Impac loses $12M in the fourth quarter

Even though Impac Mortgage Holdings lost less money on a quarter-to-quarter basis in the period ended Dec. 31, originations were well down as the company continued to pare back its operations.

Those numbers provide some context to the company's latest business model shift announced last week, to brokering loans from being a wholesale and consumer-direct mortgage banker.

The Newport Beach, Calif.-based company lost $11.77 million in the fourth quarter, compared with a $13.01 million loss in the third quarter and net earnings of $3.58 million one year ago.

For the full year, Impac lost $39.43 million, versus a loss of $3.88 million during 2021, when the company was profitable for two quarters.

"Despite competitor consolidation and closures, excess industry origination capacity remains, evidenced by participants pricing to decreased net margins in pursuit of market share," George Mangiaracina, chairman and CEO, said in his opening statement in the earnings call. "The company has no intention of engaging in systematic, non-economic activities."

The company did a mere $21.5 million in total production during the fourth quarter, of which $14.5 million came through the now-shuttered wholesale channel, and $7 million from the call center.

In the third quarter, total volume was $62 million, with retail providing slightly more than wholesale, $33.1 million versus $28.9 million.

But in the fourth quarter 2021, prior to the secondary market dislocation related to rising interest rates earlier in 2022, Impac did $759.4 million in production, with $497.3 million originated in the call center and $262.1 million of wholesale purchase.

"From an expense management perspective, we continue to adjust our marketing spend to calibrate to a reduced loan officer headcount as well as the deterioration of lead quality of borrowers looking to transact and this shrinking addressable market at these rate levels," said Justin Moisio, chief administrative officer. "Our business promotion expense decreased to $261,000 in the fourth quarter, a 52% decrease from the prior quarter and an 88% or $2 million decrease from the fourth quarter of last year."

Impac is continuing to adjust what it spends on marketing in support of its new brokering business model, Moisio continued.

The company now has just 80 employees, down from approximately 330 at the end of 2021, Jon Gloeckner, the principal accounting officer said.

Total originations for full year 2022 were $639 million, with margins of 91 basis points, compared with $2.9 billion in 2021, at margins of 225 basis points, Gloeckner said.

Net gain on sale turned around in the fourth quarter, to $865,000, versus a third quarter loss of $682,000. For all of 2022, the net gain on sale was $6.3 million, well down from $65.3 million during 2021.

"Our risk off posture, in conjunction with rate shock and increased fallout, resulted in continued origination and pipeline reductions, which were the primary drivers of lower margins during the year," Gloeckner said.

As an industry, independent mortgage bankers lost $2,812 for each loan originated, compared with a third quarter loss of $624 per loan, a new Mortgage Bankers Association report said.

The company did not renew a $25 million warehouse line at year-end. It still does have $16 million of warehouse capacity with a single counterparty, Gloeckner added. As a broker, Impac does not have to self-fund its originations.

Impac has an unrestricted cash position of $26 million plus $9.4 million of unencumbered loans on its balance sheet as of the end of 2022.

"In the first quarter of 2023 as part of the CARES Act, the company filed for a $7.3 million of employee retention credit, which is expected to be received by the end of 2023," Gloeckner said. "Based on our current cash position, borrowing resources and defensive posture, we feel we have the liquidity necessary to meet our near-term production needs."