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Economy and General Discussion
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I think everyone will agree that the sub-prime and Alt-A CDO's have been killed over the last few months. Who know's how much, it all depends on what value a company is going to use when it comes to their earning's statements, and NAV's on derivatives and in house mortgage holdings. Obviously they still want to represent the best value to customers. Well in the hard to believe category, Impac Mortgage Holdings, who does adjustable rate(my guess sub-prime) mortgages and fixed rate Alt-A mortgages came out with this in their earnings statement tonight. This company is down to $1.20 from a $9.85 52 week high and was once valued at 1 billion market cap. Nice use of Mark to Market Model most likely brought to you by their in house statistician who was quoted as saying we know the market is going to rebound!
Impac reported 2Q loss of $2.05 vs. .30 YOY.
Now what I do not understand is how do you make a $163 million increase in your loss reserves, but during the same period you have a mark to market gain in the fair value of your derivatives of $56.9 million. Wow to increase your loss reserves, because you are getting killed in your mortgages, but magically the value of your derivatives actually gains $56.9 Million when everyone else's CDO's are getting killed. To be fair, they do not list if they have different derivatives that could have gained in value, what different derivatives does a mortgage company invest in like this? Could they have done certain kind of credit default swaps to help alleviate the pain? I don't know if this is possible, don't know enough about derivatives, but sounds highly doubtful since we have heard nothing like this with any other mortgage outfits! Is this not the perfect expression of what a company can do with mark to market if they want to. A lot to swallow. Am I reading this wrong, or does it not pass the smell test ?
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Mark to Market-The problem with models is people can choose whatever variables they want!
Posted by: karmaoption
Date: 08/14/2007 08:55PM
I think everyone will agree that the sub-prime and Alt-A CDO's have been killed over the last few months. Who know's how much, it all depends on what value a company is going to use when it comes to their earning's statements, and NAV's on derivatives and in house mortgage holdings. Obviously they still want to represent the best value to customers. Well in the hard to believe category, Impac Mortgage Holdings, who does adjustable rate(my guess sub-prime) mortgages and fixed rate Alt-A mortgages came out with this in their earnings statement tonight. This company is down to $1.20 from a $9.85 52 week high and was once valued at 1 billion market cap. Nice use of Mark to Market Model most likely brought to you by their in house statistician who was quoted as saying we know the market is going to rebound!
Impac reported 2Q loss of $2.05 vs. .30 YOY.
| The net loss was primarily the result of a $163.0 million increase in the provision for loan losses as a result of deteriorating market conditions, higher delinquencies and higher severities. Included in the net (loss) earnings was a mark-to-market gain in the fair value of derivatives whereby the Company records a change in fair value of its derivatives as a loss or gain in the current period, which during the second quarter 2007 increased to a gain of $56.9 million as compared to a gain of $11.5 million during the second quarter 2006. |
Now what I do not understand is how do you make a $163 million increase in your loss reserves, but during the same period you have a mark to market gain in the fair value of your derivatives of $56.9 million. Wow to increase your loss reserves, because you are getting killed in your mortgages, but magically the value of your derivatives actually gains $56.9 Million when everyone else's CDO's are getting killed. To be fair, they do not list if they have different derivatives that could have gained in value, what different derivatives does a mortgage company invest in like this? Could they have done certain kind of credit default swaps to help alleviate the pain? I don't know if this is possible, don't know enough about derivatives, but sounds highly doubtful since we have heard nothing like this with any other mortgage outfits! Is this not the perfect expression of what a company can do with mark to market if they want to. A lot to swallow. Am I reading this wrong, or does it not pass the smell test ?
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