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Interesting piece in the New York Times about the downfall of IndyMac Bank and the history that led to its demise. The title, The Downfall of a California Dreamer, paves the way for this look back; but unfortunately it’s romanticized version of events led by a chairman with a dream comes up much too short in it’s analysis of the greed and malfeasance that led to the bank’s demise.
Let’s get the facts straight. IndyMac died for two main reasons: bad loans and greed. There is nothing romantic about that, there is no awe or spectacle in greed. There is no reverence to be found in corporate glutony.
Michael Perry and IndyMac perished because they didn’t follow sound underwriting and risk management policies and it saddled them with a bunch of bad loans. The Senator Schumer run was only the icing on the cake. IndyMac’s fate was sealed well before that.
IndyMac had long been known as an asylum that was run by the inmates. There are classic stories of sales managers bullying underwriters, of exceptions being made at the end of the month and all manner of bad business going down in the never-ending chase for more revenue. These of course are unsubstantiated and heresey, but when you hear them enough…
I remember talking to friends who used to send all of their loans to IndyMac. They would get max value on a “pushed” appraisal, an exception on a credit score under 620 and a maximum rebate on their pay option ARM loans that yielded them tens of thousands of dollars per transaction.
These are what did in IndyMac in - not a letter from a Senator.
From the New York Times:
Mr. Perry, whom friends and co-workers described as a hands-on manager who sometimes personally weighed in on mortgage applications, pushed the boundaries of his trade. But apparently not even Mr. Perry, who spent much of his career at IndyMac and its predecessor companies, saw the trouble until it was too late. He was predicting as recently as February that the bank would not only weather the downturn in the housing market but that it would even turn a profit this year.
Through a spokesman, Mr. Perry declined to comment for this article on the advice of his lawyers.
Formed in 1985 as a small division of Countrywide, IndyMac started making loans in the 1990s and became fully independent in 1997. The company nearly went under when the credit markets seized up in 1998, but Mr. Perry steered the company through that crisis by reducing its reliance on Wall Street financing. In July 2000, he acquired a savings bank to gain access to what was widely presumed to be a more stable source of financing: customers’ deposits.
“He certainly never forgot that experience,” Thomas K. Brown, chief executive of Second Curve Capital, said of IndyMac’s troubles in 1998. Mr. Brown, whose hedge fund had owned 5 percent of IndyMac late last year, described Mr. Perry as an “eternal optimist.”
Mr. Brown said Mr. Perry often referred to IndyMac’s previous hardships by saying, “We have made tough decisions in the past.”
Most of this decade was a golden era for IndyMac, whose profits grew threefold from 2001 to 2006. The company specialized in alternative-A, or alt-A, mortgages, which are made to borrowers with good credit but are not quite as conservative as the prime loans eligible to be bought by Fannie Mae and Freddie Mac, the mortgage giants.
For a long time, Mr. Perry disputed the growing belief that the problems in subprime mortgages would infect alt-A loans.
What do you think? Share your IndyMac stories in the comments.
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