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Abstract

In July 2008, the Federal Deposit Insurance Company in the US took control of IndyMac Bancorp Inc from its management, as the bank's capital adequacy levels fell below the regulatory requirements. IMB, founded in 1985, focused on mortgage lending and securitizing those loans in the secondary markets to generate funds. It lent to Alt-A customers who did not have proper documentation of their incomes and assets. IMB's aggressiveness in lending led to poor underwriting practices as most of the customers' sources of income and their repaying capability was not properly scrutinized. In 2007, the default rates in Alt-A loans started rising and the secondary market for these loans became illiquid. IMB which mainly relied on secondary markets for its capital requirements faced a severe liquidity crunch. These factors led to a fall in its capital adequacy levels by mid-2008.

Teaching and learning

This item is suitable for postgraduate courses.
Location:
Industry:
Size:
Medium
Other setting(s):
2000-2009

About

Abstract

In July 2008, the Federal Deposit Insurance Company in the US took control of IndyMac Bancorp Inc from its management, as the bank's capital adequacy levels fell below the regulatory requirements. IMB, founded in 1985, focused on mortgage lending and securitizing those loans in the secondary markets to generate funds. It lent to Alt-A customers who did not have proper documentation of their incomes and assets. IMB's aggressiveness in lending led to poor underwriting practices as most of the customers' sources of income and their repaying capability was not properly scrutinized. In 2007, the default rates in Alt-A loans started rising and the secondary market for these loans became illiquid. IMB which mainly relied on secondary markets for its capital requirements faced a severe liquidity crunch. These factors led to a fall in its capital adequacy levels by mid-2008.

Teaching and learning

This item is suitable for postgraduate courses.

Settings

Location:
Industry:
Size:
Medium
Other setting(s):
2000-2009

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