Impac Mortgage Holdings' return to the unqualified mortgage business is accelerating due to competitive margin compression for compliant loans, company executives said in its first quarter earnings report.
At this point in the past year, the company was forced to suspend all origination activities for most of the second quarter due to its increasing reliance on non-QM. When it re-entered the market, it focused on government sponsored businesses and government loan products that were created by its call center.
"While the market shift and the impact of margin compression in the industry are being felt in the context of origination, we continue to strive to serve consumers in the GSE and government credit space while expanding our non-QM opportunities across all channels." said chief operating officer Tiffany Entsminger. "This is an important lynchpin for the company so that it can manage the shrinking GSE margins while increasing sales in the non-QM area."
Impac lost $ 683,000 in the first quarter, compared to a loss of $ 2.2 million in the fourth quarter and a COVID-related loss of $ 64.7 million in the first quarter last year.
In the past, Impac relied on third-party funding for non-QM loans. The shift in focus is evident in the composition of the lending pipeline, which has not yet been completed in this channel.
"At the end of the year, our TPO channel was only about 19% non-QM production compared to today, which is about 90% of our production," said Justin Moisio, chief administrative officer, during the call.
Impac has also started moving some of its call center resources, people and marketing to the non-QM side. The company has hired people to also take out mortgages guaranteed by Veterans Affairs.
"In April, the call center began reallocating some of its marketing expenses for non-QM production for the first time in over a year," said Jon Gloeckner, principal accounting officer. "This has already led to an increase in non-QM submissions, which we expect to continue to increase in the second quarter."
Impac was raised $ 850 million in the first quarter, of which $ 773 million was from the call center and $ 76.8 million from wholesale. That compares with a total of $ 810 million in the fourth quarter and $ 753.3 million from the call center. In the first quarter of last year, the company recorded $ 1.5 billion, of which $ 1.3 billion from the call center, $ 152.1 million from wholesale, and $ 54.2 million from correspondence purchases . The company has not yet resumed activities in the correspondence channel.
Income on sales for the quarter was 237 basis points, compared to 265 basis points in the fourth quarter and a loss of 187 basis points in sales in the first quarter of 2020 due to the closure of the private label market.
Right now, Impac has to sell its product to aggregators, but the company's chairman and CEO George Mangiaracina said Impac will return to the securitization market shortly.
"One of the lessons we have learned from last year's COVID crisis is [recognition] of the need to make capital markets a little more sophisticated in the way the loans we take out are securitized on investment -Grade-level be modeled, "said Mangiaracina. The goal is to develop tactics and strategies to better evaluate loan rates, and the company is on the verge of securing those additional resources.
"We hope to have access to the securitization market before the end of the year, as we have done for the past few years. I think you will see that come from us over the next few months," added Mangiaracina.