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Impac Mortgage suspends lending activity for two weeks

Investor uncertainty due to COVID-19 drives capital markets concern

Impac Mortgage announced a two-week suspension of lending activity effective March 30 as the COVID-19 pandemic strains the mortgage ecosystem.

Like many other lenders and companies, Impac’s business update stated it is trying to navigate the dislocation associated with volatility in the interest rate and credit risk mortgage markets. 

“Liquidity constraints are being experienced by, and de-risking mandates are being initiated by, some of the company’s capital markets counterparties that have direct access to the Federal Reserve’s funding mechanisms, including certain of the company’s warehouse lenders, repurchase counterparties and whole loan investors,” the update stated. 

The challenge for Impac is that those capital markets counterparties play an important role in their ability to operate.

Impac’s business update pointed to the lack of communication from one of its whole loan investors, which it said was driving uncertainty and concern among some of its capital markets counterparties. The fear is that the whole loan investor, which it didn’t name, might breach the mandatory purchase commitment that’s required in its contract, Impac said.

The company said it will maintain a core team to manage its business during the two-week interval and will furlough the remainder of its workers for the period. Impac said it would cover the health and medical benefits of furloughed employees.

Impac said it believes the two-week suspension will allow the impact from the Federal Reserve’s recent actions “to cascade through the financial system to the relief of capital markets participants, independent mortgage originators and servicers and, ultimately and most critically, to the American homeowner.”

On March 23, the Federal Reserve announced that it would buy unlimited amounts of Treasuries and agency mortgages, including multifamily, to grease the wheels of the credit markets. The decision is intended “to support the flow of credit to households and businesses by addressing strains in the markets for Treasury securities and agency mortgage-backed securities,” the Fed said in a statement.

Impac said it is waiting to see how the Fed’s actions, along with other initiatives by regulators and legislators, will pan out during the two-week period. 

“The company will reassess facts and circumstances as they evolve and respond accordingly as market conditions normalize,” Impac’s update stated. “The novel coronavirus outbreak continues to have a real-time impact on all business sectors. The company remains focused on prioritizing liquidity, preserving its business relationships and caring for its employees, their families and its community.”

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