IndyMac Provides Update on First Quarter Mortgage Loan ProductionProduction Appendix Schedules (Document: Business Wire)
20 April 2007 - 9:00PM
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 a detailed view of the
Company�s mortgage loan production for the first quarter of 2007.
Total loan production for the first quarter was $25.9 billion, down
2 percent from the fourth quarter of 2006 but up 27 percent from
the first quarter of 2006. The attached schedules give details on
Indymac�s mortgage loan production regarding: 1. Loan production by
documentation type (i.e. the extent to which income, assets,
employment, credit history and appraised value are documented and
verified) plus additional detail by various other loan attributes
including combined loan-to-value ratio ("CLTV"), FICO score,
occupancy status, existence of mortgage insurance and eligibility
for sale to the GSEs. 2. Expected lifetime loss percentages for our
mortgage loan production as per Standard and Poor's LEVELSR model1,
both in the aggregate and by documentation type and other loan
attributes. 3. The type and amount of our first quarter production,
and the associated credit losses, that would have been eliminated
had our recent guideline cuts been fully implemented at the
beginning of the quarter. Loan Production by Documentation Type
With respect to loan documentation, Indymac segments its loan
production into the following five types: Mortgage Loan
Documentation Type Description Percentage of Total Mortgage
Production � Based on $ Q1-07 Q4-06 Type 1 Borrower documents
income, employment and assets. Lender verifies income, employment,
assets, credit history and home value (by appraisal). 20% 17% Type
2 Borrower states income and documents employment and assets.
Lender assesses income for reasonableness and verifies employment,
assets, credit history and home value (by appraisal). 53% 55% Type
3 Borrower does not document or state income but does document
employment and assets. Lender verifies employment, assets, credit
history and home value (by appraisal). 11% 9% Type 4 Borrower does
not document or state income or assets. Lender verifies credit
history and home value (by appraisal). 11% 12% Type 5 Reverse
mortgages (69% of Indymac�s reverse mortgage originations were FHA
insured in Q1-07). Borrower does not document or state income or
assets. Lender verifies home value (by appraisal). 5% 7% Total
Mortgage Production 100% 100% Key points to take away from the
detailed schedules with respect to Indymac's first quarter
production: 1. The total production had an average FICO score of
704 and an average CLTV of 74 percent. 2. Only 4 percent of total
production had FICO scores less than 620. Of that 4 percent, 76
percent had CLTVs below 90 percent and 60 percent had CLTVs equal
to or below 80 percent. 3. 81 percent of total production had CLTVs
of less than or equal to 80 percent. Of the 19 percent of
production with CLTVs greater than 80 percent, 45 percent had FICOs
greater than or equal to 700 and 76 percent had FICOs greater than
or equal to 660. 4. With respect to CLTVs by documentation type, 80
percent of Types 2, 3 and 4 had CLTVs of less than or equal to 80
percent. 97 percent of Type 4 and 5 loans had CLTVs of less than or
equal to 80 percent. 5. With respect to FICO scores by
documentation type, 82 percent of Types 2, 3 and 4 had FICOs of
greater than or equal to 660, and only 2 percent had FICOs below
620. Virtually no Type 3 and 4 loans had FICOs below 620. 6. With
respect to occupancy status, 88 percent of total production was
owner occupied as a primary residence and 3 percent was owner
occupied as a second home. 91 percent of second home and investor
properties had CLTVs of less than or equal to 80 percent. Of the 9
percent of production for investor properties, 63 percent had FICOs
greater than or equal to 700 and one percent had FICOs below 620.
Expected Lifetime Loss Percentages One of the most independent and
comprehensive views of the credit quality of loan production is the
estimated lifetime loss percentage as determined by Standard and
Poor�s LEVELS model. This model is an objective, third party
framework that has been developed and tested over various economic
cycles. LEVELS is a regression-based model that determines an
estimated lifetime loss at the loan level based upon foreclosure
frequency and loss severity for a wide variety of mortgage loans.
LEVELS is one of two accepted loss models for loan
securitizations�in the mortgage industry and is used to structure
mortgage backed securities for sale into the secondary market. The
number one driver of the model (i.e., the attribute proven to be
the most predictive of loan losses) is the LTV/CLTV ratios,
followed by borrower FICO score and then numerous other attributes
such as loan size, documentation type, occupancy status, loan
purpose, geography and debt-to-income ratio, where income is
provided. During the first quarter, 84 percent of Indymac�s loan
production was analyzed using the LEVELS model.2 The estimated
lifetime loss rate for this production, in the aggregate, was 0.85
percent in Q1-07 versus 0.84 percent in Q4-06 and 0.74 percent in
Q1-06. The year-over-year increase was driven by increased volumes
and deteriorating credit performance mainly in two products �
higher LTV subprime loans and 80/20 piggyback loans � which we have
substantially eliminated from our product offerings through recent
guideline cutbacks. Loss rates for other production remained
roughly the same year-over-year. It is important to put the
estimated lifetime loss rates into context. Assuming a 35 percent
average loss severity rate when the sale of a foreclosed property
takes place, an 0.85 percent estimated lifetime loss rate would
mean that an estimated 2.43 percent of all loans produced would end
up in foreclosure over the life of a loan pool (0.85 percent
divided by 35 percent equals 2.43 percent). The flip side of this
is that 97.57 percent of all of these loans are forecasted to
succeed and never end up in foreclosure. Key points to take away
from the detailed schedules with respect to how loan attributes
impacted lifetime loss estimates for Indymac�s Q1-07 production
that was run through LEVELS: 1. 53 percent of this production had a
LEVELS loss rate of less than 0.48 percent and is therefore
considered comparable from a risk perspective to loans sold to the
GSEs. 2. Lower documentation requirements on loans are more than
offset by other compensating factors, such as lower CLTVs and
higher FICOs, with the result that lower documentation loans
actually have lower estimated lifetime losses: Documentation Type $
in millions % of Total Standard and Poor's LEVELS Cumulative
Lifetime Loss Rate Type 1 4,666� 22% 1.18% Type 2 11,858� 54% 0.90%
Type 3 2,468� 11% 0.56% Type 4 2,811� 13% 0.35% Type 5 0� 0% 0%
Total Standard and Poor's LEVELS - Evaluated Production 21,803�
100% 0.85% 3. CLTVs have the strongest impact on loss rates: CLTV
Range $ in millions % of Total Standard and Poor's LEVELS
Cumulative Lifetime Loss Rate < 60% 2,563� 12% 0.03% ?60% <
70% 2,953� 13% 0.24% ?70% ? 80% 12,379� 57% 0.65% >80% < 90%
651� 3% 3.36%3 ?90% ? 95% 1,196� 5% 4.08%3 >95% ? 100% 2,061�
10% 1.31% Total Standard and Poor's LEVELS - Evaluated Production
21,803� 100% 0.85% 4. Borrower FICO scores have a strong impact on
expected lifetime losses: FICO Range $ in millions % of Total
Standard and Poor's LEVELS Cumulative Lifetime Loss Rate ? 700
11,392� 52% 0.39% ?660 < 700 5,981� 28% 0.69% ?620 < 660
3,529� 16% 1.31% < 620 901� 4% 5.94% Total Standard and Poor's
LEVELS - Evaluated Production 21,803� 100% 0.85% Impact of Recent
Guideline Cuts Indymac has recently been cutting back its product
and underwriting guidelines for two reasons: 1) to better align
risks and returns in the current environment and 2) due to
temporary poor liquidity in the secondary market on certain
products. The attached schedules show what the impact of these
cutbacks would have been on our overall production for the first
quarter. Had the cutbacks been fully in place for the quarter, our
overall production would have been reduced by $8.6 billion, or a 33
percent reduction. Going forward, we do not expect actual
production to decline by this magnitude, as some of the displaced
production will migrate to other Indymac loan products for which
the borrowers qualify, such as FHA/VA loans and our new 100 percent
financing program (with mortgage insurance) for first time
homebuyers that is saleable to the GSEs. In addition, we continue
to capture market share for other loan types, as many other lenders
are struggling or exiting the business. Finally, we are constantly
evaluating the impact of our guideline cuts, and, to the extent
that we determine we have gone too far, or liquidity improves in
the secondary market, we may revise guidelines in some areas in the
future. The impact on credit quality of the guideline cuts would
have been as follows: 1. The average FICO score for all production
would have increased from 704 to 711, and the average CLTV would
have decreased from 74 percent to 69 percent. 2. $3.5 billion of
production with CLTVs greater than 80 percent would have been
eliminated, or 74 percent of that production. The percentage of
total production with CLTVs less than or equal to 80 percent would
have increased from 81 percent to 92 percent. 3. $2.0 billion of
production with FICOs below 660 would have been eliminated, or 44
percent of that production. The percentage of total production with
FICOs greater than 660 would have increased from 81 percent to 84
percent. 4. The percentage of all production with both CLTVs less
than 90 percent and FICOs above 660 would have increased from 68
percent to 80 percent. 5. $7.0 billion of documentation types 2, 3
and 4 production would have been eliminated, or 38 percent of that
production. 6. The percentage of total production with a LEVELS
loss rate of less than 0.48 percent, and therefore considered
comparable from a risk perspective to loans sold to the GSEs, would
have increased from 53 percent to 68 percent of total production.
7. The estimated lifetime loss rate as per the LEVELS model would
have decreased from 0.85 percent to 0.52 percent, in essence
reducing Indymac's overall credit risk by 39 percent. As expected
and previously forecasted, net credit losses related to loans held
for sale increased to $24.1 million during the first quarter from
$17.7 million in Q4-06, or to 9.8 bps of loan sales from 7.6 bps.
However, 80 percent of these losses, or $19.3 million, would have
been prevented with the guideline cuts. As previously disclosed, we
expect credit losses to remain high in the second quarter but
anticipate that credit loss performance will improve during the
second half of 2007 as the guideline cuts take full effect.
Re-Affirmed Q1-07 Earnings Guidance Indymac provided this
supplemental information in advance of our scheduled conference
call next week in response to current market conditions and
continued interest from stakeholders. We have previously guided
that for the first quarter of 2007 Indymac would earn around a 10
percent return on shareholders� equity (ROE), and we expect that
our Q1-07 earnings will be in line with this guidance when we
report next Thursday, April 26th. Michael W. Perry, Chairman and
Chief Executive Officer, will host the Company�s first quarter
earnings conference call and webcast beginning at 10:00 a.m. PDT,
followed by a question and answer period. The earnings data is
scheduled to be released before the market opens on that morning.
The presentations accompanying the Shareholder Meeting webcast, and
the first quarter earnings conference call and webcast, can be
accessed, along with Indymac�s 10-Q, via Indymac Bank�s home page
at www.indymacbank.com. If you would like to participate in the
call: Internet webcast access will be available at:
http://www.indymacbank.com The telephone dial-in number is (888)
396-7846 or (706) 758-0230 (international), access code #3829781;
and The replay number is (800) 642-1687 or (706) 645-9291
(international), access code #3829781 To participate on the call,
please dial in 15 minutes prior to the scheduled start time. The
conference call will be replayed continuously beginning two hours
after the live event on April 26th, through midnight on May 2nd and
will be available on Indymac�s Website at www.indymacbank.com.
Appendix Contents: Appendix A Actual Mortgage Loan Production
Stratification Table 1 Loan documentation type vs. loan to value
Table 2 Loan documentation type vs. FICO Table 3 FICO vs. loan to
value Table 4 Occupancy vs. loan to value Table 5 Occupancy vs.
FICO Table 6 Loans with mortgage insurance vs. loan to value Table
7 Loans with mortgage insurance vs. FICO Appendix B Proforma Loan
Production Had the Guideline Cuts Occurred Jan. 1, 2007 Table 1
Loan documentation type vs. loan to value Table 2 Loan
documentation type vs. FICO Table 3 FICO vs. loan to value Table 4
Occupancy vs. loan to value Table 5 Occupancy vs. FICO Table 6
Loans with mortgage insurance vs. loan to value Table 7 Loans with
mortgage insurance vs. FICO Appendix C Actual Standard Consumer
Loan Production by S&P Loss Level Stratification Table 1 Loan
documentation type Table 2 FICO Table 3 Occupancy Table 4 GSE
eligibility Table 5 Loan to value Table 6 Reconciliation from total
production to total S&P production Appendix D Proforma Loan
Production by S&P Loss Level Stratification Had Guideline Cuts
Occurred Jan. 1, 2007 Table 1 Loan documentation type Table 2 FICO
Table 3 Occupancy Table 4 GSE eligibility Table 5 Loan to value
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
While Indymac�s production is evaluated using the LEVELS model,
this data is not audited or endorsed by Standard and Poor�s. 2
Production evaluated by the LEVELS� model excludes second liens,
HELOCs, reverse mortgages or construction loans. 3 The high loss
rates for the >80% 95% ? 100% bucket.
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