Mortgage Company That Could Move Higher With Interest Rates by David Sims of Seeking Alpha
IMH
Impac Mortgage was hit hard by the housing finance implosion of 2008. However, unlike hundreds of competitors, this company reacted early enough to prepare the company for the crisis. The result is that the company avoided bankruptcy and shares continued trading, albeit much lower.
In the past five years, the stock price found a bottom and insiders have come in to buy value. The biggest value driver is the company's $163 million deferred tax asset (DTA), which is being carried with a full valuation allowance. The valuation allowance may be removed soon, as the company indicated some portion of the DTA is going to be recognized with 1st Q 2015 results.
Impac's operational performance has improved as a result of several deals completed in the past few quarters. In September 2014, the company announced that Macquarie Group would purchase all of their non-qualified mortgage products. These are loans that don't conform to standards held by Fannie and Freddie. The company has stated that they could eventually capture a large portion of the $50 billion market for these loans.
Additionally, during the 1st Q of 2015, the company completed their acquisition of Cash Call Mortgage. This significantly increased the volume of mortgage originations. The company pre-announced at least $2 billion in mortgage originations for the quarter, versus about $2.8 billion in all of 2014. This will result in at least $6 million in profits for the quarter, which is about equal to the losses booked in all of 2014.
The real news may be the impact of increased interest rates on the company's non-QM lending business. If interest rates in the United States rise, while foreign central banks keep rates low or negative, then foreign buyers may have an increased appetite for U.S. debt. The result would be a non-QM lending boom at Impac, fueled by purchases from Macquarie. In 2015, Impac may actually quadruple full-year mortgage originations.
If Impac is able to fully recognize their deferred tax asset, the company could eventually have more than $208 million in equity book value. (This includes a $20 million convertible note held by an insider.) The company's current market capitalization is about $140 million. This indicates that the common stock could have another 30% upside for the year.
