Impac to revive third party originations, non-QM in 3Q
Impac Mortgage Holdings will be getting back into both third-party originations and non-qualified mortgage lending now that secondary market liquidity has returned, the company said during its second quarter earnings call.
The company suffered in another quarter of net losses, due in large part to an extended pause in all mortgage origination activities. That began in March, when the government's coronavirus economic stimulus resulted in a dislocation of the secondary market. In June, originations were only resumed in the direct-to-consumer channel for conforming and government products.
The company plans to relaunch TPOs in the first half of the current quarter, doing conforming and Veterans Affairs mortgages first. But later in the third quarter, it will roll out an expanded product menu that will include non-QM and jumbo, said George Mangiaracina, its chairman and CEO.
"With respect to non-QM, we're prepared to participate in the emergence of this alternative market segment," Mangiaracina said. "A number of participants have returned to the non-QM space. It's created liquidity in this sector, which had all but evaporated in March."
Nearly all of Impac's non-QM production prior to the pandemic came through the wholesale and correspondent channels, while nearly all of the conforming and government originations were from its retail direct-to-consumer business.
The non-QM restart will be led by bank statement and investor property product offerings. But production will be tempered by a lack of a standardized approach for non-QM forbearances, Mangiaracina said.
Substantially all of Impac's non-QM investors are back in the market, said Tom Donatacci, the chief of staff.
"But the product profile has changed. It's generally become more conservative regarding higher [credit scores] and lower [loan-to-value ratios]. Impac had always originated high-quality non-QM with a conservative loan character, so this shift in the market has had little effect on our production profile," said Donatacci.
On the call, Mangiaracina noted that for government-sponsored enterprise products, "primary to secondary market spreads are historically wide and have stretched the capacity levels in the industry, extending lock-to-fund times."
And that is the opportunity for Impac, which he said is an "industry-leader in turn-times."
Origination volume, because of the pause, was a scant $2.1 million, down from $1.5 billion in the first quarter and $824 million one year ago. The moves Impac needed to make to deleverage its balance sheet "precluded us from being able to immediately participate in the favorable interest rate environment through the GSE-driven call center," said Mangiaracina.
But by the end of July, Impac funded $67 million in the retail channel and had a pipeline of loans in progress of $155 million, he added.
Impac actually reported a $1.5 million gain on sale of its production in the second quarter, versus a $28 million loss in the first quarter. In the second quarter of 2019, there was a $29 million gain on sale.
Mangiaracina reiterated previous plans to have a $250-million-a-month run rate by September, which at current secondary market margins should produce positive core earnings for Impac. Its three warehouse lines, totaling $575 million, are enough to fund that amount.
The run rate goal is just for the retail call center, added Justin Moisio, chief administrative officer. He added that while the focus is on GSE, Federal Housing Administration and Veterans Affairs lending, Impac "reevaluated the credit box within these product offerings, instituting some overlays where necessary."
For non-QM, Donatacci said Impac's looking for a $15 million to $20-million-per-month run rate this year, rising to $75 million in 2021. Its current warehouse agreements allow Impac to originate more non-QM than what is projecting.
During the second quarter, Impac sold a $4.1 billion Freddie Mac servicing portfolio, which made up the vast majority of its mortgage servicing rights portfolio. At June 30, it was down to $146 million in unpaid balance from $4.7 billion three months earlier.
Servicing fee income fell to $1.4 million from $2.5 million in the first quarter and $3.5 million in the second quarter of 2019. And because of that MSR sale, Impac expects a further reduction in servicing fee income going forward.
Impac took a $5.3 million loss on the sale of the Freddie Mac portfolio and a $3.1 million fair value hit, of which $3 million was related to prepayments.
Impac is now also staffing back up, Moisio said, for both the call center and its TPO businesses in operations and production, somewhat reversing previous layoffs.
It now has 250 active employees, of which 75% are in production, compared to a head count of approximately 550, with 65% in production at the end of February, he said.