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Going beyond this week's terrible earnings report, Michael Perry sent out an email to employees of the Pasadena-based mortgage lender in which he presents a gloomy but not hopeless picture. "Unfortunately, the private secondary markets (excluding the GSEs and Ginnie Mae) continue to remain very panicked and illiquid," Perry wrote in the company's IMB Report. He said that unlike past hiccups, the current problem "appears broader and more serious, might take longer to correct itself. As a result, we have seen just since yesterday, many major mortgage lenders announce additional product cutbacks…some leaving subprime, Alt-a, and other products altogether or restricting some products to only their own retail channel (and possibly wholesale) and significant, additional price widening." During a conference call this week, Perry said he sees continued trouble well into 2008. Here's more:
While we have very strong liquidity, a good amount of excess capital and there are no realistic scenarios that I can foresee that would impair Indymac’s viability (thanks to our Federal Thrift structure), as I said on the earnings conference call yesterday…we cannot continue to fund $80 to $100 billion of loans through a $33 billion balance sheet….unless we know we can sell a significant portion of these loans into the secondary market…and right now, other than the GSEs and Ginnie Mae….the private secondary market is not functioning. As a result, Indymac like all major lenders, will continue to widen its pricing and tighten product and underwriting guidelines...While this is an abrupt and uncomfortable change, it is a change that all of our competitors are making just as abruptly, if not more abruptly…so it should not result in one mortgage company having a competitive advantage over another.
The Pasadena-based lender reported a 57 percent drop in earnings for the second quarter. While mortgages made by IndyMac are mostly near-prime loans less vulnerable to defaults, the continuing panic in the credit markets has resulted in the company making less money selling loans to investors. For what it's worth, IndyMac shares were down 2.4 percent in today's trading.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.