Think you're safe putting your cash into money market funds? Think again - they're CDO mortgage investors, and they ain't FDIC insured

The biggest problem with the CDO con-game is that S&P and Moody's hilariously gave this toxic loan cancer AAA or investment grade ratings, so "safe" funds (money markets, pensions, etc) could barrel in.

Oops.

"Cash is King" means one thing. But damn, if cash isn't safe (goodbye dollar) and money markets aren't safe (hello subprime), every asset class is being liquidated to raise cash, and even gold is dropping (hedge fund selling to pay debt) then it's getting tougher and tougher to find safety. Watch the US T-bills be the last island, which in itself is kinda funny since we're $50 trillion in the hole and essentially bankrupt.

Amazing. Good luck out there.

Aug. 20 (Bloomberg) -- Money market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.

Unlike bank accounts, money market funds aren't insured by the federal government. They almost never fail.

Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations backed by subprime mortgage loans.

Under SEC rules, money market managers must invest in securities with ``minimal credit risks.'' Joseph Mason, a finance professor at Drexel University in Philadelphia and a former economist at the U.S. Treasury Department, says subprime debt in money market funds is far from safe.

``This creates tremendous risk for today's money market investors,'' says Mason, who wrote an 84-page report on CDOs this year. ``Right now, I'm not comfortable investing anything in CDOs.''

FLASH - Right on schedule, panic and the run on the banks has now commenced. No surprises for HP'ers, shock and awe for everyone else

Even I'm surprised and amazed at what a Great Unwinding and Panic looks like in real life. Theory is one thing, and damn, we nailed it there, but to see it in action is, well, quite stunning. Trillions are going to be lost over the next few months. Trillions.

Prepare for more of this run on bank stuff... And if you have more than $100,000 exposed in any FDIC account, or if your accounts aren't FDIC insured, or god forbid, if you have ANY funds with Countrywide or IndyMac (I'm short), then what are you doing reading this blog - get down to the bank and get your cash out now!

A rush to pull out cash - Worried about the stability of mortgage giant Countrywide Financial, depositors crowd branches.

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

In West Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.

Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

And then Jim Cramer (correctly) panicked, and (finally) said sell all the lenders - "Tremendous panic" and "First man out lives"

Jim, a bit of bad news for you (but I'm glad you finally found HousingPANIC - BOO-YAH) - The lenders have already gotten destroyed, their stocks are down 50%+, over a hundred have gone belly up - and NOW you say get out? NOW you say sell and be first man out?

Jim, Jim, Jim - glad to see you wake up, but you're not first man out. You're late.

But still, even though you're late, really late, good call. Get out at any cost - housing, lender stocks, homebuilder stocks, anything to do with real estate worldwide. Get out.

Thanks Morgan for the link

Jim Cramer:

"Why don't more people talk about this? Because it inspires tremendous panic. It's first man out lives."

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.

FLASH: American Home Mortgage crashes 35% before trading halted, mortgage meltdown and liquidity crisis spreading

The ratings agencies totally blew it, and now investors in subprime, alt-a liar's loans, jumbo loans and even prime mortgages are getting destroyed.

Why?

Because the system got gamed by corrupt mortgage brokers, appraisers, realtors and builders, and the debt holders got left holding the bag.

Oh, what will IndyMac have to say tomorrow? Should be interesting (yes, short IMB)...

American Home Mortgage Investment Corp (AHM.N: Quote, Profile , Research) shares fell sharply on Monday after the company delayed its quarterly dividend, announced "major" write-downs, and said lenders were demanding it put up more cash.

Shares of American Home were down 39 percent, falling in premarket trading to $6.39 from Friday's close of $10.47. Trading was halted for news pending prior to the market open. The shares on Friday hit their lowest level since April 2003.

Late Friday, Melville, New York-based American Home said it was struggling from "unprecedented" disruption in credit markets. The announcement fed investor worries that bad loans are extending beyond "subprime" lenders to providers of home loans to borrowers considered to be good credit risks.

American Home specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation of income or assets.

"Bankruptcy is not out of the question," said Matt Howlett, an analyst at Fox-Pitt Kelton. "It's clear now we're in a liquidity crisis. Any loans that aren't pure prime are falling in value."

FLASH: It all falls apart - Alt-A "Liar's Loan" lender American Home Mortgage one step closer to bankruptcy, pulls dividend at 10:19pm Friday night

Man, it's dot-com all over again. Now it's just dot-lenders. One by one these Alt-A "Liars Loan" and Subprime sweat shops are going tits up.

This one's a shocker though. The dividend was already awarded, declared on June 15 for all stockholders of record as of July 9. And then in the late into the night on Friday, they put out this release and say oops, our bad, all of you expecting your dividend are screwed. I bet it was the auditors who finally made them come to Jesus - note they admitted but didn't document that the credit meltdown "has caused major write-downs of its loan and security portfolios"

MARKET TO MARKET. MARKET TO MARKET. MARK TO MARKET.

The market will react furiously to this on Monday. Watch for AHM to trade to near $0, get delisted, see shareholder lawsuits, announce their layoffs, and then the march to bankruptcy.

Wow. Friday night. 10:19pm. Wow. Thanks Richard for the tip.

IndyMac - you're next (yes, I'm short IMB). Your Mark to Market is going to be a shocker.

American Home Mortgage Investment Corp. Delays Payment of Quarterly Common Stock and Series A and Series B Preferred Stock Dividends

American Home Mortgage Investment Corp. (NYSE: AHM - News) announced today that its Board of Directors has decided to delay payment of its quarterly cash dividend on the Company's common stock and anticipates delaying payment of its quarterly cash dividends on its Series A Cumulative Redeemable Preferred Stock and Series B Cumulative Redeemable Preferred Stock in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company's balance sheet and overall liquidity.

The disruption in the credit markets in the past few weeks has been unprecedented in the Company's experience and has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.

The quarterly cash dividend of $0.70 per share on the Company's common stock had been declared on June 15, 2007 and was to be paid on July 27, 2007 to all shareholders of record as of July 9, 2007. The Series A Preferred Stock dividend and Series B Preferred Stock dividend had been declared on June 15, 2007 and are payable on July 31, 2007, to shareholders of record as of July 9, 2007.

Countrywide, IndyMac, First Federal - how bad will the negative-am "Option ARM" and Alt-A "Liar's Loan" mortgage lenders get killed?

Shorting Alt-A "Liar's Loan" and negative-amortization "Option-ARM" giants Countrywide, IndyMac and FirstFed these past few months has been like shooting fish in a barrel.

Do you realize that with Option ARM loans, the lender recognizes the shortfall in monthly payment as immediate income on their books? Even though this money will NEVER get paid back? E-N-R-O-N.

Their business models have gone kaput, none of them have "Marked to Market" yet, meaning there's significantly more trouble to come, and investors have gotten wise to their accounting games despite the spin coming from their IR departments and CEO suites.

So, how much farther will they fall, or have they gotten as low as they will go?

(Note, I'm still short IMB and FED)

Today and Monday should be interesting days in the market. Wild swings. Up, down, and all around. And remember, stock prices do not equal home prices. Mutually exclusive.

It's all over folks (in America). The housing bubble is a distant memory, the housing crash and mortgage meltdown will now go on and on and on and on

Except for Lawrence Yun and the NAR, and their lying deceiving on-commission ramen-eating realtor minions, is ANYONE still pumping housing (in the US)?

It's over. It's so pets.com. It's so tulip bulb.

Manias, Panics and Crashes told everyone everything they needed to know. Yet so many chose to deny the truth. Or just remain ignorant.

Too bad.

They should have listened.

And now, the housing crash goes country by country.

England - you're next.

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:

MARK TO MARKET

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

HousingPANIC Stupid Question of the Day

What's stopping you from going out today and buying 10 homes for more than their worth with no money down IndyMac Liar's Loans, negotiating with the seller and corrupt realtors, mortgage brokers and appraisers to suck out massive amounts of cash-back-at-close, then taking the tax-free money and running?

Huh? What's stopping you? Come on! Live the American Dream!

(note, I'm short IndyMac, and I'm pretty darn sure this whole flim-flam game is gonna blow)

HousingPANIC nominee for quote of the year

"It is just unbelievable how many people were conned
into taking these mortgages,"

- Walter Hahn, a real estate economist and consultant in Irvine, July 2007

Alt-A "Liar's Loan" king IndyMac falling off the cliff, right on schedule

Weeeeeeeeeeeeeeeeeeeeeeeeee..... (yes, I'm short IndyMac and can't for the life of me figure out why the Feds haven't raided their offices yet)

Funny though how the King of Liar's Loans appears to be run by liars themselves (Mark to Market?). But don't worry HP'ers, like Enron and WorldCom before them, eventually IndyMac's probably incompetent auditors (where their CFO came from btw) will have to do their jobs. Eventually. I feel sorry for their likely soon-to-be-laid-off 8,600 employees, but hopefully they'll find honest work next time.

With a reported 8% of their entire portfolio already in default, home prices crashing, the Great Unwinding underway, and "Mark to Market" (which IndyMac refuses to do so far) looming, this pig is in a poke. No matter what the insider stock manipulators and spinmeisters want you to believe. Earnings are July 31 and I predict happy happy talk and spin - but we'll see if anyone believes it.

"Liar's loans". As in "Come on in and commit blatant mortgage fraud" loans. Amazing. How the Fed ever allowed IndyMac and other Liar's Loan facilitators to game the system this bad, I'll never understand. And who bought this crap?

Mortgage Crisis Roughs up IndyMac
The mortgage lender, which provides "Alt-A" loans, suffers as the mortgage crisis

For investors in IndyMac Bancorp (IMB), here's the good news: the mortgage lender handles hardly any subprime loans. Defaults on the risky mortgages have skyrocketed, killing off a few of IndyMac's rivals. And Bear Stearns reported that its two hedge funds that held subprime mortgage debt were virtually worthless.

The bad news for IndyMac: The subprime crisis is spreading to other kinds of debt.

On Wednesday, IndyMac's stock fell 5.5% to $27.45. A downgrade by a Lehman Brothers analyst exacerbated worries that have sent the stock falling almost 40% so far this year.

At the top of the list of worries is so-called "Alt-A" mortgages. Subprime loans are taken out by buyers with low credit scores. Buyers who take out Alt-A loans are supposedly less risky, but they submit little documentation to prove it. The loan approval is usually based on a credit score and little else, with no proof of income. There's a "big spectrum" of quality among the loans, says Standard & Poor's Equity analyst Stuart Plesser. (S&P, like BusinessWeek, is owned by McGraw-Hill.)

IndyMac, as one of the country's biggest Alt-A originators, is vulnerable as the defaults rise among these loans. "From a credit quality perspective, it's a notch above subprime," says Keefe, Bruyette & Woods analyst Manuel Ramirez (KBW does investment banking with IndyMac). However, "you've seen signs of pretty significant credit deterioration," he says. Delinquencies and defaults are up.

Part of the problem is that no one really knows how bad the loan crisis will get, Plesser says. Experts worry that defaults will increase. "How many people were given mortgages who couldn't afford the loan?" Ramirez asks.

As important for IndyMac, what's the value of the homes that serve as collateral for its loans? "Now that you have home prices going down, what they have backing [the loans] isn't as strong as it once was," Plesser says.

Another liar's loan (Alt-A) lender goes under - and here's the kinda funny, kinda sad, kinda weird adios from their CEO

How much longer until Alt-A king IndyMac comes clean do ya think? Mark to Market anyone? Public audit anyone? SEC investigation anyone? (yes, I'm happily short IMB at time of writing)

Here's the goodbye letter c/o calculatedrisk from Chapter 7 Alliance Bancorp

This year we’ve put up a valiant fight! One with integrity, dignity and never wavering determination, focused solely on how to succeed. We have reached out to everyone we know, and many that we don’t know, to tell our story, of how we have made it this far, of the expertise and skills that we have, of the quality of our organization, and of how we have refused to lose!

We have received tremendous support and loyalty from our employees and business partners during this year’s extreme conditions. So many individuals and companies have believed in us and cheered us on as we’ve dodged the obstacles thrown in our path, obstacles that many others were unable to overcome. We have had extraordinary support from our ownership and Board of Directors. They have acted unselfishly, putting the company, its employees and creditors first and foremost. They are honorable people whom I highly respect.

Unfortunately the latest market was more than we were able to overcome. We have exhausted our resources and do not have the means to move forward. Therefore, it is with great sadness that I announce that we have ceased operations as of today, July 13th.

Lisa Duehring
President/CEO

And here's the hiring section on their website that's still live for some reason. I guess the webmaster got canned first:

JOIN A WINNING TEAM…

This is an exciting time to be a part of the financial services industry and an excellent time to build your career with a nationwide lender in the innovative Mortgage Lending Industry.

Ever since the 1980s, the Alliance Bancorp team has grown in size and strength and has been effective because of our people. We have some of the most talented, innovative and dedicated people in the financial industry. We value team players who can work in a fast-paced environment, are flexible, and have a strong work ethic. We enjoy the benefits of a large corporation with the personal attention of a smaller company. Our unique philosophy is what sets us apart.

Alliance Bancorp is always seeking professionals to join our growing team. We offer competitive salaries and an employee benefits package.

Bank of America: Bear Stearn's CDO hedge fund blow-up is "tip of the iceberg", IndyMac and Countrywide next

No surprises for HP'ers.

Get that popcorn popping!

(I'm short IndyMac via October puts)

Mortgage woes 'tip of the iceberg,' Bank of America warns

Losses in the U.S. mortgage market may be the “tip of the iceberg,” Bank of America Corp. analysts said today in a note for clients.

Higher interest rates have yet to affect many home owners who took out adjustable-rate mortgages, the Charlotte, North Carolina-based bank said. Interest payments on about $900 billion of the riskiest subprime home-loans are due to increase this year and next, the analysts wrote.

Bear Stearns Cos., the second-biggest underwriter of mortgage bonds, plans to assume $3.2 billion of loans to stop creditors from taking over assets of one of its hedge funds, people with knowledge of the proposal said. Concern about the collapse of the funds, which made bad bets on mortgage-backed securities, sent bonds and stocks of finance companies lower.

“The demise of two Bear Stearns managed leveraged mortgage funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration,” wrote Bank of America analysts led by Robert Lacoursiere in New York.

Countrywide Financial Corp. and IndyMac Bancorp Inc., two of the largest U.S. mortgage lenders, may suffer more than other finance companies because they hold mortgages themselves as well as selling them on to investors, the analysts wrote. They may not have set aside enough money to cover losses, said Bank of America, which has a “sell” recommendation on both lenders

$1,800 a month disability payment. $150 child support. And yup, $894,000 in Alt-A Liar's Loan debt. Party over.

Just read the whole article in USAToday on Friday. Then ask yourself - how will IndyMac (the Liar's Loan king) ever stay in business? And do you see now how home prices got so wildly and briefly inflated?

Corrupt commission-hungry mortgage brokers, out-of-control fraud and greed, IndyMac and other Alt-A lenders with no oversight, hedge funds buying up the debt, and then... the party ended.

Let's clean up the mess everyone.

(yes, I'm short IndyMac and yes, this whole scheme is caving in)

Neighborhood finds real estate loans too good to be true

Soon, mortgage applications — almost entirely blank — arrived in the mail. Darden signed and returned them. In November, Darden closed on the first house. In December, she closed on a second.

She'd been preapproved for $360,000. Now she was borrowing $894,000.

It would cost her $7,194 a month.

It wasn't until seven months later, though, after she struggled to find tenants and maintain the buildings, that Darden began to wonder just what had happened. It began to make sense only when she studied the finished paperwork.

When she bought, Darden was receiving $1,800 a month in disability payments — as she recovered from a collapsed lung — sometimes supplemented by child support of $150 a week.

But the mortgage application described a woman she did not recognize: an administration manager for a medical supply company, earning $114,000 a year.

Meanwhile, the real Frances Darden was quickly falling behind.

One of the most notable things about Frances Darden's story is how much it echoes the others.

Valerie Hayes says she knew something was very wrong when she went to close on the $440,000 loan for her house, a two-family in East Boston. She'd agreed to $2,300 payments because of expected rental income. But the documents listed payments at $3,300 a month.
"I see the real mortgages and it's apparent to me I got robbed," Hayes says, "but I'm thinking I'm going to make this work."

Why didn't she walk out? Because she'd already given up her old apartment and had a tenant waiting to move in. Within months, though, maintaining the building depleted savings already strained by the mortgage payments. That's when she noticed the reference to a second job — one she never had — earning a fictional $1,846 a month working for Champagne.

Late last year, Hayes moved out and the lender began foreclosure.

Others are still trying to hold on.

There's Macdala Louis, a nursing assistant, who bought on Edwin Street. Her loan application said she had a second job working for a company, Hart Professional Cleaning, that does not appear to exist.

And Jennifer Stone, a medical assistant who bought a $489,000 home with her partner, a special police officer.

"They said we had accounts we didn't even have. They said we had $50,000 in the bank," Stone says. "I didn't even have $700 in my 401(k)."

FLASH: OC Register exposes that true subprime ARM default rate is 21.1%, NOT the 13% reported in MSM

Every day it seems another REIC lie is being being exposed. Watch the floodgates really open up now that the MSM has jumped off the REIC tank, put down the rolodex of realtors, and is (finally) doing their damn job.

Bravo to Mathew Padilla at the OC Register. Keep digging! Especially when it comes to the bigger story of Alt-A liar's loans. With 60% of applicants on those loans committing blatant mortgage fraud by overstating their income by 50% or more, that disaster will unfold soon enough. Plus the feds should review every liar's loan taken out and prosecute every one of 'em for mortgage fraud.

Subprime delinquencies higher than reported

Forget that 13% subprime delinquency number you heard about so much in the press and which some politicos and real estate folks turned on its head pointing out 87% of subprime borrowers are paying their mortgage.

I took another look at the transcript from the first-quarter conference call of IndyMac Bancorp, and caught this statement from CEO Michael Perry:

On subprime loans, one of the things that I think people aren’t aware of is that the Mortgage Bankers Association basically classifies the lender as a prime lender or a subprime lender. So for example, they classify IndyMac and Countrywide as prime lenders, and they classify New Century or whoever as a subprime lender. And all of their servicing portfolio is considered prime or subprime for the MBA. Ok? And so when you see that delinquency number in the press of 13% subprime delinquencies, it’s hugely understated. It is absolutely hugely understated. And the prime delinquencies are overstated.The subprime delinquencies are more like 18, 20, 22% delinquencies and that’s where I think you’re going to see the problems."

To see if Perry had it right, I quizzed the MBA and got this in response from Jay Brinkmann, vice president of research and economics:

"Mr. Perry is correct that we have to differentiate by the type of servicer rather than the type of loan. This may not be a major issue because our latest subprime numbers are 14.4% delinquent by at least one payment, plus another 4.5% in foreclosure, for a total of 18.9% either delinquent or in foreclosure.

For just subprime ARMs that number is 21.1%, so we agree with Mr. Perry's estimates of the current state of the market."

IndyMac's solution to nobody wanting to buy their Alt-A liar's loan cancer? Hold on and pray.

A bit wonkish, but follow me...

So a mortgage company like IndyMac pays mortgage brokers to get suckers (oops, Home Debtors) to sign up for toxic "liar's loans", then repackages the hot potatoes and sells them off to the market (China, hedge funds, etc) as CDO's (collaterized debt obligations).

It was good business the past few years, when home prices were going up and it was tough to lose on a home.

Not anymore.

Now those toxic liar's loan Home Debtors (i.e. the Casey Serins and failed flippers of the world), with home prices plummeting, stop making the payments, and eventually just turn in the keys.

So the market that was buying up the junk got wise, that the loans ain't gettin' paid back, and now IndyMac has a choice - sell the hot potatoes on down the stream for significantly less than face value, or hold 'em and hope things turn around (yeah, right!).

An honest and ethical company if they chose Option B would increase their reserve for bad debt, and reflect the market value of their junk paper on their balance sheet. But IndyMac thinks they're above that. And we all know how this ends.

Yup, I'm short IndyMac via October put options. I'm betting they'll have to come clean by then (they do have auditors, don't they?)

This article spells it all out. Enjoy. One word: Enron.

Lending's next tsunami? Borrowers in the credit niche above subprime are missing more home loan payments. Another crop of lenders is trying to regroup and stem loan losses.

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.
In that time, IndyMac's sour loans and foreclosed real estate ballooned 75 percent to $324 million.

"We are not going to fire-sell when we have the intent and ability and expertise to work through those loans and sell them ourselves," he said.

But Indymac and others who deal in Alt-A loans, such as Impac Mortgage Holdings of Irvine and Downey Financial of Newport Beach, may not have time to wait. The same problems shaking up the subprime market are now emerging in the Alt-A industry.

What's more, a Register analysis shows reserves for loan losses by these companies are not keeping pace with delinquent loans. Analysts say the same problem bedeviled New Century Financial of Irvine last year – and that helped send the once-top U.S. subprime lender into bankruptcy court after its financial backers lost faith in its accounting and liquidity.

Today's the Day! Will Liar's Loan Alt-A kings Countrywide and IndyMac (finally) come clean?

Or will their insider-trading stock-pumping CEO's continue with the deception on their way to Ken Lay / Bernie Ebbers / Dennis Kozlowski fates?

Oh, how the screw turns... This story is playing out like a great Greek tragedy, wouldn't you say?

My guess today is more deception. I don't think they'll tell the market what's really going on with their Alt-A portfolio until after it's really hit the fan.

For you wonks out there, try to jump on the conference calls and report back here. That's where the real fireworks should be.

(Note I'm short NDE, not short CFC at the moment)

Bloomberg: Subprime `Liar Loans' Fuel Housing Bust

Nice to see some in the MSM waking the f*ck up. My only question is - WHAT TOOK SO DAMN LONG?

Meanwhile, the undisputed champion of liar's loans - IndyMac - reports tomorrow. Will they come clean? Or will they continue to lie and spin on their way to bankruptcy? (yup, I'm short IndyMac!)

April 25 (Bloomberg) -- Cheating on mortgage applications is so widespread and so seldom punished that it's fueling an increase in foreclosures that will prolong the housing slump, said Robert W. Russell, counsel to the director of the Office of Thrift Supervision, which oversees savings and loans.

Borrowers and brokers commit fraud when they exaggerate the applicant's income, qualifying the borrower for a home he otherwise couldn't afford. Such fraud robbed lenders of an estimated $1 billion last year, according to data collected by the Washington-based Mortgage Bankers Association and the Federal Bureau of Investigation.

``Misstatements about employment and income are being made every day,'' Russell said. ``The brokers are just putting down on paper what the underwriters would require. There are borrowers providing false information as well.''

Loans that require little or no documentation of income soared to $276 billion, or 46 percent, of all subprime mortgages last year from $30 billion in 2001, according to estimates from New York-based analysts at Credit Suisse Group. Homebuyers with those loans defaulted at a 12.6 percent rate in February, compared with 1.5 percent of fully documented prime mortgages, said San Francisco-based First American LoanPerformance, a mortgage consulting group.

A 2006 study cited by the Mortgage Asset Research Institute showed that almost 60 percent of stated income loans were exaggerated by at least 50 percent.

``Everyone calls these loans `liar loans' because we know these people were lying,'' said Jim Croft, a spokesman at the Reston, Virginia-based Mortgage Asset Research Institute.

``The loans were available to anyone with a pulse,'' said Greg Bass, a former account executive in Austin, Texas, for subprime lender Long Beach Mortgage Co.

``When everyone was eating up the subprime market, it was great to be in the business,'' said Josh Tullis, sales director for A. Anderson Scott Mortgage Group in Falls Church, Virginia. ``In the heyday, I knew guys who went from making $2,000 a month working 60 hours a week at McDonald's and they'd come over here and work 15 hours on a loan and make $4,000.''

Liar's Loans (Alt-A), a housing crash and IndyMac: Trouble ahead...

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...