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IMPAC MORTGAGE HOLDINGS, INC.

(IMH)
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Delayed Nyse  -  04:00 2022-09-30 pm EDT
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IMPAC MORTGAGE HOLDINGS INC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/12/2022 | 04:08pm EDT

(dollars in thousands, except per share data or as otherwise indicated)

Unless the context otherwise requires, the terms "Company," "we," "us," and
"our" refer to Impac Mortgage Holdings, Inc. (the Company or IMH), a Maryland
corporation incorporated in August 1995, and its direct and indirect
wholly-owned operating subsidiaries, Integrated Real Estate Service Corp.
(IRES), Impac Mortgage Corp. (IMC), IMH Assets Corp. (IMH Assets), Copperfield
Capital Corporation (CCC) and Impac Funding Corporation (IFC).

Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements, some of which are
based on various assumptions and events that are beyond our control, may be
identified by reference to a future period or periods or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"likely," "projected," "should," "could," "seem to," "anticipate," "plan,"
"intend," "project," "assume," or similar terms or variations on those terms or
the negative of those terms. The forward-looking statements are based on current
management expectations. Actual results may differ materially as a result of
several factors, including, but not limited to the following: ongoing impact on
the U.S. economy and financial markets due to the outbreak of the novel
coronavirus, and any adverse impact or disruption to the Company's operations;
our ability to complete the contemplated Exchange Offer with the holders of
Series B Preferred Stock and Series C Preferred Stock; unemployment rates;
successful development, marketing, sale and financing of new and existing
financial products, ability to successfully re-engage in lending activities;
interest rate levels; inability to successfully reduce prepayment on our
mortgage loans; ability to successfully diversify our loan products; decrease in
our mortgage servicing portfolio or its market value; ability to increase our
market share and geographic footprint in the various residential mortgage
businesses; ability to manage and sell MSRs as needed; ability to successfully
sell loans to third-party investors; volatility in the mortgage industry;
unexpected interest rate fluctuations and margin compression; our ability to
manage personnel expenses in relation to mortgage production levels; our ability
to successfully use warehousing capacity and satisfy financial covenants; our
ability to maintain compliance with the continued listing requirements of the
NYSE American for our common stock; increased competition in the mortgage
lending industry by larger or more efficient companies; issues and system risks
related to our technology including cyber risk and data security risk; ability
to successfully create cost and product efficiencies through new technology;
more than expected increases in default rates or loss severities and mortgage
related losses; ability to obtain additional financing, through lending and
repurchase facilities, debt or equity funding, strategic relationships or
otherwise; the terms of any financing, whether debt or equity, that we do obtain
and our expected use of proceeds from any financing; increase in loan repurchase
requests and ability to adequately settle repurchase obligations; failure to
create brand awareness; the outcome, including any settlements, of litigation or
regulatory actions pending against us or other legal contingencies; and our
compliance with applicable local, state and federal laws and regulations and
other general market and economic conditions.

For a discussion of these and other risks and uncertainties that could cause
actual results to differ from those contained in the forward-looking statements,
see "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the period ended December 31, 2021, this Quarterly Report on Form 10-Q and
other subsequent reports we file under the Securities Exchange Act of 1934. This
document speaks only as of its date and we do not undertake, and specifically
disclaim any obligation, to release publicly the results of any revisions that
may be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements except as required by law.

The Mortgage Industry and Discussion of Relevant Fiscal Periods

The second quarter of 2022 saw trends which began in the fourth quarter of 2021,
accelerate with a dramatic rise in forward interest rates and a widening of
credit spreads.  Due to significant inflationary pressures, the U.S. Federal
Reserve raised the federal funds rate by 225 basis points through July 2022,
representing the fastest pace of credit tightening since the 1980's, and is
expected to continue to raise interest rates into 2023 as well as reduce the
federal government's overall portfolio of Treasury and mortgage-backed
securities.  As a result, the Mortgage Bankers Association

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is forecasting mortgage originations for purchases to grow 1% in 2022 to $1.7
trillion and are predicting refinance originations to slow in 2022, decreasing
by 70% to $0.7 trillion from $2.3 trillion in 2021. The sharp decline in
originations reflects the intense pressure on mortgage originations due to the
dramatic collapse of the mortgage refinance market and the weakening mortgage
purchase market, which has suffered from a lack of housing inventory and
increasing affordability issues.  We expect the housing inventory, affordability
and intense competition in the mortgage market to continue to put pressure on
originations, gain on sale margins and profitability going forward.  We have and
expect to continue to reduce business expenses to align with the lower projected
originations for the remainder of the year.

The mortgage industry is subject to current events that occur in the financial
services industry including changes to regulations and compliance requirements
that result in uncertainty surrounding the actions of states, municipalities and
government agencies, including the Consumer Financial Protection Bureau (CFPB)
and Federal Housing Finance Agency (FHFA). These events can also include changes
in economic indicators, interest rates, price competition, geographic shifts,
disposable income, housing prices, market liquidity, market anticipation,
environmental conditions, such as hurricanes, fires and floods, and customer
perception, as well as others. The factors that affect the industry change
rapidly and can be unforeseeable making it difficult to predict and manage an
operation in the financial services industry.

Current events can diminish the relevance of "quarter over quarter" and
"year-to-date over year-to-date" comparisons of financial information. In such
instances, we attempt to present financial information in Management's
Discussion and Analysis of Financial Condition and Results of Operations that is
the most relevant to our financial information.

Selected Financial Results

                                      For the Three Months Ended             For the Six Months Ended
                                June 30,      March 31,      June 30,        June 30,        June 30,
(in thousands, except per
share data)                        2022          2022           2021           2022             2021
Revenues:
Gain on sale of loans, net      $      179    $     5,955    $   10,693    $       6,134     $   30,824
Servicing income (expense),
net                                      7           (12)         (150)              (5)          (269)
Gain (loss) on mortgage
servicing rights, net                   45            111          (37)              155              1
Real estate services fees,
net                                    257            185           478              442            688
Other                                    7            951           (4)              959            320
Total revenues, net                    495          7,190        10,980            7,685         31,564
Expenses:
Personnel expense                    8,024         11,921        11,964           19,945         26,888
Business promotion                   1,319          2,301         1,770            3,620          2,963
General, administrative and
other                                5,323          5,135         5,882           10,458         11,063
Total expenses                      14,666         19,357        19,616           34,023         40,914
Operating loss:                   (14,171)       (12,167)       (8,636)         (26,338)        (9,350)
Other income (expense):
Net interest (expense)
income                             (1,260)            116           558          (1,144)          1,218
Change in fair value of
long-term debt                       1,980          1,642         1,417            3,622          2,442
Change in fair value of net
trust assets                             -          9,248       (2,141)            9,248        (3,814)
Total other income (loss),
net                                    720         11,006         (166)           11,726          (154)
Loss before income taxes          (13,451)        (1,161)       (8,802)         (14,612)        (9,504)
Income tax expense                      16             23            62               39             43
Net loss                        $ (13,467)    $   (1,184)    $  (8,864)    $    (14,651)     $  (9,547)
Other comprehensive loss:
Change in fair value of
instrument specific credit
risk                                10,037        (2,269)         (538)            7,768        (2,205)
Total comprehensive loss        $  (3,430)    $   (3,453)    $  (9,402)    $     (6,883)     $ (11,752)

Diluted weighted average
common shares                       21,509         21,417        21,344           21,463         21,319
Diluted loss per share          $   (0.64)    $    (0.07)    $   (0.42)    $      (0.72)     $   (0.45)


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Status of Operations

Key Metrics - Second quarter 2022

? At June 30, 2022, unrestricted cash was $­­61.2 million as compared to $29.6

million at December 31, 2021.

For the three months ended June 30, 2022, total originations were $128.1

? million as compared to $482.1 million for the three months ended March 31, 2022

and $611.5 million for the three months ended June 30, 2021.

For the three months ended June 30, 2022, non-qualified mortgage (NonQM)

? origination volumes were $80.2 million as compared to $314.3 million for the

three months ended March 31, 2022 and $100.6 million for the three months ended

June 30, 2021.

Gain on sale of loans, net was $179 thousand for the three months ended

? June 30, 2022 as compared to $6.0 million for the three months ended March 31,

2022 and $10.7 million for the three months ended June 30, 2021.

Operating expenses (personnel, business promotion and general, administrative

? and other) for the three months ended June 30, 2022 decreased to $14.7 million

from $19.4 million for the three months ended March 31, 2022 and $19.6 million

for the three months ended June 30, 2021.



For the three months ended June 30, 2022, we reported a net loss of $13.5
million, or $0.64 per diluted common share, as compared to a net loss of $8.9
million, or $0.42 per diluted common share, for the three months ended June 30,
2021.  For the three months ended June 30, 2022, adjusted loss before tax (as
defined below in Non-GAAP Financial Measures) was $15.4 million, or $0.71 per
diluted common share, as compared to an adjusted loss before tax of $6.9
million, or $0.32 per diluted common share, for the three months ended June
30, 2021.

For the six months ended June 30, 2022, we reported a net loss of $14.7 million,
or $0.72 per diluted common share, as compared to a net loss of $9.5 million, or
$0.45 per diluted common share, for the six months ended June 30, 2021.  For the
six months ended June 30, 2022, adjusted loss before tax (as defined below in
Non-GAAP Financial Measures) was $28.4 million, or $1.32 per diluted common
share, as compared to an adjusted loss before tax of $7.2 million, or $0.34 per
diluted common share, for the six months ended June 30, 2021.

Net loss for the three months ended June 30, 2022, increased to $13.5 million as
compared to $8.9 million for the three months ended June 30, 2021.  The quarter
over quarter increase in net loss was primarily due to a $10.5 million decrease
in gain on sale of loans, net, partially offset by a $5.0 million decrease in
operating expenses and an $886 thousand increase in other income.  The sharp and
unexpected decline in gain on sale of loans, net reflects the intense pressure
on mortgage originations due to the dramatic collapse of the mortgage refinance
market and the weakening mortgage purchase market, which has suffered from a
lack of housing inventory and significant increase in mortgage interest rates
resulting in customer affordability issues. As previously discussed, the
increase in interest rates which began in the fourth quarter of 2021, caused a
significant increase in credit spreads, which accelerated into the second
quarter of 2022, resulting in a substantial over supply of low coupon
originations causing a severe decline in margins and diminishing capital market
distribution exits for originators reliant upon an aggregation execution model.
 To mitigate the risks associated with reduced distribution exits and extended
settlement timelines, we began to pull back on production, significantly
increasing the pricing on our loan products as well as completely shifting to
best-efforts delivery for non-agency production in the first quarter of 2022.
 As a result, origination volumes decreased significantly during the second
quarter of 2022.  For the three months ended June 30, 2022, we originated and
sold $128.1 million and $248.2 million of mortgage loans, respectively, as
compared to $611.5 million and $667.8 million of loans originated and sold,
respectively, during the same period in 2021.  During the three months ended
June 30, 2022, margins were 14 bps as compared to 175 bps during the same period
in 2021.

Offsetting the increase in net loss was an increase in other income of $886
thousand as a result of a $2.1 million reduction in trust losses as a result of
the sale of the legacy securitization portfolio during the first quarter of 2022
and a $563 thousand increase in fair value of our long-term debt partially
offset by a $1.8 million reduction in net interest income as a result of the
aforementioned sale of the legacy securitization portfolio during the first
quarter of 2022.  Additionally,

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operating expenses were lower during the second quarter of 2022 due to a reduction in variable compensation commensurate with reduced originations as well as a reduction in headcount to support reduced volume.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and
presented in accordance with generally accepted accounting principles in the
United States (GAAP), we use the following non-GAAP financial measures: adjusted
loss before tax and diluted adjusted loss per common share before tax.  Adjusted
loss and diluted adjusted loss per common share are financial measurements
calculated by adjusting GAAP net loss before tax to exclude certain non-cash
items, such as fair value adjustments and mark-to-market of mortgage servicing
rights (MSRs), and legacy non-recurring expenses.  We believe adjusted loss
provides useful information to investors regarding our results of operations as
it assists both investors and management in analyzing and benchmarking the
performance and value of our core business of mortgage lending over multiple
periods. Adjusted loss facilitates company-to-company operating performance
comparisons by backing out potential non-cash differences caused by variations
in hedging strategies and changes in valuations for long-term debt and net trust
assets, which may vary for different companies for reasons unrelated to
operating performance, as well as certain historical cost (benefit) items which
may vary for different companies for reasons unrelated to operating performance.
These non-GAAP financial measures are not intended to be considered in isolation
and should not be a substitute for net (loss) earnings before income taxes, net
(loss) earnings or diluted (loss) earnings per common share (EPS) or any other
operating performance measure calculated in accordance with GAAP, and may not be
comparable to a similarly titled measure reported by other companies.  The
tables below provide a reconciliation of net loss before tax and diluted loss
per common share to non-GAAP adjusted loss before tax and non-GAAP diluted
adjusted loss per common share before tax:

                                          For the Three Months Ended        

For the Six Months Ended

                                    June 30,      March 31,      June 30,        June 30,         June 30,
(in thousands, except per share
data)                                  2022          2022           2021            2022             2021
Loss before income taxes:           $ (13,451)    $   (1,161)    $  (8,802)

$ (14,612) $ (9,504)


Change in fair value of mortgage
servicing rights                          (89)          (143)            11             (231)           (39)
Change in fair value of
long-term debt                         (1,980)        (1,642)       (1,417)           (3,622)        (2,442)
Change in fair value of net
trust assets, including trust
REO gains (losses)                           -        (9,248)         2,141           (9,248)          3,814
Legal settlements and
professional fees, for legacy
matters (1)                                  -              -         1,000                 -          1,000
Legacy corporate-owned life
insurance (2)                              157          (816)           160             (659)              2
Adjusted loss before tax            $ (15,363)    $  (13,010)    $  (6,907)

$ (28,372) $ (7,169)


Diluted weighted average common
shares                                  21,509         21,417        21,344            21,463         21,319
Diluted adjusted loss per common
share before tax                    $   (0.71)    $    (0.61)    $   (0.32)

$ (1.32) $ (0.34)

Diluted loss per common share $ (0.64) $ (0.07) $ (0.42)

    $       (0.72)     $   (0.45)
Adjustments:
Cumulative non-declared
dividends on preferred stock              0.02           0.02             -              0.04              -
Change in fair value of mortgage
servicing rights                        (0.01)         (0.01)             -            (0.01)              -
Change in fair value of
long-term debt                          (0.09)         (0.08)        (0.07)            (0.17)         (0.11)
Change in fair value of net
trust assets, including trust
REO gains (losses)                           -         (0.43)          0.11            (0.43)           0.17
Legal settlements and
professional fees, for legacy
matters                                      -              -          0.05                 -           0.05
Legacy corporate-owned life
insurance                                 0.01         (0.04)          0.01            (0.03)              -
Diluted adjusted loss per common
share before tax                    $   (0.71)    $    (0.61)    $   (0.32)

$ (1.32) $ (0.34)

(1) Included in general, administrative and other expense in the accompanying

    consolidated statements of operations and comprehensive loss.


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Amounts included in other revenues, general, administrative and other expense

and net interest income for amounts associated with the cash surrender value (2) of corporate-owned life insurance trusts, premiums associated with the

corporate-owned life insurance trusts liabilities, and interest expense on

the corporate-owned life insurance trusts, respectively, in the accompanying

consolidated statements of operations and comprehensive loss.

Originations by Channel:

                                         For the Three Months Ended
                       June 30,       March 31,        %        June 30,        %
(in millions)            2022            2022        Change       2021        Change
Retail                $      93.0    $      288.9      (68) %  $     514.2      (82) %
Wholesale                    35.1           193.2      (82)           97.3      (64)
Total originations    $     128.1    $      482.1      (73) %  $     611.5      (79) %


During the second quarter of 2022, total originations were $128.1 million as
compared to $482.1 million in the first quarter of 2022 and $611.5 million in
the second quarter of 2021.  The decrease in originations as compared to the
first quarter of 2022, was due to the significant increase in interest rates
which began in the fourth quarter of 2021, resulting in a reduction in purchase
loans due to a decrease in home purchase affordability and in refinance volume
due to the number of loans that had previously refinanced during the preceding
historically low interest rate environment.  While we began to shift our
origination focus away from more rate and margin sensitive conventional
originations during the first quarter of 2021, the increase in interest rates
which began in the fourth quarter of 2021 and has accelerated through the second
quarter of 2022, caused a significant increase in credit spreads, resulting in a
substantial over supply of low coupon originations causing a severe decline in
margins and diminished capital market distribution exits for originators reliant
upon an aggregation execution model.  To mitigate the risks associated with
reduced distribution exits and extended settlement timelines, we began to pull
back on production, significantly increasing the pricing on our loan products as
well as completely shifting to a best-efforts delivery for non-agency production
in the first quarter of 2022, which significantly reduced our origination
volumes during the second quarter of 2022 as compared to the second quarter of
2021. We continue to manage our headcount, pipeline and capacity to balance the
risks inherent in an aggregation execution model.

Our loan products primarily include conventional loans eligible for sale to Fannie Mae and Freddie Mac, NonQM mortgages and loans eligible for government insurance (government loans) by the Federal Housing Administration (FHA), Veterans Affairs (VA) and United States Department of Agriculture (USDA).

Originations by Loan Type:


                              For the Three Months Ended June 30,              For the Six Months Ended June 30,
(in millions)                2022            2021           % Change           2022            2021        % Change
Conventional              $      40.6     $     500.1             (92) %    $    198.7     $    1,279.1        (84) %
NonQM                            80.2           100.6             (20)           394.5            115.3         242
Jumbo                             0.9             3.8             (76)             5.5             51.2        (89)
Government (1)                    6.4             7.0              (9)            11.5             15.8        (27)
Total originations        $     128.1     $     611.5             (79) %    $    610.2     $    1,461.4        (58) %

(1) Includes all government-insured loans including FHA, VA and USDA.



We continue to believe there is an underserved mortgage market for borrowers
with strong credit who may not meet the qualified mortgage (QM) guidelines set
out by the Consumer Financial Protection Bureau.  During the fourth quarter of
2021, we originated $382.1 million in NonQM loans and were on pace to exceed our
fourth quarter 2021 NonQM originations during the first quarter of 2022, prior
to the recent dislocation in NonQM pricing as a result of widening credit
spreads.  As described above, as a result of the market dislocation we have
further backed off NonQM production during the second quarter of 2022 with NonQM
originations decreasing to $80.2 million from $314.3 million during the first
quarter of 2022, and down from $100.6 million during the second quarter of 2021.
 During the second quarter of 2022, NonQM originations represented 63% of our
total originations, which was a decrease over the first quarter of 2022 which
represented 65% of our total originations but up from only 16% of our total
originations during the second quarter of 2021.

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In the second quarter of 2022, our NonQM originations had a weighted average
Fair Isaac Company credit score (FICO) of 735 and a weighted average LTV ratio
of 67%.  For the year ended December 31, 2021, our NonQM originations had a
weighted average FICO of 747 and a weighted average LTV of 65%.

Originations by Purpose:


                                  For the Three Months Ended June 30,              For the Six Months Ended June 30,
(in millions)                    2022           %          2021         %         2022         %          2021        %
Refinance                     $      78.4        61 %   $     559.7     92 %   $    456.4       75 %   $  1,385.6     95 %
Purchase                             49.7        39            51.8      8          153.8       25           75.8      5
Total originations            $     128.1       100 %   $     611.5    100 %   $    610.2      100 %   $  1,461.4    100 %

During the second quarter of 2022, refinance volume decreased 92% to $78.4
million as compared to $559.7 million in the second quarter of 2021. The
decrease in originations was due to the aforementioned significant increase in
interest rates as compared to the second quarter of 2021.  We continue to manage
our headcount, pipeline and capacity to balance the risks inherent in an
aggregation execution model.

Mortgage Servicing Portfolio:

                                    June 30,       December 31,        %        June 30,        %
(Unpaid principal balance
(UPB), in millions)                   2022             2021          Change       2021        Change
Mortgage servicing portfolio       $      71.4    $          71.8     (0.6) %  $      48.6        47 %


The mortgage servicing portfolio decreased to $71.4 million at June 30, 2022 as
compared to $71.8 million at December 31, 2021 and $48.6 million at
June 30, 2021.  We continue to sell whole loans on a servicing released basis to
investors and selectively retain GNMA mortgage servicing. The servicing
portfolio generated net servicing income of $7 thousand in the second quarter of
2022, as compared to net servicing expense of $150 thousand in the second
quarter of 2021.  We will continue to recognize an immaterial amount of net
servicing fees or a net servicing expense related to interim subservicing and
other servicing costs related to the small UPB of remaining servicing portfolio.

The following table includes information about our mortgage servicing portfolio:

                               At June 30,        % 60+ days       At December 31,        % 60+ days
(in millions)                      2022         delinquent (1)          
2021           delinquent (1)
Ginnie Mae                    $         71.4              1.49 %  $             71.8              2.00 %
Freddie Mac                                -                 -                     -                 -
Fannie Mae                                 -                 -                     -                 -
Total servicing portfolio     $         71.4              1.49 %  $             71.8              2.00 %


(1) Based on loan count.



For the second quarter of 2022, real estate services fees, net were $257
thousand as compared to $185 thousand in the first quarter of 2022 and $478
thousand in the second quarter of 2021.  Real estate services fees, net is
generated from our former long-term mortgage portfolio which continued to
decline in size.  Additionally, as previously noted, in March 2022, we sold our
residual interest certificates, and assigned certain optional termination and
loan purchase rights which entails the entire legacy securitization portfolio
within our long-term mortgage portfolio.  As a result, it is our expectation
that the real estate services fees, net generated from the long-term mortgage
portfolio will decline in future periods as the securitizations are called or
collapsed by the purchaser.

As previously noted, in the first quarter of 2022, we sold the legacy
securitization portfolio which, in accordance with FASB ASC 810-10-25, resulted
in deconsolidation of the securitized mortgage trust assets totaling
approximately $1.6 billion and trust liabilities of $1.6 billion as of the sale
date as we were no longer the primary beneficiary of the consolidated
securitization trusts. We will remain as the master servicer with respect to all
of the securitizations until such time that the deals are collapsed or payoff.
Prior to the aforementioned sale and transfer of the legacy securitization

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portfolio in March 2022, the residual interests generated cash flows of $1.1
million in the first quarter of 2022 as compared to $1.9 million for the first
six months of 2021.

For additional information regarding the long-term mortgage portfolio, refer to Financial Condition and Results of Operations below.

Liquidity and Capital Resources


During the six months ended June 30, 2022, we funded our operations primarily
from the sale of our legacy securitization portfolio, mortgage lending revenues
and, to a lesser extent, real estate services fees and cash flows from our
residual interests in securitizations.  Mortgage lending revenues include gain
on sale of loans, net and other mortgage related income.  We funded mortgage
loan originations using warehouse facilities, which are repaid once the loan is
sold.  We may also seek to raise capital by issuing debt or equity securities.

Our results of operations and liquidity are materially affected by conditions in
the markets for mortgages and mortgage-related assets, as well as the broader
financial markets and the general economy. Concerns over economic recession,
geopolitical issues, inflation and interest rates, unemployment, the
availability and cost of financing, the mortgage market and real estate market
conditions contribute to increased volatility and diminished expectations for
the economy and markets. Volatility and uncertainty in the marketplace may make
it more difficult for us to obtain financing or raise capital on favorable terms
or at all. Our operations and profitability may be adversely affected if we are
unable to obtain cost-effective financing and profitable and stable capital
market distribution exits.

As previously discussed, the sharp and unexpected decline in gain on sale of
loans, net reflects the intense pressure on mortgage originations due to the
dramatic collapse of the mortgage refinance market and the weakening mortgage
purchase market, which has suffered from a lack of housing inventory and a
significant increase in mortgage interest rates resulting in customer home
purchase affordability issues. The increase in interest rates which began in the
fourth quarter of 2021, caused a significant increase in credit spreads which
accelerated into the second quarter of 2022, resulting in a substantial over
supply of low coupon originations causing a severe decline in margins and
diminishing capital market distribution exits for originators reliant upon an
aggregation execution model.  To mitigate the risks associated with reduced
distribution exits and extended settlement timelines, we began to pull back on
production, significantly increasing the pricing on our loan products as well as
completely shifting to a best-efforts delivery for non-agency production in the
first quarter of 2022.

During the six months ended June 30, 2022, we have reduced our warehouse lending
capacity to $550.0 million from $615.0 at December 31, 2021 as we did not renew
the facility that expired in May 2022.  In July, 2022 we further reduced our
warehouse lending capacity to $400.0 million, reducing the $200.0 million
funding facility to $50.0 million and do not anticipate renewing the facility in
September 2022 upon expiration of the line.  As of June 30, 2022, we were not in
compliance with certain warehouse lending related covenants, and received the
necessary waivers.

In March 2022, we sold our residual interest certificates, and assigned certain
optional termination and loan purchase rights relating to 37 securitizations
that closed between 2000 and 2007, which entailed the entire legacy
securitization portfolio within our long-term mortgage portfolio. Pursuant to
the terms of the Sale Agreement, the purchaser paid the Company an aggregate
cash purchase price of $37.5 million.  In March 2022, we recorded a $9.2 million
increase in fair value, net of $277 thousand in transaction costs related to the
transfer of the legacy securitization portfolio.

On April 29, 2022, we entered into an agreement to repay $5.0 million of our
outstanding convertible promissory notes (the Notes) on May 9, 2022, the date of
maturity of such Notes, and extend the maturity date of the Notes upon
conclusion of the term on May 9, 2022.  We decreased the aggregate principal
amount of the new Notes to $15.0 million, following the pay-down of $5.0 million
in principal of the Notes on May 9, 2022 (Third Amendment).  The new Notes shall
be due and payable in three equal installments of $5.0 million on each of May 9,
2023, May 9, 2024 and the Stated Maturity Date of May 9, 2025, provided we
complete the contemplated Exchange Offer and provide notice of redemption of our
remaining outstanding Series B Preferred Stock and Series C Preferred Stock by
October 31, 2022, as described below.  If we are not able to complete the
Exchange Offer, then the Stated Maturity Date of the Notes shall mean November
9, 2022. The interest rate on the Notes remains at 7.0% per annum.

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We originate loans which are intended to be eligible for sale to Fannie Mae,
Freddie Mac, (together, the GSEs), government insured or guaranteed loans, such
as FHA, VA and USDA loans, and loans eligible for Ginnie Mae securities issuance
(collectively, the Agencies), in addition to other investors and counterparties
(collectively, the Counterparties). It is important for us to sell or securitize
the loans we originate and, when doing so, maintain the option to also sell the
related MSRs associated with these loans.  Prepayment speeds on loans generated
through our retail direct channel have been a concern for some investors dating
back to 2016 which has resulted and could further result in adverse pricing or
delays in our ability to sell or securitize loans and related MSRs on a timely
and profitable basis. During the fourth quarter of 2017, Fannie Mae sufficiently
limited the manner and volume for our deliveries of eligible loans such that we
elected to cease deliveries to them and we expanded our whole loan investor base
for these loans.  In 2019, with the creation of the uniform mortgage-backed
securities (UMBS) market, which was intended to improve liquidity and align
prepayment speeds across Fannie Mae and Freddie Mac securities, Freddie Mac
raised concerns about the high prepayment speeds of our loans generated through
our retail direct channel.  We have continued to expand our investor base and
complete servicing released loan sales to non-GSE whole loan investors and
expect to continue to utilize these alternative exit strategies for Fannie Mae
and Freddie Mac eligible loans.  In July 2020, we received notification from
Freddie Mac that our eligibility to sell whole loans to Freddie Mac was
suspended, without cause.  While we believe that the overall volume delivered
under purchase commitments to the GSEs was immaterial prior to the notification,
we are committed to operating actively and in good standing with our broad range
of capital markets counterparties. We continue to take steps to manage our
prepayment speeds to be more consistent with our industry peers and to
reestablish the full confidence and delivery mechanisms to our investor base. We
seek to satisfy the requirements as outlined by Freddie Mac to achieve
reinstatement, while we continue to satisfy our obligations on a timely basis to
our other counterparties, as we have done without exception.  Despite being in a
suspended status with Freddie Mac, we remain an approved originator and/or
seller/servicer with the GSEs, Agencies and Counterparties for agency,
non-agency, and government insured or guaranteed loan programs.

As discussed within Note 11.-Commitments and Contingencies in the Notes to
Unaudited Consolidated Financial Statements in Item 1 of Part I of this
Quarterly Report on Form 10-Q, on July 15, 2021, the Maryland Court of Appeals
issued its decision affirming the decisions of the Maryland Circuit Court and
the Court of Special Appeals granting summary judgment in favor of the
plaintiffs on the Preferred B voting rights language interpretation.
Accordingly, the 2009 Article Amendments to the 2004 Series B Articles
Supplementary were not validly adopted and the 2004 Series B Articles
Supplementary remained in effect.

As a result, as of June 30, 2022, the Company has cumulative undeclared
dividends in arrears of approximately $19.9 million, or approximately $29.88 per
outstanding share of Preferred B, thereby increasing the liquidation value to
approximately $54.88 per share. Additionally, every quarter the cumulative
undeclared dividends in arrears will increase by $0.5859 per Preferred B share,
or approximately $390 thousand. The accrued and unpaid dividends on the
Preferred B are payable only upon declaration by the Board of Directors, and the
liquidation preference, inclusive of Preferred B cumulative undeclared dividends
in arrears, is only payable upon voluntary or involuntary liquidation,
dissolution or winding up of the Company's affairs.  In addition, once the
Circuit Court determines basis for an appropriate record date, the Company will
be required to pay an amount equal to three quarters of dividends on the
Preferred B stock under the 2004 Preferred B Articles Supplementary
(approximately $1.2 million, which had been previously accrued for).

At June 30, 2022, the Company had $71.7 million in outstanding liquidation
preference of Preferred B and Preferred C stock (including cumulative unpaid
dividends in the case of the Preferred B stock). The holders of each series of
Preferred Stock, which carry limited voting rights and are redeemable at the
option of the Company, retain the right to a $25.00 per share liquidation
preference (plus cumulative unpaid dividends in the case of the Preferred B
stock) in the event of a liquidation of the Company and the right to receive
dividends on the Preferred Stock if any such dividends are declared (and, in the
case of the Preferred B stock, before any dividends or other distributions are
made to holders of junior stock, including the Company's common stock).

On April 29, 2022, the Company entered into voting agreements (the Voting
Agreements), with certain holders of outstanding shares of Preferred B stock,
Preferred C stock and common stock, which were subsequently amended on or after
June 21, 2022, requiring parties to the Voting Agreements to vote in favor of
proposed amendments to the provisions of the Company's charter setting forth the
terms of the Preferred B stock and Preferred C stock (the Proposed Amendments)
to (1) permit closing of a proposed exchange offer, described below (the
Exchange Offer), without payment of any accrued or accumulated dividends on any
outstanding shares of Preferred B stock or Preferred C stock, and (2) provide
that, following the effectiveness of the Proposed Amendments and the Exchange
Offer, the remaining outstanding

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shares of Preferred B stock and Preferred C stock would be subject to redemption
at the election of the Company or the holders of any outstanding shares of
Preferred B stock or Preferred C stock, as the case may be, for the following
redemption consideration: (i) for each outstanding share of Preferred B stock,
subject to potential reduction as a result of any attorneys' fees or costs that
are the subject of any petition therefore filed by any attorneys representing
holders of Preferred B stock or any order entered by a court in respect of any
such petition, (a) cash in the amount of $5.00 or, if the payment of cash in the
Exchange Offer would cause the Company to violate the Cash Consideration
Restrictions described below, fifty (50) shares of a new series of Preferred
Stock (the New Preferred Stock) and (b) twenty (20) shares of Common Stock and
(ii) for each outstanding share of Preferred C stock, (a) cash in the amount of
$0.10 or, if the payment of cash in the Exchange Offer would cause the Company
to violate the Cash Consideration Restrictions, one (1) share of New Preferred
Stock; (b) 1.25 shares of Common Stock and (c) a warrant to purchase 1.5 shares
of Common Stock at a purchase price of $5.00 per share of Common Stock.

A violation of the "Cash Consideration Restrictions" will occur if the
occurrence of an action would cause (i) the Company to violate the restrictions
on payment of distributions to stockholders under section 2-311 of the Maryland
General Corporation Law (the MGCL), (ii) any material breach of or default under
the terms and conditions of any obligation of the Company, including any
agreement relating to its indebtedness, or (iii) the Company to violate any
restriction or prohibition of any law rule or regulation applicable to the
Company or of any order, judgment or decree of any court or administrative
agency.

The New Preferred Stock will (w) rank senior to the Preferred B stock and the
Preferred C stock as to dividends and upon liquidation; (x) be
non-participating, and bear cumulative cash dividends from and including the
original issue date at a fixed rate equal to 8.25% per annum (equivalent to a
fixed annual amount of $.00825 per share of New Preferred Stock); (y) bear a
liquidation preference of $0.10 per share; and (z) be mandatorily redeemable by
the Company on (A) the 60th day, or such earlier date as the Company may fix,
after the date of any public announcement by the Company of annual or quarterly
financial statements that indicate that payment of the redemption price would
not cause the Company to violate the restrictions on payment of distributions to
stockholders under section 2-311 of the MGCL unless, before such redemption
date, the Company's Board of Directors determines in good faith that the payment
by the Company of the redemption price for the New Preferred Stock and for any
stock ranking on parity with the New Preferred Stock with respect to redemption
and which have become redeemable as of the applicable redemption date would
cause the Company to violate the Cash Consideration Restrictions, or (B) any
date fixed by the Company not more than sixty (60) days after any determination
by the Company's Board of Directors (which the Board, or a committee thereof, is
obligated to undertake after the release of annual and quarterly financial
statements and upon any capital raise) in good faith that the payment by the
Company of the redemption price for the New Preferred Stock and any stock
ranking on parity with the New Preferred Stock with respect to redemption rights
which have become redeemable as of such redemption date would not cause us to
violate the Cash Consideration Restrictions. The Company currently intends to
redeem the New Preferred Stock for cash promptly when it is legally and
contractually permitted to do so, but if the Company is unable to raise
additional capital, it may be unable to redeem the New Preferred Stock.

In the proposed Exchange Offer, the Company currently intends to offer to
repurchase each outstanding share of Preferred B stock and each outstanding
share of Preferred C stock in exchange for the corresponding redemption
consideration described above, subject to potential reduction as a result of any
attorneys' fees or costs ordered or that may be ordered to be paid to the
attorneys representing holders of Preferred B stock or any order entered by a
court in respect of such petition.  Closing of the Exchange Offer, if effected
by the Company, is expected to be contingent upon, among other conditions, the
approval of the Proposed Amendments by the stockholders of the Company, which
will require the affirmative vote of holders of at least each of 66 2/3% of the
outstanding shares of Preferred B stock, 66 2/3% of the outstanding shares of
Preferred C stock and shares of Common Stock entitled to cast a majority of
votes entitled to be cast, and acceptance for record of the Proposed Amendments
by the State Department of Assessments and Taxation of Maryland. The Voting
Agreements also limit transferability of the shares of Preferred B stock,
Preferred C stock and Common Stock during the term of the Voting Agreement and
certain holders of Preferred B stock and Preferred C stock have also agreed, as
part of the Voting Agreements, to trading limitations in connection with any
Common Stock they receive in the Exchange Offer or as part of the redemption.

We believe the mortgage and real estate services market is volatile, highly
competitive and subject to increased regulation. Competition in mortgage lending
comes primarily from mortgage bankers, commercial banks, credit unions and other
finance companies which operate in our market area as well as throughout the
United States. We compete for

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loans principally on the basis of the interest rates and loan fees we charge, the types of loans we originate and the quality of services we provide to borrowers, brokers and sellers.

We believe that current cash balances, cash flows from our mortgage lending
operations, real estate services fees generated from our former long-term
mortgage portfolio and availability on our warehouse lines of credit are
adequate for our current operating needs based on the current operating
environment. While we continue to pay our obligations as they become due, the
ability to continue to meet our current and long-term obligations is dependent
upon our ability to successfully operate our mortgage lending and real estate
services segment. Our future financial performance and profitability are
dependent in large part upon the ability to expand our mortgage lending platform
successfully.

Critical Accounting Policies


We define critical accounting policies as those that are important to the
portrayal of our financial condition and results of operations. Our critical
accounting policies require management to make difficult and complex judgments
that rely on estimates about the effect of matters that are inherently uncertain
due to the effect of changing market conditions and/or consumer behavior. In
determining which accounting policies meet this definition, we considered our
policies with respect to the valuation of our assets and liabilities and
estimates and assumptions used in determining those valuations. We believe the
most critical accounting issues that require the most complex and difficult
judgments and that are particularly susceptible to significant change to our
financial condition and results of operations include those issues included in
Management's Discussion and Analysis of Results of Operations in IMH's report on
Form 10-K for the year ended December 31, 2021. There have been no material
changes to the information on critical accounting estimates described in our
Annual Report on Form 10-K for the year ended December 31, 2021, except those
described below.

Variable Interest Entities and Transfers of Financial Assets and Liabilities


Historically, we securitized mortgages in the form of collateralized mortgage
obligations (CMO) and real estate mortgage investment conduits (REMICs),
(collectively, securitizations), which were either consolidated or
unconsolidated depending on the design of the securitization structure. These
securitizations were evaluated for consolidation in accordance with the variable
interest model of FASB ASC 810-10-25. A variable interest entity (VIE) is
consolidated in the financial statements if the Company has the power to direct
activities that most significantly impact the economic performance of the VIE
and has the obligation to absorb losses or the right to receive benefits from
the VIE that could potentially be significant to the VIE.  We consolidated
certain VIEs where we are both the primary beneficiary of the residual interests
in the securitization trusts as well as the master servicer.  Being the master
servicer provides control over the collateral through the ability to direct the
servicers to take specific loss mitigation efforts. As noted below, in the first
quarter of 2022, we sold the legacy securitization portfolio.  Prior to the sale
of the legacy securitization portfolio, the assets and liabilities that were
included in the consolidated VIEs included the mortgage loans and real estate
owned collateralizing the debt securities which were included in securitized
mortgage trust assets on our consolidated balance sheets and the debt securities
payable to investors which were included in securitized mortgage trust
liabilities on our accompanying consolidated balance sheets.

In March 2022, we sold our residual interest certificates, and assigned certain
optional termination and loan purchase rights which entailed the entire legacy
securitization portfolio within our long-term mortgage portfolio.  As a result
of the sale, in accordance with FASB ASC 810-10-25, we deconsolidated the
securitized mortgage trust assets totaling approximately $1.6 billion and trust
liabilities of $1.6 billion as of the sale date as the Company was no longer the
primary beneficiary of the consolidated securitization trusts.  The Company
shall remain the master servicer with respect to all of the securitizations
until such time that the securitization trusts are collapsed or payoff.

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Financial Condition and Results of Operations

Financial Condition

As of June 30, 2022 compared to December 31, 2021

The following table shows the condensed consolidated balance sheets for the following periods:


(in thousands, except per share
data)                                June 30,       December 31,            $            %
                                       2022             2021             Change        Change
             ASSETS
Cash                                $    61,173    $        29,555    $      31,618       107 %
Restricted cash                           5,196              5,657            (461)       (8)
Mortgage loans held-for-sale             37,035            308,477        (271,442)      (88)
Mortgage servicing rights                   850                749              101        13
Securitized mortgage trust
assets                                        -          1,642,730      (1,642,730)     (100)
Other assets                             29,404             35,603          (6,199)      (17)
Total assets                        $   133,658    $     2,022,771    $ (1,889,113)      (93) %
      LIABILITIES & EQUITY
Warehouse borrowings                $    37,795    $       285,539    $   (247,744)      (87) %
Convertible notes                        15,000             20,000          (5,000)      (25)
Long-term debt (Par value;
$62,000)                                 35,889             46,536         (10,647)      (23)
Securitized mortgage trust
liabilities                                   -          1,614,862      (1,614,862)     (100)
Repurchase reserve                        5,999              4,744            1,255        26
Other liabilities                        35,523             41,154          (5,631)      (14)
Total liabilities                       130,206          2,012,835      (1,882,629)      (94)
Total equity                              3,452              9,936          (6,484)      (65)
Total liabilities and
stockholders' equity                $   133,658    $     2,022,771    $ (1,889,113)      (93) %

Book and tangible book value per
share                               $      0.16    $          0.47    $    

(0.31) (66) %



At June 30, 2022, cash increased $31.6 million to $61.2 million from
$29.6 million at December 31, 2021.  Cash balances increased primarily due to
the aforementioned $37.5 million sale and transfer of the legacy securitization
portfolio during the first quarter of 2022.

LHFS decreased $271.5 million to $37.0 million at June 30, 2022 as compared to
$308.5 million at December 31, 2021.  During the six months ended June 30, 2022,
we had originations of $610.2 million offset by $867.7 million in loan sales. As
a normal course of our origination and sales cycle, loans held-for-sale at the
end of any period are generally sold within one or two subsequent months.

Mortgage servicing rights increased to $850 thousand at June 30, 2022 as compared to $749 thousand at December 31, 2021. The increase was due to additions of $46 thousand from servicing retained loan sales of $4.5 million in UPB as well as a mark-to-market increase in fair value of $55 thousand. At June 30, 2022 and December 31, 2021, we serviced $71.4 million and $71.8 million, respectively, in UPB for others.

Warehouse borrowings decreased $247.7 million to $37.8 million at June 30, 2022
as compared to $285.5 million at December 31, 2021. The decrease was due to a
$271.5 million decreased in LHFS at June 30, 2022. As of June 30, 2022, our
total warehouse lending capacity was $550.0 million spread amongst three
warehouse counterparties.  In July, 2022 we further reduced our warehouse
lending capacity to $400.0 million, reducing a $200.0 million funding facility
to $50.0 million and do not anticipate renewing the facility in September 2022
upon expiration of the line.  As of June 30, 2022, we were not in compliance
with certain warehouse lending related covenants, and received the necessary
waivers.

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Repurchase reserve increased $1.3 million to $6.0 million at June 30, 2022 as
compared to $4.7 million at December 31, 2021.  The increase was due to a $2.4
million provision for repurchases as a result of an increase in expected future
losses on repurchase requests during the second quarter of 2022 partially offset
by $1.2 million in settlements primarily related to repurchased loans as well as
refunds of premiums to investors for early payoffs on loans sold.

Book value per share decreased 66%, or $0.31, to $0.16 at June 30, 2022 as
compared to $0.47 at December 31, 2021. Book value per common share decreased
15% to ($2.25) as of June 30, 2022, as compared to ($1.96) as of
December 31, 2021 (inclusive of the remaining $51.8 million of liquidation
preference on our preferred stock).  Inclusive of the Preferred B stock
cumulative undeclared dividends in arrears of $19.9 million (as discussed
further in Note 11 - Commitments and Contingencies of the "Notes to Unaudited
Consolidated Financial Statements"), book value per common share was ($3.17) at
June 30, 2022.

As previously disclosed, in March 2022, we sold our residual interest
certificates, and assigned certain optional termination and loan purchase rights
relating to 37 securitizations that closed between 2000 and 2007, which entailed
the entire legacy securitization portfolio within our long-term mortgage
portfolio. As a result of the sale, in accordance with FASB ASC 810-10-25, we
deconsolidated the securitized mortgage trust assets totaling approximately $1.6
billion and trust liabilities of $1.6 billion as of the sale date as the Company
was no longer the primary beneficiary of the consolidated securitization trusts.
We will remain as the master servicer with respect to all of the securitizations
until such time that the deals are collapsed or payoff.

The change in our trust assets and trust liabilities is summarized below.


                                           June 30,        December 31,          $           %
                                              2022             2021           Change       Change
Securitized mortgage collateral              $        -    $   1,639,251  
$ (1,639,251)    (100) %
Real estate owned (REO)                               -            3,479         (3,479)    (100)
Total trust assets (1)                                -        1,642,730     (1,642,730)    (100)
Securitized mortgage borrowings              $        -    $   1,614,862   $ (1,614,862)    (100) %
Total trust liabilities (1)                           -        1,614,862   

(1,614,862) (100) Residual interests in securitizations $ - $ 27,868 $ (27,868) (100) %

(1) At December 31, 2021, the UPB of trust assets and trust liabilities was

approximately $1.8 billion and $1.7 billion, respectively.



Prior to the sale of the legacy securitization trusts, we estimated fair value
of the assets and liabilities within the securitization trusts each reporting
period, management used an industry standard valuation and analytical model that
was updated monthly with current collateral, real estate, derivative, bond and
cost (servicer, trustee, etc.) information for each securitization trust. We
employed an internal process to validate the accuracy of the model as well as
the data within this model. We used the valuation model to generate the expected
cash flows to be collected from the trust assets and the expected required
bondholder distribution (trust liabilities). To the extent that the trusts were
over collateralized, we may have received the excess interest as the holder of
the residual interest. The information above provided us with the future
expected cash flows for the securitized mortgage collateral, real estate owned,
securitized mortgage borrowings and the residual interests.

To determine the discount rates applied to these cash flows, we gathered
information from the bond pricing services and other market participants
regarding estimated investor required yields for each bond tranche. Based on
that information and the collateral type and vintage, we determined an
acceptable range of expected yields an investor would require including an
appropriate risk premium for each bond tranche. We used the blended yield of the
bond tranches together with the residual interests to determine an appropriate
yield for the securitized mortgage collateral in each securitization.

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The following table presents changes in the trust assets and trust liabilities for the six months ended June 30, 2022:

                                                                            TRUST ASSETS                            TRUST LIABILITIES
                                                        Level 3 Recurring Fair
                                                          Value Measurement                                       Level 3 Recurring Fair
                                                                                      NRV                           Value Measurement
                                                             Securitized             Real                              Securitized              Net
                                                               mortgage             estate       Total trust             mortgage              trust
                                                              collateral             owned         assets               borrowings             assets
Recorded fair value at December 31, 2021               $              1,639,251    $   3,479    $   1,642,730    $            (1,614,862)    $  

27,868

Total gains/(losses) included in earnings:
Interest income                                                           2,019            -            2,019                           -         2,019
Interest expense                                                              -            -                -                     (7,564)       (7,564)
Change in FV of net trust assets, excluding REO (1)                       9,248            -            9,248                           -         

9,248

Total gains (losses) included in earnings                                11,267            -           11,267                     (7,564)         

3,703

Transfers in and/or out of level 3                                            -            -                -                           -             -
Purchases, issuances and settlements                                (1,650,518)      (3,479)      (1,653,997)                   1,622,426     

(31,571)

Recorded fair value at June 30, 2022                   $                      -    $       -    $           -    $                      -    $        -


Represents change in fair value of net trust assets, including trust REO (1) gains in the consolidated statements of operations and comprehensive loss for

the six months ended June 30, 2022.

Total trust assets above reflect a net gain of $9.2 million as a result of an increase in fair value related to the sale of our legacy securitization portfolio for the six months ended June 30, 2022.

The table below reflects the net trust assets for the periods indicated as a percentage of total trust assets (residual interests in securitizations):

                                                             June 30,         December 31,
                                                               2022               2021
Net trust assets                                              $         -     $      27,868
Total trust assets                                                      -         1,642,730
Net trust assets as a percentage of total trust assets                  - %            1.70  %


The following tables present the estimated fair value of our residual interests,
by securitization vintage year, and other related assumptions used to derive
these values at June 30, 2022 and December 31, 2021:

                                          Estimated Fair Value of Residual                Estimated Fair Value of Residual
                                            Interests by Vintage Year at                    Interests by Vintage Year at
                                                   June 30, 2022                                  December 31, 2021
      Origination Year               SF                  MF                Total           SF              MF          Total
        2002-2003 (1)            $         -         $         -         $        -    $    13,167     $      722     $ 13,889
            2004                           -                   -                  -          7,661            736        8,397
            2005                           -                   -                  -            851            442        1,293
            2006                           -                   -                  -              -          4,289        4,289
            Total                $         -         $         -         $ 

- $ 21,679 $ 6,189 $ 27,868 Weighted avg. prepayment rate

              - %                 - %                - %         15.4 %         15.3 %       15.4 %
Weighted avg. discount rate                - %                 - %                - %         11.8 %         11.6 %       11.7 %

2002-2003 vintage year includes CMO 2007-A, since the majority of the (1) mortgages collateralized in this securitization were originated during this

period.

Prior to the sale of the legacy securitization trusts, we utilized a number of
assumptions to value securitized mortgage collateral, securitized mortgage
borrowings and residual interests. These assumptions included estimated
collateral default rates and loss severities (credit losses), collateral
prepayment rates, forward interest rates and investor yields (discount rates).
We used the same collateral assumptions for securitized mortgage collateral and
securitized mortgage borrowings as the collateral assumptions to determine
collateral cash flows which were used to pay interest and

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principal for securitized mortgage borrowings and excess spread, if any, to the
residual interests. However, we used different investor yield (discount rate)
assumptions for securitized mortgage collateral and securitized mortgage
borrowings and the discount rate used for residual interests based on underlying
collateral characteristics, vintage year, assumed risk and market participant
assumptions.

Long-Term Mortgage Portfolio Credit Quality


Despite the sale of the legacy securitization portfolio in March 2022, we will
remain as the master servicer with respect to all of the securitizations until
such time that the deals are collapsed or payoff.

We use the Mortgage Bankers Association (MBA) method to define delinquency as a
contractually required payment being 30 or more days past due. We measure
delinquencies from the date of the last payment due date in which a payment was
received. Delinquencies for loans 60 days delinquent or greater, foreclosures,
delinquent bankruptcies and REO were $306.0 million, or 19.3%, of the long-term
mortgage portfolio, at June 30, 2022 as compared to $310.5 million or 17.3% at
December 31, 2021.

The following table summarizes the gross UPB of loans in our master servicing
portfolio, that were 60 or more days delinquent (utilizing the MBA method)
as of
the periods indicated:

                                      June 30,        Total        December 31,        Total
Securitized mortgage collateral         2022        Collateral         2021
         Collateral
60 - 89 days delinquent              $    26,057           1.6 %  $        21,086           1.2 %
90 or more days delinquent               104,335           6.6            147,387           8.2
Foreclosures (1)                          99,873           6.3             89,181           5.0
Delinquent bankruptcies (2)               50,053           3.2             52,854           2.9
REO (3)                                   25,696           1.6                  -             -
Total 60 or more days delinquent
and REO                              $   306,014          19.3 %  $       310,508          17.3 %
Total collateral                     $ 1,584,438         100.0 %  $     1,798,079         100.0 %

(1) Represents properties in the process of foreclosure.

(2) Represents bankruptcies that are 30 days or more delinquent.

Prior to the sale of the legacy securitization trusts in March 2022, REO was (3) included in the consolidated trusts and was accounted for at NRV on the

consolidated balance sheets.

At June 30, 2022, mortgage loans 60 or more days delinquent, including REO at
June 30, 2022, (whether or not subject to forbearance) decreased $4.5 million as
compared to December 31, 2021.  As a result of the sale of the legacy
securitization trusts and related deconsolidation of the trusts, including REO,
we disclosed the REO within the master servicing portfolio at its UPB at June
30, 2022.

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The following table summarizes the master servicing portfolio and REO at NRV (prior to the sale), that were non-performing as of the dates indicated (excludes 60-89 days delinquent):

                                                      Total                            Total
                                      June 30,      Collateral     December 31,      Collateral
                                        2022            %              2021              %
90 or more days delinquent
(including forbearances),
REO, foreclosures and
delinquent bankruptcies              $   279,957          17.7 %  $       289,422          16.1 %
Real estate owned inside trusts
at NRV                                         -             -              3,479           0.2
Total non-performing assets          $   279,957          17.7 %  $       292,901          16.3 %


Non-performing assets consist of non-performing loans (mortgages that are 90 or
more days delinquent, including loans in foreclosure and delinquent bankruptcies
plus REO). It is our policy to place a mortgage loan on nonaccrual status when
it becomes 90 days delinquent and to reverse from revenue any accrued interest,
except for interest income on securitized mortgage collateral when the scheduled
payment is received from the servicer. The servicers are required to advance
principal and interest on loans within the securitization trusts to the extent
the advances are considered recoverable. IFC, a subsidiary of IMH and master
servicer, may be required to advance funds, or in most cases cause the loan
servicers to advance funds, to cover principal and interest payments not
received from borrowers depending on the status of their mortgages.

Prior to the sale of the legacy securitization trusts, REO, which consisted of
residential real estate acquired in satisfaction of loans, was carried at the
lower of cost or net realizable value less estimated selling costs. Adjustments
to the loan carrying value required at the time of foreclosure were included in
the change in the fair value of net trust assets prior to the sale of the
portfolio. Changes in our estimates of net realizable value subsequent to the
time of foreclosure and through the time of ultimate disposition were recorded
as change in fair value of net trust assets including trust REO gains in the
consolidated statements of operations and comprehensive loss prior to the sale
of the portfolio.

For the three months ended June 30, 2022, no REO entries were recorded as the
REO was a component of the sale of the legacy portfolio in March 2022.  For the
three and six months ended June 30, 2021, we recorded a decrease of $313
thousand and an increase of $1.6 million in net realizable value of REO,
respectively.  Increases and decrease of the net realizable value reflect the
change in value of the REO subsequent to foreclosure date, but prior to the date
of sale.

The following table presents the balances of REO:

                       June 30,       December 31,
                         2022             2021
REO                   $         -    $        10,335
Impairment (1)                  -            (6,856)
Ending balance        $         -    $         3,479
REO inside trusts     $         -    $         3,479
REO outside trusts              -                  -
Total                 $         -    $         3,479

(1) Impairment represents the cumulative write-downs of net realizable value

subsequent to foreclosure.



Prior to the sale of the legacy securitization trusts, we calculated the cash
flows to assess the fair value of the securitized mortgage collateral, we
estimated the future losses embedded in our loan portfolio. In evaluating the
adequacy of these losses, management took many factors into consideration. For
instance, a detailed analysis of historical loan performance data was
accumulated and reviewed. This data was analyzed for loss performance and
prepayment performance by product type, origination year and securitization
issuance. The data was also broken down by collection status. Our estimated
losses for these loans was developed by estimating both the rate of default of
the loans and the amount of loss severity in the event of default. The rate of
default was assigned to the loans based on their attributes (e.g., original
loan-to-value, borrower credit score, documentation type, geographic location,
etc.) and collection status. The rate

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of default was based on analysis of migration of loans from each aging category.
The loss severity was determined by estimating the net proceeds from the
ultimate sale of the foreclosed property. The results of that analysis were then
applied to the current mortgage portfolio and an estimate was created. We
believe that pooling of mortgages with similar characteristics was an
appropriate methodology in which to evaluate the future loan losses.

Management recognizes that there are qualitative factors that must be taken into
consideration when evaluating and measuring losses in the loan portfolios. These
items include, but are not limited to, economic indicators that may affect the
borrower's ability to pay, changes in value of collateral, political factors,
employment and market conditions, competitor's performance, market perception,
historical losses, and industry statistics. The assessment for losses was based
on delinquency trends and prior loss experience and management's judgment and
assumptions regarding various matters, including general economic conditions and
loan portfolio composition. Management continually evaluated these assumptions
and various relevant factors affecting credit quality and inherent losses.

Results of Operations


For the Three Months Ended June 30, 2022 compared to the Three Months Ended June
30, 2021

                                                   For the Three Months Ended June 30,
                                                                             $           %
                                                2022          2021         Change      Change
Revenues                                     $      495    $   10,980    $ (10,485)      (95) %
Expenses                                       (14,666)      (19,616)         4,950        25
Net interest (expense) income                   (1,260)           558       (1,818)     (326)
Change in fair value of long-term debt            1,980         1,417           563        40
Change in fair value of net trust
assets, including trust REO losses                    -       (2,141)      
  2,141       100
Income tax expense                                 (16)          (62)            46        74
Net loss                                     $ (13,467)    $  (8,864)    $  (4,603)      (52) %
Loss per share available to common
stockholders-basic                           $   (0.64)    $   (0.42)    $   (0.23)      (55) %
Loss per share available to common
stockholders-diluted                         $   (0.64)    $   (0.42)    $ 

(0.23) (55) %



For the Six Months Ended June 30, 2022 compared to the Six Months Ended June
30, 2021

                                                     For the Six Months Ended June 30,
                                                                              $           %
                                                 2022          2021         Change      Change
Revenues                                      $    7,685    $   31,564    $ (23,879)      (76) %
Expenses                                        (34,023)      (40,914)         6,891        17
Net interest (expense) income                    (1,144)         1,218       (2,362)     (194)
Change in fair value of long-term debt             3,622         2,442         1,180        48
Change in fair value of net trust
assets, including trust REO losses                 9,248       (3,814)     
  13,062       342
Income tax expense                                  (39)          (43)             4         9
Net loss                                      $ (14,651)    $  (9,547)    $  (5,104)      (53) %
Loss per share available to common
stockholders-basic                            $   (0.72)    $   (0.45)    $   (0.27)      (61) %
Loss per share available to common
stockholders-diluted                          $   (0.72)    $   (0.45)    $   (0.27)      (61) %


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Revenues

For the Three Months Ended June 30, 2022 compared to the Three Months Ended June
30, 2021

                                               For the Three Months Ended June 30,
                                                                         $            %
                                           2022           2021         Change      Change
Gain on sale of loans, net              $      179     $   10,693    $ (10,514)       (98) %
Servicing fees (expense), net                    7          (150)           157        105
Real estate services fees, net                 257            478         (221)       (46)
Gain (loss) on mortgage servicing
rights, net                                     45           (37)            82        222
Other revenues (expenses)                        7            (4)            11        275
Total revenues                          $      495     $   10,980    $ (10,485)       (95) %




Gain on sale of loans, net.  For the three months ended June 30, 2022, gain on
sale of loans, net was a gain of $179 thousand compared to a gain of $10.7
million in the comparable 2021 period. The decrease in gain on sale of loans,
net was most notably due to a $15.3 million decrease in gain on sale of loans, a
$1.3 million increase in provision for repurchases, a $488 thousand decrease in
mark-to-market gains on LHFS and a $92 thousand decrease in premiums from
servicing retained loan sales.  Partially offsetting these decreases was a $3.8
million increase in realized and unrealized net gains on derivative financial
instruments, a $2.8 million decrease in direct origination expenses.

The sharp and unexpected decline in gain on sale reflects the intense pressure
on mortgage originations due to the dramatic collapse of the mortgage refinance
market and the weakening mortgage purchase market, which has suffered from a
lack of housing inventory and a significant increase in mortgage interest rates
resulting in customer home purchase   affordability issues. As previously
discussed, the increase in interest rates which began in the fourth quarter of
2021, caused a significant increase in credit spreads which accelerated into the
second quarter of 2022, resulting in a substantial over supply of low coupon
originations causing a severe decline in margins and diminishing capital market
distribution exits for originators reliant upon an aggregation execution model.
 To mitigate the risks associated with reduced distribution exits and extended
settlement timelines, we began to pull back on production, significantly
increasing the pricing on our loan products as well as completely shifting to
best-efforts delivery for non-agency production in the first quarter of 2022.
 As a result, origination volumes decreased significantly during the second
quarter of 2022.  For the three months ended June 30, 2022, we originated and
sold $128.1 million and $248.2 million of mortgage loans, respectively, as
compared to $611.5 million and $667.8 million of loans originated and sold,
respectively, during the same period in 2021.  During the three months ended
June 30, 2022, margins were 14 bps as compared to 175 bps during the same period
in 2021.

Servicing fees (expenses), net.  For the three months ended June 30, 2022,
servicing fees (expenses), net were fees of $7 thousand compared to an expense
of $150 thousand in the comparable 2021 period.  The reduction in servicing
expenses, net was due to the increase in the average size of our mortgage
servicing portfolio resulting in increased servicing fees as compared to the
second quarter of 2021.  The servicing portfolio average balance increased 58%
to $72.1 million for the three months ended June 30, 2022 as compared to an
average balance of $45.7 million for the comparable period in 2021.  While we
continue to selectively retain mortgage servicing, we will continue to recognize
an immaterial amount of servicing fees, net or servicing expenses, net related
to the small UPB of remaining servicing portfolio at June 30, 2022.  During the
three months ended June 30, 2022, we had no servicing retained loan sales.

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Gain (loss) on mortgage servicing rights, net

                                                    For the Three Months Ended June 30,
                                                                               $          %
                                                 2022          2021         Change      Change
Gain on sale of mortgage servicing rights      $      51     $       -     $      51       n/a %
Changes in fair value:
Due to changes in valuation market rates,
inputs or assumptions                                 38          (11)            49       445
Other changes in fair value:
Scheduled principal prepayments                     (15)          (13)     
     (2)      (15)
Voluntary prepayments                               (29)          (13)          (16)     (123)
Total changes in fair value                    $     (6)     $    (37)     $      31        84

Gain (loss) on mortgage servicing rights,
net                                            $      45     $    (37)    

$ 82 222 %



For the three months ended June 30, 2022, gain (loss) on MSRs, net was a net
gain of $45 thousand compared to a net loss of $37 thousand in the comparable
2021 period.  For the three months ended June 30, 2022, we recorded a $6
thousand loss from change in fair value of MSRs primarily due to changes in fair
value associated with scheduled and voluntary prepayments partially offset by
changes in market interest rates, inputs and assumptions.  For the three months
ended June 30, 2021, we recorded a $37 thousand loss from a change in fair value
of MSRs primarily due to changes in scheduled and voluntary prepayments.

Additionally, during the three months ended June 30, 2022, we recorded $51 thousand gain on sale of mortgage servicing rights, net as a result of the collection of holdbacks in excess of previously reserved for amounts on prior period mortgage servicing sales.

Real estate services fees, net.  For the three months ended June 30, 2022, real
estate services fees, net were $257 thousand as compared to $478 thousand in the
comparable 2021 period. The real estate service fees decreased for the three
months ended June 30, 2022 as compared to the same period in 2021, and will
decline over time as a result of a decrease in transactions related to the
decline in the number of loans and the UPB of the long-term mortgage portfolio.
Additionally, as previously noted, in March 2022, we sold our residual interest
certificates, and assigned certain optional termination and loan purchase rights
which entailed the entire legacy securitization portfolio within the long-term
mortgage portfolio.  As a result, it is our expectation that the real estate
services fees generated from the long-term mortgage portfolio will continue to
decline in future periods as the securitization trusts are called or collapsed
by the purchaser.

Other revenues. For the three months ended June 30, 2022, other revenues were $7
thousand as compared to a loss of $4 thousand in the comparable 2021 period. The
$11 thousand increase in other revenues was primarily the result of a decrease
in the mark-to-market adjustment of the cash surrender value associated with the
corporate-owned life insurance trusts during the second quarter of 2022 as
compared to the adjustment during the second quarter of 2021.

For the Six Months Ended June 30, 2022 compared to the Six Months Ended June
30, 2021

                                              For the Six Months Ended June 30,
                                                                     $           %
                                           2022        2021        Change      Change
Gain on sale of loans, net                $ 6,134    $ 30,824    $ (24,690)      (80) %
Servicing expense, net                        (5)       (269)           264        98
Real estate services fees, net                442         688         (246)

(36)

Gain on mortgage servicing rights, net        155           1           154
    15400
Other revenues                                959         320           639       200
Total revenues                            $ 7,685    $ 31,564    $ (23,879)      (76) %


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Gain on sale of loans, net.  For the six months ended June 30, 2022, gain on
sale of loans, net was a gain of $6.1 million compared to a gain of $30.8
million in the comparable 2021 period. The decrease in gain on sale of loans,
net was most notably due to a $22.5 million decrease in gain on sale of loans, a
$6.9 million increase in mark-to-market losses on LHFS, a $2.6 million increase
in provision for repurchases and a $167 thousand decrease in premiums from
servicing retained loan sales.  Partially offsetting these decreases in gain on
sale of loans, net was a $3.9 million decrease in direct origination expenses
and a $3.6 million increase in realized and unrealized net gains on derivative
financial instruments.

As previously discussed, the increase in interest rates which began in the
fourth quarter of 2021, caused a significant increase in credit spreads which
accelerated into the second quarter of 2022, resulting in a substantial over
supply of low coupon originations causing a severe decline in margins and
diminishing capital market distribution exits for originators reliant upon an
aggregation execution model.  To mitigate the risks associated with reduced
distribution exits and extended settlement timelines, we began to pull back on
production, significantly increasing the pricing on our loan products as well as
completely shifting to a best-efforts delivery for non-agency production in the
first quarter of 2022.    As a result, origination volumes decreased
significantly during the first six months of 2022.  For the six months ended
June 30, 2022, we originated and sold $610.2 million and $867.7 million of
mortgage loans, respectively, as compared to $1.5 billion and $1.5 billion of
loans originated and sold, respectively, during the same period in 2021.  During
the six months ended June 30, 2022, margins were 101 bps as compared to 211 bps
during the same period in 2021.

Servicing expenses, net.  For the six months ended June 30, 2022, servicing
expenses, net were $5 thousand compared to $269 thousand in the comparable 2021
period.  The reduction in servicing expenses, net was due to the increase in the
average size of our mortgage servicing portfolio resulting in increased
servicing fees as compared to the same period in 2021. As a result, the
servicing portfolio average balance increased 76% to $73.7 million for the six
months ended June 30, 2022 as compared to an average balance of $41.8 million
for the comparable period in 2021.  While we continue to selectively retain
mortgage servicing, we will continue to recognize servicing expense related to
interim subservicing and other servicing costs related to the small UPB of
remaining servicing portfolio.  During the six months ended June 30, 2022, we
had $4.5 million in servicing retained loan sales.

Gain on mortgage servicing rights, net

                                                     For the Six Months Ended June 30,
                                                                              $          %
                                                 2022          2021        Change      Change
Gain on sale of mortgage servicing rights      $     100     $       -    $     100     n/a   %
Changes in fair value:
Due to changes in valuation market rates,
inputs or assumptions                                131            39           92       236
Other changes in fair value:
Scheduled principal prepayments                     (26)          (25)     
    (1)       (4)
Voluntary prepayments                               (50)          (13)         (37)     (285)
Total changes in fair value                    $      55     $       1    $      54      5400

Gain on mortgage servicing rights, net $ 155 $ 1 $

154 15400 %

For the six months ended June 30, 2022, gain on MSRs, net was a net gain of $155 thousand compared to a net gain of $1 thousand in the comparable 2021 period.

 For the six months ended June 30, 2022, we recorded a $131 thousand gain from a
change in fair value of MSRs primarily due to changes in fair value associated
with changes in market rates, inputs and assumptions partially offset by
scheduled and voluntary prepayments.  For the six months ended June 30, 2021, we
recorded a $39 thousand gain from a change in fair value of MSRs primarily due
to changes in fair value associated with changes in market interest rates,
inputs and assumptions partially offset by voluntary and scheduled prepayments.

Additionally, during the six months ended June 30, 2022, we recorded $100 thousand gain on sale of mortgage servicing rights, net as a result of the collection of holdbacks in excess of previously reserved for amounts on prior period mortgage servicing sales.


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Real estate services fees, net.  For the six months ended June 30, 2022, real
estate services fees, net were $442 thousand as compared to $688 thousand in the
comparable 2021 period. The real estate service fees decreased for the six
months ended June 30, 2022 as compared to the same period in 2021, and will
decline over time as a result of a decrease in transactions related to the
decline in the number of loans and the UPB of the long-term mortgage portfolio.
Additionally, as previously noted, in March 2022, we sold our residual interest
certificates, and assigned certain optional termination and loan purchase rights
which entailed the entire legacy securitization portfolio within our long-term
mortgage portfolio.  As a result, it is our expectation that the real estate
services fees generated from the long-term mortgage portfolio will continue to
decline in future periods as the securitization trusts are called or collapsed
by the purchaser.

Other revenues. For the six months ended June 30, 2022, other revenues were $959
thousand as compared to $320 thousand in the comparable 2021 period. The $639
thousand increase was primarily the result of an increase in the cash surrender
value of the corporate-owned life insurance trusts during the first quarter of
2022, as a result of the application of prior year investment gains which get
applied at the annual renewal date in the first quarter of each fiscal year.

Expenses


For the three months ended June 30, 2022 as compared to the three months ended
June 30, 2021

                                         For the Three Months Ended June 30,
                                                                   $          %
                                        2022         2021       Change      Change
Personnel expense                    $    8,024    $ 11,964    $ (3,940)      (33) %
General, administrative and other         5,323       5,882        (559)   
  (10)
Business promotion                        1,319       1,770        (451)      (25)
Total expenses                       $   14,666    $ 19,616    $ (4,950)      (25) %

Total expenses decreased by $5.0 million, or 25%, to $14.7 million for the three
months ended June 30, 2022, compared to $19.6 million for the comparable period
in 2021.  Personnel expense decreased $3.9 million to $8.0 million for the three
months ended June 30, 2022 as compared to the same period in 2021. The decrease
in personnel expense was primarily related to a reduction in variable
compensation commensurate with reduced originations during the second quarter of
2022 as well as reductions in headcount to support reduced volume as compared to
2021.  As a result, average headcount decreased 30% for the three months ended
June 30, 2022 as compared to the same period in 2021.  Although personnel
expense decreased in the mortgage lending segment during the second quarter of
2022, it increased to 626 bps of fundings as compared to 196 bps for the
comparable 2021 period, as a result of our pull back in originations.

General, administrative and other expenses decreased $559 thousand to $5.3
million for the three months ended June 30, 2022, as compared to $5.9 million
for the comparable period in 2021.  The $559 thousand decrease in general,
administrative and other expenses was the result of a $363 thousand decrease in
professional fees, data processing, and general administrative and other expense
all related to a reduction in fundings during the period.  Additionally, legal
fees decreased $310 thousand associated with a decrease in litigation and
related expenses. Partially offsetting the decline in general, administrative
and other expenses was a $114 thousand increase in occupancy expense as we
recognized right of use (ROU) asset impairment of $123 thousand related to the
sublease of approximately 29,000 square feet of a floor within our corporate
office.

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Business promotion expense decreased $451 thousand to $1.3 million for the three
months ended June 30, 2022 as compared to $1.8 million for the same period in
the prior year.  Business promotion previously remained relatively low as a
result of the favorable interest rate environment requiring significantly less
business promotion to source leads.  Beginning in second quarter of 2021, we
began to increase our marketing expenditures in an effort to more directly
target NonQM production in the retail channel, expand production expansion
outside of California and maintain our lead volume as competition increased. As
a result of the recent dislocation within the NonQM market as a result of the
significant increase in interest rates, in the second quarter of 2022, we
reduced our marketing spend as we pulled back on our origination volumes to
mitigate the aforementioned risks associated with the current environment.

Although we continue to source leads through digital campaigns, which allows for a more cost effective approach, the recent competitiveness among other lenders for NonQM production within the California market has driven up advertising costs.


For the six months ended June 30, 2022 compared to the six months ended June
30, 2021

                                         For the Six Months Ended June 30,
                                                                 $          %
                                       2022        2021       Change      Change
Personnel expense                    $ 19,945    $ 26,888    $ (6,943)      (26) %
General, administrative and other      10,458      11,063        (605)     
 (5)
Business promotion                      3,620       2,963          657        22
Total expenses                       $ 34,023    $ 40,914    $ (6,891)      (17) %

Total expenses decreased by $6.9 million, or 17%, to $34.0 million for the six
months ended June 30, 2022, compared to $40.9 million for the comparable period
in 2021.  Personnel expense decreased $6.9 to $19.9 million for the six months
ended June 30, 2022 as compared to the same period in 2021. The decrease in
personnel expense was primarily related to a reduction in variable compensation
commensurate with reduced originations for the six months ended June 30, 2022 as
well as a reduction in headcount to support reduced volume as compared to the
same period in 2021.  As a result, average headcount decreased 20% for the six
months ended June 30, 2022 as compared to the same period in 2021.

General, administrative and other expenses decreased $605 thousand to $10.5
million for the six months ended June 30, 2022, as compared to $11.1 million for
the same period in 2021.  The $605 thousand decrease in general, administrative
and other expenses was the result of a $577 thousand decrease in data
processing, and general administrative and other expense all related to a
reduction in fundings during the period.  Additionally, legal fees decreased
$382 thousand associated with a decrease in litigation and related expenses.
Partially offsetting the decline in general, administrative and other expenses
was a $159 thousand increase in CAM expense related to a true up of prior and
current year maintenance for the corporate headquarters, $123 thousand increase
within occupancy expense as we recognized right of use (ROU) asset impairment
related to the sublease of approximately 29,000 square feet of a floor within
our corporate office.

Business promotion expense increased $657 thousand to $3.6 million for the six
months ended June 30, 2022 as compared to $3.0 million for the same period in
the prior year.  Business promotion previously remained low as a result of prior
quarters' more favorable interest rate environment requiring significantly less
business promotion to source leads.  Beginning in second quarter of 2021, we
began to increase our marketing expenditures in an effort to more directly
target NonQM production in the retail channel, expand production expansion
outside of California and maintain our lead volume as competition increased. As
a result of the recent dislocation within the NonQM market as a result of the
significant increase in interest rates, starting in the second quarter of 2022,
we reduced our marketing spend as we pulled back on our origination volumes to
mitigate the aforementioned risks associated with the current environment.

Although we continue to source leads through digital campaigns, which allows for a more cost effective approach, the recent competitiveness among other lenders for NonQM production within the California market has driven up advertising costs.


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Net Interest (Expense) Income

We earn net interest income primarily from mortgage assets, which include
securitized mortgage collateral (prior to the sale in March 2022) and loans
held-for-sale, or collectively, "mortgage assets," and, to a lesser extent,
interest income earned on cash and cash equivalents. Interest expense is
primarily interest paid on borrowings secured by mortgage assets, which include
securitized mortgage borrowings (prior to the sale in March 2022) and warehouse
borrowings and to a lesser extent, interest expense paid on long-term debt,
Convertible Notes and corporate-owned life insurance trusts. Interest income and
interest expense during the period primarily represents the effective yield,
based on the fair value of the trust assets and liabilities.

The following table summarizes average balance, interest and weighted average
yield on interest-earning assets and interest-bearing liabilities, for the
periods indicated.

                                            For the Three Months Ended June 30,
                                          2022                                2021
                             Average                              Average
                             Balance     Interest     Yield       Balance      Interest     Yield
ASSETS
Securitized mortgage
collateral                  $       -    $       -         - %  $ 1,948,484    $  14,516     2.98 %
Mortgage loans
held-for-sale                  61,702          863      5.59        146,127        1,188     3.25
Other (1)                      65,031           80      0.49         49,884            3     0.02
Total interest-earning        126,733          943      2.98      2,144,495       15,707     2.93
assets                      $            $                   %  $              $                  %
LIABILITIES
Securitized mortgage
borrowings                  $       -    $       -         -    $ 1,937,717    $  12,439     2.57 %
Warehouse borrowings           55,809          680      4.87        140,298        1,206     3.44
Long-term debt                 41,719        1,103     10.58         45,131        1,040     9.22
Convertible notes              17,088          300      7.02         20,000          350     7.00
Other (2)                      13,183          120      3.64         12,719          114     3.59
Total interest-bearing        127,799        2,203      6.90      2,155,865       15,149     2.81
liabilities                 $            $                   %  $              $                  %
Net interest spread (3)                  $ (1,260)    (3.92) %                 $     558     0.12 %
Net interest margin (4)                               (3.98) %                               0.10 %

(1) Included in other assets is cash and cash equivalents.

(2) Included in other liabilities is the corporate owned life insurance trust

liability.

Net interest spread is calculated by subtracting the weighted average yield (3) on interest-bearing liabilities from the weighted average yield on

interest-earning assets.

(4) Net interest margin is calculated by dividing net interest spread by total

average interest-earning assets.



Net interest spread income decreased $1.8 million for the three months ended
June 30, 2022 primarily attributable to a decrease in the net interest spread
income on the securitized mortgage collateral and securitized mortgage
borrowings as a result of aforementioned sale during the first quarter of 2022,
an increase in interest expense on the long-term debt and an increase in
interest expense on the corporate-owned life insurance trusts (within other
liabilities).   Offsetting the decrease in net interest spread income was an
increase in the net interest spread income between loans held-for-sale and their
related warehouse borrowings (a positive spread of 72 bps for the three months
ended June 30, 2022 as compared to a negative spread of 19 bps for the same
period in the prior year), a reduction in interest expense on the convertible
notes as well as an increase in interest income on cash deposits.  As a result,
the net interest margin decreased to (3.98)% for the three months ended June
30, 2022 from 0.10% for the three months ended June 30, 2021.

Due to the aforementioned sale and transfer of the legacy securitization
portfolio during the first quarter of 2022, we deconsolidated the securitized
mortgage trust assets and liabilities as of the sale date as we were no longer
the primary beneficiary of the residual interests in the securitization trusts.
 As a result, we no longer recognize interest income or expense related to the
legacy securitization portfolio.  The sale and transfer of the legacy
securitization portfolio resulted in a $2.0 million reduction in net interest
income during the second quarter of 2022 as compared to the second quarter of
2021.  During the three months ended June 30, 2022, the yield on
interest-earning assets increased to 2.98% from 2.93% in the comparable 2021
period. The yield on interest-bearing liabilities increased to 6.90% for the
three months ended June 30, 2022 from 2.81% for the comparable 2021 period.

In

connection with the fair value accounting for securitized


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mortgage collateral and borrowings (in prior periods) and long-term debt, interest income and interest expense are recognized using effective yields based on estimated fair values for these instruments.

                                               For the Six Months Ended June 30,
                                          2022                                2021
                             Average                              Average
                             Balance     Interest     Yield       Balance      Interest     Yield
ASSETS
Securitized mortgage
collateral                  $ 686,343    $  10,772      3.14 %  $ 1,999,048    $  29,700     2.97 %
Mortgage loans
held-for-sale                 142,989        3,192      4.46        168,589        2,526     3.00
Other (1)                      51,273           84      0.33         51,983            5     0.02
Total interest-earning        880,605       14,048                2,219,620       32,231
assets                      $            $              3.19 %  $              $             2.90 %
LIABILITIES
Securitized mortgage
borrowings                  $ 676,011    $   9,575      2.83 %  $ 1,987,330    $  25,394     2.56 %
Warehouse borrowings          135,151        2,624      3.88        162,638        2,729     3.36
Long-term debt                 43,325        2,108      9.73         44,892        1,965     8.75
Convertible notes              18,536          650      7.01         20,000          700     7.00
Other (2)                      13,125          235      3.58         12,663          225     3.55
Total interest-bearing        886,148       15,192                2,227,523       31,013
liabilities                 $            $              3.43 %  $              $             2.78 %
Net interest spread (3)                  $ (1,144)    (0.24) %                 $   1,218     0.12 %
Net interest margin (4)                               (0.26) %                               0.11 %

(1) Included in other assets is cash and cash equivalents.

(2) Included in other liabilities is the corporate owned life insurance trust

liability.

Net interest spread is calculated by subtracting the weighted average yield (3) on interest-bearing liabilities from the weighted average yield on

interest-earning assets.

(4) Net interest margin is calculated by dividing net interest spread by total

average interest-earning assets.

Net interest spread income decreased $2.4 million for the six months ended
June 30, 2022 primarily attributable to a decrease in the net interest spread
income on the securitized mortgage collateral and securitized mortgage
borrowings, an increase in interest expense on the long-term debt and an
increase in interest expense on the corporate-owned life insurance trusts
(within other liabilities).   Offsetting the decrease in net interest spread
income was an increase in the net interest spread income between loans
held-for-sale and their related warehouse borrowings (a positive spread of 58
bps for the six months ended June 30, 2022 as compared to a negative spread of
36 bps for the same period in the prior year), a reduction in interest expense
on the convertible notes as well as an increase in interest income on cash
deposits.  As a result, the net interest margin decreased to (0.26)% for the six
months ended June 30, 2022 from 0.11% for the six months ended June 30, 2021.

Due to the aforementioned sale and transfer of the legacy securitization
portfolio during the first quarter of 2022, we deconsolidated the securitized
mortgage trust assets and liabilities as of the sale date as we were no longer
the primary beneficiary of the residual interests in the securitization trusts.
 As a result, we will no longer recognize interest income or expense related to
the legacy securitization portfolio.  The sale and transfer of the legacy
securitization portfolio resulted in a $3.1 million reduction in net interest
income for the six months ended 2022 as compared to the same period in 2021.
During the six months ended June 30, 2022, the yield on interest-earning assets
increased to 3.19% from 2.90% in the comparable 2021 period. The yield on
interest-bearing liabilities increased to 3.43% for the six months ended
June 30, 2022 from 2.78% for the comparable 2021 period.  In connection with the
fair value accounting for securitized mortgage collateral and borrowings and
long-term debt, interest income and interest expense are recognized using
effective yields based on estimated fair values for these instruments.

Change in the fair value of long-term debt.

Long-term debt (consisting of junior subordinated notes) is measured based upon
an internal analysis, which considers our own credit risk and discounted cash
flow analyses. Improvements in our financial results and financial condition in
the future could result in additional increases in the estimated fair value of
the long-term debt, while deterioration in financial results and financial
condition could result in a decrease in the estimated fair value of the
long-term debt.

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During the three months ended June 30, 2022, the fair value of long-term debt
decreased by $11.6 million to $35.9 million from $47.5 million at March
31, 2022. The decrease in estimated fair value was the result of a $10.0 million
change in the instrument specific credit risk primarily the result of an
increase in the discount rate associated with the Company's risk profile, a $2.0
million change in the market specific credit risk as a result of an increase in
the forward LIBOR curve as compared to the first quarter of 2022, partially
offset by a $357 thousand increase due to accretion.  During the six months
ended June 30, 2022, the fair value of long-term debt decreased by $10.6 million
to $35.9 million from $46.5 million at December 31, 2021. The decrease in
estimated fair value was the result of a $7.8 million change in the instrument
specific credit risk primarily the result of an increase in the discount rate
associated with the Company's risk profile, a $3.6 million change in the market
specific credit risk as a result of an increase in the forward LIBOR curve
during 2022, partially offset by a $743 thousand increase due to accretion.

During the three months ended June 30, 2021, the fair value of long-term debt
decreased by $461 thousand to $44.9 million from $45.4 million at March 31,
2021.  The decrease in estimated fair value was the result of a $1.4 million
change in the market specific credit risk as a result of a decrease in the
forward LIBOR curve as compared to the first quarter of 2021, partially offset
by a $538 thousand change in the instrument specific credit risk and a $418
thousand increase due to accretion.  During the six months ended June 30, 2021,
the fair value of long-term debt increased by $487 thousand to $44.9 million
from $44.4 million at December 31, 2020. The increase in estimated fair value
was the result of a $2.2 million change in the instrument specific credit risk
and a $724 thousand increase due to accretion, partially offset by a $2.4
million change in the market specific credit risk as a result of an increase in
the forward LIBOR curve as compared to the fourth quarter of 2020.

Change in fair value of net trust assets, including trust REO gains (losses)

                                                  For the Three Months Ended             For the Six Months Ended
                                                           June 30,                             June 30,
                                                2022                  2021               2022              2021
Change in fair value of net trust assets,
excluding REO                                $        -       $            (1,828)    $     9,248     $      (5,373)
Gains (losses) from REO                               -                      (313)              -              1,559
Change in fair value of net trust assets,
including trust REO gains (losses)           $        -       $           

(2,141) $ 9,248 $ (3,814)



The decrease in change in fair value of net trust assets, including trust REO
(residual interests in securitizations) for the three months ended June 30, 2022
was due to the aforementioned sale and transfer of the legacy securitization
portfolio during the first quarter of 2022.

The change in fair value related to our net trust assets (residual interests in
securitizations) was a gain of $9.2 million for the six months ended
June 30, 2022.  As previously noted, in March 2022, we sold our residual
interest certificates, and assigned certain optional termination and loan
purchase rights which entails the entire legacy securitization portfolio within
our long-term mortgage portfolio.  As a result, in March 2022, we recorded a
$9.2 million increase in fair value, net of $277 thousand in transaction costs
related to the transfer of the legacy securitization portfolio.

The change in fair value related to our net trust assets (residual interests in
securitizations) was a loss of $2.1 million for the three months ended June
30, 2021.  The change in fair value of net trust assets, excluding REO was due
to $1.8 million in losses from changes in fair value of securitized mortgage
borrowings and securitized mortgage collateral as a result of cash received in
excess of projections during the quarter and an increase in prepayments on
certain trusts which resulted in a reduction in future residual cashflows,
partially offset by a decrease in forward LIBOR.  Additionally, the NRV of REO
decreased $313 thousand during the period attributed to higher expected loss
severities on properties within certain states held in the long-term mortgage
portfolio during the period.

The change in fair value related to our net trust assets (residual interests in
securitizations) was a loss of $3.8 million for the six months ended June
30, 2021.  The change in fair value of net trust assets, excluding REO was due
to $5.4 million in losses from changes in fair value of securitized mortgage
borrowings and securitized mortgage collateral as a result of cash received
during the period and an increase in forward LIBOR offset by a decrease in loss
assumptions for certain trusts. The NRV of REO increased $1.6 million during the
period which partially offset the change in fair value

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of the net trust assets, excluding REO. The increase in NRV of REO was attributed to lower expected loss severities on properties within certain states held in the long-term mortgage portfolio during the period.

Income Taxes


For the three and six months ended June 30, 2022, we recorded income tax expense
of approximately $16 thousand and $39 thousand, respectively, which was the
result of state income taxes from states where the Company does not have net
operating loss (NOL) carryforwards or state minimum taxes.  For the three and
six months ended June 30, 2021, the Company recorded income tax expense of
approximately $62 thousand and $43 thousand, respectively, which was the result
of applying 1) the calculated annual effective tax rate (ETR) against the year
to date net loss, and 2) the discrete method in jurisdictions where the Company
meets an exception to using ETR.  The net deferred tax assets (DTA) were fully
reserved for at June 30, 2022, consistent with December 31, 2021.

As of December 31, 2021, we had estimated NOL carryforwards of approximately
$623.5 million. Federal NOL carryforwards begin to expire in 2027.  Included in
the estimated NOL carryforward is $65.9 million of NOLs with an indefinite
carryover period.  As of December 31, 2021, we had estimated California NOL
carryforwards of approximately $435.2 million, which begin to expire in 2028.

We may not be able to realize the maximum benefit due to the nature and tax entities that hold the NOL.

Results of Operations by Business Segment


We have three primary operating segments: Mortgage Lending, Long-Term Mortgage
Portfolio and Real Estate Services. Unallocated corporate and other
administrative costs, including the cost associated with being a public company,
are presented in Corporate. Segment operating results are as follows:

Mortgage Lending

                                               For the Three Months Ended June 30,
                                                                         $           %
                                            2022          2021         Change      Change
Gain on sale of loans, net                $     179    $   10,693    $ (10,514)      (98) %
Servicing income (expense), net                   7         (150)           157       105
Gain (loss) on mortgage servicing
rights, net                                      45          (37)            82       222
Total revenues                                  231        10,506      (10,275)      (98)

Other income (expense)                          262          (16)           278      1738

Personnel expense                           (6,552)      (10,612)         4,060        38
Business promotion                          (1,319)       (1,766)           447        25
General, administrative and other           (1,507)       (2,910)         1,403        48
Loss before income taxes                  $ (8,885)    $  (4,798)    $  (4,087)        85 %

For the three months ended June 30, 2022, gain on sale of loans, net was a gain
of $179 thousand compared to a gain of $10.7 million in the comparable 2021
period. The decrease in gain on sale of loans, net was most notably due to a
$15.3 million decrease in gain on sale of loans, a $1.3 million increase in
provision for repurchases, a $488 thousand decrease in mark-to-market gains on
LHFS and a $92 thousand decrease in premiums from servicing retained loan sales.

Partially offsetting the decrease in gain on sale of loans, net was a $3.8 million increase in realized and unrealized net losses on derivative financial instruments, a $2.8 million decrease in direct origination expenses.


The sharp and unexpected decline in gain on sale reflects the intense pressure
on mortgage originations due to the dramatic collapse of the mortgage refinance
market and the weakening mortgage purchase market, which has suffered from a
lack of housing inventory and a significant increase in mortgage interest rates
resulting in customer home purchase    affordability issues. As previously
discussed, the increase in interest rates which began in the fourth quarter
of
2021,

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caused a significant increase in credit spreads which accelerated into the
second quarter of 2022, resulting in a substantial over supply of low coupon
originations causing a severe decline in margins and diminishing capital market
distribution exits for originators reliant upon an aggregation execution model.
 To mitigate the risks associated with reduced distribution exits and extended
settlement timelines, we began to pull back on production, significantly
increasing the pricing on our loan products as well as completely shifting to a
best-efforts delivery for non-agency production in the first quarter of 2022.
 As a result, origination volumes decreased significantly during the second
quarter of 2022.  For the three months ended June 30, 2022, we originated and
sold $128.1 million and $248.2 million of mortgage loans, respectively, as
compared to $611.5 million and $667.8 million of loans originated and sold,
respectively, during the same period in 2021.  During the three months ended
June 30, 2022, margins were 14 bps as compared to 175 bps during the same period
in 2021.

For the three months ended June 30, 2022, servicing fees (expenses), net were
fees of $7 thousand compared to an expense of $150 thousand in the comparable
2021 period.  The reduction in servicing expenses, net was due to the increase
in the average size of our mortgage servicing portfolio resulting in increased
servicing fees as compared to the second quarter of 2021, as a result of sale of
servicing retained loan sales of $36.9 million since the end of the second
quarter of 2021. As a result, the servicing portfolio average balance increased
58% to $72.1 million for the three months ended June 30, 2022 as compared to an
average balance of $45.7 million for the comparable period in 2021.  While we
continue to selectively retain mortgage servicing, we will continue to recognize
an immaterial amount of servicing fees, net or a servicing expense, net related
to interim subservicing and other servicing costs related to the small UPB of
remaining servicing portfolio as of June 30, 2022.  During the three months
ended June 30, 2022, we had no servicing retained loan sales.

For the three months ended June 30, 2022, gain (loss) on MSRs, net was a net
gain of $45 thousand compared to a net loss of $37 thousand in the comparable
2021 period.  For the three months ended June 30, 2022, we recorded a $6
thousand loss from change in fair value of MSRs primarily due to changes in fair
value associated with scheduled and voluntary prepayments partially offset by
changes in market rates, inputs and assumptions.  For the three months ended
June 30, 2021, we recorded a $37 thousand loss from a change in fair value of
MSRs primarily due to changes in scheduled and voluntary prepayments.

Additionally, during the three months ended June 30, 2022, we recorded $51 thousand gain on sale of mortgage servicing rights, net as a result of the collection of holdbacks in excess of previously reserved for amounts on prior period mortgage servicing sales.

For the three months ended June 30, 2022, other income (expense) increased to
income of $262 thousand as compared to expense of $16 thousand in the comparable
2021 period. The $278 thousand increase in other income was primarily due to a
$201 thousand increase net interest spread between loans held-for-sale and their
related warehouse borrowings during the three months ended June 30, 2022 as
compared to the comparable period in 2021.  As a result of the increase in
interest rates which began in the fourth quarter of 2021, as well as our efforts
to increase the weighted average coupon on our production, we have positive net
interest carry on our originations as the note rates on the underlying mortgage
loans financed in most instances is greater than the financing rates on our
warehouse lines of credit financing the originations.  Additionally, for the
three months ended June 30, 2022, interest income on cash deposits increased $77
thousand as compared to the same period in the prior year, due to the recent
increases in interest rates.

Personnel expense decreased $4.1 million to $6.6 million for the three months
ended June 30, 2022 as compared to the same period in 2021.  The decrease in
personnel expense is primarily related to a reduction in variable compensation
commensurate with reduced originations during the second quarter of 2022 as well
as a reduction in headcount to support reduced volume as compared to 2021.  As a
result, average headcount decreased 38% in the mortgage lending segment for the
three months ended June 30, 2022 as compared to the same period in 2021.
 Although personnel expense decreased in the mortgage lending segment during the
second quarter of 2022, it increased to 511 bps of fundings as compared to 174
bps for the comparable 2021 period, as a result of our pull back in
originations.

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Business promotion expense decreased $447 thousand to $1.3 million for the three
months ended June 30, 2022 as compared to $1.8 million for the same period in
the prior year.  Business promotion previously remained low as a result of the
favorable interest rate environment requiring significantly less business
promotion to source leads.  Beginning in second quarter of 2021, we began to
increase our marketing expenditures in an effort to more directly target NonQM
production in the retail channel, expand production expansion outside of
California and maintain our lead volume as competition increased. As a result of
the recent dislocation within the NonQM market as a result of the significant
increase in interest rates, in the second quarter of 2022, we reduced our
marketing spend as we pulled back on our origination volumes to mitigate the
aforementioned risks associated with the current environment.  Although we
continue to source leads through digital campaigns, which allows for a more cost
effective approach, the recent competitiveness among other lenders for NonQM
production within the California market has driven up advertising costs.

General, administrative and other expenses decreased $1.4 million to $1.5
million for the three months ended June 30, 2022, as compared to $2.9 million
for the same period in 2021.  During the three months ended June 30, 2022,
general, administrative and other expenses decreased by $1.4 million primarily
due to a $1.0 million decrease in legal fees associated with a decrease in
litigation and related expenses.  Additionally, general, administrative and
other expenses decreased $397 thousand due to a decrease in occupancy,
professional fees, data processing, and other expense all related to a reduction
in fundings during the period.

                                                 For the Six Months Ended June 30,
                                                                          $           %
                                             2022          2021         Change      Change
Gain on sale of loans, net                $    6,134    $   30,824    $ (24,690)      (80) %
Servicing expenses, net                          (5)         (269)           264        98
Gain on mortgage servicing rights, net           155             1         
 154     15400
Total revenues                                 6,284        30,556      (24,272)      (79)

Other income (expense)                           652         (175)           827       473

Personnel expense                           (16,763)      (23,662)         6,899        29
Business promotion                           (3,617)       (2,957)         (660)      (22)
General, administrative and other            (3,499)       (4,898)        
1,399        29
Loss before income taxes                  $ (16,943)    $  (1,136)    $ (15,807)     1,391 %


For the six months ended June 30, 2022, gain on sale of loans, net was a gain of
$6.1 million compared to a gain of $30.8 million in the comparable 2021 period.
The decrease in gain on sale of loans, net was most notably due to a $22.5
million decrease in gain on sale of loans, a $6.9 million increase in
mark-to-market losses on LHFS, a $2.6 million increase in provision for
repurchases and a $167 thousand decrease in premiums from servicing retained
loan sales.  Partially offsetting the decrease in gain on sale of loans, net was
a $3.9 million decrease in direct origination expenses and a $3.6 million
increase in realized and unrealized net losses on derivative financial
instruments.

As previously discussed, the increase in interest rates which began in the
fourth quarter of 2021, caused a significant increase in credit spreads which
accelerated into the second quarter of 2022, resulting in a substantial over
supply of low coupon originations causing a severe decline in margins and
diminishing capital market distribution exits for originators reliant upon an
aggregation execution model.  To mitigate the risks associated with reduced
distribution exits and extended settlement timelines, we began to pull back on
production, significantly increasing the pricing on our loan products as well as
completely shifting to a best-efforts delivery for non-agency production in the
first quarter of 2022.    As a result, origination volumes decreased
significantly during the first six months of 2022.  For the six months ended
June 30, 2022, we originated and sold $610.2 million and $867.7 million of
mortgage loans, respectively, as compared to $1.5 billion and $1.5 billion of
loans originated and sold, respectively, during the same period in 2021.  During
the six months ended June 30, 2022, margins were 101 bps as compared to 211 bps
during the same period in 2021.

For the six months ended June 30, 2022, servicing expenses, net were $5 thousand
compared to $269 thousand in the comparable 2021 period.  The reduction in
servicing expenses, net was due to the increase in the average size of our
mortgage servicing portfolio resulting in increased servicing fees as compared
to the same period in 2021, as a result of sale of servicing retained loan sales
of $36.9 million since the end of the second quarter of 2021. As a result,
the
servicing

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portfolio average balance increased 76% to $73.7 million for the six months
ended June 30, 2022 as compared to an average balance of $41.8 million for the
comparable period in 2021.  While we continue to selectively retain mortgage
servicing, we will continue to recognize servicing expense related to interim
subservicing and other servicing costs related to the small UPB of remaining
servicing portfolio as of June 30, 2022.  During the six months ended
June 30, 2022, we had $4.5 million in servicing retained loan sales.

For the six months ended June 30, 2022, gain on MSRs, net was a net gain of $155 thousand compared to a net gain of $1 thousand in the comparable 2021 period.

 For the six months ended June 30, 2022, we recorded a $131 thousand gain from a
change in fair value of MSRs primarily due to changes in fair value associated
with changes in market interest rates, inputs and assumptions partially offset
by scheduled and voluntary prepayments.  For the six months ended June 30, 2021,
we recorded a $39 thousand gain from a change in fair value of MSRs primarily
due to changes in fair value associated with changes in market rates, inputs and
assumptions partially offset by voluntary and scheduled prepayments.

Additionally, during the six months ended June 30, 2022, we recorded $100 thousand gain on sale of mortgage servicing rights, net as a result of the collection of holdbacks in excess of previously reserved for amounts on prior period mortgage servicing sales.

For the six months ended June 30, 2022, other income (expense) increased to
income of $652 thousand as compared to expense of $175 thousand in the
comparable 2021 period. The $827 thousand increase in other income was primarily
due to a $771 thousand increase net interest spread between loans held-for-sale
and their related warehouse borrowings during the six months ended June 30, 2022
as compared to the comparable period in 2021.  As a result of the increase in
interest rates which began in the fourth quarter of 2021, as well as our efforts
to increase the weighted average coupon on our production, we have positive net
interest carry on our originations as the note rates on the underlying mortgage
loans financed in most instances is greater than the financing rates on our
warehouse lines of credit financing the originations. Additionally, for the six
months ended June 30, 2022, interest income on cash deposits increased $79
thousand as compared to the same period in the prior year, due to the recent
increases in interest rates.

Personnel expense decreased $6.9 million to $16.8 million for the six months
ended June 30, 2022 as compared to the same period in 2021.  The decrease in
personnel expense is primarily related to a reduction in variable compensation
commensurate with reduced originations during the first six months of 2022 as
well as a reduction in headcount to support reduced origination volume as
compared to 2021.  As a result, average headcount decreased 25% in the mortgage
lending segment for the six months ended June 30, 2022 as compared to the same
period in 2021.  Although personnel expense decreased in the mortgage lending
segment during the first months of 2022, it increased to 275 bps of fundings as
compared to 162 bps for the comparable 2021 period.

Business promotion expense increased $660 thousand to $3.6 million for the six
months ended June 30, 2022 as compared to $3.0 million for the same period in
the prior year.  Business promotion previously remained low as a result of prior
quarters' more favorable interest rate environment requiring significantly less
business promotion to source leads.  Beginning in second quarter of 2021, we
began to increase our marketing expenditures in an effort to more directly
target NonQM production in the retail channel, expand production expansion
outside of California and maintain our lead volume as competition increased. As
a result of the recent dislocation within the NonQM market as a result of the
significant increase in interest rates, starting in the second quarter of 2022,
we reduced our marketing spend as we pulled back on our origination volumes to
mitigate the aforementioned risks associated with the current environment.

Although we continue to source leads through digital campaigns, which allows for a more cost effective approach, the recent competitiveness among other lenders for NonQM production within the California market has driven up advertising costs.


General, administrative and other expenses decreased $1.4 million to $3.5
million for the six months ended June 30, 2022, as compared to $4.9 million for
the same period in 2021.  During the six months ended June 30, 2022, general,
administrative and other expenses decreased by $1.4 million primarily due to a
$978 thousand decrease in legal fees associated with a decrease in litigation
and related expenses.  Additionally, general, administrative and other expenses
decreased $743 thousand due to a decrease in occupancy, data processing, and
other expense all related to a reduction in loan fundings during the period.
Partially offsetting the reduction in general, administrative and other expenses
was a $323 thousand increase in professional fees associated with preparation
and planning for a loan origination system consolidation and implementation
during the first quarter of 2022.

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Long-Term Mortgage Portfolio


As previously noted above, in March 2022, we sold our residual interest
certificates, and assigned certain optional termination and loan purchase rights
relating to 37 securitizations that closed between 2000 and 2007, which entailed
the entire legacy securitization portfolio within our long-term mortgage
portfolio. As a result of the sale, in accordance with FASB ASC 810-10-25, we
deconsolidated the securitized mortgage trust assets totaling approximately $1.6
billion and trust liabilities of $1.6 billion as of the sale date as the Company
was no longer the primary beneficiary of the consolidated securitization trusts.
We will remain as the master servicer with respect to all of the securitizations
until such time that the securitization trusts are collapsed or payoff.

                                                  For the Three Months Ended June 30,
                                                                            $          %
                                                2022         2021        Change      Change
Other revenue                                 $      28    $      42    $    (14)      (33) %

Personnel expense                                  (20)         (27)            7        26
General, administrative and other                 (109)        (108)       
  (1)       (1)
Total expenses                                    (129)        (135)            6         4

Net interest (expense) income                   (1,103)        1,038      (2,141)     (206)
Change in fair value of long-term debt            1,980        1,417          563        40
Change in fair value of net trust assets,
including trust REO gains (losses)                    -      (2,141)       
2,141       100
Total other income                                  877          314          563       179
Earnings before income taxes                  $     776    $     221    $     555       251 %

For the three months ended June 30, 2022, net interest (expense) income was an
expense of $1.1 million as compared to income of $1.0 million for the same
period in 2021. Net interest income decreased $2.1 million for the three months
ended June 30, 2022 primarily attributable to a $2.1 million decrease as a
result of the sale of the legacy portfolio in March 2022.  Additionally,
interest expense on the long-term debt increased $63 thousand as a result of an
increase in 3-month LIBOR as compared to the first quarter of 2022.

During the three months ended June 30, 2022, the fair value of long-term debt
decreased by $11.6 million to $35.9 million from $47.5 million at March
31, 2022. The decrease in estimated fair value was the result of a $10.0 million
change in the instrument specific credit risk primarily the result of an
increase in the discount rate associated with the Company's risk profile, a $2.0
million change in the market specific credit risk as a result of an increase in
the forward LIBOR curve as compared to the first quarter of 2022, partially
offset by a $357 thousand increase due to accretion.

The decrease in change in fair value of net trust assets, including trust REO
(residual interests in securitizations) for the three months ended June 30, 2022
was due to the aforementioned sale and transfer of the legacy securitization
portfolio during the first quarter of 2022.

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                                                   For the Six Months Ended June 30,
                                                                           $          %
                                                2022        2021        Change      Change
Other revenue                                 $     43    $      69    $    (26)      (38) %

Personnel expense                                 (50)         (55)            5         9
General, administrative and other                 (91)        (201)        
 110        55
Total expenses                                   (141)        (256)          115        45

Net interest (expense) income                    (911)        2,341      (3,252)     (139)
Change in fair value of long-term debt           3,622        2,442        1,180        48
Change in fair value of net trust assets,
including trust REO gains (losses)               9,248      (3,814)       13,062       342
Total other income                              11,959          969       10,990      1134
Earnings before income taxes                  $ 11,861    $     782    $  

11,079 1417 %



For the six months ended June 30, 2022, net interest (expense) income was an
expense of $911 thousand as compared to income of $2.3 million for the same
period in 2021. Net interest income decreased $3.3 million for the six months
ended June 30, 2022 primarily attributable to a $3.1 million decrease as a
result of the sale of the legacy portfolio in March 2022 as well as a reduction
in net interest spread on the long-term mortgage portfolio prior to the sale.

Additionally, interest expense on the long-term debt increased $143 thousand as a result of an increase in 3-month LIBOR as well as an increase in accretion.

During the six months ended June 30, 2022, the fair value of long-term debt
decreased by $10.6 million to $35.9 million from $46.5 million at
December 31, 2021. The decrease in estimated fair value was the result of a $7.8
million change in the instrument specific credit risk primarily the result of an
increase in the discount rate associated with the Company's risk profile, a $3.6
million change in the market specific credit risk as a result of an increase in
the forward LIBOR curve during 2022, partially offset by a $743 thousand
increase due to accretion.

The change in fair value related to our net trust assets (residual interests in
securitizations) was a gain of $9.2 million for the six months ended
June 30, 2022.  As previously noted, in March 2022, we sold our residual
interest certificates, and assigned certain optional termination and loan
purchase rights which entailed the entire legacy securitization portfolio within
our long-term mortgage portfolio.  As a result, in March 2022, we recorded a
$9.2 million increase in fair value, net of $277 thousand in transaction costs
related to the transfer of the legacy securitization portfolio.

Real Estate Services

                                           For the Three Months Ended June 30,
                                                                      $         %
                                         2022          2021        Change     Change

Real estate services fees, net $ 257 $ 478 $ (221)

     (46) %
Personnel expense                          (304)         (292)        (12) 

(4)

General, administrative and other           (55)          (64)           9 

14

(Loss) earnings before income taxes $ (102) $ 122 $ (224)

(184) %



For the three months ended June 30, 2022, real estate services fees, net were
$257 thousand compared to $478 thousand in the comparable 2021 period. The $221
thousand decrease in real estate services fees, net was primarily the result of
a $138 thousand decrease in loss mitigation fees and an $83 thousand decrease in
real estate service fees.  Additionally, as previously noted, in March 2022, we
sold our residual interest certificates, and assigned certain optional
termination and loan purchase rights which entailed the entire legacy
securitization portfolio within the long-term mortgage portfolio.  As a result,
it is our expectation that the real estate services fees generated from the
long-term mortgage portfolio will continue to decline in future periods as the
securitization trusts are called or collapsed by the purchaser.

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                                         For the Six Months Ended June 30,
                                                                  $         %
                                       2022          2021      Change     Change

Real estate services fees, net $ 442 $ 688 $ (246) (36) % Personnel expense

                        (609)        (597)       (12)      

(2)

General, administrative and other (109) (128) 19

  15
Loss before income taxes             $   (276)     $   (37)    $ (239)     (646) %

For the six months ended June 30, 2022, real estate services fees, net were $442
thousand compared to $688 thousand in the comparable 2021 period. The $246
thousand decrease in real estate services fees, net was primarily the result of
a $139 thousand decrease in loss mitigation fees and a $107 thousand decrease in
real estate service fees.  Additionally, as previously noted, in March 2022, we
sold our residual interest certificates, and assigned certain optional
termination and loan purchase rights which entailed the entire legacy
securitization portfolio within the long-term mortgage portfolio.  As a result,
it is our expectation that the real estate services fees generated from the
long-term mortgage portfolio will continue to decline in future periods as the
securitization trusts are called or collapsed by the purchaser.

Corporate

The corporate segment includes all compensation applicable to the corporate
services groups, public company costs as well as debt expense related to the
Convertible Notes and capital leases. This corporate services group supports all
operating segments. A portion of the corporate services costs is allocated to
the operating segments. The costs associated with being a public company as well
as the interest expense related to the Convertible Notes and capital leases are
not allocated to our other segments and remain in this segment.

                              For the Three Months Ended June 30,
                                                         $         %
                             2022          2021       Change     Change
Interest expense          $     (418)    $   (464)    $    46        10 %
Other expenses                (4,822)      (3,883)      (939)      (24)
Loss before income taxes  $   (5,240)    $ (4,347)    $ (893)      (21) %


For the three months ended June 30, 2022, interest expense decreased to $418
thousand as compared to $464 thousand in the comparable 2021 period.  The
decrease was primarily due to a $50 thousand decrease in interest expense
attributable to the $5.0 million pay down of the convertible notes in May 2022,
partially offset by a $4 thousand increase in interest expense associated with
the premium financing associated with the corporate-owned life insurance trusts
liability.

For the three months ended June 30, 2022, other expenses increased to $4.8
million as compared to $3.9 million for the comparable 2021 period. During the
three months ended June 30, 2022, the primary increase in other expense was a
$595 thousand increase in legal and professional fees associated with the
aforementioned preferred equity exchange offer, a $256 thousand increase in
occupancy expense primarily attributable to ROU asset impairment of $123
thousand related to the sublease of approximately 29,000 square feet of a floor
within our corporate office and a $143 thousand increase in CAM expense related
to a true up of prior and current year maintenance for the building.

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                                For the Six Months Ended June 30,
                                                         $         %
                              2022         2021       Change     Change
Interest expense            $   (882)    $   (924)    $    42         5 %
Other expenses                (8,372)      (8,189)      (183)       (2)
Loss before income taxes    $ (9,254)    $ (9,113)    $ (141)       (2) %

For the six months ended June 30, 2022, interest expense decreased to $882
thousand as compared to $924 thousand in the comparable 2021 period.  The
decrease was primarily due to a $50 thousand decrease in interest expense
attributable to the $5.0 million pay down of the convertible notes in May 2022,
partially offset by an $8 thousand increase in interest expense associated with
the premium financing associated with the corporate-owned life insurance trusts
liability.

For the six months ended June 30, 2022, other expenses increased to $8.4
million as compared to $8.2 million for the comparable 2021 period. During the
six months ended June 30, 2022, the primary increase in other expense was a $474
thousand increase in legal and professional fees associated with the
aforementioned preferred equity exchange offer, a $367 thousand increase in
occupancy expense primarily attributable to ROU asset impairment of $123
thousand related to the sublease of approximately 29,000 square feet of a floor
within our corporate office and a $142 thousand increase in CAM expense related
to a true up of prior and current year maintenance for the building.  Partially
offsetting the increase in other expenses was a $662 thousand increase in the
cash surrender value of the corporate-owned life insurance trusts for the six
months ended June 30, 2022, as a result of the application of prior year
investment gains which get applied at the annual renewal date in the first
quarter of each fiscal year, as well as a $117 decrease in general,
administrative and other expenses.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 3,02 M - -
Net income 2021 -3,88 M - -
Net Debt 2021 1 947 M - -
P/E ratio 2021 -5,05x
Yield 2021 -
Capitalization 6,47 M 6,47 M -
EV / Sales 2020 -24,9x
EV / Sales 2021 653x
Nbr of Employees 326
Free-Float 51,7%
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Managers and Directors
George A. Mangiaracina Chairman & Chief Executive Officer
Tiffany M. Entsminger Chief Operating Officer
Obi O. Nwokorie Chief Investment Officer & Director
Justin R. Moisio Secretary & Chief Administrative Officer
Frank P. Filipps Independent Director
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