Impac's shift to non-QM helps to reduce fourth-quarter loss
Impac Mortgage Holdings saw its shift to predominantly originate non-qualified mortgage loans reduce its fourth-quarter GAAP net loss along with increasing its gain-on-sale margins.
For the quarter, Impac lost $6.4 million, compared with a loss of $45.5 million in the third quarter and $44.9 million for the fourth quarter of 2017.
Impac lost $145.4 million for the full year, up from a loss of $35.1 million for 2017 as originations fell by 46% for the full year to $3.8 billion from $7.1 billion in 2017. But non-QM production for the year was up 46% to $1.3 billion from $891 million.
"Obviously, Impac is not immune from the competitive pressures that accompany a contracting addressable market, and our financial results reflect that," Chairman and CEO George Mangiaracina said in a press release. "However, we continue to be encouraged by the demonstrable progress we've achieved with respect to our alternative credit product offering, non-QM.
"In 2018, we traded out of noncore mortgage servicing rights assets at favorable market levels, and began to redeploy the resulting liquidity and capital to our non-QM franchise. In 2019, we will continue to build upon this momentum and further our competitive advantage in the higher margin alternative credit product segment of the market," he said.
Non-QM originations were $397.4 million or 63% of Impac's total volume in the fourth quarter, compared with $235 million or 14% one year prior.
Total originations fell 62%, to $632.1 million from $1.65 billion for the period. However, non-QM mortgages — which can be sold in the secondary market at a higher price than conforming loans — made up a greater share of Impac's production, the gain-on-sale margin increased to 203 basis points from 118 basis points one year prior.
Impac raised capital by selling equity in April 2017 to grow the non-QM business. This past June it entered into an agreement with Starwood Property Trust to sell the REIT up to $600 million in non-QM loans to securitize over a 12-month period.
Impac already completed two securitizations with Starwood and a third securitization is expected by the second quarter, Impac spokesman Justin Moisio said.
Gain-on-sale for the full year fell 17 bps to 174 bps from 191 bps in 2017 due to margin compression.
Personnel expense for the year was $64.1 million, a decrease of $25.5 million from the previous year because of reduced commissions and staff reductions. Average headcount decreased 24% in 2018 compared with 2017.
Impac's MSR portfolio shrunk 63% between the end of the third and fourth quarters to $6.2 billion of unpaid principal balance from $16.8 billion. It sold a $7.2 billion Fannie Mae MSR portfolio and a $3.4 billion Ginnie Mae portfolio.
The transactions generated net proceeds of $113 million. A portion was used to deleverage Impac's balance sheet by retiring higher-cost debt, including debt secured by pledged MSRs, and higher interest rate revolving warehouse financing debt, Moisio said. Impac also plans to use the funds to invest in subordinated bonds of non-QM securitizations.
During 2018, Impac retained servicing rights on $2.4 billion of loans it sold.
It lost $3.6 million on MSRs during 2018, compared with a $35.9 million loss the prior year. The company took a $28.8 million fair value gain on MSRs due to rising interest rates.