July 31, 2007

Alt-A "Liar's Loan" mortgage king IndyMac reports today. Three words you may or may not hear: Mark to Market

Unfortunately the dolt running IndyMac didn't understand Econ 101 (or SEC regulations) when their cancerous loan portfolio starting going bust this spring. They could no longer sell their liar's loans on the open market except at a huge loss, so they held the cancer on their books, but didn't adjust their values ("Mark to Market") or substantially adjust their loan loss reserves.

Here's a pretty ignorant and arrogant statement from their CEO back in May on this. HP's question then was - where were the auditors? HP's question today is - where are the auditors? It really doesn't matter what the CEO thinks the cancer is worth - WHAT MATTERS WHAT THE F*CKING MARKET THINKS THEY'RE WORTH. Geeze, how dense are some people? Kinda like homedebtors thinking their home is worth X, when the market is telling them the home is worth 1/2 of X.

Yes, I'm short IMB. And I'd be shocked if they don't come clean today. Sarbanes-Oxley demands it. Truth or Jail? I'll update on IndyMac throughout the day... and you can listen to their conference call at 11am EST here

Michael Perry, chief executive of IndyMac Bancorp, is stubborn when it comes to delinquent loans.

He refuses to ditch them, even as they expand rapidly on the books of Pasadena-based IndyMac, which has two units based in Irvine and is the largest U.S. lender in a credit category dubbed "Alt-A," which is one level above the risky subprime niche. It turned in a company record of $90 billion in loans last year.

During an April 26 conference call with analysts, Perry said the company didn't sell a single dud loan in the first three months of the year because no one wanted to pay what he thinks they're worth.

"No way is IndyMac selling to a hedge fund for "pennies on the dollar," Perry said.


Anonymous said...

Judging how AHM basically took a shotgun blast to the face last Friday and Wall St. didn't care, what could Indymac do tomorrow which could possibly upset the markets? Issue their own currency to replace the U.S. dollar?!?

Anonymous said...


Last year, 20 percent of home purchase loans were Alt-A, up from 5 percent in 2002, according to a March 12 report by Credit Suisse.

The report said lenders took too many risks with Alt-A loans last year. For example:

On average they loaned 88 percent of the value of a home, with 55 percent of homebuyers taking out a simultaneous second mortgage, suggesting such borrowers didn't pay mortgage insurance and borrowed the full value of the home.
Low or no documentation loans represented 81 percent of all Alt-A purchase loans in 2006, up from 64 percent in 2004.
Loans with a one-year fixed "teaser" rate accounted for 28 percent of Alt-A purchase loans last year, "setting the stage for considerable reset risk" when the teaser period ends.

Anonymous said...

Crap! What do I do now with my AHM put? How do you cash out the contract if the company gets delisted?

Anonymous said...

Oh this is great! It means the puts will be cheaper right up until IMB breaks because it refuses to bend.


And what about NFI shooting up 281%?? Apparently they got some "funding". WTF?

Sounds like another Bear Stearns "We gave our hedge fund another 1.6 billion to bail it out but it still went to zero".

Wow. Whose the heck is stupid enough to invest in these losers?

blogger said...

NFI did a reverse 1 for 4 stock split - since funds aren't allowed to buy stocks that trade for under $5. Their new stock then proceeded to drop.

It helps if you pay attention out there folks

NovaStar Effects Reverse Stock Split
Friday July 27, 6:23 pm ET
NovaStar Effects a 1-For-4 Reverse Stock Split

KANSAS CITY, Mo. (AP) -- Mortgage real estate investment trust NovaStar Financial Inc. said Friday it effected a previously announced one-for-four reverse stock split.
The reverse stock split changed every four shares of common stock into one share, and no fractional shares were issued. Instead, each shareholder entitled to a fractional share can receive cash equal to the amount of the share fraction times the closing price of NovaStar's common stock on Friday.

The stock will begin trading on a split-adjusted basis Monday.

After the reverse stock split, NovaStar has nearly 9.5 million shares outstanding.

NovaStar shares lost 41 cents, or 9.2 percent, to close at $4.06.

blogger said...

Word to the wise - even I don't recommend shorting IMB before earnings. These guys are going down with a fight - big time stock manipulators (in my opinion). It may take an Enron-like event, or auditor resignations or SEC investigation to get to the truth there - don't expect them to do it without a push

Anonymous said...

wow read this, govt about to indite a company for huge fraud larger than enron, then the head investigator is fired.

Who controls the gov? corporate fascist kleptocracy?


Anonymous said...

I have puts on IndyMac (IMB) and MTG mortgage insurance co. Note that MTG announced after the close on Monday that an investment in mortgage securities is impaired and they may loss most of 700 million. Last I looked futures are up (5:30 EST). It will be interesting to see whether the situations with IMB and MTG will impact the DOW and SPX.

Anonymous said...

Let's review:

GM profitable

Ford profitable

United Airlines record profits

Amazon record profits

FTSE up 2%

HPers think we are in a recession and waiting for DOW 8,000. Get real.

I am a renter and have been for almost a year. I do agree with HP that housing still has some falling but all yoy end of the world predictions are beyond ridiculous.

Anonymous said...

The problems in Alt-A have been contained.

Ben Bernanke

blogger said...

Well here it is. The conference call should be interesting. Someone, please, someone ask "Mark to Market?"

Nice to seem them pull their guidance. I doubt they know if they'll even be in business next quarter.


The mortgage lender (IMB : IndyMac Bancorp) reported net earnings fell to $44.6 million, or 60 cents a share, from $104.7 million, or $1.49 a share the previous year. Net revenue dropped 21% from a year earlier to $297.8 million, the Pasadena, Calif.-based company said.
Total mortgage-loan production volume fell 12% from the first quarter to $22.5 billion.
Analysts polled by Thomson Financial had been looking for, on average, net income of $44.9 million, or 54 cents a share.
"Conditions in the secondary markets, which had stabilized throughout the second quarter, have worsened in recent weeks due in large part to widely publicized issues with subprime-related hedge funds and other secondary market participants, including rating agencies," said John Olinski, executive vice president, in a statement.
"We anticipate that the second half of 2007 and 2008 will continue to be challenging for the mortgage and housing markets and for Indymac," said Chief Executive Michael Perry.
"Given the significant current uncertainties in the housing and mortgage markets and, in particular, in the secondary market, we feel it is prudent to temporarily refrain from our normal practice of providing quantitative guidance," he added.

blogger said...

Loans not being paid quadrupled and they barely increased reserves.


No word of even thinking of "marking to market"

Stick a fork in 'em, they're toast

Mortgage production fell 12 percent from the first quarter to $22.5 billion, including 31 percent in subprime loans and 49 percent in home equity lines of credit.

Nevertheless, non-performing assets, including loans more than 90 days past due, more than quadrupled from a year earlier to $515.7 million. As a percentage of total assets, they rose to 1.63 percent from 0.49 percent. The amount set aside for loan losses rose more than sevenfold to $17.2 million


Anonymous said...

"Given the significant current uncertainties in the housing and mortgage markets and, in particular, in the secondary market, we feel it is prudent to temporarily refrain from our normal practice of providing quantitative guidance,"

can someone explain what this means?

Anonymous said...

Sell Subprime's Dirty Dozen While You Can

By Jim Cramer
If it yields more than 10%, shoot it. That was the message of American Home Mortgage. It is also the message of a host of others: RAIT Financial Trust CapitalSource NovaStar Newcastle Investment Gramercy Capital with that cute reverse split, like that fooled anybody I hate these stocks. Every one of them. I don't even think they have an idea of how bad things are, just like American Home. I am giving Redwoods Trust and Thornburg Mortgage the benefit of the doubt because they did jumbo loans. But if they did jumbo loans -- for the allegedly rich -- in 2006, that benefit goes away because 2006 is all bad. You might get a chance to get these off your sheets today because of the so-called better than expected earnings from IndyMac just now. I'd sell that one too because defaults are rising, which is all that matters right now.


blogger said...

Yes, looks like IndyMac management took the "wait 'em out", "cross the fingers' and "hide the truth" method.

No surprises - par for the course with IndyMac.

But the truth (eventually) will come out. And that truth is that the market value of the loans they're holding on their books is SIGNIFICANTLY below the value on their books.

Meanwhile, you have to wonder about the 21 year old kids probably auditing them. Doesn't help that their CFO came from their auditor - how's that for a cozy quid pro quo?

Conference call should be fun. Wonder if they'd let HP ask a question?

Mark to Market?

Anonymous said...

Wild day IMB is in freefall right now

Anonymous said...

Doesn't look like a free fall anymore, now over 5% up. The increase in non-performing loans and the degradation of the ratio of allowance for loan losses to non-performing loans held for investment is staggering.

Obviously, the market was expecting something even worse than this.

Expecting IMB to "mark to market" is silly. They won't. They'll close their eyes and let the turd stink as long as they can. Then they'll come up with an "Oops - we just didn't see it coming".

Anonymous said...

How much of Indymac's reported "profits" for the quarter are due to unrealized gains from unpaid NegAmOptARM interest?

42 said...

sheesh. IMB up $1.50

when will they ever learn... oh well, my Oct puts have plenty of time left.

Anonymous said...

Glad I bought the Jan08 puts. Might buy some more as IMB is up over 4 bucks right now!

blogger said...

I've gotta say, great presentation by the CEO - very cocky, very confident. Sure, his stock has collapsed and his business model is kaput, and they haven't marked their cancer to market, and they pulled guidance, but if you listened to that call IndyMac is the next google, and business is great.

He'd be a good NAR or White House spokesman. You want to believe the guy.

I don't.

But investors today do. Note they only took 3 or 4 questions. Not one tough one.

It'll be interesting how this story plays out. Anyone think "liar's loans" are going to get paid back - buy IMB.

I covered my puts today, 70% gain, happy. Might buy back in later.

Anonymous said...

Somebody asked for the amount of neg am option arm interest amounts. From the report:

Included in our loans held for investment portfolio at June 30, 2007 were $1.0 billion in pay option ARM loans,
or 22% of the portfolio, as compared to $1.3 billion, or 24% of the portfolio, at June 30, 2006 and $1.2 billion, or
18% of the portfolio, at December 31, 2006. As of June 30, 2007, approximately 88% (based on loan count) of our
pay option ARM loans had negatively amortized, resulting in an increase of $38.6 million to their original loan
balance. This is an increase from 74% and 83% at June 30, 2006 and December 31, 2006, respectively. The net
increase in unpaid principal balance due to negative amortization was $4.8 million and $11.8 million for the three
and six months ended June 30, 2007, respectively, which approximated the deferred interest recognized for the
periods. The original weighted average loan-to-value on our pay option ARM loans was 73%, while the estimated
current LTV is 67%, calculated based on the Office of the Federal Housing Enterprise Oversight House Price Index
Metropolitan Statistical Areas data on a loan level basis. The decline in the current loan-to-value was due to
estimated appreciation of the underlying property values.

My conclusions:
-The amount of option arms is quite big, but they are reducing it, which is wise.
-The amount of loans that have negatively amortized is rather high and rising, which is bad
-The dollar amount of negative amortization seems to be very low, considering the total amount of option arm loans and the number of loans that have negatively amortized
-The dollar amount of neg am for the quarter seems rather low and insignificant considering their earnings, to the point that it surprises me a lot - someone please correct if I read it wrong
-Assuming the amount of negative amortization so far is as low as it seems, there won't be a significant amount of loans that are likely to hit the LTV limits any time soon
-The fact that they claim that the LTV is going down thanks to the increases in the values of underlying properties is rather, um, "interesting". Lets just say that I'm a bit skeptical about the relevance of the "Office of the Federal Housing Enterprise Oversight House Price Index" in light of the recent case-shiller report..

All in all, the big thing considering Indymac is the rise in the amount of non-performing loans. Which was to be expected, as can be seen from the markets.

Anonymous said...


blogger said...

HOLY CRAP that's one heck of a short squeeze going on right now.

This is why shorting stocks or puts is gambling - only for fun and only money that you'd otherwise just as well take to the craps table

Meanwhile, I'm looking to get back in (short)!


Anonymous said...

thanks, Finn, where can i see that report? edgar?

Trevor Cordes said...

Holy crap... IMB is irrational as hell today. 16% after that report and all the other MB's are down 8%+? I wasn't even looking to short the MB's (happy with the HB's) but I'm seriously tempted to buy some 2009 LEAPS on IMB today.

Anonymous said...


Trevor Cordes said...

Why are the Jan 2009 OOTM puts selling for MORE than close of yesterday on a day when the stock is up 10-15%??? Even with the increased volatility, the puts should be lower on such a huge up day. Not to mention, the options usually command a huge premium the day *before* the earnings and return to earth *after* the earnings. I hope this rally lasts the rest of the day and levels out so the puts become a bargain.

I've seen this type of behaviour in the housing stocks where they pump up for zero reason just before they are about to tank again big time (few days to couple of weeks).

Anonymous said...

Anon, that text that I quoted was (obviously) from the 10-Q, which you'll find from the Indymac website.

Anonymous said...

As the unofficial understatement of the day, I would like to claim IMB stock volatility for the day as "high".

Trevor Cordes said...

Oh forget it, short squeeze is over. Realtime quote is only up 5.5% now and the OOTM long-date puts never got much below yesterday's price. The only way to have won here was to put a lowball limit order in early and wait for the little spike for an auto-fill. Hope none of you IMB shorters actually sold puts into that 15% suckers rally!

blogger said...

Wow, what crazy trading today. Not for the faint hearted

I got out before that short sqeeze, and I'm guessing this stock trades even on the day

Man, it's easy to manipulate stocks for the big boys. Someone pumped it and dumped, no doubt, and is now laughing

Anonymous said...


You just don't get it!

-Jeff Skilling

Anonymous said...

AHM Down 87%!

stuckinthecity said...

where are the auditors? It really doesn't matter what the CEO thinks the cancer is worth - WHAT MATTERS WHAT THE F*CKING MARKET THINKS THEY'RE WORTH. Geeze, how dense are some people? Kinda like homedebtors thinking their home is worth X, when the market is telling them the home is worth 1/2 of X.

They can't mark it to the market bec they have no clue WHERE the market IS! This thing is so bad, and everyone has just shut their eyes screaming, "IS IT OVER YET?!"

We won't know all that well, until all the ARMs pop go to auction, get passed over then sit with the bank for a long time. then the banks will just say f-it and dump. It's on them.

stuckinthecity said...

Low or no documentation loans represented 81 percent of all Alt-A purchase loans in 2006, up from 64 percent in 2004.

Low or no doc = liar. Now why would some one lie about how much money they make?

Bec they could not afford the house but still bought the b.s. about 20% up each year!

Trevor Cordes said...

FYI, IMB realtime now at $22, only up 1.5%, was up over 20% at the high. AHM opened after 1.75 days halted and it down 90%. If you bought a put option on Friday you could have made 700-900% in 2 business days. If you are a retard and bought a call option, you've lost 80-99% in 2 days :-)

burn baby burn said...

Listen from min 12:00 to 12:10 he start to say it offers a lot of protection from mark to market and changes to markets. He wants to tell the truth but something is keeping him from doing it. What could that thing be?

Anonymous said...

IMB is down pretty significantly today. I guess the real beef in the 10Q took a while to sink in.

There haven't been much good news in the ALT-A land today either. Moody's downgrades, etc. Seems to have hit all of the lenders, but particularly IMB.