Irvine’s Impac Mortgage Holdings Inc., which makes and invests in home loans, has spent much of the year trying to distance itself and its business from the imploded subprime mortgage market.
Now Impac is struggling just to differentiate itself from fellow lenders of Alt-A mortgages, which fall in between the riskiest subprime loans and the best mortgages.
The strategy hasn’t worked that well,Impac’s shares are off 80% this year, with a recent market value of about $130 million. Two years ago, the company was worth 15 times as much.
After this month’s bankruptcy of competitor American Home Mortgage Investment Corp. of Melville, N.Y., and Impac’s own exit from Alt-A loans, the company faces a big challenge convincing Wall Street that its own liquidation isn’t in the works.
The company made some headway last week by reassuring investors it has enough cash to meet the demands of lenders that may seek to get their money back.
Questions remain about Impac’s longer-term viability. Last week, the company said it planned to stop funding Alt-A loans because of rising defaults and growing Wall Street apprehension about the loans.
Sometimes called “liar loans,” Alt-A mortgages often are made to people who have difficulty documenting income, such as small-business owners. About 90% of Impac’s mortgages last year were Alt-A.
The company also announced another round of layoffs last week. Impac employed about 830 people at the start of the year and has let go more than 300 people since then.
One analyst raised alarm last week by writing in a report that Impac may have to follow American Home Mortgage’s lead and liquidate.
UBS’ Omotayo Okusanya cut his target price for Impac’s shares from $3 to zero. The stock was trading at about $1.75 last week.
The company “is unlikely to find the capital to maintain operations as its situation deteriorates,” Okusanya wrote.
Impac reacted strongly, calling the report “largely speculative.”
“While we can not make any guarantees, we continue to believe that we can successfully navigate through this cycle emerging as a stronger, more competitive company,” Chief Executive Joseph Tomkinson said in a statement.
Diversification is the main part of Impac’s strategy.
The company plans to focus on making “conforming loans,” which can be sold to government-backed mortgage buyers such as Freddie Mac.
In May, Impac bought Pinnacle Financial Corp., a Florida-based mortgage lender with some 130 branches across the country.
How much in conforming loans Pinnacle provides remains to be seen. Impac has yet to disclose Pinnacle’s revenue or what it paid for the company.
Impac’s next quarterly earnings announcement is due later this week.
Impac, which owns mortgages as investments, also is selling $1 billion of its $1.6 billion in loans that were acquired with borrowed money. Those sales should be completed in a month, the company said.
