IndyMac Bancorp’s turnaround plan could be like one of those theme park rides, the kind that starts off pleasant but quickly gets scary.
Pasadena-based IndyMac, which has its mortgage operation in Irvine, laid out its plan this month, saying it wants to become like most other home loan lenders. It will make prime loans to buyers with good credit that it can sell to Freddie Mac and Fannie Mae instead of the less-than-prime, so-called Alt-A loans that it has specialized in.
On the surface, that seems to make sense. The subprime and Alt-A markets are not likely to bounce back to anything near what they used to be. And making home loans to creditworthy Americans seems prudent.
But the problem is that the volume of such home loans is bound to be low for much of this year. And many of the remaining home mortgage lenders, having abandoned everything but the safest kinds of loans, are going after that same market. In other words, more hands are reaching for a piece of the same pie.
There are other problems. The kinds of conforming loans that IndyMac wants to make are less profitable than the Alt-A loans it used to make.
And making mainstream loans typically calls for a retail kind of operation,one with many shops in strip malls across the land. IndyMac has been more of a wholesale operation, taking orders in central offices for its niche loans.
In short, IndyMac isn’t set up to do what it wants to do now. It would be easier to make this kind of U-turn if IndyMac were smaller, but it is the second largest independent mortgage lender. (Countrywide is No. 1, but both are shrinking so fast it’s become kind of academic to rank them.)
Let’s hope IndyMac has a ride that’s not too scary and it arrives successfully at its destination. Unfortunately, it looks like a big chunk of the market is betting against it. Recently, about half of the float of IndyMac’s stock was shorted,the second most of any stock on the Russell 1000.
Recession Doubts
If you have a contrarian streak, you’re probably squirming. Why? Because, according to conventional wisdom, we are in, or soon will be in, a recession. But when conventional wisdom is repeated so often and with such assuredness, contrarians can’t help but feel skeptical.
So, on behalf of my fellow fidgety contrarians, let me say: Not so fast.
To be sure, housing is in a sharp downward spiral. The credit markets have crashed and burned. The stock markets have dipped decidedly.
But problems in financial markets do not a recession make. A recession is a sustained contraction in gross domestic product. We have seen GDP slow, but it hasn’t contracted, at least not yet.
A recession is accompanied by job losses, but jobless claims last month actually fell. A recession is accompanied by a slowdown in consumer spending, but a different report earlier this month showed that retail sales rose in January.
Granted, the numbers show economic weakness. But there’s a difference,an important difference,between slow growth and a recession. And right now, we simply don’t know if we’re in a period of slow growth or the early stages of a recession.
So, I repeat: Not so fast on that recession talk.
Crumpley is the editor of the Los Angeles Business Journal.
