IndyMac’s (Credit Quality) Performance as a Loan Originator
Attached you will find the spreadsheet that shows IndyMac’s loan performance by vintage/year, during its entire history as a loan originator, 15 years from 1993 through 2007, as of May 31, 2008 (about a year after the housing bubble had burst, the private MBS market had collapsed, and the financial crisis had been well under way); the latest available date before being seized by the FDIC on July 11, 2008. The 2008 loan originations were not on this report, because they were not a full year’s vintage. (Nearly all of the 2008 originations would have been current as of May 31, 2008, as they on average had only made a few payments by then.)
During this 15-year timeframe, IndyMac originated 1,663,511 mortgage loans, with an original principal balance of $351.3 billion.
Of this amount, $172.8 billion (or 49.2%) remained outstanding as of May 31, 2008. As of this date, $170.5 billion (or 48.5% of original balances) were paid off in full, paid down or sold (as whole loans; where the servicing rights were not retained by IndyMac), and $8.0 billion (or 2.3% of original balances) were cumulatively foreclosed on and sold as REOs over 15+ years.
IndyMac and its securities investors’ (both private MBS investors and Fannie Mae, Freddie Mac, and FHA) cumulative losses over 15+ years were less than 1% (0.72%) through May 31, 2008. That is an average annual loss rate over those years of less than 0.05%.
The lowest vintage for cumulative losses was 2003 with 0.14% and the highest vintage was 2006, with 1.39%, to-date through May 31, 2008. The highest vintage cumulative losses, prior to the unprecedented housing bubble-bust period (2005-2008), was 1999, were cumulative losses were 1.33%, to-date through May 31, 2008.
$6.9 billion (or 2.0% of original balances) remained in foreclosure, as of May 31, 2008. 94% of this amount is related to housing bubble/bust years 2005-2007.
In other words, as of May 31, 2008, and over a 15+ year history (including more than a year of an unprecedented housing bubble-bust, total collapse of the private MBS market, and related financial crisis), roughly 95% of IndyMac’s borrowers had either successfully paid off their loans or were not currently in foreclosure or had never been foreclosed upon. It is an oversimplification, but you could roughly say that this equated to a 95% borrower success rate (and it was a much higher success rate for pre-bubble/bust years 1993-2004), as of May 31, 2008.
While I don’t have access to any data beyond May 31, 2008, I am sure (like all home lenders) IndyMac’s credit quality performance deteriorated substantially as the housing, mortgage, and financial crisis worsened in 2008 and 2009 (especially for the home loans originated in the bubble/bust years of 2005-2008). However, IndyMac’s historical loan performance data always compared more favorably than FHA’s home lending program (as documented in IndyMac’s historical SEC filings) and I believe this data objectively documents that substantially increased future losses were not predictable entering 2007 (based on historical loss trends by vintage) and were caused by an unprecedented housing bubble and bust, not IndyMac’s loan origination practices.
Please Note: Most of the mortgage industry delinquency, foreclosure, and loss statistics I have seen in the press are not correctly analyzed and/or presented. These statistics must be analyzed by vintage/year, because typically newer vintages and growing originations in newer vintages (where delinquencies tend to be lower in normal, non-bubble/bust times) can mask true credit quality performance (like they have at FHA). And these statistics must be compared to total originations (not current loan balances outstanding), because loan prepayments can significantly distort these statistics. By way of a simple example, assume that in Year 1, 100 loans are originated and now it is Year 5 and because rates declined, 90 of the 100 loans paid off (refinanced to a lower rate) and only 10 remain outstanding and assume 2 of these loans are now in foreclosure. That is a 2% “failure rate” in my book based on the origination of 100 loans…..but you might see the press say that 20% of the loans from Year 1 are currently in foreclosure. Clearly, the correct figure is 2%. Finally, because of the wide press coverage of the mortgage and financial crisis, including “underwater” mortgages and various government programs that mostly benefited delinquent borrowers (and even worse in IndyMac’s particular case, because borrower’s were aware of IndyMac’s failure and the buyer of IndyMac’s assets received a substantial discount and loss protection from the FDIC and could therefore sell or restructure borrower loans at a loss to the original UPB, but still a strong profit to them), borrowers’ and lenders’ historical behaviors changed significantly and, as a result, delinquency and loss trends were exacerbated to unprecedented levels.