File this under just desserts. Pasadena, Calif.-based mortgage lender IndyMac Bancorp Inc.'s stock plunged over 40% Tuesday, after the thrift told shareholders it has been unable to raise fresh capital from new or current investors and doesn't expect to raise any funds until the mortgage market stabilizes. The news comes eight days after the nonprofit Center for Responsible Lending published a report, flagged by Market Movers' Felix Salmon, detailing the questionable lending practices that fueled IndyMac's rise as an Alt-A mortgage lender, and its subsequent fall.
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The 22-page report makes for entertaining, if maddening, reading, relating anecdotes such as the one about the 80-year-old retiree in Savannah, Ga., who got an IndyMac loan in 2005 based on an application that claimed he made $3,825 a month in Social Security income. "One problem: The maximum Social Security benefit at the time was barely half that," says the report, written by Mike Hudson. It adds that the retiree, Ben Butler, had no idea his income had been inflated by either IndyMac or one of its broker.
The allegations of IndyMac's willingness to accept dubious loan requests, and in many cases, encourage distortion of facts to feed the mortgage machine, come fast and furious. The theme is clear: Senior management encouraged these dubious practices to push for short-term growth, and damn the long term. Here's one quote in the report from Audrey Streater, a former underwriter for the company: "I would reject a loan and the insanity would begin. It would go to upper management and the next thing you know it's going to closing." The report makes it clear why investors are steering clear. - Vipal Monga
