Impac reduces headcount, reports negative margins in 3Q

The “risk off” posture that Impac Mortgage Holdings adopted approximately a year ago — in which it elected to sacrifice financial reward from more perilous products in favor of liquidity and stability — contributed to the negative origination margins the company reported in the third quarter, executives said on its earnings call.

The Irvine, California-based primarily non-qualified mortgage lender lost $13 million in the third quarter, a slight improvement over the $13.5 million in the second quarter, but well below the net income of $2.1 million recorded for the same period last year.

Because of the more conservative lending approach, Impac lost 110 basis points per loan on its origination activity, versus gains of 14 basis points in the second quarter and of 287 basis points in the third quarter of 2021.

“The financial results for the quarter reflect significant market pressure which continued to accelerate in the third quarter as a result of increasing interest rates, inflation, credit and liquidity risks,” Jon Gloeckner, principal accounting officer said. “Our risk posture in conjunction with rate shock and increased fallout resulted in continued origination and pipeline reductions which are the primary drivers for negative margins during the third quarter.”

The fallout and overall decline in volume, particularly through its retail call center channel, “is due to higher market rates and shrinking credit boxes initiated by non-QM investors as well as overall credit quality challenges,” added Justin Moisio, chief administrative officer. “Borrowers appear to be struggling with providing the requisite documentation to support the ability-to-repay guideline eligibility criteria at a much, much higher rate.”

Earlier this month, the management team at non-QM lender Athas Capital cited those secondary market issues as one of the reasons for shutting its doors.

In the third quarter, Impac originated $62 million, less than half of what it produced in the second quarter, $128 million and well below the $628.6 million in the third quarter of 2021.

Non-QM made up a greater share of Impac’s volume, however, as during the third quarter it was 80% of total originations, versus 63% in the second quarter and 27% one year prior. These loans made up $49.6 million of the third quarter activity, with $28.6 million coming from wholesale (which was nearly all of its production from the channel) and $21 million via the call center.

In the second quarter, non-QM was $80.2 million of volume, but wholesale was just $31 million of that. One year ago, non-QM originations totaled $186.2 million, with $132.7 million coming via mortgage brokers.

Impac’s personnel expense decreased by $7.0 million year-over-year to $5.7 million. It was due to a reduction in variable compensation because of the third quarter’s lower origination volume as well as reductions in headcount.

“Headcount has declined from approximately 330 at year-end 2021 to 162 at the end of the third quarter, and sits at approximately 120 today,” Gloeckner said.

Meanwhile Impac whittled down its warehouse lines to $325 million in the third quarter and expects to bring that down to under $50 million in the current period as the non-QM secondary market remains volatile, affecting its originations.

Recently, Impac was able to deal with one legacy issue: it completed the exchange of its Series B and Series C preferred stock, a result of the lawsuit over the suspended dividend payments.

“They align our equity stakeholder interests and simultaneously bring closure to the costly legal proceedings and distractions that have impeded the company since 2009,” said George Mangiaracina, chairman and CEO. “The company may now focus on exploring corporate finance and strategic opportunities absent an intractable legacy capital structure.”