IndyMac Hurt by Piggyback and Builder Loans

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IndyMac is taking a pounding with it’s stock down 70 percent on the year and the prospects not looking much better. The irony is that one of their greatest pains is now piggyback loans.

You know, the piggyback loans that are were designed to save homeowners from having to pay mortgage insurance to protest lenders against bad loans. The insurance that would have taken the edge off the housing downturn. Yep, that insurance.

That is the problem with new theories in industry. Sometimes they do help make the world a better place, but sometimes they obliterate the logic that went into the conventional wisdom that kept an industry afloat and successful for so long. So innovation like the piggy back loans sure saved the consumer some money and gave the mortgage brokers a new revenue source.

However, there has been a good reason for the mortgage industry having buyers take out mortgage insurance policies instead of secondary loans. And that will be the true lesson for the coming few years.

“Delinquency trends in September rose sharply versus even August at IndyMac and for the industry,” he said, singling out “piggyback” loans, or loans taken out by those who don’t come up with a significant down payment and so take out a second loan to cover the purchase price. Some of these second-lien loans are proving worthless as home prices fall. “We’re writing them off,” Mr. Perry said.
He said the percentage of IndyMac’s loans to home builders that are “nonperforming” could rise to around 30% by the end of this year from about 10% as of Sept. 30. Builders have been hurt by plunging sales and prices amid a glut of homes on the market in some areas. via WSJ.com.

Related posts:
  1. Bank of America To Modify 630,000 Loans in 2009 To Avoid Foreclosures
  2. FHA Creating Next Housing Bust? 1 in 8 FHA Loans is Delinquent
  3. Alert The Media – Banks Are Making Commercial Real Estate Loans
  4. Why We Might See Another Housing Slowdown if FHA Loans Blow Up
  5. Home Builder Confidence Posts Biggest Gain In Five Years

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