Word: indymac
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...Those principles are similar to the ones the FDIC worked out for the 60,000-odd bad home loans it took on when it closed IndyMac, a failed California bank, last summer. Bair outlined her proposal in testimony on Oct. 23 before the Senate Banking Committee. "The government could establish standards for loan modifications and provide guarantees for loans meeting those standards," she said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term." At the same hearing, Neel Kashkari, the acting assistant Treasury Secretary in charge of the $700 billion bailout package...
What was your reaction when you saw people lining up outside IndyMac branches after you took over that bank in July? IndyMac was a real wake-up call for us. It saddened me. People were waiting hours and hours in line, and they didn't need to. They could write checks, use their ATM cards. We have done a lot of public education since then, and we have Suze Orman who has done some PSAs for us. I think we've got people calmed down...
...trace your thinking on subprime loans and lending standards, starting when you were at Treasury and first looking at this issue and winding up with IndyMac, where you're now doing mass loan modifications? I came to it as a consumer issue. In 2001 [Senator] Paul Sarbanes asked me to read this HUD/Treasury report on predatory lending. I was pretty appalled. I was convinced that there was a real problem, but we thought it was more from a micro-consumer standpoint. Something national and systemic - I don't think that ever entered any of our thoughts. We put together...
Could you translate that into your concern for the banks that you insure? We have to get the housing market stabilized, and these loan modifications do need to be done systematically. It's difficult, I'm not going to say it's not difficult. We're seeing this at IndyMac. For a lot of these nontraditional mortgages, income was never verified so as part of the modification process you have to go back and verify income to know how to give them what their affordable payment will be. But it needs to be done. The FDIC did massive loan work...
...After IndyMac failed, you said you didn't think institutions of any significant size were going to fail. To what extent were you wrong and to what extent was that being in a position where you have to smile? I was trying to provide some assurance in making that statement, and at that time things had not gotten as bad as they are now. I do think people need to understand that we are there and their insured deposits are protected and come what may they don't need to worry about that. Overall, banks are safe and sound. Some...