July 23, 2007

Alt-A / "Liar's Loan" mortgage king IndyMac's newest spin - "It's all good - we suck only just as bad as Countrywide"!!!

I think this would be like WorldCom saying that everything was OK because Enron was in a similar boat. Or buggy whip Company A saying all would be fine because they were tracking nicely against buggy whip Company B.

These guys really are amazing.

Yes, I'm short IndyMac via put options. I figure one day this company will have to stop with the spin and report the truth - but my guess is that it'll be the public auditors or Feds who come clean first, not IndyMac, their CEO or their PR flak Grove Nichols. What they don't mention in this posting are three very very important words, the 800 pound guerrilla in the room:


Here's just some of IndyMac's latest spin:

Update on Delinquencies in Our Mortgage Loan Servicing Portfolio
July 20th, 2007

In line with our expectations and as we communicated last quarter, delinquencies in our $184 billion servicing portfolio increased in the second quarter of 2007. As the following table illustrates, 30+ day delinquencies for our servicing portfolio in the second quarter of 2007 were 5.35 percent, up from 4.10 percent a year ago and 4.37 percent last quarter. Foreclosures also increased to 1.15 percent in the second quarter, up from 0.89 percent in the prior quarter.

While our delinquency rates have increased, they are comparable to Countrywide Financial Corp., which was ranked by the National Mortgage News as the No. 1 residential mortgage originator and the No. 2 residential servicer in the U.S. for the first quarter of 2007. On July 16, 2007, Countrywide reported a 30+ day delinquency rate in their servicing portfolio of 4.77 percent for the period ending June 30, 2007. Indymac’s modestly higher delinquency rate can be attributed to the fact that Countrywide carries a much higher mix of agency/conforming loans in their servicing portfolio relative to Indymac.

Grove Nichols
Communications Director


Anonymous said...

But they're taking market share!

Right in the face of a historic collapse.

Anonymous said...

Charlie here,

So a month or so back, I lost my "shorting" virginity and shorted Indymac just for fun with $1000 I think.

Anyway, within a week the stock went up a buck or two and the shares were "called in".

Is that just part of the game. Any way to minimize that?

I know everyone will say, "hey, buddy, if you don't know that you should be shorting" and I agree. Not betting the farm. I don't gamble so this is my Vegas outlet.

Keith, I assume you've been shorting Indymac so long that you must have had shares called in??? No?


keith said...

Charlie - I never short stocks - I buy put options near the money 6 months or so out

Your option can go to zero, so it's gambling.

But you control so many more shares than just selling short, with less exposure, even though you can lose everything, you can also make a killing

hope that helps

Anonymous said...

Charlie, went there's a bonafide bearish bias, you straddle it with simultaneous put & call options around the strike price with hopefully a low delta. What that does is hedge your trade in a way so that if there's a significant retracement, which is highly possible in a volatile industry, you can still get out with the call option, banking the incremental price movement sans the cost of the put, but if it goes your way, you'd simply paid for the insurance (call price) and will still make a lot if your prognosis is correct. At most, you'll lose what you put in if the price goes flat but that's rather unlikely given the heat on the whole mortgage and construction sectors. They'll be movements, however, it's the timing of them which can kill you if you don't use a hedging strategy.

Anonymous said...

IndyMac Holds Strong On Selling Off Bad Loans
May 15th, 2007 | Foreclosure, Mortgage

Bad Loans have put many of the subprime and Alt-A lenders under the bankruptcy train as it has rolled through the mortgage industry in the past 6 months. The carnage has been extensive, but leader IndyMac is trying to hold on throughout the turmoil to it’s loan portfolio.

What typically happens is that hedge funds buy up the non performing loans for pennies on the dollar and try to arbitrage them into a healthy income. IndyMac is trying to hold on to the bad loans and get their money out of reworking them or in the forclosure process. If they have the stamina and reserves to hold out it will be a much better strategy as the return will be higher.

However, if cash gets crunched they may have too much inventory to drop on the market in a short period and hurt themselves even more.

Anonymous said...

Shorting Indymac (with put options) certainly makes since.

Subprime market faces further setbacks

Updated: 4:10 p.m. PT July 22, 2007
The stricken US subprime mortgage market is likely to suffer further setbacks in the coming months as $500bn of risky home loans sold with initial low "teaser" interest rates are reset at much higher levels, analysts warn.

"It's like an onion, as you peel back another layer it just smells worse," said William Strazzullo, chief market strategist at BellCurve Trading.

Over the next 18 months, adjustable-rate home loans sold at the peak of the high-risk lending boom in 2005 and 2006 will be reset. Given a recent tightening of lending standards as banks try to rein in their mortgage exposures, this raises the prospect of further serious losses. Christopher Flanagan, strategist at JPMorgan, estimates up to 45 per cent of borrowers facing resets will not meet criteria to refinance into new home loans.

The mounting problems could force ratings agencies to downgrade billions of dollars of mortgage securities below investment grade, a move that would in turn force many investors to sell their holdings and exacerbate the spiral of losses.

"The potential repercussions are quite serious," said Andrew Lo, professor at MIT's Sloane School of Management. "There are hundreds of hedge funds and proprietary desks that are involved in these instruments and have used leverage."

Part of the problem, said Mr Lo, was such complex debt instruments were hard to value and rarely traded, making it difficult for investors to gauge how much further prices could fall. "Once the ratings agencies adjust their ratings, you will see a massive sell-off by institutional investors, and the repercussions could be extraordinary," he said.

Ratings agency downgrades of subprime-related securities have already gained momentum in recent weeks, helping to push a key derivatives index tracking such securities to record lows. The ABX index tracking 2006-issued subprime bonds rated BBB- fell to a record low of 41 cents on the dollar on Friday, down more than 50 per cent since January.

"There is a possibility that one or two money centre banks and dealers could be a casualty along with hedge funds and institutional investors," said Mr Lo. Even higher-rated securities were unlikely to be immune from losses, Mr Flanagan said. "Losses are going to move up the capital structure to the higher-rated pieces. Hedge funds will continue to feel the pain," he said.

Fresh worries about US subprime mortgages cast a shadow over financial markets last week as Ben Bernanke, US Federal Reserve chairman told Congress that losses from mortgages could total $50bn-$100bn. That came after Bear Stearns said on Tuesday that subprime mortgage-related assets held by two of its hedge funds were virtually worthless. Bear's stock is down 17.1 per cent for the year.

JPMorgan, Citigroup and Bank of America increased future loss provisions for bad loans in their second-quarter earnings reports.

The concerns triggered acute weakness in financial stocks last week, a health warning for the overall markets. The S&P investment bank and brokerage sub-index slumped 7.2 per cent and was at its lowest level since early April.