Dennis Norman
Last week a friend emailed me a link to a video titled “The Indymac Slap in Our Face” that was created by Think Big Work Small. I watched the video which gave a recap of the failure of Indymac bank back resulting in it’s seizure by the FDIC in July, 2008, and the ultimate sale by the FDIC of Indymac Bank to One West Bank in March, 2009.
According to the video, One West Bank received a cushy, “sweetheart deal” and implied it was related to the fact that the owners of One West Bank include Goldman Sachs VP, Steven Mnuchin, billionaires George Soros and John Paulsen, and that ”it’s good to have friends in high places.” Here is a recap of some of the “facts” of the deal they gave on the video:
- One West Bank paid the FDIC 70 percent of the principal balance of all current residential loans
- One West Bank paid the FDIC 58 percent of the principal balance of all HELOC’s (Home Equity Lines of Credit)
- The FDIC agreed to cover 80 – 95 percent of One West’s loss on an Indymac loan as a result of a short sale or foreclosure.
- The kicker is, according to the video, is that the “loss” is computed based upon the original loan amount and not the amount One West paid for the loan.
On the video the hosts give an example of an “actual scenario” showing how the deal worked, below is a recap:
- One West Bank approved a short-sale of $241,000 on one of the Indymac loans it purchased from the FDIC (the total balance owed by the borrower at the time was $485,200).
- Based upon the terms of the loss sharing agreement, One West “lost” $244,200 on this transaction, 80 percent of which ($195,360) was paid to One West by the FDIC.
- So, One West received $241,000 from the short sale and $195,360 from the FDIC for a total of $436,360 on a loan they bought from the FDIC for $334,600, thereby resulting in a profit of $101,760 on the loan to One West.
- One last kicker, the video claims, in addition to making over $100,000 on the loan, since the house was sold for less than what the borrower owed, One West also made the borrower sign a promissory note for $75,000 of the short-fall.
Below is a link to the video if you want to watch it for yourself.
The video got me pretty fired up like I imagine it did most people that saw it. Afterall, our federal government is running up debt faster than ever before, the FDIC has had to take over a record number of banks in the past year and now a sweetheart deal for people that are “connected.” OK, I’ll admit it, I was a little jealous….a 30 percent profit, guaranted by the FDIC? And all I have to do is discourage borrowers from doing loan modifications and force short-sales and foreclosures? Easier than taking candy from a baby, huh?
Hmm….wait a minute though, the skeptic in me (especially when it comes to anything distributed via email) made me wonder if the video was accurate or was it misunderstanding the facts, taking facts out of context or simply just wrong? To the credit of Think Big Work Small they did have links on their site to the loss-sharing agreement they were referencing.
I went to the FDIC website and found what I believe to be the original Indymac sale agreement as well as the loss sharing agreement with One West Bank as well as a supplemental information document on the sale the FDIC published after the sale.
Following are some highlights from the FDIC “Fact Sheet” on the sale of IndyMac:
- The FDIC entered into a letter of internt to sell New IndyMac to IMB HoldCo, LLC, a thrift holding company controlled by IMB Management Holdings, LOP for approximately $13.9 billion. IMB holdCo is owned by a consortium of private equity investors led by Steven T. Mnuchin of Dune Capital Management LP.
- The FDIC has agreed to share losses on a portfolio of qualifying loans with New IndyMac assuming the first 20 percent of losses, after which the FDIC will share losses 80/20 for the next 10 percent and 95/5 thereafter.
- Under a participation structure on approximately $2 billion portfolio of construction and other loans, the FDIC will receive a majority of all cash flows generated.
- When the transaction is closed, IMB HoldCo will put $1.3 billion in cash in New IndyMac to capitalize it.
- In an overview of the Consortium it does identify “Paulson & Co” as a member as well as “SSP Offshore LLC”, which is managed by Soros Fund Management.
Just about the time I finished researching everything for this article I received a press release from the FDIC in response to the video which stated “It is unfortunate but necessary to respond to the blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and One West Bank.” The press release goes on to give these “facts” about the deal:
- One West has “not been paid one penny by the FDIC” in loss-share claims.
- The loss-shre agreement is limited to 7 percent of the total assets that One West services.
- One West must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets.
- In order to be paid through loss share, One West must have adhered to the Home Affordable Modification Plan (HAMP).
The last paragraph starts with “this video has no credibility.”
My Analysis
Before I get into this, I need to point out that while I have reviewed the sale agreement between the FDIC and One West as well as the loss-sharing agreement, watched the video above and read the FDIC’s press release, this is complicated stuff and not easy to understand. However, I think I have my arms around the deal somewhat so the following is my best guess analysis of the IndyMac deal with regard to the loss-sharing provision:
- The FDIC says the loss sharing agreement only applies to 7 percent of the IndyMac Loans serviced by One West. It appears there is $157.7 billion in loans serviced, 7 percent of that amount is about $11 billion. So my guess is the loss-share applies to about $11 billion worth of loans.
- One West agreed to a “First Loss Amount” of 20 percent of the shared-loss loans. The attachment for this was blank but the FDIC’s press release indicates this amount is $2.5 Billion. If that is the case then the total amount of loans the loss-share provision applies to is $12.5 billion. Obviously there is a $1.5 billion discrepancy between my calculation above and here (what’s $1.5 billion among friends?) but I’m going to go with the $12.5 billion because the amount of loans serviced I referenced may have been adusted at closing.
- One West purchased the $12.5 billion in loans covered by the loss-sharing agreement for less than $8.75 billion. I say “less than” $8.75 billion as that is 70 percent of the loan amount which represents the amount One-West paid for residential loans that were current. The amount paid for current HELOC’s was only 58 percent and the price for delinquent mortgages went as low as 55 percent and as low as 37.75 percent for delinquent HELOC’s. Therefore I would assume the actual price paid by One-West was less than the $8.75 billion.
- Once One West has covered $2.5 billion in losses, then the FDIC starts covering 80 percent of the losses up to a threshold at which time the FDIC covers 95 percent of the losses. Figuring out the threshold was a little trickier…I see a reference to 30 percent of the total loans covered by the loss-share so I’m going to use that which works out to $3.75 billion.
Now let’s figure the profit One West stands to make on the loans covered by the Loss-Share agreement;
- If all the borrowers would pay off their loans in full, not less than $3.75 billion (not likely though that all borrowers will pay off in full).
- Let’s be real pessimistic and look at the “worst-case” scenario: Lets say 100 percent of the loans bought by One West (covered by the loss-share) go bad and have to be short-sales or foreclosures at a loss. For the sake of conversation lets say the losses equal 40 percent of the loan amount, or $5 billion ($12.5 billion times 40 percent).
- One West would have to cover the first $2.5 billion at which time the 80/20 rule would kick in for the next $1.25 billion in losses resulting in One West recovering $1.0 billion of those losses from the FDIC. Then for the next $1.25 billion ($3.75 to $5 billion) One West would recover 95 percent of the loss fro the FDIC or $1.1875 billion.
- Recap: Of the $12.5 billion in loans, under the scenario above, One West would have realized $7.5 billion from foreclosures or short sales (60 percent of the debt) and would have recovered $2.1875 billion from the FDIC of the $5 billion in losses, for a total to One West of $9.6875 billion for loans they paid not more than $8.75 billion for a profit of a little less than $1 billion.
- One West would have to cover the first $2.5 billion at which time the 80/20 rule would kick in for the next $1.25 billion in losses resulting in One West recovering $1.0 billion of those losses from the FDIC. Then for the next $1.25 billion ($3.75 to $5 billion) One West would recover 95 percent of the loss fro the FDIC or $1.1875 billion.
Keep in mind, my analysis above is based somewhat on fact and some on speculation and my “profit” scenario is based purely on speculation and pretty negative assumptions as to loan losses. This coupled with the fact that, as I stated above, One West probably bought the loans for less than I indicated, probably makes this a better deal with more than the $1 billion profit at the end of the day.
So is is a sweetheart deal or not? You be the judge…
One thing to keep in mind is the investors only put $1.3 billion cash into the deal to buy IndyMac, and they got a lot more than just the loans covered by the loss-sharing agreement. I’m thinking it’s a pretty good deal and one I probably would have jumped on…well, if I had $1.3 billion sitting around doing nothing…
Related posts:
- Real Estate Agent Sentenced to Federal Prison for Defrauding Bank in Short Sale Mortgage Fraud Scheme
- Former Chairman of Taylor, Bean & Whitaker Convicted for $2.9 Billion Fraud Scheme That Contributed to the Failure of Colonial Bank
- How long after a foreclosure or short sale do you have to wait to get a home loan?
- Will you owe taxes on a short-sale or foreclosure?
- Can You Obtain a Home Loan If you Did a Short Sale or Deed-in-Lieu?
The worst part about all this is you think oh they only made 1 billion dollars.Which when you have money you get to make money but your forgetting who you are dealing with.I am sure that the trades and other activity surrounding this transaction probaly made them 10 more billion…
Dennis: thank you for all the research and time you put in this extensive article. I need some information from these institutions that I just cannot find anywhere and I have been on the web almost 2 days with no results, and of course they will not give me any info. I’m filing some papers and is a most that I include the EIN and the SEC (filings) in order to proceed with my demand, for whoever is handling OneWest Bank, which is IndyMac=IMB HoldCo LLC???… if you or any one can help me with this I will appreciate it very, very much. Please I need help and time is running out on me. Many Thanks, LIZ
Liz, IMB HoldCo is a Delaware LLC that holds One West Ventures, LLC who is teh holding company for One West Bank, FSB. Check Delawar records to find Tax ID #s or have the judge issue a subpeona.
Hey! I admire your writing and the way you explain things. Some of the comments on here too are insightful. I appreciate you. keep it up!
cool. i could use tips from bloggers like your self to get my blogs up to par. excellent info, well assembled.
I should have written this quite some time ago. It appears the masses have been misled into believing FDIC seized Indymac. The OTS seized Indymac to cover their own fraud for allowing a backdate of deposit from new investors into the holding company (IMB)to be backdated. this allowed their CAMEL ratings to dip just below 10 instead of 8. Indymac continued to hold itself out as a viable bank but the smart money began the run. The very people that bought this bank had shorted the holding company stock as a hedge before throwing in the brokered deposits. OTS, FDIC and the FRC all knew the severity of the situtation at IMB. After they all hedged their deposits by opening massive short positions they pounced.
The true price of the assets everyone speaks to forgets the reverse mortgage platform and other servicing platforms. the securtization and actual deposits themselves. The loans were entirely over-leveraged (as they are to this date if they marked to the aisle)and OTS knew in Q4 – 07 the extreme exposure the pools contained. Too many big guys were buried!
Very shortly is will become known what the true purchse price was for the loans current, 30, 60, 90 and 80-1 reserve loans.
They all particpated in this mess and made millions at the expense of the taxpayer, whom continues to pay interest on the treasuries used for the discount window and other special structures like Maiden Lane LLC, Maiden LaneI LLC and etc…
In the end it just paid to be on the right side of an election. In reality, tbhey can’t be wrong because the banks are always on the right side of an election since they pick and fund all the candidates, regrardless of party.
Also, Indymac Federal Bank, FSB (conservator bank)became the recipient of the loans after OTS shut the bank and appointed FDIC as conservator (not receiver)conservator. The FDIC never sold the loans to One West, One West Ventures, or IMB Holdco. The potfolio loans were placed in IndyMac Ventures and one west ventures acquired the conservator banks interest in the IndyMac Ventures LLC. All of the portfolio loans are still held on MERS under the conservator bank because the FDIC had to fulfill the loss share provision in this manner and keep the land and construction loans, which are serviced by IndyMac Mortgage Services. By mhy math they and total asset value of 30 billion. These folks paid 42 cents on the dollar and I am going to prove it in the very near future. Hopefully a full investigation will lead to an indictment of George Alexander.
Bob, You can find that info in the actual FDIC sale document which I have a link to in the article..
Thanks
Dennis
hey dennis i am seeking to see documentation that ALL assests of indy mac ,specifically speculative home loans were sold in this deal.we has a rep fron one west in a deposition last tuesday who stated under oath that not all loans were sold or covered under the loss share agreement with the fdic.how can we get to the source to confirm or not we are in a death fight with these crooks!
hey gary hughey. The participation agreement is clear when it says ‘Substantially all the assets of the failed thrift Indymac Bank,FSB were seized by the OTS on July 11, 2008. Some of the assets did not even make it to the FDIC becuase the politically connected guys that had committed fraud on large land loans pressured the FDIC guys to have all the assets dragged into the bankruptcy of the holding company, Indymac Bancorp. “Friends of Mike” The loss share provision and the particpation agreement will referyou to the loan tape – but it was not included with the docs on the website. You can request the loan tape but i can tellyou from personal knowledge of events that a good portion of the construction ,oans remain with Indymac Ventures, LLC and were never transfered back out of IndyMac Federal savings Bank, FSB (receiver bank)and thus never entered the Silo Structure. You need to subpeona the loan tape to see what assets were or were not transferred. many of the laons being serviced by One West bank,FSB are woned by deutsche bank as trustee for some shit ass securitization trust that never assigned the loans to the sponsor or the trust. Whden the deleverage actuallybegins in the US – look out below. if all this was not enough, it turns out that all the loans currently sit with IndyMac savings bank, FSB with MERS as nominee still. Someone needs to throw a tent over this circus at this point. It is frightening that he very peoplethat intentionally destroyed our monetary system (worse than prevvious),or real estate holdings and wiped out 6 trillion in peronal wealth for Americans by shorting the asset (alleged) backed securities of these loan pools and than sitting at the bottom to pick up the loans at 40 cents on the dollar and than refractionalizing with only 10% down to buy the participation rights. Soro’s Dell Flowers Paulsen,evil bastards. If you really want to get em -sue em on FDCPA because they can’t come clean on who reallyowns the loans because they would owe over 100 billion to the IRS another 35 billion to the States. May god Bless us all and hope that the Bretton Wood’s boys have not started the dollar devaluation process.
Bob, I write about financial issues. I have an indymac injured party. To make a case I need the support for the claim that FDIC sold mortgages at 70%. Where does that come from?
Bkrasting@gmail.com
Bob,
Thanks for the comment….I also want to thank you for calling attention to this issue….I would love to talk with you more about it…
Dennis
Drew, You are right, it takes a lot to dig through the agreements on this deal…even after spending a lot of time digging through the documents it si still hard to really understand the deal…it’s pretty complicated and attachements and schedules that are referenced in the agreement were not avaialble….
Thanks again for the comment,
Dennis
I know how much work that research you did takes. THanks for doing so!
My name is Bob Hertzog, and I wrote a blog in September/2009 titled, “Is The FDIC Killing OneWest IndyMac Short Sales”. The numbers (and to story, to some extent) in the video were taken directly from my blog. This was an actual case that happened to one of my clients, and the numbers are real. The FDIC press release sounds like a ticked-off 7th grader, and doesn’t address much of what was in the video. The fact that they even chose to respond to a YouTube video has to make you wonder if there is more to this than what meets the eye. Methinks so….
DO NOT be fooled. Some depositors at IndyMac got more back than others (and some a LOT more) as FDIC court declarations reveal, and that includes more than 4400 groups of accounts. While the FDIC has spent 18 months running uninsured depositors ragged, it has publicly revealed not only huge lapses in oversight during the IndyMac death spiral, where it knowingly allowed $91 million in new deposits to come into IndyMac – knowing those depositors would only get back 50 cents on every dollar, but also illustrate a similar selective enforcement of regulations thereafter. What does the FDIC not want you, mr./ms depositor to know? That they required IndyMac to produce complex calculations to identify uninsured deposits well in advance of their takeover with a main task of lowering the cost to their INSURANCE FUND. That video has a lot more credence that one might think. . . .