“Further context, the company originated less than $15 million in NonQM in the four quarters post-COVID in the second quarter of 2020 through the first quarter of 2021,” company CEO George Mangiaracina said on the earnings call Thursday.

The non-QM boost came at a time when Fannie Mae and Freddie Mac-backed originations fell to $377 million – down from $497 million in Q3 – and margin compression took its toll on the company’s balance sheet.

However, Mangiaracina told investors that the non-QM segment of the mortgage market experienced “significant market pressure” beginning in the fourth quarter of 2021, with conditions deteriorating in the first quarter of 2022. “Expectations related to rising short-term interest rates, as expressed in the two and three year swap rates have resulted in concerns over extension risk and more expensive structured financing terms,” he said.

Mangiaracina added: “The company continues to believe that the addressable market for NonQM will expand once markets normalize.”

In total, Impac posted a net profit in the fourth quarter of $3.6 million, a sequential improvement of nearly 72% from the third quarter, which executives attributed to a change in the fair value of net trust assets and long-term debt.

Total net revenue checked in at $14.9 million, a decline from the $19.8 million in revenue reported in the third quarter.

Mangiaracina cited Russia’s invasion of Ukraine as the cause of widespread challenges for Impac Mortgage Holdings.

“Some of us were cutting our teeth in the business back in October of 1998, at the advent of the Russian debt crisis, which triggered a flight to safety rally in US treasuries and a concurrent sell-off in credit-based assets,” he said. “Especially, finance companies at that time experienced losses and liquidity calls on their Treasury short hedge positions and also faced warehouse margin calls and market value declines in their subprime and loss gain mortgage loan portfolios.”

The challenges will force Impac to tinker with its hedge strategies, namely Treasury swaps and forward sale agreements in lieu of aggregating non-QM for bulk sale. “We will continue to remain disciplined in our origination and capital markets activities and remain undeterred in our belief that the addressable market for NonQM will expand to our benefit once markets normalize with respect to volume and margin,” Mangiaracina said.

As for agency product, which is primarily originated from Impac’s direct-to-consumer call center, things will get worse before they get better.

“We anticipate that market conditions will continue to be challenging for the foreseeable future in our rates business and have adjusted our capacity models, marketing spend and headcount accordingly,” Mangiaracina said.