IndyMac May Sell 20% Stake in Reverse-Mortgage Division

IndyMac Bancorp Inc., which runs one of Southern California’s largest savings and loans, Monday said it was considering an initial public stock offering for a division that provides loans to older homeowners.

The unit, Financial Freedom Senior Funding, offers “reverse” mortgages, a kind of home equity loan, to people 62 and older.

Pasadena-based IndyMac is the largest U.S. provider of the product. Last year, it had market share of 56% in originations and 53% in loan servicing, the company said.

Reverse mortgages let people borrow against the equity in their homes. The proceeds aren’t taxable and the loans typically don’t have to be repaid during the homeowners’ lifetimes.

IndyMac said it would consider selling a 20% stake in Financial Freedom via an IPO. The company said a stock sale would allow it to monetize its investment in the unit, foster growth and eventually help support both companies’ stock prices.

IndyMac stock rose to a record high of $48.85 early Monday, after the announcement. The stock ended at $47.37, down 95 cents, amid a broad market slide, but the price is up 21% this year.

The company last week reported a 26% jump in first-quarter earnings. IndyMac Bank President Richard Wohl said in the company’s quarterly report that he was “very excited” about the future of the reverse-mortgage business.

Many analysts expect the U.S. mortgage business to weaken this year as interest rates rise. But “Financial Freedom may be somewhat insulated from broader industry trends,” said Marc Yaklofsky, an analyst at credit-rating firm Fitch Ratings.

With reverse mortgages, “the thought process is different for the customer, and the area should grow in importance with the aging of America,” he said.

IndyMac bought Financial Freedom from investment banking firm Lehman Bros. Holdings Inc. for about $80 million in 2004.

The company did not provide a timetable for an IPO. IndyMac did not immediately return calls for further comment.

From January to March, Financial Freedom posted net income of $8 million as it originated $1.12 billion of loans. Both figures roughly doubled from a year earlier. The unit accounted for one-eighth of IndyMac’s first-quarter mortgage production profit, and one-tenth of overall profit of $79.8 million.

The U.S. Census Bureau estimates that the number of Americans 65 and older will more than double to 86.7 million in 2050 from 35.1 million in 2000. The population overall is expected to grow 49%, the agency said.