Indymac hit by sub-prime turbulence
It’s not just sub-prime mortgage lenders that are struggling these days, as Pasadena’s Indymac Bancorp showed Tuesday.
Indymac, whose borrowers mainly fall between prime level -- the best credit risks -- and the troubled sub-prime sector, said second-quarter profit fell 57%. The value of loans on which payments had stopped more than tripled to $516 million.
Indymac, a savings and loan that makes mortgages nationally, earned $44.6 million, or 60 cents a share, compared with $104.7 million, or $1.49, a year earlier. Revenue tumbled 21% to $297.8 million,
Indymac Chairman Michael Perry said he still believed the company’s long-term prospects were good. But he added that Indymac would stop providing profit estimates because of uncertainties in the housing and mortgage markets.
The secondary market where mortgages are bought and sold is particularly unpredictable, Perry said. That’s a problem for Indymac, which has prided itself on having the flexibility to keep loans as an investment or sell them.
After weak earnings last week sent shares of No. 1 mortgage lender Countrywide Financial Corp. down 10.4% in a day, investors had expected bad news from Indymac. Its shares gained 31 cents, to $22, in trading Tuesday. But they have tumbled 51.3% this year.
Indymac lends mainly to what are called alternate-A, or alt-A, borrowers. These customers have respectable credit scores but also other issues -- typically income that is not fully documented -- that prevent them from getting prime loans.
The ratings agency Moody’s Investors Service said Tuesday that it was raising its assumptions for losses that would be suffered by pools of alt-A loans backing mortgage bonds. Moody’s said it saw signs that the alt-A loans were made using standards similar to those used in granting sub-prime loans.
Heavy defaults on sub-prime loans have caused Wall Street firms to cut off funding for many sub-prime lenders this year, forcing companies such as Southern California’s Ownit Mortgage and New Century Financial to seek bankruptcy protection.
In another grim sign, alt-A lender American Home Mortgage Investment Corp. of Melville, N.Y., appeared near collapse after saying its Wall Street backers had cut off funding.
American Home shares, which didn’t trade at all Monday, began trading Tuesday at 2 p.m. EST and plunged to $1.04 a share from a close Friday of $10.47.
The continuing woes of the mortgage-lending industry were considered a factor in Tuesday’s decline on Wall Street, where the Dow Jones industrial average lost nearly 150 points.
Among other mortgage lenders, Countrywide fell $1.10 to $28.17, Freddie Mac lost $1.88 to $57.27 and Fannie Mae retreated $1.11 to $59.84.
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