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3. Impac Mortgage Holdings Inc.

The housing boom has been good to Newport Beach-based Impac Mortgage Holdings Inc. The company’s dramatic run could be headed for a slowdown.

Impac, a real estate investment trust investing in mortgages, reported revenue growth of 456% in the past three years. The company posted revenue of $194 million for the 12 months ended June 30, 2002 compared to $1.1 billion for the most recent annual period.

The company ranks No. 3 on this year’s Business Journal list of fastest-growing companies. It took the No. 5 spot on last year’s list.

The REIT’s profit also has ballooned. As of June, the company’s 12-month net income was $224 million, up from $53 million three years earlier.

Yet the company appears to be at the end of a long bull run. Mortgage lenders are facing tough times amid a falloff in demand for loans and rising interest rates.

Last month Impac cut its quarterly dividend from 75 cents a share to 45 cents. As a REIT, Impac pays out most of its profits to shareholders as dividends.

Rate hikes by the Federal Reserve Bank are hitting mortgage companies in their pocketbooks. That’s because their costs to make loans are tied to short-term rates.

“Once the Federal Reserve changes or modifies their stance on increasing short-term interest rates we expect our borrowing costs will begin to stabilize,” Chief Executive Joseph Tomkinson said in a statement. “We anticipate that the yield on our adjustable rate mortgage assets will adjust upwards allowing for an improvement in our adjusted net interest margins.”

For now, the company is set to sell more loans for cash rather than hold them in a portfolio, he said. Losses related to Hurricane Katrina should not be significant, Tomkinson said.

The company announced earlier this month a plan to buy back 5 million of its shares, throwing a bone to dinged investors. At the time of the announcement, the stock was worth half of its June peak.

“Due to the large price drop in our common stock,” a buyback is “prudent and accretive to earnings,” Tomkinson said.

The stock began trading higher after the announcement. It remains to be seen if investors and analysts will shift their stance on the company in the long term.

In August, JMP Securities downgraded Impac for the second time this year.

Still, the mortgage investor has made the most of the boom years.

Impac’s growth has mirrored the robust housing market, with loan volumes increasing as home prices and sales did.

The company held $26.8 billion in loans in August,down from July amid recent industry snags, but up more than 12% from the end of last year.

The housing market here cooled in summer 2004 but recovered. Still, the inventory of homes for sale in the county has increased in recent weeks,a sign the market is cooling again, although winter typically is the slowest time for sales.

Impac invests in mortgage loans made across the U.S. Nationally, many economists expect housing sales to slow as mortgage rates rise. They are expected to increase as the economy improves and the Fed continues its policy of monetary tightening.

Some economists speculate the Fed will continue to hike the federal funds rate from its current 3.75% to 4.25% or higher.

By buying and selling loans, Impac functions as a big middleman in the mortgage business.

Most of the company’s profits come from the difference between the interest it earns on mortgages in its portfolio and the money it pays to bondholders.

Impac is like a smaller version of Fannie Mae and Freddie Mac,big mortgage buyers backed by the federal government.

Impac buys loans that Fannie Mae and Freddie Mac pass on, not because of bad credit scores but because of some other issue, be it the size of a loan relative to a home’s value or a self-employed person who doesn’t have a bunch of paycheck stubs to show a bank. The loans are known as “alt-A.”

The company also provides loans to some people whose mortgage payments total more than 30% of their income, which is an industry standard.

As a result of the company’s growth amid the boom years, it signed a lease for all of a 200,000-square-foot building under construction at Jamboree Road and Fairchild Road in Irvine.



THE NUMBERS

Employees: 801

Market value : $785 million

3-year sales growth: 456%

Annual sales through June 30: $1.1 billion

Annual net income: $223.7 million

Company: mortgage loan investor

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