For most mortgage companies, 2020 has produced record volume and earnings. However, Impac Mortgage Holdings has spent much of the year trying to regain a foothold after the pandemic halted operations.

Exactly one year ago the company touted the benefits of focusing on ineligible mortgage lending as a sustainable business model.

In a few weeks, this everything went by the wayside.

“We entered 2020 with strong momentum, having repositioned the company over the years to expand our core competency in alternative products,” said George Mangiaracina, President and CEO of Impac, on his conference call. in the fourth quarter. “In the first quarter of 2020 before the destruction caused by COVID-19, we issued $ 260 million in non-QM loans, and we were close to exceeding our fourth quarter 2019 non-QM origination volume.”

Then, Impac’s secondary market investors refused to honor the non-QM production’s forward purchase commitments and the bottom fell.

The coronavirus disruption led Impac to register a loss of $ 88.2 million in 2020, much worse than the loss of $ 8 million for 2019.

Impac reported a loss of $ 2.2 million in the fourth quarter, compared to a profit in the third quarter $ 1.6 million and a loss in the fourth quarter of 2019 of $ 677,000. Using a non-GAAP measure called basic profit, Impac made a profit of $ 3.3 million in the fourth quarter, its second consecutive quarter of positive profits using this measure, after profit of $ 4.4 million. in the third trimester.

The company stuck strictly to compliant and government products when it resumed lending in June.
Impac did not revert to unauthorized and unqualified mortgage origination and loan purchase from mortgage brokers until the fourth quarter.

Direct-to-consumer sales generated $ 2.48 billion of the $ 2.75 billion volume in 2020. A year earlier, retail trade accounted for $ 3.51 billion of Impac’s total output of 4 , $ 55 billion.

Third-party origination channels were the most affected by the shutdown. Basically, Impac made $ 215 million for the year, just a quarter of the $ 816.3 million for 2019.

It completely stopped buying through the correspondent aggregation channel after the first quarter, making just $ 54.4 million in 2020, up from $ 226.8 million in 2019.

Retail volume was $ 753.5 million in the fourth quarter, up from $ 412.3 million in the third quarter, but down from $ 1.23 billion per year.

Impac stepped up its wholesale business in the fourth quarter, with volume of $ 56.7 million. That jumped a paltry $ 6.2 million in the third quarter, but fell significantly from $ 219.1 million year-over-year.

Squeezing margins affected fourth quarter earnings, with a gain on sale down 73 basis points quarter over quarter. However, that jumped 80 basis points from what the company earned on its loans last January and February before the COVID shutdown, said Paul Licon, chief financial officer.

These margins are likely to be further squeezed as the total mortgage market contracts. “Competition among lenders remains unbridled and the resulting pressure to offer consumers more favorable rates has started to squeeze some margin in the GSE space,” said Tiffany Entsminger, COO. “The increase in business promotion spending and negatively affected margins are likely to persist as prices continue to rise.”

Impac expects that for the current quarter there will be an additional 15 to 20 basis point margin squeeze for its compliant product, Licon added.

However, Mangiaracina went on to say “with this amount of margin squeeze in the GSE product offset by what we think is a shift in production to the non-QM and jumbo where the margins are healthier, we’re pretty confident. that we will be able to continue to operate our platform at a positive rate. “

The end of the refinancing boom is the driving force behind the Impac opportunity as many loan officers who have focused on non-QMs have turned to the easy money compliant business. “With rising rates and squeezing margins, we are seeing a return of these producers to the non-QM sector, which should increase origination volumes in the future,” said Tom Donatacci, Chief of Staff and the business development of Impac.