Liquidity pressures force Impac Mortgage to suspend lending for two weeks
Citing COVID-19 related liquidity concerns, Impac Mortgage Holdings, Inc. enacted a two-week suspension of all lending activity including mortgage originations, and temporarily laid off most of its staff, effective March 30, 2020 – as it waits for the Federal Reserve’s quantitative easing program to kick off.
During the two-week interval, Impac will maintain “a core team” to manage business operations but temporarily laid off “the remainder of its employee base,” according to a press release. Consistent with its lay-off policy, Impac volunteered, “to cover its employees’ costs of health and medical benefits under the furlough period to provide tangible support during this time of hardship.”
Impac’s operations include mortgage lending, servicing, portfolio loss mitigation, real estate services, as well as securitized long-term mortgage portfolio management.
The two-week interval should permit the liquidity delivered through the Federal Reserve’s purchase of Mortgage Backed Securities under its quantitative easing program, “to cascade through the financial system to the relief of capital markets participants, independent mortgage originators and servicers and, ultimately and most critically, to the American homeowner,” Impac noted in the release.
The temporary suspension should also provide time for the industry and Impac “to determine how to manage the effects of the various initiatives” launched by the Fed, the U.S. Federal Government, or “state and local governmental and quasi-governmental agencies relating to economic stimulus, mortgage principal and interest forbearance, liquidity and mortgage origination and servicing practices.”
The Irvine, Calif. based company described itself as a micro-cap residential mortgage originator and servicer currently experiencing “liquidity constrains” due to interest rate and credit risk associated with mortgage markets.
As of the close of business on March 27, 2020 Impac said its unrestricted cash holdings amount to approximately $80 million.
The rapid development and fluidity of the effects of the COVID-19 “precludes any prediction as to the ultimate adverse impact” on Impac’s business performance, particularly its financial condition, operations and cash flows risk. The company “remains focused on prioritizing liquidity,” preserving its business relationships and caring for employees, their families and the community, according to the release.
Q1 home prices improve, still unaffordable in 66% of US markets
Despite low interest rates, potential homebuyers still are playing catch up with home prices, which remain unaffordable in 66% of U.S. markets, according to ATTOM Data Solutions.
ATTOM’s First Quarter 2020 U.S. Home Affordability Index Report shows median home prices were unaffordable for average wage earners in 319, or 66% of the 483 U.S. counties analyzed in the report.
On the brighter side, home price affordability improved compared to 70.4% in fourth quarter of 2019 and 69.8% a year ago.
Owning a median-priced U.S. home, which in 1Q20 cost $252,500, means consuming 31.1% of the national average wage, down from 31.4% in 4Q2019, and 31.6% in 1Q2019. The decline marks “the lowest percentage since the fourth quarter of 2017,” the report notes, when the average workers were spending 30.8% of wages to own a home.
ATTOM’s Q1 2020 U.S. Home Affordability Heat Map shows home price appreciation outpaced wage growth in 64% of markets.
“While the national median price still remains a bit out of reach for the average wage earner, the affordability gap has narrowed,” said Todd Teta, chief product officer at ATTOM. Median home prices rose 8% over the past 12 years, while average wages rose by less than 4%, so “falling interest rates continue making up the difference,” dropping monthly homeownership costs across the country.
The affordability index analyzes median home prices from publicly recorded sales deed data collected by ATTOM and average wage data from the U.S. Bureau of Labor Statistics in 483 U.S. counties with a combined population of 235 million. The report sourced data from counties with a population of at least 100,000 and at least 100 homes sales during the quarter.
Calculations are based on the percentage of average wages needed to make monthly mortgage, property taxes and insurance payments on a median-priced home with a 30-year fixed rate mortgage, 3% down payment, and 28% maximum front-end debt-to-income ratio.
As the impact of the COVID-19 hits the housing market, Teta added, it is entering a period of great uncertainty. “But in the initial months of the year, the picture has appeared to continue to brighten for home seekers.”
Fintech Bank & Operation HOPE offer free COVID-19 impact literacy resources
Fintech Cross River Bank is collaborating with Operation HOPE to provide free, real-time online financial literacy education programs about the economic impact of COVID-19. The new partnership will be live in April, during National Financial Literacy month.
Operation HOPE, brings to the partnership nearly two decades of experience in supporting disaster survivors through its Inside Disaster programs. It will join Cross River in delivering its virtual financial literacy resources to help individuals and community organizations learn how to become more financially stable and independent during the current COVID-19 pandemic.
The fintech bank introduced its April Financial Literacy series in 2019 to educate communities by highlighting how “technology has the potential to support greater financial inclusion,” the fintech said in a release.
This year, in addition to HOPE Cross River is collaborating with local leaders, nonprofits, municipalities, institutions and residents to assist with pandemic-related relief measures, and tools families need to make the right financial decisions.
Founded in 2008, Cross River Bank is an innovative financial technology company that leverages traditional banking services such as lending, payments and risk management, on a banking-as-a-platform solution.
In December 2018, Cross River secured $100 million in a funding round led by KKR. It followed a $28 million VC funding round in 2016 from Battery Ventures, Andreessen Horowitz, and Ribbit Capital.