Former IndyMac executives sued by FDIC over bad loans
Regulators from the FDIC have filed lawsuits against four former IndyMac executives. The accusation is that IndyMac bank was negligent in offering mortgages and instant loans online to borrowers who were not qualified. The lawsuit seeks to recoup $300 million of the $12.7 billion taxpayers lost when IndyMac failed.
The failure of IndyMac
The failure of IndyMac was the biggest failure of any bank in United States history. The bank had over $30 billion is assets. The FDIC stepped in, and the agency lost about $12.7 billion out of the federal deposit insurance fund. Part of the cause of this bank failure was a huge number of bad secured personal loan mortgages to unqualified borrowers.
The suit against IndyMac executives
Four former officials in the IndyMac Homebuilder division have been charged with negligence by the FDIC. The CEO, two Chief Lending Officers, and the Chief Credit Officer have all been charged. In short, the FDIC believes that all four of these officials knew about and approved loans that were bad.
Lending by IndyMac
The FDIC alleges that IndyMac made numerous no fax loans to borrowers they knew would not be able to pay them back. Some borrowers had bad credit histories, others had no collateral. These loans played a very large part in the collapse of the mortgage market. The FDIC seized the bank and its assets in order to keep depositors from losing their money.
The response of IndyMac
When the charges were filed against former IndyMac executives, the response was swift. A lawyer for two of the four executives released a statement saying:
The charges by the FDIC are completely false and we will vigorously defend against them. All loans within the Homebuilder Division met strict underwriting standards, including significant documentation requirements, and were issued to creditworthy homebuilders. … Loans and lending procedures from this management team were regularly reviewed by multiple regulators and auditors, and given satisfactory marks or better.”