Tuesday, July 8
Posted 2 p.m. EDT
INDYMAC CUSTOMERS: A reader named Toby writes:

Indymac is a bank, and I'm reluctant to use the word "bank" and "ollapse-cay" in the same sentence. OK, this is the next sentence, so I'll say it: "collapse." Indymac is still taking deposits through its retail channel, and working with the Federal Deposit Insurance Corp., or the FDIC, to protect depositors and taxpayers, and to save the bank.

Now that I've got that out of the way, let's get to the heart of Toby's inquiries: What happens to Indymac's mortgage borrowers, now that it has abruptly stopped lending?

Indymac's CEO, Michael Perry, explained some things in a lengthy blog post yesterday. Here is the most important paragraph:

Translation: You can no longer apply for a mortgage with Indymac. If you applied but had not yet locked a rate, you'll have to apply elsewhere. If you applied for a mortgage, were approved, and locked the rate, don't worry -- the loan will be closed as planned.

Furthermore, if Indymac services your loan and you need to refinance it as part of a loan modification because you can't make the payments, Indymac will still be able to refinance it.

Now we come to the part that Toby asked about: people who are current on their payments, and who have mortgages serviced by Indymac. The company is going to sell the servicing rights on some of those loans. That's what Perry means when he writes that servicing is "an asset we need to shrink given its size relative to our existing capital." It needs to sell some servicing rights to raise cash.

If the servicing on your Indymac loan is sold, it probably will be done in an orderly fashion, with sufficient notice given. Perry says Indymac intends to remain in business. It still has its retail bank branches in Southern California, its Financial Freedom reverse-mortgage company, and its large servicing portfolio. Indymac intends to sell some of its servicing rights, but not all of them.

Intentions aren't the same as results. If the worst happens, and Indymac goes out of business, federal regulators will surpervise the sale of the servicing portfolio. It's one of the biggest servicing portfolios in the country, so it won't be easy. Let's hope they remain in business and existing mortgage customers aren't inconvenienced.

Posted 11 a.m. EDT
TIME TO ACT: Things are moving fast in the mortgage world. So fast that some borrowers should act sooner rather than later.

There was a lot of volatility in mortgage rates yesterday as they rose and fell rapidly. The 30-year fixed moved about an eighth of a point in a few minutes. And then it ended up just about where it began the day.

When we see this sort of volatility, it's a good idea to play it safe. And that brings us to the advice that you might get from your loan officer.

In the volatile days toward the end of January, when rates rose a quarter of a percentage point in minutes, mortgage broker Dan Green lamented in his blog that the only way to get his urgent message across to clients was to sound pushy. He wrote:

I can only imagine what I sounded like to them:
"Look, mortgage rates are running higher and they're gathering steam. You need to lock your right now because if you don't, you will pay a higher rate. And I'm not even talking about if you lock tomorrow. You're going to pay it an hour from now."
Sounds like Boiler Room, right? Well, when it's an urgent message, I don't how else to get my message across.

We could see a reprise of this kind of phone call in the coming days and weeks. You should decide now whether you trust your loan officer or broker to look after your best interests. When that urgent phone call comes, you won't have time to dither about whether you trust your mortgage pro. You need to have made that decision before, so you can decide right then whether to follow his or her advice.

Now, it's entirely possible that your loan officer or broker will unintentionally give you bad advice. You might be urged to lock a rate immediately, only to watch rates fall afterward. That's a risk that you take. You don't want to muddle the decision-making process by wondering if the broker is trying to take you to the cleaners.

SHOCKS: Yesterday, one of the nation's biggest mortgage lenders shut down its mortgage operations. IndyMac was the 11th-biggest mortgage lender by dollar volume in the first quarter of this year, and was the ninth-biggest in the first quarter of 2007. For a while it was the biggest Alt-A mortgage lender -- giving loans to borrowers who stated their income without documenting whether they were telling the truth.

For years, it was a profitable business, giving billions of dollars to people who were lying about their incomes. Inevitably, it turned out to be a bad way to run a lending operation.

Before the IndyMac bombshell, the share prices of Fannie Mae and Freddie Mac plunged after Lehman Brothers warned that they might have to raise more capital. According to Housing Wire, experts on Wall Street think Lehman was off-base.

Well-informed sources told Housing Wire that this is unlikely to happen because Fannie and Freddie issue mostly plain-vanilla mortgage-backed securities without tranches or slices. Under the new accounting rules, those won't have to be repurchased. Apparently, the Lehman report didn't spell this out, causing an overreaction in the stock market.

For you, the prospective mortgage borrower, the lesson is this: Rates are moving up and down rapidly, and Wall Street is fearful. If you have an acceptable mortgage deal on the table, you should seriously consider accepting it now, while it's still available.