Indymac Issues Stakeholder Letter - Going Down

While this is a disaster pending, it is a great time for successful shortsales with Indymac, if you know how to negotiate and deal with loss mitigators (not to mention less of them now).

Our last two successful shortsales have been with Indymac with a 61% discount of FMV (one was 46% of loan balance). So get ready for a flood of shortsales that may approve easy with Indymac.

Enjoy,

Ron

Indymac Issues Stakeholder Letter PASADENA, Calif., Jul 07, 2008 (BUSINESS WIRE) –

Indymac today issued the following letter to its stakeholders: Dear Indymac Stakeholders: In this very difficult and challenging environment, any of the actions that we take to keep Indymac safe and sound unfortunately have negative consequences to some important constituency. As we stated in our financial update on May 12, 2008, we have been working with our investment bankers to raise additional capital. To-date, we have not been successful with these efforts, and, while we will continue these efforts with our bankers and others, we don’t expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets. While some shareholders may believe it is in their best interests that we not raise capital right now given the significant dilution that it would cause, there are consequences of not being able to raise more capital and, therefore, actions that we now must take. Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters. In light of the current environment and related deterioration of our financial position since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping Indymac safe and sound through this crisis period. In that respect, based on information we have provided to our regulators, they have advised us that we are no longer “well capitalized”, which we stated on May 12 was a possible scenario. Our regulators have also asked us to submit to them a new business plan for their review and approval, something on which we have been working with them for some time. We have agreed on the basic elements of the plan, and the regulators have directed us to begin executing on it. An important element of our plan is to improve our capital ratios. Without an external capital raise, the traditional way to improve safety and soundness is to sell assets and shrink the balance sheet, which in normal times generally has the effect of improving capital ratios and bolstering liquidity. Yet in this environment, where either there are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide, “fire-selling” assets would actually deplete capital further.

As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production. In addition to needing to shrink our assets to improve our capital ratios, we also need to do so to ensure that we maintain prudent operating liquidity. A consequence of falling below well-capitalized is that we are no longer permitted to accept new brokered deposits or renew or roll over existing ones, unless we get a waiver from the FDIC. While we have submitted a waiver application, it is uncertain as to whether such a waiver will be granted. As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital. In closing our forward mortgage business, we will refocus our lending efforts on supporting and building within regulatory constraints Financial Freedom, our reverse mortgage unit (FHA production only), and on continuing the retention activities associated with our servicing portfolio. Combined, we currently expect these units to produce roughly $5 billion to $10 billion per year of new FHA/GSE loans. Thus, our core business model will include (1) Financial Freedom, one of the largest reverse mortgage lenders in the Country; (2) a top ten mortgage loan servicing operation, with a solid retention production unit; and (3) a Southern California retail bank branch network, including 33 branches and roughly $18 billion in deposits, of which over 96% is fully covered by FDIC insurance.

In addition, when this housing and mortgage crisis abates and we return to health, we would also hope to be an investor in mortgage loans and mortgage-backed securities and might re-enter the national forward mortgage production business with a low-cost, non-commissioned-based business model.

Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%. We will retain about 1,100 employees in loan servicing in Kalamazoo and Austin; 350 in our servicing retention group in Irvine and Kansas City; 800 at Financial Freedom, primarily in Irvine, Sacramento, and Atlanta; 400 in our Southern California retail and web bank; 500 in portfolio management and administration, largely in Pasadena; and 250 in discontinued businesses. In building Indymac up from 4 employees in 1993 to its present size, we have had to retrench and then rebuild several times over the past 15 years, but clearly these are the largest and most difficult staff reductions we have ever had to make. If we had another alternative, we clearly would have chosen it, as we understand how painful these workforce reductions can be for the affected employees and their families. Given Indymac’s current financial position and these significant layoffs, I strongly believe it is appropriate that I further materially reduce my own compensation.

As a result, I have requested of Indymac’s Board of Directors that they reduce my base salary by 50%.With respect to severance, our policy has always been that the fair and right thing to do is to provide our departing employees with a generous severance program to ease their transition to the next stage of their career. Our severance program, which provided one month of pay and one month of Indymac-paid COBRA insurance coverage for each year of service, was clearly the most generous in the mortgage industry, if not among most of the Fortune 500. I very much regret that the reality today, however, is that we can no longer afford this program given our need to preserve capital and return to profitability. Therefore, we will be providing employees with a minimum 30-day notice of the termination of their employment (effectively, 30 days severance), with employees covered under the Federal WARN Act and similar state statutes (”WARN”) receiving 60 days of advance notice prior to the effective date of the their termination. Affected employees with five or more years of service will receive a minimum $20,000 severance, including any compensation payments made during the notice period.

With all of the above said, in this environment plans can change often and quickly (e.g. ability to raise capital and/or liquidity, regulatory actions, etc.). All we can do is continue to work hard and do our vey best to keep Indymac safe and sound, so that we can rebuild our workforce and shareholder value when the housing and mortgage markets stabilize. We will be providing more information on our plans and prospects when we release Q208 earnings.

Very truly yours,
Michael W. Perry
Chairman and Chief Executive Officer

Face the Fears You Have

Some encouraging advice: Face the fears you have. Yes, it sounds so simple, yet we both know that it much harder to take that action. Once you take that action and face your fears, you’ll realize that it was not as bad as you “thought” it would be. You’ll even look back those moments and laugh at the fear you built up in anticipation of that first meeting, first answer, first “pull the answer out of your…”, first mistake, fifth mistake, tenth mistake, first hostile person, or that first tongue-tied moment.

As a real estate investor, you need to remember is 99% of distressed homeowners are truly motivated. They need your help. They will listen to anything you say, and they will sign anything. Some might even sell their soul, but I do not recommend that you take that offer.

We have an investor we work with who was completely up in arms about having a homeowner sign a durable power of attorney, which gives the investor complete control over the homeowner’s life. He felt that it was too much power and did not want to put the homeowner in jeopardy (hmm, weren’t they already in that situation?). His fear was big over something that was small compared to the problem the homeowner faced.

Now that we have done a deals, he looks back at his earlier fear and laughs. He has no problem having someone sign a POA or any other type of document. Remember, these documents are to protect us as investors, help homeowners and ultimately, get deals done. Having the durable power of attorney serves the distressed homeowner, especially if the homeowner disappears before a short sale can be completed.

Our first meeting with a homeowner, we did everything wrong and we didn’t know all the answers, yet that homeowner signed everything. The homeowner even said he would give us all the new refrigerator, washer, dryer, and dishwasher if we would just solve his problem. He wanted us to take them. I offered to pay, but for honor, I choose not to take the appliances for free until we upheld our promise to complete a short sale for him.

The mistake we made afterward? We should have taken the appliances up front because we could not get in touch with him afterwards Lesson? Take the stuff! Get all the paperwork signed and get everything up front. Be stern (it works).

We made several mistakes on the way, and yes, we learned from each one. You have to make those mistakes. You need the practice. You need real world experience so when the great deals come by, you are truly ready.

One $10K mistake we made changed the way we do everything, and we look back at it as one of the best mistakes we ever made. What was this change? From now on, we get a house under contract, no matter what.

We have also added software to help us do repair estimates and generate three offers to show homeowners. People have a hard time arguing with a computer spitting out repair estimates and offers. They will actually help you make the correct offer when they are show our true holding costs. They have a “ah-ha” moment and say, “I didn’t realize how much repairs and costs were involved to buy property.” We even had several people cry because we could not make a cash offer when the software offers came back “bad.” We helped relieve their concerns with ashort sale option. We bought one of the “criers’” houses though a short sale.

Lesson: Mistakes can be good.

Go out there and practice. Later, you will laugh at the moments of mistakes, the feeling of not knowing all the answers, and the feeling of embarrassment. After our first homeowner experience, all our fears went out the window. Today, we visit distressed homeowners with confidence and the mentality that they need our help. We can help.

Here are some suggestions for getting started in your real estate investing business.

1: Learn how to do repair inspections that include cost estimates in a price list or spreadsheet. Go to your local college and take the 3-day inspection class for $60. Try Pete Youngs’ Web site for information on rehabbing houses. Even if you don’t do rehabs as part of your investing strategy, it helps to know what to look for when making repair estimates. Try the National Repair and Remodeling Estimator from Craftman-Book.com.

2: Learn to build rapport with people. Your first 10 minutes with homeowners be focused on them. Ask them questions about their lives. Find things to talk about. Look around their house and find something to talk about. There are lots of books about building instant rapport with people. We get every single deal under contract despite our competition. We responds quickly to their calls, build rapport, offer solutions, and make them feel comfortable with us. They trust us because of our honesty, and they always choose to work with us instead of with other investors.

3: Never stop learning. Buy books, borrow books, and go to the library. You need to ingest everything single thing you possibly can all the time. Even on the toilet, you should be reading books about real estate, self-motivation, self-improvement, and basket weaving. I have made hundreds of thousands of dollars from the education I got in the bathroom. Go to seminars, attend your local real estate investors’ association, visit real estate forums online, and network constantly. Build a lot of relationships, as you never know how valuable they will be until you need them or until they land deals in your lap. Opportunity arrives for those who prepare.

4: Get Cory Boatright’s Short Sale Fundamentals course. Cory is a great resource of information and practical experience.

5: Market continuously. We use hand-written envelopes with cute stamps. You can hire someone to mail hundreds of letters. We use special handwriting fonts and print the envelopes on a high-speed printer. We also negotiated a swap to get an envelope folding machine for free.

6: Always ask. If you don’t ask for something you want, you’ll never know if you could have gotten it. “Be careful of what you ask for, as you just might get it.” I asked for an auto disk formatter for free, to only trade it for the envelope folder I wrote about above, all by asking! A 3.5 auto disk formatter is worth $50, but an envelope feeder worth $1000. Practice doing this, and you’ll be good at negotiating with homeowners, investors, and loss mitigators.

7: Go out and do something. Take action. Make that phone call, practice negotiating with your partner, make a few mistakes, and always follow up! Tip: keep a smile on your face when talking. It will boost your inner self, and you’ll sound friendly and happy to the other person on the phone. (I learned this from a friend who is a radio personality at the biggest radio station in the U.S.)

8. Dream build! Go look at that sports car. Look at that dream home. Get that yacht and Robb Report magazine. Put a picture of your dream on your refrigerator, bathroom mirror, in your underwear drawer (make it personal!), and anywhere else you are reminded why you are building a business.

Oklahoma City- America’s #1 Recession-Proof City

Some people say it’s impossible to make predictions about the economy.

I disagree.

I moved to Oklahoma City in September 2006 expecting its housing market to remain stable through the coming recession. The market is beginning to confirm that expectation.

Forbes recently made a list of America’s top ten recession-proof cities (out of the fifty largest cities).

Oklahoma City is #1 on that list.

Nationally, home prices are falling, unemployment is on the rise and the economy is expected to grow slowly–or even contract–in the first half of the year.

But some cities are doing just fine.

Take Oklahoma City, Okla. With falling unemployment, one of the country’s strongest housing markets, and solid growth in agriculture, energy and manufacturing, it looks best positioned among the nation’s largest metropolitan areas to ride out the current crisis.

Forbes is good about providing evidence to support their rankings. Here’s their analysis of Oklahoma City:

Oklahoma City, Okla.
Median home price: +8.2%
Unemployment: 3.5% (from 4.7% in February 2007)
Key growth: Leisure and hospitality, +6%; construction +11.5% from 2007

Did someone say something about a recession? With falling unemployment, one of the strongest housing markets in the country, and strong growth in agriculture, energy and manufacturing, Oklahoma City might not have received the recession memo, and it looks best positioned of the nation’s metropolitan areas to ride out the current crisis. Booming valuations of Oklahoma City’s largest companies, like Devon Energy and Chesapeake Energy, suggest the energy sector is the right place to be.

The price of oil may fall in a recession as it has in the past. That would hurt Oklahoma City’s housing market. Despite this, our cost of living is so low that housing doesn’t have much room to fall before bottoming out.

We all make predictions about the economy, whether we realize it or not. Someone who chooses to live in San Jose, CA is inadvertently betting that housing prices won’t drop there - or he is willing to accept whatever decline occurs. His neighbor, who moves to Oklahoma City or Houston, is also making a bet. It’s simply a more conscious one.

What are you betting on this year?

Real Estate Investors’ Clubs

I just got back from a Mastermind Group meeting sponsored by Millionaire Possibilities, a real estate investors’ club in Oklahoma City.

If you’re considering investing in real estate, it’s a good idea to attend the investor club meetings in your area. The more experienced members of these groups are in touch with the market. They can help you develop a business strategy, even a slower market like this one.

The clubs are also a good way to get leads on properties, find contractors, and network with other investors.

Here’s a quick summary of how the clubs in the Oklahoma City area have helped us in the last month:

• We received leads on two newly built, overleveraged houses in Oklahoma City through members of the club. Since the homeowners have missed payments and owe more than their houses are worth, we’re doing short sales on both.
• One of our short sales was approved in Edmond, OK. We’re listing it on the MLS through a club member.
• We bought a house in Edmond by taking over the existing loan and did three weeks of rehab work using contractors from the clubs. The first person who walked through the finished house put the house under contract and has agreed to close by May 1.
• Three members of the club called me to ask for advice about whether to buy houses they had put under contract. After hearing how much work the houses needed, I advised them to consider whether they’d be able to make any money on those houses after paying for rehab work, interest on their loans, Realtor commissions, and closing costs. They decided to use the inspection contingencies in their contracts and will not be buying those houses.

Use the links below to find real estate clubs in your own area. After you visit, post a comment here and let us know what the meetings in your area are like.

List of clubs at the REIclub Web site

List of clubs at the CREonline Web site

Robert and Angel Elder are the founders of Millionaire Possibilities.

Short Sale in Edmond, OK

A short sale can take a long time, even though the lender tells the homeowner to find someone to do a short sale. We have one in progress that the lender has postponed the sheriff sale on four times, despite the fact that the lender has told the home owner to find someone to do a short sale. They have lost the Authorization to Release which allows us to negotiate with the lender on the homeowner’s behalf and say to the homeowners, “no one has called us”. This is typical. Persistence pays off on short sales.

We just had a short sale approved earlier this week and should close end of April 2008, though it almost went to sheriff sale. Four minutes before the sale, the house was pulled off the sheriff sale list. Talk about being saved by the bell!

This is a 130K-140K home with approx 10K repairs. We will list it at 110K “as is,” and it should sell quickly. It’s located in Edmond, Oklahoma, a city with housing appreciation, and sits on more than an acre of land. After expenses we should net 15-19K after doing only 10 hours of work, mostly dealing with the homeowner and preparing the proper paperwork for the lender.

The good news? We just saved an ex-nun from foreclosure and helped her work out a budget to get her back on track. We take the time to actually help people beyond just buying their houses. After closing, we will still attempt to short the balance of one of her bills, even though it’s not attached to the house as a lien. We want to help her.  The moral? You can have a heart and still be rewarded!

If you are interested in buying or selling properties via the shortsale visit us at www.ronnproperties.com .  If interested in having monumental investment returns visit www.thenotemachine.com

Thank you, 

Ron Harris

Ronn Properties, LLC
ronn@ronnproperties.com
www.ronnproperties.com
Kill two bugs with one byte…™

Short Sales Now Widespread

April 8th, 2008 by Marco Santarelli

Roughly 20 percent of all U.S. home sales in March were “short sales” according to a real estate industry survey conducted by Washington-based Campbell Communications. According to their research, two-thirds of short sales are initiated by homeowners and one-third are launched by mortgage lenders (as a foreclosure alternative).

In a typical home transaction the seller gets final say on which buyer gets the home, but in a short sale the lender weighs in on that decision, since it’s the lender who won’t recoup 100 percent of the seller’s mortgage balance as in a “normal” home transaction.

Buying a Short Sale Can Be A Time-Consuming ProcessIt is important to know where the seller is in terms of discussions with the lender. The lender can drag the short-sale process on for a very long time. An offer may take anywhere from four to six weeks to get a response. But if the buyer is in the market to purchase a short-sale, then patience is going to be vital in order to pick up that good deal.

 

http://www.noradarealestate.com/blog/short-sales-now-widespread/