Drop in mortgage rates hurts Impac, but may pay off later

Mortgage

Lower rates hurt the value of Impac Mortgage Holdings’ servicing rights and overall earnings in the first quarter, but they could help improve the company’s second-quarter results.

The company took a net loss of almost $13 million in the first quarter due in part to a more than $5.6 million first-quarter loss on the net value of its mortgage servicing rights. Its loss was down from a net gain of nearly $4 million the same quarter a year ago, and deeper than the previous quarter’s net loss of more than $6 million.

Impac

Despite lower rates, originations fell to less than half of 2018’s first quarter at nearly $582 million. Mortgage production also was down almost 8% from the fourth quarter.

But the first-quarter tends to be seasonally weak, and there are signs origination conditions could improve in the second quarter, when spring home buying season gets underway. Production was stronger in April thanks in part to lower rates and the company’s ability to position its product set for both low- and high-rate environments.

“While we have increasingly focused the enterprise on our core competency of creating non-QM products, we have been cognizant of our dual mandate to maintain optionality within our call center to quickly capitalize on GSE origination activity during low-rate environments,” George Mangiaracina, chairman and CEO of Impac, said in the company’s earnings call. “The ability to execute a material increase in volume in April validated our investment in a centralized, scalable call center.”

Loans originated outside the parameters of the qualified mortgage safe harbor from ability-to-repay liability grew dramatically at the company in the past year. In the first quarter, they represented 59% of total originations, compared to 19% a year ago.

The loan channel breakdown for Impac’s non-QM production in the first quarter was as follows: wholesale, 58%; retail, 26%; and retail, 16%.

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