IndyMac Bancorp Inc. said it cut losses by 64 percent during the first quarter, to $184 million, but doesn’t expect to return to profitability in 2008 as losses related to loans it made during the height of the boom mount.

IndyMac, the holding company for the savings and loan IndyMac Bank FSB and thrift-mortgage banker Indymac Bank, said in a regulatory filing that it racked up $249 million in pretax credit costs during the quarter, with losses concentrated in single-family mortgage loans held for investment.

Nonperforming loans held for investment more than tripled from the previous quarter, increasing from $539 million at the end of the year to $1.8 billion as of March 31. At the end of March, nonperforming assets were 6.51 percent of total assets, up from 4.61 percent on Dec. 31 and 1.09 percent a year ago. Increased foreclosure activities left IndyMac with $257 million in real estate-owned properties at the end of the month.

IndyMac also took a $72 million charge related to "right sizing" the company, and recorded $66 million in unrealized losses on IndyMac’s mortgage-backed securities (MBS) trading portfolio, which may be recovered over time.

The Pasadena, Calif.-based alt-A lender reported a $509 million fourth-quarter loss on Feb. 12 and a $609 million loss for the year — the first in the company’s history (see Inman News story). IndyMac kicked off the year by announcing 2,400 layoffs, or 24 percent of its workforce, as part of its transition to originating mostly loans eligible for purchase or guarantee by Fannie Mae, Freddie Mac and the Federal Housing Administration (see story).

IndyMac produced $9.6 billion in new mortgage loans in the first quarter, with 88 percent of that production eligible for sale or securitization by Fannie, Freddie or Ginnie Mae, which packages FHA- and VA-backed loans for sale to investors.

Mortgage production was 62 percent from a year ago and 21 percent from the previous quarter. IndyMac attributed much of the decline from the previous quarter to the discontinuation of its conduit lending channel. At $5.1 billion, single-family loans in the pipeline as of March 31 were down 68 percent from the same time last year ago and 32 percent from the end of 2007.

Industrywide, lenders generated $565 billion in mortgage loans during the first quarter, down 9.7 percent from a year ago but a 22.6 percent boost from the previous quarter, according to estimates by the Mortgage Bankers Association. IndyMac, however, saw its market share drop from 4.1 percent a year ago and 2.6 percent in the fourth quarter of 2007, to just 1.7 percent in the first quarter of 2008.

Fixed-rate mortgages made up half of IndyMac’s single-family mortgage production during the first quarter, double the proportion a year ago. IndyMac has slashed originations of interest-only loans, from 47 percent of production a year ago to 23 percent during the first quarter, and eliminated pay-option ARM loans, which accounted for about one in 10 loans a year ago. Other ARM loans have increased from 10 percent to 21 percent of single-family mortgage production.

IndyMac is doing a smaller share of its business in California and Florida, with those states accounting for 42 percent of single-family mortgage production, down from 53 percent a year ago. New York, Washington and Illinois accounted for 17 percent of mortgage production, up from 11 percent a year ago.

Using a model developed by Standard & Poor’s, IndyMac estimates that the lifetime losses for loans originated in the first quarter of 2008 will be 0.23 percent, compared with 1.86 percent for those originated a year ago — an 86 percent improvement.

Although mortgage production produced a net loss of $17 million for the first quarter, all nine of the company’s regional wholesale centers and 104 out of 152 retail lending branches were profitable in March, and IndyMac projects mortgage production will return to profitability in the second half of 2008.

The company’s mortgage banking business, including mortgage production and servicing, is expected to be profitable in the second quarter, while the thrift segment — where IndyMac’s mortgage-backed securities, single-family whole loans and consumer construction portfolios are contained — will be back in the black in the third quarter.

IndyMac officials expect to see continued losses from discontinued production including conduit, home equity and home builder channels, but that losses companywide will shrink to $20 million by the fourth quarter.


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