The Office of Thrift Supervision was slow to respond to problems at IndyMac Bancorp., and its eventual actions were ineffectual, according to a report released Thursday by the Treasury Department's Office of the Inspector General.
The report blamed IndyMac for its reliance on alternative-A loans, poor underwriting, and questionable appraisals, but the report also said the OTS failed to take remedial actions when it found problems at IndyMac, which failed in July.
"We found that OTS identified numerous problems and risks, including the quantity and poor quality of nontraditional mortgage products," the report said. "However, OTS did not take aggressive action to stop those practices from continuing to proliferate. … The examination results did not reflect the serious risks associated with IndyMac's business model and practices."
According to the report, the OTS did not issue any enforcement action until June, though earlier action was warranted. The OTS did not downgrade IndyMac's Camels rating from 2 rating until early last year, and the agency did so only after IndyMac recorded substantial losses.
The report largely cleared Sen. Charles Schumer of any wrongdoing with respect to the failure. The OTS had blamed the New York Democrat for public letters that cast doubt on IndyMac's financial condition, arguing that they spooked investors that were considering purchasing the company.
But the report found that an investment firm decided not to invest in IndyMac because of its own analysis, and that the FDIC had identified liquidity problems months before the letters surfaced.
As a result of the report, the OTS agreed to implement several steps to address its shortcomings. In particular, it is creating a unit to monitor and review regional examinations at its 25 largest institutions.