Phoenix or Zombie?

An announcement by a former high-flier of the mREIT business almost slipped by on Christmas Eve.

Although I’ve mentioned a couple of mREITs that aren’t exclusively Agency MBS holders, and a couple of others that were formed to invest in the “private label” (non-Agency) MBS arena, those (CIM and IVR) came after the fall, and weren’t in the business of buying or creating new MBS.

The older company that filed notice with the SEC on December 24th of its upcoming listing on the AMEX was Impac Mortgage (new symbol IMPM), with tentative first trading date December 29th.

Part of the Orange County mortgage origination megalopolis during the mortgage finance bubble, Impac specialized in alt-A loans, with emphasis on established high credit score borrowers that did not disclose their income in the applications.

When alt-A monster lenders American Home, IndyMac and Downey Savings went down, Impac certainly couldn’t survive.  Even though the crew at Impac got into the business in 1995, they never had more than a few percentage points of market share, so they were “price takers” in the parlance of the market, where the big boys are the “price makers.”

I always thought they paid themselves a little too well for such a (relatively) small operation, and the hubris of a building with your name on it overlooking the runway at John Wayne Airport so the CEO could easily zip over for an hour or two of blowing off steam in his plane also seemed an unnecessary part of the analysts’ standard facilities tour.

Still, they didn’t fold completely, and they did get their various debt holders to agree to a very severe note modification.  In fact, I’m quite sure they negotiated a far better deal on their corporate debt than the modifications they offer their delinquent mortgage borrowers.

So, they live (sort of).

Today they have a legacy portfolio that can’t be throwing off much cash, if any, and they have a consulting business helping investors look at the risks they own in mortgage land.

Like IVR with its Wilbur Ross ownership of AHM, IMPM will be able to claim expertise in the specialty, should they be able to make new investments in seasoned bonds selling at deep discounts.  Much will depend on their ability to sell new investors on the idea of putting in fresh capital to execute this strategy.

Unfortunately for all the would-be mortgage bond vultures, banks especially have very little incentive to recognize losses by selling off loans.  In fact, if I were running a bank and sucking out hundreds of basis points of net interest margin on an investment portfolio guaranteed by the government (Agency MBS), I might be tempted to keep my cookie jar of future realizable losses in the form of legacy loans I could resolve at a rate just fast enough to shelter all my newfound carry profits.

Time will tell whether Impac will fly to new heights as a phoenix arising from the ashes, or if they will be forever dragging one leg behind them looking to claim life from the dieing mortgage world around them (zombie status).  Still, seeing one of the old names come back from the Pinks is worth noting, even if the company didn’t issue a press release, and filed its intention with the SEC on December 24th.



3 Responses to Phoenix or Zombie?

  1. W.Kinsolving says:

    Yes, a very sneaky development. I also wonder, as one still dancing with the corpse of NFI (NOVS) what might be prognosticated about it. It, too, still is standing, trying to learn new dance steps. But it is still a heavy partner to twirl.

  2. Patrick says:

    I do look forward to more of Joe Tomkinson’s blustery conference calls. He was always good for some CC quotes.

    I see quite of few of these mortgage REIT zombies out there: NOVS.PK, ORGN.PK, COHN (the former AFN), DFR, AI, BMNM.OB, CYRV.OB, and RTYFZ.PK. For my money, I think Bimini should opt for a reverse split and re-list itself on the Amex (I think it would qualify under Standard 1 once the 2009 fiscal year is over).

    P.S. I really hope IMPM touts the “straightforward C-corp” structure at its next conference presentation.

    • hhill51 says:

      When I set out to write the definitive book on the mortgage meltdown two years ago, I had already been doing an internal commentary on the sector madness in the form of a very popular e-mail. I even sanitized the e-mails thinking that would be the book, but disgression won out.
      Still, one of my favorites was the message quoting one mREIT CEO in a quarterly conference call talking about Wall Street taking brand new loans and getting drive-by broker’s opinions, in order to exercise the purchaser put based on valuation. Then they’d offer the originator 80 cents on the dollar to “keep” the loans they’d bought two weeks earlier for 102….

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