As second quarter earnings data from mortgage lenders began to trickle into the market last week - giving some insight for the secondary market as to how the lenders, and their loans, are faring amid a slowing housing market - results and outlooks so far seem to be a bit of a mixed bag. Perhaps because, as IndyMac Bancorp's Chairman and Chief Executive Michael Perry put it last week, "we are laying off the bulk of that credit risk into the secondary market."

Indymac's loan production is up 41% year-over-year, and its pipeline was bulging with a record $21.5 billion worth of production. Its margins were down by 25% from the second quarter of last year, but they were up from first quarter levels, according to Perry, who was speaking during the bank's second quarter earnings conference call last week. Secondary market appetite was healthy, he said. Proving that point, Indymac in the second quarter sold some 97% of its total loan production. His view on the housing market is uncertain. "I would say that the older and wealthier you are, the more pessimistic you become. I think that ... if you look at the housing market, nobody knows for sure if we are in for a hard or soft landing," Perry said.

Meanwhile, Friedman Billings Ramsey head of ABS research Michael Youngblood wrote last week that U.S. home price growth is poised for a gradual slow-down to year-over-year gains of 7.1% in the second quarter of this year; 5.7% in the third; 4.4% in the fourth and 3.5% by the first quarter of next year. "The progressive slowing of gains in house prices in the year ahead represents a decisive reversal of the progressive acceleration of gains in the year past," Youngblood said. And, perhaps more daunting, house prices are anticipated to fall in four MSAs in the second quarter of this year, 10 in the third quarter, 28 in the fourth and as many as 24 in the first quarter of next year. House prices have never fallen year-over-year in more than three of the 379 MSAs in any of the past four quarters, he pointed out. Furthermore, U.S. housing starts were reported down

Countrywide Financial Corp. Chairman and Chief Executive Angelo Mozilo last week also projected an air of caution. "I am concerned about real estate values. I tend to believe that people are overly optimistic about soft landings. The only thing that is really holding back the dam now is that we really have very good employment numbers," he said. "When you begin seeing that the only buyers of homes are construction workers, it is time to start reassessing." Mozilo said that "flat" would be a good expectation for the progression of home prices going forward, but substantial evidence is mounting of a build up in housing inventory - particularly along the coasts and in such hot real estate markets as Florida. New mortgage funding at Countrywide, the nation's largest mortgage lender, was down 3% year-over-year, to $118 billion. On the other hand, Countrywide's biggest competitor - Wells Fargo & Co. - posted a 36% gain in mortgage originations from a year earlier, it announced the preceding week.

American Home Mortgage Investment Corp. also managed to close a quarter of record originations. The real estate investment trust closed $14.9 billion worth of loans in the second quarter and also met "highly favorable conditions in the capital markets," according to its Chief Executive Michael Strauss. Strauss added that the secondary market in 2Q06 warmed up to pay option ARMs in particular - and has continued to do so. In fact, American Home recently negotiated a forward sale of $1.5 billion of new pay option ARM production which was in line with second quarter pricing, he said.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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