Indymac Dumps Subprime, Pigs, and Jobs

September 7, 2007 No Comments »

According to a regulatory filing, Indymac is tightening its guidelines, doing away with nearly all of its subprime programs, while eliminating piggyback financing entirely.

Piggyback loans are second mortgages originated at the same time as a first mortgage, which have fallen out of fashion recently because they are the last to be repaid in the event of a foreclosure.

Indymac expects to originate roughly $30.91 billion during the second half of 2007, a 36% decline from the $48.07 billion originated in the first half.

The company predicts that a whopping 84% of its loan production in the fourth quarter will be conforming and insurable by the FHA.

A year ago, only 19% of loan production was conforming, marking a major shift in the mortgage market and Indymac’s business model.

Indymac’s production will be roughly 50% Alt-A, but will still meet Fannie and Freddie’s strict underwriting guidelines.

Another 25% will be prime conforming, and nine percent will be in reverse mortgages, which are also backed by the FHA.

Of the small non-conforming portion, about half will be jumbo loans and the rest will home equity loans, construction, and lot loans.

The move should hit production hard, especially with increased competition and no real unique, flagship product.

The Pasadena, California-based bank and mortgage lender said this morning that it may break even or report a loss as high as $36.8 million, or 50 cents a share, in the third quarter.

Additionally, the company is planning to cut its dividend in half to 25 cents and lay off roughly 10% of staff, about 1,000 employees in the coming months.

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