Why indymac failed

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Search Search:. Morgan Housel cmfhousel. Updated: Apr 5, at PM. Under the oversight of the FDIC, all employees were motivated through individual retention plans based on goals and performance, which was a good way to get the employees to stick through the "tough times". Now Wright's team and the other areas of the bank are working on developing individual employee growth, career management and compensation plans that are in line with the workers responsibilities. Confidence Increased Other than the consolidation and reorganization not much has really changed for the staff, notes Wright.

He sees the biggest changes have come in the amount confidence of all the employees now have successfully working through the unchartered waters of a true FDIC takeover. Honestly, I don't think there are any individuals on the planet other than our team here that have gone full circle with the FDIC that can now take that experience and apply it to any financial institution.

This meant access to not only file rooms, but access to digital essence. Wright and the information security team have been able to as in the past thwart these types of activities.

We are actually required by the FDIC and OTS to have a Compliance and Awareness program in place which continually educates our staff to look out for these types of activities," he says. Wright doesn't see the "takeover" by the FDIC increased the amount of instances of attempted security breaches as a whole. IndyMac Bank set the standard for that loan modification program that the government is talking about, Wright explains.

This entails working with existing customers that may be in danger of defaulting on their mortgage or may need to rework their mortgage requirements. Now many other banks are adopting the standard that IndyMac created, and Wright believes that's really the reason why the FDIC took over the institution the way it did. The bank would then potentially modify the toxic assets or the toxic loans in those new portfolios. It's an interesting approach that was completely different, but the outcome was something Wright sees as a positive for the economy overall.

He sees that the bank is able to come out on the other side with something that it could offer to customers -- and not just from IndyMac, but other banks that may be in trouble, something that could help homeowners stay in their homes, and standardize a program that all other banks will be using moving forward. The bank's model now is to: Acquire new banks, grow out the banking business, and grow out the loan servicing business.

As part of the bank's loan servicing business, it is looking to the FDIC when it goes through bank closures, to offer the chance to bid on the loan portfolios that are considered good assets. FDIC's Year Transition The transition between being fully run by the FDIC and the move to a conservatorship under the private investment company keeps the bank answerable to the regulator for the next 10 years.

This means that if the bank wanted to get rid of a core application, it can't just get rid of it, it has to get approval through the FDIC.

Wright notes that the FDIC has the oversight to go in at any point in time and say "We need this data, or we need access to this system, or whatever the request is, and as a result we really aren't able to make any changes without first consulting with them, it is part of the contract.

The support around that infrastructure becomes very costly, he explains. There isn't an estimated cost yet for the additional information storage requirements, he adds, but is comparable to costs related to e-Discovery compliance. Information has to be readable, it has to be trackable, it has to be auditable, and it has to be managed in a way that all of the specific controls are in place, he says. Automated Tools Help Workload One of the positive points Wright saw was the use of automated tools in handling the threat modeling that was required because of workforce reductions.

When Wright began at IndyMac in , it had more than 11, employees. It now operates with 2, employees and around contractors.

We can go through and very quickly identify systems that could potentially be reused, or systems that could be taken down without any adverse affect on the rest of the network, or potentially network segments that could be shut off or reduced. Not just from an asset perspective, but also just from a like a topology environment perspective," Wright says. For Wright's department, the transition to the brick and mortar bank and the move away from a mortgage bank has made the job a bit easier, mainly because the new owners are more risk averse.

It's like risk is a four-letter word to them. Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. From heightened risks to increased regulations, senior leaders at all levels are pressured to improve their organizations' risk management capabilities.

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Sign in now. Need help registering? As long as home prices kept rising, as they did while the housing bubble was inflating, there were no problems. People could sell the home and walk away with more money than they owed.

Once the bubble burst and prices started to decline, loan defaults started to mount. Related: Angelo Mozilo and his doomed mortgage machine. As home prices started to fall in , some subprime lenders filed for bankruptcy. In March , Wall Street firm Bear Stearns essentially failed because of its bet on the riskier mortgages, and it was sold at rock-bottom prices.

Even Fannie and Freddie were losing money. She thought that was months away. But when some members of Congress raised questions about the bank's future, it sparked a rush by the bank's larger customers to withdraw their money, causing a cash crunch that sped IndyMac's demise. She said so many loans had been made with questionable loan standards that the bank's failure had become inevitable.

Related Coverage. See more stories. Charles Schumer for causing a run on deposits at the largest independent publicly traded U. IndyMac was founded in by David Loeb and Angelo Mozilo, who also founded Countrywide, another big mortgage lender whose loans helped fuel the housing boom.

Countrywide was taken over last week by Bank of America Corp.