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Dark Prospects For IndyMac

[Aug 5, 2008.]

 

Earlier today, the major US mortgage lender IndyMac, based in Pasadena, Calif, released an open missive to its shareholders: the company is in trouble. In the document, IndyMac informed shareholders and the public that it plans to fire more than half of its employees, as well as ceasing all retail and wholesale lending operations. IndyMac is only the latest in a long line of big-name mortgage lenders to experience fiscal disaster this year. Like its unfortunate predecessors, IndyMac fell due to its overwhelming focus on undocumented or barely-documented high-interest rate mortgage loans to customers with average-or-below credit histories.

IndyMac will retain its 33 branch offices throughout the US, as well as its $18 billions' worth of saving deposits, which the company possessed in addition to its capital relating to home loans. Nonetheless, IndyMac has fallen far below the financial position it held in 2007, when the company the 11th-biggest residential mortgage lender in America.

Shares of IndyMac stock have decreased in value by more than 95% since 2006. As of today, IndyMac stock sold for 41 cents per share on NASDAQ, a decrease of 43% since yesterday. The Office of Thrift Supervision no longer deems IndyMac to possess sufficient funds to allow brokers to puchase short-term CD's for quantities of money beyond a certain amount. At the same time, the lender ranking company Fitch Ratings showed earlier to day that it considers IndyMac at a high risk for default. The ratings company lowered IndyMac's possible default rating for long-term investments from CC to the lower B-.

Yesterday, IndyMac announced its plans to focus on mortgage servicing and reverse mortgages, instead of the volatile Alt-A mortgage lending (i.e. lending to customers with credit histories that qualify them for loans somewhere between prime and sub-prime rates) that lost the company almost $614 million in 2007 and $184.2 million in the first quarter of 2008 alone. However, its recent losses might put all of the company's future business dealings in jeopardy, including dealings that do not directly relate to mortgage loans.

 

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