraditional loans, including subprime products and option adjustable-rate mortgages prone to negative amortization, without sufficient mitigation.^[1] In capital supervision, OTS permitted IndyMac to backdate an $18 million capital contribution from its holding company, received on May 9, 2008, to the first quarter ending March 31, 2008, following adjustments by auditor Ernst & Young that threatened its "well-capitalized" status.^[48] The OTS Western Region Director approved this during a May 9 conference call without requiring supporting documentation, enabling IndyMac to avoid prompt corrective action (PCA) triggers and restrictions on brokered deposits until July 1, 2008.^[48]^[1] OTS did not disclose this to the Federal Deposit Insurance Corporation (FDIC), exacerbating a regulatory rift, as the FDIC learned of it only post-failure.^[43] These lapses—rooted in inadequate risk assessment, lax enforcement, and permissive accounting—permitted IndyMac's balance sheet to weaken amid rising defaults and a $1.55 billion deposit run from June 27 to July 11, 2008, culminating in a $10.7 billion loss to the Deposit Insurance Fund.^[1]^[43] The Treasury Inspector General's review attributed the failure partly to OTS's failure to label IndyMac as troubled by May 2008 and recommended enhanced processes for CAMELS ratings and enforcement timeliness.^[1]

Treasury Inspector General and Other Probes

The Department of the Treasury's Office of Inspector General (OIG) conducted a material loss review of IndyMac Bank, FSB's failure, as required under Section 38(k) of the Federal Deposit Insurance Act for institutions with losses exceeding $50 million to the Deposit Insurance Fund.^[1] Released on February 26, 2009, the report (OIG-09-032) identified primary causes including IndyMac's high-risk business strategy focused on aggressive mortgage originations with insufficient hedging against interest rate and housing market risks, reliance on non-core funding sources vulnerable to market disruptions, inadequate loan loss reserves relative to deteriorating asset quality, unsound executive compensation incentives tied to short-term production volumes, and deficient risk management practices that failed to adapt to emerging subprime and Alt-A lending vulnerabilities.^[1] The OIG concluded that these internal weaknesses, compounded by broader housing market declines starting in 2007, were the root drivers of the $9.4 billion estimated loss to the Deposit Insurance Fund, rather than external triggers alone.^[1] The review sharply criticized the Office of Thrift Supervision (OTS) for supervisory shortcomings, noting that examiners identified risks as early as 2006 but issued only informal downgrades and cease-and-desist considerations without enforcing timely corrective actions, such as restricting high-risk lending or mandating capital raises.^[1] OTS's leniency was attributed to a regulatory philosophy prioritizing industry growth over prudential constraints, with inadequate follow-through on violation referrals and over-reliance on IndyMac's internal models that understated losses.^[1] The OIG recommended that OTS enhance examiner training on high-risk mortgage products and improve interagency coordination, actions which OTS affirmed it implemented by dismissing involved personnel and revising supervisory protocols.^[1] While acknowledging Senator Charles Schumer's July 2008 letter as a contributing factor to the bank run by eroding confidence, the report emphasized it accelerated rather than caused the collapse, given IndyMac's pre-existing illiquidity and insolvency risks.^[1] Separate OIG inquiries uncovered irregularities in IndyMac's capital reporting, including a May 2008 infusion of $50 million from parent IndyMac Bancorp, of which $18 million was backdated by OTS regional director Darrel Dochow to appear in IndyMac Bank's first-quarter 2008 financials, falsely bolstering its tier-1 capital ratio amid disclosure pressures.^[49] Inspector General Eric M. Thorson testified on May 5, 2009, that this accounting maneuver, executed despite awareness of its impropriety, violated regulatory standards and prompted OTS to remove Dochow from supervisory duties; Ernst & Young, IndyMac's auditor, later deemed the treatment inconsistent with GAAP but did not flag it contemporaneously.^[49] A follow-up OIG audit (OIG-09-037), issued May 21, 2009, examined the Treasury's $5 billion capital contribution to IndyMac via the Temporary Liquidity Guarantee Program, finding it appropriately timed but noting procedural delays in recording that masked the bank's Q1 2008 distress.^[48] The Federal Deposit Insurance Corporation's OIG provided support to the Treasury OIG's efforts, loaning examiners for the material loss review and conducting parallel assessments of resolution processes, though no independent FDIC OIG report solely on IndyMac causation was issued.^[50] Congressional scrutiny, led by Senator Chuck Grassley, referenced OIG findings in probing OTS's role but deferred to the executive branch investigations without issuing standalone reports.^[51] These probes collectively highlighted systemic regulatory forbearance toward growth-oriented thrifts but stopped short of pursuing criminal liability, focusing instead on administrative reforms amid the broader 2008 crisis context.^[1]

Resolution and Post-Failure Trajectory

FDIC Receivership Process

On July 11, 2008, following the closure of IndyMac Bank, F.S.B. by the Office of Thrift Supervision, the FDIC was appointed conservator for the newly chartered IndyMac Federal Bank, F.S.B., to which substantially all deposits and assets of the failed institution were transferred to ensure operational continuity and protect depositors.^[6] Insured deposits up to $100,000 per depositor (or $250,000 for individual retirement accounts) were fully transferred and remained accessible without interruption, while an immediate 50% advance dividend was issued on uninsured deposits, with the balance addressed through receiver certificates allowing proportional claims on recovered assets.^[37] Under conservatorship, the FDIC managed daily operations, including loan servicing and delinquency mitigation, while issuing obligations to fund liquidity needs and temporarily shielding all deposits from loss to maintain public confidence amid the ongoing bank run.^[6] The conservatorship facilitated asset stabilization and marketing, segregating performing loans and deposits from nonperforming assets to maximize recovery value.^[3] On March 19, 2009, the FDIC transitioned IndyMac Federal Bank into full receivership, terminating conservatorship and selling substantially all viable assets—primarily deposits, branches, and higher-quality loans—to IMB Holdco, LLC, a private investor group that formed OneWest Bank to assume operations.^[6] Troubled assets, including option ARM loans and foreclosed properties, were retained in a separate FDIC-managed resolution trust for orderly liquidation, minimizing immediate taxpayer exposure through this "good bank/bad bank" bifurcation.^[3] Claims processing in receivership prioritized insured depositors and secured creditors, with the FDIC repudiating unfavorable contracts under its statutory powers to disaffirm burdensome obligations like certain executive agreements.^[6] On November 12, 2009, the FDIC Board determined that receivership assets for both IndyMac Bank and IndyMac Federal were insufficient to cover general unsecured claims, precluding any distributions and valuing such claims at zero.^[52] The overall resolution resulted in a $12.4 billion estimated loss to the Deposit Insurance Fund, the largest in FDIC history to that point, driven by heavy exposure to alt-A mortgages and rapid deposit outflows exceeding $1.3 billion in the preceding weeks.^[3] Unclaimed deposits escheated to states after 18 months, with no systemic disruption as branches reopened under OneWest without interruption.^[37]

Sale to IMB Holdco and Formation of OneWest Bank

On July 11, 2008, following its failure, IndyMac Bank was placed into conservatorship by the Federal Deposit Insurance Corporation (FDIC), operating temporarily as IndyMac Federal Bank, F.S.B.^[6] To resolve the institution, the FDIC solicited bids for its assets and liabilities, culminating in an agreement with IMB HoldCo LLC, a private investment group led by figures including Steven Mnuchin.^[53] IMB HoldCo organized OneWest Bank, F.S.B., as a newly chartered federal savings bank to acquire the bulk of IndyMac Federal's operations, with the transaction structured to transfer viable assets while leaving distressed loans in FDIC receivership.^[6]^[54] The sale closed on March 19, 2009, when the FDIC transferred all deposits—totaling approximately $6.5 billion—and certain assets valued at $20.7 billion to OneWest Bank at a discount of $4.7 billion, reflecting the impaired value of non-performing mortgage-related holdings.^[3] IMB HoldCo provided $1.55 billion in new common equity capital to capitalize OneWest, enabling it to assume the deposits and operate the 33-branch network primarily in Southern California.^[55]^[56] As part of the agreement, OneWest committed to participating in the FDIC's loan modification program for distressed IndyMac mortgages, aiming to mitigate foreclosures amid the ongoing housing crisis, though subsequent critiques noted limited effectiveness in altering default trajectories.^[54] OneWest Bank emerged as a restructured entity focused on retail banking and mortgage servicing, inheriting IndyMac's branch footprint and deposit base while shedding much of the high-risk, option-ARM lending portfolio that contributed to the original failure.^[6] The formation under IMB HoldCo's umbrella allowed for private-sector management to prioritize profitability, with the FDIC retaining loss-sharing arrangements on certain assets to protect taxpayers from further exposure.^[57] This transaction marked one of the earliest large-scale private resolutions of a failed institution during the 2008 financial crisis, setting a template for subsequent FDIC-assisted sales.^[3]

Later Acquisitions by CIT and Asset Dispositions

On July 22, 2014, CIT Group Inc. announced a definitive agreement to acquire IMB Holdco LLC, the parent company of OneWest Bank, N.A., for approximately $3.4 billion, consisting of $2.0 billion in cash and 31.3 million shares of CIT common stock.^[58] The transaction, approved by regulators including the Federal Reserve and Office of the Comptroller of the Currency, aimed to combine CIT's commercial lending platform with OneWest's retail banking and mortgage operations, resulting in combined assets of about $67 billion and deposits of $28 billion.^[59]^[60] The acquisition closed on August 3, 2015, with IMB Holdco shareholders receiving roughly $1.867 billion in cash and 30.9 million CIT shares.^[61] Following the merger, CIT Bank merged into OneWest Bank, which was renamed CIT Bank, N.A., expanding CIT's branch network to 70 locations primarily in Southern California and enhancing its consumer banking capabilities.^[62]^[61] This deal marked a strategic shift for CIT toward a more balanced banking model, integrating OneWest's $21.8 billion in assets and $18.4 billion in liabilities.^[63] Post-acquisition, CIT pursued asset dispositions to streamline operations and exit certain non-core segments inherited from OneWest. In October 2017, CIT initiated the sale of Financial Freedom, OneWest's reverse mortgage servicing division, which managed a significant portfolio of home equity conversion mortgages (HECMs) originating from IndyMac's legacy activities.^[64] The transaction culminated on June 6, 2018, when CIT sold the mortgage servicing rights, $879 million in reverse mortgage whole loans, and related other real estate owned properties, effectively exiting the reverse mortgage business.^[65] Additionally, in 2018, CIT divested broader mortgage servicing operations, reducing exposure to residential lending risks amid shifting market conditions.^[66] These dispositions aligned with CIT's focus on commercial banking, while other real estate owned (OREO) assets from the OneWest portfolio were actively marketed and carried at the lower of cost or fair value less disposition costs.^[63]

Broader Impact and Legacy

Role in the 2008 Financial Crisis Narrative

IndyMac Bank's collapse on July 11, 2008, served as an early and prominent case study in the unfolding subprime and Alt-A mortgage meltdown that precipitated the broader 2008 financial crisis. The institution had aggressively expanded into non-prime lending, particularly Alt-A mortgages—loans to borrowers with good credit but limited documentation of income or assets—originating over $100 billion in such products between 2002 and 2006.^[1] This strategy fueled rapid asset growth to $32 billion by mid-2008, but left IndyMac heavily reliant on volatile wholesale funding sources like Federal Home Loan Bank advances and brokered deposits, rather than stable retail deposits, making it acutely sensitive to market disruptions.^[1] ^[6] As housing prices peaked and began declining in 2006–2007, IndyMac's non-conforming loan portfolio, totaling $11.2 billion by May 2008, experienced delinquency rates climbing to 12.2 percent for loans 90 days past due, impairing its ability to securitize and sell these assets into frozen secondary markets.^[1] A June 26, 2008, letter from U.S. Senator Charles Schumer questioning the bank's viability triggered a classic bank run, with $1.3 billion in deposits withdrawn in just 11 days, exhausting liquidity and forcing closure by the Office of Thrift Supervision.^[1] ^[5] The failure, the largest thrift seizure in U.S. history at the time and the fourth-largest overall bank failure, underscored the systemic risks of the originate-to-distribute model, where originators like IndyMac offloaded loans assuming perpetual market access, only to face balance sheet retention and funding squeezes when investor confidence evaporated.^[8] ^[1] In the crisis narrative, IndyMac exemplified how specialized mortgage lenders amplified housing bubble excesses through lax underwriting and over-dependence on securitization, contributing to the credit contraction that rippled through financial markets.^[3] Its downfall, costing the FDIC's Deposit Insurance Fund an initial $8.9 billion (later revised higher), highlighted vulnerabilities in institutions pursuing high-growth strategies without commensurate capital buffers or diversification, serving as a harbinger for subsequent failures like Washington Mutual.^[1] While less exposed to outright subprime loans (under 5 percent of portfolio), IndyMac's heavy Alt-A focus—riskier than prime but less so than subprime—illustrated the cascading effects of non-prime lending writ large, as rising defaults eroded asset values and liquidity across the sector.^[3] This case reinforced causal links between mortgage market mispricing, funding fragility, and contagion, influencing post-crisis reforms like enhanced liquidity requirements under Dodd-Frank, though debates persist on whether regulatory forbearance or inherent model flaws were primary drivers.^[1]^[5]

Implications for Mortgage Banking and Regulation

The failure of IndyMac Bank, FSB, on July 11, 2008, underscored the perils of the "originate-to-distribute" model prevalent in mortgage banking, where institutions originated high volumes of non-prime loans—particularly Alt-A products like option adjustable-rate mortgages (ARMs)—primarily for securitization and sale into secondary markets rather than long-term holding.^[1] When housing prices declined and the secondary market for these loans evaporated in late 2007, IndyMac faced acute liquidity shortages, as it could no longer offload its $50 billion-plus portfolio of such assets, revealing how overreliance on securitization masked underwriting weaknesses and amplified systemic risk across the sector.^[1] This episode accelerated a contraction in aggressive mortgage origination practices, with industry-wide delinquency rates spiking and non-bank lenders curtailing Alt-A production by over 90% from peak levels by 2009, prompting a pivot toward stricter, more conservative lending standards to mitigate balance sheet exposure.^[5] In the mortgage servicing realm, IndyMac's heavy accumulation of mortgage servicing rights (MSRs)—valued at billions but impaired by rising delinquencies—highlighted how these assets could erode capital during downturns, contributing to failures in similar institutions and influencing post-crisis rules limiting MSR concentrations to 25% of Tier 1 capital for banks.^[67] The bank's collapse, costing the FDIC's Deposit Insurance Fund approximately $10.7 billion in resolution expenses, exemplified how unchecked growth in risky lending eroded depositor confidence and strained federal backstops, fostering industry-wide reforms like enhanced due diligence in loan pooling and a decline in the share of private-label mortgage-backed securities from 56% of originations in 2006 to near zero by 2010.^[43] IndyMac's demise exposed critical flaws in thrift regulation under the Office of Thrift Supervision (OTS), which examiners failed to curb the bank's unsafe growth strategy despite repeated warnings about leverage exceeding 30-to-1 and inadequate liquidity buffers.^[1] Inter-agency tensions, particularly between the OTS's permissive stance—allowing IndyMac to reclassify assets and delay disclosures—and the FDIC's conservative assessments, amplified supervisory inconsistencies, as the OTS prioritized affiliation over risk mitigation for its regulated thrifts.^[43] These lapses fueled congressional scrutiny, contributing to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which abolished the OTS and consolidated its oversight into the Office of the Comptroller of the Currency and FDIC, aiming to eliminate "regulatory arbitrage" and impose unified, risk-focused supervision on mortgage-originating institutions.^[43] The event also informed broader regulatory enhancements, including heightened capital requirements for off-balance-sheet exposures and stress testing mandates under Dodd-Frank, which addressed the liquidity mismatches that precipitated IndyMac's run on deposits exceeding $1.3 billion in a single week prior to seizure.^[68] While some analyses attribute IndyMac's failure more to macroeconomic shocks than inherent regulatory design flaws, the consensus from official reviews emphasizes the need for proactive enforcement against rapid asset growth tied to volatile real estate cycles, influencing the Federal Reserve's subsequent guidance on mortgage-related assets.^[1]

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### Summary of IndyMac's Vulnerabilities to Housing Market Decline
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