IndyMac: Subprime Contagion Fears 'Overblown'
In a statement to the media released late yesterday, IndyMac highlighted key performance metrics associated with its considerable Alt-A portfolio in an all-out effort to counter market perceptions that problems in the subprime market might be spreading into Alt-A credit. "I've read it in the press that Alt-A lending is 'in between' prime and subprime lending," said IndyMac CEO Michael Perry. "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." To support its claims, IndyMac offered an inside look at loan loss data collected by First American LoanPerformance from 2002 to 2006, which showed that industrywide Alt-A losses totaled $453 million, or 4.7 basis points of original UPB -- 1/17th of the approximately $7.7 billion, or 55.9 bps, of industrywide subprime losses. Indymac's Alt-A loss rate was reported at 0.81 bps for the same time period. "Alt-A is not 'slightly' less risky than subprime, it is a lot less risky," said Perry. "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." "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. A few sources that spoke with HW took strong issue with IndyMac's presentation of data, noting that the company aggregated data over a four year period that included the peak of the housing boom. "I could make subprime look pretty damn good too on a loan loss level if I looked at 2002 through 2006, relatively speaking," said one source, on condition of anonymity. Other sources pointed to the linkage between delinquencies and losses. "So many of the problems industry-wide in terms of delinquency started cropping up during 2006, and the majority of loan losses associated with those delinquencies won't show up on the books until sometime in 2007," said another source. "The REOs from those delinquences, for example, are just now starting to hit the market." IndyMac did, however, concede that it is seeing elevated delinquencies in its Alt-A portfolio with 2006 vintage of Alt-A loans showing 60+ day delinquencies of 1.75 percent, which the lender characterized as "modestly higher" than the industry data of 1.67 percent. The company also stressed that it owns a mere $3.7 million worth of residuals and non-investment grade securities related to its 2006 vintage of Alt-A loans, but did not specify what sort of loan repurchase risk --if any -- is associated with those same loans. For more information, visit http://www.indymac.com.