The Sweet Deal One West Bank has in Indymac Loans

Jul 11, 2008

• FDIC regulators took over Indymac bank as it was going down.
• This was the largest bank failure since 1984
• Fourth largest bank failure in U.S. history

March 19, 2009

• OneWest was born from the remnants of Indymac.
• FDIC and OneWest created a shared loss agreement
• OneWest would purchase all first mortgages at 70% of the current balance
• OneWest would purchase Line of Equity Loans at 58% of the current balance
• In the event of foreclosure, the FDIC would cover from 80%-95% of losses, using the original loan amount, and not the current balance

Based on the deal they got, do you think they would prefer to modify a loan or just take the house? Let's do some fun math.

1. Original loan amount was $150,000.
   
2. With missed payments and added fees, the balance is now up to $165,000
3. OneWest buys the loan for 70% of value, or $115,500
4. The house is foreclosed upon and sells at $135,000.
   
5. The loss to OneWest is calculated by the FDIC to be $15,000 (original loan amount less sales price.)
   
6. If the FDIC were to cover 85% of the loss of this loan, OneWest would receive $12,750
   
7. However, OneWest only paid $115,500 for the loan, so there was no actual loss, instead they received a $12,750 bonus for foreclosing!

Now this example was on a pretty small loan. Consider a $500,000 loan in an extremely depressed area where the house may sell for only $200,000.

I wonder if there will be any retribution for these losses?