IndyMac shares rise amid warning

Mortgage lender IndyMac Bancorp Inc. warned that deepening turmoil in debt markets could have a negative effect on the value of its mortgage-backed securities, hurting the company’s first-quarter earnings.

The danger comes from widening credit spreads amid “panic market conditions” stemming from uncertainty over the economy, the housing and mortgage sectors, as well as increased margin calls by hedge funds and other Wall Street investors, Pasadena-based IndyMac said in a filing with the Securities and Exchange Commission.

Still, the company expressed confidence in the value of its loan portfolio and said that any potential hit to its bottom line in the first quarter would probably be reversed in subsequent quarters when spreads tighten.

Its shares soared $1.08, or 23%, to $5.78.

Like other mortgage lenders, IndyMac has struggled since last summer amid a credit crunch triggered by a flood of mortgage defaults that have resulted in billions in credit losses.

The surge in defaults and foreclosures has quelled investor demand for most mortgage-backed securities. That has forced IndyMac as well as other lenders to write down the value of mortgages backing bonds.

In the filing, IndyMac noted that spreads on everything, including Fannie Mae and Freddie Mac securities backed by home loans, have “widened substantially to at or near all-time historic levels.”

A credit spread is the difference between yields on Treasury securities and non-Treasury securities. A spread reflects the degree of risk in a security. The wider the spread, the higher the yield and the underlying risk of default.

“The financial impact of this spread widening on IndyMac is difficult to estimate at this time, but it is expected to have a negative effect on the value” of the company’s portfolio of mortgage-backed securities, the lender said.

IndyMac said that potential unrealized write-downs on 17% of the portfolio could have a direct effect on earnings and capital.