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IndyMac's Issuance Activity Set to Erupt
Asset Backed Alert, Harrison Scott Publications Inc. (October 8, 2004)
IndyMac is planning a vast increase in its securitization volume.
As part of a broader reorganization, the Pasadena, Calif., company now plans to securitize almost all of the alternative-A, jumbo, subprime and home-equity loans it writes and buys. That's a major shift for the lender, which traditionally bounced between securitization and whole-loan sales to achieve the lowest funding costs.
Along with the increased issuance volume, IndyMac aims to issue its asset- and mortgage-backed securities on a predictable schedule, totaling $3 billion to $4 billion per month - or up to $48 billion per year. The company has sold $12.4 billion of securitization products so far this year. "We used to vary our securitization levels from month to month. It was very sporadic," said secondary-marketing head Andrew Sciandra, who oversees loan sales, settlements and structured finance.
IndyMac accepts that funding its loans almost solely though securitizations may sometimes cost more than whole-loan sales. But the company expects to reduce its funding costs in the long run, as investors become more comfortable with its issuance program and start to accept lower returns on the paper. "Investors really need to see your name on a regular basis," Sciandra said.
He predicted that the routine issuance - combined with the heavier volume of securities that IndyMac plans to pour into the market - would entice buysiders to undertake the due diligence necessary to purchase large amounts of the company's bonds.
IndyMac currently writes or buys about $3.5 billion of home loans per month. Roughly 80% of the credits are alternative-A mortgages, which do not meet the documentation standards set by Fannie Mae and Freddie Mac. Prime-quality, subprime and home-equity loans account for most of the rest.
Going forward, IndyMac plans to securitize its alt-A credits about three times per month. It also plans to float a subprime-mortgage deal each quarter. Every six months, it will conduct separate offerings backed by home-equity loans, second mortgages on new home purchases and "lot loans," which borrowers use to finance purchases of land where they intend to build houses.
IndyMac is also changing the way it selects underwriters for its securitizations. Rather than hiring the lowest bidder each time it comes to market, it now wants to rotate its assignments among specific groups of bookrunners. The lender recently selected Deutsche Bank, Morgan Stanley, RBS Greenwich Capital and UBS to take turns managing its subprime-mortgage securitizations - after receiving proposals from nine banks. It's still picking the underwriters for its other programs.
Sciandra took over IndyMac's loan-sales unit about three months ago, reporting to executive vice president John Olinski. He spent the previous nine months managing a $5 billion portfolio of prime-quality mortgages for the company. Before joining IndyMac last year, Sciandra had responsibilities at Washington Mutual's Long Beach Mortgage unit that were similar to what he does now.
To bolster its securitization initiative, IndyMac plans to add at least a half-dozen staffers to Sciandra's 50-member team before yearend. He's looking for professionals to structure deals, mortgage traders to buy the underlying credits, and structured-finance analysts to help the traders pick the right loans.