IndyMac Bank’s Online Mortgage Unit Turns a Profit
IndyMac Bancorp Inc. has something many dot-coms may never have the pleasure of seeing,online profit.
While more and more www-driven companies are heading for the scrap heap, the Pasadena-based bank originated more than a billion dollars’ worth of mortgage loans last year through its Internet operations.
And it is planning to almost double that this year. The best part: in the first quarter, the company’s online operation began sustaining itself.
Many online mortgage lenders had trouble in the past two years as Wall Street was worried about the credit quality of the loans they were making and stopped buying the loans.
The industry also had masses of entrants into the market and saturation put many out of business. Online lenders, such as e-Loan.com, iOwn.com and Mortgage.com, have failed or are struggling.
But some industry veterans feel that whoever is left standing in a few years will have a chance to take the online market by the reins.
IndyMac officials believe they have a cushion against the current turmoil and contend be one of those survivors.
On Wall Street, IndyMac’s stock last week was off by 25% from its high of 30 hit in December. But its shares still are up 76% from a year ago.
As of last week, IndyMac counted a market capitalization of more than $1 billion.
IndyMac sells mortgages over the Web. But it also has a depository institution behind it that holds savings, certificates of deposit and money market accounts.
This means the bank does not have to sell off its loans to Wall Street to raise the capital to make more loans.
Wall Street has soured on mortgage-backed securities amid concerns about the quality of the loans, pushing most online lenders,whose business models rely on them,to the brink.
“As a depository (institution), we have a stable source of funds to do our business and to really expand our market share,” said Richard Wohl, president of home lending operations for IndyMac in Irvine.
Besides being able to hold its loans to wait for a better market, IndyMac has the ability to keep servicing the loans it does sell, collecting fees for the work.
IndyMac began as a real estate investment trust that was formed by Countrywide Credit in 1985. Management saw in the late 1990s that there was going to be a big push toward online mortgage lending and wanted to be a player in that industry.
IndyMac acquired First Federal Savings and Loan Association of San Gabriel Valley and early last year it changed its business model to a chartered savings and loan. This allowed the company to use deposits to back the loans it made.
“We are positioning ourselves for consumers who are comfortable doing it from a remote position,that is where the market is headed,” Wohl said.
According to a Lehman Brothers Holdings Inc. analyst, 2% of mortgage originations happen through the Internet. That number is expected to jump to 6% in two years.
“It’s a good market for everybody right now. We doubled our volume from 1999 to 2000 and we are doubling it again this year,” Wohl said.
The reason for the growth: IndyMac’s use of the Internet. It created a system that allows both retail customers and mortgage brokers to get approval online within three minutes.
“It has been extremely attractive to brokers,they don’t want to wait for an answer,” Wohl said.
Other companies, such as Irvine-based LoanGenie.com and LoanTrader Inc., also of Irvine, have developed similar systems to speed up the mortgage application process.
IndyMac employs about 2,000 people, up from 1,100 last year. About 300 are employed at its Irvine operation.
The bank acquired PNB Mortgage in September, which gave it about 50 more employees plus another product to sell. PNB was a specialty lender that made government-backed loans.
Wohl said the company’s employee growth in the next few years should be 10% to 20% annually, but that depends on what interest rates do. As the economy starts gaining ground, interest rates should rise and the company might be making fewer loans, he said. n
