Bonds News

IndyMac trades first US mortgage bonds in 36 days

NEW YORK, Aug 27 (Reuters) - A unit of IndyMac Bancorp Inc. IMB.N, the ninth-biggest U.S. residential mortgage lender, said that on Friday it traded its first mortgage bonds in five weeks in one of the first signs the market is recovering.

The Pasadena, California-based company said it traded $240 million “AAA” rated bonds backed by prime jumbo fixed-rate loans and $350 million of top-rated securities supported by payments on prime jumbo adjustable-rate loans.

Prices accepted by IndyMac for the trades "reflect an improvement over several 'fire sale' trades made by others in recent weeks," IndyMac communications director Grove Nichols said Monday on IndyMac's corporate blog,

The trades, the first since July 19, are “the first small sign that the ice is beginning to melt” in a market frozen by fear, he wrote.

Rising delinquencies on loans, notably subprime and in the “Alt-A” sector where IndyMac specialized, had fueled an investor revolt that in recent weeks spread to prime mortgages and even non-mortgage credit markets.

The ability of IndyMac to just agree on prices for bonds with a buyer suggests the $7.2 trillion mortgage bond market that supplies money for most U.S. home loans is getting back on track, analysts said.

Investors may now be more comfortable with high-rated mortgage bonds since yields are higher, lenders have strengthened underwriting standards and securities have greater protections against default, Nichols wrote.

The trades followed IndyMac’s decision two days prior to resume originations of residential jumbo mortgages. Jumbo loans are made to borrowers with strong credit and exceed the $417,000 cap that limits purchases by government-chartered companies Fannie Mae and Freddie Mac. IndyMac said it would retain the loans on its balance sheet until the secondary market recovers.

The “agency” MBS market in which bonds are guaranteed by Fannie Mae and Freddie Mac trade was weakened recently by the credit squeeze. (Additional reporting by Jonathan Stempel in New York)