Mortgage rates drop -- along with stocks and bonds
By Holden Lewis • Bankrate.com

Mortgage rates fell this week as investors grew anxious about corporate earnings. As stock prices fell, bond yields declined, too -- and so did mortgage rates.

The benchmark 30-year fixed-rate mortgage fell 5 basis points, to 6.48 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.37 discount and origination points. One year ago, the mortgage index was 6.78 percent; four weeks ago, it was 6.52 percent.

The benchmark 15-year fixed-rate mortgage fell 8 basis points, to 6.01 percent. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points, to 6.05 percent. The 30-year jumbo, for bigger mortgages, fell 5 basis points, to 7.64 percent.

Weekly national mortgage survey

Results of Bankrate.com's July 9, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

IndyMac 'fee fall'
In the world of mortgages, the big news this week was the decline and fall of IndyMac Bank's home loan operation. The Southern California bank originated almost $77 billion in home loans last year and was a top 10 lender, according to National Mortgage News. With the demise of stated-income loans this year, IndyMac couldn't reinvent itself fast enough as a conforming and FHA lender.

At the beginning of the week, IndyMac abruptly announced that it would shut down its mortgage lending operation and close its last mortgage Aug. 15. It said it immediately would stop accepting applications. Then the bank did something unusual: It asked for a 1 percent deposit on mortgages that had been approved and for which the rates had been locked. The 1 percent deposit is due today.

IndyMac said the fee would be refunded if it declined the loan. Brokers said they assumed that the 1 percent fee would be credited toward closing costs. But IndyMac imposed the surprise fee in a way that seemed designed to scare off business: Brokers would have to pony up for all of their customers awaiting IndyMac loans. They couldn't pick and choose which loans to proceed with.

"If you do not submit the required fee for any individual loan as part of this process, all of your rate locks will be subject to cancellation," wrote Drew Buccino, IndyMac's mortgage chief, in a letter to mortgage brokers and bankers.

Brokers said they considered this to be IndyMac's way of "clearing the pipeline" -- reducing the number of loans it will have to fund before the drop-dead dates of July 31 for refinances and Aug. 15 for purchases.

"Bottom line is if the IndyMac rate is significantly better compared to the marketplace, the borrowers will cough up the lock fees," a broker says. "If the outside market is about the same or significantly better, the borrowers will be down the road faster than you can blink."

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Reverse mortgages going forward
IndyMac said it will continue underwriting reverse mortgages through its Financial Freedom subsidiary, will keep some bank branches open in California, and keep servicing some mortgages. But apparently not all.

Servicers are the companies that receive mortgage payments and disburse the proceeds to investors, insurance companies and tax districts. IndyMac is the eighth-largest servicer in the country, with about $200 billion of loans in its servicing portfolio at the end of March, according to National Mortgage News. Hundreds of thousands of borrowers send checks every month to IndyMac, and at least some of them will find themselves working with another servicer in the coming months.

IndyMac's chief executive, Michael W. Perry, explained that the servicing portfolio is "an asset we need to shrink given its size relative to our existing capital." If servicing rights are sold in an orderly fashion, customers should get plenty of advance notice as to where they should send their monthly payments.

IndyMac is winding up its mortgage operation under federal supervision. Regulators will pay attention to what goes smoothly and what doesn't. Then they'll apply those lessons to the next big mortgage company that goes under. IndyMac probably won't be the last.