Today's Biggest Loser: IndyMac Bancorp

IndyMac Bancorp, Inc. (NYSE:IMB) shares are down 14% and just hit $1.34 a share. A year ago they traded above $33 which comes out to a -96% Return, but who's counting?

Shares of IndyMac are seeing heavy volume today: the stock has already traded more than 3 million times, compared to its daily average volume of 4.5 million shares.

Masters hoping for a bounce here, forget about it.  If Bear Stearns went for $2 a share the IndyMac could go for 10 Cents.  Dead cats bounce better than IndyMac.

Via Forbes.com -- (May 27th, 2008) UBS analyst Eric Wasserstrom cut his price target on the stock to $2.25 from $5. The price target was cut because IndyMac is unlikely to return to profitability in the near future and will like need to raise capital to shore up its books, Wasserstrom wrote in a research note.

Wasserstrom reduced his 2008 loss estimate to $4.65 per share from $1.50 per share and now expects IndyMac to lose 95 cents per share in 2009, compared with a previous estimate of earnings of 50 cents per share for the year.

With IndyMac's stock price being so low, Wasserstrom said the lender will likely have to raise capital through the sale of assets or from a strategic investor and not through issuance of new stock. Possible asset sales include the sale of its Financial Freedom unit, which provides reverse mortgages.

Reverse mortgages are loans that are given to homeowners over the age of 62. The loan accrues interest, but does not have to be repaid until the homeowner moves out of the home or dies.

Mortgage production at IndyMac will also remain weak as the housing market continues to falter, Wasserstrom wrote in the note. A new report Tuesday showed first-quarter housing prices showed their steepest decline in the past 20 years.

A rise in non-performing assets will also pressure IndyMac's financial results, Wasserstrom said. Like other lenders, IndyMac has struggled since the middle of 2007 with a spike in delinquencies and defaults among mortgages. As delinquencies and defaults have risen, lenders have been forced to set aside more cash to cover losses, further pressuring quarterly results.

Lenders have also tightened their underwriting guidelines to avoid continued increases in defaults, further reducing their origination volume.

IndyMac was forced to alter its origination mix to nearly all traditional, prime loans from alt-A mortgages - loans given to customers with minor credit problems or who did not have the documentation to get a traditional, prime loan. The change in lending was spurred by investors unwilling to purchase riskier alt-A mortgages because of rising delinquencies and defaults.