The SeekingAlpha article is misleading in some respects. IMH only has leverage with respect to its trust assets, and they are non-recourse to the company. Because these assets are non-recourse, there is no risk to the holding company so they do not truly constitute leverage.
Impac maintains a residual interest in these trusts, which is why they have to hold them on their balance sheet and mark them to market each quarter as per GAAP. There is some upside from these residuals as IMH receives payments when the cash from trust assets exceeds its liabilities. While there is a GAAP gain or loss associated with the changing fair value of these assets every quarter, the non-recourse nature means there is no real liability to loss at Impac.
As per the 10-Q and press release, Impac reported earnings from continuing operations for the third quarter of $0.81. This refers to GAAP earnings and includes the mark to market adjustment that Impac has to make to their interests in the non-recourse trusts. The mark to market adjustment on these trusts, which again is not reflecting a true gain or loss to the company only a change in value of the assets in the trusts, was -0.61 per share.
The mark to market impact of the trusts should be ignored when calculating the true operating earnings of the business. If you look only at the continuing operations, the mortgage origination business and the real estate services business, earnings for the quarter were $1.50 per share. The $12 price tag seems very reasonable in this light.
On the 3rd quarter conference call Impac gave guidance through October. The company said that October volumes were $290 million, which, if extrapolated for the entire quarter, would be another 22% quarter over quarter rise in the fourth quarter from the $709 million originated in Q3. Earnings in Q4 could very well be higher than Q3.
