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Paul Kiesel
Paul Kiesel
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Will IndyMac Get a Bailout, Too?

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The Center for Responsible Lending released evidence yesterday, June 30, that IndyMac put itself in a hole by, “engaging in unsound and abusive lending during the nation’s mortgage boom,” (Center For Responsible Lending, 6/30/08).

The report is titled, “IndyMac: What Went Wrong?” And it finds substantial evidence that IndyMac routinely offered and made loans with little concern as to whether their customers could repay the loan.

Three main issues are brought up in the CRL’s report:

-IndyMac pushed through loans based on inflated appraisals and income data that exaggerated borrowers’ finances;

-IndyMac worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees (TILA violations);

-IndyMac treated many elderly and minority consumers unfairly.

Obviously, over the last six months, much of the criticism concerning the mortgage crisis has revolved around subprime mortgages, but IndyMac, rather, was a bigger player in regards to “Alt-A” loans, and if it were to go bankrupt, it would likely have a greater impact on the economy as it has billions of dollars of Alt-A loans floating around mortgage market.

Alt-A borrowers have a higher interest rate than prime borrowers, but they also have lower rates than subprime borrowers; they tend to take out larger loans than a subprime borrower. In 2006, IndyMac was the leading Alt-A lender, and their avarice in writing billions of dollars in loans, with little evidence that the borrower could repay it, has come back to haunt them along with many other Alt-A lenders (not to mention the stock market and confidence amidst all lending institutions). And as we’ll see in the coming months, prime borrowers will be swallowed by the mortgage crisis as their rates reset as well, adding even more fuel to the fire.

The question that remains as IndyMac’s shares traded at an all-time low today, 52 cents a share, is: Will a bank like Bank of America come in and save the hemorrhaging IndyMac (with, maybe, the assistance of the U.S. government) or will IndyMac be made an example of for their insidious lending practices and their irresponsible lending?