Alt-A lender IndyMac Bancorp Inc. saw second-quarter earnings fall 57 percent from a year ago, to $44.6 million, thanks to higher credit costs and lower profit margins.

Single-family mortgage production for the second quarter actually grew by 12 percent over last year, to $22.5 billion.

But IndyMac was able to sell only 90 percent of the loans it produced during the quarter, totaling $20.2 billion, for a $101 million gain on sale. That compares with the $201.7 million gain on the sale of $19.4 billion in loans in the same quarter last year, or 97 percent of all loans produced.

IndyMac was also forced to repurchase $219 million of loans during the quarter, mainly due to early payment defaults, compared with $48 million in the second quarter of 2006. So far this year, IndyMac has been forced to repurchase $443 million in loans, compared with $62 million at the same time last year.

Provisions for loan losses were boosted to $27.9 million for the first half of 2007 compared with $6.1 million in the first half of 2006.

In a Securities and Exchange Commission filing, IndyMac said it had implemented guideline cuts in loan production that would have eliminated 94 percent of the credit losses on the loans held for sale, had they been in place at the time of production.

“We believe the credit quality of our portfolio and repurchase activity should start to improve in the second half of 2007,” the lender said.

But IndyMac also warned that things could get worse, and did not provide guidance for future earnings.

“While our recent guideline tightening has improved the quality of our loan production, additional deterioration in the housing market could further increase our credit costs,” the filing said.

IndyMac boosted interest-only loan production, while cutting back on originations of pay-option and other ARM loans. Pay-option ARM loans, which made up 21 percent of loan production for the quarter a year ago, accounted for 11 percent for the quarter ended June 30.

But interest-only loans made up nearly half of IndyMac’s loan production for the quarter, or 47 percent, compared with 37 percent a year ago. Fixed-rate mortgages accounted for 24 percent of loan production, compared with 20 percent last year.

IndyMac predicts new guidance issued by federal regulators on June 29 for some subprime loans will only reduce its mortgage bank production by 1.3 percent because subprime lending represents only a small percentage of total loan production.

For the year to date, single-family mortgage loan production grew 20 percent compared to last year, to $48.1 billion, but revenues were down 12 percent to $598.8 million.

IndyMac has laid off 400 employees this quarter, mainly in operations and information technology, a move that’s expected to generate $30 million in annual cost savings.

“Notwithstanding the current tough market conditions, we are confident we will be able to navigate through the industry storms and expect to remain solidly profitable during this cyclical downturn in our business,” company officials said.

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