The Center for Responsible Lending, a borrowers’ advocate group, has an eye-opening report on IndyMac, the troubled California mortgage lender.
The business-press has too-quickly moved on to breathless debates about the fate of Wall Street houses and other high-concept financial matters without pausing to consider what lay at the root of the credit crisis: deceptive and fraudulent lending practices carried out among the nation’s most vulnerable borrowers.
It would be amusing if it weren’t so nauseating to recall that behind all these esoteric arguments about credit-default swaps and collateralized debt obligations lay a mortgage pushed onto an 86-year-old with dementia who signed papers he didn’t understand and another sold to a 65-year-old illiterate construction worker who couldn’t read the exploding terms of the refi that caused him to lose a house he already owned.
But, please, let’s have another tick-tock account about the fall of Bear Stearns. We’ve only read about a dozen of those.
CRL’s Mike Hudson, a former Wall Street Journal reporter, here does the work that matters. His investigation found “unsound and abusive” lending practices at IndyMac that left borrowers struggling to stay afloat. He interviewed or got court records of information from nineteen former employees of the lender. Talk about enterprise reporting.
In the case, of the illiterate construction worker we learn his application had been doctored to make it look like he had been college when middle school was far as he had gone. Pitiful. Of course, IndyMac paid the broker a nearly $4,000 bonus for putting the man in a loan with a higher interest rate than he could afford.
Want to know what caused the global credit crisis? Start here:
IndyMac is a case study in the rise and fall of America’s mortgage market. Its story offers a body of evidence that discredits the notion that the mortgage crisis was caused by rogue brokers or by borrowers who lied to bankroll the purchase of bigger homes or investment properties. CRL’s investigation indicates many of IndyMac’s problems were spawned by top-down pressures that placed short-term growth ahead of borrowers’ and shareholders’ interests over the long haul.
In this sense, the Pasadena, California-based company has much in common with its rival and one-time parent, Countrywide Financial Corp.,17 and other lenders that grew wildly before falling on hard times.
The mortgage industry has pushed the notion that shady borrowers and brokers are behind the housing bust—that lenders were deceived by bad actors and the problem was not of their making. But CRL’s report belies that, at least at IndyMac.
Hudson quotes an ex-vice president of the firm saying in a court case that IndyMac’s CEO pushed employees to up loan volume “at all costs”, including ignoring company policies. That same veep says the CEO, who Hudson quotes blaming borrowers, Wall Street, and everybody but himself, knew that many of the loan applications were fraudulent. The head of fraud investigation, the executive said, was pressured not to report fraud “and in one case was pressured to ‘sanitize’ a report on the company’s loan pipeline.”
That looks pretty bad. It gets worse. Here’s how CRL describes the Mamet-like culture of IndyMac:
Wesley E. Miller, who worked as an underwriter for IndyMac in California from 2005 to 2007, says that when he rejected a loan, sales managers screamed at him and then went up the line to a senior vice president and got it okayed.31 “There’s a lot of pressure when you’re doing a deal and you know it’s wrong from the get-go— that the guy can’t afford it,” Miller told CRL. “And then they pressure you to approve it.”
The refrain from managers, Miller recalls, was simple: “Find a way to make this work.”
This is damning stuff, and now the company is reaping what it sowed, with its shares below a dollar and down 99 percent. We’d like to see the business press pick up this ball, which Hudson and CRL have so kindly handed right to them, and run with it.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.