Throught The Fly's Eyes: Impac Mortgage

from Joseph Lazzaro of Theflyonthewall.com
















Impac Pulls A Dividend..And Sends A Mild Shudder

The subprime saga continues.

Impac Mortgage Holdings (IMH) announced Wednesday that it will not pay a Q2 dividend. Impac said its decision was part of the company's previously disclosed strategy to accelerate the liquidation of its real estate owned portfolio [REO] through a new auction process implemented this summer. Impac said it is experiencing higher than expected loss levels, adding that it believes accelerating the disposition of REOs through this auction process will ultimately reduce losses and preserve capital over the long-term.

Short-term, however, Wall Street did not respond favorably to the dividend suspension: IMH shares plunged $1.20 to $4.65 in Wednesday afternoon trading.

As a small mortgage player - Impac's 2007 revenue estimate was $200 million according to analysts surveyed by Reuters - the circle of investors directly affected by Impac's decision is small. Still, the psychological impact is the more-telling dimension to the development - one that has Wall Street's professionals paying close attention to.

That's because Impac's announcement - like a spring northeast U.S. rain storm that suddenly stalls off the east coast - provides a substantive data point to Wall Street that the worst may not be over for the subprime mortgage sector.

To be sure, there have been positive data points this year regarding a light at the end of the tunnel regarding the subprime sector. Wall Street has adjusted to the rise in subprime defaults: bond holders have adjusted the prices they're willing to pay for higher-risk subprime debt, and the subprime sector has tightened lending requirements.

Nevertheless, IMH's Wednesday announcement was a "pause for thought" moment in the Concrete Canyon - a thought that raises the specter that their may be more bumps in the road up head for the subprime sector, and for investors.