His vision was to write a comprehensive book, something similar to the New York Times Bestseller he co-wrote on the collapse of savings and loans: Inside Job, the Looting of America’s Savings and Loans (McGraw-Hill). As we began working on the book, Countrywide Financial’s situation deteriorated and Bank of America announced it would buy the ailing mortgage bank headed and founded by Angelo Mozilo. Muolo, who is editor of National Mortgage News, has known and had access to Mozilo for some 20 years and continued to interview him up until around January 2008, when Mozilo stopped talking to the press. We decided to make Mozilo the central character in the book, because Countrywide’s rise to dominate home lending (and its rapid implosion) coincided perfectly with the expanding role of Wall Street, mortgage brokers, and mortgage banks, after the S&L industry shrank.

My primary role with the book was to help tell the story of how a handful of men in Orange County came to dominate the process of making home loans to borrowers with a history of not paying their bills. I also contributed here and there to the book as needed.

Over the next few weeks and months I plan to publish information on the book and its findings. For now, I am happy to announce John Wiley & Sons this month is releasing Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis.

Muolo discussed the book with NPR’s Terry Gross on Fresh Air. CLICK HERE to listen. And to see the book on Amazon.com, CLICK HERE .

The short statement by Prospect did not disclose the price it’s paying and said John Johnston and Ron Bergum of IndyMac will remain in control of the retail operations, reporting to Mark Filler, CEO of Prospect. The statement also doesn’t mention IndyMac’s $18 billion in consumer deposits.

Northbrook, Illinois-based Prospect was founded in 2006 and is backed by investor Sterling Partners, based in Chicago and Baltimore.

Filler said in a statement, “The IndyMac transaction benefits our loan officers, customers, sales managers and referral sources. This is growth for the right reasons, not just for the sake of growth. The IndyMac transaction will enable us to increase our investment and success in marketing, technology, and customer service levels.”

I haven’t seen any statement from IndyMac on the deal, and media folks at the lender were not immediately available for comment. The company said Monday it is halting nearly all loans made at retail branches and via mortgage brokers and is firing 3,800 employees.

Related news:

• IndyMac halts lending, cuts staff in half
• IndyMac CFO leaves, no accounting disputes here, company says
• Sen. Schumer raises concerns over IndyMac’s solvency
• How bad are things at WaMu?
• IndyMac expects to lose money for all of 2008
• Downey, WaMu, Indymac plummet in thrift industry rankings

The bill by state Sen. Don Perata (D-Oakland) requires lenders or loan servicers to contact homeowners at least 30 days before issuing a notice of default, the first stage of foreclosure. The law, which takes effect in two months, also doubles the time renters have to move — from 30 days to 60 days — before they are evicted from foreclosed properties.

And the bill authorizes cities or counties to impose fines on lenders who fail to maintain foreclosed properties.

“Foreclosures not only devastate families they hurt neighborhoods and depress our economy and our budget,” Gov. Schwarzenegger said in a release. “So, I am proud to announce today that we are giving Californians one more tool to help them stay in their homes – without government subsidies. And I am confident that with this legislation we will help even more Californians keep the American Dream of homeownership alive.”

Related news:

• House, condo renters latest victims of foreclosure crisis
• Investor says only one road to foreclosure profit
• Fed does its own writedown
• Impac Mortgage close to deal on key credit line with UBS
• New Century’s top employees must share funds as bankruptcy nears a close
• SEC Chairman Cox under fire, report says
• No more lying about your income?

It declined to comment beyond the letter or say how many workers in Orange County will be let go.

Once the largest lender to borrowers with nearly perfect credit, Indymac said it expects to post a loss for the second quarter that exceeds its Q1 loss of $184.2 million.

It will halt nearly all loans at retail offices and via mortgage brokers. It will still make reverse mortgages to seniors. That unit is based in Irvine and will retain 800 workers there and in Sacramento and Atlanta. IndyMac also will continue to refinance customers whose loans are currently serviced by IndyMac — and will retain 350 workers in that department, including some in Irvine.

IndyMac said it’s working on a plan with regulators:

(B)ased 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.

Late last month, IndyMac experienced a mini run on the bank after Sen. Charles Schumer (D-New York) made public letters he sent to regulators, saying he is concerned about the financial health of IndyMac and that an insolvency situation could pose significant financial risks to its borrowers and depositors. Schumer said regulators may not be ready to intervene to protect consumers.

Related links:

• IndyMac CFO leaves, no accounting disputes here, company says
• Sen. Schumer raises concerns over IndyMac’s solvency
• How bad are things at WaMu?
• IndyMac expects to lose money for all of 2008
• Downey, WaMu, Indymac plummet in thrift industry rankings

All tested positive for West Nile, said Michael Hearst, spokesman for the Orange County Vector Control District.

Still, the county has not seen any human cases of the virus so far this season, he said. The results seem a little odd: the number of dead birds is higher than in 2004, when there were four human deaths.

One reason might have a lot to do with the flood of foreclosed homes in recent months.

Many have backyard swimming pools, and when these are abandoned, they grow stagnant and become ideal mosquito breeding grounds. One mosquito species, the western encephalitis mosquito, appears to be expanding its range as a result of the proliferation of abandoned backyard pools, Hearst said.

And on a related note, Bloomberg reports a rise in house arson could be tied to foreclosures in other states. Here’s more:

The biggest surge of mortgage defaults in seven decades coincides with an increase in blazes in foreclosed properties led by states with the most repossessed homes, according to fire safety officials in Nevada, Massachusetts and Ohio.

“The more empty houses we have, the more fires we are going to see,” said James Wright, chief of the Nevada State Fire Marshal Division in Carson City, the state’s capital. “It’s particularly dangerous for firefighters, because they don’t know what condition these buildings are in or what they might find in them.”

National arson statistics for 2007, due in September or October, probably will show a significant increase as foreclosures climbed toward an all-time high in 2008’s first- quarter, said James Quiggle, a spokesman for the Coalition Against Insurance Fraud in Washington.

To read the full story CLICK HERE.

Last year I shadowed Lee for a day and wrote a story about it. I had met him at a seminar and was impressed by his enthusiasm for investing in dud loans. Recently he and partner David Phelps have expanded their Web site foreclosuretrackers.com to cover all of Southern California as well as Clark County, Nevada. Last fall, the site just covered foreclosure filings in Orange County.

I quizzed Lee about the mortgage market, his business, and his prediction for a housing rebound. I have a feeling this interview will appeal more to housing bears than bulls.

Q. Foreclosures in Orange County have broken all the records set in the housing slump of the early 1990s. When is this bloodbath going to end?

A. I’m projecting that the market will start stabilizing in four to five years from now – 2012-2013. That’s not to say home prices will be back to their peak, which could take up to eight years. I base this opinion on proprietary information Foreclosure Trackers has at its disposal. Banks turn to Foreclosure Trackers as the first line of defense because we are defaulted mortgage experts and buyers. Banks send their portfolios to us for evaluation every week before anyone else in the nation. Our company is on the “inside track” with the banks and often times receives information first before the “outside” track – such as the government, title companies, investment firms, lawyers, real estate firms, and even competitor foreclosure sites.

Q. With so many foreclosures, how is an investor supposed to make money buying a property in some stage of foreclosure? As the housing bears like to say, isn’t buying a foreclosure now akin to catching a falling knife?

(more…)

It signed a letter of intent with UBS to convert a $200 million “warehouse line” into a “term facility” of 12 months with extensions for up to an additional 18 months if certain undefined targets are met. Generally, warehouse lines are short term credit lines that mortgage banks use to fund loans until they can find a buyer for them. Such lines can have higher rates of interest than longer term credit. It sounds to me like Impac is close to a final deal to finance over a longer period whatever loans it has been unable to sell.

Here’s how the company explained the deal: “The finalization of this new facility will remove any and all technical defaults for the Company that exist today and it will allow the Company to manage these loans for eventual refinance, sale or securitization through the normal course of its business operations without the risk of any margin calls.”

In exchange, UBS gets warrants to purchase 7 percent of Impac’s stock, which closed Thursday at 73 cents a share. Impac can cancel a portion of those warrants if certain thresholds are met. The company did not elaborate.

Joseph Tomkinson, CEO of Impac, said in a release, “We are extremely pleased to have agreed upon terms to continue the financing of remaining mortgage loans, giving the Company more time to maximize recovery on the sale or refinance of the loans. The anticipated finalization of this new facility will allow the Company to focus on new initiatives and strategies. As more progress is made in solidifying the Company’s future business plans, we will update our stockholders.”

All well and good, but let’s see if the deal actually happens.

Related news:

• It still pays to be a mortgage executive
• Has battered Impac Mortgage turned a corner?
• Impac Mortgage posts $2 billion loss for ‘07
• Home equity delinquencies highest since 1997
• Foreclosure auction firms accused of “bait and switch”
• That didn’t take long
• O.C. foreclosures hit new record in May, break 1,000 in a month for first time
• Orange County’s mortgage market distress could soon top the U.S.
• O.C. foreclosures rose in May, but totals differ in two reports
• O.C. mortgage delinquency rate climbs faster than state, nation

The affected employees — high-earning managers and sales leaders, but not top executives — were the last to object to the bankruptcy settlement, saying $43 million in a deferred compensation fund was in trust for them alone, reports Bloomberg. U.S. Bankruptcy Judge Kevin Carey disagreed. He used the so-called cramdown process to confirm the plan, after all other creditor classes approved it.

Previous media reports said the deferred compensation plan operated like a retirement fund but without the special protections of a 401(k).

Creditors will get a range of pennies on the dollar. Bill Rochelle of Bloomberg writes: “The plan provides that creditors of the operating company whose claims total between $790 million and $1.6 billion should see somewhere between 3.5 percent and 23.6 percent. Unsecured creditors of the holding company could expect between 1.9 percent and 14.3 percent on their claims ranging between $340 million and $520 million.”

As previously reported, stockholders get nothing. At its peak, New Century was worth about $3 billion on Wall Street and made some $60 billion in loans in a year.

Related News:

• Obama takes swipe at New Century, auditor
• Another subprime hot dog
• New Century’s bankruptcy report blames KPMG, executives for misstatements (Update)
• Downey president leaves, company mum on cause
• Distressed homes now 40% of O.C. supply
• And the credit crunch rolls on
• Do we need a bailout now?
• Sen. Schumer raises concerns over IndyMac’s solvency
• REITs? Forget it.

Rumors questioned its solvency and whether it is for sale because its web sites are down this week, but those are totally unfounded rumors, said David Cohen, a Lake Forest resident who heads the mortgage unit, which is now Iggyshousehomeloans.com and used to be buysidemortgage.com.

The initial pitch of Iggyshouse.com and one of its related sites was to list homes on the MLS for free and rebate 75% of the seller’s commission in a home sale to the buyer. It keeps the other 25%.

Among its sweetened offers to be revealed next week will be an additional 5% discount if the homebuyer gets a mortgage via the online site, Cohen said. As I wrote last year, part of Iggys House is an online mortgage brokerage, where ‘brokers’ are salaried employees. They do not earn a commission for closing a loan. But they do get money from the lender, known as a yield spread premium, for each loan.

Still, there may be more going on here.

Inman News quotes Joseph Fox, the chief executive of Iggys House, as saying some brokers are no longer with the company and that he could not provide many details on the restructuring.

Fox and his brother Avi founded BuySide Realty, a buyer-focused discount company that was the predecessor to Iggys House. They had previously founded online brokerage Web Street Securities, which they sold to E*Trade in 2001 for $45 million in stock.

Glenn Roberts Jr. of Inman writes that there were plans to take Iggys House public as well, but that didn’t work out.

The company previously reported a loss of $3.15 million for the first half of last year, according to Inman.

Related news:

• Can the Web keep brokers honest?
• And the credit crunch rolls on
• Do we need a bailout now?
• Look who’s making subprime loans now
• Good credit, good job but still need mortgage aid? Maybe…
• Unlikely voice against mortgage bailouts

Still, the HELOC delinquency rate remains lower than all other consumer credit categories. In the same period, bank card delinquencies hit 4.51 percent, which is slightly above the five year average delinquency rate of 4.40 percent.

James Chessen, ABA chief economist, said more consumers are having trouble paying due to anemic personal income growth, falling home equity and stock values, job losses, and rising food and energy prices.

“It was a tough quarter for some people,” Chessen said. “Faced with rising food and gas prices and little income growth, fewer resources have been available to manage debt.”

It wasn’t all bad, though. Delinquencies on closed second mortgages fell in the first quarter to 2.34 percent from 2.39 percent. The release wasn’t very clear on dates, but I believe they were comparing end of 2007 to end of March 2008. (By the way a HELOC is a credit line, sort of like a credit card, while a closed second mortgage means the borrower took a fixed amount from the bank — the amount is fixed, but not necessarily the interest rate.)

And note I have a big story on HELOCs and Orange County coming in Sunday’s Orange County Register. Banks have cut off HELOCs here and borrowers aren’t happy.

Related news:

• That didn’t take long
• O.C. foreclosures hit new record in May, break 1,000 in a month for first time
• Orange County’s mortgage market distress could soon top the U.S.
• O.C. foreclosures rose in May, but totals differ in two reports
• O.C. mortgage delinquency rate climbs faster than state, nation
• Loan delinquencies fall! Are government aid efforts working?

Interestingly, the release said Keys gets four months of salary worth about $220,000 and doesn’t have to pay back a loan of about $50,000 in return for signing “a confidentiality and non-solicitation agreement.” In other words, he will keep the company’s secrets.

That’s pretty standard stuff when executives leave — companies want to stop them from going to a competitor or setting up a rival shop. However, the next sentence in the release says his departure “was not related to any concerns, issues or disagreements regarding the Company’s accounting policies or practices or financial disclosures.”

Hmm. IndyMac felt it necessary to point out the CFO, who came to the company in 2002 from a job at accounting firm Ernst & Young LLP, is not leaving over an accounting dispute. So why is he leaving? The filing didn’t say.

On Monday, IndyMac issued a release saying its financial situation has “deteriorated” since the first quarter and it is working with regulators to improve its “safety and soundness.” It will reveal more later.

IndyMac responded to letters Sen. Charles Schumer (D-New York) sent to regulators, saying they are not prepared for a potential insolvency. The company said his letters and resulting press coverage spooked customers into withdrawing last Friday and Saturday roughly $100 million, or about 0.5% of total deposits.

It said “branch traffic” was elevated Monday, but not as high as Saturday.

Related news:

• Sen. Schumer raises concerns over IndyMac’s solvency
• IndyMac expects to lose money for all of 2008
• Downey, WaMu, Indymac plummet in thrift industry rankings
• IndyMac suspends dividend, posts $509 million loss
• Indymac Bancorp cuts 2,403 jobs
• U.S. Senate to air critique of O.C. reverse mortgage company
• IndyMac sees more losses, focuses on liquidity
• How bad are things at WaMu?
• SEC Chairman Cox under fire, report says
• Subprime and punishment