How bad off is IndyMac?

Here's an amazing number to ponder: A whopping 61 percent of IndyMac stock available for trading had been sold short as of last month. That is, investors are betting in large numbers that shares of the Pasadena mortgage lender - the nation's second-biggest home lender - will go down. And they've been right: Its stock price is down 46 percent this year (it’s even down on the days when Countrywide is up). The question is whether IndyMac is in as bad a shape as those numbers would indicate. The answer is we don't know. The main worry is writing down huge amounts of loans. CFO Scott Keys won't talk specifics, other than saying that third-quarter results would range from breakeven to a $36.8 million net loss – and that doesn’t tell us much. Bloomberg columnist Jonathan Weil is among those who can't figure out how badly off the company is (the stock is down today another 2.4 percent).

Consider this: Keys forecasted that, come Sept. 30, IndyMac still would be holding $6.3 billion, or 32 percent, of the estimated $19.71 billion in newly produced loans that it put up for sale during the third quarter. The unsold loans consist mainly of so-called Alt-A mortgages to customers who fall short of qualifying for prime rates. Many of them locked in their rates during the second quarter before the credit markets seized up. By comparison, the company at June 30 had retained a mere $184 million, or less than 1 percent, of the $20.38 billion of loans it put up for sale during the second quarter. Explaining the third-quarter surge in retained loans, Keys cited ``no liquidity in the secondary markets.'' He added that the Pasadena, California-based company recently overhauled its business model, so that it now mainly produces loans that qualify for sale to Fannie Mae and Freddie Mac.