Indymac Provides Additional Credit Loss Analysis on Alt-A and Subprime Lending
30 March 2007 - 4:12AM
Business Wire
IndyMac Bancorp, Inc. (NYSE:NDE) (�Indymac�� or the �Company�), the
holding company for IndyMac Bank, F.S.B. (�Indymac Bank��), is
providing this update to give investors additional information
regarding the credit performance of its Alt-A and subprime loans
and related residual and non-investment grade securities. The loan
performance analysis is based on data from First American
LoanPerformance (FALP)1 as of Dec. 31, 2006. FALP data was used
because it is the best and most objective data of issuer
performance in the mortgage industry and enables reliable and
accurate benchmarking of the performance of Alt-A loans versus
subprime and of Indymac�s loan performance versus industry
averages. While FALP data only represents 45 percent of Indymac�s
current outstanding Alt-A loans serviced, we believe the
delinquency and loss data for the Indymac FALP book is
representative of our overall Alt-A book. In addition, Indymac�s
loans in the FALP data represent 100 percent of the Company�s Alt-A
non-investment grade and residual securities totaling $12.4 million
at Dec. 31, 2006, and FALP data represents virtually all of
Indymac�s subprime loans serviced and 100 percent of the Company�s
subprime residual and non-investment grade securities totaling
$79.7 million at Dec. 31, 2006. Loan Performance Analysis Loan loss
data, as opposed to delinquency data, was used for this analysis
because it is the most objective measure of credit performance and
lending standards and practices. In addition, the five-year time
period from 2002 to 2006 was selected because it represents over 99
percent of the remaining unpaid principal balances (UPB) for
Indymac (99 percent of the UPB for the industry) and also includes
substantially all of the Alt-A and subprime non-investment grade
and residual securities Indymac owns as of Dec. 31, 2006. Loan loss
statistics are presented in the chart below: First American
LoanPerformance Loss Data 2002 through 2006 As of Dec. 31, 2006 ($
in millions) � Original UPB Issued � Cumulative Losses2 Cumulative
Losses As A Percentage Of Original UPB2 Alt-A Loans: Indymac
$80,879� $6.5� 0.0081% (0.81 bps) All Alt-A Issuers $962,488�
$452.5� 0.0470% (4.70 bps) # 1 Alt-A Issuer $179,617� $64.6�
0.0360% (3.60 bps) Subprime Loans: Indymac $12,147� $20.0� 0.164%
(16.4 bps) All Subprime Issuers $1,379,062� $7,703.8� 0.559% (55.9
bps) # 1 Subprime Issuer $143,551� $328.2� 0.229% (22.9 bps) The
following should be noted from this objective, five-year,
cumulative loan loss data: 1. Industrywide Alt-A losses totaled
$453 million, or 4.7 basis points (bps) of original UPB, -- 1/17th
of the approximately $7.7 billion, or 55.9 bps, of industrywide
subprime losses. 2. The industrywide subprime loss rate of 55.9 bps
of original UPB is 69.0 times higher than Indymac's Alt-A loss rate
of 0.81 bps. 3. The industrywide Alt-A loss rate of 4.7 bps of
original UPB is 5.8 times higher than Indymac's Alt-A loss rate of
0.81 bps. 4. Indymac's subprime losses totaled $20.0 million, or
less than three-tenths of one percent of total industry subprime
losses. 5. The industrywide subprime loss rate of 55.9 bps of
original UPB is 3.4 times higher than Indymac's subprime loss rate
of 16.4 bps. �I think the facts, as we�ve outlined them, speak for
themselves in terms of the credit quality of Alt-A production
versus subprime � and, in particular, how Indymac�s credit quality
shines in relation to the industry, validating our lending
standards and practices,� commented Michael W. Perry, Indymac�s
Chairman and CEO. �Alt-A is not 'slightly' less risky than
subprime, it is a lot less risky. While Indymac does not have
industry cumulative loss data for conforming loans for this time
period, I find it inconceivable that conforming loan losses could
be much lower than Indymac�s Alt-A cumulative losses of less than
1/100th of one percent, or 0.81 basis points, at this time. �I�ve
also heard people say and read it in the press,� continued Perry,
�that Alt-A lending is �in between� prime and subprime lending.
Well, that�s true but not very accurate given the facts. Let me
give you a simple, visual geographic analogy. That�s like saying
that our headquarters in Pasadena is �in between� Los Angeles and
Las Vegas. True enough, but there�s the question of degree:
Pasadena is 11 miles northeast of Los Angeles and Las Vegas is 262
miles northeast of Pasadena.� Residual and Non-Investment Grade
Securities Analysis Unrelated to FALP data, Indymac is also
providing additional information on its Alt-A and subprime residual
and non-investment grade securities portfolios in the tables below:
Indymac's Residual and Non-Investment Grade Alt-A and Subprime
Securities at Dec. 31, 2006 ($ in thousands) Alt-A Subprime Total
2006� $3,700� $16,497� $20,197� 2005� $1,554� $25,742� $27,296�
2004� $6,451� $35,686� $42,137� Total 2004-2006 $11,705� $77,925�
$89,630� 2004-2006 As A Percent Of Total 94% 98% 97% Pre-2004 $744�
$1,739� $2,483� Total $12,449� $79,664� $92,113� � Reconciliation
of Non-Investment Grade and Residual Securities: Alt-A and Subprime
$92,113� HELOC $127,575� Closed-end Seconds $27,509� Lot Loans
$83,550� Total Residual and Non-Investment Grade Securities � �
$330,747� Indymac's Residual and Non-Investment Grade Alt-A and
Subprime Securities Performance 2004-2006 Securities Issued � ($ in
millions) Valuation as of 12/31/06 Original UPB Original Loss
Assumption Cumulative Losses To Date Remaining Losses in Valuation
$ $ $ bps $ bps $ bps 2004-2006 Alt-A $11.7� $2,699� $39.8� 148�
$0.4� 1.5� $38.7� 143� 2004-2006 Subprime $77.9� $7,669� $292.7�
382� $7.4� 9.7� $267.5� 349� Total $89.6� $10,368� $332.5� 321�
$7.8� 7.5� $306.2� 295� Based on this analysis, the following
should be noted: 1. Indymac's Alt-A and subprime non-investment
grade and residual securities totaled $92.1 million as of Dec. 31,
2006, or 4.5 percent of shareholders' equity; those retained from
2004 to 2006 totaled $89.6 million, or 97 percent of the total
portfolio and 4.4 percent of total shareholders' equity; and those
retained in 2006 totaled $20.2 million, or 1.0 percent of
shareholders' equity. 2. Actual cumulative losses through Dec. 31,
2006 for Indymac's Alt-A and subprime non-investment grade and
residual securities retained from 2004 to 2006 were $7.8 million,
yet the Dec. 31, 2006 valuation of these securities includes
projected additional future losses of $306.2 million, or 39 times
actual losses to date. �Based on an objective analysis of the
facts, talk of the �subprime contagion� spreading to the Alt-A
sector of the mortgage market is, in our view, overblown,�
continued Perry. �Cumulative mortgage industry Alt-A loan losses
over the last five years are 1/17th the loan losses for subprime
loans based on the FALP data. In addition, as of Dec. 31, 2006, the
30+day delinquency percentage for Alt-A loans in the mortgage
industry was 5.0 percent as compared to 21.7 percent3 for subprime
loans, suggesting that the differential in loan loss performance
for Alt-A versus subprime will continue into the future.� Indymac
will be following up in the future with additional credit
performance data, including analyses of delinquencies as well as
our HELOC and other residual securities. With respect to
delinquency data, Indymac�s delinquencies are generally below
comparable industry data for Alt-A loans. An exception to this is
that our 2006 vintage of Alt-A loans show 60+ day delinquencies of
1.75 percent, which is modestly higher than the industry data of
1.67 percent. Importantly, Indymac only owns $3.7 million worth of
residuals and non-investment grade securities related to its 2006
vintage of Alt-A loans. Over the past few months, we have taken
steps to tighten our guidelines for these products, particularly
with respect to 80/20 piggyback loans, which we believe will have a
material positive impact on our credit performance going forward.
About Indymac Bank IndyMac Bancorp, Inc. (NYSE: NDE) (Indymac�) is
the holding company for IndyMac Bank, F.S.B. (Indymac Bank�), the
7th largest savings and loan and the 2nd largest independent
mortgage lender in the nation. Indymac Bank, operating as a hybrid
thrift/mortgage banker, provides cost-efficient financing for the
acquisition, development, and improvement of single-family homes.
Indymac also provides financing secured by single-family homes and
other banking products to facilitate consumers� personal financial
goals. With an increased focus on building customer relationships
and a valuable consumer franchise, Indymac is committed to becoming
a top five mortgage lender in the U.S. by 2011, with a long-term
goal of providing returns on equity of 15 percent or greater. The
company is dedicated to continually raising expectations and
conducting itself with the highest level of ethics. For more
information about Indymac and its affiliates, or to subscribe to
the company's Email Alert feature for notification of company news
and events, please visit http://about.indymacbank.com/investors.
Certain statements contained in this press release may be deemed to
be forward-looking statements within the meaning of the federal
securities laws. The words "anticipate," "believe," "estimate,"
"expect," "project," "plan," "forecast," "intend," "goal,"
"target," and similar expressions identify forward-looking
statements that are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. Actual results and
the timing of certain events could differ materially from those
projected in or contemplated by the forward-looking statements due
to a number of factors, including, the effect of economic and
market conditions including industry volumes and margins; the level
and volatility of interest rates; the Company�s hedging strategies,
hedge effectiveness and asset and liability management; the
accuracy of subjective estimates used in determining the fair value
of financial assets of Indymac; the credit risks with respect to
our loans and other financial assets; the actions undertaken by
both current and potential new competitors; the availability of
funds from Indymac's lenders and from loan sales and
securitizations, to fund mortgage loan originations and portfolio
investments; the execution of Indymac's growth plans and ability to
gain market share in a significant market transition; the impact of
disruptions triggered by natural disasters; pending or future
legislation, regulations or litigation; and other risk factors
described in the reports that Indymac files with the Securities and
Exchange Commission, including its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and its reports on Form 8-K. 1
First American LoanPerformance is a unit of real estate data
specialist First American Real Estate Solutions, whose data
includes mortgages that have been packaged and sold as
mortgage-backed securities. 2 FALP losses are based on loan
origination vintage (i.e., the year the loans were originated) as
opposed to the year the loans were put into a securitization.
Cumulative loss amounts for the industry data are derived from
FALP�data using original UPB and percentage loss amount data field
due to the fact that this field includes estimated loss rates for
those companies that do not provide loss data. Specific company
data references the FALP loss amount data field. 3 FALP delinquency
data differs slightly from the data cited in Indymac�s press
release dated March 15, 2007, as FALP frequently updates their
data. We use the most recent data available, and this data covers
loans in the 2002-2006 time period.
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