Impac to Purchase UBS Special Servicing Platform; Reinvention in Distressed Assets

Former Alt-A mortgage lending powerhouse Impac Mortgage Holdings, Inc. (IMH: 0.90 +9.76%) isn’t trying to wait out the market — instead, the company is set to undergo a dramatic makeover into a distressed mortgage specialist, jumping into ever-expanding waters tied to management of sub- and non-performing mortgage notes.

On Monday morning, Impac announced that it had entered into an agreement to acquire the special servicing platform of UBS AG (UBS: 22.16 +5.47%), as the two companies enter a strategic partnership that will see UBS contribute troubled loans to the platform, while acquiring warrants to purchase up to a 2 percent interest in Impac’s common shares.

“This acquisition will allow the company to take advantage of the existing market conditions to subservice for others, along with, buying and then servicing ourselves currently available mortgage assets in the secondary market,” said Impac CEO Joseph Tomkinson. “The special servicing platform will be combined with our master servicing, default department, and real estate auction business to synergistically work together as a fully integrated platform to maximize the success of opportunistic investments in mortgage assets.”

The deal with UBS comes on the heels of a critical debt restructuring effort to convert Impac’s sole remaining repurchase warehouse line with a current approximate balance of $200 million to a term facility of 12 months; Impac said last week that it had executed a letter of intent with UBS regarding the warehouse line conversion.

That conversion will give UBS the right to 7 percent of Impac’s outstanding stock, in addition to the 2 percent worth of warrants tied to the servicing platform sale.

Both UBS and Impac have been hit hard as the mortgage crisis has winded onward; Impac has until recently been left for dead by most investors, and on Friday the company said it had received its second notice from NYSE Regulation Inc. regarding a possible delisting of the company’s stock. Stocks face delisting from the exchange if shares trade below $1 for a consecutive 30 day period.

UBS, for its part, will likely have little trouble contributing assets to Impac’s newly-acquired servicing platform. The securities firm has seen its shares battered over credit concerns tied to subprime and Alt-A mortgage exposure — shares closed Friday at $19.49, having fallen 41.5 percent in the past month alone. In early July, the company shook up its board of directors amid allegations that the company lacked proper governance, giving it a blind spot when it came to the subprime mess.

Investors are expecting write-offs as high as CHF 7 billion (approx. $6.9 billion) when the bank reports Q2 results in August, according to a review of analyst estimates by Housing Wire.

The company absorbed $19.5 billion in write-downs during the most recent first quarter — enough to put lesser financial institutions out of business — and sold off a chunk of its subprime mortgage book to BlackRock Inc. (BLK: 218.75 +3.10%) in an effort to limit its future exposure to bad mortgages.

Disclosure: The author held no other positions in IMH, UBS or BLK when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.