For most mortgage lenders, 2020 achieved record volumes and earnings. Impac Mortgage Holdings, however, spent much of the year regaining a foothold after the pandemic shut down.
Exactly a year ago, the company touted the benefits of shifting its focus to unqualified mortgage creation as a sustainable business model.
Within a few weeks everything fell by the wayside.
"We entered 2020 with strong momentum, having repositioned the company over the years to expand our core competency in alternative products," said George Mangiaracina, Chairman and CEO of Impac, during his conference call at fourth quarter. "We raised $ 260 million in non-QM loans in the first quarter of 2020, prior to the devastation of COVID-19, and we were well on our way to exceed our non-QM origination volume in the fourth quarter of 2019. "
Then Impac's secondary market investors refused to comply with the commitments to purchase the non-QM production, and the bottom fell out.
The coronavirus disruption caused Impac to post a $ 88.2 million loss in 2020, far worse than the $ 8 million loss in 2019.
Impac posted a loss of $ 2.2 million in the fourth quarter, compared to a profit of $ 1.6 million in the third quarter and a loss of $ 677,000 in the fourth quarter of 2019. Using a non-GAAP measure, the Referred to as core profit, Impac posted a fourth quarter profit of $ 3.3 million, a positive profit for the second straight quarter on this measurement, following a third quarter profit of $ 4.4 million.
The company strictly adhered to compliant and government products when it resumed lending in June.
Impac didn't return to nonagency jumbo, unqualified mortgage origins, and buying loans from mortgage brokers until the fourth quarter.
Direct selling generated $ 2.48 billion of the $ 2.75 billion in volume in 2020. A year earlier, retail had a $ 3.51 billion share of Impac's total production of $ 4.55 billion.
The third-party origination channels were hardest hit by the cessation of operations. Impac grossed $ 215 million in the year under review, just a quarter of the $ 816.3 million in 2019.
After the first quarter, all purchases from the correspondence aggregation channel ceased and were only $ 54.4 million in 2020, compared to $ 226.8 million in 2019.
Retail volume was $ 753.5 million in the fourth quarter, up from $ 412.3 million in the third quarter, down from $ 1.23 billion a year.
Impac increased its wholesale activities in the fourth quarter with a volume of USD 56.7 million. That rose from just under $ 6.2 million in the third quarter, but declined significantly from $ 219.1 million year over year.
The margin compression affected the fourth quarter result. Sales profit decreased 73 basis points from quarter to quarter. However, that was an 80 basis point increase over what the company made on its loans in January and February before the COVID shutdown, said Paul Licon, chief financial officer.
These margins are likely to be further compressed as the overall mortgage market shrinks. "Competition between lenders remains untamed and the resulting pressures to offer consumers cheaper interest rates have resulted in some margin compression in the GSE space," said Tiffany Entsminger, chief operating officer. "The increased spending on business support and the adverse impact on margins are likely to continue as rates continue to rise."
Impac expects there will be an additional 15 to 20 basis points of margin compression for its compliant product for the current quarter, Licon added.
However, Mangiaracina went on to say, "Given this margin compression in the GSE product, which we believe will be offset by shifting production to non-QM and jumbo, where margins are healthier, we are fairly confident that we will." be able to keep our platform running at a positive rate. "
The end of the refinancing boom opens up an opportunity for Impac as many loan officers who focused on non-QM focused on the simple, money-compliant business. "With rising interest rates and compressing margins, we see a return of these producers to the non-QM sector, which should increase the origination volume in the future," said Tom Donatacci, Head of Personnel Development at Impac.