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PRELIMINARYYPFSDISCUSSIONDRAFT|MARCH2020

IndyMac

MalloryDreyer1

March13,2020

Abstract

IndyMacBankgrewtobeoneofthelargestmortgagelendersintheUnitedStatesintheearly2000s,butitsrelianceonariskygrowthstrategymadeitvulnerabletothehousingcrisis.Aftera$1.3billiondepositruninJuly2008andconcernsaboutprobablefailure,IndyMacBankwasclosedbytheOfficeofThriftSupervision(OTS)andplacedunderFederalDepositInsuranceCorporation(FDIC)receivership.TheFDICestablishedIndyMacFederalBank,atemporary bridge bank, to assume the deposits and liabilities and continue to providebankingservices.UnderFDICconservatorship,theuninsureddepositorswereabletoaccess50percentoftheirinsureddepositsimmediately.TheFDICdevelopedaloanmodificationprogramforseriouslydelinquentIndyMacborrowersinordertopreventforeclosureandmaximizereturns,whichtheFDIClatersharedwithotherlenders,andtheprogramwasaprecursor to the Treasury’s Home Affordable Mortgage Program. The FDIC managed abiddingprocessforIndyMac,andthewinningbidof$13.65billioncamefromaconsortiumofprivateequityinvestorswhichestablishedanewlycharteredthriftinstitution,OneWestBank.The acquisition included$6.5billionof deposits, $20.7billion in assets and a $4.7billiondiscount,aswellastherequirementthattheconsortiuminject$1.3billionincashintoOneWestwhenittookoveroperationsonMarch19,2009.Inaddition,theFDICenteredashared-lossagreementwithOneWestunderwhichOneWestwouldrecognizethefirst$2.5billioninlossesonaneligibleportfolioofloans;thenextportionupto$3.3billionwouldbeallocated80percenttotheFDICand20percenttoOneWestwiththeFDICrecognizing95percent of the losses in excess of $3.3 billion. The IndyMac failure remains the mostexpensivebankfailureinFDIChistory,withanestimatedcostof$12.3billiontotheDepositInsurance Fund. As of the writing of this case, the FDIC is continuing to manage thereceivershipofIndyMac.

Keywords:GlobalFinancialCrisis,conservatorship,deposit insurance,bridgebank,bankrun

1Researchassociate,YaleProgramonFinancialStability([email protected])


AtaGlance

IndyMac Bank grew rapidly in the early2000s and became one of the nation’slargestmortgagelenders.IndyMacfocusedonAlt-Amortgage lending andpursued ahigh-risk and aggressive growth strategy,makingitvulnerabletothehousingcrisisin2007. IndyMac’s condition deteriorated,andaftera$1.3billiondepositruninJuly2008, itwasclosedby theOfficeofThriftSupervision (OTS) on July 11, 2008 andplacedunderFDICreceivership.TheFDIC,under itsresolutionauthority,establishedIndyMacFederalBank, forwhichitwouldoperateunderconservatorship,toopenonJuly 14, 2008. IndyMac Federal assumedmostofthedepositsandassetsofIndyMacBank and continued to provide bankingservices.Atthetimeoffailure,thedepositinsurance limit was $100,000. Uninsureddepositorswereabletoaccess50percentof their uninsured deposits immediately,based the FDIC’s estimated recovery. TheFDIC implemented a loan modificationprogram for delinquent borrowers atIndyMacFederal.

OnMarch19,2009,theFDICenteredintoapurchaseandassumptionagreementwithIMBHoldCo,theholdingcompanyofOneWestBank,anewlycharteredthrift.TheFDICsoughtabuyerthroughcompetitivebidding,withawinningbidof$13.65billionforIndyMacFederal.The sale included all deposits, $6.5 billion, and $20.7 billion in assets and a $4.7 billiondiscount. IMBHoldCo capitalizedOneWestwith $1.3 billion in cash. The sale included ashared-lossagreementonaportfolioofeligibleloans.TheSLAexpiredin2019,andtheFDICiscontinuingtomanagethereceivershipforIndyMac.

SummaryEvaluation

Summary of Key Terms

Purpose: IndyMac Bank, a failing thrift, was closed by the OTS, and the FDIC established IndyMac Federal for which it was conservator before ultimately selling the deposits and most assets to OneWest

Key Dates Closed: July 11, 2008 Bridge Bank Operational: July 14, 2008 Acquisition Announced: December 31, 2008 Sale Effective: March 19, 2009

Regulatory Authority

Primary: OTS Secondary: FDIC

Resolution Authority

FDIC

Assets at Failure

~$28-32 billion

Deposits at Failure

~$18-19billion

Loss on Resolution

Estimated ~$12.3 billion loss to Deposit Insurance Fund

Acquisition Cost

OneWest purchased IndyMac for $13.65 billion

Notable features

Bank run leading up to failure; sale of IndyMac included loss-sharing arrangement between OneWest and FDIC

IndyMac


TheIndyMacfailureremainsthemostexpensivefailureinFDIChistory,withanestimatedlosstotheDepositInsuranceFundof$12.4billion.Thetimingoftheclosureledtocustomerconfusion, and the media coverage has been criticized heavily by the FDIC. The OTS’ssupervisionofIndyMachasalsobeencriticized,andaninvestigationintotheOTSbytheOIGconcludedthattheOTSallowedIndyMactobackdateacapitalcontributiontomaintainitsstatusas“well-capitalized”in2008.Theshared-lossagreementwithOneWesthasreceivedattention,ashaveOneWest’sforeclosurepractices.


ContentsI. Overview...........................................................................................................................................1

Background ............................................................................................................................. 1Program Description ............................................................................................................... 3Outcomes ................................................................................................................................ 8

II. KeyDesignDecisions..................................................................................................................101. Part of a package: IndyMac’s resolution was one of many undertaken by the FDIC during the GFC. .................................................................................................................................... 102. Regulatory authority and/or resolution authority: The OTS revoked IndyMac’s charter and appointed the FDIC as the receiver for resolution. ............................................................ 113. Resolution Mandate: The FDIC has a statutory mandate to use the least-cost resolution method. ...................................................................................................................................... 114. Resolution Method: After being appointed receiver of IndyMac, the FDIC established a bridge bank to continue normal business until a purchase and assumption transaction could be completed. ................................................................................................................................. 125. Communication: Press coverage of the failure of IndyMac was intense, and communications surrounding the failure, conservatorship, loan modification, and eventual sale were important aspects of the FDIC response. ......................................................................... 136. Governance and administration: The FDIC established new management for IndyMac Federal. ...................................................................................................................................... 147. Timeframe: Immediately after the OTS revoked IndyMac Bank;s charter on Friday, the FDIC became the receiver and prepared to open IndyMac Federal the following Monday. The acquisition by OneWest occurred on March 19, 2009. ............................................................. 148. Treatment of depositors (insured and uninsured) and other claimants: The FDIC adhered to an order of priority for paying claims that put administrative expenses and insured deposits first, followed by uninsured deposits and then general unsecured creditors and other lower priority claims. .......................................................................................................................... 159. Debt restructuring of toxic assets: The FDIC developed a loan modification program for IndyMac customers who were seriously delinquent on mortgage payments for primary residences and nearing foreclosure. .......................................................................................... 1510. Exit strategy (liquidation/whole sale/partial sale/sale with conditions): The FDIC sought a buyer of IndyMac through competitive bidding. ........................................................ 1611. Risk-sharing / Loss-sharing arrangement with purchaser: The FDIC entered into a shared-loss agreement (SLA) with OneWest Bank as part of the P&A transaction. ................ 1712. Receivership Wind-down: The IndyMac receivership is ongoing at the time of this case. 18

III.Evaluation......................................................................................................................................18IV.References......................................................................................................................................22


V. KeyProgramDocuments.........................................................Error!Bookmarknotdefined.Summary of Program ............................................................. Error! Bookmark not defined.Legal/Regulatory Guidance ................................................... Error! Bookmark not defined.Press Releases/Announcements ............................................. Error! Bookmark not defined.Media Stories ......................................................................... Error! Bookmark not defined.Reports/Assessments.............................................................. Error! Bookmark not defined.

VI.Appendices....................................................................................Error!Bookmarknotdefined.Appendix A: Title of Optional Appendix .............................. Error! Bookmark not defined.Appendix B: Title of Additional Appendix ........................... Error! Bookmark not defined.


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I. Overview

Background

Independent National Mortgage Corporation Bank, FSB (IndyMac Bank) was one of thelargest mortgage lenders in the U.S. in 2007 (2007 IM 10K, pp3). Its holding company,IndyMacBancorp(HoldingCompany),wasestablishedasapassiverealestateinvestmenttrust(REIT)in1985buttransitionedtomortgagelendingin1993(2007IM10K,pp3).TheHoldingCompanyacquiredFirstFederalSavingsandLoanofSanGabrielValleyandbeganoperationsofIndyMacBank,asavingsandloanbank,onJuly1,2000with$5.1billionintotalassets(OTSFactsheet;2007IM10K,pp3).In2004,IndyMacenteredthereversemortgageindustryafteracquiringFinancialFreedomHoldings(2007IM10K,pp3).

Figure1:IndyMacBancorpStructure

Source:CreatedbyYPFSfrom2007IM10K

IndyMacBankpursuedanaggressivegrowthstrategyintheearly2000s,growingfrom$13billionintotalassetsinJune2005to$31billionintotalassetsbyJune2007(OIG-09-032,pp7). Between 2003 and 2006, IndyMac tripled its value of mortgage loans originated,generating$90billioninnewmortgagesin2006alone(OIG-09-032,pp7).IndyMac’sshareofthenationalmortgagemarketgrewfrom1.00percentattheendof2003to3.3percentin2007(2004IMAR,pp33;2007IMAR,pp28).

Despitedescribing itsbusinessmodelasone thatprovideda “strong frameworkand theflexibility to operate efficiently in varying interest-rate environments,” IndyMac was


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vulnerable to the downturn in the US housing market (2007 IM 10K, pp4). IndyMacspecialized in Alt-A mortgages, which typically do not require income verification ordocumentation(OIG-09-032,pp2,pp47).IndyMachadflexibleunderwritingstandardsandacceptedappraisals thatwerenot inconformancewithUniformStandardofProfessionalAppraisal practice (OIG-09-032, pp12). IndyMac’s aggressive growth and higher-riskbusinessstrategymadeitsusceptibletothedownturninthehousingmarketstemmingfromthesubprimemortgagecrisis(OIG-09-032,pp3).

InMarch2007,thesubprimecrisisbeganflowingintotheAlt-Amarket,andbyApril2007,lendersdiscoveredthattheycouldnotsellAlt-Amortgagesatapremiumtocoveroriginationandhadtosellatparorbelow(Moran-Bates,pp518). In2007,IndyMacreportedthatan“unprecedenteddisruption”intheUShousingmarketledittoeliminateorsuspendcertainproductssuchashighcombinedloantovalue(CLTV)closed-endliens,home-equitylinesofcredit(HELOCs),consumerandconstructionloans,andothernonconformingloanproducts(2007IM10K,pp19).IndyMacannouncedthatitwouldbefocusingonoriginatingamajorityofconformingmortgageloans2,asitwastheonlyseeminglyreliablesecondarymarketthatremained(2007IM10K,pp5).

IndyMacwasunabletosellorsecuritizeitsloanproductionforapartof2007,leadingto$10.7billioninloansthatitintendedtosellbeingheldinitsmaturityaccount(OIG-09-032,pp9).IndyMacrecordeda$474millionadjustmentinthefourthquarterof2007tocoverestimated future losses associated with the loans (OIG-09-032, pp41). IndyMac’s 2007financialconditionwasdeteriorating,asitreportedaconsolidatednetlossof$614.8millionin2007(2007IM10K,pp19).3Inits2007AnnualReport,IndyMacstatedthat“2007wasaterribleyearfor[its]industry,forIndyMac”andforshareholders(2007IMAR).

IndyMac’sdeclinecontinuedin2008.OnJanuary15,2008,IndyMacannouncedthatitwouldcut 24 percent of its workforce, the equivalent of 2,403 jobs (Moran-Bates, pp530). OnJanuary 23, 2008, IndyMac requested that Moody’s withdraw its ratings; according toIndyMacmanagement,ithadneverreliedoncorporatedebtmarketsforfunding(Moran-Bates,pp530).Inthefirstquarterof2008,IndyMacbookedanetlossof$184million(2008Q1EarningsPresentation,pp3).

Itwas laterdiscovered that IndyMac’sprimaryregulator, theOfficeofThriftSupervision(OTS),wasinvolvedindiscussionswithIndyMac’smanagement,allowingthemtobackdatecapital received inMay2008 from its holding company, in order to keep IndyMacBan’scapitaladequacyratioat“well-capitalized”inthefirstquarter10-Qfiling(OIGReport05-21-2009, pp14). By recording the capital as if it was received in the first quarter, IndyMacmaintainedacapitalratioabovethe10percent“well-capitalized”requirement(OIGReport05-21-2009,pp14).IfIndyMac’scapitalratiohadfallenbelowthethreshold,itwouldhave

2 Conforming loans are those which can be sold to the Government Sponsored Enterprises (Fannie Mae or Freddie Mac). 3 The mortgage production line had a net loss of $96.8 million, mortgage servicing a net profit of $181.4 million, mortgage banking a net profit of $33.0 million, thrift a net loss of $199.2 million, and discontinued activities a net loss of $281.1 million.


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been subject to potential restrictions from the OTS and Federal Deposit InsuranceCorporation(FDIC),includingtheinabilitytoacceptbrokereddeposits4withoutawaiver,increased borrowing costs from the Federal Home Loan Bank (FHLB), higher insurancepremiumsfromtheFDIC,andhigherpaymentstotheOTS. IndyMaccontinuedtoreceivehighcompositeCAMELSratings5fromtheOTS(2008Q1IM10-Q,pp32).TheOTShadnotidentifiedIndyMaconitsproblemthriftlistasofJune2008(OIG-09-032,pp34).

TheFDICalsohadregulatoryauthorityoverIndyMac(OIGReport08-2009).ItperformedanalysesofIndyMacanddeterminedthatIndyMacfacedaliquidityshortageinMarch2008(OIG-09-032,pp13).TheFDIClater“identifiedtheneedforaninvestmentof$2to$3.5billiontopreventIndyMacfromfailing”andadditionalanalysisshowedthatIndyMacwasatahighriskofbeingdowngradedtolessthanwellcapitalized(OIG-09-032,pp13).

OnJune27,2008,aletterraisingconcernsaboutIndyMac,writtenbyCharlesSchumer,aDemocraticsenatorfromNewYork,waspublicizedbytheWallStreetJournal(WSJ06-27-2008).Theletter,datedJune26,2008,wasaddressedtotheFDIC,FHLB,andOTSandraisedconcerns about IndyMac’s financial condition (Schumer Letter). Schumer stated that“IndyMac’s financial deterioration pose[d] significant risks to both taxpayers andborrowers”andthat“theregulatorycommunitymaynotbepreparedtotakemeasuresthatwould help prevent the collapse or minimize the damage should such a failure occur”(SchumerLetter).

In the eleven days following the publicization of the letter, IndyMac experienced a $1.3billiondeposit run (OTSFactsheet). IndyMac announcedplans to decrease itsworkforcefrom7,200to3,400andcloseitswholesaleandretailnewloandivisions(OTSFactsheet).IndyMac’sstockpriceplummetedto$0.28byJuly11,2008(Bovenzi,pp5).

ProgramDescription

OnJuly11,2008,theOTSrevokedIndyMac’scharterandclosedthebank(OTSPR08-029).TheOTS,asIndyMac’sprimaryregulator,hadtheauthoritytoissueandrevokeIndyMac’sbanking charter (2003 Resolution Handbook, pp6). The OTS stated that IndyMac had“insufficient liquidity to meet its obligations, and no viable alternatives to return toprofitabilityandrestorecapitaladequacy”andthuswasinan“unsafeandunsoundconditionto transact business.” (OTS Factsheet). IndyMac was closed at 3 p.m. Pacific Time, theequivalentof6p.m.EasternTime, inorder togivenotice to IndyMacemployeesatotherbranches in other time zones (Bovenzi, pp9). However, this meant that IndyMac closed

4 Brokered deposits are funds deposited by brokers for third parties which receive higher interest rates. 5 CAMELS is a rating system to monitor the health of a bank. The six components of CAMELS are Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. Each component is assigned a value from one to five, with one being strong and 5 being critically deficient. Each bank is assigned a composite rating, which weights certain components higher than others. https://www.stlouisfed.org/on-the-economy/2018/july/abcs-camels


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earlier than its traditional business hours, which meant that some customers at theCalifornialocationswereunabletocompletetheirbankingbeforetheregularclosingtime(Bovenzi,pp9).

The FDIC, after being appointed receiver of IndyMac, established a newly charteredinstitution,IndyMacFederal,forwhichitwastheconservatorandplannedtoopenthenewinstitutiononMonday,July14,2008(PR-56-2008).TheFDICdidnothavetheauthoritytoestablish a bridge bank for a thrift institution at the time of IndyMac’s failure (2003ResolutionHandbook,pp35).Thus,forIndyMac,theFDICuseditsauthorityasaconservatorfor the newly established institution, which is essentially the same as a bridge bankresolution.6Atthetimeofitsclosure,IndyMacBankhadapproximately$32.01billionintotalassetsandtotaldepositsof$19.06billion(PR-56-2008).

TheFDICbeganpreparingtoreopenthebankonJuly14,2008(Bovenzi,pp9).AccordingtotheFDIC’sresolutionprocesses,uponthereceiptofafailingbankletterfromaninstitution’scharteringauthority,itbeganitsformalinvolvementinresolutionactivitieswhichincludedcontactingthechiefexecutiveofficer,addressingmanagement’sinvolvement,andcollectingloandataandotherinformation(2003ResolutionHandbook,pp6-7).Afterfailure,theFDICtookcustodyofthefailedinstitution’spremisesandrecords(2003ResolutionHandbook,pp71).TheFDICtheninformedthepublicoftheinstitution’sclosing,andFDICclosingstaffworked to bring the general ledger to balance as of the closing date (2003 ResolutionHandbook,pp71).AnFDICteamoperatedonsitetogatherinformation,analyzethebank’scondition,valueassets,determineresolutionoptions,prepareinformationforbidders,andplanforclosing(2003ResolutionHandbook,pp81).InthecaseofIndyMac,theresolutionteamfromtheFDIChad todetermine theamountof insureddepositsand theamountofuninsureddeposits(Bovenzi,pp9).Theresolutionteamhadtoexaminequalifiedfinancialcontracts(QFCs)todeterminewhichshouldremaininplaceandwhichshouldbecancelled(Bovenzi,pp10).QFCsincludecontractsfortransactionsscheduledatfuturedates,suchascreditdefaultswaps,interestrateswaps,andcurrencyswaps(Bovenzi,pp10).AccordingtoJohnBovenzi, theCOOoftheFDICwhobecametheCEOofthebridgebank,IndyMachadrelatively fewQFCs, and the FDICwas able to identify and address the contracts beforeopeningthebridgebank(Bovenzi,pp10).

OnthemorningofJuly14,2008,IndyMacFederal,FSB,openedunderFDICcontrol,“offeringvirtuallyallservicesthathadbeenprovidedbyIndyMacBankpriortothethrift’sclosurethreedaysbefore”(Carpenter,pp4).WhenIndyMacFederalopened,Bovenzistatedthatitwouldbe“businessasusual”(LAT07-14-2008).TheFDICtransferredinsureddepositsand“substantiallyallof theassets”of IndyMactoIndyMacFederal, thoughbrokereddepositswereheldbytheFDICreceivership(PR-56-2008).AccordingtotheOTS,IndyMachad$5.97billioninbrokereddepositsasofJune30,2008(OTSFactsheet).InsureddepositorswereabletoaccessorwithdrawtheirFDIC-insureddeposits;thedepositinsurancecoveragelimitatthetimeofIndyMac’sfailurewas$100,000(FDICFailedBankInformationFAQ).TheFDIC

6 The legislation has since been updated to allow the FDIC to bridge a thrift institution. Additionally, the conservatorship approach taken for IndyMac is cited by many as a “bridge bank” resolution method, as it is essentially the same.


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stated that checkswere to be processed as usual, and that customerswould be able tocontinuetoaccessnormalbankingservices(PR-56-2008).Loancustomerswereexpectedtocontinue tomakeregularpayments,as loan termswouldnotbe impacted (PR-56-2008).However, IndyMac had many depositors with potentially uninsured deposits, and thesedepositorsdidhaveimmediateaccesstoalltheirfunds(PR-56-2008).Manydepositorswerelater found to be fully insured, though the FDIC lacked full information regarding theinsurancestatusatthetimeofclosing(FDICCrisis,pp197FN48).Individualswithuninsureddepositswere able to access50percentof theiruninsureddepositsbasedon theFDIC’spreliminaryassessmentoftheexpectedreturnsfromwindingdownIndyMac(FDICFailedBankInformation).IndyMachadalargevolumeofdepositaccounts,brokereddeposits,andtrustaccounts,allofwhichweregovernedbydifferentdepositinsuranceprovisions(FDICCrisis,pp197FN48).IRAs,whichwereinsuredseparatelyfromothertypesofaccounts,wereinsuredupto$250,000(FDICFailedBankInformation).

PanicsurroundingthebankclosurepersistedonJuly14,andtheconstantmediacoveragecontinuedwhenthebankreopened(Bovenzi,pp13).TheFDICimplementedanumberingsystemtomanage the lineandcustomerwait times inorder toestablishorder(Bovenzi,pp14).Thelonglinesandchaossurroundingthephysicalbranchlocationscalmed,butinthefollowingdays, customers continued towithdrawdeposits (Bovenzi, pp16).A totalof $3billionwaswithdrawninthetwoweeksfollowingtheclosure(FDICCrisis,pp197).SomeIndyMac customers complained that other banks placed excessively long holds on theirchecksordidnotaccepttheirchecks(Bovenzi,pp16).JohnBovenzicalledseveralbankCEOsinorder tostymie thepractice,and theFDIC issuedanotice toallbankswhichrequiredbankstoaccepttheIndyMacchecks(Bovenzi,pp17).TheFDICestablishedaprivatehotlinefor other banks to call if they had concerns about IndyMac customer’s personal checks(Bovenzi, pp17). The FDIC also created awebsite, “Am I Insured?” for depositors,whichallowedIndyMaccustomerstocheckthe insurancestatusof theiraccountsandprovidedthemwith contact information todetermine additional information about their coverage(2008FDICAR,pp51).

InAugust2008,theFDICannouncedaloanmodificationprogramforIndyMacborrowers,whichwasdesignedtotakeasystematicapproachtomodifyingmortgagesnearforeclosureandmaximizetherecoveryoftheportfolioofmortgageloans(Bair08-20-2008).Borrowerswhowereseriouslydelinquentorindefaultontheirmortgagesforprimaryresidenceswereeligiblefortheprogram(FDICIMLoanMod).Theprogrammodifiedeligiblemortgagestoachieve sustainable payments at a 38 percent debt-to-income ratio of principal, interest,taxes,andinsurance(FDICIMLoanMod).Modificationsincludedinterestratereductions,extended amortization and principal forbearance (FDIC IM LoanMod). IndyMac Federalbegan sending proposals to borrowers after the program was announced, with 4,000proposalssentinthefirstweek(Bair08-20-2008).LoanmodificationofferswereonlysenttoborrowerswherethemodificationwouldachieveanimprovedvalueforIndyMacFederal(FDICIMLoanMod).

TheFDICplannedtosellIndyMacFederalassoonaspossible.However,intheimmediateaftermathof the failure, theFDICcalled the institution “unattractive”due to itshigh-risklendingandmortgagelosses(BN2008-07-22).SheilaBair,theFDICChairman,statedthat


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theFDICwaslookingforabuyer“assoonaspossible,”ideallywithinthreemonths,withthegoalto“getthisbankbackintotheprivatesectorassoonaspossible”(BN2008-07-22).Theprocessofsearchingforabuyerforafailedinstitutioniscalledfranchisemarketing,whichincludestheprocessofpackaging,marketingandsellingtheoperatingunitsofaninsureddepositoryinstitution(FDICCrisis,pp177).OnOctober6,2008,theFDICreceivedtwenty-threeindicativebidsfromavarietyoffinancialinstitutionandprivateequitybidders(FDICBidSummary).Bidderscouldplacebidsforalleightgroupsofassetsorliabilitiesoramixofgroups(i.e.thedepositfranchise,loanservicingassets,reversemortgagegroup,etc.)(FDICBidSummary).Afterreviewingthefirstroundofbidding,theFDICinvitedasubsetofthehighestbidderstoconductadditionalduediligenceandbidinthesecondround(WSJ01-19-2017).TheFDICreceivedsixbidsinthefinalroundofbidding,whichoccurredonDecember15,2008(FDICBidSummary).

Thewinningbidof$13.65billionwasfromaconsortiumofprivateequityinvestors(FDICBidSummary).7Thebidwas“unanimouslyacceptedbytheFDIC’sfive-memberboard”(WSJ01-19-2017). It was estimated that the second-place bid, or “cover bid”, would haveincreased the FDIC’s losses by approximately $1 billion (WSJ 01-19-2017). The privateequityconsortiumestablishedIMBHoldCoLLC,whichwouldbetheholdingcompanyofthebankthatassumedIndyMac’sassets,liabilitiesandoperations(PR-01-2009Factsheet).8OnDecember 31, 2008, the FDIC signed a letter of intent to sell IndyMac, and the DeputyDirectoroftheFDIC,JamesWigand,statedinapressreleasethatthe“agreementachievesthe goals that were set out by the Chairman and the Boardwhen the FDICwas namedconservator of IndyMac in July” (PR-01-2009). Barclays Capital and Deutsche BankSecurities served as financial advisors to the FDIC for the deal (PR-01-2009 Factsheet).LehmanBrotherswas initiallyanadvisor to theFDIC,but itwasacquiredbyBarclays inSeptember2008afterfailing(PR-01-2009Factsheet).

OnMarch19,2009,alldepositsofIndyMacFederalweretransferredtoOneWestBank,FSB,whichwasthethriftbankestablishedunderIMBHoldCoLLC(PR-42-2009).SteveMnuchinservedasthechairmanandCEOofIMBHoldCo(PR-01-2009Factsheet).OneWestacquiredapproximately$6.5billionindeposits,33retaillocations,a$16billionloanportfolio,a$6.9billion securities portfolio, a mortgage servicing rights (MSR) platform with an unpaidprincipalbalanceof$157.7billion,andthereversemortgageplatform,FinancialFreedom,with$1.5billioninreversemortgagesandMSRswithanunpaidprincipalbalanceof$20.2billion(PR-01-2009Factsheet).TheacquisitionalsoincludedtheFederalHomeLoanBankAdvances and amounts owed to the FDIC (PR-02-12-2010 Factsheet). Overall, OneWestacquiredalldepositsandapproximately$20.7billioninassetsatadiscountof$4.7billionfromIndyMacFederal,whiletheFDICretainedtheremainingassetsforlaterdisposal(PR-

7 The FDIC states that it gives preference to existing banks for the bidding and acquisition of failed financial institutions, but the state of the market at the time was such that the offer from the private equity consortium was the least-cost transaction for the Deposit Insurance Fund. 8 In order to bid on an institution during the FDIC’s auction process, an institution was required to have an existing charter. However, the OCC announced the availability of a shelf-charter in Q4 2008 which allowed prospective investors to bid while their charter application was pending (FDIC Crisis, pp198).


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42-2009). One condition of the sale was the requirement that IMB HoldCo capitalizeOneWestwith$1.3billionincash(PR-01-2009Factsheet).Thesalealsoincludedaprovisioninwhich the FDIC received themajority of the cash flows from a $2 billion portfolio ofconstructionandotherloans(PR-01-2009Factsheet).

Figure2:IndyMacResolution

Source:CreatedbyYPFSfromFDICPressReleases(PR-56-2008,PR-42-2009,PR-01-2009Factsheet)

Aspartofthetransaction,theFDICenteredasharedlossagreement(SLA)withOneWest(PR-01-2009Factsheet).SLAswerefirstintroducedin1991,andtheprimarypurposeofanSLAisto“minimizeresolutioncostsbykeepingtheassetsintheprivatesectorafterbankfailure,restructuringprivateloansandassets,andminimizingtheFDIC’soperatingcostsandliquidationneeds”(FDICSLAFAQ).

Theloss-sharearrangementrequiredOneWesttobearthefirst20percentofthelossesona$13billionportfolioofeligibleloans,upto$2.551billion,afterwhichtheFDICwouldbeginreimbursingforlosses(2008FDICAR,pp89;2015CIT10-K,pp149).Thenext10percentofthelosses(between$2.551billionand$3.826billion)wouldbedistributed80percenttotheFDICand20percenttoOneWest;lossesinexcessofthestatedthresholdof$3.826billionwouldbedistributedataratioof95percenttotheFDICand5percenttoOneWest(2015CIT10-K,pp149).Approximately7percentofthesingle-familyloansandreversemortgagesOneWestacquiredwerecoveredundertheFDIC’sloss-sharearrangementandboundbytheloan-modificationprogram(PR-02-12-2010Factsheet).InorderforOneWesttobeeligibleforreimbursement, itwasrequiredtocontinuethe loanmodificationprogramorcomply


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with the Treasury’s Home Affordable Mortgage Program (HAMP) (PR-02-12-2010Factsheet).

BecausetheFDICofferedrepresentationsandwarrantiesonloansfromtheconservatorshipas a part of thepurchase and assumption transaction, it indemnifiedOneWest on futurelossesrelatedtothirdpartyclaimsonaportfolioofeligibleloans(2008FDICAR,pp89).Forexample, if representationsmade related to loans sold to the Agencies (i.e. FannieMae,FreddieMac) resulted inclaims, theFDICagreed to reimburseOneWest (2015CIT10-K,pp149).Thetotalamountofloanssoldsubjecttotheindemnificationagreementwas$3.2billion(2008FDICAR,pp89).

Outcomes

Atthetimeof IndyMac’s failure in July2008, theestimated loss to theDeposit InsuranceFund (DIF) ranged from $4 billion and $8 billion (PR-56-2008). By August 2008, theestimatedlossincreasedto$8.9billion(2008Q3CFOReport,pp1).Throughtheendof2008,theDIFpaid$5.8billiontofundtheobligationstoinsureddepositorsofIndyMacand$9.4billiontotheconservatorshiptofundoperationsundera$12billionlineofcredit(AR2008,pp89). By the end of 2008, the total estimated loss increased to $10.7 billion (AR 2008,pp89).TheestimatedlossonIndyMac’sfailureisapproximately$12.3billion,whichasofthewritingofthiscase,isthemostexpensiveresolutioninFDIChistory(AR2018,pp172).One factorcontributing to thecostly resolutionwas IndyMac’s relianceonFederalHomeLoanBank(FHLB)lending(Bair,pp85).AsofJune30,2008,IndyMachad$10.1billioninFederalHomeLoanBankadvances(OTSFactsheet).TheFHLBlendsonasecuredbasisandrequireslendingtobebackedbyqualitycollateral(Bair,pp85).WhenIndyMacfailed,theFDIChadtoturnoverhigherqualitycollateraltotheFHLBandcouldnotselltheassetstorecoup losses. Thus, the cost to resolve a bank that relies heavily on FHLB lending is“typicallyquitehigh.”(Bair,pp85).

On November 12, 2009, the FDIC Board of Directors determined that the IndyMacreceivershiphadinsufficientassetstomakeanydistributionongeneralunsecuredclaims,and that “such claims will recover nothing and have no value” (FDIC No Value Notice).According to the Federal Deposit Insurance Act (FDI Act), administrative expenses anddeposit liabilities must be paid in full before any distribution can be paid to generalunsecured creditors or thosewith lower priority claims, such as subordinated debt andequity(FDICNoValueNotice).

The FDIC continues tomanage the IndyMac Federal FSB receivership at the time of thewriting of this case (FDIC Balance Sheet Summary). The FDIC “seeks to terminatereceivershipsinanorderlyandexpeditiousmanner”andwillterminateareceivershipafterresolvingclaimsandobligationsanddisposingofremainingassets.AsofDecember31,2019,theIndyMacFederalFSBreceivershipbalancesheethadtotalassetsof$89million,with$35millionofassetsinliquidationandanestimatedlossof$10.25milliononthoseassets(FDICBalance Sheet Summary). The receivership had $12.2 billion in total liabilities, with the


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majority of total liabilities comprised of FDIC Subrogated Claims of nearly $12.1 billion9(FDICBalanceSheet Summary).The receivershiphasnegativenetworthof $12.1billion(FDICBalanceSheetSummary).Ofthe$17.5billioninprovendepositclaims,theFDICpaidout$5.3billion,or30percenttodate(FDICBalanceSheetSummary).Thebalancesheetalsoincludes$25millioninunpaidgeneralcreditorclaims(FDICBalanceSheetSummary).10

TheFDIC’sloanmodificationprogramatIndyMacsetaprecedentfortheFDIC’sguidanceonloanmodificationtoother lenders(2008FDICAR,pp6).TheFDICreleasedguidance, the“Mod-in-a-Box”, forothermortgage lenders to adopt (2008FDICAR,pp6).TheTreasurylaterannouncedtheHomeAffordableMortgageProgram(HAMP),whichsimilarlysoughttoassistdelinquentborrowersandreturnloanstoperforming(TreasuryPR03-04-2009).AtthetimeoftheOneWestacquisition,theFDICmailed32,000offerstocustomersofthetotal46,500 determined to be eligible (PR-01-2009 Factsheet). 8,500 modifications werecompletewithapproximately9,500inprogress(PR-01-2009Factsheet).AsofJanuary2009,the estimated savings totaled $423million based on a comparison of the projected netpresentvalueofthemodifiedloanstothenetpresentvalueofforeclosure(PR-01-2009).Theaveragereductioninthemonthlymortgagepaymentsfortheborrowersintheprogramwas$480(2008AR,pp6).Asapartoftheacquisition,OneWestwasrequiredtocontinuetheloanmodificationprogram,and ina2011auditby theFDICOfficeof InspectorGeneral (FDICOIG),itreportedthatOneWestfollowedtheloanmodificationrequirements“morethan98percentofthetime”(FDICOIG07-2011,pp2).

OneWestwasacquiredbyCITGroupin2015,andtheSLArelatedtotheIndyMacacquisitiontransferredtoCITGroup(2015CIT10K,pp149).OneWestandCITGroupaccountedfortheSLAsandindemnificationagreementsasindemnificationassetsandrecognizedthemattheestimated fair value at the date of acquisition using the discounted present value of theexpectedfuturecashflowsoftheagreement(2018CITAR,pp103).InCITGroup’s201510-Kreport, it stated that “thecumulative lossesof theSFRportfolioexceeded the first losstranche($2.551billion)effectiveDecember2011withexcesslossesreimbursed80%bytheFDIC”(2015CIT10K,pp149).Inits201710-K,CITGroupstatedthatitprojectedthatthelosseswouldexceedthe$3.826billionthreshold,afterwhichtheFDICwouldbegintobear95%ofremaininglosses(2017CIT10K,pp133).CITGroupreportedthatasofDecember31,2017,thecumulativereimbursementfromtheFDIC(sincetheinceptionoftheSLA)was$939.9million(2017CIT10K,pp133).TheSLAwithOneWestfortheSFRportfolioofloansexpiredonMarch19,2019(2019CIT10K,pp153;2008FDICAR,pp89).

The FDIC reimbursed OneWest, and later CIT Group, following the terms of theindemnification agreement (2017 CIT 10K, pp133). According to CITGroup’s 2017 10-Kfiling, theFDIChadreimbursedclaimstotaling$4.7millionrelatedtoreversemortgages,$5.7million related to Agency claims on SFR loans, and $10.7million related to AgencyclaimsonreversemortgagesasofDecember31,2017.

9 In the case of subrogated claims, the FDIC becomes the claimant against the receivership, acting in place of the insured depositors. The FDIC reimburses the depositors up to the level of the insured deposits. 10 For more information, see the Receivership Balance Sheet Summary.


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IndyMac Bancorp, Inc., IndyMac Bank’s holding company, filed a petition for Chapter 7bankruptcy liquidation on July 31, 2008 (BW-08-01-2008). The holding company’sbankruptcy filing had no impact on the operations of IndyMac Federal or the FDIC’sconservatorship(BW-08-01-2008).

Following IndyMac’s failure, multiple stakeholders filed lawsuits against IndyMacexecutives.ShareholderssuedMichaelPerry, the formerCEO,andScottKeys, the formerCFO, inJune2008overallegationsthattheyhadmisledinvestorsaboutthedeterioratingfinancialcondition(WSJ07-08-2012).A$6.5millionsettlementwaspaidtotheshareholderswhichcamefromthedirector’sandofficer’sliabilityinsurance(WSJ07-08-2012).Alawsuitwasfiledagainsttheauditors,whichwasdismissedastheinvestorsfailedtoprovethattheaccounting firm had knowledge of wrongdoing (WSJ 07-08-2012). The SEC filed claimsagainstPerryandKeysaswell.TheSECcaseagainstKeyswasdismissedin2012,andPerryandtheSECsettledinSeptember2012(SECLitigationNo.22614;SECLitigationNo.22502).TheSEC’scomplaintallegedthatPerry,inconnectionwithIndyMac’sfinancialstatementsandearningscallinthefirstquarterof2008failedtodisclosethat“IndyMacBankhadonlybeen able tomaintain itswell-capitalized regulatory status by retroactively including inIndyMac’sfirstquartercapitalbalancean$18millioncapitalcontribution”fromtheholdingcompanywhichwasactuallyreceivedinMay2008(SECLitigationNo.22502).PerryneitheradmittedtonordeniedtheallegationsbutsettledwiththeSECfor$80,000(SECLitigationNo.22502).TheFDICalsopursuedlegalactionagainstPerryandotherexecutives.TheFDICsuedPerryfor$600millionandallegedthatPerrynegligentlyallowed$10billioninriskymortgagestoaccrueonIndyMac’sbooks(BN12-14-2012).PerryandtheFDICsettledthecase,withtheFDICtorecover$1millioninpersonalassetsfromPerry,collect$11milliondirector’s and officer’s insurance money, and bar Perry from the banking industrypermanently(BN12-14-2012).Inanotherlawsuit,theFDICpursuedchargesagainstthreeformerexecutivesonallegationsofnegligenceinapproving23loansthatdevelopersneverrepaid,whichcost thebank$170million(BN12-14-2012).A federal jury inLosAngelesfoundthattheexecutiveswereliablefor$169millionindamagestotheFDIC(LAT12-8-2012).

II. KeyDesignDecisions

1. Partofapackage: IndyMac’s resolutionwasoneofmanyundertakenby theFDICduringtheGFC.

IndyMac’sfailurewasoneofmanyduringtheGFC,asnearly500banksfailedintheUnitedStatesbetween2008and2013,atanestimatedcostof$73billiontotheDepositInsuranceFund(FDICCrisis,ppxiii).TheFDICutilizeditsresolutionandrestructuringauthorityforthefailedinstitutions,with304casesofloss-shareP&Aresolutions,26casesofpayoutortheestablishmentofaDeposit InsuranceNationalBank(DINB),78casesofwholebankP&Atransactions,and80otherP&Aresolutions(FDICCrisis,pp200).

Inadditiontotheresolutionactivitiesforindividualfailedbanks,theEmergencyEconomicStabilizationAct expanded deposit insurance coverage from the initial $100,000 limit to


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$250,000 inOctober2008 (FDICCrisis, pp52FN42). Thiswas initially only a temporarymeasure,butitbecamethepermanentdepositinsurancecoverageasapartofDodd-Frankin 2010 (FDIC Crisis, pp52 FN42). Congress applied the limit retroactively to IndyMacdepositorsaswell(Bovenzi,pp18).

TheFDIC launched theTemporaryLiquidityGuaranteeProgram(TLGP) inOctober2008(FDICTLGP).TheTLGPhadtwocomponents:theTransactionAccountGuaranteeProgram(TAGP) and the Debt Guarantee Program (DGP) (FDIC TLGP). The TAGP guaranteed alldomestic noninterest-bearing transaction deposit accounts in full and was extended toDecember 31, 2010 (FDICTLGP). The FDIC guaranteed senior unsecureddebt issuedbyparticipatinginstitutionsundertheDGPbetweenOctober14,2008andOctober31,2009(FDICTLGP).Eligibleinstitutionswereautomaticallyenrolledintheprogrambutcouldoptout.ThoughOneWestwaseligiblefortheDGP,itoptedoutoftheprogram(DebtGuaranteeProgramOpt-Out)

TheIndyMacloanmodificationprogramservedasatemplatefortheFDIC’s“Mod-in-a-Box”loanmodificationprogram(PR-121-2008).TheTreasuryDepartmentlaterimplementedtheHomeAffordableMortgageProgram(HAMP),anotherloanmodificationprogramforat-riskordelinquentborrowers(TreasuryPR03-04-2009).

2. Regulatoryauthorityand/orresolutionauthority:TheOTSrevokedIndyMac’scharterandappointedtheFDICasthereceiverforresolution.

TheOfficeofThriftSupervision(OTS)wasIndyMacBank’sprimaryfinancialregulator,priorto its closure (FDIC Crisis, pp117). The OTS was responsible for issuing and revokingIndyMac’scharter(2003ResolutionHandbook,pp6).ItcompletedonsiteexaminationsofIndyMac and issued IndyMac’s CAMELS rating (OIG-09-032, pp14). The FDIC also hadsupervisoryandregulatoryauthorityoverIndyMac,asIndyMachadinsureddepositsundertheDepositInsuranceFund(2003ResolutionHandbook,pp1).

ResolutionauthorityfallsunderthepurviewoftheFDICwithrespecttofailedbanksandthriftinstitutions(2003ResolutionHandbook,pp2).TheFDICisappointedthereceiverforafailedbankorthriftbythecharteringauthorityandcanthenbeginitsroleasthereceiveror liquidating agent (2003 Resolution Handbook, pp6). In the case of IndyMac, the OTSrevoked the thrift’scharterandappointed theFDICas thereceiver,afterwhich theFDICcouldbeginresolutionandreceivershipactivities(FDICCrisis,pp177;OTS02-029).

3. ResolutionMandate:TheFDIChas a statutorymandate touse the least-costresolutionmethod.

Initsroleasreceiverorliquidatingagentforafailedfederallyinsureddepositoryinstitution,theFDIChasamandatetoimplementtheleastcostlyresolutionforthedepositinsurancefund (2003 Resolution Handbook, pp13). Thismandate to use the least cost resolutionmethodissetforthin12U.S.C.1823(c)(4)(12U.S.C.1823).


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4. Resolution Method: After being appointed receiver of IndyMac, the FDICestablishedabridgebank tocontinuenormalbusinessuntilapurchaseandassumptiontransactioncouldbecompleted.

TheFDIChadthreeresolutionmethodsavailableatthetimeofIndyMac’sfailure:purchaseandassumption,depositpayoff,oropenbankassistance(2003ResolutionHandbook,pp5).Purchase and assumption transactions (P&A) are used for closed institutions,where thefailed bank or thrift’s assets and liabilities are acquired by a healthy institution (2003ResolutionHandbook,pp5).Thetransactionwouldincludeallinsureddeposits,andsomeoralloftheassetsandliabilities(2003ResolutionHandbook,pp13).AdepositpayoffwouldoccurafteracharterisrevokedandtheFDIC,asreceiver,determinesthatthedepositpayoffis the least-costly resolution (2003ResolutionHandbook,pp5).TheFDIC,as the insurer,would pay off all of the failed institution’s depositors the full amount of their insureddeposits; uninsured depositors and general creditors of the failed institution would notreceive immediate payout (2003 Resolution Handbook, pp5). The FDIC would issuereceivershipcertificateswhichentitledtheholdertoaportionofthereceiver’scollectionoftheliquidatedassets(2003ResolutionHandbook,pp5).Openbankassistancewasrareandrequired a systemic risk exception, which included approval from the Secretary of theTreasury, Federal Reserve Board, and consultation with the president (2003 ResolutionHandbook, pp47 FN3). In an open bank assistance transaction, the FDIC would providefinancial assistance to an operating bank or thrift in danger of failing (2003 ResolutionHandbook,pp47).

InthecaseofIndyMac,theFDICwasappointedthereceiveraftertheOTSrevokedIndyMac’scharter (PR-56-2008). In caseswhere the FDIC has advanced notice of a bank failure, itprepares for resolution by searching for a buyer of the failing institution’s assets andliabilities;howeverincases“whentheFDICdoesnothaveenoughtimetoeffectivelymarkettheinstitutiontoathirdpartybeforefailure,”theitcanestablishabridgebank(FDICCrisis,pp184).TheCompetitiveEqualityBankingActof1987providedtheFDICwiththeauthoritytoestablishabridgebankforafailedinstitution,excludingthrifts,inwhichtheFDICactsasthe temporary acquirer of the failed institution’s assets and liabilities (2003 ResolutionHandbook,pp35).BecausetheFDICdidnothavetheauthoritytoestablishabridgebankfora thrift institution, it used its authority as a conservator to operate the new institution,IndyMac Federal, during the interim period between closure and the expected P&AtransactionofIndyMac(PR-56-2008).TheapproachusedbytheFDICwasapass-throughconservatorship,inwhichanewinstitutionischarteredandplacedundertheFDIC’scontrol(Carpenter, pp 4 FN17). This differs from a straight conservatorship, inwhich the FDICwould assume the operations of an open, troubled institution (Carpenter, pp 4 FN17).IndyMacFederalwasestablishedtopreservefranchisevalue,continuebankingservices,andensure protection of insured depositors, as a bridge bank continues the normal bankoperations until the final resolution (Resolution Handbook, pp35). The FDIC has theauthoritytoreplacethefailedbank’smanagementanddiscontinueoperationsasitseesfit(FDICCrisis,pp184;2003ResolutionHandbook,pp34).GiventhebankrunandliquiditycrisisatIndyMac,andthedeterminationofitsprobablefailure,theFDICdidnothavethetimetosearchforanacquiringinstitution(Bovenzi,pp5).


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5. Communication: Press coverage of the failure of IndyMac was intense, andcommunicationssurroundingthefailure,conservatorship, loanmodification,andeventualsalewereimportantaspectsoftheFDICresponse.

ThecommunicationssurroundingIndyMac’sfailure,theFDIC’sconservatorship,thesaletoOneWest,aswellastheoverarchingmessageaboutdepositinsurance,wereallimportantaspectsoftheFDIC’sactivitiesduringtheIndyMacresolution.

At thetimeof the failure,boththeFDICandtheOTSreleasedpressstatements.TheOTSattributedIndyMac’sfailuretothepublicizationoftheletterreleasedbyCharlesSchumertothepubliconJune26(OTSPR08-029).TheFDIC’smessagefocusedoncalmingdepositorsandattemptingtopreventfurtherdepositwithdrawals.TheFDICheldapressconferencethe night before reopening, July 13, 2008 (Bovenzi, pp12). During the press conference,SheilaBairstated:“Thefactisthatforinsureddepositors,IndyMac’sconversionhasbeenlargelyanon-event…onMondaymorning,itwillbebusinessasusual”(PR-57-2008).TheFDIC framed the conservatorship approach as a way to “preserve assets and protectdepositorsuntila finalresolutioncanbeaccomplished”andguaranteedthat“noonewillloseanyinsuredmoneyasaresultofthefailureofIndyMacBank”(PR-57-2008).

GivenIndyMac’sphysicalbankrunandcrowdssurroundingthebranches,therewasahighlevel ofmedia coverage. FDIC leaders facedheavy scrutinyat the timeof the failure andsoughttoreassureboththeIndyMaccustomersandthegeneralpublicaboutthesafetyandsoundnessofthebankingsystem,aswellasthedepositinsurancefund’ssoundness(PR-56-2008). Bair states that the head of public affairs, Andrew Gray, “was on the phonecontinuouslywiththepresstryingtogetittobalanceitsstorieswithapublicreassurancethatFDIC-insureddepositsweresafe.”(Bair,pp81).AftertheIndyMacfailure,BairclaimsthattheFDIC“redoubled[their]effortstoeducatethepublictocounterthefearmongeringthat[they]wereseeingamongsomeofthemoreill-informedmembersofthepresscorps”(Bair,pp81).PresscoverageclaimedthattheFDICwasrunningoutofmoney,andtheFDICsoughttoreassurethepublicthatdepositsweresafeandthatit“hadaperfecttrackrecordinprotectingpeople’smoneythroughthousandsofbankfailuresover[its]seventy-fiveyearhistory”(Bair,pp83).FollowingtheJuly14reopening,theFDICbeganacampaigntoeducatethepublicaboutdeposit insurance,specificallyexplaining thesafetyofdeposit insuranceandhowitworks(PR-62-2008).TheFDICconstructedawebsitedevotedtoexplainingFDICdepositinsurance,anditdevelopedaseriesofpublicservicesadsthatsoughttoreassurethepublicaboutthesafetyofinsureddeposits(Bair,pp83).

Inordertoaddressspecificcustomerconcerns,theFDICputtogetherawebsiteregardingIndyMac’sfailurewhichincludedQ&Asectionsforcustomers,contactinformation,andlinksto important resources (FDICFailedBank Information). The FDICput together an “Am IInsured”portalforIndyMaccustomerswhichallowedthemtochecktheinsurancestatusoftheiraccountsandconnectedcustomerstoFDICrepresentativeswhocouldaddressfurtherquestions (2008 FDIC AR, pp51). Online FAQs addressed questions such as theconservatorshipapproach,howthefailureaffectedcustomers,andotherlogisticalquestionsfromcustomers(FDICFailedBankInformation).


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6. Governance and administration: The FDIC established newmanagement forIndyMacFederal.

TheFDIC,underitsresolutionauthority,determinedifandwhofromafailedbankorthrift’sseniormanagementwillbeinvolvedintheresolutionprocess(2003ResolutionHandbook,pp6-7).TheFDICandOTSexplainedtotheIndyMacexecutivesthedayoftheclosurethatthebankwasbeingclosedandplacedintoreceivership;noneoftheexecutiveswerekeptonduringtheconservatorshipperiod(Bovenzi,pp8-9).TheFDICBoardofDirectorshas theauthority tomanage, operate, and resolve the bridge bank (2003 Resolution Handbook,pp35).TheFDICBoardisresponsiblefortheselectionofaCEOofabridgebank;inthecaseofIndyMac,JohnBovenzi,theCOOoftheFDIC,becametheCEO(2003ResolutionHandbook,pp35;Bovenzi,pp13). IndyMacFederal’sboardofdirectorswascomprisedof fiveseniorFDICofficialswithBovenziaschairmanandRickHoffmanasvicechairman;HoffmanwasalsotheCOOandpresidentofthebridgebank(Bovenzi,pp13).TheIndyMacFederalboardofdirectorswasresponsibleforreviewingandapprovingthebusinessplaninadditiontomanagementandoversight(2003ResolutionHandbook,pp35).Theboardsetinterestratesfornewaccountsataratelowerthantheprevious(Bovenzi,pp13).

The FDIC retained IndyMac employees during the conservatorship period. Over theweekend,“existingdelegationsofauthorityhadbeenratifiedsothebank’semployeeswouldhavetheauthoritytocontinuetodotheirjobs”(Bovenzi,pp13).Intheimmediateaftermathofthebankclosure,theFDICcontractedanadditional100tellerstoassistwithmanagingthecustomerinfluxatthebranches(LAT07-16-2008).

7. Timeframe: Immediately after the OTS revoked IndyMac Bank;s charter onFriday,theFDICbecamethereceiverandpreparedtoopenIndyMacFederalthefollowingMonday.TheacquisitionbyOneWestoccurredonMarch19,2009.

TheOTSclosedIndyMaconFriday,July11,2008,andtheFDICwasimmediatelyappointedthereceiver(PR-56-2008).TheFDICbegantheresolutionprocessandpreparedtorunthebridgebank,IndyMacFederal,thefollowingMonday,July14,2008(PR-56-2008).Thus,theFDIChad aweekend to establish the bridgebank anddetermine the insurance status ofdepositors(Bovenzi,pp9).

Unlike other resolution processes, the FDIC did not have time to search for a buyer ofIndyMac before it failed (Bovenzi, pp5). In other resolution cases, the FDIC runs aconfidentialfranchisemarketingprocesswhereitsearchesforabuyerbeforeabankfails(2003ResolutionHandbook,pp9).InthecaseofIndyMac,thetimelinewasaccelerated,andtheFDICestablishedabridgebankto“maximizethevalueoftheinstitutionforafuturesaleandtomaintainbankingservices”(PR-56-2008).TheFDICoperatedIndyMacFederalFSBfromJuly14,2008untilMarch19,2009,whenthesaletoOneWestbecameeffective,andOneWest took over operations (PR-56-2008; PR-42-2009). TheOneWest sale included aSharedLossAgreement(SLA)andindemnificationrights,thelastofwhichexpiredonMarch19,2019(PR-42-2009;2019CIT10K,pp101).


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8. Treatment of depositors (insured and uninsured) and other claimants: TheFDICadheredtoanorderofpriorityforpayingclaimsthatputadministrativeexpensesandinsureddepositsfirst,followedbyuninsureddepositsandthengeneralunsecuredcreditorsandotherlowerpriorityclaims.

For depository institutions with insured deposits, the order of priority for claims, afteradministrative expenses, is as follows: depositors, general unsecured creditors,subordinated debtholders, and stockholders. Insured deposits are fully covered, withuninsureddepositorsnext(12U.S.C.1821).Section11(d)(11)(A)oftheFDIActsetsforththe order of priority for the distribution of amounts realized from the resolution orliquidationofaninsureddepositoryinstitutiontopayclaims(12U.S.C.1821).Thestatuterequires that the administrative expenses and deposit liabilities be paid in full beforedistributioncouldbemade togeneralunsecuredcreditorsorother lowerpriorityclaims(FDICNoValue).AfterIndyMac’swasplacedunderconservatorship,theFDICestimatedthattheultimateresolutionofIndyMacwouldleadtorecoveryofapproximately50percentofthe uninsured deposits (FDIC Failed Bank Information). The FDIC paid an advancedividend11 to uninsured depositors when IndyMac Federal opened, equal to half of theamountofuninsureddeposits (50centson thedollar for thosewithuninsureddeposits)(FDICFailedBankInformation).Depositinsurancecoveragewasincreasedto$250,000andretroactivelyappliedtoIndyMacdepositors(LAT06-16-2010).

On November 12, 2009, the FDIC Board of Directors announced that insufficient assetsexistedintheIndyMacreceivershiptomakedistributionstoanygeneralunsecuredclaims(FDICNoValue).Theseclaims,bothassertedandunasserted,weredeterminedtohavenovalueandwouldrecovernothing(FDICNoValue).

9. Debt restructuring of toxic assets: The FDIC developed a loan modificationprogramforIndyMaccustomerswhowereseriouslydelinquentonmortgagepaymentsforprimaryresidencesandnearingforeclosure.

TheFDICdevelopeda loanmodificationprogramtosystematicallymodifymortgages fordelinquent borrowers (FDIC IM Loan Mod). The program was “designed to achieveaffordable and sustainable mortgage payments for borrowers and increase the value ofdistressedmortgagesbyrehabilitating themintoperforming loans” (FDIC IMLoanMod).Theprogramwasdesignedtoavoidforeclosureandframedasawaytokeepborrowersintheirhomes (FDIC IMLoanMod). Inaddition, theprogramwasexpected to improve theFDIC’s recovery and maximize the value of IndyMac Federal (FDIC IM Loan Mod). TheprogramwasavailabletoborrowerswhowereeitherseriouslydelinquentorindefaultwithafirstmortgageownedorservicedbyIndyMacFederal(FDICIMLoanMod).Theprogramwould only be available for borrowers determined to improve the recovery value forIndyMacFederalorotherinvestors(FDICIMLoanMod).

11 In the case of bank resolution, a dividend is the excess cash generated by the disposition of assets from a receivership less the disposition costs and reserves (the cash to meet the obligations of the receivership).


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Undertheprogram,eligiblemortgageloanswouldbemodifiedintosustainablemortgages(FDIC IMLoanMod).Themortgageswere tobepermanently cappedat theFreddieMacsurvey rate for conformingmortgages, and themodificationsweredesigned tobring thedebt-to-income ratio (which included principal, interest, taxes, and insurance) of thepayments to 38 percent for the borrower (FDIC IM Loan Mod). Modifications includedinterest rate reductions, extended amortization, and principal forbearance. The loanmodification program required borrowers to verify their income (FDIC IM Loan Mod).IndyMacFederalsentoutofferstoborrowersitdeterminedtobeeligiblefortheprogram(FDICIMLoanMod).

TheloanmodificationprogramwaschampionedbytheFDIC,anditservedasthefoundationforthe“Mod-in-a-Box”programthattheFDICsharedwithotherinstitutions(PR-121-2008).TheFDICsharedguidancetootherlendersandmortgageservicersandproposedaprogramtoexpandthesystematicmodificationprogramacrossthecountry(FDICModProposal).TheTreasuryadoptedtheHomeAffordableMortgageProgramin2009,whichwasadifferentloanmodificationprogram(TreasuryPR03-04-2009).

10. Exit strategy (liquidation/whole sale/partial sale/salewith conditions): TheFDICsoughtabuyerofIndyMacthroughcompetitivebidding.

TheFDICestablishedandoperatedIndyMacFederalduringtheinterimperiodbetweenthefailedthrift’sclosureanditseventualsale(FDICCrisis,pp184,197).Franchisemarketingistheprocessofsearchingforanacquiringinstitutionforafailedbankorthrift(FDICCrisis,pp177). When the FDIC began operating IndyMac Federal, it also began the franchisemarketingprocess. Indeterminingthesalesandmarketingapproachofa failedorfailingbank,theFDICconsidersfactorssuchastheassetandliabilitycompositionaswellasmarketconditions (2003 Resolution Handbook, pp6). The FDIC then determines how to beststructurethesaleofthebankorthrift:considerationsincludesellingtheinstitutioninwholeorinparts,thetypesofassetstosold,iflosssharingshouldbeused,andassetpricing(2003ResolutionHandbook,pp6-7).

Intheresolutionprocess,theFDICprovidesdetaileddatasurroundingthefailedinstitutionintheinformationpackage(2003ResolutionHandbook,pp9).Forbanksthatarefailing,butnot yet failed, the FDIC begins a private process of marketing the institution, asconfidentiality concerns and depositor confidence are important considerations (2003ResolutionHandbook,pp9).WithIndyMac,theFDICwasableconductapublicsaleandmakestatementsaboutitssearchforabuyer(BN07-28-2008).

Anotherstepoffranchisemarketingistheinformationmeeting,atwhichtheFDICsharestheinformationpackagewithprospectivebuyers(2003ResolutionHandbook,pp9).TheFDICprovides informationabout the failedor failing institution, the resolutionmethodsbeingoffered, legal documents, the due diligence process, and bidding procedures (2003ResolutionHandbook,pp9).Afterbidderscompletetheduediligence,theysubmitproposalstotheFDIC(2003ResolutionHandbook,pp13).TheFDICevaluatesthebidsbasedontheleastcostanalysis(FDICCrisis,pp187).


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InthecaseofIndyMac,theFDICreceivedindicativebidsfromtwenty-threebiddersinthefirstroundofbidding(FDICBidSummary).TheFDICtheninvitedsixbidderstocompleteadditional due diligence and submit a second-round bid (FDIC Bid Summary). The FDICdeterminedthattheleast-costresolutionmethodfortheDIFwasthebidfromaconsortiumof private equity investors for $13.65 billion (FDIC Bid Summary; PR-1-2009). The firstroundofbiddingtookplaceinOctober2008,threemonthsafterIndyMac’sfailure,andthefinalroundbidoccurredinDecember2008,withtheFDICandthewinningbiddersigningaletterofintentonDecember31,2008(FDICBidSummary;PR-1-2009).TheFDICBoardofDirectorsapprovedthetransactionunanimously(WSJ01-19-2017).

Prior to2008, bidders for failedor failing institutionswere required tohave an existingcharter (FDIC Crisis, pp198). The OCC announced the availability of a “shelf charter” onNovember21,2008,enablingprivateequityinvestorstopurchasefailedbanks(FDICCrisis,pp198)Additionally, theFDICexpandedthebidder list inNovember2008toallowthosewithoutabankchartertoparticipateinthebiddingprocessfortroubledinstitutions(PR-127-2008).

11. Risk-sharing / Loss-sharing arrangementwith purchaser: The FDIC enteredinto a shared-loss agreement (SLA) with OneWest Bank as part of the P&Atransaction.

Asharedlossagreement(SLA)isanagreementinwhichtheFDICagreestoabsorbaportionof the loss on a pool of assets with the acquiring institution (FDIC SLA FAQ). SLAs areintended to maximize asset recoveries, minimize FDIC losses, and reduce the FDIC’simmediatecashneeds(FDICSLAFAQ).AccordingtoJamesWigand,DeputyDirectorfortheFDIC,thebasisfortheFDIC’sloss-shareprogramistwo-fold:theFDICismoreabletobearthe risk of a significant or “catastrophic loss” than the acquiring institution, and buyersassumethelossthatisnotfactoredintothefailedbank’sprice(Wigand,pp307).SLAsarerecordedasindemnityassetsonthebuyer’sbalancesheet,andthusifabuyerpurchasedthebankata“bargain”,thedifferencebetweenpurchasepriceandrestatedassetbookvaluescouldberecognizedascapitaloraccreteovertimeasearnings,effectivelyaddingcapitaltothebankingsystem(Wigand,pp307FN52).SLAsprovideaninsurancewraptopurchasinginstitutions,whichcanmaketheacquisitionoftheentiretyofthefailedbankmoreattractive(Wigand, pp307). The FDIC benefits from loss-share agreements as the FDIC wouldotherwisehavetopaycashtodepositorsortothepurchasinginstitutiontoassumethefailedbank’sdeposits,whichquickly“drainstheliquidityoftheDIF”(Wigand,pp308).SLAsenabletheFDICtopayacquiringinstitutionsforthedepositliabilitywithnoncashassets,andtheagreements typically result in higher pricing and better recovery for the receivership(Wigand,pp308-309).

Theshared lossagreementbetween IndyMacandOneWestcoveredaportfolioof single-familyresidence(SFR)loans;approximately7percentofthevalueoftheloanportfolioheldbyOneWestwascoveredundertheagreement(PR-02-10-2010).Inordertobeeligibleforreimbursement,OneWestwasrequiredtofollowloanmodificationprocedures(eithertheFDIC program orHAMP) (PR-02-10-2010). If the FDIC determined that OneWestwas in


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violationoftheloanmodificationrequirement,theFDICcoulddisputethelossshareclaimsonrelatedloans(PR-02-10-2010).

ThespecificsoftheSLAbetweenOneWestandtheFDICwereasfollows:

LossThreshold FDICLoss% OneWestLoss%Up to $2.551 billion in losses (first 20% of theportfolio)

0% 100%

In excess of $2.551 billion but less than $3.826billioninlosses(next10%oftheportfolio)

80% 20%

Inexcessof$3.826billioninlosses 95% 5%

Source:2015CIT10-K,pp150

Thus,beforetheFDICwouldbeginmakinglosssharepayments,OneWestwasrequiredtobear$2.5billioninlosses(PR-02-10-2010).TheSLAwastransferredtoCITGroupafteritsacquisitionofOneWestin2015andexpiredonMarch19,2019(2015CIT10-K,pp148).OneWest and CIT accounted for the SLAs in annual reports and financial statements asindemnificationassets(2015CIT10-K,pp148).Underaccountingstandards,theseassetswererecognizedattheestimatedfairvalueasoftheacquisitiondatebasedonthediscountedpresentvalueof theexpected futurecash flowsunder theagreement(2015CIT10-K,pp119).TheFDICaccountedfortheliabilityfortheSLAinthereceivershipbalancesheetandtheestimated loss sharingwas included in theestimated loss to theDIF (2008FDICAR,pp89).

TheFDICalsoincludedindemnificationclausesintheP&AtransactionwithOneWest(2010FDICAR,pp86-87).Undertheagreement,OneWest,and laterCITGroup,hadtherighttoassert claims to recover losses incurredasa resultof third-party claimsandbreachesofrepresentations (2010 FDIC AR, pp86-87). The indemnification agreements includedcoverage of claims asserted by theAgencies (FannieMae, FreddieMac, andGinnieMae)relatedtoIndyMacsellingrepresentationsandwarranties,inadditiontoliabilitiesarisingfrompre-saleactsofIndyMacBankorIndyMacFederal(2010FDICAR,pp86-87).

12. ReceivershipWind-down:TheIndyMacreceivershipisongoingatthetimeofthiscase.

OneWest did not acquire all of the assets of IndyMac (PR-1-2009); thus, the IndyMacreceivership retained some assets and is in theprocess of disposing of remaining assets(ReceivershipBalanceSheet).

III. Evaluation

FollowingthefailureofIndyMac,theTreasuryOIGreleasedareportregardingthecausesofIndyMac’s failure (OIG-09-032, p1). Section 38(k) of the Federal Deposit Insurance ActrequiresthattheOIGperformareviewandissueareportwithin6monthsofanapparentloss to the Deposit Insurance Fund (OIG-09-032, p1). The OIG found that the causes of


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IndyMac’s failure were “largely associated with its business strategy of originating andsecuritizing Alt-A loans on a large scale” (OIG-09-032, p2). The OIG notes that othernontraditionalloanproducts,lackofcoredeposits,insufficientunderwriting,aheavyfocusonCaliforniaandFlorida,andarelianceoncostlyborrowingfromtheFHLBandbrokereddeposits,madeIndyMacvulnerablewhenthehousingmarketbegantodeclinein2007(OIG-09-032, p2, 9). IndyMac’s failure remains themost expensive resolution for the DepositInsuranceFundinhistory(FDICCrisis,ppxiii).

AfterIndyMac’sfailure,leadersatIndyMacandwithintheOTSattributedtheletterreleasedbyCharlesSchumertoIndyMac’sfailure(OTSPR08-029).IntheOTS’spressreleaseabouttheclosureofIndyMac,itstatedthat“[t]heimmediatecauseoftheclosingwasadepositrunthatbeganandcontinuedafterthepublicreleaseofaJune26lettertotheOTSandFDICfromSenatorCharlesSchumerofNewYork” (OTSPR08-029).TheOTSWestRegionDirectorclaimed that IndyMac had been in discussion with investors interested in purchasingIndyMacnearthetimeoftheletter,butthatinterestdecreasedaftertheletterwasreleased(OIG-09-032,p12).However,theOIGinvestigatedtheseclaimsandtheimpactofthepublicreleaseoftheletteronthefailureofIndyMac(OIG-09-032,p12-13).TheOIGconcludedthattheletterdidnotcausethefailureofthebank,asproblemshadalreadybeenidentifiedatIndyMacbefore thepublicreleaseof the letter(OIG-09-032,p12-13). InMarch2008, theFDIChadidentifiedtheneedforaninvestmentof$2to$3.5billiontokeepthethriftfromfailing;theOIGstatesthat“thethriftwasalreadyonacourseforprobablefailurebythetimeSenatorSchumer’sletterwasmadepublic.”(OIG-09-032,p15).

TheOIG investigation into IndyMac’s failurealsoevaluated theOTS’sroleas theprimaryregulator of IndyMac (OIG-09-032, p14). TheOIG concluded that theOTS supervision ofIndyMacfailedtopreventamateriallosstotheDIF(OIG-09-032,p14).TheOTSconductedregularexaminationsofIndyMacbutdidnotidentifyoraddressweaknesses(OIG-09-032,p14).TheOIGalsocritiquedtheOTSforitsfailuretoenforcecorrectiveaction;whentheOTSdid report about matters needing correction, “it accepted assurances from IndyMacmanagementthatproblemswouldberesolved”(OIG-09-032,p14).Thiswasdespitethefactthat “IndyMac management had a history of not taking corrective actions which OTSexaminersrecommendedtoimprovethethrift”(OIG-09-032,p14).

TheOIGalsoconductedaseparatereviewoftheOTS’sinvolvementincapitalbackdatingatthrift institutions (OIG-09-037, p1). The review evaluated capital backdating at six thriftinstitutions, including IndyMac (OIG-09-037, p1). The OIG concluded that the OTSauthorizedIndyMactobackdateacapitalcontribution,whichallowedittomaintainitswell-capitalizedstatus (OIG-09-037,p4).Thecapital contribution totaled$50millionandwasreceivedonMay9,2008,but$18millionwasrecordedashavingbeenreceivedasofMarch31, 2008 (OIG-09-037, p14). The OTSWestern Region Director, by allowing IndyMac tobackdate the capital, allowed IndyMac to keep its well-capitalized status and avoidrestrictionsorheightenedrequirements,suchashavingtoreceiveawaiverfromtheFDICto


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acceptbrokereddeposits(OIG-09-037,p14).12Inthecasesofthefiveotherthrifts,theOIGconcluded that the OTS directed the backdating of capital for one thrift, objected to thebackdatingbut failed torequirecorrectiveaction foranother,anddiscoveredbackdatingafterthefactbutfailedtorequirecorrectionfortwootherthrifts(OIG-09-037,p5).Fortheotherthriftinvestigated,theOTSdiscoveredthebackdatingafterthefactandrequiredtheinstitutiontorestateitsfinancialreports(OIG-09-037,p5).

FDIC leaders during the crisis have since reflected on lessons learned regarding bankresolutionfromtheprocessatIndyMac.Bairnotesthatakeylearningwas“thatweshouldneverlettheprimaryregulatorcloseabankbeforethecloseofnormalbusinesshours”(Bair,pp80). As word of the failure spread, customers and the press showed up at the bank,increasingpanicsurroundingthebank’sposition(Bair,pp80).JohnBovenzi,FDICCOOandIndyMacFederalCEO,statedthat“[s]omeobserverslaterwouldsayitwasamistaketoclosethebankthatearly…butIthinktherealissuewasthatunlikemostbankfailures,thiswasamuchlargerbank,withasignificantnumberofuninsureddepositorswhoweregoingtobeunhappyaboutlosingsomeoftheirmoney”(Bovenzi,pp9).Bairlaterimplementedapolicythatnobankcouldbeclosedbeforeitsregulartime,topreventthepanicanduncertaintythatoccurredwithIndyMac(Bair,pp81).

According to the FDIC, “the IndyMac experiencedhighlighted the risks and challenges ofdeploying the bridge bank structure” (FDIC Crisis, pp197). Bairweighed the benefits ofhavingtheFDICrunafailedbankthroughthebridgebankprocessagainstthedisadvantages(Bair,pp274).Byestablishingabridgebank,theFDIC“avoidedthedelicatetaskoftryingtosellabankbeforeitwasundergovernmentcontrol”(Bair,pp274),TheapproachallowedtheFDICtofreelymarketthefailedbankandauctionittothehighestbidder(Bair,pp274-275).However,Bairacknowledgedthattheapproachledtoadecreaseinthefranchisevalueofthebank,askeycustomersanddepositorsleftthebankduringtheconservatorship(Bair,pp274).BairfurtherqualifiedthattheIndyMacresolutionwascostly,notonlybecauseoftheimpacttofranchisevaluebutalsobecauseofthetoxicassetsandlackofcoredeposits(Bair,pp274).BovenzihighlightsthattheFDIC’suseofthebridgebankresolutionmethodfor IndyMac was rare, but he notes that the authority is increasingly important as it isbecoming“lessfeasibletomergealargefailedbankintoalargehealthybank”duetogrowthandconcentrationinthefinancialsector.Inordertopreventcasesof“toobigtofail”,Bovenziargues that the FDIC will need to use the temporary bridge bank authority to preventtaxpayerlossesandincreasedconcentrationofthefinancialsector(Bovenzi,pp19).

TheFDICsoughttorestoreconfidenceinthebankingsectorintheaftermathoftheIndyMacfailure.BairnotedthattheIndyMacfailurereceivedheightenedmediaattention,whichshecalled “sensationalistic and irresponsible” (Bair,pp81). Inanarticle inAmericanBanker,SheilaBairisquotedstating,“Mypleatothemediais:getthefactsinyourreporting”(AB07-18-2008).TheFDICwasconcernedabout“CNNreports,amongothertelevisionbroadcasts,

12 The SEC, in its litigation against IndyMac executives, alleged that IndyMac’s capital ratio would have been below the 10% required for “well-capitalized” status because of the capital backdating, but that it would have also been below the threshold had IndyMac recorded the risk-weighting impact of the April 2008 bond downgrades.


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thatdramatizedthefailureovertheweekend”(AB07-18-2008).Baircontinued,“Theonlysnafuweranintoweretheselonglines…butIthinkpartofthatwasdrivenbysomeoftheirresponsible reporting… [which] was a disservice to depositors” (AB 07-18-2008).However, coverage at the time also contained critics of theFDIC response to the failure,specifically regarding the clarity of communication about the resolution. JamesBarth, anacademicatAuburn,wascriticaloftheFDIC’sexplanationofdepositinsuranceatthetimeof the failure(AB07-18-2008).Heclaimedthatcustomerswerenotreassuredbysimplyhearingthatdepositsareinsuredupto$100,000,andthattheFDIChasthe“obligationtoclarifynewsreportsonexactlyhowmuchiscovered”andthattheFDIChadnotdoneanadequate job of “reassuring peoplewith respect to exactlywhat is covered” (AB 07-18-2008).OthermediacoverageatthetimeclaimedthattheFDICresponsewas“astunningdisplayofcluelessnessandincompetenceandhasgivenbankcustomerseveryreasontofeelanxiousandangry”(AB07-18-2008).

TheFDIC’suseofloss-sharingagreementsreceivedcriticismfollowingIndyMac’sresolution.InavideothatwentviralinFebruary2010,themakerscriticizedtheso-called“sweetheart”deal that OneWest received in the IndyMac acquisition (NYT 02-14-2010).13 The FDICrespondedtothevideoinapressreleaseonFebruary12,2010,inwhichitstatedthatthevideohad“nocredibility”andthatitwas“unfortunatebutnecessarytorespondtoblatantlyfalseclaimsinawebvideothatisbeingcirculatedabouttheloss-sharingagreementbetweentheFDICandOneWestBank”(PR-02-12-2010).Thereleaseproceededtopresentfactsaboutthe arrangement, stating that OneWest had not received any payments from the FDICregardingloss-shareclaimstodate(PR-02-12-2010).ThevideoalsoclaimedthattheFDIChadrequesttobeginborrowingfromtheTreasury,whichtheFDICdenied,statingthattheFDICiscontinuedtobefundedbytheassessmentsfromthebankingindustry(PR-02-12-2010).

ThesaletoOneWestreceivedcriticisminpresscoverage,especiallyintheyearsfollowingthe acquisition. In 2011, the FDIC Office of Inspector General performed an audit ofOneWest’sloanmodificationprogram,attherequestoftheFDICChairman(FDICOIGReport08-2009, pp1). The FDIC had received a letter “purportedly” from a group of OneWestemployeeswhoclaimed thatOneWestexecutiveshad instructed themto “rejectasmanyloanmodificationapplicationsaspossibleandcreatedanenvironmentthatencouragedloanmodificationstafftomisinformborrowersabouttheireligibilitystatus,routinelyshredloanmodificationapplications,andinappropriatelydenyloanmodifications”(FDICOIGReport08-2009,pp1).The letteralsoclaimedthatthe loss-sharingagreementbetweentheFDICandOneWestincentivizedforeclosureaboveloanmodification(FDICOIGReport08-2009,pp1).TheOIGauditdidnotfindevidencetosupporttheclaimsintheletterandconcludedthatseveralstatementsmadeintheletterwere“factuallyinaccurate”(FDICOIGReport08-2009,pp2).Theauditorssampled260loansandfoundthat“OneWestappropriatelysolicitedborrowersforandprocessedloanmodificationsformorethan98percentofthetime”andthatOneWest had taken appropriate corrective action for the four exceptions (FDICOIGReport08-2009,pp2).

13 The video can be found here.


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IV. References(12USC1821)U.S.C.1821,FederalDepositInsuranceAct.

https://www.fdic.gov/regulations/laws/rules/1000-1220.html#1000sec.11d(12U.S.C.1823)U.S.C.1823,FederalDepositInsuranceAct.

https://www.fdic.gov/regulations/laws/rules/1000-1500.html#1000sec.13c(2003IMAR)IndymacBancorp(2003).2003AnnualReport.

http://www.annualreports.com/HostedData/AnnualReports/PDF/nde2003.pdf(2003ResolutionHandbook)FederalDepositInsuranceCorporation(2003).ResolutionHandbook.(2004IMAR)IndymacBancorp(2004).2004AnnualReport.http://media.corporate-

ir.net/media_files/nys/NDE/reports/AnnualReport_2004/indymac_FINAL/indymac_build_0322/pdf/Indy_AR_FINAL.pdf

(2007IM10K)IndymacBancorp(2007).2007AnnualReportonForm10-K.https://www.sec.gov/Archives/edgar/data/773468/000095014808000053/v38189e10vk.htm

(2007IMAR)IndyMacBank(2007).AnnualReport.http://media.corporate-ir.net/media_files/irol/11/118924/AnnualReport07.pdf

(2008FDICAR)FederalDepositInsuranceCorporation(2008).2008AnnualReport.https://www.fdic.gov/about/strategic/report/2008annualreport/arfinal.pdf

(2008Q1IM10-Q)IndymacBancorp(2008).2008Q1Form10-Q.http://www.secinfo.com/dVut2.t668.htm#mrj8

(2008Q3CFOReport)FederalDepositInsuranceCorporation(2008).ThirdQuarter2008CFOReporttotheBoard.https://www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_08/0908_CFO_Report.pdf

(2009FDICAR)FederalDepositInsuranceCorporation(2009).2009AnnualReport.https://www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf





(2014FDICAR)FederalDepositInsuranceCorporation(2014).2014AnnualReport.https://www.fdic.gov/about/strategic/report/2014annualreport/2014AR_Final.pdf

(2015CIT10-K)CITGroup(2015).Form10-KFiling.http://www.snl.com/Cache/IRCache/c81331e3b-b28c-8e3f-f713-acdc13ac08da.html

(2015FDICAR)FederalDepositInsuranceCorporation(2015).2015AnnualReport.https://www.fdic.gov/about/strategic/report/2015annualreport/2015AR_Final.pdf

(2016FDICAR)FederalDepositInsuranceCorporation(2016).2016AnnualReport.https://www.fdic.gov/about/strategic/report/2016annualreport/2016ar_final.pdf

(2017CIT10K)CITGroup(2017).Form10-KFiling.http://ir.cit.com/Cache/IRCache/3a8e5e4a-21b6-2c33-3dad-1a5f2421129c.PDF?O=PDF&T=&Y=&D=&FID=3a8e5e4a-21b6-2c33-3dad-1a5f2421129c&iid=102820

(2017FDICAR)FederalDepositInsuranceCorporation(2017).2017AnnualReport.https://www.fdic.gov/about/strategic/report/2017annualreport/2017ar-final.pdf


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(2018CITAR)CITGroup(2018).2018AnnualReport.http://ir.cit.com/Cache/IRCache/8ea8c24c-2b1c-aa58-c254-5c5dd23f913d.PDF?O=PDF&T=&Y=&D=&FID=8ea8c24c-2b1c-aa58-c254-5c5dd23f913d&iid=102820


(2019CIT10K)CITGroup(2019).Form10-KFiling.http://ir.cit.com/Cache/IRCache/66aad089-914c-ccd0-7aeb-2373e00bc17d.pdf


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(FDICModProposal)FederalDepositInsuranceCorporation(2008).FDICLossSharingProposaltoPromoteAffordableLoanModifications.https://web.archive.org/web/20090306185325/http://www.fdic.gov/consumers/loans/loanmod/

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