March 29 (Bloomberg) -- Bear Stearns Cos., the biggest U.S. underwriter of mortgage-backed bonds, said the surge of defaults in subprime home loans won't spread to other parts of the mortgage market, and IndyMac Bancorp Inc. said losses from more creditworthy customers are far below industry averages.

Lending 100 percent of the home value, not verifying borrowers' income and lower credit scores caused U.S. subprime defaults to rise, said Tom Marano, head of Bear Stearns' mortgage business, in a New York meeting with investors today. Only 7 percent of Alt-A mortgages, another low-documentation loan that's drawn scrutiny, combine all three risk factors, he said.

Shares of companies that offer less-risky mortgages including IndyMac Bancorp have fallen this year partly because investors were concerned Alt-A loans may go sour. Regulators including Federal Reserve Chairman Ben Bernanke said they don't see any ``spillover'' of defaults into safer mortgages, and IndyMac said today the industry's loss rate on Alt-A is one- seventeenth the level of subprime loans.

``The contagion isn't that big a problem,'' Marano said. ``I don't see the risk as being that significant at this point.''

Subprime loans, a term applied to some of the riskiest home mortgages, are made to borrowers with poor credit ratings or high debt burdens. Alt-A is short for Alternative A, which denotes loans made to people considered good credit risks -- such as business owners -- who may lack reportable wages or other key elements needed to qualify for conventional loans.

Effect on Profit

Defaults on U.S. subprime mortgages rose to a four-year high in the fourth quarter of 2006. The troubles haven't had a large impact on Bear Stearns' profit because making loans to borrowers with poor credit histories and packaging them into bonds accounts for 3 percent of Bear Stearns's mortgage business, Chief Financial Officer Samuel Molinaro said March 15.

Bear Stearns is more protected from the declines in the mortgage bond market because it doesn't keep any of the risk in the mortgages or the bonds it originates, Marano said today. ``We're not a warehouse; we sell the product,'' he said.

Last year the New York-based firm bought about $10 billion of subprime loans to be packaged into bonds and sold to investors, half the amount it did in 2005, Marano said. This year, it expects to originate about $5 billion of such loans through a subprime lender it purchased last month, Marano said. He didn't say how much additionally would be purchased from the mortgage market to be securitized. The firm expects about a 30 percent contraction in the subprime lending industry this year.

Buying Loans

``The biggest question is whether or not it has a broader impact on the housing market,'' said Bear Stearns Co-President Warren Spector, speaking after Marano. ``Unless that happens, and there's not enough evidence for us to think that's happening, I don't see it as a big event.''

The firm has said it will seek to buy troubled loans from failing mortgage companies at discounts and expand its market share in the subprime market by taking market share.

Bear Stearns established its mortgage-backed securities department in 1981, before most other rivals were in the business. It built its own mortgage origination unit in 2005 and has since bought mortgage companies in the U.K. and the U.S. to provide a steady stream of loans for its securitization business.

IndyMac said in a statement its cumulative Alt-A losses from 2002 through 2006 amounted to $6.5 million, versus $20 million in subprime losses, out of a total $80.9 billion in Alt-A loans and $12.1 billion in subprime loans. IndyMac is the ninth-biggest U.S. mortgage lender.

Closer to Prime

Michael Perry, Indymac's chief executive officer, disputed the idea that Alt-A loans are ``in between'' top-rated prime mortgages and subprime loans.

``That's like saying that our headquarters in Pasadena is `in between' Los Angeles and Las Vegas,'' he said in a statement. ``True enough, but there's the question of degree. Pasadena is 11 miles northeast of Los Angeles and Las Vegas is 262 miles northeast of Pasadena.''

Bear Stearns shares rose $3.51, or 2.4 percent, to $151.08 at 4:01 p.m. in composite trading on the New York Stock Exchange. IndyMac shares, which have lost 28 percent this year, rose $1.60, or 5.1 percent, to $32.74.

Impac Mortgage Holdings Inc., an Alt-A lender based in Irvine, California, said late yesterday it would cut its quarterly dividend to 10 cents from 25 cents, citing the need to preserve liquidity.

Cash Level

At the same time, Impac said in its statement it securitized $2.2 billion in Alt-A residential mortgages and $235 million of commercial and multifamily loans. The company's inventory of mortgages was halved during the first quarter to $800 million, it said, and Impac now has about $130 million in cash.

Impac formed a unit to buy non-performing loans that will take advantage of pressure by creditors on rival companies to sell off mortgages, the statement said.

Shares of Impac have lost almost half their value this year, with the company saying investors have mistaken it for a subprime lender. Today's announcement was made after regular trading, when the stock rose 4 cents to $4.54. In after-hours trading, Impac jumped as high as $5.40, a 19 percent gain.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: March 29, 2007 19:14 EDT