In the most challenging mortgage market in well over a decade, executives at Impac have opted to pull back on non-QM products, which represent most of the company’s originations. It resulted in Impac bringing in less than $500,000 in revenue between April and June.
“The Company’s financial results for the second quarter of 2022 reflect the adverse effects of the historic market dislocation and volatility across the mortgage origination industry that commenced in the fourth quarter of 2021,” George Mangiaracina, chairman and CEO, said in a statement.
The California-based lender on Thursday reported a $13.5 million loss in the second quarter, up markedly from the $1.2 million loss in the first quarter of 2022 and the $8.9 million loss in second quarter of 2021.
According to the company, a lack of housing inventory and an increase in rates impacted borrowers’ affordability, eviscerating demand for refinancings and weakening the purchase market. In addition, credit spreads increased due to surging rates, resulting in an “oversupply of low coupon originations” that reduced margins and diminished capital market exits for originators.
“To mitigate the risks associated with reduced distribution exits and extended settlement timelines, we began to pull back on production, significantly increasing the pricing on our loan products as well as completely shifting to best-efforts delivery for non-agency production,” the company said in an investor statement filed with the Securities and Exchange Commission (SEC).
Impac’s originations declined from $622.5 million in the second quarter of 2021 to $482 million in the first quarter of 2022 and $128 million in the second quarter of 2022. Gain-on-sale margins decreased from 175 basis points from April to June 2021 to 14 bps in the same period this year.
Meanwhile, non-QM originations fell to $80.2 million in Q2 2022, down from $314.3 million in Q1 2022 and $100.6 million in Q2 2021.
“In the second quarter of 2021, we began to increase our marketing expenditures in an effort to more directly target non-QM production in the retail channel, expand production outside of California and maintain our lead volume as competition increased,” the company said.
Impac added, “As a result of the recent dislocation within the nonQM market on account of the significant increase in interest rates, in the second quarter of 2022, we reduced our marketing spend as we pulled back on our origination volumes to mitigate the aforementioned risks associated with the current environment.”
Consequently, Impac’s revenue fell to $495,000 in the second quarter, from $7.2 million in the prior quarter and $10.9 million a year ago.
Expenses came in at $14.6 million in the second quarter of 2022, down from $19.3 million in the previous quarter and $19.6 million in the same period of 2021. According to the company, the decline in expenses was due to a reduction in variable compensation and in the headcount, a consequence of lower origination volume. The company has cut headcount by 30% over the last year.
On the servicing side of the business, Impac’s portfolio decreased to $71.4 million on June 30, 2022, compared to $71.8 million on December 31, 2021, and $48.6 million on June 30, 2021. Impac continues to sell whole loans and selectively retains Ginnie Mae mortgage servicing.
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