An increase in debt financing put Impac Mortgage Holdings in the black again in the third quarter after a loss in the previous fiscal year.
The company earned $ 2.1 million, compared to a net loss of $ 8.9 million in the second quarter and a small net income of $ 1.6 million last year.
Impac's return to viability underscores the benefits of lending in a niche that faced challenges last year but now looks more attractive given the margin compression in the mainstream market.
"We believe in the market opportunity and demand for non-QM," said Chairman and CEO George Mangiaracina during a conference call on the company's results, referring to loans granted outside of the evolving definition of qualifying mortgages.
The company's total loans for the quarter totaled $ 680 million, with the presence of less traditional loans and increased use of the retail channel contributing to a higher profit margin of 287 basis points. In the second quarter, the company issued $ 610 million on loans with a margin of 175 basis points.
While the company increased its margin in the quarter, it is "not immune to competitive pressures across the industry," said Jon Gloeckner, senior vice president, treasury and financial reporting, during the call.
The third quarter "looked like the high-water mark to us for profit margins of about 287 basis points for the quarter," he said.
“We had a significant increase in the non-QM area in production with healthy margins, which made up for some of the GSE compression in both margin and volume. Apart from significant changes in interest rates, credit or other macroeconomic events, I would say that we will continue to see some compression in both GSE and non-QM, which is typical seasonality during the fourth and first quarters, ”added Glöckner.
Non-QM origins accounted for $ 186 million of total volume for the third quarter, with retail accounting for 26% of that amount, up from $ 100 million and 8% in the prior fiscal year. Margins are generally higher on non-QM loans as lenders tend to increase the price of their loans according to the risk involved, and the profit is generally higher in a consumer-facing retail channel than in stores. Impac's retail channel uses a call center. The amount of more mainstream loans sold to government-sponsored companies was unchanged from the second quarter.
Impac will continue to expand the wholesale origination channel launched in the first quarter and is working on establishing a correspondents department with delegated and non-delegated underwriting options, said Justin Moisio, the company's chief administrative officer, during the call. The company is also making progress on its securitization capacity development plans, Mangiaracina said.
In addition, the election of two more company directors, as provided for in a previously announced court order, is pending and can take place this month, depending on whether a special meeting of Preferred Shareholders B planned for November 23 is held and has a sufficient quorum. General Counsel Joseph Joffrion said during the call. The Maryland Court of Appeal order stems from a lawsuit over the status of these shareholders. The order upheld a lower court ruling that a proposed 2009 amendment to Preferred B's articles did not receive the required votes.
As a result of the court order, the company is required to pay approximately $ 1.2 million in previously accrued, unpaid dividends to certain B preferred shareholders, Joffrion said. The payees of the unpaid dividends will be determined once the district court sets the basis for a reasonable record date, he added.
