Impac Mortgage turned a profit in 3Q as non-QM lending increased

A jump in outside-the-box originations put Impac Mortgage Holdings back in the black during the third quarter, following a loss during the previous fiscal period.

The company earned $2.1 million, up from a net loss of $8.9 million in the second quarter, and a slim net gain of $1.6 million a year earlier.

The restoration of profitability to Impac highlights the upside to lending in a niche that faced challenges last year, but now looks more attractive in light of some margin compression in the mainstream market.

“We believe in the market opportunity and demand for non QM,” Chairman and CEO George Mangiaracina said during a company earnings call, referring to loans made outside the evolving qualified-mortgage definition.

The company’s originations totaled $680 million during the quarter, with the presence of less traditional loans and increased use of the retail channel contributing to a higher gain-on-sale margin of 287 basis points. In 2Q, the company originated $610 million in loans at a margin of 175 basis points.

Although the company was able to increase its margin during the quarter, it is “not immune to the competitive pressures seen throughout the industry,” said Jon Gloeckner, senior vice president, treasury and financial reporting, during the call.

The third quarter “looked like the high water mark for us for gain-on-sale margins at about 287 basis points for the quarter,” he said.

“We had a significant increase in non-QM in production, with healthy margins, which made up for some of the GSE compression in both margin and volume. Outside of any material changes in interest rates, credit or another macroeconomic event, I would say our expectation would be that we will continue to see some compression in both GSE and non-QM, which is reflective of the typical seasonality seen during the fourth and first quarters,” Gloeckner added.

Non-QM originations constituted $186 million of the third quarter total, with 26% of that amount being retail, up from $100 million and 8% during the previous fiscal period. Margins are generally higher for non QM loans because lenders tend to increase the price of their loans commensurate with the risk involved, and profit is generally higher in a consumer-direct retail channel rather than branches. Impac’s retail channel utilizes a call center. Originations of more mainstream loans sold to the government-sponsored enterprises were flat compared to the second quarter.

Impac will further expand the wholesale origination channel it relaunched in the first quarter, and is working on establishing a correspondent division with delegated and non-delegated underwriting options as well, Justin Moisio, the company’s chief administrative officer, said during the call. The company also is making progress on its plans to develop securitization capabilities, Mangiaracina said.

In addition, an election for two additional company directors as directed in a previously announced court order is pending and may take place this month, depending on whether a special meeting of Preferred B shareholders scheduled for Nov. 23 is held and has a sufficient quorum, General Counsel Joseph Joffrion said during the call. The Maryland Court of Appeals order stems from litigation involving the status of those stockholders. The order affirmed a lower court's ruling that a proposed 2009 amendment to the Preferred B articles did not receive the required votes.

As a result of the court's order, the company will be required to pay approximately $1.2 million in previously accrued, unpaid dividends to certain Preferred B stockholders, said Joffrion. The payees of the unpaid dividends will be determined once the Circuit Court determines the basis for an appropriate record date, he added.