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IndyMac overhauls lending strategy

Amid industry woes, it will shift its focus to prime loans and expand in the retail market.

August 29, 2007|Scott E. Reckard | By E. and Times Staff Writer

IndyMac Bancorp Inc., one of the country's 10 largest mortgage lenders, outlined Tuesday a drastic strategic transformation in response to radical changes in the industry and said its loan volume would drop considerably as a result.

At the same time, however, the Pasadena-based savings and loan sent a signal that the market for "jumbo" mortgages -- large loans that are especially common in California and other high-priced states -- might be returning to normal.

IndyMac, the No. 7 mortgage lender in 2006, until this year worked mainly through independent brokers to make loans that government-sponsored mortgage companies Fannie Mae and Freddie Mac wouldn't buy. Some were sub-prime loans to borrowers with poor credit, but most were loans to alt-A customers, a category that in terms of risk lies between prime -- the most creditworthy -- and sub-prime borrowers.

But with investors lacking an appetite for any but the safest mortgage securities, the savings and loan is overhauling its approach by focusing on customers with the best credit and by moving aggressively into the retail market.

IndyMac said Tuesday that it would hire about 800 former employees of American Home Mortgage Investment Co., which has filed for bankruptcy protection, and take over 90 of the lender's direct-to-consumer offices to make prime loans.

Melville, N.Y.-based American Home Mortgage, like IndyMac, had specialized in alt-A loans to people with good credit scores but other issues or undocumented income -- retired couples, property investors, self-employed business owners whose tax returns didn't reflect their available cash. The offices IndyMac is acquiring are mostly in the Western United States.

IndyMac in April acquired many of the retail assets of New York Mortgage Co., another collapsed lender, which operated mainly in the Eastern U.S., and is in the process of buying retail offices from Barrington Capital, a Newport Beach mortgage firm.

When the deals are done, IndyMac said, it would have at least 134 retail lending offices with the equivalent of 1,466 full-time employees, up from nine retail offices with 126 employees.

The lender said Tuesday that 90% of the loans it made from now on would be of the type bought by Fannie Mae and Freddie Mac, which buy nearly all prime mortgages made for less than their $417,000 maximum.

The other 10% of IndyMac's volume is expected to be prime home equity loans and prime jumbo mortgages.

The company, which funded nearly $90 billion in mortgages last year, said in a news release that the shift would substantially reduce the firm's mortgage volume but would increase profit margins in the fourth quarter.

"We will need to carefully monitor our overall production volumes to see where they settle in light of mortgage market conditions and ensure that our overall staffing levels are in alignment with our production levels," IndyMac Chairman and Chief Executive Michael W. Perry said in the release. He couldn't be reached to elaborate.

Richard Eckert, an analyst at Roth Capital Partners in Newport Beach, expressed doubt that IndyMac could successfully move from its niche to making prime loans, a traditionally high-volume, low-margin business.

"It's like you are going from being some German custom manufacturer where some guys lovingly and slowly grind out precision parts to being an assembly-line manufacturer pumping out 100 widgets an hour," he said.

In a statement on its website Tuesday, IndyMac said it had sold $590 million in bonds backed by jumbo mortgages. Its last such sale was July 19, "right before fear-induced illiquidity froze the market," IndyMac said.

"While the trade prices on these sales are still outside historical ranges," the statement said, "they do reflect an improvement over several 'fire sale' trades made by others in recent weeks."

The sales are a positive sign, said San Diego mortgage banker John Robbins, chairman of the Mortgage Bankers Assn.

"I think we've weathered the worst of the storm," he said. "You can see rays of hope coming through the clouds here."

IndyMac shares fell 76 cents to $22.89.


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