California-based Impac Mortgage Holdings Inc., a company that is no stranger to the ABS and MBS markets, has placed a focus on developing new ways to help asset- and mortgage-backed transactions run more smoothly.

"We [issuers], along with our underwriters, need to do a better job relative to educating investors on our particular product," said William Ashmore, president and chief operating officer of the company. "The last thing many investors want to do is spend a lot of time reviewing reports and information on products they're unfamiliar with. However, it is apparent from our last securitization, a $460 million transaction, that the underwriters did a good job, because the deal was oversubscribed, resulting in tighter spreads."

Ashmore also feels that the key to remaining ahead of the game is to develop close relationships with investors.

"We try and stick with two or three dealers throughout the year that will keep their focus on our company, get a good understanding of our product and give us good write-ups from a research standpoint," he said. "We want people to come back and ask When is that next Impac deal coming out, because we want to get a piece of that.'"

How It All Began

In November 1995 Imperial Credit Industries spun out the mortgage conduit which today is called Impac Funding Corp.; it also created a warehouse-lending division which is currently named Impac Warehouse Lending, and that division yielded an initial public offering, called Imperial Credit Mortgage Holdings. The name was subsequently changed to Impac Mortgage Holdings when Imperial divested itself of its management and its ownership interest in the company.

"Essentially, what was spun out in November of 1995 is still intact today," Ashmore said. "Our total rate of return was similar to what Internet companies are seeing today, just under 100%."

But it has not always been smooth sailing. The company was hit by the global liquidity crisis in 1998, slamming its stock price pretty viciously, he said.

"We weathered through the latter part of 1998," he noted. "In 1999, we posted earnings of $22.3 million as compared to a loss of $5.9 million in 1998.

In the company's early years, the securitizations done were predominately in a real estate mortgage investment conduit format. It didn't start doing loans off of its own shelves until later in the 1990s.

"The majority of the assets that were securitized were prime and subprime mortgage assets on either a Remic or asset-backed level," he said.

Ashmore doesn't speculate that the company will be breaking into any new structures, though it has dabbled in other areas in the past. With the launching of its commercial mortgage company, Impac Commercial Holdings, which the main company is no longer associated with, it completed a $320 million CMBS securitization in 1998.

A Snapshot of 2000

To stay on top of the market, the company conducts weekly meetings of its asset-liability committee and has already formulated its game plan for 2000.

"We basically are monitoring on a monthly or quarterly basis the performance of our existing securities and we're adjusting basically our credit criteria for the types of assets we're going to put into our securitizations," Ashmore noted.

The company was dormant in the securitization market for latter part of 1998 and the early part of 1999, due to the lack of bid from a securitization basis. However, Ashmore says that his team is opportunistic in the sense that whenever the market is there, it looks at the proper strategy from an exit standpoint relative to what it is trying to obtain.

Currently the company has incorporated at least two rate hikes in its business plan for this year and has made predictions in the profitability and size of its securitization transactions, with another collateralized mortgage obligation planned for the end of the year.

"Based on how much capital we have, we're making assumptions on how much we can do in CMO securitizations," Ashmore said.

For 2000, the company plans to deal less dividends, retain its capital, review its balance sheets and restructure. When needed, it will also collapse CMOs to create additional capital, reinvesting that capital into better-earning assets for the balance sheet.

"If that strategy pans out we should be able to greatly expand our existing balance sheet by an additional CMO debt securitization at the end of the year that is going to range somewhere between $300 million to $600 million," he said.

And what will we be seeing in the market this year?

For ABS, Ashmore predicts that the only companies that are going to be issuing asset-backed securitizations are going to be the ones that have a substantial amount of cash.

"To date, there is not a viable bid for the residual left in a asset-backed securitization that gets the profit that is necessary for a company to stay in business," he explained. "I think that we're going to see securitizations being done by the bigger players with the bigger balance sheets on the asset-backed side because they're the only ones that can hold the residual."

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