Abstract

In July 2008, the Federal Deposit Insurance Company (FDIC) in the US took control of IndyMac Bancorp Inc (IMB) from its management as the bank’s capital adequacy levels fell below the regulatory requirements. IMB, founded in 1985, focused on mortgage lending and securitizing those loans in the secondary markets to generate funds. It lent to Alt-A customers who did not have proper documentation of their incomes and assets. IMB’s aggressiveness in lending led to poor underwriting practices as most of the customers’ sources of income and their repaying capability was not properly scrutinized. In 2007, the default rates in Alt-A loans started rising and the secondary market for these loans became illiquid. IMB which mainly relied on secondary markets for its capital requirements faced a severe liquidity crunch. These factors led to fall in its capital adequacy levels by mid 2008.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Examine the reasons for the fall of IndyMac Bancorp Inc. Understand the importance of stringent underwriting practices imposed by banks. Appreciate the significance of diversification of funds sources by a bank. Analyze the key lessons learned from the

Keywords

IndyMac Bancorp, Mortgage Lender, Alt-A Loans, Federal Deposit Insurance Company, US Mortgage Markets, Financial Crisis, Office of Thrift Supervision, US Banking Regulations, Real Estate Investment Trust, SGV Bancorp Inc, Reverse Mortgage Business, New York Mortgage Trust Inc, Default Rate, Mortgage Backed Securities, Subprime Mortgage Securitization, American Home Mortgage investment Corporation, Non-performing Assets, Texas Ratio, Capital Adequacy Ratio, Adjustable Rate Mortgages, Federal Home Loan Bank, Underwriting Practices, Loan Reserves, Private Capital, Financial Statements