For the first time in four quarters, Impac Mortgage Holdings reported a net profit, although it is still faced with headwinds that suspended all origination activities for nearly three months due to the pandemic.
"The results demonstrate the resilience of our business model as the company achieved positive GAAP and core results for the first time since Q3 2019," said George Mangiaracina, Chairman and CEO, in a press release.
"Aggressive deleveraging of the company's balance sheet in the second quarter of this year in response to market turmoil related to the COVID-19 pandemic protected liquidity and enabled the company to successfully restore positive cash flow and grow book value organically." he said.
Impac posted net income of $ 1.6 million compared to a loss of $ 22.8 million in the second quarter and net income of $ 1.4 million in the third quarter of 2019.
The company's business continues to be affected by the origination at the end of March. When lending was resumed, the competition for talent caused by the exceptional volume in the third quarter was "a binding obstacle not only for us but also for the entire industry," according to Impac's earnings release.
The slight year-over-year increase in profitability resulted from reduced operating costs due to the suspension of original activities in the second quarter from $ 25.6 million to $ 16.1 million.
Third quarter net income on sales decreased significantly year over year due to a decrease in mortgage loans taken out and sold. In the three months ended September 30, Impac was created and sold in the secondary market for $ 418.5 million and $ 303.1 million, respectively, compared to $ 1.6 billion and $ 1 billion for the same period of the year 2019. The volume in the second quarter was extremely low due to the closure at only $ 2.1 million, as it only started accepting applications again in June.
Nevertheless, the company achieved a significantly higher increase in revenue in the third quarter of around 460 basis points compared to 190 basis points in the third quarter of 2019.
The entire volume for the third quarter consisted of compliant and government loans. The disruption in secondary markets forced the company out of the unskilled mortgage business it had developed in previous quarters.
In the current quarter Impac has resumed the production of non-QM loans.
The market turmoil also forced Impac to reduce its portfolio of mortgage services rights as of September 30th to just $ 824,000, compared to $ 4.9 billion as of December 31, 2019 and $ 6.2 billion as of September 30, 2019.
A total of $ 4.2 billion in MSRs owned by Freddie Mac and Ginnie Mae were sold in the second and third quarters. Impac posted a loss of $ 128,000 in the third quarter on the sale of $ 136.7 million to Ginnie Mae MSRs. Due to the low interest rate environment, the MSR portfolio suffered a fair value loss of USD 18,000 in the quarter.