As IndyMac Bancorp battles questions about its financial stability, a new report from the Center for Responsible Lending provides evidence that IndyMac put itself in a hole by engaging in unsound and abusive lending during the nation's mortgage boom.
The report, "'IndyMac: What Went Wrong?," finds substantial evidence that IndyMac routinely made loans with little regard for their customers' ability to repay the loans.
CRL's interviews with former employees and a review of lawsuits in 10 states indicate that IndyMac
- pushed through loans based on inflated appraisals and income data that exaggerated borrowers' finances;
- worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees; and
- treated many elderly and minority consumers unfairly.
In interviews and court documents, 19 former employees describe an atmosphere where the drive to close loans ruled even when IndyMac's own risk experts recommended against approvals. Most of the ex-employees who provided information for this report were mortgage underwriters who were supposed to be making sure borrowers could afford the deals. They say their efforts to do their jobs were hamstrung by higher-ups.
"I would reject a loan and the insanity would begin," one former underwriter told CRL. "It would go to upper management and the next thing you know it's going to closing. . . . I'm like, 'What the Sam Hill? There's nothing in there to support this loan.' "
The report comes amid continuing revelations about unfair practices in the mortgage industry and on Wall Street, including state regulators' lawsuits against Countrywide Financial, indictments against Bear Stearns executives, and a federal law enforcement sweep that netted criminal charges against hundreds of mortgage professionals.
"CRL's investigation provides a body of evidence that discredits the idea that IndyMac and other lenders were victims of overreaching borrowers or rogue mortgage brokers," says Michael Hudson, the report's primary author and a senior investigator at CRL. "IndyMac's current problems appear to be largely the legacy of top-down pressures that valued short-term growth over making responsible lending decisions. These are the kinds of actions that have produced record-breaking foreclosures and weakened our entire economy. Lenders engaged in reckless lending and, unfortunately, the entire country is paying for their actions now."
"Elected officials need to restore common sense to an industry that veered out of control and could do so again," said Mike Calhoun, President of the Center for Responsible Lending. "The entire economy has been weakened by abusive mortgage lending. We urgently need stronger actions to help responsible people stay in their homes today and prevent further deterioration of the economy. Congress also needs to insist that this country return to a lending environment where people don't need to fear being cheated and financially ruined."
The report indicates that bad practices in the mortgage industry weren't limited to the subprime market. Many of the same questionable tactics that were prevalent in the subprime market were also common in the "Alt-A" mortgage sector, where IndyMac was a dominant player. Alt-A borrowers generally pay higher rates than traditional prime borrowers, but lower rates than subprime borrowers. IndyMac was the nation's leading Alt-A lender in 2006.
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