IndyMac Bank said last December that consumer protection regulations to be implemented by Attorney General Martha Coakley (above) at the beginning of 2008 were forcing it out of the Bay State.
Three-and-a-half months after announcing it would leave Massachusetts, national mortgage lender IndyMac Bank has changed its mind – sort of.
The Pasadena, Calif.-based lender left Massachusetts and closed its Quincy operations base last December, days before new consumer protection regulations were scheduled to go on the books.
Last Wednesday, representatives from IndyMac’s New Jersey office e-mailed local mortgage brokers to say it would be back.
“Massachusetts is currently being serviced by my New Jersey operations center. We do have plans to re-enter the Mass. market on an origination basis very soon,” Senior Vice President and Regional Chief Executive Officer Tammy Flaharty wrote in the e-mail, which she forwarded to Banker & Tradesman.
But Flaharty also said the company would not reopen an operations center locally. And later the same day, another IndyMac representative clarified to one broker that the Massachusetts loans would only be on second homes and investment properties.
“I asked, ‘Why not primary residences?'” said Richard Shapiro, a principal at Asset Mortgage Group in Natick who spoke with the representative. “They said [it’s because of] some state regulation that banned [yield spread premiums].”
IndyMac declined to respond to Banker & Tradesman’s request for more information on its decision to re-enter the state’s market.
Last December, the bank told New England and New York mortgage brokers via e-mail that consumer protection regulations to be implemented by Massachusetts Attorney General Martha Coakley at the beginning of this year were forcing it out of the Bay State.
The company said it would stop offering loans on Massachusetts properties because it “[could] not assess its risk as a lender in a brokered transaction or its liability with respect to purchasing loans” under the regulations.
IndyMac was concerned that a conflict-of-interest provision would prevent the use of yield spread premiums to compensate brokers.
Coakley has said the use of yield spread premiums – a common means of broker compensation – is not banned by the regulation, as long as all compensation options are accurately disclosed to the borrower.
The regulations apply to all residential mortgage loans except open-end home equity lines of credit and reverse mortgages. They were implemented Jan. 2, but only IndyMac and Mount Laurel, N.J.-based Freedom Mortgage left the state as a result.
‘Significant’ Reserves
IndyMac was once a “strong” Alt-A lender, but dropped those loan products last fall, according to Shapiro. (An Alt-A loan is a mortgage grade that falls between prime and subprime.) More recently, Shapiro said, IndyMac only has been offering government agency-backed loans such as those conforming to Fannie Mae and Freddie Mac standards.
Barry Thomas, branch manager at Amerihome Mortgage Co.’s Burlington office, said his company doesn’t do business with IndyMac anymore because “we had very difficult situations getting loans approved.”
IndyMac has been struggling financially, according to recent postings on ml-implode.com, a mortgage industry watchdog Web site.
In January, New York bond-rating firm Fitch Ratings downgraded the company to “BB” status, putting it in the realm of companies whose bonds are no longer investment-grade. Fitch forecasted a “negative” outlook for the company.
“Fitch’s downgrade reflects the expectation that [IndyMac’s] near-term return to profitability will be challenging as changes in mortgage industry dynamics, once viewed as temporary, become more permanent,” a company analyst wrote.
While Fitch analysts wrote they believe that the bank has taken steps to “address credit quality and improve profitability,” the rating firm said it believes that with the outlook for today’s residential mortgage business, it’s unlikely the results will be realized in the near term.
Tightening guidelines from Fannie Mae and Freddie Mac, which form the bulk of IndyMac’s business today, have led to additional cuts to its product line, “resulting in significantly lower volume forecasts for 2008,” analysts wrote.
IndyMac, however, is more optimistic.
In the company’s Feb. 12 announcement of its fourth-quarter losses, Chairman and Chief Executive Officer Michael W. Perry pointed out that those losses are consistent with those of other mortgage lenders and securitizers in the past year.
But IndyMac built up “significant” credit reserves during the fourth quarter and managed to finish that period “in a solid overall financial position,” according to Perry, who added that the company’s capital levels exceed its regulators’ definition of capitalized.”
IndyMac has a goal of becoming one of the country’s top five mortgage lenders by 2011, and plans to reach it “with an increased focus on building customer relationships and a valuable consumer franchise,” it said in its announcement.
