A re-evaluation of of CashCall Inc.’s value has left Impac Mortgage Holdings Inc. with a huge loss as the company takes the consumer-direct channel in a new direction.
Back when it acquired CashCall in 2015, Impac was banking on significant tax benefits due to loss carry-forwards that would offset net profits from CashCall.
“Impac believes that the centralized call center operations, combined with this technology, makes CashCall Mortgage a scalable retail origination platform that is able to close loans faster than competitors in a highly efficient manner,” Impac said at the time.
But things didn’t turn out as planned.
In its second-quarter earnings report, Impac said rate-related
declines in home-loan originations — which fell to $1.034 billion from $1.320 billion three months earlier and $1.794 billion one year earlier — combined with margin compression hurt the results from CashCall.
The decline at Impac contrasts much of the mortgage industry — which has mostly reported quarter-over-quarter and year-over-year gains in production.
“In addition, the business model of CashCall has led to additional margin compression through adverse demand from investors, as a result of the borrowers propensity to refinance,” the report said.
Furthermore, Impac noted that consumer uncertainty has developed as a result of the use of a similar brand name by an unrelated company — leading to a deterioration in brand awareness.
“Using this updated information, we performed an impairment test to evaluate the CashCall goodwill and intangible assets for impairment,” Impac said.
As a result of the evaluation, Impac took a $75 million charge for goodwill impairment
and a $13 million charge for intangible asset impairment. It also said a shift in the consumer-direct strategy is being implemented by the new management team
That drove the Irvine, California-based mortgage banking firm’s earnings to a staggering $94 million loss before income taxes during the three months ended June 30 — swinging from a $7 million profit in the same period during 2017 and a $4 million profit in the first-three months of this year.
The huge loss comes just a week after Impac’s long-time leader Joseph R. Tomkinson left his posts as chairman and chief executive officer.
Second-quarter 2018 originations consisted of $0.460 billion in retail production, $0.199 billion in wholesale lending and $0.375 billion in correspondent acquisitions.
Non-QM lending grew to $0.306 billion from $0.248 billion in the first quarter.
Full first-half mortgage production amounted to $2.354 billion.
The mortgage servicing portfolio inched up to $16.786 billion from $16.752 billion and was also bigger than $14.668 billion as of mid-2017.
Although Impac didn’t report human resource numbers, it did say, “As a result of the staff reductions in the second quarter of 2018, average headcount decreased 21 percent for the second quarter of 2018 as compared to the same period in 2017.”
