Mortgage lenders must think and act entrepreneurially in order to adjust their businss models and thrive
As much as can be said about how the recent mortgage crisis happened, who was at fault and how it could have been prevented, the fact that many borrowers were casualties of the mortgage meltdown is clear.
The meltdown also prevented most lenders access to the secondary markets necessary to provide financing to new and existing homeowners, which left many hard-working mortgage lenders with few business options. To that end, the story of how Impac Mortgage Holdings, Inc. went from $30 billion in assets, to near death and delisting to re-emerge as a fast-growing entity, Impac Mortgage. with a market cap of $110 million holds lessons in entrepreneurial strength for us all.
The Rise–And Fall–And Rise of Impac Mortgage Holdings, Inc.
Impac Mortgage Holdings, founded in 1995, went public in 1995 (NYSE MKT:IMH ) as a REIT (real estate investment trust), originating and investing primarily in non-conforming residential loans and small balance commercial loans.
Joe Tomkinson is co-founder and CEO of IMPAC Mortgage Holdings
From 1995-2007 the company enjoyed a booming business, originating more than $90 billion loans and securitized $60 billion, with assets of approximately $30 billion in its portfolio during 2005. Times were good. Business was even better. But in 2006, Founders Joe Tomkinson and William “Bill” Ashmore, conservative in their nature, started to get concerned about the real estate market. They could see the bubble emerging. To shield their company, they reduced loan originations by half, to $12 billion, and reduced their portfolio by 25% to $21 billion. In hindsight, their vision was prescient: by mid 2007, they watched in awe along with the rest of the nation as the non-conforming securitization market dissipated, virtually overnight.
Impac shuttered its remaining origination business, but as real estate defaults flooded the market, the principles began to re-invent the company as a default and real estate services firm. During the process, they began a partnership with the company that later became known as Auction.com. whereby Impac provided services that ultimately generated $45 million in revenues in 2007-2008. Today, Auction.com is the largest REO auction company in the world.
Bill Ashmore is co-founder and President of IMPAC Mortgage Holdings
They also invested in a title and escrow company, Advantage Title. grew it to one of the largest title firms in the state of California . and sold it for a profit in 2010 to better utilize its capital on the business they knew best, mortgage banking. These steps allowed the company to survive until the time was right to re-emerge in the conforming residential lending market in late 2010 without raising capital, and as President Ashmore notes with bit of well-earned pride, while neither asking for nor accepting US Government TARP funds.
Happy Endings (And New Beginnings)
Today, with mortgage lending once again its primary business (for conforming loans only), the company has originated slightly less than $3 billion in loans, is Fannie Mae. Freddie Mac and Ginnie Mae approved and manages a service portfolio of around $2 billion. The company is licensed in 36 states with 26 retail offices and 3 loan origination channels: retail, wholesale and correspondent. The mortgage origination business focuses on consumers, real estate agents and mortgage brokers (along with correspondent lenders). Additional products include 203(k) renovation loans, reverse mortgages and prime jumbo loans.
IMPAC Headquarters building, Irvine, Calif. (directly across from Google)
As of the second quarter of 2012, mortgage operations have once again become the main driver of net revenue for the company, a trend the re-emerged firm expects to continue. In 2013, Impac plans to increase production significantly and to continue to build its service portfolio. Investors have responded: Share price has risen more than 750% since
August and reached a 5-year high of $18, with the company’s current stock price around $14 and market capitalization at $110 million.
Impac’s story has not been a journey for the faint of heart. While the company is growing and thriving again, the era from 2007 through 2010 will not be forgotten. The company’s current 520 employees have retained their sense of humor. Fun has returned, and the focus on family, friendship and cherished customer and partner relationships is evident at every turn.
Yet the jugular lessons in survival Impac learned during the depths of the industry implosion have left an indelible mark. On the other side of the chasm, what is Impac’s advice for other entrepreneurs?
- Focus on the Long Term – Exercise foresight at all times, Ashmore says. Do all you can to stay ahead of the curve–being reactive in business will not help you. “Yes, you take a chance—but you have to arm yourself with knowledge, exercise a certain amount of caution and then, take the leap,” Ashmore says. “If you’re reacting, you’re behind the curve.” In recent memory, that experience has shown itself repeatedly in the finance and mortgages sector, he points out. 1987. 1997. 2007. And dramatic market changes will in all possibility happen again.
- Stay the Course. In 2007, Impac was forced to shutter its origination business entirely and to lay off several thousand employees. The decision led by Tomkinson to re-focus on managing the auction of default properties into real estate purchases, Impac was making money again—but was still burning cash to pay for the legacy repurchases on the defaults of the mortgages they’d underwritten during the prior years. Steadiness, patience, and hard work have been the name of the game, as they have been for many thousands of founders affected in myriad ways during the years during and following the crash.
- Align yourself to establish strong partner relationships. The ability to form and keep trusted relationships is critical, especially during hard times. With customers, investors, management, and business partners the ability to work synergistically is vital. As partners are willing to help your business, create every opportunity to ensure that you are respecting and helping their progress as well.
- Strive to earn and keep a good reputation. Strong guiding principles are more valuable, in the end, than perfect knowledge, Ashmore notes, which none of us are(?)able to have. As the company watched the Implodometer on ml-implode.com to see scores of lenders failing or selling, he notes that those who forgot their guiding principals and sold out for large sums of cash created a massive exodus, leaving waves of destruction and bad will in their wake. The ability to earn and keep a good reputation is key and will follow a business (or a businessperson) for many seasons to come.
- 5. Develop a thick skin. This is a critical facet of business, but one that Ashmore notes was most difficult of all during the darker days. “When you’re re-emerging or coming out of a sector that’s been destroyed, people don’t want to talk to you,” Ashmore recalls. “They don’t want to fall on the sword, or to take the risk of dealing with you. Like an actor—one bad movie, and nobody wants to hire you or speak to you again. You need to stay steady, in either condition.”
For the mortgage industry, just like any sector, to be successful, you need to check your ego at the door,” Ashmore concludes. “Perhaps that’s just the natural order of business,” he says.
I would agree. Has your business or your industry sector survived an implosion? What did you learn in the process? I look forward to hearing your thoughts.
(Disclosure–my company has a working relationship with IMPAC as one of our agency’s accounts; however we hold no stock positions in IMH.)