The non-QM lender has kept the doors open by slashing costs and repositioning its retail consumer direct channel, CashCall Mortgage, to be a mortgage broker.

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The parent company of Impac Mortgage, which originated $2.9 billion in loans in 2021 before interest rate volatility wreaked havoc on its business model, has been kicked off the NYSE American exchange and is now trading for pennies as an over-the-counter pink sheet listing.

Shares in Impac Mortgage Holdings Inc. — which specialized in making “non-qualified mortgages” to borrowers not meeting standards set by Fannie Mae and Freddie Mac — plummeted by more than 70 percent Thursday. In afternoon trading, shares in Impac were changing hands for less than 7 cents per share on OTC Pink, the most speculative of the three over-the-counter marketplaces operated by OTC Markets Group.

Shares in Impac, which have traded for as little as 12 cents and as much as 88 cents during the past year, had previously closed at 22 cents on Wednesday, the company’s last day on the NYSE American exchange.

The NYSE American exchange, formerly known as AMEX, is operated by the owner of the New York Stock Exchange, Intercontinental Exchange Inc. as a lower-cost alternative exchange for growing companies — primarily small- and mid-cap stocks and derivatives.

In a regulatory filing Thursday, Impac said that it would not appeal the NYSE American’s decision to halt trading of Impac’s shares and commence a delisting proceeding after determining that the company was no longer in compliance with minimum shareholder equity requirements.

Rising interest rates challenged non-QM lender

Most mortgages meet federal guidelines for “Qualified Mortgages,” which prohibit risky loan features like interest-only loans, limit the upfront points and fees lenders can charge and require lenders to verify the borrower’s monthly income and assets.

Impac and some other lenders that specialize in making non-qualified mortgages or “non-QM” loans to self-employed borrowers ran into trouble last year when the rapid runup in mortgage rates made it difficult to resell loans to secondary market investors at a profit.

Although the loans have generally performed well, non-QM lenders were at times forced to sell loans at a loss last year, because rising interest rates quickly made loans with lower rates less valuable to investors.

While big non-QM lenders like Sprout Mortgage and First Guaranty Mortgage are no more, Impac has managed to keep the doors open by slashing costs and repositioning its retail consumer direct channel, CashCall Mortgage (CCM), to be a mortgage broker rather than a direct lender.

The shift to “a mortgage broker fulfillment model” allows the company to “originate a variety of products that serve its national consumer base at a reduced cost per loan due to significant expense abatement relative to specialized staffing, operations, technology and business promotion,” the company said in a March 8 business update.

Impac said it expects non-QM originations “to continue to be the dominant product in the mortgage broker channel.”

Given it has made no direct deliveries to Fannie Mae since 2016 or Freddie Mac since 2020, Impac said it intended to “voluntarily relinquish” its seller-servicer designations with the mortgage giants, “which has been suspended during these periods of non-delivery.”

While Impac wound down its wholesale and third-party origination channels during the first quarter, it said it “remains in good standing with its warehouse lenders, whole loan take-out investors, regulators, vendors and subservicing counterparties.”

In reporting a $39.4 million 2022 loss on March 16 as fourth-quarter originations dwindled to $21.5 million, Impac said its warehouse lending capacity had shrunk to $16 million with a single counterparty, after a $25 million warehouse facility with another party expired on Dec. 31.

But 21 previous securitizations of non-QM loans for sale to secondary market investors since 2018 demonstrated the “quality, consistency and performance” of those loans, the company said.

Impac said it ended the year with unrestricted cash and cash equivalents of $25.9 million and $9.4 million in unencumbered loans after selling $68 million of mortgage servicing rights for $725,000.

Company executives said that after negotiating a $3 million buy-out of the company’s old commercial lease, Impac’s office space footprint has shrunk from 120,000 to 19,000 square feet.

“We believe that the broker fulfillment model has many strengths including a reduced expense load associated with personnel, operational and technology support, and reduced marketing needs due to organic lead volume generated by the CCM brand,” the company said in its most recent annual report. “Broker fulfillment also supports a broader product offering to CCM consumers, allowing the company to move away from the expense and complexity of managing multiple lending products with support from several departments.”

During the first quarter, Impac said it filed for a $7.3 million employee retention credit under the Coronavirus Aid, Relief and Economic Security (CARES) Act, which it expects to receive by the end of the year.

On April 20, Impac reported that it had “voluntarily relinquished” its Government National Mortgage Association (Ginnie Mae) mortgage-backed security designation “in light of the company’s lack of government-insured mortgage loans eligible for government securities.”

But Impac said it retains licenses allowing it to originate not only non-QM and jumbo mortgage loans through its broker fulfillment channel but mortgages eligible for sale to Fannie Mae and Freddie Mac and loans eligible for FHA, VA and USDA government insurance.

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Email Matt Carter

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