Impac will not be but able to say goodbye to non-QM

Impac Mortgage Holdings, which once considered entering the unskilled mortgage market as the key to its future growth, has not yet given up on this business, representatives said in a conference call.

However, since the non-QM market continues to be affected by the economic slowdown, the company is initially concentrating on compliant and government products with a more stable secondary market.

The company reported a loss of $ 64.7 million in the first quarter – an increase higher than previously announced on June 4. This contrasts with a loss of $ 677,000 in the fourth quarter and a loss of $ 12.6 million in the first quarter of 2019.

"The company is currently evaluating jumbo and [unskilled mortgage] products and will continue to monitor these market segments as facts and circumstances change," said George Mangiaracina, chairman and CEO. "We are ready to participate in the revival of non-QM lending. Non-QM has been a key differentiator for the company and reflects our historic position as the market leader in alternative loans."

Almost all of Impac's third party vendors in the first quarter were non-QM: $ 150.9 million from a total of $ 152.1 million from wholesalers and $ 53.3 million from $ 54.2 million from the correspondent. Retail was the opposite: non-QM was only $ 57.4 million out of the $ 1.3 billion the channel produced in the quarter.

Even with dwindling origins in mid-March due to market turmoil related to the Federal Reserve's measures to mitigate the coronavirus downturn, Impac had total production of $ 1.52 billion in the first quarter. This is a small increase of $ 1.51 billion in the fourth quarter and a significant increase of $ 581.5 million in the first quarter of 2019.

At the end of March, Impac completely ceased production.

Impac's first quarter should have been even better, Mangiaracina said at the conference call. "The company was ready to see a significant increase in originations in March, with capacity expected to be around $ 1.4 billion, after $ 190 million in March 2019," he said. Instead, the origins of the month have been trimmed to $ 350 million.

Given the reluctance of secondary markets to purchase non-QM loans, Impac suffered a loss of $ 28.16 million from the sale of its origins in the first quarter. The company posted sales of $ 26.07 million in the fourth quarter, while the first quarter of 2019 posted a profit of $ 12.21 million.

Due to the interest rate environment in which the company must reduce the value of its MSRs, the service business lost $ 18.3 million in the first quarter.

In its current origination configuration, Impac is targeting $ 250 million in retail / call center channels by the end of the third quarter, which is "a basis for the profitability of the origination platform," said Tiffany Entsminger, chief risk officer, and Manager. In 2015 Impac acquired the direct lender CashCall.

Impac is also updating the product offering in its wholesale channel to add GSE eligibility and government options. "Providing high-quality credit, maximizing operational efficiency, optimizing portfolio geographic diversity while being sensitive and aware of changing consumer needs regarding forbearance and COVID-related difficulties will be the focus in the next quarter," said she.

That doesn't mean the company is giving up the non-QM market. The company was "a pioneer in both Alt-A and non-QM. We continue to have a strong appetite for non-QM and continue to pay attention to the changing forbearance landscape, borrower behavior, and reasonable risk-based pricing for them Products, "said Justin Moisio, chief administrative officer.

While there are published guidelines for leniency from GSEs and federal agencies, "identifying solutions in the alternative credit market … will be a significant milestone before the relaunch [non-QM] in a meaningful way," said Moisio.

But there is a cloud on the horizon. The Consumer Financial Protection Bureau's proposal to replace the qualified mortgage field and the standards for measuring repayment ability could broaden the definition of QM credit, which in turn would limit the overall non-QM market, said Nima Vahdat, the General Counsel of the Company.

Even when compliant products are added to their offerings, the TPO channels are "the foundation of our non-QM business, which may be six months away and is based on a uniform standardization of indulgence," said Paul Licon, CFO.

Impac instructs the specialist service provider to handle non-qualified mortgages with forbearance.

As previously announced, Impac sold a $ 4.2 billion Freddie Mac MSR portfolio in May. Tom Donatacci, chief of staff for business development, announced further details of the transaction and said the sale was through a market auction. The winning bid was 51 basis points, or approximately $ 20.1 million.

"The transaction was carried out at a time of significant market volatility in which MSR prices and liquidity declined, so the results were satisfactory and at the upper end of our expectations," said Donatacci.

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