IndyMac: Significant Seizure Chatter - Is This the End? Finally!
Posted on July 6th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Note: At this point in time this story is RUMOR as is has not been made official by IndyMac or regulators. I am reporting it from what I have been personally told by people familiar with the matter. And I am not short this stock or trying to start rumors to drive down the price. How much further can it drop! Its at 67 cents. Just remember that when stories like this have come out in the past, there is a flurry of positive spin and in the end, 99.9% are true.
My sources put regulators at IndyMac this weekend doing the deed. I am being told an announcement will come tomorrow first thing, that IndyMac is no more and at least their wholesale operation is gone effective immediately. I would make sense that retail would be included as well, but I wholesale was the only operation referred to. Apparently wholesale sales and operations will get pink slips, no new loans will be locked and all existing loans in the pipe must be closed by the end of July.
I can’t imagine a ‘buyer’ would step up to the plate at this point in time, as in the case of Countrywide, because there is not another Gov’t shill as large as BofA to take her over. IndyMac sits atop 10s of billions in the most toxic of all loans, Pay Option ARMs, HELOCs and subprime. Much of these are on lines or have been borrowed against from the likes of the Federal Home Loan Bank of Atlanta, which in a fit of generosity and stupidity in Q3/Q4 2007 took Pay Option ARMs as collateral before Schumer made a stink. They got suckered into the Pay Option ARMs ‘investment grade’ ratings as well. CONTINUED…
It’s truly unbelievable how Pay Option ARMs fooled the smartest guys in the room for the longest period of time. The easiest trade in the entire mortgage implosion universe was to short the Pay Option lenders when the subprimes were initially collapsing. They included but are not limited to: AHM, IMB, CFC, WM, WB, DSL, BKUNA and FED. Look at the 12-month charts.
Pay Options were hoarded by banks trying to drive profits due to the fact that borrowers with better than average credit score had an effective rate as high as 10% when the underlying indices surged and remained elevated until recent quarter. Then as these loans became virtually worthless in the marketplace mid 2007, lenders were stuck with unusually large percentages of these vs other loan types on the books. The big sucker punch with these loans is that approx 80% of borrowers make the minimum monthly payment of 1% to 3.95% depending on the lender. The difference between the real interest rate and the minimum payment rate is called ‘negative amortization’, which the lender gets to book as revenue.
So, for example the lender is booking the fully indexed payment of $5k per month but 80% of borrowers only make a payment of $2500 per month. This phantom income (called deferred interest, CINA etc) is booked as revenue because in theory banks get it back when they foreclose and sell the property. NOT! This was fine and dandy until property values in the bubble states where these loans are most prevalent crashed 30% in the past 12 months. Now, lender can’t get it back so eventually there will be massive earnings restatements for income booked that was never received and will never be received. This is one most don’t talk about. This is why the stock prices of the ones that hold the most Pay Option ARMs (listed above) have crashed. Now, these loans are defaulting at a significantly accelerating pace. Due to the negative amortization and crashing values the cure rate from Notice of Default to Trustee Sale is the lowest among all long types, even subprime.
If this rumor turns out to be true, I have to give a hat-tip to Mike Perry who managed to skate by for a long time by managing the stock price and not the company by doing things such as: he and his CFO buying $1 mil stock each at $30 last year to stabilize the stock price; consistently missing earnings and guiding higher in upbeat conference calls; the many analogies regarding how ’safe’ Alt-A loans are and how they are much closer to Prime than subprime’. As a matter of fact in Q3 2007 he said ’Alt-A is between Prime and Subprime kind of like Pasadena is between LA and Riverside. We all know that Pasadena is much closer to LA than Riverside’.
Well Mike, you were wrong and we all knew it when you were spewing it a year ago. There is also the IMB blog called ‘The IMB Report’, which immediately spins all news about the company into a positive the day it comes out in order to manage the stock price. If the blog wasn’t meant to manage the stock price why name it with the ticker symbol (IMB), which very few know? Why not name it ‘The IndyMac Report’? Check it out. Check out the most recent posts. http://www.theimbreport.com/
The latest ‘big news’ (smoke and mirrors) that came out of IndyMac was in Jan 2008 when they made a big deal about locking $1 billion in loans on a single day. This jammed the stock price from about $4 to $10 in a couple of weeks. The Street assumed Indy was back on track and somehow locking $1 bil per day, which would be incredible especially given that Countrywide barely did that at the height of the bubble in 2005!
They did in fact lock $1 bil in loans in one day, but what they failed to tell you was they probably lost that many loans that were already locked, in process or very close to funding on which their staff had already performed a lot of physical work. A sudden spike in rate locks on a day when rates fall suddenly can come at a significant expense.
When rates spike down in a very short period of time very few new loan applications are taken at that time. In Jan 2008 rates fell hard for two-days and spiked right back up. What happens on days like this is bank’s locked and in-process mortgage pipelines shift from one bank to another as borrowers and brokers re-lock the loan with the bank with the lowest rate on that day. They then pull the loan from the original lender.
This significantly HURTS the banks because they lose all the business on which they performed countless hours of processing labor in exchange for new business on which they have to perform the same job over again. In addition, all the loans they lose are locked at higher rates, which is preferable. All of the new business comes at much lower rates; rates that did not exist a few days afterward in the case of Jan. One last thing, when rates drop that fast it is impossible to hedge. How do you hedge against $1 bil in loans locked in 48-hours at very low rates and the loss of much of your existing pipeline in higher rate loan locks? Come to think of it, perhaps it was this event 5-months ago, which the company used to pop its stock price, that was the nail in their coffin.
As you can tell, I have no love-lost for Indy. They used to be a great company and at the top of my list. As a matter of fact they are one of the more aggressive lender right now. But last year when things fell apart seeing Perry immediately resort to what seems to me as stretching the truth, doing everything possible to manage the stock price and not the company, blaming short sellers, always guiding higher after earnings and missing, releasing fluff press releases in order to drive the stock price higher etc, it showed me his true colors.
One thing is for certain, if the banks had come out from the beginning and admitted things were bad and started to take corrective measures, this ‘crisis of confidence’, which has now turned into something much greater, may not have gotten near this bad. -Best Mr Mortgage
Other Related Mr Mortgage Stories
The Pay Option Implosion - Subprime’s Big Brother
Look Out! Here Comes the ALT-A Implosion!
Mr Mortgage on Mortgage Modifications - You May Qualify!
Mr Mortgage: Mortgage Modifications Part 2 - Being Forward Thinking
July 6th, 2008 11:00 pm
Great work MM!
July 6th, 2008 11:50 pm
Heh, looks like my Puts just hit the jackpot?
July 7th, 2008 12:06 am
It’s a shame for the broker, as IMB had some solid broker programs, like their former home construction loans for owner-occ folks in areas like LA and SF that wanted to scrape and rebuild 80 year old dumps that were falling down. My wife and I used IMB for our rebuild in ‘06, they offered a decent rate, a streamlined process which ensured that the contractor had an consistent money flow, and a fair rate rolled into perm. We re-wrote it last year, but Indymac’s construction to perm deal was really well designed, thought out, and administered. Yes, Mr. Anti-Zionism and the rest of you chronic complainers, we qualified full doc, and the deal made terrific sense for both us and them. We got our house, and they made plenty of money, which is how it should work, but probably won’t anymore. Late last year, they were still doing some real garbage, but at least once a week I talk to a borrower that could use and really benefit from that construction program. Here in Socal only Chase and Vineyard (scumbags) are in the game. It’s too bad, there is a real “make sense” market here.
July 7th, 2008 12:47 am
IndyMac sits atop 10s of billions in the most toxic of all loans, Pay Option ARMs, HELOCs and subprime. Much of these are on lines or have been borrowed against from the likes of the Federal Home Loan Bank of Atlanta,
you mean Federal Home Loan Bank of San Francisco - near 11 million; whatever happened to B of A saying they weren’t going to guarantee Countrywide’s debt ? Did the government give B of A a stop….hmmm
July 7th, 2008 12:48 am
should be guaranty
July 7th, 2008 1:55 am
So what? Who gets hurt beyond the employees who will likely be unemployed if IndyMac is finished? Bottom line this for us…what becomes of all this bad debt? Any impact to the loan holders? If no one wants to buy this (without government assurance / insurance)…then what?
July 7th, 2008 2:33 am
Many have already closed their doors. That IndyMac is in distress was only a question of when not if.
The broader economy is being impacted now. Notice all of the “going out of business” sales.
“Bailouts” such as Bear Stearns, are band-aids on the massive debt bubble that took decades to build.
“Bailouts” such as before the Senate now, again are temporary solutions. The fundamentals are that house prices must decline to be in line with rentals and stock prices must decline to be inline with real after tax and after inflation risk-adjusted returns.
Prices of both will go below intrinsic values as we tend to over-correct before rising to intrinsic values. Thus we will see home prices of 120 times monthly rentals and P/E ratios below 10 and price-to-book below 0.90. {Ignor bank price-to-books as they are fiction, only bank examiners know what the real price-to-book is.} These will show the bottom and could be as far away as 2012.
There are no safe havens as even though you know that the Central Banks want to inflate, their power to do so is now suspect. They are running out of tools.
Massive infrastucture investments by governments may provide some relief.
The last stimulus package demonstrates the politics of the situation. If instead of giving the money to individuals, the same amount was given to the states, we would not be seeing the large layoff notices being distributed by state and local governments.
The best we can hope for is a muddle through economy. The worse is an outright depression. Some where in between is where we will be. Luxuries such as HBO, cable, Starbucks, large screen TVs, ski boats, SUVs, RVs, pools, spas, large lots in the suburbs, etc. will all suffer.
The consumer mind-set is being reset. Values are changing.
The muddle through option is still available unless government action increases risk.
July 7th, 2008 7:19 am
How about making a call on a stock going forward instead of looking backward? What’s the next call?
July 7th, 2008 9:34 am
He gave you HRB and NLY the other day, why don’t you throw out a suggestion?
July 7th, 2008 10:01 am
Hmmm….So far, no announcement!!
Marketwatch headlines just scream positivity this am!!
July 7th, 2008 10:21 am
If FDIC is going in everything will be shut down immediately. Locks won’t mattter. Shutdown is shutdown. This part does not make sense.
July 7th, 2008 10:34 am
I have also heard they have SOLD their retail—?? What is the REAL SCOOP here IMB Peeps??
July 7th, 2008 10:54 am
In the 1980s when I worked in the computer department of a bank, Friday was always closing day. The FDIC/RTC had it down to an art form.
COB Friday an announcement went out that the bank X was closed and that the deposits and assets had been purchased by bank Y. Bank Y cherry picked which loan assets they wanted to purchase with the rest going to the FDIC/RTC. The auction of the deposits, loans, and assets was done on Wednesday and Thursday in secret using all the audit information.
After the announcement there would be a flood of special requests into the computer room for special reporting. And within a week or two the bank would be merged into the buyer or transferred to the new computer processor.
I can’t imagine a bank agreeing to take the Option ARMs without a lot of arm twisting and some guarantees about losses. Give me the deposits(capital!!!), take the good loans, and let the Feds take the crap loans.
AJ
July 7th, 2008 11:38 am
Its all the work and fault of The “ZIONISTAS”. They are bringing down the system to pave the way for the NWO. Beware: ‘Mr Mortgage’ is on their payroll.
July 7th, 2008 12:35 pm
Good work! What happens to all this debt?
July 7th, 2008 2:03 pm
http://online.wsj.com/article_print/SB121521029377229405.html
great arty (subscription required)
m
July 7th, 2008 2:21 pm
I have a loan with these folks. What will happen to folks like me who pay on time with no delays?
I worry that whoever buys my loan may screw up and cause me some problems.
July 7th, 2008 2:25 pm
If anybody got suckered it was the FHLB of Atlanta, which isn’t saying much, I don’t know if anybody has ever talked to their underwriting personnel to know they are bunch retards. They will take a bag full dog shit for collateral for a million dollars borrowed. No wonder Mazilo owned two great danes and a bunch of horses.
July 7th, 2008 2:35 pm
IMB NJ Branch Shutdown in progress…?
4:00 pm EST mandatory meeting called for IMB Mt Laurel NJ branch employees (or whats left of us)… the floater is circling the drain…
July 7th, 2008 2:39 pm
FYI —
IndyMac (IMB:US) - “Trading Halted” - per Bloomberg.
July 7th, 2008 3:03 pm
The wheels are really falling of the economy today - now Freddie Mac and Fannie May have to raise 70billion combined, according to Lehman Bros/Bloomberg. . .things are really getting interesting.
July 7th, 2008 3:16 pm
So what will happen to the employees? Will anyone take them? Will the execs likely get jobs elsewhere?
July 7th, 2008 3:26 pm
Sorry gang…been out on the links in palm springs.will be back and releaes all the backed up posts soon. Its 114 deg here and from what I gather its hotter on wall st.
July 7th, 2008 3:37 pm
Market is turning around now - SKF only up $5.50 after being up about $13.00 earlier.. too funny.
July 7th, 2008 3:41 pm
Damn, I had a $30k+ CD with them reach maturity this weekend and I sent them the fax to close it out and mail me a check. Have been on the phone (on hold) trying to verify they received my fax for the last 45 minutes. While on hold I’ve heard several of their automated messages, the best was this one…
1:57pm Transferred to new automated message “Many customers are calling due to our attractive rates, hold times may be longer than normal.” (Translation, “we are running a bare bones staff to help lessen the outflow of cash as our customers close their CDs with us”)
As always, I feel bad for the common workers. I have less sympathy for management. I listened to a few of their earnings calls in the last year. Their CEO literally can’t pronounce the word “mortgage” correctly, no joke!
July 7th, 2008 3:51 pm
Operations staff in CA are meeting now and at 1:00 pm to hear the RIF news. Sales at 1:15pm
Nice work Perry… You could have been a contender!
Hiring managers in California: Mortgage Ops folks learn fast, operate quickly and are committed to service. Need hungry, dynamic and smart staff??? Don’t pass up a resume because of the mortgage back ground! Hire these folks, fast!
July 7th, 2008 4:36 pm
EternalOptometrist:
Like me, you have TV (True Vision - better than 20/20) - Congrats! That Sir Alan is a true Zionist Depression Guru! His (slimeball) Zionist masters will bestow more accolades (and $$$) on him. Mazel Tov!
July 7th, 2008 4:39 pm
[...] 7.7.08 Mr. Mortgage with the latest in the mortgage market disaster HERE [...]
July 7th, 2008 4:47 pm
indy news out:
http://www.businesswire.com
check it (sorry, can’t seem to link)
July 7th, 2008 4:55 pm
BRUTAL severance package now.. holy cow. I also see Perry requested a 50% reduction in his salary base..
wow.
July 7th, 2008 5:01 pm
You don’t know what a BRUTAL severence package is until you work for Countrywide/BofA….
July 7th, 2008 5:07 pm
At the bottom of their blog it reads : “The IMB Report is a Product of the Indymac Bank Corporate Communications Department” = crap = useless info = nodoby reads that stuff except the Indie Mac management
July 7th, 2008 8:17 pm
EternalOptometrist….awesome
July 7th, 2008 9:30 pm
Mr Mortgage call it AGAIN…
Imploded!
http://theimbreport.com/
Countrywide Imploded. 90% of the big sub prime lenders Imploded. Bear Imploded and YES Indy Mac is/was about the 3rd largest Sub Prime – ALT-A related MASS volume wholesale and retail lender. They have a MASSIVE amount of the sub prime and related assets on their books. So, THIS could be the beginning of the BIG GOV bail out! A bank the size of IndyMac goes down and the effects would be chilling. GOV can’t and wont let that happen! The thing is that we are operating our “BUSINESS” way in the RED and paying very high interest to OTHER COUNTRIES for survival loans. At some point these countries will either stop lending to us and or they will foreclose as we can’t possibly keep up with these loans. I would say at this point that the U.S. is in “loss mitigation” and “Forbearance”… That’s certainly NOT good.
Now, as you know the FED who by the way is BROKE as a joke, ie: “ tax payers “ IS NOT supposed to BAIL out PRIVATE banking institutions. In the case of Bear, that “indirectly” IS EXACTLY what they did in a very round about way and that’s NOT a good trend. They can however BAIL OUT federally chartered Banks such as Indy Mac!! OUCH!
Essentially almost all of the major banks are NO LONGER doing wholesale, so it’s a matter of time before there are no more mortgage brokers and that good in my opinion. However SCARY as it seems, FHA is kind of back in the sub prime business!! AND they are underwriting at nearly 100% counting GOV backed down payment programs. We know to play it safe TODAY that should NOT go above 80% and ideally 75% with the decline still continuing.
Keep in mind that “the shareholders” often are YOU and I… And we don’t even know it.. THAT’s what’s prompting all the FBI and SEC investigations and class action Law Suit’s against investment firms. Wall Street Asset Managers lied to the “investors” quite often being retirement funds, insurance companies and investment firms suck as Smith Barney, places where WE walk in and invest. You know about that ! The sold the securitized crap loan backed assets as “other stable investments” in deception.
I don’t want to be a fatalist, but a lot of the EXPERT economists are predicting a U.S. DEEP recession and a DEPPRESSION very likely up and coming.
The writing is on the wall~
July 7th, 2008 10:02 pm
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/07/AR2008070701822.html
IndyMac to cut half there jobs
July 7th, 2008 10:17 pm
I am actually quite shocked that there has been relatively little coverage of this implosion on the mainstream media sites……another day, another corrupt multi-billion dollar company GONE!
WOW
July 8th, 2008 1:57 am
What did you expect from the media ? Their ad revenue will soon be imploding with the bankruptcy of Chrysler, Ford and GM. It’s coming real fast. Don’t be shocked Nathan. I listen to them and laugh. What’s terrible is that most investors base their economic decisions on what they see on TV. Hey TV journalists!, you biased scumbags, you are next to get a good kick in the balls. You have to be mad when you listen to TV. Rupert Murdoch must be nervous. The mainsteam media is also a corrupt multi-billion business.
July 8th, 2008 2:22 am
Well, folks! Here you go -
`Too Much Risk’
“We don’t expect, given the really rough state of the housing market, that IndyMac is going to be able to get out of this,” said Jason Arnold, an analyst at RBC Capital Markets in San Francisco. “The big problem is that no one will give them money. There’s too much risk involved and not enough value in their franchise.”
Source: Bloomberg
July 8th, 2008 5:38 am
What will happen to Indymac. If they cannot stave off bankruptcy, their portfolio must be liquidated. How can they avoid this when the house market will continue to deteriorate?
July 8th, 2008 7:33 am
in my opinion IMB is no more. I believe this is the new-style FDIC seizure where the FDIC tells banks to tell the public ‘we are shutting down our core businesses’. This is to avoid headline risk and runs on similar banks holding similar paper, such as regional banks holding Pay Option ARMs, Alt-A loans, subprime and HELOCs as in IMBs case.
July 8th, 2008 9:10 am
Not sure but where does the debt go?
July 8th, 2008 9:20 am
What happens to IndyMac’s servicing department? Do the loans they service but don’t own go elsewhere? Some friends of ours are currently in foreclosure with IndyMac and they are fighting them tooth and nail because they claim to have made payments that IndyMac didn’t post. They are happy IndyMac is in trouble.
July 8th, 2008 10:26 am
Exactly, Admin!
This is a new day, and judging from the utter LACK of information all day about the pending IMB collapse, and subsequent headlines today, they are trying to label it as something of a “pullback”—LOL
Are investors THIS stupid, really?
July 8th, 2008 11:21 am
Apparently they are Nathan… apparently they are.
crazy times.
July 8th, 2008 11:40 am
Not all investors are stupid -
Friedman, Billings, Ramsey & Co. Paul J. Miller Jr. cut his price target on the Pasadena, Calif., company to $0 from $1. He rates the company “Underperform.”
“Given continued home price declines, management’s higher loss estimates, recent ratings agency downgrades on the company’s mortgage-backed securities and the company’s decision to stop new mortgage originations, we do not believe that there is any value left for common shareholders,” Miller said in a note to clients.
Source: AP
July 8th, 2008 11:56 am
…and yet S&P still has them rated as a 3 Star Hold. It will hurt us all, but this whole system needs an enema - fast.
July 8th, 2008 12:26 pm
[...] IndyMac: Significant Seizure Chatter - Is This the End? Finally! [...]
July 8th, 2008 5:12 pm
[...] IndyMac: Significant Seizure Chatter - Is This The End? Finally! By Mr. Mortgage - Daily Mortgage/Housing News (6 Jul 2008) [...]
July 8th, 2008 11:58 pm
[...] IndyMac: Significant Seizure Chatter - Is This the End? Finally! [...]
July 10th, 2008 11:23 pm
[...] IndyMac: Significant Seizure Chatter - Is This the End? Finally! [...]
July 11th, 2008 4:59 pm
Friday, July 11 @ 1:30 PST
The FDIC is in charge” was the verbal announcement ringing through the halls of IndyMac’s Pasadena offices. “Everyone show up for work on Monday.”
2008-07-11 — ml-implode.com
July 14th, 2008 2:00 pm
[...] IndyMac: Significant Seizure Chatter - Is this finally the end? [...]
July 15th, 2008 10:12 am
The only thing keeping the indymac train on the rails was ability to borrow at the fed instead of relying on lines of credit…otherwise, they would have gone the way of the other mortgage bankers long ago. The company started as a REIT and Mike Perry was hired by Angelo Mozilo because of his inspired vision of removing those pesky underwriters from the underwriting process and applying manufacturing processes to a service industry. (such as outsourcing functions of underwriting to India…thus the nickname “Indiamac”) I underwrote loans that went to nearly all the major players and once worked for Indymac….those were by far the worst deals around.
July 15th, 2008 2:19 pm
[...] IndyMac: Significant Seizure Chatter - Is this finally the end? [...]
July 16th, 2008 11:10 am
[...] IndyMac: Significant Seizure Chatter…Is the End Near? Finally! [...]
July 18th, 2008 3:38 pm
[...] IndyMac: Significant Seizure Chatter…Is the End Near? Finally! [...]
September 9th, 2008 7:28 am
[...] - bookmarked by 1 members originally found by ussoccerdotcom on 2008-08-16 IndyMac: Significant Seizure Chatter - Is This the End? Finally! [...]