Analysis On The Failure Of Indymac Bank Essay
From: Chen Yuan, Xuyang Yao, Lanlin Zuo
To: Professor Vojtech
IndyMac Bank was one of the largest savings and loan association in the nation at its prime time. It was headquartered in Los Angeles area and was the seventh largest mortgage originator in the United States. The failure of IndyMac Bank was the fourth largest bank failure in United States, it shocked the whole U.S and got people thinking what happened to the U.S bank industry.
Today we are going to research on Indymac about why it failed, the research is consisted in 6 parts: type of business model; asset quality; regulatory framework; funding type and capitalization; growth practices and culture.
1. The Type of Business Model: supply mortgage loan without investigation.
From 2004, IndyMac had bought three big mortgage companies and developed quickly in the mortgage loan service. As an Alt-A lender, IndyMac’s business model was to offer loan products to satisfy the borrower’s needs by using an extensive array of risky option-adjustable-rate-mortgages, subprime loans, 80/20 loans, and other nontraditional products. However, IndyMac often made loans without the certification or investigation of the borrower’s income or assets, and to the borrowers who had poor credit histories. In addition, the collateral of the loans were always questionable. As a result, loans were often made to many borrowers who couldn’t afford to make their payments. When home prices declined in the…