IndyMac Bulletin - 2008-01-16

After cutting 2403 people and closing 5 Operations Centers, IndyMac has put out a Q & A hoping to give Brokers/Bankers some reassurance they are 'still in the picture.'

To all Indymac customers:

This is obviously the most tumultuous time that the mortgage industry has ever faced. We’re seeing the very largest global financial companies taking billions of dollars of losses in each of the last two quarters, and the largest independent mortgage company in our industry has just accepted a bailout by one of the largest banks in the country.

You may also have heard that Indymac has just announced a significant workforce reduction as we seek to align our costs with the realities of the current mortgage market. While we regret having to take this action, I am writing to assure you that Indymac remains committed to the mortgage business and to continuing to serve our mortgage broker, banker and financial institution customers, and we have the financial strength to fight our way through this challenging period and be there for you.

Let me try to respond to some of the questions that many of you likely have.

What is Indymac’s plan to weather this storm?

The bottom line is that we made the correct decision after the global liquidity crisis of 1998 and converted from a REIT to a federal banking charter. Today, virtually 100% of our assets and liabilities are contained within Indymac Bank. As a bank, we have strong and stable funding sources … FHLB advances and federally insured deposits … which have allowed us to build up a “war chest” of more than $6 billion in liquidity.

In addition, we continue to maintain strong capital levels. As previously reported, as of September 30, 2007 (the date of our most recent financial statements), Indymac Bank had $2.5 billion in regulatory capital, and our capital ratios exceeded the “well capitalized” criteria outlined in the capital regulations. Our “core” and “risk-based” capital ratios of 7.48% and 11.79%, respectively, are 50% and 18% higher than the “well capitalized” regulatory requirements. When we report our Q4-07 financials at the beginning of February, we anticipate that we will remain “well-capitalized” according to the regulatory definitions. Strong capital and liquidity are the key factors that we believe will enable Indymac to weather the current storm in the mortgage business.

Unlike Countrywide, we don’t have any material assets to finance outside the bank.

There is much discussion about whether BofA will allow Countrywide to stay in the Wholesale business. Is Indymac bank committed to the Wholesale (Mortgage Broker, Banker and Financial Institution) business?

As we have stated consistently through this crisis, Indymac is very committed to the Wholesale business. Wholesale has been Indymac’s biggest and most profitable business unit over the years, and it’s our goal to return that business to profitability in March. That’s why we’ve had to take the steps we’ve taken, so we can right size our wholesale model for the new realities of the market.

So, if you’re committed to the wholesale (Mortgage Broker & Banker) business, why did you consolidate five Regional Centers and layoff employees?

We had hoped that the voluntary rightsizing efforts that we took in September would allow us get back to profitability in our Wholesale business. But, as we all know, the market has taken a further turn for the worse, and industry volumes have dropped further. As we reviewed our volume trends by Region, we determined that we could still serve our customers regionally by consolidating these five Regional Operations Centers into other existing centers without compromising our quality or customer service levels.

Indymac’s niche used to be Alt A. What’s Indymac’s niche going forward?

Due to liquidity constraints and worse-than-expected performance, we have seen an unprecedented contraction of guidelines in all corners of the industry. What was originally limited to Subprime guideline cuts has now adversely impacted Agency flow (DU/LP), Alt A and Super Jumbo guidelines.

We strongly believe in a market where all guidelines are basically the same, such that lenders are going to have to compete on service. Therefore, a couple of months back we made significant organizational and cultural changes to better focus all of our resources on customer service. Our new Regional CEO structure empowers our local leadership to ensure that you have the very best customer experience on every loan that you entrust to us. We have enlisted our strongest and most senior leadership to run each of these Regional Centers.

We have also terminated thousands of customers who consistently provided us with poorly performing loans on a risk-adjusted basis or wasted our underwriting resources with poorly packaged loans that never closed. This is freeing up our underwriting resources to underwrite loans faster and spend more time partnering with our valued customers.

All of these initiatives have allowed us to significantly improve our customer service even in a difficult market.

Are we continuing to invest in the Wholesale (Mortgage Broker & Banker) channel?

Absolutely. While many national banks are heading out of the Wholesale business, Indymac remains strongly committed to it. In fact, here’s just a sampling of the kinds of system enhancements we’re working on right now to be more effective in the Wholesale arena:

Reconciliation of Liabilities and Public Records:
Currently, e-MITS® does not allow reconciliation of liabilities, bankruptcies, foreclosures, etc. preventing Loan Officers from modifying data reflected on a borrower’s credit report. However, there are enough legitimate reasons to “question” erroneous information on the credit reports. This functionality will allow Loan Officers to reconcile liabilities, bankruptcies, foreclosures, etc. and provide supporting documentation. We believe that this additional functionality will minimize, if not eliminate, the back-and-forth communication between customers and underwriters with respect to potential erroneous credit report data.

This functionality is being piloted right now and will be rolled out to additional customers within the next 60 days.

Multiple Uploads from LOS to Indymacb2b.com:
Currently, Loan Officers can import data from their LOS only once. If they make any data changes to their LOS after importing into e-MITS, such changes have to be done manually in e-MITS. This functionality will allow Loan Officers to import loan data multiple times from their LOS into e-MITS. As a result, Loan Officers will be able to update their loan data more efficiently and accurately into e-MITS.

This functionality is being piloted right now and will be rolled out to additional customers within the next 60 days.

DO/DU Condition Re-organization:
Some of you feel that e-MITS “re-underwrites” loans that have already been approved by DO/DU through Loan Officer’s independent submission to DO/DU. We believe that the format and organization of our conditions for Agency loans causes that misperception. We’ll address that perception by altering the format and organization of the conditions. DO/DU loans submitted to e-MITS will show conditions in the same format as used on FNMA’s DO/DU systems. Familiar FNMA Condition categories and sub-categories will help you recognize and locate conditions displayed within e-MITS. Lender-specific e-MITS conditions will also be presented distinctly from FNMA Underwriting Findings, as well as organized more intuitively. Lender-specific conditions will be organized by when the condition must be delivered to IMB (e.g. prior-to-doc, prior-to-funding, post-funding, etc…).

This functionality will be released during Q1, 2008.

Speedpass for DO/DU loans:
A number of Loan Officers access FNMA’s DO or DU systems on their own for securing approval on Agency loans. We have received feedback that our process for pricing and locking such loans is cumbersome. We are overhauling the process to make it easy for Loan Officers. Loan Officers will be able to price and lock DO/DU loans with four mouse-clicks and five additional data fields.

Behind the scene, e-MITS will interface with FNMA and import the following data:

1. Loan data
2. Credit Report
3. DO Underwriting Recommendation and corresponding Underwriting Findings

This functionality will be piloted in Q1, 2008, and will be rolled out to additional customers in Q2, 2008.

FHA/VA:

e-MITS will provide automated underwriting decisions and pricing for FHA and VA loan submissions.

This functionality will be released in Q1, 2008.

e-Loan Folder:

We are piloting e-Loan Folder functionality right now. Essentially, e-Loan Folder allows you to: a) electronically deliver loan documents like credit packages, underwriting / funding condition packages, and closed loan packages, and 2) view all delivered loan documents online.

This functionality is being piloted right now and will be rolled out to additional customers within the next 60 days.

I hope I’ve answered all of your questions. We are very committed to the mortgage broker, banker and financial institution business and stand committed to the business in 2008 and beyond. If you have any additional questions or comments, feel free to email me at frank.sillman@imb.com

Thanks for your business.

Frank Sillman Chief Executive Officer Mortgage Bank Indymac Bank