Financial Freedom has gone through huge changes over the past year which include, losing key employees, pissing off wholesale customers, and overall losing a lot of the brand value that they once had. I’ve received tons of emails from RMD readers who think the sooner IndyMac sells Financial Freedom, the better off the company will be… I agree.
During a recent conference call with analysts to discuss their first quarter loss of $184 million, Chief Executive Michael Perry said IndyMac hoped to rebuild its core capital to 7% and risk-based capital to 11% by year-end. To help it to do so, Perry said, IndyMac might sell its “reverse mortgage” business, Financial Freedom. While this isn’t the first time Perry has mentioned the possibility of selling Financial Freedom, I think this is the first time it’s something they might be forced to do
Here are some other comments Perry made from the conference call that RMD readers might find interesting:
Commenting on the key issues IndyMac has had to grapple with this year
a total collapse of the private secondary market for MBS securities and whole loans in particular all day, jumbo and jumbo reverse mortgage loans and securities, our core business from 1993 to mid-2000.
A comment from Perry that I agree with…
The bottom-line is — my line when I looked at this and looked at our fair value accounting, as I said if you took a bunch of really smart PhDs who knew everything about the mortgage backed securities market, but hadn’t been hearing all the information and illiquidity in the marketplace and put them in a room given the fact that our expected cumulative losses of decline from a 158 basis points to 150, there is absolutely no way that they would have ever rationally come up with the idea that we had to write these bonds down $443 million in this quarter, especially giving the fact that interest rates have declined and IndyMac’s funding costs have declined.
Commenting on raising more capital…
That those markets, accessing, preferred debt right now is pretty challenging. The opportunity for us really more lies in accessing common through our direct stock purchase plan and this suspending though should help the common shareholders and the other access potentially for us is to look at selling off some of — selling of a business like Financial Freedom that has the opportunity to not only take servicing rights off our books and goodwill of our books, but also some assets of our books and build capital ratios for us, so I think those would be the direction that we would be looking as opposed to trying to raise, preferred debt at this time.
Comments on Financial Freedom driving the bulk of profitability & Cash Account comment…
If you look at page 26, this is the details of our mortgage production model and you can see that clearly financial freedom is driving the bulk of our profitability with the rest of our mortgage banks, for the year being near break even, as we change from a non-GSE model to a GSE model. One of the things that’s hurt us up until just about this last week is that we really haven’t had a competitive jumbo product because of the fact that we don’t want to grow our balance sheet. So, we haven’t been able to put jumbo loans on our balance sheet and while we rolled out very promptly both the Fannie and Freddy and FHA/VA jumbo products, up until about a week ago the pricing on those as everybody knows was substantially worse than confirming loans.
If you want to read the entire transcript, click here.
Also, the IndyMac blog reports their April production through Financial Freedom was $351 million, down 3% from March and 19% from a year ago.