Moody's Investors Service, which earlier noted it expects further pressure on the Alt-A mortgage market in the next few quarters, said today that it has downgraded Indymac Bancorp Inc. to "junk" status and will keep the company on negative watch for further possible downgrades. Moody's said it downgraded Indymac's issuer rating to Ba1 from Baa3 and its thrift subsidiary, Indymac Bank, F.S.B.'s bank financial strength rating to D+ from C- and long term deposit rating to Baa3 from Baa2. (The "Ba1" issuer rating is considered Moody's highest junk grade; an issuer rating is an assessment of ability to honor unsecured debts.) From the press release:
... the downgrade reflected the decline in Indymac's financial metrics and franchise strength caused by the current mortgage sector conditions. Indymac is a mono-line mortgage bank focusing on broker originated Alt-A product, most of which was sold as opposed to held on balance sheet. The secondary market is essentially shut for this mortgage product severely reducing gain on sale income and resulting in write-downs of the thrift's non-agency held-for-sale inventory. Additionally, the broker origination channel has suffered a significant decline in capacity; Indymac's ability to return to historic origination levels is unclear.
IndyMac fired back on its company blog this afternoon, saying that it found the downgrade "a little confounding" and noting that it had actually expected a downgrade much earlier, characterizing the downgrade as an artifact of Moody's change in rating methodology moreso than a reflection of a change in IndyMac's operations. The Pasadena-based bank/thrift said that the rating downgrade would have "no practical impact on our business or our financial condition."