For those looking for background on our investment in IMH, please see the research report published in January here.
In the final paragraphs of the research report I cited the fact that the CashCall acquisition was a game changing development that allowed IMH to market their Alt-QM product, which is in its infancy, to a vast audience.
The good news is that the marketing of the Alt-QM product to the vast number of borrowers who require such flexibility in borrowing hasn't even started yet. IMH's substantial growth is coming from originations of the traditional variety.
The growth taking place is at a very early stage given where the company is within its own reformed life-cycle along with where the mortgage industry is as a whole. This was once a $2 billion company in terms of market cap. The current market cap of $125 million is not the end game for management that has been at the helm for 20 years.
Why do I say that? Take a look at this commentary from CEO Joe Tomkinson earlier today:
"With the addition of CashCall Mortgage, we have a scalable, centralized retail platform that is able to efficiently expand and retract during market fluctuations. By using this marketing to generate leads internally, we expect CashCall to be able to compete with some of the large internet lenders across the nation. In addition, we intend to leverage the same marketing platform to expand the volumes of Impac's new AltQM products as well as its government loan products such as FHA and VA. CashCall Mortgage will also be able to make use of our state licenses to expand its national lending footprint into more than 40 states."
Currently, Impac only services 11 states. They are expanding int0 more than 40 states in the next 60 days. Basically, nationwide coverage. Additionally, the fact that the marketing presence of CashCall allows them to push their high margin Alt-QM product means that profitability can soar over the next few years.
Deutsche Bank in a recent report on the potential for Alt-QM pegged potential upside growth at $200 billion annually within a mortgage market that sees $1.2 trillion in annual volume. The percentage that Alt-QM can command within the total mortgage market is substantial and IMH is basically the first one to the plate, as they were with Alt-A loans in the mid-90s.
"Consistent with our strategy to expand total originations, the company also rolled out its non-QM loan programs last August marketed as the AltQM and we funded its first originations during the third quarter. In the first quarter of 2015 the company's AltQM pipeline was approximately $50 million and we expect to build on this pipeline throughout 2015."
Alt-QM was introduced in August 2014 and already has done $50 million in Q1 2015. Best part is that the company has MacQuarie to absorb the Alt-QM portfolio leaving Impac with no balance sheet risk. Management's experience shines through with partnerships like this.
The company had a total of close to $3 billion in originations in 2014. Already in Q1 of 2015, IMH has $2.3 billion in originations. CEO commented that Q2 is also looking strong.
The CEO has said that they expect to "more than make up" for the entirety of the $6 million loss in 2014 in Q1 of 2015. Further insight was given into the tax advantaged profits that lie ahead:
"To further clarify, we will not only continue to benefit from the NOL carry forwards, but in addition, we expect to recognize its deferred tax asset representing future tax benefits improving the overall book value. With increased origination volumes and wider overall net margins as a result of our mix of businesses being predominantly retail, we expect to generate solid earnings in the first quarter."
The NOL represents close to $500 million in Federal carry forwards. They expect to utilize the carry forwards incrementally, beginning in Q1.
