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IndyMac Reverses Course

Shares rise on a bet the worst of the subprime mess is past.



first-quarter profit slid 34% in an increasingly poor environment for risky loans.

The Pasadena, Calif.-based thrift, which is the second-largest independent U.S. mortgage lender, made $52.4 million, or 70 cents a share, beating analysts' estimates by 3 cents. In the year-earlier quarter, IndyMac earned $79.8 million, or $1.18 a share.

Net revenue, which fell slightly from the year earlier to $302 million, beat analysts' expectations by 6%.

"While we are disappointed with these results because they are considerably below our historical levels, our earnings must be considered solid in light of the challenging conditions we faced this quarter, particularly with respect to significant and unusual spread widening for private mortgage-backed securities and increased credit costs," said Michael Perry, its chairman and CEO. "Very few mortgage companies earned a profit during the quarter and many, in fact, failed."

IndyMac's margins on mortgage banking revenue fell to 0.68% from 1.10% a year earlier and 0.91% in the fourth quarter.

The decline was "primarily due to spread widening caused by the secondary market disruption in the first quarter of 2007, higher credit costs attendant with early payment defaults on loans prior to sale, an increased secondary market reserve provision and a loss on sale of loans previously held for investment," it said in a filing with the

Securities and Exchange Commission

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During the first quarter, the company sold $24.5 billion, or 96% of mortgage loans produced. The sale generated $117.5 million in gain on sale revenue. By comparison, it sold $16.7 billion in the year-earlier quarter, generating $141.2 million in gains.

On the bright side, servicing revenue at the lender rose 62% to $156 billion.

The company disclosed last week that loan production for the quarter rose 27% from a year earlier but fell 2% from the fourth quarter to $25.9 billion.

But net losses related to loans held for sale increased to $24.1 million for the thrift during the first quarter from $17.7 million from the fourth quarter. The losses were driven primarily by deteriorating credit performance from subprime loans and 80/20 piggyback loans, IndyMac said.

Late in the first quarter, IndyMac said it tightened its lending standards, which it anticipates will cause a scaling back of its business. It plans to shift its focus to other less risky loans, such as loans insured by the Federal Housing Administration and Veterans Administration.

IndyMac said Thursday that it anticipates that second-quarter earnings results will be similar to the first quarter's. Its mortgage production is expected to fall in the second quarter given "continued secondary market and credit pressures," among other things, but it expects "solid" profit from its servicing and banking segments.

IndyMac is planning to change its ticker symbol to IMB on May 1, which incorporates the company's new logo and a "better representation" of its business, it says.

After falling 2% early, IndyMac rallied at midday and was up $1.51, or 5%, to $32.48.