Business Leadership Problem Solving

IndyMac was once one of the United States leaders in mortgage lending and financial funding. Within this discussion paper I will reflect and discuss some of the lending practices that made the company fold and close their doors. I will also discuss some of the possibilities of the ‘what if’ factor that will keep IndyMac from financial disaster.

Introduction

Between the years of 2004 and 2008 IndyMac had a financial crisis on their hands within the lending departments of the OneWest Banking system. Many of their refinance loans where doubling up without a 30 year fix rate plan. Without having a more secure fixed rate plan home owners either found themselves upside down in their loans, or just abandoned the loans all together based off the bad refinance packages they were sold. Within this discussion essay I will elaborate on the: IndyMac History, Problem, Solving the Problem, How Would I Have Handled the Situation (the Methods), and giving a hypothesis on what organizational methods. I will also discuss steps that may have been used to compensate the families in order to keep them in their homes, and kept OneWest® Bank from closing their IndyMac division doors.

Thesis Statement

The problem of having banking leaders within the banking and lending industry who did not properly educate employees and families alike on the best lending practices along with ethics in lending truly caused the collapse of many banks. It seemed as though all these lending rules were tossed out the window illegally right along with their moral and values. These lenders did not give a logical justification on how so many American citizens lost their homes.

Business Leadership Problem Solving

IndyMac History

The mission of OneWest Bank and IndyMac is narrated like this, “Our mission is to help you achieve your financial goals. With a strong capital foundation and consistent focus on providing value to our customers, we offer a full suite of services customized specific to your needs” (OneWest Bank, 2014). IndyMac formerly known as Country Wide was formed in 1985 it was a, “Savings Bank/Federally-owned Bridge Bank” that connected to other larger banks meaning it was not a central bank, but possibly a sub-bank or branch of a large lending division.

“The entity responsible for overseeing the monetary system for a nation (or group of nations). Central banks have a wide range of responsibilities,

from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment. Central banks also generally issue currency, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort” (Investopedia, 2014).

IndyMac’s Problem

For many the dream of home ownership was now at their reach accept for the problematic issue of these two loans called the, “Interest Only Loan and Balloon Loans” which caused the clients of these mortgage lenders to also fold and end up- upside down in their house and loan payments. The other problem was new loan officers who were new to the banking industry and where blinded by the greed of corrupted capitalism, and the desire to become wealthy quickly. The problem banking and lending industry who did not properly educate employees and families alike on the best lending practices along with ethics in lending truly caused the collapse of many banks. It seemed as though all these lending rules were tossed out the window illegally right along with their moral and values. These lenders did not give a logical justification on how so many American citizens lost their homes. Some of these tax paying citizens had been in their homes for 20years or more. The blame should go on the lenders and agents because they were the learned people within the real estate market and mortgage lending industry. The leadership within IndyMac Mortgages was corrupted, unjustifiable, and what one would call a deplorable scam on the American people of all nationalities and creed.

Solving the Problem

Education is key meaning that banks and lenders need to educate their employees about ethics within lending. Banks need to teach employees about start with the basics within the principles and practices of lending. This portion of teaching is not just for the schools and the departments of real estate, but must continue on during employment. Most lenders now have in-service classes or require continuing education to make sure all employees are properly educated within the laws and practices of real estate and fair lending practices.

The other solution to the problem with IndyMac and OneWest Banking system is to hire people that understand the interest rate percentage and what mortgage would best fit the customer. Putting a customer/client into a balloon mortgage when you know they live on a fixed income and would never be able to catch up on interest rates that balloon after 5 years is absurd and cruel practices. David Rock a writer for Fortune magazine online stated, “Executives often expect that employees will follow orders and execute a strategy as planned without taking into account the human factors at play. When it comes time to give employees performance feedback, HR departments provide data and expect people to just change without recognizing that criticism is like having someone threaten your life (2013).

How Would I Have Handled the Situation (the Methods)

“Before a leader can clearly define a problem, he or she must recognize a problem exists. Once the problem has been defined, a leader can explore the root causes of the problem. It is important to gain several perspectives during this phase of the process. With the problem and root causes defined, the leader can begin listing possible solutions. The best solution is selected and then implemented. Following implementation, the results are analyzed” (CSU Global, 2014). Recognition of the problem started when customers mortgages started to balloon up and the lenders realized these customers could not pay their monthly loan payment. The first step to recognizing the problem was ‘Problem Definition’ or identifying the underlined problem followed by identifying the best possible solution.

What I would have done was looked at every mortgage that came through that seemed to be upside down or ballooned re-calculated the mortgage payment and took that balloon payment and worked it back into the mortgage. Then I would have refinanced the customers’ payment once again into a 30 year fixed rate at a lower payment. Those pick your payment options with balloon payments after 5 years was a pure scam. If the customer received a loan in 2002 then by 2007 the balloon payment was due and the mortgage rate was too high for the borrower to even pay off unless the income went up. I would have never put a customer into a loan like this, but rather a fixed rate and not even given them the option to pay different monthly payments.

For IndyMac and OneWest Bank they fortunately have hope with this new merger with Citi Financial according to Michael Merced the writer for the Investment Banking|Mergers & Acquisitions section of the online New York Times whom stated, “Five years ago, after the mortgage market had imploded, a group of investors — including the billionaire hedge fund managers George Soros and John A. Paulson — banded together to create a new bank from the wreckage of the failed California lender IndyMac” (2014). Mergers are usually done when one organization is about to fall and to help that organization with sustainability they will merge with another organization that seems to be doing significantly well.

Hypothesize

Analyzing, reviewing, and summing up all aspects of the IndyMac and OneWest bank crisis it is clearly evident that IndyMac has a second chance to prove themselves. I would assume from research and knowledge that Indy Mac had people working for them that where not educated enough to know that the lending practices they conveyed to the borrowers and society made some people leery of lenders and banks all together. Citi bank is an excellent bank that also had their problems, but within the last 5 years hired a phenomenal team to come in and do what you call house cleaning and reassuring the customers something I noticed within the Pleasant Hill, California branch, but letting customers know that the work to ensure that customers were satisfied would take one branch at a time.

Conclusion

I believe that IndyMac and OneWest Bank would be able to have the confidence of the United States and the people once more if they did some financial reflecting along with taking a second look at past customers foreclosure docs then compensating the families that were affected by simply re-doing the loans. IndyMac and OneWest Bank are obligated to give families a chance by recompense of what was so harshly taken from under their feets’ their lively hood, hard earned money, their financial nest egg, their dignity, and their homes.

“On December 7, 2012, a jury in federal court in Los Angeles found three former officers of IndyMac Bank (IndyMac) liable for $169 million in damages in connection with 23 loans. This was the first D&O lawsuit filed by the FDIC after the 2008 financial crisis and the first case to go to trial. The case was brought against four former officers of IndyMac” (Noke, 2013)

Reference

Central Bank Definition | Investopedia. (2003, November 18). Retrieved December 28, 2014, from http://www.investopedia.com/terms/c/centralbank.asp

Noke, N. (2013, January 17). Characteristics of FDIC Lawsuits against Directors and Officers. Retrieved December 28, 2014, from http://blogs.law.harvard.edu/corpgov/2013/01/17/characteristics-of-fdic-lawsuits- against-directors-and-officers/

Merced, M. (2014, July 22). 2 Banks Forged in Crisis, CIT and OneWest, Are Set to Merge, to a Big Payoff. Retrieved December 28, 2014, from http://dealbook.nytimes.com/2014/07/22/cit-to-buy-onewest-for-3-4-billion/?_r=0

Mission Statement. (2014, January 1). Retrieved December 28, 2014, from https://www.onewestbank.com/

Rock, D. (2013, October 23). Why organizations fail. Retrieved December 28, 2014, from http://fortune.com/2013/10/23/why-organizations-fail/

Types of Mortgages: Which One Is the Right One? (2007, January 1). Retrieved December 28, 2014, from http://www.mortgagecalculator.org/helpful- advice/types-of-mortgages.php

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