Bright futures for your children with an option ARM/HELOC

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graphrix_IHB

graphrix_IHB

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<p>IndyMac helped Henry have flexibility with his payments especially since he is a contract worker and couldn't verify his income. But he has never had negative amortization and with the HELOC he can send his kids to college. </p>

<p>Warning this is not a joke and this PDF is from IMBs website. Do not and I mean do not drink while reading this or have any sharp objects near by. Go to page 3 of the <a href="http://indymacbank.com/bankauto/content/eng/investors/2007factQ1.pdf">PDF</a> and you can see what I a talking about.</p>

<p> </p>
 
I believe, this is a scenario MANY people in Socal seem to be doing. HELOCs were like credit cards, except you really didn't get nagged to pay off the thousands of accumulated debt. Fancy SUV's with new sparkling dubs, stereos, plasma, LV handbags, etc seem to be the lifestyle all this quick "equity" reinforced. Unfortunately, reality is going to hit hard, and this were the economy is going to get hit hard. Auto dealers, electronics dealers will see sales drop, and consumer spending has to decline. If you can't make more your mortgage, you're probably are not going to buy that new 65" plasma TV.

<p>

Sadly, I do know people like the Munoz in the IMB PDF, equity, was/is their retirement, their college savings, everything. Diversification? Ha, 100% in real estate.. I just hope they've been maxing out on their 401k contributions.
 
<p>And using home equity to pay for one day of wedding festivities? Oh no. They are making their house work hard and one day the house is going to say, enough, goodbye!</p>
 
i like the, <strong>"... more importantly, they made their own fully-informed choices..."</strong> on the bottom of page 3. i bet indymac's lawyers made sure it was phrased that way.
 
<p>And now allow for me to give you some numbers from the latest 10-Q:</p>

<p>$1 billion of option arms account for 22% of their loans held for sale investment portfolio (you know they stuff they haven't found suckers like Bear Stearns to pawn the garbage off too yet). Henry is in the minority (no pun intended) at 12% because the other 88% was going negative resulting in a $38.6 million increase for 74% YOY. Of course that $4.8 million increase in the quarter was booked as interest income. The LTVs decreased from 73% to 67% because they use the OFHEO housing price index which was up but 56% of their business is in CA and OFHEO doesn't apply. Even though the Case & Shiller index was down 2.8% and since they are a bit hazy here on whether the price increase is quarter or YOY that could mean the LTV is 78%. Of course Case & Shiller shows San Diego down 7%, San Francisco down 3.4% and LA down 3.3% for an average of 4.9% which sounds more realistic if you include all of CA. Then how many of the option arms are part of the 56% of their CA business? Let's assume the 4.9% is more accurate then that would mean the LTV is 80%.</p>

<p>Now is it really any wonder why AHM and IndyMac are having problems when they use spin to hide the facts above? Not to mention the loans they hold for sale right now are not "worth" what they want so they just keep holding them for one day the market will improve. If they priced these "assets" at market value they would have a lot less cash especially when the loan amount nearly doubled. Non-performing assets were up 345% and their repurchases increased 356%. </p>

<p>Nope no problems here because they didn't do much sub-prime business. Everything is well contained.</p>
 
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