This may be a big wonkish, but here's the dealio.
Mortgage backed security investors, who buy up the loans packaged as collateralized mortgage obligations (CMO's), had a bit of a come-to-jesus recently with the subprime meltdown. So now they've wizened up to the con, and they're telling the Alt-A (Liar's Loan) companies that they're not gonna buy their junk anymore, or at least not at par value.
Why? Let's me put this in HP terms. Would any of you buy up Casey Serin's Liar's Loan portfolio? Yeah, that's what I thought.
IndyMac is the big kahuna in this space, with nearly 80% of their entire portfolio made up of this junk. Nice business when the getting was good and investors were buying up any debt they could find.
But not anymore. Party over.
It's been fun to watch their CEO (and #1 stock holder) Michael Perry pump his stock to the dubious market, screaming that they're not to be confused with those yucky subprime lenders, and how all is well. You also have the CEO and a few insiders trying to confuse the market and stop the hemorrhaging (of their stock holdings) by buying some nibbles of their own stock. Man, sometimes it's just so obvious.
You have to wonder how long until the SEC investigation, or in this case criminal charges are filed. There's this little thing called Sarbanes Oxley, where intentionally manipulating your stock, or not coming clean about your financials or prospects presents a wee bit of a problem for crooked CEOs and CFOs.
IndyMax reports Q1 this week. Let's see if they come clean on what's happening in their business, or if they choose to head down the Enron / Ken Lay / WorldCom / Bernie Ebbers well-worn path.
Note - I own a few IndyMac puts, betting the stock will (eventually) fall. This one is the mother of insider manipulation and disinformation, not for the wary, but it's a fun ride...
April 24, 2007
Liar's Loans (Alt-A), a housing crash and IndyMac: Trouble ahead...
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I'm way short up in NDE too!
Great trader giving his views over at. He talks about the fact that if a mortgage is sold, and has any fraud on it, the buyer can force the seller to take it back. How honest do you think all those "NO DOC" loans are?
http://tinyurl.com/yvgj54
Aren't a few of those on the deceased list already?
Excuse me, but you did not get the memo. IndyMac is a bank now, I suppose that means they are no longer a mortgage provider -- a different business entirely. Make your deposits, and get your CDs now!
The HP troll has his whole retiremnt fund in NDE!
I'm long puts. Don't know if it will hit this q, and am worried about a short, but definitely going down eventually. Has all the Enron characteristics including overly bullish bank research analysts dependent on underwriting business and a developing "blame the bean counter" defense.
Anyone check out their "portfolio update Monday? Here it is-
For all of their "Alt-A" liar, IO, option arms, and other novel products, they are anticipating a lifetime loss rate of .85%. For loan to value >95% they estimate this increases to 1.3%. Seem low? Also, their loss reserves, which are used to cushion earnings against defaults are at less then half the level of 4 years ago. They actually reduced reserves going into 2006!
This entire analysis is being presented as based on the S&P levels model. They probably think this will form a good basis for their defense in the upcoming sheitstorm (a la Enron blaming Arther Anderson). Managements purchase of a stock will also look good to a jury.
I don't have firsthand experience with the S&P models, but know that they are based on extrapolations of historic performance. Based on recent history they do not account for the widespread fraud, stupidity and moral hazard that the mortgage industry has adopted as its business model. Nor do they consider the effect of dropping property values.
From IndyMac's 1Q update-
"Assuming a 35 percent average loss severity rate when the sale of a foreclosed property takes place, an 0.85 percent estimated lifetime loss rate would mean that an estimated 2.43 percent of all loans produced would end up in foreclosure over the life of a
loan pool (0.85 percent divided by 35 percent equals 2.43 percent)" Also, if their recently revised "tighter" underwriting standards were in place, over 30% of their business in the 1Q would have been rejected (translation 30% of the loans originated this quarter are toxic crap).
There was also a note about Countrywide where the board of directors made a change to the bylaws about indemnity of employees.
Setting things up for the lawsuits which are soon to follow? I'm just sayin' is all.
"Countrywide Financial Corp. (CFC) said Monday that its board has amended a company bylaw to provide for the indemnification of directors, officers, employees and other corporate agents."
SELL SELL SELL!
I see handcuffs and a frog march
How much do you want to bet that the second the ship hits the span on NDE, one of the big banks/hedge funds/government/etc comes along and makes a bid to buy it to make the stock bounce back to steal $$$ from honest shorts?
IndyMac reports on Thursday and it's like waiting to open christmas presents.
What will they do? What will they say?
Oh, I can't wait.
I predict stock manipulation, lies and distortion. And then jailtime for their CEO and CFO.
I regularly post on these blogs under a registered name, but as an IMB employee, I feel I must speak up but remain anonymous
IMB has always been a risked-base pricing company. We look at the FICO, LTV, VALUE, LOAN AMT, TRADELINES, SELF-EMPLOYED VS WAGE EARNER, ETC..We practically pioneered to automated underwriting platform.
IMB is not a REIT, but a FSB with cash reserves. Our investors have not changed the price that they pay on any of our loans with credit above 620.
It is important that our "Alt-A" definition requires ZERO mortgage lates regardless of FICO score. The lower the doc-type the lower the LTV that is allowed. We also service our loans so we do have tighter guidelines than even countrywide has. We also have a Mod-X program that allows us to modify the note of a borrower and streamline he/she into a 7 or 10 year fixed IO.
You must realize that once you become a Federally chartered savings bank, you must adhere to a whole different set of rules. We have very little litigation that arises from borrowers citing non-disclosures. ALL insider sales have been done properly, and reported in advance.
The market is falling, there is no doubt about it. Like most banks we've begun tightening the noose on some products. IMB is also a very large construction lender and this market is very different from existing built homes.
While I am not optimistic about the stock price at this point in time, we just had our biggest month EVER as a company revenue wise in the month of March. You will be surprised on thursday.
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