IndyMac shareholders thrown for a

IndyMac shareholders thrown for a loop When IndyMac Bancorp Inc. reported its third quarter 2006 earnings back in October, you would never have guessed that the housing market was in a slump. IndyMac posted record numbers, including $24 billion in mortgage production -- an increase of 41 percent from the same period in 2005. Most of that production (62 percent) was in the form of "exotic" interest-only and pay-option adjustable-rate mortgages. IndyMac turned around and sold 81 percent of the loans it produced to investors.

IndyMac had projected that its fourth quarter results would be even better -- with profits on the order of $1.35 a share, compared to $1.19 a share in the third quarter. Now IndyMac CEO Michael Perry is telling shareholders that the quarterly report it files with the SEC on Jan. 25 will probably be a little less rosy. IndyMac now says it expects fourth quarter earnings to be 97 cents a share.

That's still a healthy profit, but how did IndyMac end up overestimating its earnings by 27 percent? What's changed? Perry said part of the reason is that IndyMac's credit costs are up because of higher loan loss provisions. In other words, investors want a bigger reward for taking bigger risks. Perry said IndyMac is now making more fixed rate and intermediate-term fixed rate loans -- less profitable products that accounted for only 27 percent of the company's third quarter loan production.
--Matt Carter, Inman News

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