Impac Mortgage, NovaStar Financial To Skip Dividends
WSJ - Impac Mortgage Holdings Inc. and NovaStar Financial Inc. both said dividend payments won’t be forthcoming and they are undertaking further actions to deal with the turmoil in the credit markets.
Impac doesn’t expect to pay dividends on its common stock for the rest of the year because of losses on mortgages and securities. The Irvine, Calif., company said in June it wouldn’t pay a second-quarter dividend because of losses from liquidating real estate. It also announced it will leave the warehouse-lending and commercial-lending businesses and end its mortgage lending.
Late Monday, NovaStar backtracked on its intention to pay a dividend and said its REIT status will be stripped retroactive to Jan. 1, 2006 because it can’t afford the dividends as mandated under law. REITs are required to pay out 90% of their taxable net income to shareholders in the form of dividends. NovaStar had been planning to pay about $157 million in dividends for 2006 in order to preserve its REIT status.
The news comes as mortgage lenders continue to get squeezed by liquidity problems and a dearth of investors willing to buy mortgage-backed securities at a level at which lenders can be profitable. Illustrating that is Accredited Home Lenders Holding Co., which last night agreed to an amended takeover offer of $11.75 a share from private equity firm Lone Star Funds. Lone Star struck a deal in June to acquire Accredited for $15.10 a share, or $400 million, but last month proposed cutting its offer to $8.50 a share after saying it might scuttle the purchase.
Earlier yesterday, Accredited warned in a Securities and Exchange Commission filing that it might not be able to resume substantial mortgage lending even when the credit markets calm.
Impac is the latest to essentially stop mortgage lending. Like many others, it blamed current market conditions for the move.
“Unfortunately, given the severe dislocation of the marketplace, which included unprecedented margins calls, we are left with no other alternative but to downsize our company to better operate and navigate through this difficult and unrelenting environment,” said Chief Executive Joseph R. Tomkinson. “As a smaller organization, we will concentrate on maximizing the income and cash proceeds from our long-term-investment operations,” continue servicing mortgages and “make selective strategic investments.”
He added, “It is with deep sadness and regret that we are currently exiting the Alt-A mortgage business, which we pioneered in the early 1990s.” Alt-A borrowers typically can’t fully document their income or assets. In total, Impac is cutting 144 additional jobs after months of other cutbacks.
As for NovaStar, the Kansas City, Mo., subprime lender will lose its REIT status seven months after first noting it might drop its tax-beneficial status because of its grim outlook for earnings.
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