Concerns that revenue from loss mitigation and portfolio recovery could deteriorate going forward were among the reasons Impac Mortgage Holdings Inc., Irvine, Calif., said it has invested in origination operations that contributed to a relative loss of income in the second quarter.
“We believe the initial investment was important in developing production channels and capabilities, giving the company the opportunity to increase lending volume as loss mitigation and portfolio recovery revenue businesses may decline in the future,” company president William Ashmore told listeners to Impac's second-quarter earnings conference call.
“Specifically, the company's new production offices originated approximately $125.6 million primarily agency and government-insured residential mortgage loans during the three months ended June 30,” he said.
In addition, in August, the company through Integrated Real Estate Service Corp. and its subsidiaries obtained approval from a lender for an additional $25 million warehouse facility, thereby increasing the company's warehouse funding capacity to $102.5 million.
“The company may seek additional warehouse capacity to fund additional loan volume,” Ashmore said.
For the quarter ended June 30, the company had net earnings of $361,000, or 4 cents per diluted common share, as compared to net earnings of $3.3 million, or 39 cents per diluted common share, for the quarter ending June 30, 2010.
“The decrease in net earnings was primarily attributed to the following: an increase in expenses of approximately $2 million as we continue to expand the mortgage lending operations and the title and escrow business, and a decrease of $800,000 in REO recovery fees,” he said.
The $2 million spent on mortgage lending operations funded infrastructure consisting of additional personnel, occupancy costs, IT and other shared services.
“This in part is the reason for the net loss during the first six month of 2011,” Ashmore said. “It should be noted that these expenses were anticipated by management as investment in the development of our mortgage lending platform.”
During the second quarter, mortgage and real estate service fees decreased to $14.4 million as it compared to $15.5 million for the second quarter of 2010.
“The mortgage and real estate service fees were comprised of $4.7 million in title and escrow and real estate services and recovery fees, $2.3 million in mortgage lending, $1.8 million in loss mitigation fees and $1.5 million in portfolio service fees.”
Confirming the company is still on the strategic path noted in previous earnings calls, he said the company's plan is still to use an origination strategy dealing with Fannie Mae, Freddie Mac and FHA loans. Although the company expects to sell a majority of the originations servicing released it intends to build a servicing portfolio of mainly comprised of Fannie Mae and Ginnie Mae loans through a best execution strategy.
“Geographically, we are focused on building in 2011 in the Pacific Coast region, mainly California, Oregon, Idaho and to a lesser extent Arizona, Nevada, Florida and then also into Louisiana and Texas,” he said. “Historically these areas have comprised a vast majority of the overall originations and will provide the company the most efficient way to ramp up mortgage originations through the remainder of this year and also for 2012.”
Although the company's geographic focus is on the West, Ashmore said it recently took advantage of an "opportunity" in the Southeast that will allow Impac to grow originations in that region.
Ashmore said the company's main origination channel would be wholesale lending to “an approved broker base.” This, he said, will represent about 60% of Impac's business while consumer-direct originations will represent the remaining balance.
While mortgage rates are historically low, the company plans to focus on channels that represent sources of purchase rather than refinancing transactions, as the former can represent a more stable source of volume.
