Son of Countrywide

Posted by: Chris Palmeri on July 15, 2008

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Call it the Indymac massacre. It’s the second largest bank failure in US history. Many of the unfortunate souls who put their hard-earned dough in Indymac’s high-paying cds have been lining up in the hot sun to get their money out over the past two days. We all know the US government insures deposits up to $100,000. But apparently 10,000 folks chose to keep even more than that with them.

It’s interesting to note that Indymac was once a part of now defunct Countrywide. The firm was once called Countrywide Mortgage Investments. It was created as a place to hold the jumbo mortgages that even Countrywide—more conservative at the time—didn’t want to trade in. Countrywide co-founder Angelo Mozilo served at the top of Indymac for years, as did his brother Ralph. The company was spun off officially in 1997.

Eventually Indymac grew completely independent. It acquired a bank charter, used the Internet aggressively, both to gather deposits and make loans. Its specialty was Alt-A loans, those in which the borrower didn’t have to provide the usual documentation.

At their peak a year or so ago, Indymac shares hit $50. Today they’re worthless. At least Countrywide shareholders got a few dollars in Bank of America stock. And they now have one less competitor to worry about! Of course the biggest loser is us taxpayers who may be on the hook for as much as $8 billion.

Reader Comments

Snoz

July 24, 2008 6:34 AM

"The company was spun off offically in 1997." Translation: Take the money and run. The IndyMac looting makes the Great Train Robbery look like child's play. Compared to the California real estate scam, the banking business scam in California is a close second. What does the following banking "institutions" all have in common: American Saving and Loan, Lincoln Saving and Loan, Butterfield Savings Bank? Answer: Betting either against FSLIC rule or on their own foolish greed they all invested heavily into real estate related business and went bust. Other banking "institutions" that did not go bust got hammered: Glendale S&L, First Federal Savings, California Federal, Imperial Savings. Today, these banks are no longer found in Southern California. In the annual of California real estate bust, IndyMac has plenty of company. But in 2002 thru 2006 the masses with their short memory of past real estate fiasco got the new real estate "investment" religion from landscamers and then were born-again as Flippers. In a nation preoccupied with Lotto, MegaLotto, Powerball, and other get rich quick scheme, the Flippers felt justified in betting on a piece of the new American dream. When the old American dream of hard work and thrift living begets chump change, many desperate folks resort to scaming and gambling. The financial or land scamers/gambler's motto is: Take the money and run;Leave the last guy holding the bag. Unfortunately, the last guy is the taxpayer holding the bags of the likes of BearnStearn and IndyMac. Stay tune for IndyMac's additional company. It aint over yet.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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