Though it is navigating precarious secondary-market waters, Impac Mortgage Holdings Inc. is acting like a company that expects to be one of those still afloat when the waters calm.
The two securitizations the Irvine, Calif., real estate investment trust and alternative-A lender has completed this year demonstrate its "ability to attract bond investors, despite the unusually volatile mortgage market," chief executive Joseph Tomkinson said.
He said that outstanding requests to repurchase loans also have been "substantially reduced" since the end of last year, when Impac posted a net loss caused by credit losses and a net interest margin compression. Mr. Tomkinson said it "has greatly reduced its exposure to margin calls while creating opportunity to grow as market conditions improve."
Impac has joined the bargain hunters; last week it also announced the formation of a nonperforming mortgage and foreclosed property business unit to take advantage of rising defaults and pressure by warehouse lenders on originators to sell loans.
Nevertheless, Mr. Tomkinson, whose comments were part of a press release issued late Thursday, said his company's mortgage origination business will continue to lose money "until investor confidence returns to the mortgage markets." As a result, Impac also cut its dividend by more than half.
"It is prudent to preserve liquidity and be in a position to take advantage of market conditions that may result in attractive opportunities," he said.
Impac, which would not make executives available Friday, said it may have to distribute a special dividend if regular distributions do not amount to 90% of earnings, the amount tax laws require REITs to distribute.
Impac's first-quarter securitizations of alt-A mortgages fell 19% from the fourth quarter, to $2.2 billion, and securitizations of commercial and multifamily loans fell 47%, to $235 million. The REIT, which has been cutting back production and tightening underwriting, estimated that its inventory of unsold loans had dropped by half from the end of last year, to about $800 million.
It also said it had $5.8 billion in warehouse credit, $800 million of which is set to expire in June. Cash and cash equivalents have shrunk 28% since the end of last year, to about $130 million.
Bose George, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc., wrote in a research note issued Friday that Impac's disclosures "suggest that the company's liquidity position is stable for now."
Impac had said that the spread on the triple-A bonds in its first securitization of this year was the tightest in a year, but that it expected pricing to slip.
"Credit tightening … became much more significant over the last 30 to 60 days," with "a significant drop-off in the number of players that were bidding or buying any mortgages pretty much across the board, from nonconforming alt-A, subprime, etc.," William Ashmore, Impac's president, said in a March 8 interview.
Pricing "has eroded," but it "will come back," Mr. Ashmore said. He drew a distinction between whole loan sales and securitizations, an area in which he said Impac has more latitude, because it can retain residual interests.
"We've seen this before, … in December of 2005, where pricing was terrible, … and if you held your loans over till around the 15th to the 30th of January," the price improvement was measurable, Mr. Ashmore said. "It was a matter of two weeks. I'm not saying that's the case here, but we need to have some … less bad news."
Impac's nonperforming loan unit, Arch Bay Group LLC, will be led by Shawn Miller and Steven Davis, who founded a default services provider they sold to LandAmerica Financial Group Inc. in 2004.
