Maybe this is why IndyMac is failing

This is the introduction to a report, "IndyMac: What Went Wrong", written by Mike Hudson for the Center for Responsible Lending.

Ben Butler, an 80-year-old retiree in Savannah, Georgia got an IndyMac loan in 2005 to build a modular house. IndyMac okayed the mortgage based on an application that said Mr. Butler made $3,825 a month in Social Security income.

One problem: The maximum Social Security benefit at the time was barely half that. Mr. Butler had no idea his income had been inflated by IndyMac or the mortgage broker who arranged the deal, his attorney maintains. Even if IndyMac wasn’t the one that puffed up the dollar figure, the attorney says, it should have easily caught such an obvious lie.

Simeon Ferguson, an 86-year-old retired chef, ran into similar problems with an IndyMac loan in Brooklyn, New York.

His attorneys claim a mortgage broker steered Mr. Ferguson, who was suffering from dementia, into an IndyMac “stated income” loan program for retirees. IndyMac made no effort to verify retirees’ income, attempting to duck accountability “by deliberately remaining ignorant of the borrower’s ability to pay the mortgage,” his lawsuit says. IndyMac’s instructions for preparing the mortgage application required that “the file must not contain any documents that reference income or assets.”

In the case of Elouise Manuel, a 68-year-old Decatur, Georgia retiree, IndyMac instructed the mortgage broker to send copies of her Social Security award letters with the dollar amounts expunged: “Need copy of SSI letter blacked out for the last 2 yrs w/no ref to income.”

Each time, the result was the same: borrowers trapped in loans they couldn’t afford.
They are not alone. An investigation by the Center for Responsible Lending has uncovered substantial evidence that IndyMac Bank and its parent, IndyMac Bancorp, engaged in unsound and abusive lending during the mortgage boom, routinely making loans without regard to borrowers’ ability to repay. These practices left many deep in debt and struggling to avoid foreclosure.

CRL interviews with former employees and lawsuits in 10 states indicate that IndyMac
• pushed through loans based on bogus appraisals and income data that exaggerated borrowers’ finances;
• worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees; and
• treated many elderly and minority consumers unfairly.

In interviews and court documents, 19 former employees describe an atmosphere where the hunger to close loans ruled. They say IndyMac pushed through loans with fudged or falsified information or simply lowered standards so dramatically that shaky loans were easy to approve.

Most of these ex-employees were mortgage underwriters who were responsible for reviewing loan applications to make sure information was accurate and that borrowers could afford the deals. Many say their efforts to do their jobs were hamstrung by higher-ups.

“I would reject a loan and the insanity would begin,” Audrey Streater, a former underwriter and underwriting team leader for IndyMac in New Jersey, said in an interview with CRL. “It would go to upper management and the next thing you know it’s going to closing. . . . I’m like, ‘What the Sam Hill? There’s nothing in there to support this loan.’ ”