Impac Mortgage Holdings had another loss in the third quarter of 2022, leading its executive team to adopt a defensive, risk-off posture to try and navigate one of the most challenging markets in decades.
Executives at Impac have opted to pull back on non-QM products, and by the end of Q3 2022, the company headcount had been reduced by 47% compared to the same period in 2021.
“Interest rate and credit spread pressures with attendant market volatility and illiquidity were unrelenting in the third quarter of 2022,” George Mangiaracina, Impac’s chairman and CEO, said in a statement. “The company adopted a defensive risk-off posture in the fourth quarter of 2021 and remains measured and disciplined in its origination and capital markets activities.”
The California-based lender on Thursday reported a $13 million loss in the third quarter, down slightly from the $13.5 million loss in the second quarter of 2022 — but much worse compared to the $2 million profit in the third quarter of 2021.
According to the company, surging interest rates, which accelerated in the third quarter, caused a significant increase in credit spreads. This resulted in a substantial oversupply of low coupon originations and caused a severe margin decline and diminishing capital market distribution exits for originators reliant upon an aggregation execution model.
In turn, Impac pulled back on production, increasing prices and reducing non-QM volume.
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The company’s originations declined from $682.6 million in the third quarter of 2021 to $128.1 million in the second quarter of 2022 and $62 million in the third quarter of 2022. Meanwhile, non-QM originations fell to $49.6 million in Q3 2022, down from $80.2 million in Q2 2022 and $186.2 million in Q3 2021.
Gain-on-sale margins decreased from 287 basis points from July to September 2021 to a loss of 110 bps in the same period this year.
Lower originations impacted the variable compensation and reduced the company’s headcount. As a result, expenses came in at $11 million in the third quarter of 2022, down from $14.6 million in the previous quarter and $19.7 million in the same period of 2021.
On the servicing side of the business, Impac’s portfolio was at $69.6 million on June 30, 2022, compared to $71.8 million on December 31, 2021, and $65.1 million on September 30, 2021. Impac continues to sell whole loans and selectively retain Ginnie Mae’s mortgage servicing.
Looking ahead, “layered risks cannot be effectively hedged in times of acute market dislocation, and we have no visibility as to when such dislocation will abate and return the industry to normalized volumes and margins,” Mangiaracina said.