Impac Mortgage Holdings Annual Report 2012

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FY2012 Annual Report · Impac Mortgage Holdings

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16JUN200902555364

2012 Annual Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(cid:1)

(cid:2)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012 or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
.
For the transition period from

Commission File Number: 1-14100

IMPAC MORTGAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

33-0675505
(I.R.S. Employer
Identification No.)

19500 Jamboree Road, Irvine, California 92612
(Address of principal executive offices)

(949) 475-3600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, $0.01 par value

NYSE MKT

Securities registered pursuant to Section 12(g) of the Act: none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act Yes (cid:2) No (cid:1)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes (cid:2) No (cid:1)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1) No (cid:2)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes (cid:1) No (cid:2)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of the Form 10-K or any amendment to this Form 10-K. (cid:1)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non accelerated filer. See
definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer (cid:2)

Accelerated filer (cid:2)

Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting company)

Smaller reporting company (cid:1)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes (cid:2) No (cid:1)

As of June 30, 2012, the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $15.6 million, based on the closing sales price of common stock on the NYSE MKT on that date. For
purposes of the calculation only, all directors and executive officers of the registrant have been deemed affiliates. There
were 8,661,165 shares of common stock outstanding as of March 06, 2013.

IMPAC MORTGAGE HOLDINGS, INC.
2012 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PART I

ITEM 1.

BUSINESS

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2.

PROPERTIES

ITEM 3.

LEGAL PROCEEDINGS

ITEM 4. MINE SAFETY DISCLOSURES

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6.

SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

SIGNATURES

ITEM 1. BUSINESS

PART I

Impac Mortgage Holdings, Inc., sometimes referred to herein as the ‘‘Company,’’ ‘‘we,’’ ‘‘our’’ or
‘‘us,’’ is a Maryland corporation incorporated in August 1995 and has the following subsidiaries:
Integrated Real Estate Service Corporation, or IRES, IMH Assets Corp. and Impac Funding Corporation.
IRES has the following subsidiaries, which conduct our mortgage lending and real estate services
operations: Excel Mortgage Servicing, Inc., or Excel, and AmeriHome Mortgage Corporation, or
AmeriHome.

Forward-Looking Statements

This report on Form 10-K 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,’’ ‘‘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: our ability to manage effectively our mortgage lending operations and facilities and
continue to expand the Company’s growing mortgage lending infrastructure; ability to maintain
approvals with the GSEs; change in the structure or winding down of the GSEs; unexpected interest rate
fluctuations; volatility in the mortgage industry; decrease in purchase-money transactions; failure to
successfully launch or continue to market new loan products; increased competition in the mortgage
lending industry by larger or more efficient companies; issues and system risks related to our
technology; inability to hire qualified retail loan officers or transact with qualified correspondents; more
than expected increases in default rates or loss severities and mortgage related losses; ability to obtain
additional financing and the terms of any financing that we do obtain; increase in loan repurchase
requests and ability to adequately settle repurchase obligations; 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 Item 1A. ‘‘Risk Factors’’ and Item 7.
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ in this
report. 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.

The information contained throughout this document is presented on a continuing basis, unless

otherwise stated.

Available Information

Our Internet website address is www.impaccompanies.com. We make available our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy
statements for our annual stockholders’ meetings, as well as any amendments to those reports, free of
charge through our website as soon as reasonably practicable after we electronically file such material

with, or furnish it to, the Securities and Exchange Commission, or the SEC. You can learn more about us
by reviewing our SEC filings on our website by clicking on ‘‘Investor Relations—Stockholder Relations’’
located on our home page and proceeding to ‘‘SEC Filings.’’ We also make available on our website,
under ‘‘Corporate Governance,’’ charters for the audit, compensation, and governance and nominating
committees of our board of directors, our Code of Business Conduct and Ethics, our Corporate
Governance Guidelines and other company information, including amendments to such documents and
waivers, if any, to our Code of Business Conduct and Ethics. These documents will also be furnished,
free of charge, upon written request to Impac Mortgage Holdings, Inc., Attention: Stockholder Relations,
19500 Jamboree Road, Irvine, California 92612. The SEC also maintains a website at www.sec.gov that
contains reports, proxy statements and other information regarding SEC registrants, including our
Company.

Our Company

We are an established independent residential mortgage lender, with over 500 employees and are
licensed in 36 states. We were founded in 1995 by members of our current management team, who have
extensive experience and an established track record of operating our Company through multiple
market cycles. We originate, sell and service residential mortgage loans through our wholly-owned
subsidiary, IRES, and its subsidiaries. We are predominantly engaged in the origination of conventional
mortgage loans eligible for sale to U.S. government-sponsored enterprises, or GSEs, including the
Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage
Corporation, or Freddie Mac, and government mortgage loans eligible for government securities issued
through the Government National Mortgage Association, or Ginnie Mae. We originate and acquire
mortgage loans through our Retail, Wholesale and Correspondent origination channels. For the year
ended December 31, 2012, we had $2.4 billion in origination volume, an increase of 173% over 2011.

Our business activities are organized and presented in three operating segments: Mortgage
Lending, Real Estate Services and Long-Term Mortgage Portfolio (also collectively referred to as our
continuing operations). Additionally, we have a discontinued operations segment that primarily includes
legacy repurchase liability exposure and expenses and liabilities associated with litigation matters that
pertain to our discontinued, non-conforming mortgage operations. A description of each operating
segment is presented below with further details and discussions of each segments’ results of operations
presented in Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Results of Operations.’’

Mortgage Lending—Our mortgage lending operations are conducted by Excel primarily under the
dba of Impac Mortgage. Excel is a nationwide licensed mortgage lender with approvals to originate and
service Fannie Mae, Freddie Mac and Ginnie Mae loans. We primarily originate, sell and service
residential mortgage loans eligible for sale to the GSEs or issuance of government securities through
Ginnie Mae from our three channels-Retail, Wholesale and Correspondent. Our mortgage lending
operation generates origination and processing fees, net of origination costs, at the time of origination as
well as gains or unexpected losses when the loans are sold to third party investors, including the GSEs
and through Ginnie Mae. We earn servicing fees, net of sub-servicer costs, from our mortgage servicing
portfolio.

Real Estate Services—Through Excel, we provide loss mitigation and real estate services primarily
on our own long-term mortgage portfolio, including default surveillance, loan modification services,
short sale services (where a lender agrees to take less than the balance owed from the borrower), real
estate owned, or REO, surveillance and disposition services and monitoring, reconciling and reporting
services for residential and multifamily mortgage portfolios.

Long-Term Mortgage Portfolio—We manage the long-term mortgage portfolio, which consists of
residual interests in the securitization trusts reflected as net trust assets and liabilities in our
consolidated balance sheets, to mitigate losses and maximize cash flows from our residual interests. We
receive cash flows from our residual interests in securitizations to the extent they are available after
required distributions to bondholders and maintaining specified overcollateralization levels and other
specified parameters (such as maximum delinquency and cumulative default) within the trusts.

Discontinued Operations—Our discontinued operations segment primarily represents the
mitigation of the remaining legacy repurchase liability exposure and expenses and liabilities associated
with litigation matters that pertain to our discontinued, non-conforming mortgage operations.

Today, we primarily operate as a conventional mortgage lender and are focused on expanding our
conventional mortgage lending platform. To a lesser extent, we provide real estate services and manage
our long-term mortgage portfolio. The real estate service segment was created in 2008 to provide
solutions to the distressed mortgage and real estate markets. Pursuant to that, we initiated various
mortgage and real estate fee-based business activities, including loan modifications, real estate
disposition, monitoring and surveillance services, real estate brokerage, mortgage lending, and title and
escrow services. We developed and enhanced our service offerings by providing services to investors,
servicers and individual borrowers primarily by focusing on loss mitigation and performance of our own
long-term mortgage portfolio. The
includes
non-conforming mortgage loans originated between 2002 and 2007, and is slowly decreasing in size
from principal pay-downs and default liquidations. Since we are no longer adding new mortgage loans to
the long-term mortgage portfolio, we expect that the real estate services and long-term mortgage
portfolio segments will become less impactful in the future.

long-term mortgage portfolio predominantly

Competitive Strategy

The mortgage lending industry is highly competitive, and may become more competitive as a
result of legislative, regulatory, economic, and technological changes, as well as consolidation or
expansion. Our competitors include money center banks, regional and community banks, thrifts, credit
unions, real estate brokerage firms, mortgage brokers and mortgage banking companies. Our strategy is
to expand our mortgage lending platform and generate attractive, risk-adjusted returns for our
stockholders over the long-term by:

(cid:127) maintaining our ability to sell mortgage loans directly to GSEs and issue government securities

through Ginnie Mae;

(cid:127) diversifying and increasing origination volumes of mortgage loans across all of our channels-

Retail, Wholesale and Correspondent;

(cid:127) increasing the proportion of purchase-money transactions as compared to re-financing

transactions in our mix of loan volume to help create more stable origination volumes;

(cid:127) expanding our product offering to include more products that are less sensitive to changing

interest rates and retain the mortgage servicing rights to those products;

(cid:127) increasing the brand awareness of our ‘‘Impac’’ brand through marketing and public relations

campaigns;

(cid:127) increasing our mortgage servicing portfolio with additional high credit quality and low coupon

conventional and government loans; and

(cid:127) increasing our operational efficiencies.

We expect to continue originating conventional and government-insured loans as we believe that
having the ability to sell loans directly to GSEs and issue Ginnie Mae securities makes us more
competitive with regard to products, pricing, operational efficiencies and overall recruitment of high
quality loan originators. We also believe that having a more balanced origination mix across our channels
will diversify our origination sources, improve our margins, increase efficiency and better position us for
future opportunities. In 2012, our mortgage lending channels that experienced the largest percentage of
growth were our retail and correspondent channels. In the future we expect to continue our expansion
and growth in originations through our retail and correspondent channels. We believe that this will
primarily be achieved by opening new retail offices and hiring additional retail loan officers for our
existing offices and call centers and increasing our active customer base in the correspondent channel.
We believe our wholesale lending channel will continue to be a key component of our origination
platform, however, our current focus to expand our retail and correspondent origination volumes will
improve our balance of originations across all channels.

With the economic conditions experienced in the last few years, the Federal Reserve has
attempted to keep interest rates low to spur economic growth. The resulting historically low interest rate
environment drove significant refinance volumes in 2011 and 2012. As interest rates rise, we expect the
refinance volumes to moderate. However, as the industry-wide lending and servicing compliance issues
associated with foreclosures are resolved, foreclosure activity could likely increase, creating more
purchase-money transaction opportunities for lenders. We believe that improving the mix of purchase-
money transactions compared to refinancing transactions, creates better opportunities to increase our
origination market share in a decreasing refinance market. To better capture purchase-money business,
we invested in and designed a web-based technology that both loan officers and real estate brokers can
use to create leads and provide financing to borrowers. Through this technology, we have been able to
increase the number of relationships with real estate professionals, leading to an increase in purchase-
money transactions.

Our loan products primarily include conventional loans for Fannie Mae and Freddie Mac and
government loans insured by Federal Housing Authority (FHA), Veteran’s Administration (VA) and U.S.
Department of Agriculture (USDA). We have also enhanced our product offering to include more loan
products less sensitive to changing interest rates, including FHA 203(k), a home improvement loan that
provides the borrower funds to make renovations, reverse mortgages, intermediate Adjustable Rate
Mortgages and GSE and government-sponsored loan programs such as Home Affordable Refinance
Program (HARP) loans which help timely paying borrowers to refinance into a loan with a lower interest
rate despite the loan balance being greater than the estimated fair value of their home. We believe that
these loan products will prepay at a slower rate as compared to other products. By retaining these loan
products in our servicing portfolio, we expect to maintain a less volatile mortgage servicing portfolio.

Furthermore, we expect to continue building our mortgage servicing portfolio given the attractive
characteristics of agency loans during a period of historically low interest rates and high credit quality
which helps mitigate interest rate risk as well as creates a sustainable earning asset. On a selective
basis, we have strategically sold servicing to keep the amount of capital invested in servicing at
acceptable levels while preserving capital needed for further growth.

We believe a key to producing a successful mortgage lending operation is not only increasing
mortgage origination volume, but also focusing on loan quality and operational efficiencies. In 2013, we
expect to implement both a new loan origination system and a new technology to better capture loan
documentation and origination data. Both of these are expected to help maintain loan quality and
operational efficiency during a period of growing origination volumes. We plan to increase our
operational capacities with the opening of new operations fulfillment centers, in addition to the two we
have today in Irvine, California and Lake Oswego, Oregon. We are currently in the process of opening a

new office in Salt Lake City, Utah and we may open another in future months. We believe the additional
operating capacity will support increased originations and improve customer service.

Recent Developments

The following table presents selected data from our mortgage lending operations for the year

ended December 31, 2012 and 2011.

(in millions)
Originations
Servicing Portfolio (1)
Warehouse Capacity

For the year ended
December 31,
2011

% Change

2012

2,419.7 $
2,177.2
217.5

883.2
605.4
87.5

174%
260%
149%

(1)

Includes approximately $513.2 million in unpaid principal balance of servicing sold but not
transferred as of December 31, 2012.

Our mortgage lending business grew rapidly during 2011 and 2012. Originations increased
$1.5 billion to $2.4 billion for the year ended December 31, 2012 as compared to $883.2 million for the
prior year. In 2012, all sources of origination volume more than doubled from 2011. However, our
correspondent channel achieved the most significant growth as a percentage of total originations. To
facilitate the growth, we expanded our warehouse borrowing capacity. Additionally, we were able to
grow our servicing portfolio.

Our mortgage servicing portfolio increased from servicing-retained sales of conforming
GSE-eligible loans and government-sponsored loans eligible for Ginnie Mae securities. In 2012, we sold
$2.1 billion of conforming GSE-eligible loans and we issued $99.0 million of government securities
through Ginnie Mae on a servicing retained basis. We also increased our mortgage servicing portfolio to
$2.2 billion at December 31, 2012 (including approximately $513.2 million in unpaid principal balance of
servicing rights sold but not transferred at December 31, 2012).

During 2012, our warehouse borrowing capacity increased $130.0 million to $217.5 million. At
December 31, 2012, we had five warehouse lender relationships, including one relationship with a major
national financial institution. During the first quarter of 2013, we obtained approvals for an additional
$100 million in total warehouse capacity including a new relationship with another national warehouse
lending bank.

Continuing Operations

Our continuing operations include mortgage lending, real estate services and the management of

the long-term mortgage portfolio.

Mortgage Lending Operations

Our mortgage lending activities primarily consist of the origination, sale and servicing of
conventional loans eligible for sale to Fannie Mae and Freddie Mac, and government-sponsored loans
eligible for Ginnie Mae securities issuance. In 2010, we began to rebuild our mortgage lending platform
to ensure that appropriate licenses, approvals and loan origination operations, including underwriting
and quality control processes were in place. We currently originate and fund mortgages through our
wholly-owned indirect subsidiary, Excel.

Three origination channels are utilized to originate or acquire mortgage loans—Retail, Wholesale
and Correspondent. Each channel produces similar mortgage loan products and applies similar
underwriting standards. At December 31, 2012, we primarily had two origination fulfillment centers
located in Irvine, CA and Lake Oswego, OR with plans to increase the number of fulfillment centers in
2013 by adding an office in Salt Lake City, Utah.

(in millions)
Originations by Channel:

Wholesale
Retail
Correspondent

Total originations

For the year ended
December 31,
2011

% Change

2012

1,293.2 $
735.3
391.2

2,419.7 $

572.4
295.3
15.5

883.2

126%
149%
2424%

174%

Although our wholesale channel contributed 53% of our origination volume in 2012, the largest
percentage of growth was from our retail and correspondent channels. For 2012, our retail channel
originated $735.3 million or 30% of originations while our correspondent channel originated
$391.2 million or 17%, with the remaining $1.3 billion or 53% coming from the wholesale channel. For
2011, our retail channel originated $295.3 million or 33% of originations while our wholesale channel
originated $572.4 million or 65%, with the remaining $15.5 million or 2% coming from the correspondent
channel.

Retail—In a retail transaction, loans are originated through our direct-to-consumer channel or
through our call center. When loans are originated on a retail basis, the origination documentation is
completed inclusive of customer disclosures and other aspects of the lending process and funding of
the transaction is completed internally. Our retail channel includes 26 retail offices licensed in 34 states
and two call centers. Our loan officers work directly with consumers to provide mortgage financing and
with real estate brokers to provide financing for the purchase of homes. Our call centers representatives
contact borrowers through either inbound or outbound marketing campaigns sourced from purchase-
money and refinance mortgage leads along with portfolio retention within our servicing portfolio. For the
year ended December 31, 2012, we closed $735.3 million of loans in this origination channel, which
equaled 30.4% of total originations, as compared to $295.3 million or 33.4% of total originations during
2011.

Wholesale—In a wholesale transaction, our account executives work directly with mortgage
brokers who originate and document loans for delivery to one of our operational centers where we
underwrite and fund the mortgage loan. Each loan is underwritten to our underwriting standards and if
approved, is funded in the name of Excel dba Impac Mortgage. Currently, we have approximately 700
approved wholesale relationships with mortgage brokerage companies located in 37 states. Prior to
accepting loans from mortgage brokers, each mortgage broker is required to meet our guidelines for
minimum experience, credit score and net worth. We also obtain a third party due diligence report for
each prospective broker that verifies licensing and provides information on any industry sanctions that
might exist. In addition, each mortgage broker is required to sign our broker agreement that contains
certain representations and warranties from the brokers. For the year ended December 31, 2012, we
closed loans totaling $1.3 billion in this origination channel, which equaled 53.4% of total originations, as
compared to $572.4 million or 64.8% during 2011.

Correspondent—Our correspondent channel represents mortgage loans acquired from our
correspondent sellers. Our correspondent channel has historically targeted a market of small banks,
credit unions and small mortgage banking firms. Prior to accepting loans from correspondent sellers,

each seller is underwritten to determine if it meets financial and other guidelines. Our review of each
prospective seller includes obtaining a third party due diligence report that verifies licensing, insurance
coverage, quality of recent FHA originations and provides information on any industry sanctions that
might exist. In addition, each seller is required to sign our correspondent seller agreement that contains
certain representations and warranties from the seller allowing us to require the seller to repurchase a
loan sold to us for various reasons including (i) ineligibility for sale to GSEs, (ii) early payment default,
(iii) early pay-off or (iv) if the loan is uninsurable by a government agency. In our correspondent channel,
the correspondent seller originates and closes the loan. After the loan is originated, the correspondent
seller provides the needed documentation and information to us to review and determine if it meets our
underwriting guidelines. The loan is acquired by us only after we approve it for purchase. We focus on
customer service for our clients by facilitating prompt review by our due diligence team, providing bid
pricing on both newly originated and seasoned portfolios, enabling clients to deliver one loan at a time
on a flow basis and providing clients with expedited funding timelines. We purchase conventional loans
eligible for sale to the GSEs and government-sponsored loans eligible for Ginnie Mae Securities.

We have approved correspondent relationships with approximately 82 companies, including
banks, credit unions and mortgage companies, lending in 48 states. For the year ended December 31,
2012, we closed loans totaling $391.2 million in the correspondent origination channel, which equaled
16.2% of total originations, compared to $15.5 million or 1.8% originated during 2011.

Originations

(in millions)
Government (1)
Conventional (2)
Other

Total originations

For the year ended December 31,
% Change
2011

2012

703.7 $

1,653.2
62.8

2,419.7 $

220.6
634.6
28.0

883.2

219%
161%
124%

174%

(1)
(2)

Includes government-insured loans including FHA, VA and USDA
Includes loans eligible for sale to Fannie Mae and Freddie Mac

Since 2011, we have provided loans to customers predominantly in the Western U.S. with
California, Oregon and Washington comprising 70.2% of originations. We have 26 retail branch offices
licensed in 34 states, along with our correspondent and wholesale channels, through correspondent
sellers and mortgage brokers, respectively, we are able to provide nationwide lending. We have two
primary loan origination fulfillment centers today in California and Oregon. To increase our originations
capacities, we are establishing new fulfillment centers in other states to facilitate growth.

Loan Sales—Selling Loans to GSEs, Issuing Ginnie Mae Securities and Selling Loans on a Whole

Loan Basis

We sell our mortgage loans to the secondary market, including to the GSEs and issue securities
through Ginnie Mae. We primarily sell loans on a servicing-retained basis where the loan is sold to an
investor such as Fannie Mae, and we retain the right to service that loan, called mortgage servicing rights
or MSRs. We also ‘‘sell’’ loans to Ginnie Mae by issuing Ginnie Mae securities through a process whereby
a pool of loans is transferred to Ginnie Mae as collateral for a government mortgage-backed security.
Additionally, we sell our residential mortgage loans on a whole loan basis where the investor also
acquires the servicing rights.

The following table indicates the breakdown of our loan sales to GSEs, issuance of Ginnie Mae

securities and loans sold to investors on a whole loan basis for the periods as indicated:

(in millions)

Fannie Mae
Freddie Mac
Ginnie Mae

Total servicing retained sales
Other (servicing released)

Total loan sales

Risk Management

Underwriting

For the year ended
December 31,

2012

2011

1,504.8 $
608.3
99.0

2,212.1 $
89.9

2,302.0 $

313.5
90.2
17.6

421.3
402.1

823.4

During the year ended December 31, 2012, we primarily originated residential first mortgage loans
for sale that conformed to the respective underwriting guidelines established by Fannie Mae, Freddie
Mac, FHA, VA and USDA. Our mortgage loans are underwritten individually on a loan-by-loan basis.
Each mortgage loan originated from our retail and wholesale channel are underwritten by one of our
in-house loan underwriters or by a third party contract underwriter using our underwriting guidelines.
Each mortgage loan originated from our correspondent channel is reviewed by a third party underwriting
company to determine if the borrower meets our underwriting guidelines.

Our criteria for underwriting generally include, but are not limited to, full documentation of
borrower’s income, assets, other relevant financial information, the specific agency’s eligible
loan-to-value ratios, borrower’s debt-to-income ratio and full appraisals when required. Variances from
any of these standards are permitted only to the extent allowable under the specific program
requirements. Our underwriting procedures for all retail and wholesale loans require the use of a GSE
automated underwriting systems (AUS). Our underwriting procedures for all correspondent loans that
have been originated by a correspondent seller includes a third party file review including verification
that the borrower’s credit and the collateral meets our applicable program guidelines and an appropriate
AUS report has been completed. They also verify the loan is compliant with regulatory guidelines. In
addition, the third party performs pre-funding quality control procedures prior to acquisition.
Management reviews the reports prior to the acquisition of any correspondent loan.

Quality Control

Our mortgage brokers, within our wholesale channels and our correspondent sellers are reviewed
and approved prior to the acquisition or origination of any loans. Each seller is required to sign our
correspondent seller agreement that contains certain representations and warranties from the seller
requiring the seller to repurchase a loan sold to us for various reasons including loan ineligibility for sale
to GSEs or if the loan is uninsurable by a government agency. Each broker is required to sign our broker
agreement that contains certain representations and warranties from the broker requiring the broker to
indemnify us for various reasons including early payment defaults or early pay-offs which may lead to
repurchase requests and reimbursement of premiums to our investors.

Prior to funding, all retail and wholesale loans are reviewed internally by our quality control
department to verify the loan conforms to our program guidelines and meets state and federal

compliance guidelines. Prior to the acquisition of a correspondent loan, a third party performs
pre-funding quality control procedures prior to acquisition. Management reviews the third party reports
prior to the acquisition of any correspondent loan. We also perform post origination quality controls
procedures on at least 10% of all mortgage loans funded or acquired. Additionally, we closely monitor
the servicing performance of loans retained in our mortgage servicing portfolio to identify any
opportunities to improve our underwriting process or procedures and identify any issues with mortgage
brokers or correspondent sellers. Findings are summarized monthly by our credit committee and the
appropriate changes are implemented.

Our risk management committee, comprised of senior management, meets periodically to
identify, monitor, measure and mitigate key risks in the organization. The committee’s responsibilities
include monitoring the hedging positions and its effectiveness in mitigating interest rate risk, status of
aged unsold loans, status of loans on the warehouse lines, the review of quality control reports, review of
servicing portfolio performance and the adequacy of the repurchase reserve and methodology.

Hedging

We are exposed to interest rate risks relating to our mortgage lending operations. Our strategy is
to mitigate the credit, market and interest rate risk from loan originations by either selling newly
originated loans to GSEs or issuing Ginnie Mae mortgage-backed securities. We typically attempt to sell
our mortgage loans within 10 to15 days from acquisition or origination.

We enter into interest rate lock commitments, or IRLCs, and commitments to sell mortgages to
help mitigate some of the exposure to the effect of changing interest rates on our mortgage lending
operation. We actively manage the IRLCs and uncommitted mortgage loans held for sale on a daily
basis. To manage the risk, we utilize forward sold Fannie Mae and Ginnie Mae mortgage-backed
securities to hedge the fair value changes associated with changes in interest rates.

Mortgage Servicing.

Upon our sale of loans to GSEs or the issuance of securities through Ginnie Mae, we generally
retain the MSRs with respect to the mortgage loans. We also sell loans on a servicing-released basis to
secondary market investors where we do not retain the servicing rights. When we retain MSRs, we are
entitled to receive a servicing fee paid on a monthly basis equal to a specified percentage, typically
between 0.25% and 0.44% per annum of the outstanding principal balance of the loans. We may also be
entitled to receive additional servicing compensation, such as late payment fees and earn additional
income through the use of non-interest bearing escrows.

We have hired a nationally recognized residential sub-servicer to sub-service the servicing
portfolio. Although we use a sub-servicer to provide primary servicing and certain default servicing
functions, our servicing surveillance team, which is experienced in loss mitigation and real estate
recovery, monitors and surveys the performance of the loans and sub-servicer. We generally earn a
servicing fee on each loan, but we also incur the cost of the sub-servicer as well as the internal servicing
surveillance team. Servicing fees are collected from interest payments made by the borrower. Incurring
the cost of both a sub-servicer and an internal surveillance team reduces the net revenues we earn from
the mortgage servicing portfolio, however, we believe it reduces our risk by minimizing delinquencies
and repurchase risk.

During 2012, the mortgage servicing portfolio increased to $2.2 billion from $605.4 million at the
end of 2011, generating gross servicing fees of $3.0 million, and $678 thousand in 2012 and 2011,
respectively.

Real Estate Services

We provide loss mitigation and recovery services through IRES primarily on our long-term
mortgage portfolio. Our portfolio loss mitigation and real estate services operations include the following
services:

(cid:127) Default surveillance and loss recovery services for residential and multifamily mortgage
portfolios (primarily our own long-term mortgage portfolio) for loan servicers and investors to
assist them with overall portfolio performance and maximizing cash recovery;

(cid:127) Loan modification solutions to individual borrowers. We interact with loan servicers on behalf of
the borrowers to assist them in lowering the monthly mortgage payments, which allows them to
make their mortgage payments and possibly remain in their homes. We earn fees for these
services once the modification is completed;

(cid:127) REO surveillance and disposition services. We provide these services to portfolio managers and
servicers to assist them with improving portfolio performance by maximizing liquidation
proceeds from managing foreclosed real estate assets. We also provide short sale (where a
lender agrees to take less than the balance owed from the borrower) services on pre-foreclosure
properties for servicers, investors and institutions with distressed and delinquent residential
and multifamily mortgage portfolios, these services also included real estate brokerage
services; and

(cid:127) Monitoring, reconciling and reporting services for residential and multifamily mortgage

portfolios for investors and servicers.

We intend to continue to provide these services predominantly for our long-term mortgage
portfolio. We expect these revenues to gradually decline over time as our long-term mortgage portfolio
declines. To the extent that opportunities arise, we may expand our loss mitigation and real estate
services to third parties.

Long-Term Mortgage Portfolio

Our long-term mortgage portfolio consists of our residual interests in securitizations represented
on our consolidated balance sheet as the difference between total trust assets and total trust liabilities.

Our long-term mortgage portfolio includes adjustable rate and, to a lesser extent, fixed rate Alt-A
single-family residential mortgages and commercial (primarily multifamily residential loans) mortgages
that were acquired and originated primarily by our discontinued, non-conforming mortgage lending
operations and retained in our long-term portfolio before 2008. Alt-A mortgages are primarily first lien
mortgages made to borrowers whose credit is generally within typical Fannie Mae and Freddie Mac
guidelines but have loan characteristics that make them non-conforming under those guidelines.

In previous years, we securitized mortgage loans by transferring originated residential single-
family mortgage loans and multifamily commercial loans (the ‘‘transferred assets’’) into non-recourse
bankruptcy remote trusts which in turn issued tranches of bonds to investors supported only by the cash
flows of the transferred assets. Because the assets and liabilities in the securitizations are nonrecourse
to us, the bondholders cannot look to us for repayment of their bonds in the event of a shortfall. These
securitizations were structured to include interest rate derivatives. We retained the residual interest in
each trust, and in most cases would perform the master servicing. A trustee and servicer, unrelated to
us, was named for each securitization. Cash flows from the loans (the loan payments and liquidation of
foreclosed real estate properties) collected by the loan servicer are remitted to us, the master servicer.

The master servicer remits payments to the trustee who remits payments to the bondholders (investors).
The servicer collects loan payments and performs loss mitigation activities for defaulted loans. These
activities include foreclosing on properties securing defaulted loans, which results in REO.

Commercial mortgages in our long-term mortgage portfolio are primarily adjustable rate
mortgages with initial fixed interest rate periods of two-, three-, five-, seven- and ten years that
subsequently convert to adjustable rate mortgages (hybrid ARMs). Commercial mortgages have
provided greater asset diversification on our balance sheet as borrowers of commercial mortgages
typically have higher credit scores and commercial mortgages typically have lower LTVs.

Historically, we securitized mortgages in the form of collateralized mortgage obligations, or
CMOs, which were consolidated and accounted for as secured borrowings for financial statement
purposes. Securitized mortgages in the form of real estate mortgage investment conduits, or REMICs,
were either consolidated or unconsolidated depending on the design of the securitization structure. We
consolidated the variable interest entity, or VIE, as the primary beneficiary of the sole residual interest in
each securitization trust where we also performed the master servicing. Amounts consolidated were
included in trust assets and liabilities as securitized mortgage collateral, real estate owned, derivative
assets, securitized mortgage borrowings and derivative liabilities in the accompanying consolidated
balance sheets. At December 31, 2012, our residual interests in securitizations (represented by the
difference between total trust assets and total trust liabilities) decreased to $15.9 million, compared to
$26.5 million at December 31, 2011.

Since 2007, we have not added any mortgages to our long-term mortgage portfolio.

For additional information regarding the long-term mortgage portfolio refer to Item 7.
‘‘Management’s Discussion and Analysis of Financial Condition,’’ and Note 3. ‘‘Securitized Mortgage
Collateral’’ and Note 8. ‘‘Securitized Mortgage Borrowings’’ in the notes to the consolidated financial
statements.

Master Servicing

Until 2007, we retained master servicing rights on substantially all of our non-conforming single-
family residential and commercial mortgage acquisitions and originations that were retained or sold
through securitizations. The function of a master servicer includes collecting loan payments from loan
servicers and remitting loan payments, less master servicing fees receivable and other fees, to a trustee
or other purchaser for each series of mortgage-backed securities or mortgages master serviced. In
addition, as master servicer, we monitor compliance with the servicing guidelines and perform or
contract with third parties to perform all functions not adequately performed by any loan servicer. The
master servicer is also required to advance funds, or cause the loan servicers to advance funds, to cover
principal and interest payments not received from borrowers depending on the status of their
mortgages. Master servicing fees are generally 0.03% per annum on the unpaid principal balance of the
mortgages serviced. As a master servicer, we also earn income or incur expense on principal and
interest payments received from borrowers until those payments are remitted to the investors of those
mortgages. Fees from the master servicing portfolio have declined significantly due to a decrease in
principal balances and a decline in interest rates since the end of 2008, which affects the amount we
earn on balances held in custodial accounts. At December 31, 2012, we were the master servicer for
approximately 36,500 mortgages with an unpaid principal balance of approximately $10.0 billion of
which $2.4 billion of those loans were 60 or more days delinquent. At December 31, 2012, we were also
the master servicer for unconsolidated securitizations (included in the total master servicing portfolio)
totaling approximately $1.3 billion in unpaid principal balance of which $0.4 billion of those loans were
60 or more days delinquent.

Discontinued Operations

Discontinued operations primarily include mitigating the remaining repurchase liability exposure
and expenses and liabilities associated with litigation matters related to our discontinued,
non-conforming mortgage operations.

In previous years, when our discontinued, non-conforming mortgage operations sold loans to
investors, we were required to make normal and customary representations and warranties about the
loans sold. Whole loan sale agreements generally required us to repurchase loans if a representation or
warranty given to the loan purchaser is breached. In addition, we could be required to repurchase loans
as a result of borrower fraud or if a payment default occurs on a mortgage loan shortly after its sale. We
continue to attempt to settle outstanding repurchase requests from third-party investors of our
discontinued, non-conforming mortgage operations.

Regulation

The U.S. mortgage industry is heavily regulated. Our mortgage lending operations, as well as our
real estate services, are subject to federal, state and local laws that regulate and restrict the manner in
which we operate in the residential mortgage industry. Plus, mortgage bankers and brokers in our
wholesale production channel and correspondents from which we purchase loans are also subject to
regulation, which may have an effect on our business and the mortgage loans we are able to fund or
acquire. Compliance with regulations in the mortgage industry requires us to incur costs and expenses
in our operations. To the extent we, or others with which we conduct business, do not comply with
applicable laws and regulations, we may be subject to fines, reimbursements and other penalties. The
laws and regulations that we are subject to include the following:

(cid:127) the Federal Truth-in-Lending Act (known as TILA) and Regulation Z promulgated there under,
which require certain disclosures to the borrowers regarding the terms of the loans and require
substantial changes in compensation that can be paid to brokers and loan originators;

(cid:127) the Equal Credit Opportunity Act and Regulation B promulgated there under, which prohibit
discrimination on the basis of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit;

(cid:127) the Fair Housing Act, which prohibits discrimination in housing on the basis of race, color,
national origin, religion, sex, familial status, or handicap, in housing-related transactions;

(cid:127) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the

borrower’s credit experience;

(cid:127) the Fair and Accurate Credit Transaction Act, which regulates credit reporting and use of credit

information in making unsolicited offers of credit;

(cid:127) the Gramm-Leach-Bliley Act, which imposes requirements on all lenders with respect to their
collection and use of nonpublic financial information and requires them to maintain the security
of that information;

(cid:127) the Real Estate Settlement Procedures Act (known as RESPA) and Regulation X, promulgated
thereunder, which requires that consumers receive disclosures at various times and outlaws
kickbacks that increase the cost of settlement services;

(cid:127) the Home Mortgage Disclosure Act, which requires the reporting of public loan data;

(cid:127) the Telephone Consumer Protection Act and the Can Spam Act, which regulate commercial

solicitations via telephone, fax, and the Internet;

(cid:127) the Depository Institutions Deregulation and Monetary Control Act of 1980, which preempts

certain state usury laws;

(cid:127) the Alternative Mortgage Transaction Parity Act of 1982, which preempts certain state lending

laws which regulate alternative mortgage transactions;

(cid:127) the Fair Debt Collection Practices Act, which prohibits unfair debt collection practices; and

(cid:127) the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which establishes

national minimum standards for mortgage licensees.

In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act is a sweeping
overhaul of the financial regulatory system. The Dodd-Frank Act has increased, and will continue to
increase, regulation of the mortgage industry, including: generally prohibiting lenders from making
residential mortgage loans unless a good faith determination is made of a borrower’s creditworthiness
based on verified and documented information; requiring the Consumer Financial Protection Bureau to
enact regulations, which were recently finalized, to help assure that consumers are provided with timely
and understandable information about residential mortgage loans that protect them against unfair,
deceptive and abusive practices; and requiring federal regulators to establish minimum national
underwriting guidelines for residential mortgages that lenders will be allowed to securitize without
retaining any of the loans’ default risk.

Our mortgage lending operations is an approved Housing and Urban Development (HUD) lender,
a Ginnie Mae approved issuer and servicer and an approved seller/servicer of Fannie Mae and Freddie
Mac. As such, we are required to submit annually to Fannie Mae, Freddie Mac, and HUD, as applicable,
audited financial statements, or the equivalent, according to the financial reporting requirements of each
regulatory entity for its sellers/servicers. The Company’s affairs are also subject to examination by
Fannie Mae, Ginnie Mae, Freddie Mac, HUD and state regulatory agencies at any time to assure
compliance with applicable regulations, policies and procedures. Also refer to ‘‘Regulatory Risks’’ under
Item 1A. Risk Factors for a further discussion of regulations that may affect us.

Competition

We operate in a highly competitive industry that could become even more competitive as a result
of legislative, regulatory, economic, and technological changes, as well as continued consolidation or
expansion. Our competitors include banks, thrifts, credit unions, real estate brokerage firms and
mortgage brokers and mortgage banking companies. Competition is based on a number of factors
including, among others, customer service, quality and range of products and services offered, price,
reputation, interest rates, lending limits and customer convenience. To compete effectively, we must
have a very high level of operational, technological, and managerial expertise, as well as access to
capital at a competitive cost. Many of our competitors are larger than we are and have access to greater
financial resources than we do, which can place us at a competitive disadvantage. In addition, many of
our largest competitors are banks or affiliated with banking institutions, the advantages of which include,
but are not limited to, the ability to hold new mortgage loan originations in an investment portfolio and
having access to financing with more favorable terms than we do, including lower rate bank deposits as
a source of liquidity.

Our real estate services segment competes with firms that provide similar services, including loan
modification companies, real estate asset management and disposition companies and real estate

brokerage firms. Our competitors include mega mortgage servicers, established subprime loan
servicers, and newer entrants to the specialty servicing and recovery collections business. Efforts to
market our ability to provide real estate services for others is more difficult than many of our competitors
because we have not historically provided such services to unrelated third parties, and we are not a rated
primary or special servicer of residential mortgage loans as designated by a rating agency.

Risk factors, as outlined below, provide additional information related to risks associated with

competition in the mortgage industry.

Employees

As of December 31, 2012 and 2011, we had a total of 540 and 394 employees, respectively.
Management believes that relations with our employees are good. We are not a party to any collective
bargaining agreements.

ITEM 1A. RISK FACTORS

Some of the following risk factors relate to a discussion of our assets. For additional information
on our asset categories refer to Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations,’’ as well as the accompanying notes to the consolidated financial statements.

Risks Related To Our Businesses

Our long-term success is primarily dependent on our ability to increase our mortgage origination
volumes and revenues and to a lesser extent maintain our real estate services revenues and
realize cash flows from our long-term mortgage portfolio.

We believe that a key driver of growth of our profitability will be increasing our mortgage
origination volumes. Our success is dependent on many factors, some of which we can control and
others we cannot, such as the successful implementation of our new loan origination system and
documentation and data capture technology, increasing our loan origination operational capacities,
attracting qualified employees, ability to maintain our approvals with Fannie Mae, Freddie Mac, Ginnie
Mae and other investors, ability to increase our mortgage servicing portfolio, the ability to obtain
adequate warehouse borrowing capacity, the ability to adequately maintain loan quality and manage the
risk of losses from repurchases, and the changing regulatory environment for mortgage lending.

The ability to generate revenues in the real estate services segment is based on our ability to
continue to provide services to the long-term mortgage portfolio, and seek opportunities to provide
services to unrelated third parties.

Realizing cash flows from our long-term mortgage portfolio is dependent on the performance of
the underlying mortgage loans and the performance of the servicers. At December 31, 2012, our debt
obligations, consisting of our trust preferred securities, junior subordinated notes, bank loans and the
note payable related to the obligation limited to and secured by some of our residual interests in certain
securitization trusts, was an aggregate of approximately $74.0 million in outstanding net principal
balance. If we are unable to generate net income from our mortgage lending operations and real estate
services and cash flows from our long-term mortgage portfolio, we may be unable to satisfy our future
operating costs and liabilities, including repayment of our debt obligations.

The Company, through its subsidiaries, has entered into financing facility agreements to fund
loans for the mortgage lending operations that contain certain financial covenants.

Our warehouse facilities contain covenants, including requirements to maintain a certain minimum
net worth, liquidity, litigation judgment thresholds, debt ratios, profitability levels and other customary
debt covenants. A breach of the covenants can result in an event of default under these facilities and as
such allows the lender to pursue certain remedies, which may constitute a cross default under other
agreements. If we are unable to meet or maintain the necessary covenant requirements or satisfy, or
obtain waivers from, the continuing covenants, this could have a material adverse effect on our financial
condition and results of operations.

Our hedging strategies recently implemented by our mortgage lending operations may not be
successful in mitigating our risks associated with the market movement of interest rates.

We use various derivative financial instruments to provide a level of protection against interest rate
risks in our mortgage lending operations, but no hedging strategy can protect us completely. When rates
change, we expect to record a gain or loss on derivatives which would be offset by an inverse change in
the value of mortgage loans held for sale and interest rate lock commitments. We cannot assure you,

however, that our use of derivatives will offset the risks related to changes in interest rates. There have
been periods, and it is likely that there will be periods in the future, during which we will not have
offsetting gains or losses in mortgage loan and interest rate lock commitment values after accounting for
our derivative financial instruments. The derivative financial instruments we select may not have the
effect of reducing our interest rate risk. In addition, the nature and timing of hedging transactions may
influence the effectiveness of these strategies. Poorly designed strategies, improperly executed and
recorded transactions or inaccurate assumptions could actually increase our risk and losses. In addition,
hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy
and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging
transactions will not result in losses.

Competition in the residential mortgage industry and real estate services business is intense and
may adversely affect our business operations and financial performance; the dominance of a
limited number of companies may affect our ability to operate and compete effectively.

Competition in the residential mortgage industry and real estate services business is intense. Plus,
the mortgage business has experienced substantial consolidation. Our competitors include banks,
thrifts, credit unions, real estate brokerage firms, mortgage brokers, asset management companies, and
mortgage banking companies. Several of our competitors enjoy advantages, including greater financial
resources and access to capital, a wider geographic presence, more accessible branch office locations,
more aggressive marketing campaigns, better brand recognition, the ability to offer a wider array of
services or more favorable pricing alternatives, as well as lower origination and operating costs. To
compete effectively, we must have a very high level of operational, technological, and managerial
expertise, as well as access to capital at a competitive cost. As a result of reduced access to capital,
general housing trends, rising delinquencies and defaults and other factors, many mortgage and real
estate services firms have recently experienced severe financial difficulty, with some exiting the business
or filing for bankruptcy protection, resulting in a consolidation of companies in such industries. The
dominance of a limited number of companies has created greater competition and to the extent that we
cannot compete effectively, it may adversely affect our business operations and financial performance.

Our loss of approvals with, or the potential limitation or wind-down of, the role Ginnie Mae, Fannie
Mae and Freddie Mac play in the residential mortgage-backed security (MBS) market may
adversely affect our business, operations and financial condition.

We originate loans eligible for sale to Fannie Mae, Freddie Mac and government insured or
guaranteed loans, such as FHA, VA and USDA loans, and loans eligible for Ginnie Mae securities
issuance. We also service loans sold to the GSEs. We believe that having the ability to both sell loans
directly to these agencies and issue Ginnie Mae securities gives us an advantage in the overall mortgage
origination market. In 2008, the GSEs were placed in a conservatorship by the U.S. government. The
Obama Administration has delivered a report to Congress regarding proposals to reform the housing
finance market in the United States. The report, among other things, outlined various potential proposals
to wind down Ginnie Mae or Fannie Mae and Freddie Mac and reduce or eliminate over time the role of
the GSEs in guaranteeing mortgages and purchasing mortgage loans, as well as proposals to implement
reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the
maximum size of a loan that the GSEs can purchase, phasing-in a minimum down payment requirement
for borrowers, improving underwriting standards, and increasing accountability and transparency in the
securitization process. During 2011, the Treasury issued a White Paper titled ‘‘Reforming America’s
Housing Finance Market’’ (or the White Paper) that lays out, among other things, proposals to limit or
potentially wind down the role that Fannie Mae and Freddie Mac play in the mortgage market. There
have also been discussions concerning the ability or right of the GSEs to limit the amount of loans a
company can sell to them based upon the company’s net worth. This could negatively impact our

growth. Most recently, the acting director of the Federal Housing Finance Agency announced that
Fannie Mae and Freddie Mac will create a new business entity to create a single securitization platform
as they plan for a future, which may include a future where the two companies may no longer exist. Any
such proposals, if enacted, may have broad adverse implications for the MBS market and our business,
operations and financial condition.

In addition, in 2008 the U.S. Treasury (among other initiatives) entered into agreements with each
of the GSEs to ensure that they maintain a positive net worth. Those agreements also require the
reduction of Fannie Mae’s and Freddie Mac’s mortgage and mortgage-backed securities portfolios. In
August 2012, the Treasury Department amended its agreements to provide that the GSEs’ portfolios will
be wound down at an annual rate of 15% (up from the previously agreed annual rate of 10%), requiring
the GSEs to reach the $250 billion target four years earlier than previously planned.

We also service loans on behalf of Fannie Mae and Freddie Mac, as well as loans that have been
delivered into securitization programs sponsored by Ginnie Mae in connection with the issuance of
agency guaranteed mortgage-backed securities. These entities establish the base service fee to
compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed
upon us for failing to meet servicing standards.

The extent and timing of any regulatory reform regarding the GSEs and the home mortgage
market, as well as any effect on Impac’s business operations and financial results, are uncertain. We
expect such proposals to be the subject of significant discussion and it is not yet possible to determine
whether such proposals will be enacted and, if so, when, what form any final legislation or policies might
take or how proposals, legislation or policies may impact the MBS market and our business, operations
and financial condition. Our inability to make the necessary changes to respond to these changing
market conditions or loss of our approved seller/servicer status with the GSEs would have a material
adverse effect on our mortgage lending operations and our financial condition, results of operations and
cash flows. If those agencies cease to exist, wind down, or otherwise significantly change their business
operations or if we lost approvals with those agencies, our ability to profitably sell the loans could be
affected and our profitability, business, operations and financial condition may be adversely affected.

We may become, and in some cases are, a defendant in lawsuits, some of which may be class
action matters, and we may not prevail in these matters.

Individual and class action lawsuits and regulatory actions alleging improper marketing practices,
abusive loan terms and fees, disclosure violations and other matters are risks faced by all mortgage
originators. We are a defendant in purported class actions pending in different states and could be
named in other matters. Some of the actions allege generally that the loan originator (whether or not
Impac) improperly charged fees in violation of various state lending or consumer protection laws in
connection with mortgages that we acquired while others allege that our lending practice was a statutory
violation, an unlawful business practice, an unfair business practice or a breach of a contract. They
generally seek unspecified compensatory damages, punitive damages, pre- and post-judgment
interest, costs and expenses and rescission of the mortgages, as well as a return of any improperly
collected fees. We are also subject to a purported class action lawsuit relating to the tender of our
preferred stock that is seeking cumulative dividends and the election of two directors by the preferred
holders. We will incur defense costs and other expenses in connection with the lawsuits, and we cannot
assure you that the ultimate outcome of these or other actions will not have a material adverse effect on
our financial condition or results of operations. In addition to the expense and burden incurred in
defending any of these actions and any damages that we may suffer, our management’s efforts and
attention may be diverted from the ordinary business operations in order to address these claims. Plus,
we may be deemed in default of our warehouse lines if a judgment for money that exceeds specified
thresholds is rendered against us. If the final resolution of this litigation is unfavorable to us in any of

these actions, our financial condition, results of operations and cash flows might be materially adversely
affected.

There is recent litigation in the mortgage industry related to securitizations against issuers,
sellers, originators, underwriters and others that may adversely affect our business operations.

As defaults, delinquencies, foreclosures, and losses in the real estate market continue, there have
been recent lawsuits by various investors, insurers, underwriters and others against various participants
in securitizations, such as sponsors, depositors, underwriters, and loan sellers. Some lawsuits have
alleged that the mortgage loans had origination defects, that there were misrepresentations made about
the mortgage loans and the parties failed to properly disclose the quality of the mortgage loans or
repurchase defective loans or that there were other misrepresentations or lack of representations. There
have been claims related to our securitizations contending errors or misrepresentations in the
securitization documents or process itself. Recently a court made a ruling in three such circumstances
and as a result we may be subject to claims by third parties. Historically, we both securitized and sold
mortgage loans to third parties that may have been deposited or included in pools for securitizations. We
have received notices of claims for indemnification relating to mortgage-backed security bond issues,
originated or sold by the Company from Countrywide, UBS, Wilmington Trust, Deutsche Bank and
Merrill Lynch. The claims seek indemnification from claims asserted against them in various actions in
which we are not parties. The notices each seek indemnification for all losses, liabilities, damages and
legal fees and costs incurred in those actions. We also received a demand to cover losses on the
purchase of mortgage-backed securities. In connection with these potential claims, we may become
subject to litigation related to the securitizations. As a result, we may incur significant legal and other
expenses in defending against claims and litigation and we may be required to pay settlement costs,
damages, penalties or other charges which could adversely affect our financial results.

Growth may place significant demands on our management and our infrastructure.

We have recently experience growth in our mortgage lending operations. For our operations to
continue to grow in size, scope and complexity, we will need to improve and upgrade our systems and
infrastructure to meet the demands and maintain efficiency of our business. Continued growth could
strain our ability to maintain reliable service levels, develop and improve our operational, financial and
management controls, enhance our reporting systems and procedures and recruit, train and retain highly
skilled personnel. Managing our growth will require significant expenditures and allocation of valuable
management resources. If we fail to achieve the necessary level of efficiency in our organization as it
grows, our business would be harmed.

Our share prices have been and may continue to be volatile, and the trading of our shares may be
limited.

The market price of our securities has been volatile. We cannot guarantee that a consistently
active trading market for our securities will continue. In addition, there can be no assurances that such
markets will continue or that any shares which may be purchased may be sold without incurring a loss.
Any such market price of our shares may not necessarily bear any relationship to our book value, assets,
past operating results, financial condition or any other established criteria of value, and may not be
indicative of the market price for the shares in the future. The market price of our securities is likely to
continue to be highly volatile and could be significantly affected by factors including:

(cid:127) unanticipated fluctuations in our operating results;

(cid:127) general market and mortgage industry conditions;

(cid:127) mortgage and real estate fees;

(cid:127) delinquencies and defaults on outstanding mortgages;

(cid:127) loss severities on loans and REO;

(cid:127) prepayments on mortgages;

(cid:127) valuations of securitization related assets and liabilities;

(cid:127) mark to market adjustments related to the fair value of loans held-for-sale, mortgage servicing

rights, long-term debt and derivatives;

(cid:127) interest rates; and

(cid:127) litigation.

During 2012, our common stock reached an intra-day high sales price of $18.00 on
November 12th, and an intra-day low sales price of $1.93 on July 20th. As of March 6, 2013, our stock
price closed at $11.39 per share. In addition, significant price and volume fluctuations in the stock
market have particularly affected the market prices for the securities of mortgage companies such as
ours. Furthermore, general conditions in the mortgage industry may adversely affect the market price of
our securities. These broad market fluctuations have adversely affected and may continue to adversely
affect the market price of our securities. If our results of operations fail to meet the expectations of
security analysts or investors in a future quarter, the market price of our securities could also be
materially adversely affected and we may experience difficulty in raising capital.

If we fail to maintain effective systems of internal control over financial reporting and disclosure
controls and procedures, we may not be able to report our financial results accurately or prevent
fraud, which could cause current and potential stockholders to lose confidence in our financial
reporting, adversely affect the trading price of our securities or harm our operating results.

Effective internal control over financial reporting and disclosure controls and procedures are
necessary for us to provide reliable financial reports and effectively prevent fraud and operate
successfully as a public company. Any failure to develop or maintain effective internal control over
financial reporting and disclosure controls and procedures could harm our reputation or operating
results, or cause us to fail to meet our reporting obligations. We cannot be certain that our efforts to
improve or maintain our internal control over financial reporting and disclosure controls and procedures
will be successful or that we will be able to maintain adequate controls over our financial processes and
reporting in the future. Any failure to develop or maintain effective controls or difficulties encountered in
their implementation or other effective improvement of our internal control over financial reporting and
disclosure controls and procedures could harm our operating results, or cause us to fail to meet our
reporting obligations. If we are unable to adequately establish or maintain our internal control over
financial reporting, our external auditors will not be able to issue an unqualified opinion on the
effectiveness of our internal control over financial reporting. In the past, we have reported, and may
discover in the future, material weaknesses in our internal control over financial reporting.

Ineffective internal control over financial reporting and disclosure controls and procedures could
cause investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our securities or affect our ability to access the capital markets and could
result in regulatory proceedings against us by, among others, the SEC. In addition, a material weakness
in internal control over financial reporting, which may lead to deficiencies in the preparation of financial
statements, could lead to litigation claims against us. The defense of any such claims may cause the

diversion of management’s attention and resources, and we may be required to pay damages if any such
claims or proceedings are not resolved in our favor. Any litigation, even if resolved in our favor, could
cause us to incur significant legal and other expenses or cause delays in our public reporting. Such
events could harm our business, affect our ability to raise capital and adversely affect the trading price of
our securities.

We may not be able to access financing sources on favorable terms, or at all, which could
adversely affect our ability to implement and operate our business as planned.

Future financing sources may include borrowings in the form of bank credit facilities (including
term loans and revolving facilities), repurchase agreements, warehouse facilities, structured financing
arrangements, public and private equity and debt issuances and derivative instruments, in addition to
transactions or asset specific funding arrangements. Our access to sources of financing depends upon
a number of factors of which some we have little or no control, including general market conditions,
resources and policies or lenders. Under current market conditions, many forms of structured financing
arrangements are generally unavailable, which also have limited borrowings under warehouse and
repurchase agreements that are intended to be refinanced by such financings. In addition, if regulatory
capital requirements imposed on our private lenders change, they may be required to limit, or increase
the cost of, financing they provide to us. In general, this could potentially increase our financing costs
and reduce our liquidity. Consequently, the expansion of our mortgage lending operations may be
dictated by the cost and availability of financing, specifically warehouse facilities. Depending on market
conditions at the relevant time, we may have to rely more heavily on additional equity issuances, which
may be dilutive to our shareholders, or on less efficient forms of debt financing that require a larger
portion of our cash flow from operations, thereby reducing funds available for our operations and future
business opportunities. We cannot assure you that we will have access to such equity or debt capital on
favorable terms (including, without limitation, cost and term) at the desired times, or at all, which could
negatively affect our results of operations.

Deteriorating mortgage market conditions have had and may continue to have a material adverse
effect on our earnings and financial condition.

Our results of operations are materially affected by conditions in the mortgage and real estate
markets, the financial markets and the economy generally. Beginning in 2007, the mortgage industry and
the single-family residential housing markets, and to a lesser extent multifamily residential housing
markets, were adversely affected as home prices declined and delinquencies and defaults significantly
increased. Borrowers have found it difficult to refinance due to home price depreciation and lenders
tightened their underwriting guidelines, which has led to further increases in defaults and credit losses.
During 2012, the Company continued to be significantly and negatively affected by the deteriorating real
estate market and the weak economic environment. As a result, non-conforming mortgage loans have
not performed up to historical expectations, and the fair value of non-conforming mortgage loans has
deteriorated. This, in turn, has resulted in declining revenues and increased expenses associated with
the long-term mortgage portfolio, including significant increases in loan losses and impairment charges,
losses sustained in the operation of real estate properties acquired in foreclosure proceedings and
foreclosure related professional fees. These factors have led to deterioration in the quality of the
Company’s long-term mortgage portfolio, as evidenced by the delinquencies, foreclosures and credit
losses.

The adverse market conditions have affected our mortgage loan delinquencies and REO in the
long-term mortgage portfolio. At December 31, 2012, the Company’s long-term mortgage portfolio had
22.8% or $2.0 billion of loans that were 60 days or more delinquent, included in continuing and
discontinued operations, compared to 21.6% or $2.1 billion at December 31, 2011. REO decreased

60% to $22.5 million at December 31, 2012 as compared to $56.5 million at December 31, 2011 and we
incurred losses from REO of $13.2 million for the year ended December 31, 2012 compared to
$16.6 million for the previous year. These losses are in the nonrecourse securitization trusts but could
result in reduced cash flows from the Company’s residual interests in respective securitizations. These
conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the
future.

The disruption in the capital markets and secondary mortgage markets has also reduced liquidity
and investor demand for mortgage loans and mortgage backed securities, while yield requirements for
these products have increased. Continuing concerns about the declining real estate market, as well as
inflation, energy costs, geopolitical issues and the availability and cost of credit, have contributed to
increased volatility and diminished expectations for the economy and markets going forward. The
mortgage market has been severely affected by changes in the lending landscape and there is no
assurance that these conditions have stabilized or that they will not worsen. These unprecedented
disruptions and deterioration of the mortgage market have had, and may continue to have, an adverse
effect on the Company’s results of operations and financial condition.

Violation of various federal, state and local laws may result in financial losses.

We are subject to federal, state and local laws and regulations related to the mortgage industry
that generally regulate interest rates and other charges, require certain disclosure, and require applicable
licensing. In addition, other state and local laws, public policy and general principles of equity relating to
the protection of consumers, unfair and deceptive practices and debt collection practices may apply to
the origination, servicing and collection of our loans. Violations of certain provisions of these federal and
state laws and regulations may limit our ability to collect all or part of the principal of or interest on the
loans and in addition could subject us to damages and could result in the mortgagors rescinding the
loans whether held by us or subsequent holders of the loans. In addition, such violations could cause us
to be in default under our credit and repurchase lines and could result in the loss of licenses held by us.

Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act contains the
Mortgage Reform and Anti-Predatory Lending Act (‘‘Mortgage Act’’), which imposes a number of
additional requirements on lenders and servicers of residential mortgage loans, including Impac, by
amending certain existing provisions and adding new sections to TILA, RESPA, and other federal laws. It
also broadly prohibits unfair, deceptive or abusive acts or practices, and knowingly or recklessly
providing substantial assistance to a covered person in violation of that prohibition. The penalties for
noncompliance with these laws are also significantly increased by the Mortgage Act, which could lead to
an increase in lawsuits against mortgage lenders and servicers.

Our performance may be adversely affected by the performance of parties who service or
sub-service our mortgage loans.

We contract with third parties for the servicing of our mortgage loans in our long-term mortgage
portfolio, for which we are the master servicer, and the servicing portfolio in our mortgage lending
operations. Our operations, performance and liabilities are subject to risks associated with inadequate
or untimely servicing. If a sub-servicer defaults or fails to perform to certain standards then this can be
deemed to be a default or failure by us to perform those duties or functions. If we, or our servicers,
commit a material breach of our obligations as a servicer or master servicer, we may be subject to
damages or termination if the breach is not cured within a specified period of time following notice,
causing us to lose servicing income. In addition, we may be required to indemnify the investor or
securitization trustee against losses from any failure by us, as master servicer or on behalf of the servicer,
to perform the servicing obligations properly. If, as a result of a servicer or sub-servicer’s failure to
perform adequately, we were terminated as servicer by an investor or master servicer of a securitization,
the value of any servicing or master servicing rights held by us could be adversely affected. Also, this
could affect the cash flow generated by our servicing rights portfolio.

Poor performance by a sub-servicer may result in greater than expected delinquencies and
foreclosures and losses on our mortgage loans or, in the case of our long-term mortgage portfolio, in our
resulting exposure to investors, bond holders, bond insurers or others to whom we are responsible for
the performance of our loan servicers. A substantial increase in our delinquency or foreclosure rate could
adversely affect our ability to access the capital and secondary markets for our financing needs. With
respect to our long-term mortgage portfolio, greater delinquencies would adversely affect the value of
our residual interests, if any, we hold in connection with that securitization.

One of the primary sub-servicers of our long-term mortgage portfolio recently transferred the
servicing rights and obligations to a third party. It is not unusual that whenever servicing is transferred,
delinquencies increase often due to the borrower misunderstanding of the transfer and delays caused by
payments being sent to the wrong servicer. This could increase delinquencies and as such adversely
affect the performance of our securities and the value of our residual interests.

New regulatory laws affecting our operations may affect our ability to expand our mortgage
lending operations.

Changes to the laws, regulations or regulatory policies can affect whether and to what extent we
may be able to expand our mortgage lending activities. Many states and local governments and the
Federal government have enacted, or may enact laws, or regulations that restrict or prohibit some
provisions in some programs or businesses that we currently participate in or plan to participate in the
future. As such, we cannot be sure that in the future we will be able to engage in activities that were
similar to those we engaged or participated in the past thereby limiting ability to commence new
operations. As a result, we might be at a competitive disadvantage which would affect our operations
and profitability.

For example, the Consumer Financial Protection Bureau recently finalized its rulemaking
implementing strict residential mortgage loan underwriting standards enacted under the Dodd-Frank
Act. The Act and that rulemaking impose significant liability for violation of those underwriting standards,
and offer certain protection from that liability only for loans that comply with tight limitations on upfront
fees and that do not contain certain alternative features (like balloon payments). Those requirements,
which become effective in 2014, may affect our ability to originate residential mortgage loans or the
profitability of those operations.

Non-conforming mortgage loans in the long-term mortgage portfolio may expose us to a higher
risk of delinquencies, foreclosures and losses adversely affecting our earnings and financial
condition.

Our long-term mortgage portfolio includes non-conforming single-family and multifamily
mortgage loans. These are mortgages that generally did not qualify for purchase by government-
sponsored agencies such as Fannie Mae and Freddie Mac. The performance of the long-term mortgage
portfolio has been negatively affected by the losses from these mortgages. Credit risks associated with
these mortgages may be greater than those associated with conforming mortgages. Mortgages made to
these borrowers generally entail a higher risk of delinquency and higher losses than mortgages made to
borrowers who utilize conventional mortgage sources. Delinquency, foreclosures and losses generally
increase during economic slowdowns or recessions. The actual risk of delinquencies, foreclosures and
losses on mortgages made to these borrowers are higher under current economic conditions than those
in the past. Additionally, the combination of different underwriting criteria and higher rates of interest
leads to greater risk, including higher prepayment rates and higher delinquency rates and /or credit
losses. The long-term mortgage portfolio also contains loans that are interest only. If there is a decline in
real estate values, as recently seen, borrowers may default on these types of loans since they have not
reduced their principal balances, which, therefore, could exceed the value of their property. In addition, a

reduction in property values would also cause an increase in the loan-to-value (LTV) ratio for that loan
which could have the effect of reducing the value of the property collateralized by that loan, reducing the
borrowers’ equity in their homes to a level that would increase the risk of default.

Losses from defaulted loans may be higher than anticipated because we did not obtain mortgage
insurance or if the mortgage insurance company is insolvent.

Certain securitization trusts in the long term mortgage portfolio do not have credit enhancements
such as mortgage pool insurance for all of the mortgages and mortgage investments. Generally, the
Company required mortgage insurance on any first mortgage with an LTV ratio greater than 80%. During
the time we hold mortgages for investment, we are subject to risks of borrower defaults and
bankruptcies and special hazard losses that are not covered by standard hazard insurance. If a borrower
defaults on a mortgage that we hold, we bear the risk of loss of principal to the extent there is any
deficiency between the value of the related mortgaged property and the amount owing on the mortgage
loan and any insurance proceeds available to us through the mortgage insurer. Also, to the extent we
have mortgage insurance coverage, we may bear the risk of the insurance carriers rescinding such
insurance under the terms of the policy, or not being able to make the required payments which will
increase losses on foreclosures.

Representations and warranties made by us in our loan sales and securitizations may subject us
to liability.

In connection with our previous non-conforming loan sales to third parties and our prior
securitizations, we transferred mortgages acquired and originated by us to third parties or into a trust in
exchange for cash and, in the case of a securitized mortgage, residual certificates issued by the trust.
The trustee, purchaser, bondholder, or other entities involved in the issuance of the securities (which may
include bond insurers) may have recourse to us with respect to the breach of the representations, and
warranties made by us at the time such mortgages are transferred or when the securities are sold. Those
representations and warranties may include, but are not limited to, issues such as the validity of the lien,
the absence of liens or delinquent taxes, the validity of the appraisal obtained in conjunction with the
loan, the truthfulness of information used in the loan approval process, the loans compliance with all
local, state and federal laws, the delivery of all documents required to perfect title to the lien, the loan
meeting all underwriting criteria and the selection process used to include the loans in any particular
transaction. Also, engage in bulk whole loan sales pursuant to agreements that generally provide for
recourse by the purchaser against us in the event of a breach of one of our representations or warranties,
any fraud or misrepresentation during the mortgage origination process, or upon early default on such
mortgage. We attempt to limit the potential remedies of such purchasers to the potential remedies we
received from those from whom we acquired or originated the mortgages. However, many of the entities
we acquired loans from in the past are no longer in business. In some cases, the remedies available to a
purchaser of mortgages from us may be broader or extend longer than those available to us against
others whom have sold mortgage loans to us and should a purchaser enforce its remedies against us,
we are not always able to enforce whatever remedies we have against others. Furthermore, if we
discover, prior to the sale or transfer of a loan, that there is any fraud or misrepresentation with respect to
the mortgage and the originator fails to repurchase the mortgage, then we may not be able to sell the
mortgage or we may have to sell the mortgage at a discount.

The Company’s long-term mortgage portfolio contains significant interest rate risks that are not
currently hedged by the Company.

The cash flows from residual interests in certain securitization trusts are contingent upon various
factors including the interest income collected on the loans in the trusts in excess of the interest expense

paid to respective bondholders. These cash flows are distributed to the residual interest holder after the
required interest and principal payments are made to the bondholders. Interest rates on the bonds
usually adjust monthly with changes primarily in one-month London Inter-bank Offering Rate (also
known as LIBOR). Derivatives instruments (primarily interest rate swap agreements) inside the
securitization trusts initially entered into were designed to offset the risk of movements in LIBOR that
created the adverse effect of the interest income collected on the loans being less than interest expense
paid to the respective bondholders. However, many of these derivatives agreements have maturities less
than the maturities of the loans. Therefore, increases in LIBOR rates could significantly reduce the future
cash flows we receive from the retained interests in these securitization trusts. The amount of the
remaining derivatives instruments is not sufficient to fully protect the residual cash flows from increases
in LIBOR. The Company does not have the ability to change the derivatives instruments inside the trusts
and does not currently hedge this interest rate risk with derivatives instruments outside the securitization
trusts. As a result of not fully hedging interest rate risks, the Company’s future residual cash flows could
be significantly affected by rising LIBOR rates.

The geographic concentration of our mortgages increases our exposure to risks in those areas.

We do not set limitations on the percentage of mortgages composed of properties located in any
one area (whether by state, zip code or other geographic measure). Concentration in any one area
increases our exposure to the economic and natural hazard risks associated with that area. A majority of
our mortgage acquisitions and originations and mortgages held in our long-term mortgage portfolio are
secured by properties in California and, to a lesser extent, Florida, Washington and Oregon. These states
have experienced, and may experience in the future, an economic downturn and California and Florida
have also suffered the effects of certain natural hazards. As a result of the economic downturn, real
estate values in California and Florida have decreased drastically and may continue to decrease in the
future, which could have a material adverse effect on our results of operations or financial condition. In
addition, Florida is among several states with higher than average costs for investors in circumstances of
mortgage default and foreclosure, since the foreclosure process takes significantly longer than average.
Accordingly, to the extent the mortgages we originate or are held in our long-term mortgage portfolio
experience defaults or foreclosures in that area, we may be exposed to higher losses.

Furthermore, if borrowers are not insured for natural disasters, which are typically not covered by
standard hazard insurance policies, then they may not be able to repair the property or may stop paying
their mortgages if the property is damaged. This would cause increased foreclosures and decrease our
ability to recover losses on properties affected by such disasters. This would have a material adverse
effect on our results of operations or financial condition.

Loss of our current executive officers or other key management could significantly harm our
business.

We depend on the diligence, skill and experience of our senior executives, including our chief
executive officer and president. We believe that our future results will also depend in part upon our
attracting and retaining highly skilled and qualified management. We seek to compensate our executive
officers, as well as other employees, through competitive salaries, bonuses and other incentive plans,
but there can be no assurance that these programs will allow us to retain key management executives or
hire new key employees. The loss of our chief executive officer, president, or other senior executive
officers and key management could have a material adverse effect on our operations because other
officers may not have the experience and expertise to readily replace these individuals. Competition for
such personnel is intense, and we cannot assure you that we will be successful in attracting or retaining
such personnel. Furthermore, in light of our present financial condition, no assurance can be given that
we will retain these and other executive officers and key management personnel. To the extent that one

or more of our top executives or other key management personnel are no longer employed by us, our
operations and business prospects may be adversely affected. The loss of, and changes in, key
personnel and their responsibilities may be disruptive to our business and could have a material adverse
effect on our business, financial condition and results of operations.

A material difference between the assumptions used in the determination of the estimated fair
value of our residual interests in our long-term mortgage portfolio and our actual experience
could cause us to write down the value of these securities and could harm our liquidity and
financial condition.

We receive cash flows from the residual interests in the securitization trusts within our long-term
mortgage portfolio. Investments in residual interests and subordinated securities are much riskier than
investments in senior mortgage-backed securities because these subordinated securities bear credit
losses prior to the related senior securities. The risk associated with holding residual interests and
subordinated securities is greater than holding the underlying mortgage loans directly due to the
concentration of losses attributed to the subordinated securities. The value of residual interests
represents the present value of future cash flows expected to be received by us from the excess cash
flows created in the securitization transaction. In general, future cash flows are estimated by taking the
coupon rate of the loans underlying the transaction less the interest rate paid to the bond holders, less
contractually specified servicing and trustee fees, and after giving effect to estimated prepayments,
credit losses and over-collateralization requirements. We estimate future cash flows from these
securities and value them utilizing assumptions based in part on projected interest rates, delinquency,
mortgage loan prepayment speeds and credit losses. It is extremely difficult to validate the assumptions
we use in valuing our residual interests. Even if the general accuracy of the valuation model is validated,
valuations are highly dependent upon the reasonableness of our assumptions and the predictability of
the relationships which drive the results of the model. Such assumptions are complex as we must make
judgments about the effect of matters that are inherently uncertain. If our actual experience differs from
our assumptions, we could be required to reduce the value of these residual interests and securities.
Furthermore, if our actual experience differs materially from these assumptions, our cash flow, financial
condition, results of operations and liquidity may be harmed.

A failure in or breach of our technology infrastructure, or the systems operated by our third-party
service providers, to protect confidential information of borrowers could damage our reputation
and substantially harm our business.

We, or our third party service providers, maintain certain confidential information relating to our
borrowers for mortgage loans. If the information is maintained electronically, we rely on encryption and
authentication technology licensed from third parties to effect secure transmission of confidential
information, including personal information and credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments may result in a
compromise or breach of the technology used by us to protect customer transaction data. We may also
be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with
our computer systems, which could lead to loss of critical data or the unauthorized disclosure of
confidential borrower data. The possession and use of personal information in conducting our business
subject us to legislative and regulatory burdens that may require notification to customers of a security
breach, restrict our use of personal information and hinder our ability to operate our mortgage lending
business. A failure in or breach of the security of our information systems, or those of our service
providers, could result in damage to our reputation and harm our business.

We are subject to risks of operational failure that are beyond our control.

Substantially all of our operations are located in Irvine, California and we have recently established
operations in Lake Oswego, Oregon and, to a lesser extent, other areas within the U.S. Our systems and
operations are vulnerable to damage and interruption from fire, flood, telecommunications failure,
break-ins, earthquake and similar events. Our operations may also be interrupted by power disruptions.
Furthermore, our security mechanisms may be inadequate to prevent security breaches to our computer
systems, including from computer viruses, electronic break-ins and similar disruptions. Such security
breaches or operational failures could expose us to liability, impair our operations, result in losses, and
harm our reputation.

Our ability to utilize our net operating losses and certain other tax attributes may be limited.

At the end of our 2012 taxable year, we had net operating loss (NOL) carry-forwards of
approximately $489.4 million for federal income tax purposes and approximately $419.0 million for state
income tax purposes. During the year ended December 31, 2012, estimated net operating loss carry-
forwards were reduced as a result of the Company generating taxable income from cancellation of debt
for approximately $12.0 million of securitized mortgage borrowings. Although, under existing tax rules,
we are generally allowed to use those NOL carry-forwards to offset taxable income in subsequent
taxable years, our ability to use those NOL carry-forwards to offset income may be severely limited to the
extent that we experience an ownership change within the meaning of Section 382 of the Internal
Revenue Code. These provisions could also limit our ability to deduct certain losses (built-in losses) we
recognize after an ownership change with respect to assets we own at the time of the ownership change.
In general, an ownership change, as defined by Section 382, results from transactions increasing
ownership of certain stockholders or public groups in our stock by more than 50% over a three-year
period. In addition, the generation of taxable income from cancellation of debt may further reduce the
NOL. Any limitation on our NOL carry-forwards that could be used to offset taxable income would
adversely affect our liquidity and cash flow, as and when we become profitable. However, we may not
generate sufficient taxable income in future periods to be able to realize fully the tax benefits of our NOL
carry-forwards.

We do not expect to pay dividends in the foreseeable future and we may be restricted in paying
dividends on our common stock.

We do not anticipate paying any dividends on our common stock in the foreseeable future and we
intend to retain any future earnings for funding growth. We may also be restricted in paying dividends on
our common stock. For example, our existing and any future warehouse facilities may contain covenants
prohibiting dividend payments upon an occurrence of a default or otherwise. Furthermore, if we receive
an adverse judgment on the purposed class action relating to our preferred stock and the Company is
required to pay dividends on the preferred stock, we will be prohibited from paying dividends on our
common stock until such preferred stock dividends are paid. As a result, you should not rely on an
investment in our stock if you require dividend income. Capital appreciation, if any, of our stock may be
your sole source of gain for the foreseeable future.

Issuances of additional shares of our common stock may adversely affect its market price and
significantly dilute stockholders.

In order to support our business objectives, we may raise capital through the sale of equity. We
may also issue shares of common stock to settle outstanding obligations and liabilities. The issuance or
sale, or the proposed sale, of substantial amounts of our common stock in the public market could
materially adversely affect the market price of our common stock or other outstanding securities. We do
not know the actual or perceived effect of these issuances, the timing of any offerings or issuances of

securities, the potential dilution of the book value or earnings per share of our securities then
outstanding and the effect on the market price of our securities then outstanding.

Our operations may be adversely affected if we are subject to the Investment Company Act.

We intend to conduct our business at all times so as not to become regulated as an investment
company under the Investment Company Act. The Investment Company Act exempts entities that are
primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on
and interests in real estate.

In order to qualify for this exemption we must maintain at least 55% of our assets directly in
mortgages, qualifying pass-through certificates and certain other qualifying interests in real estate. Our
ownership of certain mortgage assets may be limited by the provisions of the Investment Company Act,
should we ever be subject to the Act. If the SEC adopts a contrary interpretation with respect to these
securities or otherwise believes we do not satisfy the above exception, we could be required to
restructure our activities or sell certain of our assets. To insure that we continue to qualify for the
exemption we may be required at times to adopt less efficient methods of financing certain of our
mortgage assets and we may be precluded from acquiring certain types of higher-yielding mortgage
assets. The net effect of these factors will be to lower our net interest income. If we fail to qualify for
exemption from registration as an investment company, our ability to use leverage would be
substantially reduced, and we would not be able to conduct our business as described. Our business
will be materially and adversely affected if we fail to qualify for this exemption.

If we are forced to liquidate, we may have few unpledged assets for distribution to unsecured
creditors or equity holders.

In the event we are forced to liquidate, the majority of our assets are either collateral for specific
borrowings or pledged as collateral for secured liabilities. We may have few remaining assets available
for unsecured creditors and equity holders.

Provisions in our charter documents and Maryland law impose limitations that may delay or
prevent our acquisition by a third party.

Our charter and bylaws contain provisions that may make it more difficult for a third party to
acquire control of us without the approval of our board of directors. These provisions include, among
other things, advance notice for raising business or making nominations at meetings and blank check
preferred stock that allows our board of directors, without stockholder approval, to designate and issue
additional series of preferred stock with rights and terms as our board of directors may determine,
including rights to dividends and proceeds in a liquidation that are senior to our common stock.

We are also subject to certain provisions of the Maryland General Corporation Law, which could
delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might
otherwise result in our stockholders receiving a premium over the price for their common stock or may
otherwise be in the best interests of our stockholders. This includes the ‘‘business combinations’’ statute
that prohibits transactions between a Maryland corporation and ‘‘interested stockholders,’’ which is any
person who beneficially owns 10% or more of the voting power of our then-outstanding voting stock for
a period of five years unless the board of directors approved the transaction prior to the party’s
becoming an interested stockholder. The five-year period runs from the most recent date on which the
interested stockholder became an interested stockholder. The law also requires a super majority
stockholder vote for such transactions after the end of the five-year period.

Maryland law also provides that ‘‘control shares’’ of a Maryland corporation acquired in a ‘‘control
share acquisition’’ have no voting rights except to the extent approved by a vote of two-thirds of the
shares eligible to vote. The control share acquisition statute would not apply to shares acquired in a
merger, consolidation or share exchange if we were a party to the transaction. The control share
acquisition statute could have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best
interests.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our primary executive and administrative offices are located at 19500 Jamboree Road, Irvine,
California 92612 where we have a premises lease expiring in November 2016. We have two options to
extend the term for five-year periods for each option. The premises consist of a seven-story building
containing approximately 210,000 square feet with an initial annual rental rate of $31.80 per square foot,
which amount increases every 30 months since commencement of the lease in October 2006. As of
December 31, 2012, the Company has subleased approximately 62,000 square feet of our corporate
headquarters. We also have a lease for our operations fulfillment center in Lake Oswego, Oregon
occupying approximately 20,000 square feet that expires in October 2015.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in or a party to a number of legal actions or proceedings that arise in
the ordinary course of business. In some of these actions and proceedings, claims for monetary
damages are asserted against the Company. In view of the inherent difficulty of predicting the outcome
of such legal actions and proceedings, the Company generally cannot predict what the eventual
outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will
be, or what the eventual loss related to each pending matter may be, if any.

In accordance with FASB ASC 450, the Company establishes an accrued liability for litigation
when those matters present loss contingencies that are both probable and estimable. In any cases, there
may be an exposure to losses in excess of any such amounts whether accrued or not. Any estimated
loss is subject to significant judgment and is based upon currently available information, a variety of
assumptions, and known and unknown uncertainties. The matters underlying the estimated loss will
change from time to time, and actual results may vary significantly from the current estimate. Therefore,
an estimate of possible loss represents what the Company believes to be an estimate of possible loss
only for certain matters meeting these criteria. It does not represent the Company’s maximum loss
exposure. At December 31, 2012, the Company has a $6.1 million accrued liability recorded for such
estimated loss exposure as discussed below.

Based on the Company’s current understanding of these pending legal actions and proceedings,
management does not believe that judgments or settlements arising from pending or threatened legal
matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial
position, operating results or cash flows of the Company. However, in light of the inherent uncertainties
involved in these matters, some of which are beyond the Company’s control, and the very large or
indeterminate damages sought in some of these matters, an adverse outcome in one or more of these
matters could be material to the Company’s results of operations or cash flows for any particular
reporting period.

The legal matters summarized below are ongoing and may have an effect on the Company’s

business and future financial condition and results of operations:

On December 7, 2011, a purported class action was filed entitled Timm, v. Impac Mortgage
Holdings, Inc., et al. in the Circuit Court of Baltimore City alleging on behalf of holders of the Company’s
9.375% Series B Cumulative Redeemable Preferred Stock (Preferred B) and 9.125% Series C
Cumulative Redeemable Preferred Stock (Preferred C) who did not tender their stock in connection with
the Company’s 2009 completion of its Offer to Purchase and Consent Solicitation that the Company
failed to achieve the required consent of the Preferred B and C holders, the consents to amend the
Preferred stock were not effective because they were given on unissued stock (after redemption), the
Company tied the tender offer with a consent requirement that constituted an improper ‘‘vote buying’’
scheme, and that the tender offer was a breach of a fiduciary duty. The action seeks the payment of two
quarterly dividends for the Preferred B and C holders, the unwinding of the consents and reinstatement
of the cumulative dividend on the Preferred B and C stock, and the election of two directors by the
Preferred B and C holders. The action also originally sought punitive damages and legal expenses. On
January 28, 2013, the court dismissed all individual director and officer defendants from the case and
further dismissed the Second, Third and Fifth causes of action relating to an improper ‘‘vote buying’’
scheme, breach of fiduciary duty and punitive damages. The remaining causes of action against the
Company allege the Preferred B holders did not approve amendments to its Articles Supplementary and
the holders thereof seek to recover two quarters of dividends and to elect two members to the Board of
Directors of the Company.

On May 26, 2011, a matter was filed entitled Citigroup Global Markets, Inc. v. Impac Secured
Assets Corp. et al., in the U.S. District Court Central District of California wherein the plaintiff alleged a
violation of Section 18 and Section 20 of the Securities Act of 1933 and negligent misrepresentation,
pertaining to the issuance and sale of bonds from a securitization trust. The plaintiff alleged they relied
on certain documents filed with the Securities and Exchange Commission that were subsequently the
subject of an amended filing. On December 20, 2012, the parties entered into a settlement agreement
whereby the Company agreed to pay Citigroup an aggregate of $3.1 million within a 12-month period,
which can be paid in shares or cash and the Company may be required to true-up proceeds from sales of
shares with the issuance of additional shares to Citigroup. On January 24, 2013, the court approved the
settlement. In January 2013, the Company made an initial payment under the terms of the settlement
agreement of approximately $1.1 million with the issuance of 84,942 shares of common stock with
remaining payments to be made either in shares of common stock or cash, in the Company’s discretion,
during 2013.

On April 30, 2012, a purported class action was filed in the Superior Court of the State of California
entitled Marentes v. Impac Mortgage Holdings, Inc., alleging that certain loan modification activities of
the Company constitute an unfair business practice, false advertising and marketing, and that the fees
charged are improper. The complaint seeks unspecified damages, restitution, injunctive relief, attorney’s
fees and pre-judgment interest. On August 22, 2012, the plaintiff filed an amended complaint adding
Impac Funding Corporation as a defendant and on October 2, 2012, the plaintiff dismissed Impac
Mortgage Holdings, Inc., without prejudice. On December 27, 2012, the court granted IFC’s motion to
dismiss and on January 30, 2013, the plaintiffs appealed the court’s dismissal.

On June 27, 2000, a purported class action was filed in the U.S. District Court for the Western
District of Missouri entitled Gilmor, et al. v. Preferred Credit Corp., et. al., alleging the originator of various
second mortgage loans in Missouri and other assignees of the loans charged fees and costs in violation
of Missouri’s Second Mortgage Loan Act. The plaintiffs were seeking on behalf of themselves and the
members of the class, among other things, disgorgement or restitution of all improperly collected
charges, the right to rescind all affected loan transactions, the right to offset any finance charges, closing
costs, points or other loan fees paid against the principal amounts due on the loans if rescinded, actual

and punitive damages, and attorneys’ fees. The court granted the plaintiffs’ motion for class
certification. In December 2012, the parties entered into a settlement agreement whereby the Company
agreed to pay the plaintiffs the sum of $3.0 million and on March 6, 2013, the settlement was approved
by the court.

On October 16, 2012, a matter was filed in the Superior Court of the State of California, Orange
County entitled Deutsche Bank National Trust Company, in its individual capacity, and as Indenture
Trustee of Impac Secured Assets CMB Trust Series 1998-1, Impac CMB Trust Series 1999-2, 2000-2,
2001-4, 2002-1, and 2003-5, and Impac Real Estate Asset Trust Series 2006-SD1 v. Impac Mortgage
Holdings, Inc., et al. The action alleges the defendants owe the plaintiff indemnification for settlements
that the plaintiff allegedly entered into in connection with the Gilmor, et al. v. Preferred Credit Corp., et al.
matter described above. The plaintiff seeks declaratory and injunctive relief and unspecified damages.

On January 30, 2012, a Summons with Notice was filed in the Supreme Court of the State of New
York entitled Deutsche Zentral-Genossenschaftsbank AG New York Branch, dba DZ Bank AG, New York
Branch v. JP Morgan Chase & Co., et al. Named as a defendant in that action is Impac Secured Assets
Corp. (ISAC). On August 3, 2012, a Consolidated Complaint was filed in which the above matter was
consolidated with two other cases by the same plaintiff and DG Holding Trust. The Consolidated
Complaint alleges misrepresentations in connection with the marketing and sale of mortgage backed
securities issued by ISAC that the plaintiff purchased. The complaint seeks rescission, damages,
prejudgment interest, punitive damages, and attorney’s fees in an amount to be proven at trial. A motion
to dismiss has been filed, which is pending.

In October 2011 and November 2012, the Company received letters from Countrywide Securities
Corporation (Countrywide), Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), and UBS
Securities LLC (UBS) claiming indemnification relating to mortgage-backed securities bonds issued,
originated or sold by ISAC, IFC, IMH Assets Corp. and the Company. The claims seek indemnification
from claims asserted against Countrywide, Merrill Lynch, and UBS in specified legal actions entitled
American International Group Inc. v. Bank of America Corp., et al, in the United States District Court for
the Southern District of New York and Federal Home Loan Bank of Boston v. Ally Financial, Inc., et al, in
the United States District Court for the District of Massachusetts. The notices each seek indemnification
for all losses, liabilities, damages and legal fees and costs incurred in those actions. Further related to
these claims, the Company received a demand for claims relating to 12 residential mortgage backed
securities it purchased which the Company was depositor, sponsor, seller and/or originator. The
demanding party contends it has suffered losses on the securities and contends there were
misrepresentations and breaches of representations and warranties regarding the securities. In October
2012 and January 2013, Deutsche Bank issued indemnification demands to IFC for claims asserts
against them in the Superior Court of New York in a case entitled Royal Park Investments SA/NV v. Merrill
Lynch, et. al. and Sealink Funding Ltd. v. Deutsche Bank. In February 2013, the Company also received a
notice of intent to seek indemnification on behalf of Deutsche Bank AG, Deutsche Bank Securities, Inc.,
DB Structured Products, Inc., ACE Securities Corp and Deutsche Alt-A Securities, Inc. The claim relates
to an action filed against those entities in the Superior Court of New York.

On or about April 20, 2011, an action was filed with the American Arbitration Association entitled
Federal Home Loan bank of Boston v. Ally Financial Inc., et al, naming IMH Assets Corp, IFC, the
Company, and ISAC as defendants. The complaint alleges misrepresentations in the materials used to
market mortgage backed securities that the plaintiff purchased. The complaint seeks damages and
attorney’s fees in an amount to be established at time of trial. The case was removed to the United States
District Court for the District of Massachusetts and the defendants’ motion to dismiss is pending.

On or about November 27, 2012, a demand for arbitration was filed entitled Mortgage
Cadence, LLC v. Excel Mortgage Servicing, Inc., alleging the plaintiff provided a new loan origination

system to Excel and is seeking unpaid monthly payments of approximately $1.4 million and for usage
fees. The matter is presently set for arbitration on August 5, 2013.

We are a party to other litigation and claims which are normal in the course of our operations.
While the results of such other litigation and claims cannot be predicted with certainty, we believe the
final outcome of such matters will not have a material adverse effect on our financial condition or results
of operations.

The Company believes that it has meritorious defenses to the above claims and intends to defend
these claims vigorously and as such the Company believes the final outcome of such matters will not
have a material adverse effect on its financial condition or results of operations. Nevertheless, litigation is
uncertain and the Company may not prevail in the lawsuits and can express no opinion as to their
ultimate resolution. An adverse judgment in any of these matters could have a material adverse effect on
the Company’s financial position and results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND PURCHASES OF EQUITY SECURITIES

Our common stock is currently listed on the NYSE MKT under the symbol ‘‘IMH’’.

The following table summarizes the high, low and closing sales prices for our common stock for

the periods indicated:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

2.90
2.50
8.63
18.00

2012
Low

1.98
1.95
1.93
7.13

High

2011
Low

2.33
2.01
7.35
14.10

3.36
3.99
2.95
2.90

2.59
2.61
1.80
1.45

2.73
2.93
1.95
2.01

On March 6, 2013, the last quoted price of our common stock on the NYSE MKT was $11.39 per
share. As of March 6, 2013, there were 246 holders of record, including holders who are nominees for an
undetermined number of beneficial owners, of our common stock.

The Board of Directors of the Company authorizes in its discretion the payment of cash dividends
on its common stock, subject to an ongoing review of our profitability, liquidity and future operating cash
requirements. We and some of our subsidiaries are subject to restrictions under our warehouse
borrowings and long-term debt agreements on our ability to pay dividends if there is an event of default
or otherwise. Plus, certain debt arrangements require the maintenance of ratios and contain restrictive
financial covenants that could limit our ability, and the ability of our subsidiaries, to pay dividends. The
Board of Directors did not declare cash dividends on our common stock during the years ended
December 31, 2012 and 2011. We do not expect to declare or pay any cash dividends on our common
stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, we are not required to provide the information required by this

Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations contain
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. Refer to Item 1. ‘‘Business—Forward-Looking
Statements’’ for a complete description of forward-looking statements. Refer to Item 1. ‘‘Business’’ for
information on our businesses and operating segments.

Amounts are presented in thousands, except per share data or as otherwise indicated.

Market Conditions

Real estate activity showed some encouraging signs as the nationwide average of home prices
have appeared to hit a bottom and are starting to recover, although home prices continued to decline in
many parts of the U.S. during 2012 as evidenced below by the Standard & Poor’s Case-Shiller 10-City
Composite Home Price Index for December 2012. Home prices have stayed within a tight range over the
last three years. However, the trajectory of the index has turned sharply positive and increased 8.4%
since reaching its low in early 2012. Home sales continue on an upward trend with purchase applications
showing small but steady year over year growth. Some positive news indicates that December housing
starts reached the highest level in four years with both single family and multi-family starts finishing 2012
with significant increases. Single family starts saw a 23% increase in 2012 while multi-family housing
starts increased 38% for the year, according to the Mortgage Bankers Association. The trend is
expected to continue into 2013 as housing permits continued on an upward trajectory.

As housing continues to recover, increased competition will continue to effect margins and market
share for mortgage loan originators. While the average rate of a 30-year fixed rate mortgage tracked by
Freddie Mac has risen 0.25% from a record low in November, that’s less than half of the 0.54% increase
in a Bloomberg index of yields on the government-backed securities into which lenders package new
loans. This difference, known as the primary-secondary spread, is a gauge of the profitability of
originators. While the secondary spread reached an all-time high of 1.8% in September, it is expected
that the margin will begin to normalize in 2013 as new competitors enter the market and refinance
activity begins to decline.

As a result of the current conditions of the U.S. economy, short-term interest rates have been and
are expected to remain relatively low. In the December 2012 Federal Open Market Committee statement,
the Committee decided to replace their calendar approach, whereby rates were scheduled to stay low
until mid-2015, with numerical thresholds—To keep rates at low levels as long as the unemployment rate
remains above 6.5% and inflation is at 2.5% or less. The committee also decided to continue its program
to extend the average maturity of its holdings of securities as announced in September. The committee
is maintaining its existing policies of reinvesting from its holdings of agency debt and agency mortgage-
backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities
at auction. The combination of these actions may increase equity prices and has decreased mortgage
interest rates. Although the benefits of these actions are difficult to assess, the expectation is that they
will add to the current moderate pace of consumer spending and to the improving pace of new and
existing home purchases in 2013.

Selected Financial Results for 2012

The increase in our mortgage lending originations and servicing portfolio resulted in our mortgage
lending segment showing the most improvement and growth for the year of 2012 as compared to 2011
as shown below:

For the year ended December 31,

2012

2011

Net earnings
(loss)

Diluted
EPS

Net earnings
(loss)

Diluted
EPS

Mortgage Lending
Real Estate Services
Long-term Mortgage Portfolio

Continuing Operations
Income tax expense from
continuing operations

Continuing operations, net of

tax
Discontinued Operations, net

of tax

Net (loss) earnings

attributable to IMH

Continuing Operations

18,093
12,638
(17,313)

2.29
1.60
(2.19)

(11,258) $
19,134
(380)

13,418

1.70

7,496

1,244

0.16

1,194

12,174

1.54

6,302

(1.35)
2.29
(0.04)

0.90

0.14

0.76

(15,549)

(1.96)

(3,078)

(0.37)

(3,375) $

(0.42) $

3,224

0.39

(cid:127) The continuing operations, comprised of mortgage lending, real estate services and our
long-term mortgage portfolio, earned $1.54 per diluted share in 2012 as compared to $0.76 per
diluted share in 2011. The increase was primarily associated with the increase in net earnings
from mortgage lending activities due to the growth in both mortgage lending originations and
their related sales.

(cid:127) Earnings before tax from the mortgage lending segment increased to $18.1 million for the year
ended December 31, 2012, compared to a loss of $11.3 million for 2011 primarily due to the
increase in origination volumes and their related sales. The mortgage lending segment
originated $2.4 billion and sold $2.3 billion of loans during the year ended December 31, 2012,
as compared to $883.2 million and $823.4 million of loans originated and sold, respectively, in
2011. The increase in lending activities produced mortgage lending revenues of $73.1 million for
the year ended December 31, 2012, respectively, compared to $13.8 million for 2011.

(cid:127) Earnings before tax from the real estate services segment decreased to $12.6 million for the
year ended December 31, 2012, compared to earnings of $19.1 million for 2011 with the decline
due to the sale of the title insurance company in 2011 and a decrease in real estate service fees
associated with declining balances in the long-term mortgage portfolio.

(cid:127) Loss before tax from the long-term mortgage portfolio segment increased to $17.3 million for
the year ended December 31, 2012, compared to a loss of $380 thousand for 2011 primarily
due to the decrease in fair value of net trust assets. The change in fair value of the net trust
assets declined as a result of $10.3 million in residual cash flows received combined with
updated assumptions applied to certain securitization trusts within the long-term mortgage

portfolio at December 31, 2012 which assumptions are based on the expectation of an
acceleration of foreclosure liquidation losses in the near future.

Discontinued Operations

(cid:127) Loss from discontinued operations, net of tax, was $15.5 million for the year ended
December 31, 2012 compared to a loss of $3.1 million for 2011 due to $6.1 million in legal
settlements reached for two remaining legacy lawsuits, significant legal fees incurred during
2012 defending these matters and a $5.7 million increase in the repurchase reserve provision
related to the discontinued mortgage operations conducted by IFC.

Status of Operations

Today, we primarily have three operating segments: Mortgage Lending, Real Estate Services and

Long-Term Mortgage Portfolio (also collectively referred to as our continuing operations).

Mortgage Lending

Our mortgage lending business grew rapidly during 2011 and 2012. In 2012, all sources of
origination volume more than doubled from 2011. However, our correspondent channel achieved the
most significant growth as a percentage of total originations. To facilitate the growth, we expanded our
warehouse borrowing capacity. Additionally we were able to grow our servicing portfolio.

(in millions)
Originations
Servicing Portfolio (1)
Warehouse Capacity

For the year ended December 31,
2011
2012

% Change

2,419.7
2,177.2
217.5

883.2
605.4
87.5

174%
260%
149%

(1)

Includes approximately $513.2 million in unpaid principal balance of servicing sold but not
transferred as of December 31, 2012.

Our strategy is to expand our mortgage lending platform and generate attractive, risk-adjusted

returns for our stockholders over the long-term by:

(cid:127) maintaining our ability to sell mortgage loans directly to GSEs and issue government securities

through Ginnie Mae;

(cid:127) diversifying and increasing origination volumes of mortgage loans across all of our channels-

Retail, Wholesale and Correspondent;

(cid:127) increasing the proportion of purchase- money transactions as compared to re-financing

transactions in our mix of loan volume to help create more stable origination volumes;

(cid:127) expanding our product offering to include more products that are less sensitive to changing

interest rates and retain the mortgage servicing rights to those products;

(cid:127) increasing the brand awareness of our ‘‘Impac’’ brand through marketing and public relations

campaigns;

(cid:127) increasing our mortgage servicing portfolio with additional high credit quality and low coupon

conventional and government loans; and

(cid:127) increasing our operational efficiencies.

Our loan products primarily include conventional loans for Fannie Mae and Freddie Mac and

government loans insured by FHA, VA and USDA.

Originations by Loan Type:

(in millions)
Government (1)
Conventional (2)
Other

Total originations

Weighted Average FICO (3)
Weighted Average LTV (4)
Weighted Average Coupon
Average Loan Size

For the year ended December 31,
2011
2012

% Change

703.7
1,653.2
62.8

2,419.7

729
86.47
3.83
230,621

220.6
634.6
28.0

883.2

737
77.81
4.33
239,645

219%
161%
124%

174%

(1)
(2)
(3)
(4)

Includes government-insured loans including FHA, VA and USDA
Includes loans eligible for sale to Fannie Mae and Freddie Mac
FICO—Fair Isaac Company credit score
LTV—loan to value—measures ratio of loan balance to estimated property value based upon third
party appraisal

We expect to continue originating conventional and government-insured loans as we believe that
having the ability to sell loans direct to GSEs and issue Ginnie Mae securities makes us more competitive
with regard to products, pricing, operational efficiencies and overall recruitment of high quality loan
originators.

In 2012, our mortgage lending channels that experienced the largest percentage of growth were

our retail and correspondent channels.

(in millions)
Originations by Channel:

Wholesale
Retail
Correspondent

Total originations

For the year ended December 31,

2012

2011

1,293.2
735.3
391.2

2,419.7

53% $
30%
17%

100% $

572.4
295.3
15.5

883.2

65%
33%
2%

100%

We believe that having a more balanced origination mix across our channels will translate into
improved gain on sale pricing from retail loans, increased efficiency in the correspondent channel and
better position the Company for future opportunities. We expect to continue our expansion and growth
in originations through our retail and correspondent channels. We believe that this will primarily be
achieved by opening new retail offices and hiring additional retail loan officers for our existing offices and
call centers and increasing our active customer base in correspondent channel. We believe our
wholesale lending channel will continue to be a key component of our origination platform, however our
focus to expand our retail and correspondent origination volumes will more equally balance originations
across all of our channels.

Improving the mix of purchase-money transactions creates better opportunities to increase our

origination market share in a decreasing refinance market.

(in millions)
Originations by Purpose:

Refinance
Purchase

Total originations

For the year ended December 31,

2012

2011

1,674.4
745.3

2,419.7

69% $
31%

100% $

469.3
413.9

883.2

53%
47%

100%

To better capture purchase money business, we invested in and designed a web-based
technology that both loan officers and real estate brokers can use to create leads and provide financing
to borrowers. Through this technology, we have been able to increase the number of relationships with
real estate professionals, leading to an increase in purchase-money transactions. As of the end of 2012,
we had in excess of 1,200 real estate professionals using the technology with over 2,500 real estate
listings.

We have also enhanced our product offering to include more loan products less sensitive to
changing interest rates, including FHA 203(k), a home improvement loan that provides the borrower
funds to make renovations, reverse mortgages, intermediate Adjustable Rate Mortgages and GSE and
government sponsored loan programs such as Home Affordable Refinance Program (HARP) loans
which help timely paying borrowers to refinance into a loan with a lower interest rate despite the loan
balance being greater than the estimated fair value of their home. We believe that these loan products
will prepay at a slower rate as compared to other products. By retaining these loan products in our
servicing portfolio, we expect to maintain a less volatile mortgage servicing portfolio.

During 2012, the mortgage servicing portfolio increased to $2.2 billion as compared to
$605.4 million at the end of 2011. We earn servicing fees, net of sub-servicer costs from our mortgage
servicing portfolio. The servicing portfolio generated gross servicing fees of $3.0 million, and
$678 thousand in 2012 and 2011, respectively.

The following table includes information about our mortgage servicing portfolio:

(in millions)
Fannie Mae
Freddie Mac
Ginnie Mae

Total owned servicing

portfolio

Servicing Sold
Interim Servicing (1)
Acquired Portfolio (2)

Total servicing
portfolio

Number of loans
W/A FICO
W/A LTV
W/A Coupon
Avg. Loan size (in

thousands)

At
December 31,
2012

% 60+ days
delinquent

At
December 31,
2011

% 60+ days
delinquent

619.6
100.4
655.4

1,375.4

513.2
173.6
115.0

2,177.2

11,352
743
86.1%
3.86%

191.8

0.00% $
0.00%
0.64%

0.30% $

0.00% $
0.00%
9.69%

1.39% $

310.0
10.1
73.3

393.4

—
66.7
145.3

605.4

4,414
754
76.0%
4.17%

137.0

0.00%
0.00%
0.27%

0.05%

0.00%
0.00%
8.29%

5.69%

(1)
(2)

Represents mortgage loans funded and setup on our sub-servicer’s system, but not sold yet
Represents servicing portfolio acquired in 2010 acquisition of AmeriHome

We also believe that there are other opportunities that exist in today’s mortgage and lending
markets. Depending on the amount of capital we have available, either internally generated or otherwise,
we are considering pursuing opportunities to begin originating small balance multifamily loans,
originating, pooling and securitizing jumbo mortgage loans and offering warehouse lines to small banks,
credit unions and mortgage banking firms as Impac had done in the past.

Real Estate Services

We provide portfolio loss mitigation and real estate services including REO surveillance and
disposition services, default surveillance and loss recovery services, short sale and real estate
brokerage services, portfolio monitoring and reporting services.

For the year ended December 31, 2012 and 2011, real estate services fees, net were $21.2 million
as compared to $42.2 million in 2011. The decrease in real estate services fees, net is primarily due to a
decline in the long-term mortgage portfolio and the associated real estate and recovery activities as well
as the sale of the title insurance company in 2011. As expected, the real estate service activities and
revenues declined as lending activities and revenues increased from the recent expansion of the
mortgage lending business.

We intend to continue to provide these services predominantly for our long-term mortgage
portfolio. However, we expect these revenues to gradually decline over time as our long-term mortgage

portfolio declines. To the extent that opportunities arise, we may expand our loss mitigation and real
estate services to third parties.

Long-Term Mortgage Portfolio

Although we have seen some stabilization and improvement in defaults, the portfolio continues to
suffer losses and may continue for the foreseeable future until we see a significant decline in the number
of foreclosure properties in the market.

At December 31, 2012, our residual interest in securitizations (represented by the difference
between total trust assets and total trust liabilities) decreased to $15.9 million, compared to $26.5 million
at December 31, 2011. The decrease in residual fair value in 2012 was primarily due to $10.3 million in
cash received and a decrease in fair value related to write-downs of REO and changes in assumptions
associated with defaults and severities, offset by an increase in fair value related to net interest income
accretion.

For additional information regarding the long-term mortgage portfolio refer to Financial Condition

and Results of Operations below.

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 the following:

(cid:127) fair value of financial instruments;

(cid:127) variable interest entities and transfers of financial assets and liabilities;

(cid:127) net realizable value of REO;

(cid:127) repurchase reserve; and

(cid:127) interest income and interest expense.

Fair Value of Financial Instruments

Financial Accounting Standards Board—Accounting Standards Codification FASB
ASC 820-10-35 defines fair value, establishes a framework for measuring fair value and outlines a fair
value hierarchy based on the inputs to valuation techniques used to measure fair value. Fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (also referred to as an exit price). Fair
value measurements are categorized into a three-level hierarchy based on the extent to which the
measurement relies on observable market inputs in measuring fair value. Level 1, which is the highest
priority in the fair value hierarchy, is based on unadjusted quoted prices in active markets for identical
assets or liabilities. Level 2 is based on observable market-based inputs, other than quoted prices, in
active markets for identical assets or liabilities. Level 3, which is the lowest priority in the fair value

hierarchy, is based on unobservable inputs. Assets and liabilities are classified within this hierarchy in
their entirety based on the lowest level of any input that is significant to the fair value measurement.

The use of fair value to measure our financial instruments is fundamental to our financial
statements and is a critical accounting estimate because a substantial portion of our assets and
liabilities are recorded at estimated fair value. Financial instruments classified as Level 3 are generally
based on unobservable inputs, and the process to determine fair value is generally more subjective and
involves a high degree of management judgment and assumptions. These assumptions may have a
significant effect on our estimates of fair value, and the use of different assumptions, as well as changes
in market conditions and interest rates, could have a material effect on our results of operations or
financial condition.

Mortgage loans held-for-sale—We elected to carry our mortgage loans held-for-sale originated or
acquired from the mortgage lending operation at fair value. Fair value is based on quoted market prices,
where available, prices for other traded mortgage loans with similar characteristics, and purchase
commitments and bid information received from market participants.

Mortgage servicing rights—We elected to carry all of our mortgage servicing rights arising from
the mortgage loan origination operation at fair value. The fair value of mortgage servicing rights is based
upon market prices for similar instruments and a discounted cash flow model. The valuation model
incorporates assumptions that market participants would use in estimating the fair value of servicing.
These assumptions include estimates of prepayment speeds, discount rate, cost to service, escrow
account earnings, contractual servicing fee income, prepayment and late fees, among other
considerations.

Derivative financial instruments—We utilize certain derivative instruments in the ordinary course of
our business to manage our exposure to changes in interest rates. These derivative instruments include
forward sales of MBS and forward loan sale commitments (Hedging Instruments). We also issue IRLCs
to borrowers in connection with single family mortgage loan originations. We recognize all derivative
instruments at fair value. The estimated fair value of IRLCs are based on underlying loan types with
similar characteristics using the TBA MBS market, which is actively quoted and easily validated through
external sources. The data inputs used in this valuation include, but are not limited to, loan type,
underlying loan amount, note rate, loan program, and expected sale date of the loan, adjusted for
current market conditions. These valuations are adjusted at the loan level to consider the servicing
release premium and loan pricing adjustments specific to each loan. For all IRLCs, the base value is then
adjusted for the anticipated Pull-through Rate. The fair value of the Hedging Instruments is based on the
actively quoted TBA MBS market using observable inputs related to characteristics of the underlying
MBS stratified by product, coupon and settlement date and are recorded in other liabilities in the
consolidated balance sheet. The initial and subsequent changes in value of IRLCs and forward sale
commitments are a component of mortgage lending gains and fees, net in the consolidated statement of
operations.

Long-term debt—Long-term debt (consisting of trust preferred securities and junior subordinated
notes) is reported at fair value within the long-term mortgage portfolio. These securities are measured
based upon an analysis prepared by management, which considers the Company’s own credit risk,
including settlements with trust preferred debt holders and discounted cash flow analysis. Unrealized
gains and losses are recognized in earnings in the accompanying statement of operations within
non-interest income. Our estimate of the fair value of the long-term debt requires us to exercise
significant judgment as to the timing and amount of the future obligation. Changes in assumptions
resulting from changes in the Company’s own credit risk profile will impact the estimated fair value of the
long-term debt and those changes are recorded as a component of net earnings. A change in
assumptions associated with the improvement in the Company’s own credit risk profile could result in a

significant increase in the estimated fair value of the long-term debt which would result in a significant
charge to net earnings.

Variable Interest Entities and Transfers of Financial Assets and Liabilities

Historically, we securitized mortgages in the form of collateralized mortgage obligations (CMO),
which were consolidated and accounted for as secured borrowings for financial statement purposes. We
also securitized mortgages in the form of real estate mortgage investment conduits (REMICs), which
were either consolidated or unconsolidated depending on the design of the securitization structure.
CMO and certain REMIC securitizations contained structural terms that resulted in the transferee
(securitization trust) to not be a qualifying special purpose entity (QSPE), and therefore we consolidated
the variable interest entity (VIE) as it was the primary beneficiary of the sole residual interest in each
securitization trust. Generally, this was achieved by including terms in the securitization agreements that
gave us the ability to unilaterally cause the securitization trust to return specific mortgages, other than
through a clean-up call. Amounts consolidated are included in trust assets and liabilities as securitized
mortgage collateral, real estate owned, derivative assets, securitized mortgage borrowings and
derivative liabilities in the accompanying consolidated balance sheets.

Our estimate of the fair value of our net retained residual interests in unconsolidated
securitizations, which are included in investment securities available-for-sale in the consolidated
balance sheets, requires us to exercise significant judgment as to the timing and amount of future cash
flows from the residual interests. We are exposed to credit risk from the underlying mortgage loans in
unconsolidated securitizations to the extent we retain subordinated interests. Changes in expected cash
flows resulting from changes in expected net credit losses will impact the value of our subordinated
retained interests and those changes are recorded as a component of change in fair value of net trust
assets.

In contrast, for securitizations that are structured as secured borrowing, we recognize interest
income over the life of the securitized mortgage collateral and interest expense incurred for the
securitized mortgage borrowings. We refer to these transactions as consolidated securitizations. The
mortgage loans collateralizing the debt securities for these financings are included in securitized
mortgage collateral and the debt securities payable to investors in these securitizations are included in
securitized mortgage borrowings in our consolidated balance sheet.

Whether a securitization is consolidated or unconsolidated, investors in the securities issued by
the securitization trust have no recourse to our non-securitized assets or to us and have no ability to
require us to provide additional assets, but rather have recourse only to the assets transferred to the
trust. Whereas the accounting differences are significant, the underlying economic impact to us, over
time, will be the same regardless of whether the securitization trust is consolidated or unconsolidated.

These securitizations are evaluated for consolidation based on the provisions of FASB
ASC 810-10-25, which eliminated the concept of a QSPE and changed the approach to determine a
securitization trust’s primary beneficiary. Amounts consolidated are included in trust assets and
liabilities as securitized mortgage collateral, real estate owned, derivative assets, securitized mortgage
borrowings and derivative liabilities in the accompanying consolidated balance sheets.

Net Realizable Value (NRV) of REO

The Company considers the NRV of its REO properties in evaluating REO losses. When real estate
is acquired in settlement of mortgage loans, or other real estate owned, the mortgage is written-down to
a percentage of the property’s appraised value, broker’s price opinion or list price less estimated selling
costs and including mortgage insurance proceeds expected to be received. Subsequent changes in the
NRV of the REO is reflected as a write-down of REO and results in additional losses.

Repurchase Reserve

When we sell loans through whole loan sales we are required to make normal and customary
representations and warranties about the loans to the purchaser. Our whole loan sale agreements
generally require us to repurchase loans if we breach a representation or warranty given to the loan
purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud or if a
payment default occurs on a mortgage loan shortly after its sale.

Investors may request us to repurchase loans or to indemnify them against losses on certain loans
which the investors believe either do not comply with applicable representations or warranties or
defaulted shortly after its purchase. Upon completion of its own investigation regarding the investor
claims, we repurchase or provide indemnification on certain loans, as appropriate. We maintain a liability
reserve for expected losses on dispositions of loans expected to be repurchased or on which
indemnification is expected to be provided. We regularly evaluate the adequacy of this repurchase
liability reserve based on trends in repurchase and indemnification requests, actual loss experience,
settlement negotiations, and other relevant factors including economic conditions.

We record a provision for losses relating to such representations and warranties as part of each
loan sale transactions. The method used to estimate the liability for representations and warranties is a
function of the representations and warranties given and considers a combination of factors, including,
but not limited to, estimated future defaults and loan repurchase rates and the potential severity of loss
in the event of defaults and the probability of reimbursement by the correspondent loan seller. We
establish a liability at the time loans are sold and continually update our estimated repurchase liability.
The level of the repurchase liability for representations and warranties is difficult to estimate and requires
considerable management judgment. The level of mortgage loan repurchase losses is dependent on
economic factors, investor demand strategies, and other external conditions that may change over the
lives of the underlying loans.

Interest Income and Interest Expense

Interest income on securitized mortgage collateral and interest expense on securitized mortgage
borrowings are recorded using the effective yield for the period based on the previous quarter-end’s
estimated fair value. Interest expense on long-term debt is recorded using the effective yield method
based on estimated future interest rates and cash flows.

Financial Condition and Results of Operations

Financial Condition

As of December 31, 2012 compared to December 31, 2011

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

Cash
Restricted cash
Total trust assets
Mortgage loans held-for-sale
Mortgage servicing rights
Other assets (2)

Total assets

Total trust liabilities
Warehouse borrowings
Long-term debt ($71,120 par)
Repurchase reserve (1)
Notes payable
Other liabilities (2)

Total liabilities

Total IMH stockholders’ equity
Noncontrolling interest

Total equity

Total liabilities and

stockholders’ equity

December 31,

2012

12,711
3,230
5,810,506
118,786
10,703
30,652

2011

7,653
5,019
5,506,193
61,718
4,141
27,316

$ 5,986,588

$ 5,612,040

$ 5,794,656
107,569
12,731
10,562
3,451
27,776

$ 5,479,687
58,691
11,561
5,816
5,182
20,006

5,956,745
28,960
883

29,843

5,580,943
29,968
1,129

31,097

Increase
(Decrease)

%
Change

5,058
(1,789)
304,313
57,068
6,562
3,336

374,548

314,969
48,878
1,170
4,746
(1,731)
7,770

375,802
(1,008)
(246)

(1,254)

66%
(36)
6
92
158
12

83
10
82
(33)
39

7
(3)
(22)

(4)

$ 5,986,588

$ 5,612,040

374,548

(1)

(2)

$8.2 million and $5.2 million of the repurchase reserve were within discontinued operations at
December 31, 2012 and 2011, respectively.
Included within other assets and liabilities are the assets and liabilities of the discontinued
operations.

At December 31, 2012 and 2011, net trust assets and liabilities were as follows:

December 31,

2012

2011

Increase
(Decrease)

%
Change

Total trust assets
Total trust liabilities

$ 5,810,506 $ 5,506,193 $

5,794,656

5,479,687

304,313
314,969

Residual interests in securitizations

15,850 $

26,506 $

(10,656)

6%
6

(40)%

At December 31, 2012, cash increased to $12.7 million from $7.7 million at December 31, 2011.
The primary sources of cash between periods were $73.8 million in fees generated from the mortgage
lending operations and real estate services (net of non-cash fair value adjustments), $8.8 million from
residual interests in securitizations (net of the $1.5 million restricted excess cash in the reserve account)
and $7.0 million from the issuance of the note payable. Offsetting the sources of cash were continuing

operating expenses totaling $76.9 million, payments on the notes payable of $9.9 million (including
$3.0 million which came from reserve accounts) and settlements of repurchase requests associated with
loans sold by the discontinued non-conforming mortgage operations of approximately $2.8 million.

Since the consolidated and unconsolidated securitization trusts are nonrecourse to the Company,
trust assets and liabilities have been netted to present our interest in these trusts more simply, which are
considered the residual interests in securitizations. For unconsolidated securitizations the residual
interests represent the fair value of investment securities available-for-sale. For consolidated
securitizations, the residual interests are represented by the fair value of securitized mortgage collateral
and real estate owned, offset by the fair value of securitized mortgage borrowings and net derivative
liabilities. We receive cash flows from our residual interests in securitizations to the extent they are
available after required distributions to bondholders and maintaining specified overcollateralization
levels and other specified parameters (such as maximum delinquency and cumulative default) within the
trusts. The estimated fair value of the residual interests, represented by the difference in the fair value of
total trust assets and total trust liabilities, was $15.9 million at December 31, 2012, compared to
$26.5 million at December 31, 2011. During 2012, we decreased the investor yield requirements for
securitized mortgage borrowings as estimated bond prices have continued to improve and
corresponding yields have decreased. The decrease in investor yield assumptions on securitized
mortgage collateral and securitized mortgage borrowings resulted in an increase in the estimated fair
value of these trust assets and liabilities.

Mortgage loans held-for-sale increased $57.1 million to $118.8 million at December 31, 2012 as
compared to $61.7 million at December 31, 2011. The increase is due to the expansion of our mortgage
lending operations in 2012 associated with the growth of our retail and correspondent lending channels.
Average monthly loan originations increased to approximately $200 million in 2012 as compared to
$74 million in 2011.

Mortgage servicing rights increased $6.6 million to $10.7 million at December 31, 2012 as
compared to $4.1 million at December 31, 2011. The increase is due to an increase in our mortgage
servicing portfolio with servicing retained loan sales of $2.2 billion in 2012 as compared to $419.9 million
in 2011. Partially offsetting the increase was the sale of servicing rights of $8.8 million during 2012 and
fair value adjustments of $0.6 million. At December 31, 2012, we serviced $2.2 billion in unpaid principal
balance (UPB) for others, including $513.2 million sold but not yet transferred at December 31, 2012 as
compared to $605.4 million at December 31, 2011.

At December 31, 2012, the balance of deferred charge was $12.0 million and was included in
other assets. For the year ended December 31, 2012, we were not required to record income tax
expense resulting from deferred charge impairment write-downs based on changes in estimated fair
value of securitized mortgage collateral. The deferred charge arose as a result of the deferral of income
tax expense on inter-company profits that resulted from the sale of mortgages from taxable subsidiaries
to IMH in prior years (when IMH was a REIT). This balance is recorded as required by GAAP and does not
have any realizable cash value.

Warehouse borrowings increased $48.9 million to $107.6 million at December 31, 2012 as
compared to $58.7 million at December 31, 2011. The increase is due to the expansion of our mortgage
lending operations and increased loan originations. During 2012, we increased our total borrowing
capacity to $217.5 million at December 31, 2012 as compared to $87.5 million at December 31, 2011.

At December 31, 2012, notes payable was $3.5 million as compared to $5.2 million at
December 31, 2011. During 2012, we entered into a new $7.5 million structured debt agreement using
eight of our residual interests (net trust assets) as collateral. We used a portion of the proceeds to pay off
the $408 thousand balance (net of the reserve account) on the previous debt agreement. We received

proceeds of $7.0 million, net of the aforementioned payoff and transaction costs of approximately
$50 thousand. The note payable bears interest at a fixed rate of 25% per annum, is amortized in equal
principal payments over 18 months and matures in July 2013.

Repurchase reserve liability increased to $10.6 million at December 31, 2012 as compared to
$5.8 million at December 31, 2011. The increase is primarily due to the discontinued lending operations
of IFC. During the year ended December 31, 2012, we paid approximately $2.8 million to settle previous
repurchase claims related to our discontinued operations. Our discontinued operations continue to
receive repurchase requests from Fannie Mae resulting in increases in estimated repurchase obligations.
At December 31, 2012, the repurchase reserve within discontinued operations was $8.2 million as
compared to $5.2 million at December 31, 2011. Additionally, we have approximately $2.4 million in
repurchase reserves related to the loans sold by the continuing mortgage lending operations since early
2011.

Other liabilities increased $7.8 million to $27.8 million at December 31, 2012 as compared to
$20.0 million at December 31, 2011. The increase is primarily due to a $6.1 million legal settlement
recorded in the third quarter of 2012, associated with the settlement of two of our remaining legacy
lawsuits related to discontinued operations.

Book value per common share was $(2.59) as of December 31, 2012, as compared to $(2.65) as of
December 31, 2011 (inclusive of the remaining $51.8 million of liquidation preference on our preferred
stock).

Total assets and total liabilities were $6.0 billion at December 31, 2012 as compared to $5.6 billion
at December 31, 2011. The changes in total assets and liabilities are primarily attributable to increases in
our trust assets and trust liabilities as summarized below.

December 31,

2012

2011

Increase
(Decrease)

%
Change

Securitized mortgage collateral
Other trust assets

Total trust assets

$ 5,787,884 $ 5,449,001 $

22,622

57,192

5,810,506

5,506,193

Securitized mortgage borrowings
Other trust liabilities

$ 5,777,456 $ 5,454,901 $

17,200

24,786

Total trust liabilities

5,794,656

5,479,687

338,883
(34,570)

304,313

322,555
(7,586)

314,969

Residual interests in securitizations

15,850 $

26,506 $

(10,656)

(60)

(31)

(40)%

We update our collateral assumptions quarterly based on recent delinquency, default,
prepayment and loss experience. Additionally, we update the forward interest rates and investor yield
(discount rate) assumptions based on information derived from market participants. During 2012, we
decreased the investor yield requirements for securitized mortgage borrowings as estimated bond
prices have continued to improve and corresponding yields have decreased. The decrease in investor
yield assumptions on securitized mortgage collateral and securitized mortgage borrowings resulted in
an increase in the value of these trust assets and liabilities.

(cid:127) Securitized mortgage collateral increased $338.9 million during 2012, primarily due to an
increase in fair value due to a reduction in investor yield requirements, partially offset by an
increase in loss assumptions, reductions in principal from borrower payments and transfers of
loans to REO for single-family and multi-family collateral. Additionally, other trust assets

declined $34.6 million during 2012, primarily due to REO liquidations of $70.9 million and
additional impairment write-downs of $13.3 million. Partially offsetting the decrease from
liquidations were increases in REO from foreclosures of $50.2 million.

(cid:127) Securitized mortgage borrowings increased $322.6 million during 2012, primarily due to an
increase in fair value due to a reduction in investor yield requirements, partially offset by an
increase in loss assumptions and reductions in principal balances from principal payments
during the period for single-family and multi-family collateral. The $7.7 million dollar reduction in
other trust liabilities during 2012 was primarily due to $10.5 million in derivative cash payments
from the securitization trusts, partially offset by a $2.8 million increase in derivative fair value
resulting from changes in forward LIBOR interest rates.

In accordance with GAAP, we are required to consolidate all but one of these trusts (as we are not
the master servicer on this one trust) on our statement of financial condition and results of operations.
For the one trust we did not consolidate, the residual interest is reported as investment securities
available-for-sale. For the trusts we did consolidate, the loans are included in the statement of financial
condition as ‘‘securitized mortgage collateral’’, the foreclosed loans are included in the statement of
financial condition as ‘‘real estate owned’’ and the various bond tranches owned by investors are
included in the statement of financial condition as ‘‘securitized mortgage borrowings.’’ Any interest rate
derivatives remaining in the trusts are included in our statement of financial condition as ‘‘derivative
assets’’ or ‘‘derivative liabilities,’’ respectively. To the extent there is excess overcollateralization (as
defined in the securitization agreements) in these securitization trusts, we receive cash flows from the
excess interest collected monthly from the residual interest we own. Because (i) we elected the fair value
option on the securitized mortgage collateral, securitized mortgage borrowings, (ii) derivative assets/
liabilities are carried at fair value as required by GAAP, and (iii) real estate owned is reflected at net
realizable value (NRV), which closely approximates fair market value, the net of the trust assets and trust
liabilities represents the estimated fair value of the residual interests we own.

To estimate fair value of the assets and liabilities within the securitization trusts each reporting
period, management uses an industry standard valuation and analytical model that is updated monthly
with current collateral, real estate, derivative, bond and cost (servicer, trustee, etc.) information for each
securitization trust. We employ an internal process to validate the accuracy of the model as well as the
data within this model. Forecasted assumptions sometimes referred to as ‘‘curves,’’ for defaults, loss
severity, interest rates (LIBOR) and prepayments are input into the valuation model for each
securitization trust. We hire third party experts to provide forecasted curves for the aforementioned
assumptions for each of the securitizations. Before inputting this information into the model,
management employs a process to qualitatively and quantitatively review the assumption curves for
reasonableness using other information gathered from the mortgage and real estate market (i.e., third
party home price indices, published industry reports discussing regional mortgage and commercial loan

performance and delinquency) as well as actual default and foreclosure information for each trust from
the respective trustees.

We use 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
are over collateralized, we may receive the excess interest as the holder of the residual interest. The
information above provides us with the future expected cash flows for the securitized mortgage
collateral, real estate owned, securitized mortgage borrowings, derivative assets/liabilities, and the
residual interests.

To determine the discount rates to apply to these cash flows, we gather 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 determine an
acceptable range of expected yields an investor would require including an appropriate risk premium for
each bond tranche. We use 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 (after taking
into consideration any derivatives in the securitization). During 2012, based on the trend of improving
bond prices and declining yields, we adjusted the acceptable range of expected yields for some of our
earlier vintage securitizations.

The following table presents changes in the trust assets and trust liabilities for the year ended

December 31, 2012:

TRUST ASSETS

TRUST LIABILITIES

Level 3 Recurring Fair Value
Measurements

Investment
securities

Securitized
available-for- mortgage
collateral

sale

Derivative
assets

NRV (1)

Real
estate
owned

Level 3 Recurring Fair Value
Measurements

Total trust
assets

Securitized
mortgage
borrowings

Derivative
liabilities

Total trust
liabilities

Net
trust assets
and trust
liabilities

688

$ 5,449,001 $

37 $

56,467 $ 5,506,193

$ (5,454,901) $

(24,786) $ (5,479,687)

26,506

38
—

140,491
—

(434)

889,145

—

(396)

1,029,636

—
—

—

—
—

—

140,529
—

—
(398,683)

—
—

—
(398,683)

140,529
(398,683)

888,711 (2)

(880,538)

(2,838)

(883,376) (2)

5,335

(13,226)

(13,226) (2)

—

(13,226)

1,016,014

(1,279,221)

(2,838)

(1,282,059)

(266,045)

(182)

(690,753)

—

(20,766)

(711,701)

956,666

10,424

967,090

255,389

110

$ 5,787,884 $

37 $

22,475 $ 5,810,506

$ (5,777,456) $

(17,200) $ (5,794,656)

15,850

Recorded book value at

12/31/2011

Total Gains/(losses) included in

earnings:
Interest income
Interest expense
Change in FV of net trust
assets, excluding REO
Change in FV of long-term

debt

Losses from REO—not at

FV but at NRV

Total gains (losses)

included in earnings

Transfers in and/or out of

level 3

Purchases issuances and

settlements

Recorded book value at

12/31/2012

(1)
(2)

Accounted for at net realizable value.
Represents non-interest income-net trust assets in the consolidated statements of operations for the year ended December 31, 2012.

Inclusive of losses from REO, total trust assets above reflect a net gain of $875.5 million as a result
of an increase in fair value of securitized mortgage collateral of $889.1 million, losses from REO of
$13.2 million and losses from other trust assets of $434 thousand. Net losses on trust liabilities were
$883.4 million as a result of $880.5 million in losses from the increase in fair value of securitized
mortgage borrowings and losses from derivative liabilities of $2.8 million. As a result, non-interest
income—net trust assets totaled a loss of $7.9 million for the year ended December 31, 2012.

The table below reflects the net trust assets as a percentage of total trust assets (residual interests

in securitizations):

Net trust assets
Total trust assets

At December 31,
2011
2012

15,850
5,810,506

26,506
5,506,193

Net trust assets as a percentage of

total assets

0.27%

0.48%

For the year ended December 31, 2012, the estimated fair value of the net trust assets declined as
a percentage of total trust assets. The decrease was primarily due to the combination of both cash
received from residual interests (net trust assets) and an increase in the fair value of total trust assets due
to a decrease in investor yield requirements associated with improved market conditions and bond
prices. During 2012, based on the trend of improving bond prices and declining yields, we adjusted the
acceptable range of expected yields for some of its earlier vintage securitizations resulting in an increase
in fair value of total trust assets and trust liabilities. The decline in the percentage of net trust assets to
total trust assets is due to residual cash flows received which reduces the value of net trust assets and
an increase in fair value of securitized mortgage collateral.

Since the consolidated and unconsolidated securitization trusts are nonrecourse to us, our
economic risk is limited to our residual interests in these securitization trusts. Therefore, in the following
table we have netted trust assets and trust liabilities to present these residual interests more simply. Our
residual interests in securitizations are segregated between our single-family (SF) residential and
multifamily (MF) residential portfolios and are represented by the difference between trust assets and
trust liabilities.

The following tables present the estimated fair value of our residual interests, including investment
securities available for sale, by securitization vintage year and other related assumptions used to derive
these values at December 31, 2012 and 2011:

Origination Year

2002-2003 (1)
2004
2005 (2)
2006 (2)
2007 (2)

Estimated Fair Value of Residual
Interests by Vintage Year at
December 31, 2012
MF

Total

Estimated Fair Value of Residual
Interests by Vintage Year at
December 31, 2011
MF

Total

$ 11,680
58
—
—
—

3,144
881
87
—
—

$ 14,824
939
87
—
—

$ 13,845
3,415
—
—
—

4,963
3,505
778
—
—

$ 18,808
6,920
778
—
—

Total

$ 11,738

4,112

$ 15,850

$ 17,260

9,246

$ 26,506

Weighted avg. prepayment rate
Weighted avg. discount rate

2%
25%

8%
20%

3%
24%

3%
30%

6%
28%

3%
29%

(1)

(2)

2002-2003 vintage year includes CMO 2007-A, since the majority of the mortgages collateralized in this
securitization were originated during this period.
The estimated fair values of residual interests in vintage years 2005 through 2007 is reflective of higher
estimated future losses and investor yield requirements compared to earlier vintage years.

We utilize a number of assumptions to value securitized mortgage collateral, securitized mortgage
borrowings and residual interests. These assumptions include estimated collateral default rates and loss

severities (credit losses), collateral prepayment rates, forward interest rates and investor yields (discount
rates). We use the same collateral assumptions for securitized mortgage collateral and securitized
mortgage borrowings as the collateral assumptions determine collateral cash flows which are used to
pay interest and principal for securitized mortgage borrowings and excess spread, if any, to the residual
interests. However, we use 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.
The table below reflects the estimated future credit losses and investor yield requirements for trust
assets by product (SF and MF) and securitization vintage at December 31, 2012:

2002-2003
2004
2005
2006
2007

Estimated Future
Losses (1)

Investor Yield
Requirement (2)
MF
SF

8%
16%
30%
41%
41%

0% (3)
2%
5%
10%
4%

5%
6%
6%
8%
7%

8%
5%
6%
6%
4%

(1)

(2)

(3)

Estimated future losses derived by dividing future projected losses by unpaid principal balances
at December 31, 2012.
Investor yield requirements represent our estimate of the yield third-party market participants
would require to price our trust assets and liabilities given our prepayment, credit loss and forward
interest rate assumptions.
Represents less than 1%.

As illustrated in S&Ps Case Shiller 10-City Composite Home Price Index, from 2002 through 2006,
home price appreciation escalated to historic levels. During 2005 through 2007, we originated or
acquired mortgages supported by these elevated real estate values. Beginning in 2007, deterioration in
the economy resulting in high unemployment and a dramatic drop in home prices resulted in significant
negative equity for borrowers. These factors have led to significant increases in loss severities resulting
from deterioration in the credit quality of borrowers, as well as strategic defaults, whereby borrowers
with the ability to pay are defaulting on their mortgages based on the belief that home prices will not
recover in a reasonable amount of time. Home prices have deteriorated back to December 2003 levels
which has significantly reduced or eliminated equity for loans originated after 2003. Future loss
estimates are significantly higher for mortgage loans included in securitization vintages after 2004 which
reflect severe home price deterioration and defaults experienced with mortgages originated during
these periods.

Operational and Market Risks

We are exposed to a variety of market risks which include interest rate risk, credit risk, real estate

risk, prepayment risk and liquidity risk.

Interest Rate Risk

Interest Rate Risk—Mortgage Lending. We are exposed to interest rate risks relating to our
ongoing mortgage lending operations. We use derivative instruments to manage some of our interest
rate risk. However, we do not attempt to hedge interest rate risk completely. We enter into interest rate
lock commitments and commitments to sell mortgages to help mitigate some of the exposure to the
effect of changing interest rates on mortgage lending cash flows.

Interest rate lock commitments expose us to interest rate risk. The mortgage lending operations
currently utilizes forward sold Fannie Mae and Ginnie Mae mortgage-backed securities to hedge the fair
value changes associated with changes in interest rates relating to its mortgage loan origination
operations.

Interest Rate Risk—Securitized Trusts, Long-term Debt. Our earnings from the long-term
mortgage portfolio depend largely on our interest rate spread, represented by the relationship between
the yield on our interest-earning assets (primarily investment securities available-for-sale and securitized
mortgage collateral) and the cost of our interest-bearing liabilities (primarily securitized mortgage
borrowings and long-term debt). Our interest rate spread is impacted by several factors, including
general economic factors, forward interest rates and the credit quality of mortgage loans in the
long-term mortgage portfolio.

The residual interests in our long-term mortgage portfolio are sensitive to changes in interest rates
on securitized mortgage collateral and the related securitized mortgage borrowings. Changes in interest
rates can significantly affect the cash flows and fair values of the Company’s assets and liabilities, as well
as our earnings and stockholders’ equity.

We use derivative instruments to manage some of our interest rate risk in our long-term mortgage
portfolio. However, we do not attempt to hedge interest rate risk completely. To help mitigate some of the
exposure to the effect of changing interest rates on cash flows on securitized mortgage borrowings, we
utilize derivative instruments primarily in the form of interest rate swap agreements (swaps) and, to a
lesser extent, interest rate cap agreements (caps) and interest rate floor agreements (floors). These
derivative instruments are recorded at fair value in the consolidated balance sheets. For non-exchange
traded contracts, fair value is based on the amounts that would be required to settle the positions with
the related counterparties as of the valuation date. Valuations of derivative assets and liabilities are
based on observable market inputs, if available. To the extent observable market inputs are not
available, fair values measurements include our judgment about future cash flows, forward interest rates
and certain other factors, including counterparty risk. Additionally, these values also take into account
our own credit standing, to the extent applicable; thus, the valuation of the derivative instrument
includes the estimated value of the net credit differential between the counterparties to the derivative
contract.

At December 31, 2012, derivative liabilities, net were $17.2 million and reflect the securitization
trust’s liability to pay third-party counterparties based on the estimated value to settle the derivative
instruments. Cash payments on these derivative instruments are based on notional amounts that are
decreasing over time. Excluding the effects of other factors such as portfolio delinquency and loss
severities within the securitization trusts, as the notional amount of these derivative instruments
decrease over time, payments to counterparties in the current interest rate environment are reduced,
thereby potentially increasing cash flows on our residual interests in securitizations. Conversely,
increases in interest rates from current levels could potentially reduce overall cash flows on our residual
interests in securitizations. Since our consolidated and unconsolidated securitization trusts are
nonrecourse to us, our economic risk is limited to our residual interests in these securitization trusts.

We are also subject to interest rate risk on our long-term debt (consisting of trust preferred
securities and junior subordinated notes). These interest bearing liabilities include adjustable rate
periods based on three- month LIBOR (trust preferred securities and junior subordinated notes). We do
not currently hedge our exposure to the effect of changing interest rates related to these interest-bearing
liabilities. Significant fluctuations in interest rates could have a material adverse effect on our business,
financial condition, results of operations or liquidity.

Credit Risk

We provide representations and warranties to purchasers and insurers of the loans sold that
typically are in place for the life of the loan. In the event of a breach of these representations and
warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any
subsequent loss on the mortgage loan may be borne by us unless we have recourse to our
correspondent seller.

We maintain a reserve for losses on loans repurchased or indemnified as a result of breaches of
representations and warranties on our sold loans. Our estimate is based on our most recent data
regarding loan repurchases and indemnity payments, actual losses on repurchased loans, recovery
history, among other factors. Our assumptions are affected by factors both internal and external in
nature. Internal factors include, among other things, level of loan sales, the expectation of credit loss on
repurchases and indemnifications, our success rate at appealing repurchase demands and our ability to
recover any losses from third parties. External factors that may affect our estimate includes, among
other things, the overall economic condition in the housing market, the economic condition of
borrowers, the political environment at investor agencies and the overall U.S. and world economy. Many
of the factors are beyond our control and may lead to judgments that are susceptible to change.

Counterparty Credit Risk. We are exposed to counterparty credit risk in the event of
non-performance by counterparties to various agreements. We monitor the credit ratings of our
counterparties and currently do not anticipate losses due to counterparty non-performance.

Credit Risk-Securitized Trusts. We manage credit risk by actively managing delinquencies and
defaults through our servicers. Starting with the second half of 2007 we have not retained any additional
Alt-A mortgages in our long-term mortgage portfolio. Our securitized mortgage collateral primarily
consists of Alt-A mortgages which when originated were generally within typical Fannie Mae and Freddie
Mac guidelines but had loan characteristics, which may have included higher loan balances, higher
loan-to-value ratios or lower documentation requirements (including stated-income loans), that made
them non-conforming under those guidelines.

Using historical losses, current portfolio statistics and market conditions and available market
data, we have estimated future loan losses on the long-term mortgage portfolio, which are included in
the fair value adjustment to our securitized mortgage collateral. While the credit performance for the
loans has been clearly far worse than our initial expectations when the loans were originated, the
ultimate level of realized losses will largely be influenced by events that will likely unfold over the next
several years, including the recovery of the housing market and overall strength of the economy. If
market conditions continue to deteriorate in excess of our expectations, we may need to recognize
additional fair value reductions to our securitized mortgage collateral, which may also affect the value of
the related securitized mortgage borrowings and residual interests.

We monitor our servicers to attempt to ensure that they perform loss mitigation, foreclosure and
collection functions according to their servicing practices and each securitization trust’s pooling and
servicing agreement. We have met with the management of our servicers to assess our borrowers’
current ability to pay their mortgages and to make arrangements with selected delinquent borrowers
which will result in the best interest of the trust and borrower, in an effort to minimize the number of
mortgages which become seriously delinquent. When resolving delinquent mortgages, servicers are
required to take timely action. The servicer is required to determine payment collection under various
circumstances, which will result in the maximum financial benefit. This is accomplished by either
working with the borrower to bring the mortgage current by modifying the loan with terms that will
maximize the recovery or by foreclosing and liquidating the property. At a foreclosure sale, the trusts
consolidated on our balance sheet generally acquire title to the property.

Real Estate Risk

Residential property values are subject to volatility and may be negatively affected by numerous
factors, including, but not limited to, national, regional and local economic conditions such as
unemployment and interest rate environment; local real estate conditions including housing inventory
and foreclosures; and demographic factors. Decreases in property values reduce the value of the
collateral and the potential proceeds available to a borrower to repay our loans, which could cause us to
suffer losses.

Prepayment Risk

We historically used prepayment penalties as a method of partially mitigating prepayment risk for
those borrowers that have the ability to refinance. The recent economic downturn, lack of available
credit and declines in property values have limited borrowers’ ability to refinance. These factors have
significantly reduced prepayment risk within our long-term mortgage portfolio. With the seasoning of the
long-term mortgage portfolio, a significant portion of prepayment penalties terms have expired, thereby
further reducing prepayment penalty income.

Prepayment speed is a measurement of how quickly UPB is reduced. Items reducing UPB include
normal monthly loan principal payments, loan refinancings, voluntary property sales and involuntary
property sales such as foreclosures or short sales. Prepayment speed impacts future servicing fees, fair
value of mortgage servicing rights and float income. When prepayment speed increases, our servicing
fees decrease faster than projected due to the shortened life of a portfolio. Our mortgage servicing rights
fair value also decreases.

Liquidity Risk

We are exposed to liquidity risks relating to our ongoing mortgage lending operations. We
primarily fund our mortgage lending originations through warehouse facilities with third party lenders.
We primarily use facilities with national and regional banks. The warehouse facilities are secured by and
used to fund single-family residential mortgage loans. In addition, the warehouse lenders require cash to
be posted as additional collateral to secure the borrowings. In order to mitigate the liquidity risk
associated with warehouse borrowings, we attempt to sell our mortgage loans within 10-15 days from
acquisition or origination.

Long-Term Portfolio Credit Quality

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 late or greater,
foreclosures and delinquent bankruptcies were $2.0 billion or 22.8% of the long-term mortgage portfolio
as of December 31, 2012.

The following table summarizes the unpaid principal balances of loans in our mortgage portfolio,
included in securitized mortgage collateral, mortgage loans held-for-investment and mortgage loans

held-for-sale for continuing and discontinued operations combined, that were 60 or more days
delinquent (utilizing the MBA method) as of the periods indicated:

December 31, Collateral December 31, Collateral

2012

2011

Total

Mortgage loans held-for-sale and

investment
60 - 89 days delinquent
90 or more days delinquent
Foreclosures (1)

Total 60+ days delinquent

mortgage loans held-for-sale and
investment (2)

Securitized mortgage collateral

60 - 89 days delinquent
90 or more days delinquent
Foreclosures (1)
Delinquent bankruptcies (3)

Total 60+ days delinquent

long-term mortgage portfolio

Total 60 or more days delinquent

Total collateral

-
-
366

366

180,260
649,800
790,293
370,827

1,991,180

1,991,546

8,735,991

*
*
*

-
529
1,127

1,656

2.1% $
7.4%
9.0%
4.2%

209,963
711,716
829,817
380,133

22.7%

2,131,629

22.8% $

2,133,285

100% $

9,893,205

*
*
*

2.1%
7.2%
8.4%
3.8%

21.5%

21.6%

100%

*
(1)
(2)

(3)

Less than 0.1%
Represents properties in the process of foreclosure.
Represents legacy mortgage loans held-for-sale included in discontinued operations in the
consolidated balance sheets.
Represents bankruptcies that are 30 days or more delinquent.

The following table summarizes securitized mortgage collateral, loans held-for-investment, loans
held-for-sale and real estate owned, that were non-performing for continuing and discontinued
operations combined as of the dates indicated (excludes 60-89 days delinquent):

90 or more days delinquent,

foreclosures and delinquent
bankruptcies
Real estate owned

Total non-performing assets

December 31, Collateral December 31, Collateral

2012

2011

Total

1,811,286
22,511

1,833,797

20.7% $

0.3%

1,923,322
56,467

21.0% $

1,979,789

19.4%
0.6%

20.0%

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 the Company’s
policy to place a mortgage on non-accrual 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. As of December 31, 2012, non-performing
assets (unpaid principal balance of loans 90 or more days delinquent, foreclosures and delinquent
bankruptcies plus REO) as a percentage of the total collateral was 21.0%. At December 31, 2011,
non-performing assets to total collateral was 20.0%. Although non-performing assets decreased by
approximately $146.0 million at December 31, 2012 as compared to December 31, 2011, the increase in
non-performing assets as a percentage of total collateral is the result of a greater decline in the overall
collateral balance. At December 31, 2012, the estimated fair value of non-performing assets
(representing the fair value of loans 90 or more days delinquent, foreclosures and delinquent
bankruptcies plus REO) was $578.0 million or 9.7% of total assets. At December 31, 2011, the estimated
fair value of non-performing assets was $528.0 million or 9.4% of total assets.

REO, which consists of residential real estate acquired in satisfaction of loans, is 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 are included in the change in the fair value of net trust assets. Changes
in our estimates of net realizable value subsequent to the time of foreclosure and through the time of
ultimate disposition are recorded as gains or losses from real estate owned in the consolidated
statements of operations. REO, for continuing and discontinued operations, at December 31, 2012
decreased $34.0 million or 60% from December 31, 2011, as a result of liquidations and a decrease in
foreclosures associated with foreclosure delays.

We realized gains on the sale of REO in the amount of $30 thousand for 2012, compared to losses
of $80 thousand for the comparable 2011 periods. Additionally, for the year ended December 31, 2012,
we recorded a write-down of the net realizable value of the REO in the amount of $13.3 million,
compared to write-downs of $16.7 million for the comparable 2011 period. Write-downs of the net
realizable value reflect declines in value of the REO subsequent to foreclosure date, but prior to the date
of sale.

The following table presents the balances of the REO for continuing operations:

REO
Impairment (1)

Ending balance

REO inside trusts
REO outside trusts

Total

December 31,

2012

2011

31,116
(8,605)

22,511

22,475
36

22,511

75,418
(18,951)

56,467

56,467
—

56,467

(1)

Impairment represents the cumulative write-downs of net realizable value subsequent to
foreclosure.

In calculating the cash flows to assess the fair value of the securitized mortgage collateral, we
estimate the future losses embedded in our loan portfolio. In evaluating the adequacy of these losses,
management takes many factors into consideration. For instance, a detailed analysis of historical loan
performance data is accumulated and reviewed. This data is analyzed for loss performance and
prepayment performance by product type, origination year and securitization issuance. The data is also
broken down by collection status. Our estimate of losses for these loans is 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 is
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 of default is based on
analysis of migration of loans from each aging category. The loss severity is determined by estimating
the net proceeds from the ultimate sale of the foreclosed property. The results of that analysis are then
applied to the current mortgage portfolio and an estimate is created. We believe that pooling of
mortgages with similar characteristics is 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 is 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 evaluates these
assumptions and various relevant factors affecting credit quality and inherent losses.

Results of Operations

For the year ended December 31, 2012 compared to the year ended December 31, 2011

For the year ended December 31,

2012

2011

Increase
(Decrease)

%
Change

Interest income
Interest expense

Net interest income
Total non-interest income
Total non-interest expense
Income tax expense

Net earnings from continuing

operations

Loss from discontinued operations, net

Net (loss) earnings

Net (earnings) loss attributable to

noncontrolling interest (1)

Net (loss) earnings attributable to IMH

(Loss) earnings per share available to

common stockholders—basic

(Loss) earnings per share available to
common stockholders—diluted

478,647
476,828

737,464
733,872

$ (258,817)
(257,044)

(1,773)
19,868
(10,729)
(50)

7,316
(12,471)

(5,155)

(1,444)

(6,599)

1,819
89,346
(76,876)
(1,244)

13,045
(15,549)

(2,504)

(871)

(3,375) $

3,592
69,478
(66,147)
(1,194)

5,729
(3,078)

2,651

573

3,224

(0.42) $

0.41

(0.42) $

0.39

(35)%
(35)

(49)
29
(16)
(4)

128
(405)

(194)

(252)

(205)

(0.83)

(202)%

(0.81)

(210)%

(1)

For the year ended December 31, 2012, net earnings attributable to noncontrolling interest
represents the portion of the earnings of AmeriHome Mortgage Corporation (a subsidiary of IRES)
that we do not wholly-own. For the year ended December 31,2011, net loss attributable to
noncontrolling interest represents the portion of the losses of Experience 1, Inc. and AmeriHome
Mortgage Corporation (both subsidiaries of IRES) that we do not wholly-own.

Net Interest Income

We earn net interest income primarily from mortgage assets which include securitized mortgage
collateral, loans held-for-sale and investment securities available-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 and warehouse borrowings and to a lesser extent, interest expense paid on
long-term debt and notes payable and line of credit. 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 tables summarize average balance, interest and weighted average yield on
mortgage assets and borrowings, included within continuing operations, for the periods indicated. Cash
receipts and payments on derivative instruments hedging interest rate risk related to our securitized

mortgage borrowings are not included in the results below. These cash receipts and payments are
included as a component of the change in fair value of net trust assets.

For the year ended December 31,

2012

2011

Average
Balance

Interest

Yield

Average
Balance

Interest

Yield

ASSETS
Securitized mortgage

collateral

Loans held-for-sale
Other

$ 5,595,769 $ 475,845
2,723

84,131
515

8.50% $ 5,719,598 $ 735,702 12.86%
4.50%
3.24%
3.69%
79 15.34%

35,389
4,548

1,594
168

Total interest-earning assets $ 5,680,415 $ 478,647

8.43% $ 5,759,535 $ 737,464 12.80%

LIABILITIES
Securitized mortgage

borrowings

Warehouse borrowings
Long-term debt
Note payable

Total interest-bearing

liabilities

Net Interest Spread (1)
Net Interest Margin (2)

8.37% $ 5,724,419 $ 726,219 12.69%
$ 5,592,676 $ 467,953
1,604
3,350
4.92%
4.20%
3,753 31.91%
3,929 32.37%
2,296 35.18%
1,596 27.67%

79,707
12,136
5,768

32,583
11,760
6,527

$ 5,690,287 $ 476,828

8.38% $ 5,775,289 $ 733,872 12.71%

1,819

0.05%
0.03%

3,592

0.09%
0.06%

(1)

(2)

Net interest spread is calculated by subtracting the weighted average yield on interest-bearing
liabilities from the weighted average yield on interest-earning assets.
Net interest margin is calculated by dividing net interest spread by total average interest-earning
assets.

Net interest income spread decreased $1.8 million for the year ended December 31, 2012
primarily attributable to a decrease in net interest spread on the long-term mortgage portfolio due to
increases in pricing and the corresponding reduction in investor yield requirements between periods on
securitized mortgage collateral and securitized mortgage borrowings as well as a decrease in the
balance of the long-term mortgage portfolio, partially offset by a decrease in interest expense on the
note payable for the year ended December 31, 2012. Additionally, the negative interest carry between
the warehouse borrowings and loans held-for-sale is causing further reductions on the net interest
spread. As a result, net interest margin decreased from 0.06% for the year ended December 31, 2011 to
0.03% for the year ended December 31, 2012.

During the year ended December 31, 2012, the yield on interest-earning assets decreased to
8.43% from 12.80% in the comparable 2011 period. The yield on interest-bearing liabilities decreased to
8.38% for the year ended December 31, 2012 from 12.71% for the comparable 2011 period. In
connection with the fair value accounting for investment securities available-for-sale and securitized
mortgage collateral and borrowings, interest income and interest expense is recognized using effective
yields based on estimated fair values for these instruments. The decrease in yield for securitized
mortgage collateral and securitized mortgage borrowings is primarily related to increased prices on
mortgage-backed bonds which resulted in a decrease in yield. Bond prices received from pricing
services and other market participants have increased over the past few quarters as investor’s demand
for mortgage-backed securities has increased. This has resulted in an increase in fair value for both

securitized mortgage collateral and securitized mortgage borrowings. These increases in fair value have
decreased the effective yields used for purposes of recognizing interest income and interest expense on
these instruments.

Non-Interest Income

Change in fair value of net trust assets,

excluding REO
Losses from REO

Non-interest income—net trust assets

Mortgage lending gains and fees, net
Real estate services fees, net
Gain on sale of Experience 1, Inc.
Other

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

5,335 $

(13,226)

26,026 $
(16,587)

(7,891)
73,091
21,218
—
2,928

9,439
13,849
42,153
1,940
2,097

(20,691)
3,361

(17,330)
59,242
(20,935)
(1,940)
831

(80)%
20

(184)
428
(50)
N/A
40

Total non-interest income

89,346 $

69,478 $

19,868

29%

Non-interest

income—net

trust assets. Since

the consolidated and unconsolidated
securitization trusts are nonrecourse to us, our economic risk is limited to the residual interests in these
securitization trusts. To understand the economics on the residual interests in securitizations better, it is
necessary to consider the net effect of changes in fair value of net trust assets and losses from REO. All
estimated future losses are included in the estimate of the fair value of securitized mortgage collateral,
REO and securitized mortgage borrowings. Losses on REO are reported separately in the consolidated
statement of operations as REO is a nonfinancial asset which is the only component of trust assets and
liabilities that is not recorded at fair value. Therefore, REO value at the time of sale or losses from further
write-downs are recorded separately in our consolidated statement of operations. The net effect of
changes in value related to the investment in all trust assets and liabilities is shown as non-interest
income—net trust assets, which includes losses from REO. Non-interest income (loss) related to our net
trust assets (residual interests in securitizations) was a loss of $7.9 million for the year ended
December 31, 2012, compared to a gain of $9.4 million in the comparable 2011 period. The individual
components of the non-interest income from net trust assets are discussed below:

Change in fair value of net trust assets, excluding REO. For the year ended December 31, 2012,
we recognized a $5.3 million gain from the change in fair value of net trust assets, excluding REO. The
net gain recognized during the period was comprised of gains resulting from the increase in fair value of
securitized mortgage collateral of $889.1 million. Partially offsetting these gains were losses resulting
from increases in the fair value of securitized mortgage borrowings and net derivative liabilities, and a
decrease in fair value of investment securities available-for-sale of $880.5 million, $2.8 million and
$434 thousand, respectively.

For the year ended December 31, 2011, we recognized a $26.0 million gain from the change in fair
value of net trust assets, excluding REO. The net gain recognized during the period was comprised of
gains resulting from the decrease in fair value of securitized mortgage borrowings of $133.2 million and
an increase in fair value of investment securities available-for-sale of $88 thousand. Offsetting these
gains were losses resulting from decreases in the fair value of securitized mortgage collateral and net
derivative liabilities of $98.7 million and $8.6 million, respectively.

Losses from REO. Losses from REO were $13.2 million for the year ended December 31, 2012.
This loss was comprised of $13.3 million in additional impairment write-downs during the period and a
$33 thousand gain on sale of REO. The additional impairment write-downs were attributable to higher
expected loss severities on properties held during the period which resulted in a decrease to NRV.

Losses from REO were $16.6 million for the year ended December 31, 2011. This loss was
comprised of $16.5 million in additional impairment write-downs during the period and $122 thousand
loss on sale of REO. During the year ended December 31, 2011, additional impairment write- downs
were attributable to higher expected loss severities on properties held during the period which resulted
in a decrease to NRV.

Mortgage lending gains and fees, net. For the year ended December 31, 2012, mortgage lending
gains and fees, net were $73.1 million compared to $13.9 million in the comparable 2011 period. The
$59.2 million increase in mortgage lending gains and fees, net was the result of $2.4 billion and
$2.3 billion of loans originated and sold, respectively, during the year ended December 31, 2012, as
compared to $883.2 million and $823.4 million of loans originated and sold, respectively, during the
same period in 2011.

Real estate services fees, net. For the year ended December 31, 2012, real estate services fees,
net were $21.2 million compared to $42.1 million in the comparable 2011 period. The $20.9 million
decrease was primarily the result of the decline in loans and balance of the long-term mortgage portfolio
and a reduction in title and escrow fees due to the sale of our interest in Experience 1, Inc., the parent of
the title insurance company, during the third quarter of 2011.

Gain on sale of Experience 1, Inc. During the year ended December 31, 2011, the $1.9 million
gain was the result of the sale of the title insurance company. In September 2011, we sold 7,000 of its
8,000 shares of common stock of its majority-owned subsidiary Experience 1, Inc., for $3.36 million,
recording a gain of $1.78 million and subsequently sold the remaining 1,000 shares in October 2011 for
$360 thousand recording a gain of $160 thousand in the fourth quarter of 2011.

Non-Interest Expense

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

Personnel expense
General, administrative and other
Occupancy expense
Legal and professional expense
Data processing expense

56,986 $
9,427
5,499
2,893
2,071

46,362 $
9,583
4,643
2,894
2,665

Total non-interest expense

76,876 $

66,147 $

10,624
(156)
856
(1)
(594)

10,729

23
(2)%
18
(0)
(22)

16%

Total non-interest expense was $76.9 million for the year ended December 31, 2012, compared to
$66.1 million for the comparable period of 2011. The $10.7 million increase in non-interest expense was
primarily attributable to an increase in personnel and related costs associated with the growth our
mortgage lending platform. Total personnel grew to 540 employees at December 31, 2012 as compared
to 394 employees at December 31, 2011. Occupancy expense increased $856 thousand to $5.5 million
at December 31, 2012 due to the expansion of the mortgage lending operations associated with new
retail offices opened in 2012.

Income Taxes

In accordance with FASB ASC 810-10-45-8, we record a deferred charge representing the deferral
of income tax expense on inter-company profits that resulted from the sale of mortgages from taxable
subsidiaries to IMH in prior years. The deferred charge is included in other assets in the consolidated
balance sheets and is amortized as a component of income tax expense in the consolidated statements
of operations over the estimated life of the mortgages retained in the securitized mortgage collateral.

For the years ended December 31, 2012 and 2011, we recorded income tax expense of
$1.2 million. The income tax expense for 2012 is the result of the federal tax from AmeriHome which is an
unconsolidated or nonqualified tax subsidiary. AmeriHome’s income tax represents a deferred tax
liability that may be paid in future periods when the income becomes taxable. Additionally for 2012, we
incur state income taxes primarily from states where we do not have net operating loss carry-forwards.
The income tax expense for 2011 is the result of the amount of the deferred charge impairment write-
downs based on changes in estimated fair value of securitized mortgage collateral as well as state
income taxes primarily from states where we do not have net operating loss carry-forwards. We did not
have any impairment of deferred charge in 2012 due to the increase in estimated fair value of securitized
mortgage collateral.

The Company is subject to federal income taxes as a regular (Subchapter C) corporation and
files a consolidated U.S. federal income tax return for qualifying subsidiaries. One subsidiary, in which
we own 78.5%, files a federal stand-alone tax return as it does not meet the ownership requirements of
the Internal Revenue Code.

We have significant NOL carry-forwards from prior years. With the improvements in earnings from
our continuing operations, we may be able to generate sufficient taxable income in future years to utilize
these loss carry-forwards, however, at December 31, 2012, we have recognized a full valuation
allowance against these NOL carry-forwards in our consolidated balance sheets.

Results of Operations by Business Segment

Mortgage Lending

Condensed Statements of Operations Data

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

Net interest expense

(673) $

(25) $

(648)

(2,592)%

Mortgage lending gains and fees, net
Other non-interest income

Total non-interest income

Personnel expense
Occupancy expense
Non-interest expense

Net earnings (loss) before income tax

73,091
(75)

73,016

(45,255)
(2,284)
(6,711)

13,849
(380)

13,469

(20,714)
(1,085)
(2,903)

59,242
305

59,547

(24,541)
(1,199)
(3,808)

428
80

442

(118)
(111)
(131)

expense

18,093 $

(11,258) $

29,351

261%

For the year ended December 31, 2012, mortgage lending gains and fees, net were $73.1 million
compared to $13.9 million in the comparable 2011 period. The increase in mortgage lending gains and
fees, net was the result of $2.4 billion and $2.3 billion of loans originated and sold, respectively, during
the year ended December 31, 2012, as compared to $883.2 million and $823.4 million of loans originated
and sold, respectively, during the same period in 2011.

The $59.2 million increase in mortgage lending during the year ended December 31, 2012 was
primarily the result of an increase in the net gain on sale of loans primarily related to a $67.8 million
increase in gains from sales of loans, net of origination costs and a $1.3 million increase in servicing
income, partially offset by an $8.0 million increase in realized and unrealized losses from derivative
instruments and a $1.3 million increase in provision for repurchases.

The $24.5 million increase in personnel expense was attributable to personnel and related costs
primarily due to salaries and commissions associated with the growth of our mortgage lending platform.
The number of mortgage lending employees grew to approximately 430 at December 31, 2012 as
compared to approximately 250 at December 31, 2011.

The $1.2 million increase in occupancy expense is due to the expansion of the mortgage lending

operations associated with new retail offices opened in 2012.

Real Estate Services

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

Net interest income

27 $

19 $

42%

Real estate services fees, net
Gain on sale of Experience 1, Inc.

Total non-interest income

Personnel expense
Non-interest expense

21,218
-

21,218

(7,291)
(1,316)

42,153
1,940

44,093

(20,120)
(4,858)

(20,935)
(1,940)

(22,875)

12,829
3,542

(50)
(100)

(52)

64
73

Net earnings before income tax expense

12,638 $

19,134 $

(6,496)

(34)%

For the year ended December 31, 2012, real estate services fees, net were $21.2 million compared
to $42.1 million in the comparable 2011 period. The $20.9 million decrease in real estate services fees,
net was the result of a decrease of $13.9 million in title and escrow fees, $6.6 million in real estate
services and $518 thousand in real estate and recovery fees. The reduction in title and escrow fees is a
result of the sale of our interest in Experience 1, Inc., the parent of the title insurance company, during the
third quarter of 2011. Partially offsetting these decreases were increases in loss mitigation fees of
approximately $71 thousand.

During the year ended December 31, 2011, the $1.9 million gain is the result of the sale of the title
insurance company. In September 2011, we sold 7,000 of our 8,000 shares of common stock of our
majority-owned subsidiary Experience 1, Inc., for $3.36 million, recording a gain of $1.78 million and
subsequently sold the remaining 1,000 shares in October 2011 for $360 thousand recording a gain of
$160 thousand in the fourth quarter of 2011.

The decrease in personnel and non-interest expense was primarily attributable to both a decrease
in personnel and related costs associated with the sale of Experience 1, Inc. in the third quarter of 2011.

Long-Term Mortgage Portfolio

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

Net interest income

2,465 $

3,598 $

(1,133)

(31)%

Change in fair value of net trust assets,

excluding REO

Losses from real estate owned

Non-interest income – net trust assets

Other non-interest income

Total non-interest income

Personnel expense
Non-interest expense

5,335
(13,226)

(7,891)
3,003

(4,888)

(4,440)
(10,450)

26,026
(16,587)

9,439
2,477

11,916

(5,528)
(10,366)

(20,691)
3,361

(17,330)
526

(16,804)

1,088
(84)

(80)
20

(184)
21

(141)

20
(1)

Net loss before income tax expense

(17,313) $

(380) $

(16,933)

(4456)%

Net interest income decreased $1.1 million for the year ended December 31, 2012 primarily
attributable to a decrease in net interest spread on the long-term portfolio due to increases in pricing and
the corresponding reduction in investor yield requirements between periods on securitized mortgage
collateral and securitized mortgage borrowings as well as a decrease in the balance of the long-term
portfolio. Partially offsetting these reductions was a decrease in interest expense on the note payable for
the year ended December 31, 2012.

For the year ended December 31, 2012, we recognized a $5.3 million gain from the change in fair
value of net trust assets, excluding REO. The net gain recognized during the period was comprised of
gains resulting from the increase in fair value of securitized mortgage collateral of $889.1 million. Partially
offsetting these gains were losses resulting from increases in the fair value of securitized mortgage
borrowings and net derivative liabilities, and a decrease in fair value of investment securities
available-for-sale of $880.5 million, $2.8 million and $434 thousand, respectively. Losses from REO were
$13.2 million for the year ended December 31, 2012. This loss was comprised of $13.3 million in
additional impairment write-downs during the period and a $33 thousand gain on sale of REO. The
additional impairment write-downs were attributable to higher expected loss severities on properties
held during the period which resulted in a decrease to NRV.

Discontinued Operations

Condensed Statements of Operations Data

For the year ended December 31,

2012

2011

(Decrease) Change

Increase

Net interest income

7 $

- $

N/A%

Provision for repurchases
Other non-interest income

Total non-interest income

Legal settlement
Non-interest expense

(5,713)
(174)

(5,887)

(6,100)
2,535

(3,387)
1,604

(1,783)

-
(1,448)

(2,326)
(1,778)

(4,104)

(6,100)
3,983

(69)
(111)

(230)

N/A
275

Net (loss) earnings before income tax

expense

(9,445) $

(3,231) $

(6,214)

(192)%

Provision for repurchases increased $2.3 million to a provision of $5.7 million for the year ended
December 31, 2012, compared to a provision of $3.4 million for the same period in 2011. The $2.3 million
increase is the result of increases in estimated repurchase losses during 2012 related to additional
repurchase claims received from Fannie Mae. Additionally, during the year ended December 31, 2012,
we paid approximately $2.8 million to settle previous repurchase claims related to our previously
discontinued operations.

We recorded a litigation settlement expense of $6.1 million within discontinued operations as a

result of the settlement agreement reached on the Gilmor and Citigroup legacy lawsuits.

Non-interest expense increased $2.1 million between periods primarily due to an increase in legal

and professional expenses associated with legacy lawsuits.

Liquidity and Capital Resources

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, 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 on favorable terms or at all. Our
operations and profitability may be adversely affected if we are unable to obtain cost-effective financing.

We believe that current cash balances, cash flows from our mortgage lending operations, real
estate services fees generated from our long-term mortgage portfolio, and residual interest cash flows
from our long-term mortgage portfolio are adequate for our current operating needs. However, 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 have offices in our market area as
well as operations throughout the United States. We compete for 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. Additionally, competition for loss mitigation servicing, loan modification services
and other portfolio services has increased due to the difficult mortgage environment, credit tightening

and an uncertain economy. Our competitors include mega mortgage servicers, established subprime
loan servicers, and newer entrants to the specialty servicing and recovery collections business. Efforts
to market our ability to provide mortgage and real estate services for others is more difficult than many of
our competitors because we have not historically provided such services to unrelated third parties, and
we are not a rated primary or special servicer of residential mortgage loans as designated by a rating
agency. Additionally, performance of the long-term mortgage portfolio is subject to the current real
estate market and economic conditions. Cash flows from our residual interests in securitizations are
sensitive to delinquencies, defaults and credit losses associated with the securitized loans. Losses in
excess of current estimates will reduce the residual interest cash receipts from our long-term mortgage
portfolio.

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 many factors, particularly our ability to
successfully operate our mortgage lending segment, real estate services segment and realizing cash
flows from the long-term mortgage portfolio. Our future financial performance and success are
dependent in large part upon the ability to expand our mortgage lending platform and profitability.

Sources of Liquidity

Cash flows from our mortgage lending operations. We receive loan fees from loan originations.
Fee income consists of application and underwriting fees and fees on cancelled loans. These loan fees
are offset by the related direct loan origination costs including broker fees related to our wholesale and
correspondent channels. In addition, we generally recognize net interest income on loans held for sale
from the date of origination through the date of disposition. In 2012 and continuing into 2013, the
borrowing rates on warehouse facilities exceeded loan note rates whereby we are experiencing net
interest expense from the loans held for sale due to the recent interest rate environment creating a flat
yield curve. We sell or securitize substantially all of the loans we originate in the secondary mortgage
market, with servicing rights released or retained. Loans are sold on a whole loan basis by entering into
sales transactions with third party investors in which we receive a premium for the loan and related
servicing rights, if applicable. The mortgage lending operations sold $2.3 billion of mortgages through
whole loan sales and securitizations during 2012. Additionally, the mortgage lending operations enter
into interest rate lock commitments (IRLCs) and utilize forward sold Fannie Mae and Ginnie Mae
mortgage backed securities (Hedging Instruments) to hedge the fair value changes associated with
changes in interest rates relating to its mortgage loan origination operations. We may be subject to
pair-off gains and losses associated with these hedging instruments. Since we rely significantly upon
loan sales to generate cash proceeds to repay warehouse borrowings and to create credit availability,
any disruption in our ability to complete sales may require us to utilize other sources of financing, which,
if available at all, may be on less favorable terms. In addition, delays in the disposition of our mortgages
increase our risk by exposing us to credit and interest rate risk for this extended period of time.

Fees from our mortgage and real estate service business activities. We earn fees from various
mortgage and real estate business activities, including mortgage lending, loss mitigation, real estate
disposition, monitoring and surveillance services and real estate brokerage. We provide services to
investors, servicers and individual borrowers primarily by focusing on loss mitigation and performance
of our long-term mortgage portfolio.

Cash flows from our long-term mortgage portfolio (residual interests in securitizations). We
receive residual cash flows on mortgages held as securitized mortgage collateral after distributions are
made to investors on securitized mortgage borrowings to the extent required credit enhancements are
maintained and performance covenants are complied with for credit ratings on the securitized mortgage

borrowings. These cash flows represent the difference between principal and interest payments on the
underlying mortgages, affected by the following:

(cid:127) servicing and master servicing fees paid;

(cid:127) premiums paid to mortgage insurers;

(cid:127) cash payments / receipts on derivatives;

(cid:127) interest paid on securitized mortgage borrowings;

(cid:127) principal payments and prepayments paid on securitized mortgage borrowings;

(cid:127) overcollateralization requirements;

(cid:127) actual losses, net of any gains incurred upon disposition of other real estate owned or acquired

in settlement of defaulted mortgages;

(cid:127) unpaid interest shortfall;

(cid:127) basis risk shortfall; and

(cid:127) bond write-downs reinstated.

Certain residuals have been pledged as collateral for a note payable. Residual cash flows are used
to make principal and interest payments (See further details below under Structured Debt Agreement.)

Additionally, we act as the master servicer for mortgages included in our CMO and REMIC
securitizations. The master servicing fees we earn are generally 0.03% per annum (3 basis points) on the
declining principal balances of these mortgages plus interest income on cash held in custodial accounts
until remitted to investors, less any interest shortfall. However, due to the decline in interest rates, the
interest income earned on cash held in custodial accounts has declined significantly.

Cash flows from financing facilities and other lending relationships. We primarily fund our
mortgage originations through warehouse facilities with third party lenders. We primarily use facilities
with national and regional banks. During 2012, the warehouse facilities borrowing capacity amounted to
$217.5 million, of which $107.6 million was outstanding at December 31, 2012. The warehouse facilities
are secured by and used to fund single-family residential mortgage loans. The warehouse facilities have
certain covenant tests which we are required to satisfy. At December 31, 2012, we were in compliance
with all warehouse covenants. In order to mitigate the liquidity risk associated with warehouse
borrowings, we attempt to sell our mortgage loans within 10-15 days from acquisition or origination. In
addition to the warehouse facilities, we have also entered into a Line of Credit and a Note Payable. There
was no outstanding balance on the Line of Credit at December 31, 2012 and an outstanding balance of
$3.5 million on the Notes Payable.

Our ability to meet liquidity requirements and the financing needs of our customers is subject to
the renewal of our warehouse facilities or obtaining other sources of financing, if required, including
additional debt or equity from time to time. Any decision our lenders or investors make to provide
available financing to us in the future will depend upon a number of factors, including:

(cid:127) our compliance with the terms of existing warehouse lines and credit arrangements, including

any financial covenants;

(cid:127) the ability to obtain waivers upon any noncompliance;

(cid:127) our financial performance;

(cid:127) industry and market trends in our various businesses;

(cid:127) the general availability of, and rates applicable to, financing and investments;

(cid:127) our lenders or investors resources and policies concerning loans and investments; and

(cid:127) the relative attractiveness of alternative investment or lending opportunities.

Uses of Liquidity

Acquisition and origination of mortgage loans. During 2012, the mortgage lending operations
originated or acquired $2.4 billion of mortgages. Capital invested in mortgages is outstanding until we
sell the loans, which is one of the reasons we attempt to sell within 10-15 days of acquisition or
origination. Initial capital invested in mortgage loans includes premiums paid when mortgages are
acquired and originated and our capital investment, or ‘‘haircut,’’ required upon financing, which is
generally determined by the type of collateral provided and the warehouse facility terms. The mortgage
lending operations acquired and originated $2.4 billion of residential mortgages, which were financed
with warehouse borrowings at a haircut generally between 2% to 10% of the outstanding principal
balance of the mortgage loans. In addition, warehouse lenders require cash to be posted as additional
collateral for the facilities. At December 31, 2012, we had $1.1million in restricted cash posted as
additional collateral.

Financing Activities

Structured Debt Agreement (Note Payable).

In February 2012, we refinanced the existing debt
with this lender and entered into a new $7.5 million structured debt agreement (Note Payable) using eight
of our residual interests (net trust assets) as collateral. We received proceeds of $7.0 million, net of the
aforementioned payoff of $408 thousand and transaction costs of approximately $50 thousand.

The structured debt agreement is evidenced by an Indenture with Deutsche Bank National Trust
Company, as trustee. It bears interest at a fixed rate of 25% per annum and is amortized in equal
principal payments over 18 months with all distributions from the underlying residual interests being
used to make the monthly payments, and was recorded as a note payable in the accompanying
consolidated balance sheets. Any excess cash flows from the residual interests are included in a reserve
account, which is available to cover any future shortfall and is recorded on the consolidated balance
sheets as restricted cash. If the cumulative cash flows received, including the reserve account balance,
from the collateralized residual interests are not sufficient to pay the required monthly principal and
interest, we would be required to pay the difference to avoid the transfer of the residual interests and the
rights to the associated future cash flows to the note holder. To the extent there is excess cash flows
after the reserve account reaches a balance of $1.5 million, we will receive 70% of the excess cash flows
to a monthly maximum of $300 thousand. If the amount of restricted cash in the reserve account
becomes sufficient to satisfy the remaining scheduled payments, the residuals listed as security can be
released back to us.

During the year ended December 31, 2012, we received $1.5 million in excess cash flows from the
residual interests collateralizing the note payable. The $1.5 million in excess cash flows is included in
restricted cash on the consolidated balance sheets. If the amount of restricted cash becomes sufficient
to satisfy the remaining obligation the note payable can be paid off and the residuals listed as security
are released. The carrying value of the structured debt agreement at December 31, 2012 was
$3.3 million, and was current as to principal and interest payments.

Working Capital Line of Credit (Line of Credit).

In April 2012, we amended and extended for one
year the $4.0 million working capital line of credit agreement at an interest rate of one-month LIBOR plus
3.50%. We make monthly interest payments based on the unpaid balance of the Line of Credit. The
agreement expires in April 2013 and under the terms of the agreement we are required to maintain
various financial and other covenants. There was no outstanding balance on the Line of Credit as of
December 31, 2012, and we were in compliance with the capital expenditure limitation covenant. We
expect to renew the Line of Credit upon maturity.

Long-term Debt (Trust Preferred Securities and Junior Subordinated Notes). Trust Preferred
Securities had an outstanding principal balance of $8.5 million at December 31, 2012 with a stated
maturity of July 30, 2035. The Junior Subordinated Notes are redeemable at par at any time after July 30,
2010 and requires quarterly distributions at a variable rate of three-month LIBOR plus 3.75% per annum.
Junior Subordinated Notes had an outstanding principal balance of $62.0 million at December 31, 2012
with a stated maturity of March 2034. The Trust Preferred Securities require quarterly distributions
initially at a fixed rate of 2.00% per annum through December 2013 with increases of 1.00% per year
through 2017. Starting in 2018, the interest rates become variable at 3-month LIBOR plus 3.75% per
annum. At December 31, 2012, the interest rate was 4.06%. We are current on all interest payments. At
December 31, 2012, Long-term Debt had a estimated fair value of $12.7 million and are reflected on our
consolidated balance sheets as long-term debt.

Repurchase Reserve. When we sell loans through whole loan sales we are required to make
normal and customary representations and warranties about the loans to the purchaser. Our whole loan
sale agreements generally require us to repurchase loans if we breach a representation or warranty given
to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud
or if a payment default occurs on a mortgage loan shortly after its sale.

Investors have requested the Company to repurchase loans or to indemnify them against losses
on certain loans which the investors believe either do not comply with applicable representations or
warranties or defaulted shortly after its purchase. The Company records an estimated reserve for these
losses at the time the loan is sold, and adjusts the reserve to reflect the estimated loss.

Operating activities. Net cash provided by operating activities was $183.3 million for 2012 as
compared to $173.6 million for 2011. During 2012 and 2011, the primary sources of cash in operating
activities were cash received from fees generated by our mortgage and real estate service business
activities, cash received from mortgage lending and excess cash flows from our residual interests in
securitizations offset by operating expenses.

Investing activities. Net cash provided by investing activities was $735.0 million for 2012 as
compared to $838.5 million for 2011. For 2012 and 2011, the primary source of cash from investing
activities was provided by principal repayments on our securitized mortgage collateral and proceeds
from the liquidation of REO.

Financing activities. Net cash used in financing activities was $913.2 million for 2012 as
compared to $1.0 billion for 2011. For 2012 and 2011, net cash used in financing activities was primarily
for principal repayments on securitized mortgage borrowings, repayments of the line of credit and
principal repayments of notes payable, partially offset by net borrowings under warehouse agreements,
borrowings under the line of credit and issuance of the Note Payable.

Inflation. The consolidated financial statements and corresponding notes to the consolidated
financial statements have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without considering the changes in
the relative purchasing power of money over time due to inflation. For the years ended December 31,
2012 and 2011, inflation had no significant impact on our revenues or net income. Unlike industrial

companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a
greater effect on our performance than do the effects of general levels of inflation. Inflation affects our
operations primarily through its effect on interest rates, since interest rates normally increase during
periods of high inflation and decrease during periods of low inflation.

Off Balance Sheet Arrangements

When we sell or broker loans through whole-loan sales, we are required to make normal and
customary representations and warranties to the loan originators or purchasers, including guarantees
against early payment defaults typically 90 days, and fraudulent misrepresentations by the borrowers.
Our agreements generally require us to repurchase loans if we breach a representation or warranty given
to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud
or if a payment default occurs on a mortgage loan shortly after its sale. Because the loans are no longer
on our balance sheet, the representations and warranties are considered a guarantee. During 2012, we
sold $2.3 billion and brokered $65.5 million of loans subject to representations and warranties compared
to $823.4 million and $23.9 million in 2011. We maintained a $2.4 million reserve related to these and
other guarantees as of December 31, 2012 compared to a reserve of $0.6 million as December 31, 2011.
Additionally, the repurchase reserve within discontinued operations was $8.2 million as compared to
$5.2 million at December 31, 2011. During 2012 we paid $2.8 million to settle repurchase demands on
loans previously sold to third parties as compared to $6.2 million to settle or repurchase loans during
2011.

See disclosures in the notes to the consolidated financial statements under ‘‘Commitments and

Contingencies’’ for other arrangements that qualify as off balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this

Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is incorporated by reference to Impac Mortgage
Holdings, Inc.’s Consolidated Financial Statements and Independent Auditors’ Report beginning at
page F-1 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to ensure that information required to be
disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended
(Exchange Act), is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of its chief executive officer (CEO) and its
chief financial officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2012. Based on that evaluation, the Company’s chief executive officer and chief financial
officer concluded that, as of that date, the Company’s disclosure controls and procedures were effective
at a reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Section 13a-15(f) of the Exchange Act). Internal control
over financial reporting is a process designed by, or under the supervision of, the Company’s CEO and
CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of the Company’s financial statements for reporting purposes in conformity with U.S. generally accepted
accounting principles and include those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.

As of December 31, 2012, management conducted an assessment of the effectiveness of the
Company’s internal control over financial reporting based on the framework established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on the criteria established by COSO, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2012.

Our management, including our chief executive officer and chief financial officer, does not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent or
detect all errors and all fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of

controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion
of two or more people, or by improper management override of the controls. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with
associated policies or procedures. Because of the inherent limitations in a cost-effective control system,
there is a risk that material misstatements due to error or fraud may occur and will not be detected on a
timely basis.

Squar, Milner, Peterson, Miranda & Williamson, LLP, the independent registered public accounting
firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has
issued an attestation report on the Company’s internal control over financial reporting, a copy of which is
included herein.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2012, there were no changes in our internal control over
financial reporting that materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Impac Mortgage Holdings, Inc.

We have audited Impac Mortgage Holdings, Inc.’s (the Company) internal control over financial
reporting as of December 31, 2012 based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). Impac Mortgage Holdings, Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, Impac Mortgage Holdings, Inc. maintained, in all material respects, effective

internal control over financial reporting as of December 31, 2012 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Impac Mortgage Holdings, Inc. and
subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of operations,
changes in stockholders’ equity and cash flows for the years then ended, and our report dated March 11,
2013 expressed an unqualified opinion thereon.

/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP

Newport Beach, California
March 11, 2013

ITEM 9B. OTHER INFORMATION

On October 26, 2012, Repurchase agreement 1 was amended to increase the maximum

borrowing capacity increased from $40.0 million to $47.5 million.

The information set forth above is included herewith for the purpose of providing the disclosure
required under ‘‘Item 1.01—Entry into a Material Definitive Agreement’’ and ‘‘Item 2.03 Creation of a
Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant’’ of
Form 8-K.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is hereby incorporated by reference to Impac Mortgage
Holdings, Inc.’s definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after
the end of Impac Mortgage Holdings, Inc.’s fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is hereby incorporated by reference to Impac Mortgage
Holdings, Inc.’s definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after
the end of Impac Mortgage Holdings, Inc.’s fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 including Equity Compensation Plan Information is
hereby incorporated by reference to Impac Mortgage Holdings, Inc.’s definitive proxy statement, to be
filed pursuant to Regulation 14A within 120 days after the end of Impac Mortgage Holdings, Inc.’s fiscal
year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information required by this Item 13 is hereby incorporated by reference to Impac Mortgage
Holdings, Inc.’s definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after
the end of Impac Mortgage Holdings, Inc.’s fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is hereby incorporated by reference to Impac Mortgage
Holdings, Inc.’s definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after
the end of Impac Mortgage Holdings, Inc.’s fiscal year.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(3) Exhibits

PART IV

The exhibits listed on the accompanying Exhibit Index are incorporated by reference into this

Item 15 of this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 11th day of March 2013.

IMPAC MORTGAGE HOLDINGS, INC.

by /s/ JOSEPH R. TOMKINSON

Joseph R. Tomkinson
Chairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the

following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ JOSEPH R. TOMKINSON

Joseph R. Tomkinson

Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)

March 11, 2013

/s/ WILLIAM S. ASHMORE

President and Director

March 11, 2013

William S. Ashmore

/s/ TODD R. TAYLOR

Todd R. Taylor

Chief Financial Officer (Principal Financial and
Accounting Officer)

March 11, 2013

/s/ JAMES WALSH

Director

James Walsh

/s/ FRANK P. FILIPPS

Director

Frank P. Filipps

/s/ STEPHAN R. PEERS

Director

Stephan R. Peers

/s/ LEIGH J. ABRAMS

Director

Leigh J. Abrams

March 11, 2013

Exhibit Index

Exhibit
Number Description

3.1

3.1(a)

3.1(b)

3.1(c)

3.1(d)

3.1(e)

3.1(f)

3.1(g)

3.1(h)

3.1(i)

3.1(j)

Charter of the Registrant (incorporated by reference to the corresponding exhibit
number to the Registrant’s Registration Statement on Form S-11, as amended (File
No. 33-96670), filed with the Securities and Exchange Commission on November 8,
1995).

Certificate of Correction of the Registrant (incorporated by reference to exhibit 3.1(a) of
the Registrant’s 10-K for the year-ended December 31, 1998).

Articles of Amendment of the Registrant (incorporated by reference to exhibit 3.1(b) of
the Registrant’s 10-K for the year-ended December 31, 1998).

Articles of Amendment for change of name to Charter of the Registrant (incorporated by
reference to exhibit number 3.1(a) of the Registrant’s Current Report on Form 8-K/A
Amendment No. 1, filed February 12, 1998).

Articles Supplementary and Certificate of Correction for Series A Junior Participating
Preferred Stock of the Registrant (incorporated by reference to exhibit 3.1(d) of the
Registrant’s 10-K for the year-ended December 31, 1998).

Articles of Amendment, filed with the State Department of Assessments and Taxation of
Maryland on July 16, 2002, increasing authorized shares of Common Stock of the
Registrant (incorporated by reference to exhibit 10 of the Registrant’s Form 8-A/A,
Amendment No. 2, filed July 30, 2002).

Articles of Amendment, filed with the State Department of Assessments and Taxation of
Maryland on June 22, 2004, amending and restating Article VII of the Registrant’s
Charter (incorporated by reference to exhibit 7 of the Registrant’s Form 8-A/A,
Amendment No. 1, filed June 30, 2004).

Articles Supplementary designating the Company’s 9.375 percent Series B Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share, par value $0.01
per share, filed with the State Department of Assessments and Taxation of Maryland on
May 26, 2004 (incorporated by reference to exhibit 3.8 of the Registrant’s Form 8-A/A,
Amendment No. 1, filed June 30, 2004).

Articles Supplementary designating the Company’s 9.125 percent Series C Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share, par value $0.01
per share, filed with the State Department of Assessments and Taxation of Maryland on
November 18, 2004 (incorporated by reference to exhibit 3.10 of the Registrant’s
Form 8-A filed November 19, 2004).

Articles of Amendment of the Company, effective as of December 30, 2008, effecting
1-for-10 reverse stock split (incorporated by reference to exhibit 3.1 of the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 30, 2008).

Articles of Amendment of the Company, effective as of December 30, 2008, amending
par value (incorporated by reference to exhibit 3.2 of the Registrant’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 30, 2008).

Exhibit
Number Description

3.1(k)

3.1(l)

3.2

3.2(a)

3.2(b)

3.2(c)

3.2(d)

3.2(e)

3.2(f)

4.1

4.2

4.2(a)

4.3

Articles of Amendment of Series B Preferred Stock (incorporated by reference to
exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 30, 2009).

Articles of Amendment of Series C Preferred Stock (incorporated by reference to
exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 30, 2009).

Bylaws, as amended and restated (incorporated by reference to the corresponding
exhibit number of the Registrant’s Quarterly Report on Form 10-Q for the period ending
March 31, 1998).

Amendment to Bylaws (incorporated by reference to exhibit 3.2(a) of the Registrant’s
Registration Statement of Form S-3 (File No. 333-111517) filed with the Securities and
Exchange Commission on December 23, 2003).

Second Amendment to Bylaws (incorporated by reference to Exhibit 3.2(b) of the
Registrant’s Form 8-K, filed with the Securities and Exchange Commission on April 1,
2005).

Third Amendment to Bylaws of the Company (incorporated by reference to
Exhibit 3.2(c) of the Registrant’s Form 8-K, filed with the Securities and Exchange
Commission on March 29, 2006).

Fourth Amendment to Bylaws of the Company (incorporated by reference to Exhibit 3.2
of the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on December 20, 2007).

Fifth Amendment to Bylaws of the Company (incorporated by reference to Exhibit 3.2(e)
of the Registrant’s Form 8-K, filed with the Securities and Exchange Commission on
February 13, 2008).

Amendment No. 6 to Bylaws of the Company (incorporated by reference to the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 5, 2008).

Form of Stock Certificate of the Company (incorporated by reference to the
corresponding exhibit number to the Registrant’s Registration Statement on Form S-11,
as amended (File No. 33-96670), filed with the Securities and Exchange Commission on
September 7, 1995).

Indenture between Impac Mortgage Holdings, Inc. and Wilmington Trust Company, as
trustee, dated October 18, 2005 (incorporated by reference to Exhibit 4.8 of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005).

First Supplemental Indenture dated as of July 14, 2009 between Wilmington Trust
Company and Impac Mortgage Holdings, Inc. to Indenture dated October 18, 2005
(incorporated by reference to Exhibit 4.1 of the Registrant’s Quarterly Report on
Form 10-Q for the period ended June 30, 2009).

Junior Subordinated Indenture dated May 8, 2009 between Impac Mortgage
Holdings, Inc. and The Bank of New York Mellon Trust Company, National Association,
as trustee, related to Junior Subordinated Note due 2034 in the principal amount of
$30,244,000 (incorporated by reference to exhibit 10.3 of the Registrant’s Quarterly
Report on Form 10-Q for the period ended June 30, 2009).

Exhibit
Number Description

4.4

4.5

4.5(a)

10.1(a)

10.1(b)

10.2

10.3

10.4

10.5*

10.5(a)*

10.5(b)*

10.5(c)*

10.6*

Junior Subordinated Indenture dated May 8, 2009 between Impac Mortgage
Holdings, Inc. and The Bank of New York Mellon Trust Company, National Association,
as trustee, related to Junior Subordinated Note due 2034 in the principal amount of
$31,756,000 (incorporated by reference to exhibit 10.4 of the Registrant’s Quarterly
Report on Form 10-Q for the period ended June 30, 2009).

Indenture dated November 26, 2010 between LVII 2010-R1 and Deutsche National Trust
Company, as trustee (incorporated by reference to Exhibit 4.7 of the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2010).

Supplemental Indenture No. 1 dated May 17, 2011 between LVII 2010-R1 and Deuschte
Bank National Trust Company (incorporated by reference to Exhibit 10.5 of the
Registrant’s Quarterly Report on Form 10-Q for the year period June 30, 2011).

Form of 2002 Indemnification Agreement between the Registrant and its Directors and
Officers (incorporated by reference to exhibit 10.1(a) of the Registrant’s Quarterly Report
on Form 10-Q for the period ended September 30, 2004).

Schedule of each officer and director that is a party to an Indemnification Agreement
(incorporated by reference to exhibit 10.2(b) of the Registrant’s Annual Report on
Form 10-K for the year-ended December 31, 2007).

Form of Loan Purchase and Administrative Services Agreement between the Registrant
and Impac Funding Corporation (incorporated by reference to exhibit 10.9 to the
Registrant’s Registration Statement on Form S-11, as amended (File No. 33-96670),
filed with the Securities and Exchange Commission on September 7,1995).

Servicing Agreement effective November 11, 1995 between the Registrant and Impac
Funding Corporation (incorporated by reference to exhibit 10.14 to the Registrant’s
Registration Statement on Form S-11, as amended (File No. 333-04011), filed with the
Securities and Exchange Commission on May 17, 1996).

Lease dated March 4, 2005 regarding 19500 Jamboree Road, Newport Beach California
(incorporated by reference to exhibit 10.8 of the Registrant’s Annual Report on
Form 10-K for the year-ended December 31, 2004).

Impac Mortgage Holdings, Inc. Omnibus Incentive Plan (as amended) (incorporated by
reference to Appendix A of the Company’s proxy statement on Schedule 14A filed with
the Securities and Exchange Commission on April 30, 2012).

Form of Stock Option Agreement for 2010 Omnibus Incentive Plan (incorporated by
reference to exhibit 99.6 of the Registrant’s Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on September 10, 2010).

Form of Restricted Stock Agreement for 2010 Omnibus Incentive Plan (incorporated by
reference to exhibit 99.7 of the Registrant’s Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on September 10, 2010).

Form of Stock Option Agreement for 2001 Stock Option, Deferred Stock and Restricted
Stock Plan (incorporated by reference to exhibit 10.2 of the Registrant’s Quarterly
Report on Form 10-Q for the period ended September 30, 2004).

Non-Employee Director Deferred Stock Unit Award Program (incorporated by reference
to Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2010).

Exhibit
Number Description

10.6(a)*

Form of Notice of Grant Under Non-Employee Director Deferred Stock Unit Award
Program (incorporated by reference to Exhibit 10.6a of the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2010).

10.7*

10.8*

10.9

10.9(a)

10.10

10.11

10.12

10.13(a)

10.13(b)

10.13(c)

Executive Employment Agreement effective as of July 1, 2009 between Impac Mortgage
Holdings, Inc. and Joseph R. Tomkinson (incorporated by reference to exhibit 10.1 of
the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 8, 2011).

Executive Employment Agreement made as of July 1, 2009 between Impac Mortgage
Holdings, Inc. and William S. Ashmore (incorporated by reference to exhibit 10.2 of the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 8, 2011).

Amended and Restated Declaration of Trust among Impac Mortgage Holdings, Inc.,
Wilmington Trust Company, as Delaware and Institutional Trustee, and the
Administrative Trustees named therein, dated October 18, 2005 (incorporated by
reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2005).

Amendment No. 1 dated as of July 14, 2009 among Wilmington Trust Company, Impac
Mortgage Holdings, Inc. and holders of Capital Securities to Amended and Restated
Declaration of Trust dated October 18, 2005 (incorporated by reference to Exhibit 10.1
of the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2009).

Amended and Restated Trust Agreement dated November 26, 2010 among IMH Assets
Corp., Christiana Bank & Trust Company, as owner trustee, and Deutsche Bank
National Trust Company, as registrar and paying agent (incorporated by reference to
Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2010).

Exchange Agreement dated May 8, 2009 between Impac Mortgage Holdings, Inc.,
Taberna Preferred Funding I, Ltd., and Taberna Preferred Funding II, Ltd. (incorporated
by reference to exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the
period ended June 30, 2009).

Master Repurchase Agreement dated as of December 3, 2010 between New Century
Bank (d/b/a Customers Bank), Excel Mortgage Servicing and AmeriHome Mortgage
Corporation. (incorporated by reference to Exhibit 10.15 of the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2010).

Guaranty and Suretyship Agreement dated as of December 3, 2010 made by the
Registrant. (incorporated by reference to Exhibit 10.15(a) of the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2010).

Guaranty and Suretyship Agreement dated as of December 3, 2010 made by Integrated
Real Estate Service Corp. (incorporated by reference to Exhibit 10.15(b) of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010).

First Amendment dated April 4, 2011 to Master Repurchase Agreement with New
Century Bank (d/b/a Customers Bank) (incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q for the year period June 30, 2011).

Exhibit
Number Description

10.13(d)

10.13(e)

10.13(f)

10.14

10.14(a)

10.14(b)

10.15

10.15(a)

10.15(b)

10.16

10.16(a)

10.16(b)

10.16(c)

Second Amendment dated June 30, 2011 to Master Repurchase Agreement with
Customers Bank (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly
Report on Form 10-Q for the year period June 30, 2011).

Third Amendment dated April 13, 2012 to Master Repurchase Agreement with
Customers Bank (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly
Report on Form 10-Q for the year period June 30, 2012).

Fourth Amendment dated June 29, 2012 to Master Repurchase Agreement with
Customers Bank (incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly
Report on Form 10-Q for the year period June 30, 2012).

Master Repurchase Agreement between Excel Mortgage Servicing, Inc. and Alliance
Bank of Arizona dated March 30, 2011(incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q for the year period March 31, 2011).

Amendment dated September 22, 2011 to Master Repurchase Agreement with Alliance
Bank (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on
Form 10-Q for the year period September 30, 2011).

Amendment dated August 20, 2012 to Master Repurchase Agreement with Alliance
Bank (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on
Form 10-Q for the period ended September 30, 2012).

Line of Credit Agreement dated April 1, 2011 among Excel Mortgage Servicing, Inc. and
Wells Fargo (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly
Report on Form 10-Q for the year period June 30, 2011).

First Modification to Promissory Note and First Modification Credit Agreement, each
dated November 7, 2011, between Excel Mortgage Servicing, Inc. and Wells Fargo
Bank (incorporated by reference to Exhibit 10.17(a) of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2011).

Third Amendment dated April 1, 2012 to Line of Credit Agreement with Wells Fargo and
Revolving Credit Note dated April 1, 2012 (incorporated by reference to Exhibit 10.1 of
the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).

Master Repurchase Agreement dated as of August 31, 2011 between MetLife Bank,
Excel Mortgage Servicing and AmeriHome Mortgage Corporation (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the
period ended September 30, 2011).

First Amendment dated May 1, 2012 to Master Repurchase Agreement with Ever Bank
(incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on
Form 10-Q for the period ended June 30, 2012).

Second Amendment dated June 21, 2012 to Master Repurchase Agreement with
EverBank

Third amendment dated August 28, 2012 to Master Repurchase Agreement with
EverBank (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report
on Form 10-Q for the period ended September 30, 2012).

Exhibit
Number Description

10.17

10.18

21.1

23.1

31.1

31.2

32.1**

101**

Master Repurchase Agreement and Side Letter each dated as of September 21, 2012
between Credit Suisse, and Excel Mortgage Servicing, and Integrated Real Estate
Service Corp and Impac Mortgage Holdings, Inc as guarantors (incorporated by
reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the
period ended September 30, 2012).

Master Repurchase Agreement dated as of May 14, 2012 between Bank of Internet,
Excel Mortgage Servicing and AmeriHome Mortgage Corporation (incorporated by
reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the
period ended June 30, 2012).

Subsidiaries of the Registrant

Consent of Squar, Milner, Peterson, Miranda & Williamson, LLP

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

The following financial information from our Annual Report on Form 10-K for the year
ended December 31, 2011, formatted in XBRL (Extensible Business Reporting
Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed
Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of
Stockholders’ Equity, (4) the Condensed Consolidated Statements of Cash Flows, and
(5) Notes to Consolidated Financial Statements, tagged as blocks of text.

Denotes a management or compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 601 of Regulation S-K
This exhibit shall not be deemed ‘‘filed’’ for purposes of Section 18 of the Securities Exchange Act
of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
whether made before or after the date hereof and irrespective of any general incorporation
language in any filings.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Report of Independent Registered Public Accounting Firm ..................................................

Consolidated Balance Sheets as of December 31, 2012 and 2011 .......................................

Consolidated Statements of Operations for the years ended December 31, 2012 and 2011 .....

Consolidated Statements of Changes in Stockholders’ Equity for the years ended

December 31, 2012 and 2011 ......................................................................................

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 ....

Notes to Consolidated Financial Statements .....................................................................

F-2

F-3

F-4

F-5

F-6

F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Impac Mortgage Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Impac Mortgage
Holdings, Inc. and subsidiaries (the ‘‘Company’’) as of December 31, 2012 and 2011, and the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Impac Mortgage Holdings, Inc. and subsidiaries at December 31, 2012
and 2011, and the consolidated results of their operations and their cash flows for the years then ended
in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 11, 2013 expressed an unqualified opinion thereon.

/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP

Newport Beach, California
March 11, 2013

F-2

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

ASSETS

Cash and cash equivalents
Restricted cash
Trust assets

Investment securities available-for-sale
Securitized mortgage collateral
Derivative assets
Real estate owned

Total trust assets

Mortgage loans held-for-sale
Mortgage servicing rights
Assets of discontinued operations
Other assets

Total assets

LIABILITIES

Trust liabilities

Securitized mortgage borrowings
Derivative liabilities

Total trust liabilities

Warehouse borrowings
Long-term debt
Notes payable
Liabilities of discontinued operations
Other liabilities

Total liabilities

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Series A junior participating preferred stock, $0.01 par value; 2,500,000 shares

authorized; none issued or outstanding

Series B 9.375% redeemable preferred stock, $0.01 par value; liquidation value
$16,640; 2,000,000 shares authorized, 665,592 noncumulative shares issued
and outstanding as of December 31, 2012 and December 31, 2011,
respectively

Series C 9.125% redeemable preferred stock, $0.01 par value; liquidation value

$35,127; 5,500,000 shares authorized; 1,405,086 noncumulative shares
issued and outstanding as of December 31, 2012 and December 31, 2011,
respectively

Common stock, $0.01 par value; 200,000,000 shares authorized; 8,474,017

and 7,814,946 shares issued and outstanding as of December 31, 2012 and
December 31, 2011, respectively

Additional paid-in capital
Net accumulated deficit:

Cumulative dividends declared
Retained deficit

Net accumulated deficit

Total Impac Mortgage Holdings, Inc. stockholders’ equity

Noncontrolling interests

Total stockholders’ equity

Total liabilities and stockholders’ equity

At December 31,

2012

2011

12,711
3,230

7,653
5,019

110
5,787,884
37
22,475

5,810,506

118,786
10,703
52
30,600

688
5,449,001
37
56,467

5,506,193

61,718
4,141
264
27,052

5,986,588

5,612,040

5,777,456
17,200

5,794,656

5,454,901
24,786

5,479,687

107,569
12,731
3,451
18,808
19,530

58,691
11,561
5,182
9,932
15,890

5,956,745

5,580,943

85
1,079,083

78
1,076,723

(822,520)
(227,709)

(822,520)
(224,334)

(1,050,229)

(1,046,854)

28,960

883

29,843

29,968

1,129

31,097

5,986,588

5,612,040

See accompanying notes to consolidated financial statements.

F-3

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

INTEREST INCOME

INTEREST EXPENSE

Net interest income

NON-INTEREST INCOME:

Change in fair value of net trust assets, excluding REO
Losses from REO

Non-interest income – net trust assets

Mortgage lending gains and fees, net
Real estate services fees, net
Gain on sale of Experience 1, Inc.
Other

Total non-interest income

NON-INTEREST EXPENSE:

Personnel expense
General, administrative and other
Occupancy expense
Legal and professional expense
Data processing expense

Total non-interest expense

Earnings from continuing operations before income tax expense

Income tax expense from continuing operations

Earnings from continuing operations

Loss from discontinued operations, net of tax

Net (loss) earnings

Net (earnings) loss attributable to noncontrolling interests

Net (loss) earnings attributable to IMH

Earnings (loss) per common share – basic:

Earnings from continuing operations attributable to IMH
Loss from discontinued operations

Net (loss) earnings per share available to common stockholders

Earnings (loss) per common share – diluted:

Earnings from continuing operations attributable to IMH
Loss from discontinued operations

Net (loss) earnings per share available to common stockholders

For the year ended
December 31,

2012

2011

$ 478,647

$ 737,464

476,828

733,872

1,819

3,592

5,335
(13,226)

(7,891)
73,091
21,218
-
2,928

89,346

56,986
9,427
5,499
2,893
2,071

76,876

14,289
1,244

13,045
(15,549)

(2,504)
(871)

(3,375) $

1.54
(1.96)

(0.42) $

1.54
(1.96)

(0.42) $

26,026
(16,587)

9,439
13,849
42,153
1,940
2,097

69,478

46,362
9,583
4,643
2,894
2,665

66,147

6,923
1,194

5,729
(3,078)

2,651
573

3,224

0.81
(0.40)

0.41

0.76
(0.37)

0.39

See accompanying notes to consolidated financial statements

F-4

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)

Preferred
Shares
Outstanding

Preferred

Common
Shares

Stock Outstanding

Additional Cumulative

Total IMH

Total

Common
Stock

Paid-In
Capital

Dividends Retained Stockholders’ Noncontrolling Stockholders’
Declared

Interests

Deficit

Equity

Balance, December 31, 2010

2,070,678

7,787,546

78 $ 1,076,375 $ (822,520) $ (227,558) $

26,396 $

1,301 $

27,697

Proceeds and tax benefit from exercise

of stock options

F
-
5

Stock based compensation
Contribution from noncontrolling interest
Net earnings (loss)

-
-
-
-

27,400
-
-
-

-
-
-
-

14
334
-
-

-
-
-
-

-
-
-
3,224

14
334
-
3,224

-
-
401
(573)

14
334
401
2,651

Balance, December 31, 2011

2,070,678

7,814,946

1,076,723

(822,520)

(224,334)

29,968

1,129

31,097

Proceeds and tax benefit from exercise

of stock options

Stock based compensation
Settlement from noncontrolling interest
Net earnings (loss)

-
-
-
-

659,071
-
-
-

7
-
-
-

1,234
449
677
-

-
-
-
-

-
-
-
(3,375)

1,241
449
677
(3,375)

-
-
(1,117)
871

1,241
449
(440)
(2,504)

Balance, December 31, 2012

2,070,678

8,474,017

85 $ 1,079,083 $ (822,520) $ (227,709) $

28,960 $

883 $

29,843

See accompanying notes to consolidated financial statements

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) earnings

Losses from REO
Extinguishment of debt
Change in fair value of mortgage servicing rights
Gain on sale of loans
Change in fair value of mortgage loans held-for-sale
Change in fair value of derivatives lending, net
Provision for repurchases
Origination of mortgage loans held-for-sale
Sale and principal reduction on mortgage loans held-for-sale
Change in fair value of net trust assets, excluding REO
Accretion of interest income and expense
Change in REO impairment reserve
Stock-based compensation
Impairment of deferred charge
Gain on sale of Experience 1, Inc.
Net change in restricted cash
Amortization of discount on note payable
Net change in other assets and liabilities
Net cash provided by (used in) operating activities of discontinued operations

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in securitized mortgage collateral
Sale of Experience 1, Inc.
Purchase of premises and equipment
Net principal change on investment securities available-for-sale
Proceeds from the sale of real estate owned

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of warehouse borrowings
Borrowings under warehouse agreement
Repayment of line of credit
Borrowings under line of credit
Repayment of securitized mortgage borrowings
Issuance of note payable
Principal payments on notes payable
Principal payments on capital lease
Proceeds from exercise of stock options

Net cash used in financing activities

Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year – continuing operations
Cash and cash equivalents at end of year – discontinued operations

For the year ended
December 31,

2012

2011

(2,504)

2,651

13,226
423
600
(67,565)
(3,709)
(3,234)
1,789
(2,358,123)
2,356,367
(15,803)
260,470
(23,538)
449
-
-
1,789
89
13,467
9,120

183,313

640,610
-
(252)
182
94,455

734,995

(2,214,920)
2,263,798
(24,500)
20,500
(956,622)
7,500
(9,943)
(272)
1,241

16,587
338
128
(11,452)
(2,702)
(559)
525
(860,228)
814,117
(77,010)
322,831
(27,055)
334
1,170
(1,940)
(3,524)
1,299
1,180
(3,113)

173,577

693,373
512
(483)
181
144,899

838,482

(793,409)
848,043
(3,850)
7,850
(1,071,736)
8,815
(11,455)
(286)
14

(913,218)

(1,016,014)

5,090
7,665

12,711
44

(3,955)
11,620

7,653
12

7,665

Cash and cash equivalents at end of year

12,755

F-6

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(in thousands)

For the year ended
December 31,

2012

2011

SUPPLEMENTARY INFORMATION (Continuing and Discontinued Operations):

Interest paid
Taxes paid, net of refunds

77,601
20

NON-CASH TRANSACTIONS (Continuing and Discontinued Operations):

Transfer of securitized mortgage collateral to real estate owned
Acquisition of equipment purchased through capital leases
Increase in ownership of AmeriHome through settlement with noncontrolling interest
Notes received upon disposition of Experience 1, Inc.

50,151
514
677
-

86,680
33

98,118
635
-
560

See accompanying notes to consolidated financial statements

F-7

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 1.—Summary of Business and Financial Statement Presentation including Significant

Accounting Policies

Business Summary

Impac Mortgage Holdings, Inc. (the Company or IMH or Parent) is a Maryland corporation
incorporated in August 1995 and has the following subsidiaries: Integrated Real Estate Service
Corporation (IRES), IMH Assets Corp. (IMH Assets) and Impac Funding Corporation (IFC).

The Company’s continuing operations include the origination of mortgages and real estate
services conducted by IRES and the long-term mortgage portfolio (residual interests in securitizations
reflected as net trust assets and liabilities in the consolidated balance sheets). The discontinued
operations include the former non-conforming mortgage and retail operations conducted by IFC and
subsidiaries.

The information set forth in these notes is presented on a continuing operations basis, unless

otherwise stated.

Financial Statement Presentation

Basis of Presentation

The balance sheets, results of operations and cash flows have been presented in the
accompanying consolidated financial statements as of December 31, 2012 and 2011 and for each of the
years in the two-year period ended December 31, 2012 and include the financial results of IMH, IRES
and IMH Assets within continuing operations and Impac Warehouse Lending Group, Inc. (IWLG) and IFC
within discontinued operations.

All significant inter-company balances and transactions have been eliminated in consolidation. In
addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified
to conform to the current year presentation.

Principles of Consolidation

The accompanying consolidated financial statements include accounts of IMH and other entities
in which the Company has a controlling financial interest. The usual condition for a controlling financial
interest is ownership of a majority of the voting interests of an entity. However, a controlling financial
interest may also exist in entities, such as variable interest entities (VIEs), through arrangements that do
not involve voting interests.

The VIE framework requires a variable interest holder (counterparty to a VIE) to consolidate the VIE
if that party will absorb a majority of the expected losses of the VIE, receive a majority of the residual
returns of the VIE, or both and directs the significant activities of the entity. This party is considered the
primary beneficiary of the entity. The determination of whether the Company meets the criteria to be
considered the primary beneficiary of a VIE requires an evaluation of all transactions (such as
investments, liquidity commitments, derivatives and fee arrangements) with the entity.

F-8

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Noncontrolling Interests in Consolidated Subsidiaries

The Company follows the provisions of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 810-10-65-1, Noncontrolling Interests in Consolidated Financial
Statements which requires a noncontrolling interest in a subsidiary to be reported as equity in the
consolidated financial statements with sufficient disclosure provided to identify and distinguish between
the interests of the parent and the interest of the noncontrolling owners. The Company reported the
portion of Experience 1, Inc. and AmeriHome Mortgage Corporation (AmeriHome) (both subsidiaries of
IRES) not owned as noncontrolling interests. During 2011, both Experience 1, Inc. and AmeriHome
incurred net losses, and the noncontrolling interest funded their portion of the net loss, which has been
reflected as Contribution from noncontrolling interest in the accompanying consolidated statement of
changes in stockholders’ equity. At December 31, 2012 and 2011, the noncontrolling interest in the
consolidated balance sheet only represents AmeriHome due to the sale of Experience 1, Inc. during the
third and fourth quarters of 2011.

Use of Estimates and Assumptions

The accompanying consolidated financial statements of IMH and its subsidiaries have been
prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). Management has made a number of estimates and assumptions relating to the reporting of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods to prepare
these consolidated financial statements in conformity with GAAP. Actual results could differ from those
estimates.

Significant Accounting Policies

Fair Value Option

The fair value option provides an option to elect fair value as an alternative measurement for
selected financial assets, financial liabilities, unrecognized firm commitments, and written loan
commitments not previously carried at fair value. The Company has elected the fair value option on
investment securities available-for-sale, securitized mortgage collateral, mortgage servicing rights,
mortgage loans held-for-sale within continuing operations, securitized mortgage borrowings and
long-term debt. Elections were made to mitigate income statement volatility caused by differences in the
measurement basis of elected instruments (for example, securitized mortgage collateral was previously
accounted for at cost adjusted for net deferred origination costs and allowance for loan losses for credit
losses inherent in the portfolio, where securitized mortgage borrowings was previously accounted for at
amortized cost net of deferred financing costs).

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash and highly liquid investments with maturities of three
months or less at the date of acquisition. The carrying amount of cash and cash equivalents
approximates fair value.

Cash balances that have restrictions as to the Company’s ability to withdraw funds are considered
restricted cash. At December 31, 2012 and 2011, restricted cash totaled $3.2 million and $5.0 million,

F-9

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

respectively. The restricted cash is the result of the terms of the Company’s structured debt agreement
and warehouse borrowings. In accordance with the terms of the structured debt agreement, any excess
cash flows are deposited into a reserve account, which is included in restricted cash in the
accompanying consolidated balance sheets (see Note 12.—Note Payable). In accordance with the
terms of the Master Repurchase Agreements related to the warehouse borrowings, the Company is
required to maintain cash balances with the lender as additional collateral for the borrowings (See
Note 10.—Warehouse Borrowings).

Investment Securities Available-for-Sale

Investment securities classified as available-for-sale are reported at fair value within the long-term
mortgage portfolio. Unrealized gains and losses are recognized in earnings as changes in fair value of
net trust assets. Gains and losses realized on the sale of investment securities available-for-sale and
declines in value considered to be other-than-temporary are based on the specific identification method
and reported in current earnings.

Interest income from investment securities available-for-sale is recognized based on current
market yields. Investment securities available-for-sale may be subject to credit, interest rate and/or
prepayment risk.

Securitized Mortgage Collateral

The Company’s long-term mortgage portfolio primarily includes adjustable rate and, to a lesser
extent, fixed rate non-conforming mortgages and commercial mortgages that were acquired and
originated by our mortgage and commercial operations prior to 2008.

Non-conforming mortgages may not have certain documentation or verifications that are required
by government sponsored entities and, therefore, in making our credit decisions, we were more reliant
upon the borrower’s credit score and the adequacy of the underlying collateral.

Historically, the Company securitized mortgages in the form of collateralized mortgage
obligations (CMO) or real estate mortgage investment conduits (REMICs). These securitizations are
evaluated for consolidation based on the provisions of FASB ASC 810-10-25. Amounts consolidated are
included in trust assets and liabilities as securitized mortgage collateral, real estate owned, derivative
assets, securitized mortgage borrowings and derivative liabilities in the accompanying consolidated
balance sheets.

The Company accounts for securitized mortgage collateral at fair value, with changes in fair value
during the period reflected in earnings. Fair value measurements are based on the Company’s estimated
cash flow models, which incorporate assumptions, inputs of other market participants and quoted
prices for the underlying bonds. The Company’s assumptions include its expectations of inputs that
other market participants would use. These assumptions include judgments about the underlying
collateral, prepayment speeds, credit losses, investor yield requirements, forward interest rates and
certain other factors.

Interest income on securitized mortgage collateral is recorded quarterly using the effective yield
for the period based on the previous quarter-end’s estimated fair value. Securitized mortgage collateral

F-10

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

is generally not placed on nonaccrual status as the servicer remits the interest payments to the trust
regardless of the delinquency status of the underlying mortgage loan.

Real Estate Owned

Real estate owned (REO) on the balance sheet, are assets within the securitized trusts but are
recorded as a separate asset for accounting and reporting purposes and are within the long-term
mortgage portfolio. REO, which consists of residential real estate acquired in satisfaction of loans, is
carried at net realizable value, which includes the estimated fair value of the residential real estate less
estimated selling and holding costs, offset by expected contractual mortgage insurance proceeds to be
received, if any. Adjustments to the loan carrying value required at the time of foreclosure affect the
carrying amount of REO. Subsequent write-downs in the net realizable value of REO are included in
losses from REO in the consolidated statements of operations.

Securitized Mortgage Borrowings

The Company records securitized mortgage borrowings in the accompanying consolidated
balance sheets for the consolidated CMO and REMIC securitized trusts within the long-term mortgage
portfolio. The debt from each issuance of a securitized mortgage borrowing is payable from the principal
and interest payments on the underlying mortgages collateralizing such debt, as well as the proceeds
from liquidations of REO. If the principal and interest payments are insufficient to repay the debt, the
shortfall is allocated first to the residual interest holders (generally owned by the Company) then, if
necessary, to the certificate holders (e.g. third party investors in the securitized mortgage borrowings) in
accordance with the specific terms of the various respective indentures. Securitized mortgage
borrowings typically are structured as one-month LIBOR ‘‘floaters’’ and fixed rate securities with interest
payable to certificate holders monthly. The maturity of each class of securitized mortgage borrowing is
directly affected by the amount of net interest spread, overcollateralization and the rate of principal
prepayments and defaults on the related securitized mortgage collateral. The actual maturity of any
class of a securitized mortgage borrowing can occur later than the stated maturities of the underlying
mortgages.

When the Company issued securitized mortgage borrowings, the Company generally sought an
investment grade rating for the Company’s securitized mortgages by nationally recognized rating
agencies. To secure such ratings, it was often necessary to incorporate certain structural features that
provide for credit enhancement. This generally included the pledge of collateral in excess of the principal
amount of the securities to be issued, a bond guaranty insurance policy for some or all of the issued
securities, or additional forms of mortgage insurance. The Company’s total loss exposure is limited to
the Company’s initial net economic investment in each trust, which is referred to as a residual interest.

The Company accounts for securitized mortgage borrowings at fair value, with changes in fair
value during the period reflected in earnings. Fair value measurements are based on the Company’s
estimated cash flow models, which incorporate assumptions, inputs of other market participants and
quoted prices for the underlying bonds. The Company’s assumptions include its expectations of inputs
that other market participants would use. These assumptions include judgments about the underlying
collateral, prepayment speeds, credit losses, investor yield requirements, forward interest rates and
certain other factors. Interest expense on securitized mortgage borrowings are recorded quarterly using
the effective yield for the period based on the previous quarter-end’s estimated fair value.

F-11

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Financial Guaranty Insurance Company (FGIC) provides bond guaranty insurance for three of the
Company’s consolidated securitizations. In determining the fair value of securitized mortgage
borrowings, the Company excludes consideration of bond guaranty insurance payments in accordance
with FASB ASC 820-10-35-18A. In November 2009, the Company was notified that FGIC had been
ordered by the New York Insurance Department to suspend paying any and all claims based on its
financial condition. As the related securitization trusts are nonrecourse to the Company, it is not required
to replace or otherwise settle bond guaranty insurance within the consolidated trusts. However, other
insurance companies have issued bond guaranty insurance policies for certain securities within the
Company’s securitized mortgage borrowings. Additional suspensions on the payment of claims may
arise, which could materially affect industry-wide market prices for collateralized mortgage bonds.

Derivative Instruments

In accordance with FASB ASC 815-10 Derivatives and Hedging—Overview, the Company records
all derivative instruments at fair value. The Company has accounted for all its derivatives as
non-designated hedge instruments or free-standing derivatives.

Interest Rate Swaps, Caps and Floors

The Company’s interest rate risk management objective was to limit the exposure to the variability
in future cash flows attributable to the variability of one-month LIBOR, which is the underlying index of
adjustable rate securitized mortgage borrowings. The Company’s interest rate risk management policies
were formulated with the intent to offset the potential adverse effects of changing interest rates on
securitized mortgage borrowings.

To mitigate exposure to the effect of changing interest rates on cash flows on securitized
mortgage borrowings, the Company purchased derivative instruments primarily in the form of interest
rate swap agreements (swaps) and, to a lesser extent, interest rate cap agreements (caps) and interest
rate floor agreements (floors). The Company has $17.2 million in net derivative liabilities outstanding as
of December 31, 2012 all of which are in the securitized trusts and included in trust assets and trust
liabilities in the consolidated balance sheets.

The fair value of the Company’s swaps, caps, floors and other derivative instruments is generally
based on market prices provided by dealers and market makers, or estimates of future cash flows from
these financial instruments.

Lending derivatives

The mortgage lending operation enters into interest rate lock commitments (IRLCs) with
consumers to originate mortgage loans at a specified interest rate. These IRLCs are accounted for as
derivative instruments. The fair values of IRLCs utilize current secondary market prices for underlying
loans with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability
(Pull-through Rate). The fair value of IRLCs is subject to change primarily due to changes in interest rates
and the estimated Pull-through Rate. The Company reports IRLCs within other assets at fair value with
changes in fair value being recorded in the accompanying statement of operations within mortgage
lending gains and fees, net.

F-12

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The Company hedges the changes in fair value associated with changes in interest rates related to
IRLCs and uncommitted mortgage loans held for sale by using forward sold commitments including
Fannie Mae and Ginnie Mae mortgage-backed securities known as to-be-announced mortgage-backed
securities (TBA MBS or Hedging Instruments). The Hedging Instruments are typically entered into at the
time the IRLC is made and are accounted for as derivative instruments. The fair value of Hedging
Instruments is subject to change primarily due to changes in interest rates. The Company reports
Hedging Instruments within other liabilities at fair value with changes in fair value being recorded in the
accompanying statement of operations within mortgage lending gains and fees, net.

The fair value of IRLCs and Hedging Instruments are represented as derivative assets and

liabilities, lending in Note 2.—Fair Value of Financial Instruments.

Options

The Company has issued a call option and a put option in connection with the acquisition of
AmeriHome. Options are derivative instruments and are recorded at fair value with changes in fair value
reported in earnings.

Mortgage Loans Held-for-Sale

During 2009, the Company established a residential mortgage lending operation after
discontinuing its former residential and commercial lending operations in 2007 (see Note 23.—
Discontinued Operations). Mortgage loans held-for-sale (LHFS) originated under the new lending
operation are accounted for using the fair value option, with changes in fair value recorded in noninterest
income. In accordance with FASB ASC 825, Financial Instruments, loan origination fees and expenses
are recognized in earnings as incurred and not deferred.

Revenue derived from the Company’s mortgage lending activities includes loan fees collected at
the time of origination and gain or loss from the sale of LHFS. Loan fees consist of fee income earned on
all loan originations, including loans closed and held for sale and consists of amounts earned related to
application and underwriting fees, fees on cancelled loans, and are recognized as earned. The related
direct loan origination costs are recognized when incurred. Gain or loss from the sale and
mark-to-market of LHFS includes both realized and unrealized gains and losses and are included in
mortgage lending gains and fees, net in the accompanying consolidated statements of operations. The
valuation of LHFS approximates a whole-loan price, which includes the value of the related mortgage
servicing rights.

The Company principally sells its LHFS to government sponsored entities and to a lesser extent
investors. The Company evaluates its loan sales for sales treatment. To the extent the transfer of loans
qualifies as a sale, the Company derecognizes the loans and records a realized gain or loss on the sale
date. In the event the Company determines that the transfer of loans does not qualify as a sale, the
transfer would be treated as a secured borrowing. Interest on loans is recorded as income when earned
and deemed collectible. LHFS are placed on nonaccrual status when any portion of the principal or
interest is 90 days past due or earlier if factors indicate that the ultimate collectability of the principal or
interest is not probable. Interest received from loans on nonaccrual status is recorded as income when
collected. Loans return to accrual status when the principal and interest become current and it is
probable that the amounts are fully collectible.

F-13

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Mortgage Servicing Rights

The Company accounts for mortgage loan sales in accordance with ASC 860, Transfers and
Servicing. Upon sale of mortgage loans on a service-retained basis, the loan receivables are removed
from the balance sheet, mortgage servicing rights (MSRs) are recorded as an asset for servicing rights
retained. The Company elected to measure MSRs at fair value as prescribed by FASB ASC 860-50-35,
and as such, servicing assets or liabilities are valued using discounted cash flow modeling techniques
using assumptions regarding future net servicing cash flow, including prepayment rates, discount rates,
servicing cost and other factors. Changes in estimated fair value are reported in the accompanying
statement of operations within mortgage lending gains and fees, net.

Long-term Debt

Long-term debt (consisting of trust preferred securities and junior subordinated notes) is reported
at fair value within the long-term mortgage portfolio. These securities are measured based upon an
analysis prepared by management, which considers the Company’s own credit risk, including
settlements with trust preferred debt holders and discounted cash flow analysis. Unrealized gains and
losses are recognized in earnings in the accompanying statement of operations within non-interest
income.

The Company does not consolidate trust preferred entities (which are sometimes hereinafter
referred to as capital trusts) since the Company does not have a significant variable interest in the trust.
Instead, the Company records its investment in the trust preferred entities (included in other assets in the
accompanying consolidated balance sheets) and accounts for such under the equity method of
accounting and reflects a liability for the issuance of the notes to the trust preferred entities.

Repurchase Reserve

The Company sells mortgage loans to the secondary market, including U.S. government
sponsored entities and issues securities through Ginnie Mae. When the Company sells or issues
securities, it makes customary representations and warranties to the purchasers about various
characteristics of each loan such as the origination and underwriting guidelines, including but not limited
to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset
requirements, and compliance with applicable federal, state and local law. In the event of a breach of its
representations and warranties, the Company may be required to either repurchase the mortgage loans
with the identified defects or indemnify the investor or insurer for any loss. The Company’s loss may be
reduced by any recourse it has to correspondent lenders that, in turn, had sold such mortgage loans to
the Company and breached similar or other representations and warranties. In such event, the Company
has the right to seek a recovery of related repurchase losses from that correspondent lender.

The Company records a provision for losses relating to such representations and warranties as
part of its loan sale transactions. The method used to estimate the liability for representations and
warranties is a function of the representations and warranties given and considers a combination of
factors, including, but not limited to, estimated future defaults and loan repurchase rates and the
potential severity of loss in the event of defaults and the probability of reimbursement by the
correspondent loan seller. The Company establishes a liability at the time loans are sold and continually
updates its estimated repurchase liability. The level of the repurchase liability for representations and

F-14

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

warranties is difficult to estimate and requires considerable management judgment. The level of
mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and
other external conditions that may change over the lives of the underlying loans.

Revenue Recognition for Fees from Services

The Company follows SAB No. 104 Revenue Recognition in Financial Statements, which provides

guidance on the application of GAAP to selected revenue recognition issues.

The Company’s real estate services segment provides various real estate related services and
loss mitigation services including (i) managing distressed mortgage portfolios and foreclosed real estate
assets, (ii) and the disposition of such assets, (iii) surveillance services for residential and multifamily
mortgage portfolios, (iv) loan modification services, (v) the master servicing on various mortgage and
multifamily loan pools for loans in the long-term portfolio of the Parent, and to a lesser extent
non-affiliated entities. The revenues from these services are recognized in income in the period when
services are rendered and collectability is reasonably certain.

Title and Escrow Fees

In September and October 2011, the Company sold its interest in Experience 1, Inc. Prior to
September 2011, Experience 1, Inc., as part of the real estate services segment, provided title insurance,
escrow and settlement services to residential mortgage lenders, real estate agents, asset managers and
other companies in the residential market sector of the real estate industry. Title fees were recognized as
income in the period the deed was recorded. The Company provided for estimated future losses on
policies issued and recorded in the accompanying consolidated statement of operations. Escrow fees
and other trustee fees were recognized as income when an escrow or other trust was closed.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718
Compensation—Stock Compensation. Accordingly, the Company measures the cost of stock-based
awards using the grant-date fair value of the award and recognizes that cost over the requisite service
period.

The fair value of each stock option granted under the Company’s stock-based compensation plan
is estimated on the date of grant using the Black-Scholes-Merton option-pricing model and
assumptions noted in Note 20.—Share Based Payments and Employee Benefit Plans. The risk-free
interest rate is based on the U.S. Treasury rate with a term equal to the expected term of the option
grants on the date of grant.

FASB ASC 718 requires forfeitures to be estimated at the time of grant and prospectively revised,
if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based
compensation expense is recorded net of estimated forfeitures for the years ended December 31, 2012
and 2011, such that the expense was recorded only for those stock-based awards that were expected to
vest during such periods. Refer to Note 20.—Share Based Payments and Employee Benefit Plans.

F-15

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Income Taxes

In accordance with ASC 740, the Company records income tax expense as well as deferred tax
assets and liabilities. Current income tax expense approximates taxes to be paid or refunded for the
current period and includes income tax expense related to uncertain tax positions and amortization/
impairment of our deferred charge, explained below. The Company determines deferred income taxes
using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the
tax effects of the differences between the book and tax bases of assets and liabilities, and recognizes
enacted changes in tax rates and laws in the period in which they occur. Deferred income tax expense
results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are
recognized subject to management’s judgment that realization is ‘‘more likely than not.’’ Uncertain tax
positions that meet the more likely than not recognition threshold are measured to determine the amount
of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that
management believes has a greater than 50% likelihood of realization upon settlement.

The Company is subject to federal income taxes as a regular (Subchapter C) corporation and
files a consolidated U.S. federal income tax return on qualifying subsidiaries. One subsidiary files a
federal stand-alone tax return as it does not meet the ownership requirements of the Internal Revenue
Code. The Company files income tax returns in the U.S. for federal and various states.

In prior periods when the Company was taxed as a real estate investment trust (REIT), it recorded
a deferred charge to eliminate the expense recognition of income taxes paid on inter-Company profits
that result from the sale of mortgage loans from the taxable REIT subsidiaries to IMH. The deferred
charge is included in other assets in the consolidated balance sheets and is amortized as a component
of income tax expense in the consolidated statements of operations over the estimated life of the
mortgages retained in the securitized mortgage collateral.

Earnings per Common Share

Basic earnings per common share is computed on the basis of the weighted average number of
shares outstanding for the year divided into earnings for the year. Diluted earnings per common share is
computed on the basis of the weighted average number of shares and dilutive common equivalent
shares outstanding for the year divided by earnings for the year, unless anti-dilutive. Refer to Note 16.—
Reconciliation of Earnings Per Share.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, ‘‘Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.’’ ASU 2011-04 amends guidance
listed under ASC Topic 820, ‘‘Fair Value Measurement,’’ and represents the converged guidance of the
FASB and the International Accounting Standards Board on fair value measurement. This Update also
permits entities to measure fair value on a net basis for financial instruments that are managed based on
net exposure to market risks and/or counterparty credit risk. ASU 2011-04 requires new disclosures for
financial instruments classified as Level 3, including: 1) quantitative information about unobservable
inputs used in measuring fair value; 2) qualitative discussion of the sensitivity of fair value measurements
to changes in unobservable inputs; and 3) a description of valuation processes used. This update also
requires disclosure of fair value levels for financial instruments that are not recorded at fair value but for

F-16

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

which fair value is required to be disclosed. ASU 2011-04 became effective prospectively for interim and
annual periods beginning after December 15, 2011. The Company has conformed to the new
disclosures required in ASU 2011-04 during the first quarter of 2012.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350)—
Testing Indefinite-Lived Intangible Assets for Impairment, which updated guidance on the periodic
testing of indefinite-lived intangible assets, other than goodwill, for impairment. This guidance will allow
companies to make a qualitative assessment about the likelihood that an indefinite-lived intangible
asset, other than goodwill, is impaired in order to determine whether it is necessary to perform a
quantitative impairment test. ASU 2012-02 will be effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The
Company does not plan to early adopt ASU 2012-02; therefore, the ASU 2012-02 is effective for the
Company beginning with the first quarter of fiscal year 2013. The Company does not anticipate the
adoption of ASU 2012-02 will have a material impact on its results of operations, financial condition or
cash flows.

Note 2.—Fair Value of Financial Instruments

The use of fair value to measure the Company’s financial instruments is fundamental to its
consolidated financial statements and is a critical accounting estimate because a substantial portion of
its assets and liabilities are recorded at estimated fair value.

FASB ASC 825 requires disclosure of the estimated fair value of certain financial instruments and
the methods and significant assumptions used to estimate such fair values. The following table presents

F-17

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

the estimated fair value of financial instruments included in the consolidated financial statements as of
the dates indicated:

Assets
Cash and cash equivalents
Restricted cash
Investment securities
available-for-sale
Securitized mortgage

collateral

Derivative assets, securitized

trusts

Derivative assets, lending
Mortgage loans held-for-sale
Mortgage servicing rights
Call option

Liabilities
Securitized mortgage

borrowings

Derivative liabilities,
securitized trusts

Derivative liabilities, lending
Warehouse borrowings
Long-term debt
Notes payable
Line of credit
Put option

December 31, 2012

December 31, 2011

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

12,711 $
3,230

7,653 $
5,019

110

688

7,653
5,019

688

5,787,884

5,449,001

37
3,970
118,786
10,703
368

37
1,179
61,718
4,141
253

5,777,456

5,454,901

17,200
181
107,569
12,731
3,451
-
1

17,200
181
107,569
12,731
3,678
-
1

24,786
624
58,691
11,561
5,182
4,000
-

24,786
624
58,691
11,561
5,941
4,000
-

The fair value amounts above have been estimated by management using available market
information and appropriate valuation methodologies. Considerable judgment is required to interpret
market data to develop the estimates of fair value in both inactive and orderly markets. Accordingly, the
estimates presented are not necessarily indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

For securitized mortgage collateral and securitized mortgage borrowings, the underlying Alt-A
residential and commercial loans and mortgage-backed securities market have experienced significant
declines in market activity, along with a lack of orderly transactions. The Company’s methodology to
estimate fair value of these assets and liabilities include the use of internal pricing techniques such as the
net present value of future expected cash flows (with observable market participant assumptions, where
available) discounted at a rate of return based on the Company’s estimates of market participant
requirements. The significant assumptions utilized in these internal pricing techniques, which are based

F-18

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

on the characteristics of the underlying collateral, include estimated credit losses, estimated
prepayment speeds and appropriate discount rates.

Refer to Recurring Fair Value Measurements below for a description of the valuation methods
used to determine the fair value of investment securities available-for-sale, securitized mortgage
collateral and borrowings, derivative assets and liabilities, long-term debt, mortgage servicing rights,
loans held-for-sale, and call and put options.

The carrying amount of cash and cash equivalents and restricted cash approximates fair value.

Warehouse borrowings fair value approximates carrying amounts due to the short-term nature of

the liabilities and do not present unanticipated interest rate or credit concerns.

Line of credit fair value approximates carrying amount due to the short-term nature of the liability

and does not present unanticipated interest rate or credit concerns.

Notes payable includes notes with maturities ranging from less than a year to three years. Notes
payable is recorded at amortized cost, net of any discounts. The estimated fair value is determined using
a discounted cash flow model using estimated market rates.

Fair Value Hierarchy

The application of fair value measurements may be on a recurring or nonrecurring basis
depending on the accounting principles applicable to the specific asset or liability or whether
management has elected to carry the item at its estimated fair value.

FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs
to those techniques are observable or unobservable. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect the Company’s market assumptions.
These two types of inputs create the following fair value hierarchy:

(cid:127) Level 1—Quoted prices (unadjusted) in active markets for identical instruments or liabilities that

an entity has the ability to assess at measurement date.

(cid:127) Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; inputs other than quoted prices that are
observable for an asset or liability, including interest rates and yield curves observable at
commonly quoted intervals, prepayment speeds, loss severities, credit risks and default rates;
and market-corroborated inputs.

(cid:127) Level 3—Valuations derived from valuation techniques in which one or more significant inputs or

significant value drivers are unobservable.

This hierarchy requires the Company to use observable market data, when available, and to

minimize the use of unobservable inputs when estimating fair value.

As a result of the lack of observable market data resulting from inactive markets, the Company has
classified its investment securities available-for-sale, mortgage servicing rights, call and put options,
securitized mortgage collateral and borrowings, derivative assets and liabilities (trust and lending), and

F-19

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

long-term debt as Level 3 fair value measurements. Level 3 assets and liabilities were approximately
98% and 99%, respectively, of total assets and total liabilities measured at estimated fair value at
December 31, 2012 and 2011.

Recurring Fair Value Measurements

The Company assesses its financial instruments on a quarterly basis to determine the appropriate
classification within the fair value hierarchy, as defined by ASC Topic 810. Transfers between fair value
classifications occur when there are changes in pricing observability levels. Transfers of financial
instruments among the levels occur at the beginning of the reporting period. There were no material
transfers between Level 1 and Level 2 classified instruments during the year ended December 31, 2012.

The following tables present the Company’s assets and liabilities that are measured at estimated
fair value on a recurring basis, including financial instruments for which the Company has elected the fair
value option at December 31, 2012 and December 31, 2011, based on the fair value hierarchy:

Recurring Fair Value Measurements

December 31, 2012
Level 2

Level 1

Level 3

Level 1

December 31, 2011
Level 2

Level 3

Assets

Investment securities
available-for-sale

Mortgage loans held-for-sale
Derivative assets, lending (1)
Mortgage servicing rights
Call option (2)
Securitized mortgage collateral

Total assets at fair value

Liabilities

Securitized mortgage

borrowings

Derivative liabilities, net,
securitized trusts (3)

Long-term debt
Derivative liabilities, lending (1)
Put option (4)

- $
-
-
-
-
-

- $

118,786
-
-
-
-

110 $
-
3,970
10,703
368
5,787,884

118,786 $ 5,803,035 $

- $
-
-
-
-
-

- $

61,718
-
-
-
-

688
-
1,179
4,141
253
5,449,001

61,718 $ 5,455,262

- $

- $ 5,777,456 $

- $

- $ 5,454,901

-
-
-
-

-
-
181
-

17,163
12,731
-
1

-
-
-
-

-
-
624
-

24,749
11,561
-
-

Total liabilities at fair value

- $

181 $ 5,807,351 $

- $

624 $ 5,491,211

(1)

(2)
(3)

At December 31, 2012, derivative assets, lending, included $4.0 million in IRLCs and $181 thousand in
Hedging Instruments, respectively, associated with the Company’s mortgage lending operations, and is
included in other assets and other liabilities in the accompanying consolidated balance sheets. At
December 31, 2011, derivative assets, lending, included $1.2 million in IRLCs and $624 thousand in Hedging
Instruments, respectively.
Included in other assets in the accompanying consolidated balance sheets.
At December 31, 2012, derivative liabilities, net—securitized trusts, included $37 thousand in derivative
assets and $17.2 million in derivative liabilities, included within trust assets and trust liabilities, respectively.

F-20

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

At December 31, 2011, derivative liabilities, net—securitized trusts, included $37 thousand in derivative
assets and $24.8 million in derivative liabilities, included within trust assets and trust liabilities, respectively.
Included in other liabilities in the accompanying consolidated balance sheets.

(4)

The following tables present a reconciliation for all assets and liabilities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2012
and December 31, 2011:

Level 3 Recurring Fair Value Measurements

For the year ended December 31, 2012

Investment
securities
available- mortgage
collateral
for-sale

Securitized Securitized Derivative Mortgage
servicing
rights

mortgage
borrowings

liabilities,
net

Interest
rate lock

Call

Put

commitments option option

Long-
term
debt

Fair value,

December 31, 2011

$ 688

$ 5,449,001 $(5,454,901) $(24,749) $ 4,141

$1,179

$ 253

$ -

$(11,561)

Total gains (losses)

included in earnings:
Interest income (1)
Interest expense (1)
Change in fair value

Total (losses)

gains included
in earnings
Transfers in and/or out

of Level 3

Purchases, issuances
and settlements
Purchases
Issuances
Settlements

Fair value,

38
-
(434)

140,491
-
889,145

-
(398,683)
(880,538)

-
-
(2,838)

-
-
(600)

-
-
2,791

-
-
115

-
-
(1)

-
(2,316)
1,146

(396)

1,029,636

(1,279,221)

(2,838)

(600)

2,791

115

(1)

(1,170)

-
-
(182)

-
-
(690,753)

-
-
956,666

-
-
10,424

-
15,962
(8,800)

-
-
-

December 31, 2012

$ 110

$ 5,787,884 $(5,777,456) $(17,163) $10,703

$3,970

$ 368

$ (1) $(12,731)

Unrealized gains

(losses) still held (2)

$ 43

$(2,698,414) $ 4,760,166 $(16,458) $10,703

$3,970

$ 368

$ (1) $ 58,032

(1)

(2)

Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on
estimated fair values for trust assets and trust liabilities. Net interest income, including cash received and paid, was
$8.0 million for the year ended December 31, 2012. The difference between accretion of interest income and expense and
the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from
contractual interest on the securitized mortgage collateral and borrowings.
Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held
and reflected in the fair values at December 31, 2012.

F-21

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Level 3 Recurring Fair Value Measurements

For the year ended December 31, 2011

Investment
securities
available- mortgage
collateral
for-sale

Securitized Securitized Derivative Mortgage
servicing
rights

mortgage
borrowings

liabilities,
net

Interest
rate lock

Call

Put

commitments option option

Long-
term
debt

Fair value,

December 31, 2010

$ 645

$ 6,011,675 $(6,012,745) $(65,876)

$1,439

$ 706

$(61) $(11,728)

Total gains (losses)

included in earnings:
Interest income (1)
Interest expense (1)
Change in fair value

Total (losses)

gains included
in earnings
Transfers in and/or out

of Level 3

Purchases, issuances
and settlements
Purchases
Issuances
Settlements

Fair value,

136
-
88

327,555
-
(98,683)

-
(648,371)
133,234

-
-
(8,613)

-
-
(128)

-
-
1,179

-
-
(453)

-
-
61

-
(2,151)
2,318

224

228,872

(515,137)

(8,613)

(128)

1,179

(453)

167

-
-
(181)

-
-
(791,546)

-
-
1,072,981

-
-
49,740

-
2,830
-

-
-
-

December 31, 2011

$ 688

$ 5,449,001 $(5,454,901) $(24,749)

$4,141

$1,179

$ 253

$ — $(11,561)

Unrealized gains

(losses) still held (2)

$ 530

$(4,054,073) $ 6,039,343 $(24,089)

$4,141

$1,179

$ 253

$ -

$ 59,202

(1)

(2)

Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on
estimated fair values for trust assets and trust liabilities. Net interest income, including cash received and paid, was
$9.5 million for the year ended December 31, 2011. The difference between accretion of interest income and expense and
the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from
contractual interest on the securitized mortgage collateral and borrowings.
Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held
and reflected in the fair values at December 31, 2011.

F-22

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following table presents quantitative information about the valuation techniques and
unobservable inputs applied to Level 3 fair value measurements for financial instruments measured at
fair value on a recurring and non-recurring basis at December 31, 2012.

Estimated
Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs

Financial Instrument

Assets and liabilities backed by real

estate
Investment securities
available-for-sale,

Securitized mortgage collateral, and
Securitized mortgage borrowings

110
5,787,884
(5,777,456)

DCF

Other assets and liabilities
Mortgage servicing rights

10,703

DCF

Derivative liabilities, net, securitized

trusts

Derivative assets, lending
Long-term debt
Lease liability

DCF = Discounted Cash Flow
1M = 1 Month

(17,163)

DCF

3,970 Market pricing

(12,731)
(2,155)

DCF
DCF

Discount rates
Prepayment rates
Default rates
Loss severities

Discount rate
Prepayment rates
1M forward
LIBOR
Pull -through rate
Discount rate
Discount rate

3.7 - 30.0%
0.8 - 11.1%
1.5 - 14.5%
11.4 - 71.9%

12.0%
4.1 - 15.4%

0.2 - 3.5%
27.6 - 99.0%
25.0%
12.0%

For assets and liabilities backed by real estate, a significant increase in discount rates, default
rates or loss severities would result in a significantly lower estimated fair value. The effect of changes in
prepayment speeds would have differing effects depending on the seniority or other characteristics of
the instrument. For other assets and liabilities, a significant increase in discount rates would result in a
significantly lower estimated fair value. A significant increase in one-month LIBOR would result in a
significantly higher estimated fair value for derivative liabilities, net, securitized trusts. A significant
increase or decrease in pull-through rate assumptions would result in a significant increase or decrease
in the fair value of IRLCs. The Company believes that the imprecision of an estimate could be significant.

F-23

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following tables present the changes in recurring fair value measurements included in net

earnings for the years ended December 31, 2012 and 2011:

Recurring Fair Value Measurements

Changes in Fair Value Included in Net Earnings

For the year ended December 31, 2012

Interest

Net Trust

Long-term Non-interest

Income (1) Expense (1) Assets

Debt

Income

Change in Fair Value of

Other

Mortgage
lending
gains and
fees, net

Investment securities
available-for-sale
Securitized mortgage

collateral

Securitized mortgage

borrowings

Mortgage servicing rights
Call option
Put option
Derivative liabilities, net
Long-term debt
Mortgage loans
held-for-sale

Derivative assets—IRLCs
Derivative liabilities—

Hedging Instruments

140,491

-
-
-
-
-
-

-
-

(398,683)
-
-
-
-
(2,316)

-
-

(434)

889,145

(880,538)
-
-
-
(2,838) (2)
-

-
-

-
-
-
-
-
1,146

-
-

-
-
115
(1)
-
-

-
-

-
(600)
-
-
-
-

3,709
2,791

442

Total

(396)

1,029,636

(1,279,221)
(600)
115
(1)
(2,838)
(1,170)

3,709
2,791

442

Total

$140,529

$(400,999) $ 5,335 (3)

$1,146

$ 114

$6,342

$ (247,533)

(1)

(2)

(3)

Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on
estimated fair values for trust assets and trust liabilities.
Included in this amount is $7.7 million in changes in the fair value of derivative instruments, offset by $10.5 million in cash
payments from the securitization trusts for the year ended December 31, 2012.
For the year ended December 31, 2012, change in the fair value of trust assets, excluding REO was $5.3 million. The net
change consists of $15.8 million change in fair value of net trust assets, excluding REO, in the accompanying consolidated
statement of cash flows less $10.5 million in cash payments from the securitization trusts related to the Company’s net
derivative liabilities.

F-24

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Recurring Fair Value Measurements

Changes in Fair Value Included in Net Earnings

For the year ended December 31, 2011

Interest

Net Trust

Long-term Non-interest

Income (1) Expense (1) Assets

Debt

Income

Change in Fair Value of

Other

Mortgage
lending
gains and
fees, net

Investment securities
available-for-sale
Securitized mortgage

collateral

Securitized mortgage

borrowings

Mortgage servicing rights
Call option
Put option
Derivative liabilities, net
Long-term debt
Mortgage loans
held-for-sale

Derivative assets—IRLCs
Derivative liabilities—

Hedging Instruments

136

327,555

-
-
-
-
-
-

-
-

(648,371)
-
-
-
-
(2,151)

-
-

(98,683)

133,234
-
-
-
(8,613) (2)
-

-
-

-
-
-
-
-
2,318

-
-

-
-
(453)
61
-
-

-
-

Total

224

228,872

(515,137)
(128)
(453)
61
(8,613)
167

2,702
1,179

-
(128)
-
-
-
-

2,702
1,179

(620)

Total

$327,691

$(650,522)

$ 26,026 (3)

$2,318

$(392)

$3,133

$(291,746)

(1)

(2)

(3)

Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on
estimated fair values for trust assets and trust liabilities.
Included in this amount is $42.4 million in changes in the fair value of derivative instruments, offset by $51.0 million in cash
payments from the securitization trusts for the year ended December 31, 2011.
For the year ended December 31, 2011, change in the fair value of trust assets, excluding REO was $26.0 million. Excluded
from the $77.0 million change in fair value of net trust assets, excluding REO, in the accompanying consolidated statement
of cash flows is $51.0 million in cash payments from the securitization trusts related to the Company’s net derivative
liabilities.

The following is a description of the measurement techniques for items recorded at estimated fair

value on a recurring basis.

Investment securities available-for-sale—Investment securities available-for-sale are carried at fair
value. The investment securities consist primarily of non-investment grade mortgage-backed securities.
The fair value of the investment securities is measured based upon the Company’s expectation of inputs
that other market participants would use. Such assumptions include judgments about the underlying
collateral, prepayment speeds, future credit losses, forward interest rates and certain other factors.
Given the lack of observable market data as of December 31, 2012 and 2011 relating to these securities,
the estimated fair value of the investment securities available-for-sale was measured using significant
internal expectations of market participants’ assumptions. Investment securities available-for-sale is
considered a Level 3 measurement at December 31, 2012.

Mortgage servicing rights—The Company elected to carry all of its mortgage servicing rights
arising from its mortgage loan origination operation at fair value. The fair value of mortgage servicing
rights is based upon market prices for similar instruments and a discounted cash flow model. The
valuation model incorporates assumptions that market participants would use in estimating the fair

F-25

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

value of servicing. These assumptions include estimates of prepayment speeds, discount rate, cost to
service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among
other considerations. Mortgage servicing rights are considered a Level 3 measurement at December 31,
2012.

Mortgage loans held-for-sale—The Company elected to carry its mortgage loans held-for-sale
originated or acquired from its mortgage lending operation at fair value. Fair value is based on quoted
market prices, where available, prices for other traded mortgage loans with similar characteristics, and
purchase commitments and bid information received from market participants. Given the meaningful
level of secondary market activity for mortgage loans, active pricing is available for similar assets and
accordingly, the Company classifies its mortgage loans held-for-sale as a Level 2 measurement at
December 31, 2012.

Call option—As part of the acquisition of AmeriHome, the purchase agreement included a call
option to purchase an additional 39% of AmeriHome. In June 2012, the Company and the noncontrolling
interest holder entered into an agreement to transfer an additional 27.5% ownership of AmeriHome to
the Company in exchange for the settlement of balances owed from the noncontrolling interest holder
related to the Company for capital contributions made by the Company to AmeriHome and
indemnification provisions included in the purchase agreement. As of December 31, 2012, the Company
owns 78.5% of AmeriHome, and accordingly retains an option to purchase 11.5% of AmeriHome. The
estimated fair value is based on a model incorporating various assumptions including expected future
book value of AmeriHome, the probability of the option being exercised, volatility, expected term and
certain other factors. The call option is considered a Level 3 measurement at December 31, 2012.

Put option—As part of the acquisition of AmeriHome, the purchase agreement included a put
option which allows the noncontrolling interest holder to sell his then remaining 49% of AmeriHome to
the Company in the event the Company does not exercise the call option discussed above. In June
2012, the Company and the noncontrolling interest holder entered into an agreement to transfer 27.5%
ownership of AmeriHome to the Company in exchange for the settlement of balances owed from the
noncontrolling interest holder related to capital contributions made by the Company to AmeriHome and
indemnification provisions included in the purchase agreement. As of December 31, 2012, the
noncontrolling interest holder owns 21.5% of AmeriHome, and accordingly retains an option to sell the
21.5% interest to the Company. The estimated fair value is based on a model incorporating various
assumptions including expected future book value of AmeriHome, the probability of the option being
exercised, volatility, expected term and certain other factors. The put option is considered a Level 3
measurement at December 31, 2012.

Securitized mortgage collateral—The Company elected to carry all of its securitized mortgage
collateral at fair value. These assets consist primarily of non-conforming mortgage loans securitized
between 2002 and 2007. Fair value measurements are based on the Company’s internal models used to
compute the net present value of future expected cash flows, with observable market participant
assumptions, where available. The Company’s assumptions include its expectations of inputs that other
market participants would use in pricing these assets. These assumptions include judgments about the
underlying collateral, prepayment speeds, estimated future credit losses, forward interest rates, investor
yield requirements and certain other factors. As of December 31, 2012, securitized mortgage collateral
had an unpaid principal balance of $8.5 billion, compared to an estimated fair value on the Company’s
balance sheet of $5.8 billion. The aggregate unpaid principal balance exceeds the fair value by
$2.7 billion at December 31, 2012. As of December 31, 2012, the unpaid principal balance of loans

F-26

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

90 days or more past due was $1.6 billion compared to an estimated fair value of $0.6 billion. The
aggregate unpaid principal balances of loans 90 days or more past due exceed the fair value by
$1.0 billion at December 31, 2012. Securitized mortgage collateral is considered a Level 3 measurement
at December 31, 2012.

Securitized mortgage borrowings—The Company elected to carry all of its securitized mortgage
borrowings at fair value. These borrowings consist of individual tranches of bonds issued by
securitization trusts and are primarily backed by non-conforming mortgage loans. Fair value
measurements include the Company’s judgments about the underlying collateral and assumptions such
as prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements
and certain other factors. As of December 31, 2012, securitized mortgage borrowings had an
outstanding principal balance of $8.5 billion, net of $2.1 billion in bond losses, compared to an estimated
fair value of $5.8 billion. The aggregate outstanding principal balance exceeds the fair value by
$2.7 billion at December 31, 2012. Securitized mortgage borrowings is considered a Level 3
measurement at December 31, 2012.

Long-term debt—The Company elected to carry all of its long-term debt (consisting of trust
preferred securities and junior subordinated notes) at fair value. These securities are measured based
upon an analysis prepared by management, which considered the Company’s own credit risk, including
settlements with trust preferred debt holders and discounted cash flow analysis. As of December 31,
2012, long-term debt had an unpaid principal balance of $70.5 million compared to an estimated fair
value of $12.7 million. The aggregate unpaid principal balance exceeds the fair value by $57.8 million at
December 31, 2012. The long-term debt is considered a Level 3 measurement at December 31, 2012.

Derivative assets and liabilities, Securitized trusts—For non-exchange traded contracts, fair value
is based on the amounts that would be required to settle the positions with the related counterparties as
of the valuation date. Valuations of derivative assets and liabilities are based on observable market
inputs, if available. To the extent observable market inputs are not available, fair values measurements
include the Company’s judgments about future cash flows, forward interest rates and certain other
factors, including counterparty risk. Additionally, these values also take into account the Company’s
own credit standing, to the extent applicable; thus, the valuation of the derivative instrument includes the
estimated value of the net credit differential between the counterparties to the derivative contract. As of
December 31, 2012, the notional balance of derivative assets and liabilities, securitized trusts was
$829.3 million. These derivatives are included in the consolidated securitization trusts, which are
nonrecourse to the Company, and thus the economic risk from these derivatives is limited to the
Company’s residual interests in the securitization trusts. Derivative assets and liabilities, securitized
trusts are considered a Level 3 measurement at December 31, 2012.

Derivative assets and liabilities, Lending—The Company’s derivative assets and liabilities are
carried at fair value as required by GAAP and are accounted for as free standing derivatives. The
derivative assets are IRLCs with prospective residential mortgage borrowers whereby the interest rate
on the loan is determined prior to funding and the borrowers have locked in that interest rate. These
commitments are determined to be derivative instruments in accordance with GAAP. The derivative
liabilities are hedging instruments (typically TBA MBS) used to hedge the fair value changes associated
with changes in interest rates relating to its mortgage lending operations. The Company hedges the
period from the interest rate lock (assuming a fall-out factor) to the date of the loan sale. The estimated
fair value of IRLCs are based on underlying loan types with similar characteristics using the TBA MBS
market, which is actively quoted and easily validated through external sources. The data inputs used in

F-27

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

this valuation include, but are not limited to, loan type, underlying loan amount, note rate, loan program,
and expected sale date of the loan, adjusted for current market conditions. These valuations are
adjusted at the loan level to consider the servicing release premium and loan pricing adjustments
specific to each loan. For all IRLCs, the base value is then adjusted for the anticipated Pull-through Rate.
The anticipated Pull-through Rate is an unobservable input based on historical experience, which results
in classification of IRLCs as a Level 3 measurement at December 31, 2012.

The fair value of the Hedging Instruments is based on the actively quoted TBA MBS market using
observable inputs related to characteristics of the underlying MBS stratified by product, coupon and
settlement date. Therefore, the Hedging Instruments are classified as a Level 2 measurement at
December 31, 2012.

Nonrecurring Fair Value Measurements

The Company is required to measure certain assets and liabilities at estimated fair value from time
to time. These fair value measurements typically result from the application of specific accounting
pronouncements under GAAP. The fair value measurements are considered nonrecurring fair value
measurements under FASB ASC 820-10.

The following tables present financial and non-financial assets and liabilities measured using

nonrecurring fair value measurements at December 31, 2012 and 2011, respectively:

Nonrecurring Fair Value Measurements
December 31, 2012
Level 2

Level 1

Level 3

Total Gains
(Losses)
For the Year
Ended
December 31,
2012 (3)

REO (1)
Lease liability (2)

-
-

10,172
-

-
(2,155)

(13,260)
(625)

(1)

(2)

(3)

Balance represents REO at December 31, 2012 which have been impaired subsequent to
foreclosure. Amounts are included in continuing operations. For the year ended December 31,
2012, the $13.3 million loss represents additional impairment write-downs during 2012.
For the year ended December 31, 2012, the Company recorded $625 thousand in losses resulting
from changes in lease liabilities as a result of changes in our expected minimum future lease
payments, net.
Total losses reflect losses from all nonrecurring measurements during the period.

F-28

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Non-recurring Fair Value Measurements
December 31, 2011
Level 2

Level 3

Level 1

Total Gains
(Losses)
For the Year
Ended
December 31,
2011 (4)

REO (1)
Lease liability (2)
Deferred charge (3)

-
-
-

9,985
-
-

-
(2,131)
11,974

(16,680)
(566)
(1,170)

(1)

(2)

(3)

(4)

Balance represents REO at December 31, 2011 which have been impaired subsequent to
foreclosure. Amounts are included in continuing operations. For the year ended December 31,
2011, the $16.7 million loss represents additional impairment write-downs during 2011.
Amounts are included in discontinued operations. For the year ended December 31, 2011, the
Company recorded $566 thousand in losses resulting from changes in lease liabilities as a result of
changes in our expected minimum future lease payments, net.
Amounts are included in continuing operations. For the year ended December 31, 2011, the
Company recorded $1.2 million in income tax expense resulting from impairment write-downs
based on changes in estimated cash flows and lives of the related mortgages retained in the
securitized mortgage collateral.
Total losses reflect losses from all nonrecurring measurements during the period.

Real estate owned—REO consists of residential real estate acquired in satisfaction of loans. Upon
foreclosure, REO is adjusted to the estimated fair value of the residential real estate less estimated
selling and holding costs, offset by expected contractual mortgage insurance proceeds to be received, if
any. Subsequently, REO is recorded at the lower of carrying value or estimated fair value less costs to
sell. REO balance representing REOs which have been impaired subsequent to foreclosure are subject
to nonrecurring fair value measurement and included in the nonrecurring fair value measurements
tables. Fair values of REO are generally based on observable market inputs, and considered Level 2
measurements at December 31, 2012.

Lease liability—In connection with the discontinuation of our non-conforming mortgage, retail
mortgage, warehouse lending and commercial operations, a significant amount of office space that was
previously occupied is no longer being used by the Company. The Company has subleased a significant
amount of this office space. The Company has recorded a liability representing the present value of the
minimum lease payments over the remaining life of the lease, offset by the expected proceeds from
sublet revenue related to this office space. This liability is based on present value techniques that
incorporate the Company’s judgments about estimated sublet revenue and discount rates. Therefore,
this liability is considered a Level 3 measurement at December 31, 2012.

Deferred charge—Deferred charge represents the deferral of income tax expense on inter-
company profits that resulted from the sale of mortgages from taxable subsidiaries to IMH in prior years.
The deferred charge is amortized as a component of income tax expense over the estimated life of the
mortgages retained in the securitized mortgage collateral. The Company evaluates the deferred charge
for impairment quarterly using internal estimates of estimated cash flows and lives of the related
mortgages retained in the securitized mortgage collateral. If the deferred charge is determined to be
impaired, it is amortized as a component of income tax expense. For the year ended December 31,
2011, the Company recorded $1.2 million in income tax expense resulting from deferred charge

F-29

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

impairment write-downs based on changes in estimated fair value of securitized mortgage collateral.
There was no impairment of the deferred charge in 2012. Deferred charge is considered a Level 3
measurement at December 31, 2012.

Note 3.—Securitized Mortgage Collateral

Securitized mortgage collateral consisted of the following:

Mortgages secured by residential real estate
Mortgages secured by commercial real estate
Fair value adjustment

Total securitized mortgage collateral

December 31,

2012

2011

$ 7,460,212
1,026,086
(2,698,414)

$ 8,233,567
1,269,507
(4,054,073)

$ 5,787,884

$ 5,449,001

As of December 31, 2012, the Company was also a master servicer of mortgages for others of
approximately $1.3 billion that were primarily collateralizing REMIC securitizations, compared to
$1.5 billion at December 31, 2011. Related fiduciary funds are held in trust for investors in non-interest
bearing accounts and therefore not included in the Company’s consolidated balance sheets. The
Company may also be required to advance funds or cause loan servicers to advance funds to cover
principal and interest payments not received from borrowers depending on the status of their
mortgages.

Note 4.—Derivative Instruments

Derivative Assets and Liabilities, Securitized Trusts

As of December 31, 2012, the net derivative liability included in the securitization trusts was
$17.2 million, as compared to $24.7 million at December 31, 2011. As of December 31, 2012, the
notional balance of derivative assets and liabilities, securitized trusts was $829.3 million. The derivative
values are based on the net present value of cash receipts or payments expected to be received or paid
by the bankruptcy remote trusts. The fair value of the derivatives fluctuates with changes in the future
expectation of cash receipts or payments based on notional balances and estimated LIBOR rates.

On September 15, 2008, Lehman Brothers Holdings Inc. (LBHI) filed a petition for protection under
Chapter 11 of the U.S. Bankruptcy Code. As of that date, LBHI, through affiliated companies, was an
interest rate swap counterparty to several of the Company’s CMO and REMIC securitizations. At
December 31, 2012, the estimated fair value of derivatives with LBHI, through its affiliated companies
was $1.1 million as compared to $2.5 million at December 31, 2011, and is included in derivative
liabilities in the accompanying consolidated balance sheet. As the related securitization trusts are
non-recourse to the Company, the Company is not required to replace or otherwise settle any derivative
positions affected by counterparty default within the consolidated trusts.

F-30

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Derivative Assets and Liabilities, Lending

The mortgage lending operation enters into IRLC with prospective borrowers to originate
mortgage loans at a specified interest rate and Hedging Instruments to hedge the fair value changes
associated with changes in interest rates relating to its mortgage loan origination operations. The fair
value of IRLCs and Hedging Instruments are included in other assets and other liabilities, respectively, in
the consolidated balance sheets. As of December 31, 2012, the estimated fair value of IRLCs and
Hedging Instruments associated with mortgage lending totaled $4.0 million and $181 thousand,
respectively.

The following table includes information for the derivative assets and liabilities—lending for the

periods presented:

Derivative assets –

IRLC’s

Derivative liabilities –

TBA’s

Total Gains (Losses) (1)
For the Year Ended For the Year Ended
December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011

Notional Balance

221,461 $

104,716 $

2,791 $

236,682

68,000

(16,255)

1,179

(6,629)

(1)

Amounts included in mortgage lending gains and fees, net within the accompanying consolidated
statements of operations.

Other Derivatives

As part of the acquisition of AmeriHome, the purchase agreement included a call and put option.
The call option allowed the Company to purchase an additional 39% of AmeriHome anytime between
January 1, 2011 and December 31, 2013. In June 2012, the Company and the noncontrolling interest
holder entered into an agreement to transfer an additional 27.5% ownership of AmeriHome to the
Company in exchange for the settlement of balances owed from the noncontrolling interest holder
related to the Company for capital contributions made by the Company to AmeriHome and
indemnification provisions included in the purchase agreement. As of December 31, 2012, the Company
owns 78.5% of AmeriHome, and accordingly retains an option to purchase 11.5% of AmeriHome.

Insofar that the Company does not exercise the call option, the Company wrote a put option to the
founder of AmeriHome that provided the founder with the right to require the Company to acquire the
remaining 49% of AmeriHome. In June 2012, the Company and the noncontrolling interest holder
entered into an agreement to transfer 27.5% ownership of AmeriHome to the Company in exchange for
the settlement of balances owed from the noncontrolling interest holder related to capital contributions
made by the Company to AmeriHome and indemnification provisions included in the purchase
agreement. As of December 31, 2012, the noncontrolling interest holder owns 21.5% of AmeriHome,
and accordingly retains an option to sell the 21.5% interest to the Company.

These options are considered derivative instruments and recorded at fair value using a
multinomial option pricing model. The estimated fair value is based on a model incorporating various
assumptions including expected future book value of AmeriHome, the probability of the option being
exercised, volatility, expected term and certain other factors. The fair value of the options are included in

F-31

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

other assets and other liabilities, in the consolidated balance sheets. As of December 31, 2012, the
estimated fair value of the call and put options were $368 thousand and ($1) thousand, respectively.

Note 5.—Real Estate Owned (REO)

The Company’s REO consisted of the following:

REO
Impairment (1)

Ending balance

REO inside trusts
REO outside trusts

Total

December 31,

2012

2011

31,116
(8,605)

22,511

22,475
36

22,511

75,418
(18,951)

56,467

56,467
-

56,467

(1)

Impairment represents the cumulative write-downs of net realizable value subsequent to
foreclosure.

Note 6.—Mortgage Loans Held-for-Sale

A summary of the unpaid principal balance of mortgage loans held-for-sale by type is presented

below:

Government (1)
Conventional (2)
Jumbo
Fair value adjustment

Total mortgage loans held-for-sale

December 31,

2012

2011

57,992
54,303
-
6,491

30,917
26,487
1,532
2,782

118,786

61,718

(1)
(2)

Includes all government-insured loans including FHA, VA and USDA.
Includes loans eligible for sale to Fannie Mae and Freddie Mac.

The Company does not have any delinquent or nonaccrual mortgage loans held-for-sale as of

December 31, 2012.

F-32

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Gain on LHFS (included in mortgage lending gains and fees, net in the consolidated statements of

operations) is comprised of the following for the years ended December 31, 2012 and 2011:

Gain on sale of mortgage loans
Premium from servicing retained loan sales
Unrealized gains from derivative financial instruments
Realized losses from derivative financial instruments
Mark to market gain on LHFS
Direct origination (expenses) fees, net
Provision for repurchases

Total gain on LHFS

December 31,

2012

2011

109,449
15,962
3,234
(16,697)
3,709
(41,149)
(1,789)

23,053
2,830
559
(6,010)
2,702
(8,421)
(525)

72,719

14,188

Note 7.—Mortgage Servicing Rights

The Company recognizes as assets the rights to service mortgage loans based on the estimated
fair value of the mortgage servicing rights (MSRs) when the loans are sold and the associated servicing
rights are retained. MSRs are derived from the net positive cash flows associated with the servicing
contracts. The Company receives servicing fees, less subservicing costs, on the unpaid principal
balances (UPB) of the loans. The servicing fees are collected from the monthly payments made by the
mortgagors or when the underlying real estate is foreclosed upon and liquidated. The Company
generally receives other remuneration from rights to various mortgagor-contracted fees such as late
charges, collateral reconveyance charges, nonsufficient fund fees and the Company is generally entitled
to retain the interest earned on funds held pending remittance (or float) related to its collection of
mortgagor principal, interest, tax and insurance payments.

As of December 31, 2012 and 2011, the Company serviced approximately $2.2 billion and

$605.4 million, respectively, in UPB of loans with the following characteristics:

Government
Conventional
Interim/other

Total loans serviced (1)

Outstanding Principal
Balance

2012

2011

679,737
1,322,432
175,028

102,869
435,103
67,449

$ 2,177,197

605,421

(1)

Includes approximately $513.2 million in unpaid principal balance of servicing sold but not
transferred as of December 31, 2012.

F-33

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The table below illustrates hypothetical fair values of MSRs, caused by assumed immediate

changes to key assumptions that are used to determine fair value.

Mortgage Servicing Rights Sensitivity Analysis

Fair value of MSRs

Prepayment Speed:

Decrease in fair value from 100 basis points (bps) adverse

change

Decrease in fair value from 200 bps adverse change

Discount Rate:

Decrease in fair value from 100 bps adverse change
Decrease in fair value from 200 bps adverse change

Default Rate:

Decrease in fair value from 100 bps adverse change
Decrease in fair value from 200 bps adverse change

December 31, 2012

10,703

(619)
(1,183)

(71)
(153)

(578)
(1,196)

Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the
relationship of changes in assumptions to changes in fair value may not be linear. Also, the effect of a
variation in a particular assumption is calculated without changing any other assumption, whereas a
change in one factor may result in changes to another. Accordingly, no assurance can be given that
actual results would be consistent with the results of these estimates. As a result, actual future changes
in MSR values may differ significantly from those displayed above.

Note 8.—Other Assets

Other Assets

Other assets consisted of the following:

Deferred charge (See Note 17)
Accounts receivable, net
Interest rate lock commitments (Note 4)
Prepaid expenses
Premises and equipment, net
Investment in limited partnership
Servicer advances, net
Other

December 31,

2012

2011

11,974
4,544
3,970
2,542
2,470
2,042
1,086
1,972

11,974
3,096
1,179
1,493
2,958
3,580
1,062
1,710

Total other assets

30,600

27,052

F-34

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Investment in Limited Partnership

The investment in limited partnership represents an investment the Company made in a
non-affiliated limited partnership fund that invests primarily in mortgage and mortgage-related financial
institutions. The investment is accounted for using the equity method of accounting. The Company
records its share of the profits and losses based upon its relative ownership percentage. The carrying
value of the investment in limited partnership is based upon information received from the fund manager
and approximates fair value. The limited partnership agreement has a term of five years. The general
partner has the option to extend the term for two consecutive one-year periods. The second year of the
extended term ends in May 2013. As of December 31, 2012, there are no outstanding commitments to
fund the investment. During 2012, the Company received $3.5 million in distributions from the limited
partnership, including a return of capital of $1.2 million and investment earnings of $2.3 million.

Premises and Equipment, net

Premises and equipment are stated at cost, less accumulated depreciation or amortization.
Depreciation on premises and equipment is recorded using the straight-line method over the estimated
useful lives of individual assets, typically three to twenty years. Premises and equipment and
accumulated depreciation were as follows as of the dates indicated:

Premises and equipment
Less: Accumulated depreciation

Total premises and equipment, net

Servicer Advances

December 31,

2012

2011

13,481
(11,011)

2,470

12,732
(9,774)

2,958

The Company is required to advance certain amounts to meet its contractual loan servicing
requirements. The Company advances principal, interest, property taxes and insurance for borrowers
that have insufficient escrow accounts, plus any other costs to preserve the property. Also, the Company
will advance funds to maintain, repair and market foreclosed real estate properties. The Company is only
required to make the advances described above if they are deemed recoverable. The Company is
entitled to recover advances from the borrowers for reinstated and performing loans or from proceeds of
liquidated properties. At December 31, 2012 servicer advances totaled $1.1 million, net of
$243 thousand reserve.

F-35

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 9.—Securitized Mortgage Borrowings

Selected information on securitized mortgage borrowings for the periods indicated consisted of

the following (dollars in millions):

Securitized
mortgage
borrowings
outstanding as of
December 31,

2012

18.4
147.5
1,212.0
3,296.5
3,603.6
2,259.6

2011

21.5
181.2
1,363.4
3,568.6
3,895.9
2,463.6

10,537.6
(4,760.1)

11,494.2
(6,039.3)

Year of
Issuance

2002
2003
2004
2005
2006
2007

Original
Issuance
Amount

$ 3,876.1
5,966.1
17,710.7
13,387.7
5,971.4
3,860.5

Subtotal securitized

mortgage borrowings

Fair value adjustment

Total securitized

Range of Interest Rates (1):
Interest
Rate

Interest
Rate

Fixed
Interest
Rates

Margins over Margins after
Contractual
One-Month
Call Date (3)
LIBOR (2)

5.25 - 12.00
4.34 - 12.75
3.58 - 5.56
-
6.25
-

0.27 - 2.75
0.27 - 3.00
0.25 - 2.50
0.24 - 2.90
0.10 - 2.75
0.06 - 2.00

0.54 - 3.68
0.54 - 4.50
0.50 - 3.75
0.48 - 4.35
0.20 - 4.13
0.12 - 3.00

mortgage borrowings

$ 5,777.5

$ 5,454.9

(1)
(2)
(3)

Some rates have been modified subsequent to original issuance.
One-month LIBOR was 0.21% as of December 31, 2012.
Interest rate margins are generally adjusted when the unpaid principal balance is reduced to less
than 10-20% of the original issuance amount, or if certain other triggers are met.

As of December 31, 2012, expected principal reductions of the securitized mortgage borrowings,
which is based on contractual principal payments and expected prepayment and loss assumptions for
securitized mortgage collateral, was as follows (dollars in millions):

Payments Due by Period

Total

Less Than
One Year

One to
Three Years

Three to More Than
Five Years
Five Years

Securitized mortgage

borrowings

$ 10,537.6

815.8

1,304.7

982.4

7,434.7

Note 10.—Warehouse Borrowings

The Company, through IRES and its subsidiaries, enters into Master Repurchase Agreements with
lenders providing warehouse facilities. The warehouse facilities are used to fund, and are secured by,

F-36

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

residential mortgage loans that are held for sale. In accordance with the terms of the Master Repurchase
Agreements, the Company is required to maintain cash balances with the lender as additional collateral
for the borrowings which are included in restricted cash in the accompanying consolidated balance
sheets.

At December 31, 2012, the Company was in compliance with all financial covenants.

The following table presents certain information on warehouse borrowings for the periods

indicated:

Maximum
Borrowing
Capacity

Balance Outstanding At

2012

2011

Allowable
Advance
Rates (%)

Rate
Range (1)

Maturity
Date

Short-term borrowings:

Repurchase agreement 1 (2)
Repurchase agreement 2
Repurchase agreement 3
Repurchase agreement 4
Repurchase agreement 5 (3)

$ 47,500
30,000
50,000
25,000
65,000

$ 31,565
19,780
16,554
-
39,670

20,163
24,769
13,759
-
-

Total short-term borrowings $ 217,500

$ 107,569

$ 58,691

1M L +3.5 - 6.5%
Prime + 1-6%

90-98
75-98
80-98
73-98 1M L +3.75 - 6.75%

BR +3.5-4.0%

June 28, 2013
July 1, 2013

May 13, 2013
September 20, 2013

1M L +3.5 - 4.0% November 25, 2013

(1)
(2)
(3)

1 ML represents One-month LIBOR. BR represents the lender defined base rate.
In February 2013, the maximum borrowing capacity increased from $47.5 million to $60.0 million.
In February 2013, the maximum borrowing capacity increased from $65.0 million to $100.0 million.

The following table presents certain information on warehouse borrowings for the periods

indicated:

Maximum outstanding balance during the year
Average balance outstanding for the year
Underlying collateral (mortgage loans)
Weighted average rate for period

Note 11.—Long-term Debt

Trust Preferred Securities

For the year ended
December 31,

2012

2011

$ 159,669
79,707
112,103

61,123
32,583
60,251

4.20%

4.92%

During 2005, the Company formed four wholly-owned trust subsidiaries (Trusts) for the purpose of
issuing an aggregate of $99.2 million of trust preferred securities (the Trust Preferred Securities). All
proceeds from the sale of the Trust Preferred Securities and the common securities issued by the Trusts
were originally invested in $96.3 million of junior subordinated debentures (subordinated debentures),
which became the sole assets of the Trusts. The Trusts pay dividends on the Trust Preferred Securities at
the same rate as paid by the Company on the debentures held by the Trusts.

F-37

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The Company carries its Trust Preferred Securities at estimated fair value as more fully described
in Note 2.—Fair Value of Financial Instruments. The following table shows the remaining principal
balance and fair value of Trust Preferred Securities issued as of December 31, 2012 and 2011:

Trust preferred securities (1)
Common securities
Fair value adjustment

Total

December 31,

2012

2011

8,500
263
(6,785)

8,500
263
(6,712)

1,978

2,051

(1)

Stated maturity of July 30, 2035. Redeemable at par at any time after July 30, 2010; at a variable
rate of three-month LIBOR plus 3.75% per annum. At December 31, 2012, the interest rate was
4.06%.

If an event of default occurs (such as a payment default that is outstanding for 30 days, a default in
performance, a breach of any covenant or representation, bankruptcy or insolvency of the Company or
liquidation or dissolution of the Trust), either the trustee of the Notes or the holders of at least 25% of the
aggregate principal amount of the outstanding Notes may declare the principal amount of, and all
accrued interest on, all the Notes to be due and payable immediately, or if the holders of the Notes fail to
make such declaration, the holders of at least 25% in aggregate liquidation amount of the Trust Preferred
Securities outstanding shall have a right to make such declaration.

Junior Subordinated Notes

The Company carries its Junior Subordinated Debt at estimated fair value as more fully described
in Note 2.—Fair Value of Financial Instruments. The following table shows the remaining principal
balance and fair value of junior subordinated notes issued as of December 31, 2012 and 2011:

Junior subordinated notes (1)
Fair value adjustment

Total

December 31,

2012

2011

62,000
(51,247)

10,753

62,000
(52,490)

9,510

(1)

Stated maturity of March 2034; requires quarterly distributions initially at a fixed rate of 2.00% per
annum through December 2013 with increases of 1.00% per year through 2017. Starting in 2018,
the interest rates become variable at 3-month LIBOR plus 3.75% per annum.

F-38

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 12.—Notes Payable

Note payable—Debt Agreement

In February 2012, the Company entered into a $7.5 million structured debt agreement using eight
of the Company’s residual interests (net trust assets) as collateral. The Company used a portion of the
proceeds to pay off the $408 thousand balance owed on the previous debt agreement. The Company
received proceeds of $7.0 million, net of the aforementioned payoff and transaction costs of
approximately $50 thousand.

The structured debt agreement is evidenced by an Indenture with Deutsche Bank National Trust
Company, as trustee. It bears interest at a fixed rate of 25% per annum and is amortized in equal
principal payments over 18 months with all distributions from the underlying residual interests being
used to make the monthly payments, and was recorded as a note payable in the accompanying
consolidated balance sheets. Any excess cash flows from the residual interests are included in a reserve
account, which is available to cover future shortfall and is recorded on the consolidated balance sheets
as restricted cash. If the cumulative cash flows received, including the reserve account balance, from the
collateralized residual interests are not sufficient to pay the required monthly principal and interest, the
Company would be required to pay the difference to avoid the transfer of the residual interests and the
rights to the associated future cash flows to the note holder. To the extent there is excess cash flows
after the reserve account reaches a balance of $1.5 million, the Company will receive 70% of the excess
cash flows to a monthly maximum of $300 thousand. If the amount of restricted cash in the reserve
account becomes sufficient to satisfy the remaining scheduled payments the residuals listed as security
can be released.

During the year ended December 31, 2012, the Company received $1.5 million in excess cash
flows from the residual interests collateralizing the note payable. The $1.5 million in excess cash flows is
included in restricted cash on the consolidated balance sheets. If the amount of restricted cash
becomes sufficient to satisfy the remaining obligation the note payable can be paid off and the residuals
listed as security are released. The carrying value of the debt agreement at December 31, 2012 was
$3.3 million, and was current as to principal and interest payments.

Note 13.—Line of Credit Agreement

In April 2012, the Company, through its subsidiaries, amended the $4.0 million working capital line
of credit agreement with a national bank at an interest rate of one-month LIBOR plus 3.5%. The
amendment extends the expiration to April 2013. Under the terms of the agreement the Company and its
subsidiaries are required to maintain various financial and other covenants. There was no outstanding
balance on the working capital line of credit as of December 31, 2012.

F-39

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following table presents certain information on the line of credit for the periods indicated:

Maximum outstanding balance during the year
Average balance outstanding for the year
Weighted average rate for period

Note 14.—Noncontrolling Interest

For the year ended
December

2012

2011

4,000
1,753

3.65%

4,000
334
3.89%

In 2010, Excel Mortgage Servicing, Inc., a wholly-owned subsidiary of IRES, completed the
acquisition of 51% of AmeriHome whereby the Company made a $1.1 million cash payment to
AmeriHome and entered into a note payable for $720,000. As part of the transaction, the Company was
granted an option to purchase an additional 39% of AmeriHome beginning January 1, 2011 for 1.5 times
39% of the lesser of $5 million or Issuer’s Book Value (IBV) of AmeriHome plus $550,000 in cash (see call
option in Note 2.—Fair Value of Financial Instruments). This option has a three-year term. In addition, the
founder of AmeriHome has a put option to sell his remaining 49% ownership beginning January 1, 2014
to the Company for the lesser of $5 million or IBV (see put option in Note 2.—Fair Value of Financial
Instruments). The IBV of AmeriHome was approximately $2.3 million at the time the Company purchased
its 51% ownership interest.

In June 2012, the Company and the noncontrolling interest holder entered into an agreement to
transfer 27.5% ownership of AmeriHome to the Company in exchange for the settlement of balances
owed from the noncontrolling interest holder related to capital contributions made by the Company to
AmeriHome and indemnification provisions included in the purchase agreement. As of December 31,
2012, the Company owns 78.5% of AmeriHome, and retains an option to purchase 11.5% of
AmeriHome. As of December 31, 2012, the noncontrolling interest holder owns 21.5% of AmeriHome,
and retains an option to sell the 21.5% interest to the Company.

Note 15.—Redeemable Preferred Stock

At December 31, 2012, the Company has outstanding $51.8 million liquidation preference of
Series B and Series C Preferred Stock. The holders of each series of Preferred Stock retain the right to a
$25.00/share liquidation preference 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.

F-40

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 16.—Reconciliation of Earnings Per Share

The following table presents the computation of basic and diluted earnings per common share,
including the dilutive effect of stock options and cumulative redeemable preferred stock outstanding for
the periods indicated:

For the year ended
December 31,

2012

2011

Numerator for basic earnings (loss) per share:
Earnings from continuing operations

Net (earnings) loss attributable to noncontrolling interest

Earnings from continuing operations attributable to IMH
Loss from discontinued operations

13,045
(871)

12,174
(15,549)

5,729
573

6,302
(3,078)

Net (loss) earnings available to IMH common stockholders

(3,375) $

3,224

Denominator for basic earnings (loss) per share (1):
Basic weighted average common shares outstanding during

the year

7,914

7,802

Denominator for diluted earnings (loss) per share (1):
Basic weighted average common shares outstanding during

the year
Net effect of dilutive stock options and RSU’s

Diluted weighted average common shares

Earnings (loss) per common share – basic:

Earnings from continuing operations attributable to IMH
Loss from discontinued operations

Net (loss) earnings per share available to common

stockholders

Earnings (loss) per common share – diluted:

Earnings from continuing operations attributable to IMH
Loss from discontinued operations

Net (loss) earnings per share available to common

stockholders

7,914
-

7,914

7,802
545

8,347

1.54
(1.96)

0.81
(0.40)

(0.42) $

0.41

1.54
(1.96)

0.76
(0.37)

(0.42) $

0.39

(1)

Share amounts presented in thousands.

The anti-dilutive stock options outstanding for the years ending December 31, 2012 and 2011

were 797 thousand and 518 thousand shares, respectively.

F-41

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 17.—Income Taxes

The Company is subject to federal income taxes as a regular (Subchapter C) corporation and

files a consolidated U.S. federal income tax return.

Income taxes for the years ended December 31, 2012 and 2011 were as follows:

Current income taxes:

Federal
State

Total current income taxes

Deferred income taxes:

Federal
State

Total deferred income taxes

Total income tax expense

For the year ended December 31,

2012

2011

— $
48

1,081
115

1,196

1,170
24

1,194

-
-

1,244

1,194

The Company recorded income tax expense of $1.2 million for the years ended December 31,
2012 and 2011. The income tax expense for 2012 is the result of deferred income tax from AmeriHome
which is an unconsolidated or nonqualified tax subsidiary. Additionally for 2012, we incur state income
taxes primarily from states where the Company does not have net operating loss carryforwards. The
income tax expense for 2011 is the result of the amount of the deferred charge impairment write-downs
based on changes in estimated fair value of securitized mortgage collateral as well as state income taxes
primarily from states where the Company does not have net operating loss carryforwards.

F-42

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Deferred tax assets are comprised of the following temporary differences between the financial

statement carrying value and the tax basis of assets:

Deferred tax assets:

Fair value and REMIC transactions (1)
Federal and state net operating losses
Derivative liabilities
Real estate owned
Depreciation and amortization
Compensation and other accruals
Other

Total gross deferred tax assets

Deferred tax liabilities:

Mortgage servicing rights
Non-accrual loans

Total gross deferred tax liabilities

For the year ended December 31,

2012

2011

428,910
85,037
5,641
3,612
1,324
2,688
1,005

528,217

(4,233)
-

(4,233)

417,928
95,527
6,605
10,380
1,200
3,406
251

535,297

(1,741)
(2,529)

(4,270)

Valuation allowance

(525,180)

(531,027)

Total net deferred tax liability

(1,196) $

—

(1)

Includes the (i) change in fair value of net trust assets and (ii) loss from REMIC transactions—tax
versus book difference.

The following is a reconciliation of income taxes to the expected statutory federal corporate

income tax rates for the years ended December 31, 2012 and 2011:

Expected income tax
State tax, net of federal benefit
Change in valuation allowance
Deferred charge
Other

Total income tax expense

For the year ended December 31,

2012

2011

5,001
955
(4,288)
-
(424)

1,244

2,624
16
(2,643)
1,170
27

1,194

As of December 31, 2012, the Company had estimated federal and California net operating loss
(NOL) carryforwards of approximately $489.4 million and $419.0 million, respectively, of which
approximately $286.2 million (federal) relate to discontinued operations. During the years ended
December 31, 2012 and 2011, estimated net operating loss carryforwards were reduced as a result of
the Company generating taxable income from cancellation of debt in the amount of approximately
$12.0 million and $39.2 million, respectively, of securitized mortgage borrowings. Federal and state net
operating loss carryforwards begin to expire in 2020 and 2017, respectively. The use of NOL
carryforwards in California were suspended from 2008 through 2011.

F-43

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The Company has recorded a valuation allowance against its net deferred tax assets as
management believes that as of December 31, 2012 and 2011, it is more likely than not that the deferred
tax assets will not be recoverable. The remaining net deferred tax liability is related to AmeriHome and
primarily represents mortgage servicing rights. AmeriHome is not part of IMH’s federal consolidated tax
group, therefore the NOL carryforward of IMH cannot be utilized to offset the subsidiary’s income tax
expense and deferred tax liabilities.

At December 31, 2012 discontinued operations had gross deferred tax assets of $117.1 million

which had a full valuation allowance.

The Company files numerous tax returns in various jurisdictions. While the Company is subject to
examination by various taxing authorities, the Company believes there are no unresolved issues or
claims likely to be material to its financial position. A subsidiary of the Company has been examined by
the IRS for tax years 2006 and 2008. The subsidiary filed a consent to extend the statute of limitations for
year 2008 until December 31, 2013. Additionally, a subsidiary of the Company recently concluded an
examination by the Internal Revenue Service (IRS) for tax year 2008. As a result of NOL carrybacks and
the examinations, the Company recorded federal income taxes receivable in the amount of
$162 thousand within discontinued operations for the year ended December 31, 2011 and was collected
in 2012. The Company classifies interest and penalties on taxes as provision for income taxes. As of
December 31, 2012 and 2011, the Company has no material uncertain tax positions.

The Company recognizes tax benefits associated with the exercise of stock options directly to
stockholders’ equity only when realized. A windfall tax benefit occurs when the actual tax benefit
realized upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any,
associated with the award. At December 31, 2012, deferred tax assets do not include $3.7 million of
excess tax benefits from stock-based compensation.

F-44

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 18.—Segment Reporting

The Company has four reporting segments, consisting of mortgage lending, real estate services,
long-term mortgage portfolio and discontinued operations. The following table presents the selected
balance sheet data by reporting segment as of the dates indicated:

Balance Sheet Items as
of December 31, 2012:

Cash and cash equivalents
Restricted cash
Trust assets
Mortgage loans held-for-sale
Mortgage servicing rights
Other assets (2)
Total assets
Total liabilities

Total stockholders’ equity (deficit)

Balance Sheet Items as
of December 31, 2011:

Cash and cash equivalents
Restricted cash
Trust assets
Mortgage loans held-for-sale
Mortgage servicing rights
Other assets (2)
Total assets
Total liabilities

Total stockholders’ equity (deficit)

Mortgage Real Estate Long-term Discontinued
Lending

Portfolio

Services

Operations Reclassifications (1) Consolidated

$ 10,617 $
1,760
-
118,786
10,703
(4,133)
137,733
117,555
20,178

1,084 $
1,010 $
1,470
-
- 5,810,506
-
-
-
-
11,823
22,910
12,833 5,835,970
3,278 5,817,104
18,866
9,555

45 $
-
-
-
-
7
52
18,808
(18,756)

7,145 $
569
-
61,718
4,141
(5,756)
67,817
67,219
598

- $

540 $
-

4,450
5,506,193
-
-
-
-
14,448
18,360
14,988 5,529,003
1,433 5,502,391
26,612

13,555

12
-
-
-
-
252
264
9,932
(9,668)

(45) $
-
-
-
-
45
-
-
-

12,711
3,230
5,810,506
118,786
10,703
30,652
5,986,588
5,956,745
29,843

(44)
-
-
-
-
12
(32)
(32)
-

7,653
5,019
5,506,193
61,718
4,141
27,316
5,612,040
5,580,943
31,097

(1)

(2)

Amounts represent reclassifications of balances within the discontinued operations segment to reflect balances within
continuing operations as presented in the accompanying consolidated balance sheets.
Amounts in other assets include intercompany (payables)/receivables.

F-45

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following table presents selected statement of operations information by reporting segment

for the years ended December 31, 2012 and 2011:

Statement of Operations Items
for the year ended
December 31, 2012:

Net interest income
Non-interest income – net trust

assets

Mortgage lending gains and

fees, net

Real estate services fees, net
Other non-interest (expense)

income

Non-interest expense and

other (2)

(Loss) earnings from

continuing operations

Loss from discontinued
operations, net of tax

Net loss

Statement of Operations Items
for the year ended
December 31, 2011:

Net interest income
Non-interest income – net trust

assets

Mortgage lending gains and

fees, net

Real estate services fees, net
Other non-interest income

(expense)

Non-interest expense and

other (2)

(Loss) earnings from

continuing operations

Loss from discontinued
operations, net of tax

Net earnings

Mortgage Real Estate Long-term Discontinued
Lending

Portfolio

Services

Operations Reclassifications (1) Consolidated

(673) $

27 $

2,465 $

7 $

(7) $

1,819

(7,891)

73,091
-

-
21,218

-
-

(75)

3,003

(55,744)

(8,605)

(14,642)

-
-

(5,887)

(9,669)

$ 16,599 $

12,640 $

(17,065)

(15,549)

(25) $

19 $

3,598 $

- $

9,439

13,849
-

-
42,153

-
-

(380)

1,940

2,477

(25,092)

(24,166)

(17,510)

-
-

(1,783)

(1,295)

$ (11,648) $

19,946 $

(1,996)

(3,078)

-
-

5,887

9,669

(7,891)

73,091
21,218

2,928

(78,991)

12,174

(15,549)

(3,375)

- $

-
-

1,783

1,295

3,592

9,439

13,849
42,153

4,037

(66,768)

6,302

(3,078)

3,224

(1)

(2)

Amounts represent reclassifications of balances within the discontinued operations segment to reflect balances within
continuing operations as presented in the accompanying consolidated balance sheets.
Non-interest expense and other includes continuing operations income tax expense and noncontrolling interest.

Note 19.—Commitments and Contingencies (Continuing and Discontinued Operations)

Legal Proceedings

F-46

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will
be, or what the eventual loss related to each pending matter may be, if any.

The legal matters summarized below are ongoing and may have an effect on the Company’s

business and future financial condition and results of operations:

On December 7, 2011 a purported class action was filed entitled Timm, v. Impac Mortgage
Holdings, Inc, et al. alleging on behalf of holders of the Company’s 9.375% Series B Cumulative
Redeemable Preferred Stock (Preferred B) and 9.125% Series C Cumulative Redeemable Preferred
Stock (Preferred C) who did not tender their stock in connection with the Company’s 2009 completion of
its Offer to Purchase and Consent Solicitation that the Company failed to achieve the required consent
of the Preferred B and C holders, the consents to amend the Preferred stock were not effective because
they were given on unissued stock (after redemption), the Company tied the tender offer with a consent
requirement that constituted an improper ‘‘vote buying’’ scheme, and that the tender offer was a breach
of a fiduciary duty. The action seeks the payment of two quarterly dividends for the Preferred B and C
holders, the unwinding of the consents and reinstatement of the cumulative dividend on the Preferred B
and C stock, and the election of two directors by the Preferred B and C holders. The action also seeks
punitive damages and legal expenses. The court, on January 28, 2013, dismissed all individual director
and officer defendants from the case and further dismissed the Second, Third and Fifth causes of action.
The remaining causes of action against the Company allege the Preferred B holders did not approve
amendments to its Articles Supplementary and the holders thereof seek to recover two quarters of
dividends and to elect two members to the Board of Directors of the Company.

On May 26, 2011, a matter was filed entitled Citigroup Global Markets, Inc. v. Impac Secured
Assets Corp. et al., wherein the plaintiff alleges a violation of Section 18 and Section 20 of the Securities
and Act of 1933 and negligent misrepresentation, pertaining to the issuance and sale of bonds from a
securitization trust. The plaintiff alleges they relied on certain documents filed with the Securities and

F-47

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Exchange Commission that were subsequently the subject of an amended filing. The matter seeks
unspecified damages, interest, legal fees and litigation expenses. The parties have agreed to a
settlement for the total amount of $3.1 million with the Company recently satisfying the first payment due
under the terms of the settlement agreement. In accordance with the settlement agreement, in January
2013, approximately $1.1 million was satisfied through the issuance of the Company’s common stock
with remaining payments to be made in the Company’s discretion either in common stock or cash during
2013.

On April 30, 2012 a purported class action was filed entitled Marentes v. Impac Mortgage
Holdings, Inc., alleging that certain loan modification activities of the Company constitute an unfair
business practice, false advertising and marketing, and that the fees charged are improper. The
complaint seeks unspecified damages, restitution, injunctive relief, attorney’s fees and pre-judgment
interest. On August 22, 2012, the plaintiff filed an amended complaint adding Impac Funding
Corporation as a defendant. On October 2, 2012, the plaintiff dismissed Impac Mortgage Holdings, Inc.,
without prejudice. On December 27, 2012, the court granted IFC’s motion to dismiss and on January 30,
2013, the plaintiffs appealed the court’s dismissal.

On June 27, 2000, a purported class action was filed entitled Gilmor, et al. v. Preferred Credit
Corp., et. al., alleging the originator of various second mortgage loans in Missouri and other assignees of
the loans charged fees and costs in violation of Missouri’s Second Mortgage Loan Act. The plaintiffs
were seeking on behalf of themselves and the members of the class, among other things, disgorgement
or restitution of all improperly collected charges, the right to rescind all affected loan transactions, the
right to offset any finance charges, closing costs, points or other loan fees paid against the principal
amounts due on the loans if rescinded, actual and punitive damages, and attorneys’ fees. The court
granted the plaintiffs’ motion for class certification. That matter has been tentatively settled for the sum
of $3.0 million, pending the court’s final approval of the settlement.

On October 16, 2012, a matter was filed entitled Deutsche Bank National Trust Company, in its
individual capacity, and as Indenture Trustee of Impac Secured Assets CMB Trust Series 1998-1, Impac
CMB Trust Series 1999-2, 2000-2, 2001-4, 2002-1, and 2003-5, and Impac Real Estate Asset Trust
Series 2006-SD1 v. Impac Mortgage Holdings, Inc., et al. The action alleges the defendants owe the
plaintiff indemnification for settlements that the plaintiff allegedly entered into in connection with the
Gilmor, et al. v. Preferred Credit Corp., et al. matter described above. The plaintiff seeks declaratory and
injunctive relief and unspecified damages.

On January 30, 2012, a Summons with Notice was filed entitled Deutsche Zentral-
Genossenschaftsbank AG New York Branch, dba DZ Bank AG, New York Branch v. JPMorgan
Chase & Co., et al. Named as a defendant in that action is Impac Secured Assets Corp. (ISAC). On
August 3, 2012, a Consolidated Complaint was filed in which the above matter was consolidated with
two other cases by the same plaintiff and DG Holding Trust. ISAC first received a copy of the complaint
during the third quarter of 2012. The Consolidated Complaint alleges misrepresentations in connection
with the marketing and sale of mortgage backed securities issued by ISAC that the plaintiff purchased.
The complaint seeks rescission, damages, prejudgment interest, punitive damages, and attorney’s fees
in an amount to be proven at trial. A motion to dismiss has been filed, which is pending.

In October 2011 and November 2012, the Company received letters from Countrywide Securities
Corporation (Countrywide), Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), and UBS

F-48

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Securities LLC (UBS) claiming indemnification relating to mortgage backed securities bonds issued,
originated or sold by ISAC., IFC, IMH Assets Corp. and the Company. The claims seek indemnification
from claims asserted against Countrywide, Merrill Lynch, and UBS in specified legal actions entitled
American International Group Inc. v. Bank of America Corp., et al, Case No. 1:11-cv-06212 in the United
States District Court for the Southern District of New York and Federal Home Loan Bank of Boston v. Ally
Financial, Inc., et al, Case No. 11-cv-10952 in the United States District Court for the District of
Massachusetts. The notices each seek indemnification for all losses, liabilities, damages and legal fees
and costs incurred in those actions. Further related to these claims, the Company received a demand for
claims relating to 12 Residential Mortgage backed Securities purchased in which the Company was
depositor, sponsor, seller and/or originator. The demanding party contends it has suffered losses on the
securities and contends there were misrepresentations and breaches of representations and warranties
regarding the securities. In October 2012 and January 2013, Deutsche Bank issued indemnification
demands to IFC for claims asserts against them in the Superior Court of New York in a case entitled
Royal Park Investments SA/NV v. Merrill Lynch, et. al. and Sealink Funding Ltd. v. Deutsche Bank. In
February of 2013, the Company also received a notice of intent to seek indemnification on behalf of
Deutsche Bank AG, Deutsche Bank Securities, Inc., DB Structured Products, Inc., ACE Securities Corp
and Deutsche Alt-A Securities, Inc. The claim relates to an action filed against those entities in the
Superior Court of New York.

On or about April 20, 2011, an action was filed entitled Federal Home Loan bank of Boston v. Ally
Financial Inc., et al, naming IMH Assets Corp, IFC, the Company, and ISAC as defendants. The
complaint alleges misrepresentations in the materials used to market mortgage backed securities that
the plaintiff purchased. The complaint seeks damages and attorney’s fees in an amount to be
established at time of trial. The case was removed to the United States District Court for the District of
Massachusetts and the defendants’ motion to dismiss is pending.

On or about November 27, 2012, a demand for arbitration was filed entitled Mortgage
Cadence, LLC v. Excel Mortgage Servicing, Inc., alleging the plaintiff provided a new loan origination
system to Excel and is seeking unpaid monthly payments of approximately $1.4 million and for usage
fees. The matter is presently set for arbitration on August 5, 2013.

F-49

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Lease Commitments

The Company leases office space and certain office equipment under long-term leases expiring at
various dates through 2017. Future minimum commitments under non-cancelable leases are as follows:

Operating
Leases

Capital
Leases

Total

Year 2013
Year 2014
Year 2015
Year 2016
Year 2017 and thereafter

Subtotal

Sublet income

8,254
8,196
8,292
8,165
-

32,907
(8,893)

Total lease commitments

24,014

520
236
94
-
-

850
-

850

8,774
8,432
8,386
8,165
-

33,757
(8,893)

24,864

Total rental expense for the years ended December 31, 2012 and 2011 was $5.3 million and
$5.0 million, respectively. During 2012 and 2011, approximately $5.3 million and $4.4 million,
respectively, were charged to continuing operations, and is included in occupancy expense in the
consolidated statements of operations. Included in rent expense for 2012 and 2011, is an increase of
$625 thousand and an increase of $566 thousand, respectively, related to changes in estimated lease
liabilities as a result of changes in our expected minimum future lease payments.

Repurchase Reserve

When the Company sells mortgage loans, it makes customary representations and warranties to
the purchasers about various characteristics of each loan such as the origination and underwriting
guidelines, including but not limited to the validity of the lien securing the loan, property eligibility,
borrower credit, income and asset requirements, and compliance with applicable federal, state and local
law. The Company’s whole loan sale agreements generally required it to repurchase loans if the
Company breached a representation or warranty given to the loan purchaser.

The activity related to the continuing operations repurchase reserve for previously sold loans for

the years ended December 31, 2012 and 2011 is as follows:

Beginning balance
Provision for repurchases
Settlements

Total repurchase reserve

For the year ended December 31,

2012

2011

603
1,789
-

2,392

78
525
-

603

F-50

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The activity related to the discontinued operations repurchase reserve for previously sold loans for

the years ended December 31, 2012 and 2011 is as follows:

Beginning balance
Provision for repurchases
Settlements

Total repurchase reserve

Concentration of Risk

For the year ended December 31,

2012

2011

5,213
5,713
(2,756)

8,170

7,987
3,387
(6,161)

5,213

The aggregate unpaid principal balance of loans in the Company’s long-term mortgage portfolio
secured by properties in California and Florida was $4.4 billion and $1.0 billion, or 52% and 11%,
respectively, at December 31, 2012.

The Company does not have a significant concentration of risk to any individual client except for

the U.S. government and its agencies relating to its concentration of loan sales.

Note 20.—Share Based Payments and Employee Benefit Plans

The Company maintains a stock-based incentive compensation plan, the terms of which are
governed by the 2010 Omnibus Incentive Plan (the 2010 Incentive Plan). The 2010 Incentive Plan
provides for the grant of stock appreciation rights, restricted stock units, performance shares and other
stock and cash-based incentive awards. Employees, directors, consultants or other persons providing
services to the Company or its affiliates are eligible to receive awards pursuant to the 2010 Incentive
Plan. In connection with the adoption of the 2010 Incentive Plan, the Company’s 2001 Stock Plan, which
was scheduled to expire in March 2011, was frozen. Further, all outstanding awards under the 2001
Stock Plan, as well as the Company’s previous 1995 Stock Option, Deferred Stock and Restricted Stock
Plan (together with the 2001 Stock Plan, the ‘‘Prior Plans’’), were assumed by the 2010 Incentive Plan.
During the third quarter of 2012, the shareholders voted on and approved the amendment to the 2010
Omnibus Incentive Plan to increase the shares subject to the plan by 250,000 shares. As of
December 31, 2012, the aggregate number of shares reserved under the 2010 Incentive Plan is 25,236
shares (including all outstanding awards assumed from Prior Plans), and there were 25,236 shares
available for grant as stock options, restricted stock and deferred stock awards. The Company issues
new shares of common stock to satisfy stock option exercises.

F-51

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The fair value of options granted, which is amortized to expense over the option vesting period, is

estimated on the date of grant with the following weighted average assumptions:

Risk-free interest rate
Expected lives (in years)
Expected volatility (1)
Expected dividend yield
Fair value per share

For the year ended
December 31, 2012

0.60% - 0.65%
4.55 - 4.90
209.30% - 214.13%
0.00%

$ 13.51 - $13.53

(1)

Expected volatilities are based on both the implied and historical volatility of the Company’s stock
over the expected option life.

The following table summarizes activity, pricing and other information for the Company’s stock

options for the years presented below:

For the year ended December 31,
2011
2012

Number of
Shares

Weighted-
Average
Exercise
Price

Number of
Shares

Weighted-
Average
Exercise
Price

1,241,808
269,500
(659,071)

(55,442)

796,795

420,475

3.64
13.81
1.88

1,476,704
-
(27,400)

12.96

(207,496)

7.89

1,241,808

5.39

1,012,435

6.28
-
0.53

22.83

3.64

3.84

Options outstanding at
beginning of year

Options granted
Options exercised
Options forfeited/

cancelled

Options outstanding at

end of year

Options exercisable at

end of year

The aggregate intrinsic value in the following table represents the total pre-tax intrinsic value,
based on the Company’s closing stock price of $14.10 and $2.01 per common share as of December 31,
2012 and 2011, respectively. Aggregate intrinsic value represents the amount of proceeds the option

F-52

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

holders would have received had all option holders exercised their options and sold the stock as of that
date.

As of December 31,

2012

2011

Weighted-
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
(in thousands)

Weighted-
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
(in thousands)

Options outstanding
at end of year

Options exercisable
at end of year

7.32 $

5,766

6.97 $

1,071

5.51 $

4,476

6.54 $

1,071

As of December 31, 2012, there was approximately $3.8 million of total unrecognized
compensation cost related to stock option compensation arrangements granted under the plan, net of
estimated forfeitures. That cost is expected to be recognized over the remaining weighted average
period of 2.36 years.

For the years ended December 31, 2012 and 2011, the aggregate grant-date fair value of stock

options granted was approximately $3.7 million and none, respectively.

For the years ended December 31, 2012 and 2011, total stock-based compensation expense was

$449 thousand and $334 thousand, respectively.

Additional information regarding stock options outstanding as of December 31, 2012 is as follows:

Exercise
Price
Range

0 - 0.53
0.54 - 2.73
2.74 - 2.80
2.81 - 13.81
13.82 - 217.70

$ 0.53 - 217.70

Stock Options Outstanding
Weighted-
Average
Remaining
Contractual
Outstanding Life in Years

Number

Weighted-
Average
Exercise
Price

Options Exercisable

Number
Exercisable

Weighted-
Average
Exercise
Price

233,000
114,000
93,395
352,400
4,000

796,795

6.44 $
7.93
7.82
7.64
1.47

7.32

0.53
2.73
2.80
13.38
217.70

7.89

233,000 $
54,000
46,575
82,900
4,000

420,475

0.53
2.73
2.80
12.00
217.70

5.39

In addition to the options granted, the Company has granted restricted stock units (RSU’s), which
vest over two and three year periods. The fair value of each RSU was measured on the date of grant
using the grant date price of the Company’s stock. For the years ended December 31, 2012 and 2011,
the aggregate grant-date fair value of RSU’s granted was approximately $249 thousand and none,
respectively.

F-53

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following table summarizes activity, pricing and other information for the Company’s RSU’s

for the years presented below:

For the year ended December 31,
2011
2012

Number of
Shares

Weighted-
Average
Grant Date
Fair Value

Number of
Shares

Weighted-
Average
Grant Date
Fair Value

24,000
18,000
-

2.73
13.81
-

24,000
-
-

2.73
-
-

42,000

7.48

24,000

2.73

RSU’s outstanding at
beginning of year
RSU’s granted
RSU’s exercised
RSU’s forfeited /
cancelled

RSU’s outstanding at
end of year

As of December 31, 2012, there was approximately $257 thousand of total unrecognized
compensation cost related to the RSU compensation arrangements granted under the plan. This cost is
expected to be recognized over a weighted average period of 1.83 years.

401(k) Plan

After meeting certain employment requirements, employees can participate in the Company’s
401(k) plan. Under the 401(k) plan, employees may contribute up to 25% of their salaries, pursuant to
certain restrictions. The Company matches 50% of the first 4% of employee contributions. Additional
contributions may be made at the discretion of the board of directors. During the year ended
December 31, 2012, the Company recorded approximately $274 thousand for basic matching
contributions. During the year ended December 31, 2011, the Company recorded approximately
$375 thousand for basic matching contributions. There were no discretionary matching contributions
recorded during the years ended December 31, 2012 or 2011.

Note 21.—Related Party Transactions

Historically, mortgage loans have been extended to officers and directors of the Company. All
such loans were made at the prevailing market rates and conditions existing at the time. During 2011, no
mortgage loans were extended to officers or directors. During 2012, a mortgage loan was extended to
an officer at market terms. The loan was subsequently sold to a third party. Also during 2012, Excel
acquired assets from a company which was partially owned by certain officers of IMH for consideration
of $72 thousand.

The Company earns mortgage lending gains and fees and real estate service fees by providing

such services to its long-term mortgage portfolio.

F-54

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

Note 22.—Sale of Experience 1, Inc.

In September 2011, the Company sold 7,000 of its 8,000 shares of common stock of its majority-
owned subsidiary Experience 1, Inc., the parent of a title insurance company, for total consideration of
$3.36 million, recording a gain of approximately $1.78 million. The Company received proceeds in the
form of cash and a secured promissory note in the amount of $60 thousand, which bears interest at 4%
and has a term of 24 months.

In October 2011, the Company sold its remaining 1,000 shares for $360 thousand, recording a
gain of approximately $160 thousand. The Company accepted two secured promissory notes in the
amount of $180 thousand each, which bear interest at 4% and have terms of 24 months.

In a separate transaction associated with the sale in October 2011, the Company agreed to sell
fixed assets and intellectual property to Experience 1, Inc. for $140 thousand. The Company accepted a
promissory note of $140 thousand, which bears interest at 8% and has a term of 12 months.

As part of the sales agreement, the Company provided operational and administrative services
including, accounting, human resources, and information technology at a predetermined price through
October 31, 2011.

Note 23.—Discontinued Operations

During 2007, the Company announced plans to exit substantially all of its non-conforming
mortgage, commercial, retail, and warehouse lending operations. Consequently, the amounts related to
these operations are presented as discontinued operations in the Company’s consolidated statements
of operations and comprehensive loss and its consolidated statements of cash flows, and the asset
groups exited are reported as assets and liabilities of discontinued operations in its consolidated
balance sheets for the periods presented.

The following table presents the discontinued operations’ condensed balance sheets as of

December 31, 2012 and 2011:

Cash and cash equivalents
Other assets

Total assets

Repurchase reserve
Legal settlements
Other liabilities

Total liabilities

At December 31,
2011
2012

45
7

8,170
6,100
4,538

18,808

12
252

264

5,213
-
4,719

9,932

Total stockholders’ deficit

(18,756) $

(9,668)

F-55

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data or as otherwise indicated)

The following table presents discontinued operations’ condensed statement of operations for the

years ended December 31, 2012 and 2011:

Net interest income
Provision for repurchases
Other non-interest income
Legal settlements
Non-interest expense and income taxes

Net loss

Note 24.—Subsequent Events

For the years ended December 31,

2012

2011

7
(5,713)
(174)
(6,100)
(3,569)

(15,549) $

-
(3,387)
1,604
-
(1,295)

(3,078)

As part of the previously disclosed legal settlement with Citigroup, in January 2013, the Company

issued 84,942 shares of stock at $12.95 as the first of three stock issuances to settle the liability.

In February 2013, Repurchase agreement 1 was amended to increase the maximum borrowing

capacity from $47.5 million to $60.0 million.

In February 2013 Repurchase agreement 5 was amended to increase the maximum borrowing

capacity from $65.0 million to $100.0 million.

Subsequent events have been evaluated through the date of this filing.

F-56

SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiary

Impac Funding Corporation

IMH Assets Corp.

Integrated Real Estate Service Corporation(1)

EXHIBIT 21.1

State of Incorporation

California

Maryland

(1)

IRES owns 100% of Excel Mortgage Servicing, Inc, a California corporation, which owns 78.5% of
AmeriHome Mortgage Corp, a Michigan corporation.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-169316 and 333-185195) of Impac Mortgage Holdings, Inc. (the ‘‘Company’’) of our reports
dated March 11, 2013 with respect to the consolidated financial statements of the Company and the
effectiveness of the Company’s internal control over financial reporting included in this Annual Report
(Form 10-K) for the year ended December 31, 2012.

/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP

Newport Beach, California
March 11, 2013

Exhibit 31.1

I, Joseph R. Tomkinson, certify that:

CERTIFICATION

I have reviewed this report on Form 10-K of Impac Mortgage Holdings, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;

Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;

designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation;

disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of
the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.

/s/ JOSEPH R. TOMKINSON
Joseph R. Tomkinson
Chief Executive Officer
March 11, 2013

Exhibit 31.2

I, Todd R. Taylor, certify that:

CERTIFICATION

I have reviewed this report on Form 10-K of Impac Mortgage Holdings, Inc.;

any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.

/s/ TODD R. TAYLOR
Todd R. Taylor
Chief Financial Officer
March 11, 2013

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Impac Mortgage Holdings, Inc. (the ‘‘Company’’) on
Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange
Commission on the date hereof (the ‘‘Report’’), each of the undersigned, in the capacities and on the
dates indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)

(2)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

/s/ JOSEPH R. TOMKINSON
Joseph R. Tomkinson
Chief Executive Officer
March 11, 2013

/s/ TODD R. TAYLOR
Todd R. Taylor
Chief Financial Officer
March 11, 2013

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012 or

(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number: 1-14100

IMPAC MORTGAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

33-0675505
(I.R.S. Employer
Identification No.)

19500 Jamboree Road, Irvine, California 92612
(Address of principal executive offices)

(949) 475-3600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, $0.01 par value

NYSE MKT

Securities registered pursuant to Section 12(g) of the Act: none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act Yes (cid:2) No (cid:1)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes (cid:2) No (cid:1)

Large accelerated filer (cid:2)

Accelerated filer (cid:2)

Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting company)

Smaller reporting company (cid:1)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes (cid:2) No (cid:1)

As of June 30, 2012, the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $15.6 million, based on the closing sales price of common stock on the NYSE MKT on that date. For
purposes of the calculation only, all directors and executive officers of the registrant have been deemed affiliates. There
were 8,662,074 shares of common stock outstanding as of April 26, 2013.

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K/A:

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-K (this ‘‘Amendment’’) amends the Annual Report on Form 10-K for
the fiscal year ended December 31, 2012 (the ‘‘Original Filing’’), originally filed with the Securities and
Exchange Commission (the ‘‘SEC’’) on March 12, 2013, of Impac Mortgage Holdgins, Inc. Because we
do not expect to file our definitive proxy statement within 120 days of the end of our fiscal year ended
December 31, 2012, we are filing this Amendment to provide the information required by Items 10, 11,
12, 13 and 14 of Part III of the SEC’s Form 10-K and not included in the Original Filing.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment
includes as exhibits the certifications required of our principal executive officer and principal financial
officer under Section 302 of the Sarbanes-Oxley Act of 2002. We have included Part IV, Item 15 in this
Amendment solely to reflect the filing of these exhibits with this Amendment. We are not including
certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being
filed with this Amendment.

No attempt has been made with this Amendment to modify or update the other disclosures presented in
the Original Filing, including the exhibits thereto, except that we have updated the number of
outstanding shares of our common stock on the cover page of this Amendment. The Original Filing
continues to speak as of the date of the Original Filing, and we have not updated the disclosures
contained therein to reflect any events which occurred at a date subsequent to the filing of the Original
Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other
filings made with the SEC.

Unless otherwise noted or as the context otherwise requires, the term ‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ or
‘‘our’’ refers to Impac Mortgage Holdings, Inc. and its subsidiaries.

IMPAC MORTGAGE HOLDINGS, INC.
2012 FORM 10-K ANNUAL REPORT
(Amendment No. 1)
TABLE OF CONTENTS

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

SIGNATURES

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

PART III

Executive Officers and Directors

NAME

AGE POSITION

Joseph R. Tomkinson

William S. Ashmore

Todd R. Taylor

Ronald M. Morrison

James Walsh

Frank P. Filipps

Stephan R. Peers

Leigh J. Abrams

Chairman of the Board and Chief Executive Officer

President and Director

Executive Vice President and Chief Financial Officer

General Counsel, Executive Vice President and Secretary

Director

Joseph R. Tomkinson has been Chairman of the Board since April 1998 and Chief Executive Officer and
a Director of the Company since its formation in August 1995. Mr. Tomkinson was also an officer and
director of a real estate investment trust investing in commercial mortgage assets and a specialty
finance company until its sale. Mr. Tomkinson brings over 35 years of combined experience in real
estate, real estate financing and mortgage banking. The Company believes that Mr. Tomkinson’s
financial and business expertise, including his past senior executive positions and operating experience
with real estate and finance companies, give him the qualifications and skills to serve as a director.

William S. Ashmore has been President of the Company since August 1995 and a Director since July
1997. Mr. Ashmore also served as the Chief Operating Officer from August 1995 to May 2006.
Mr. Ashmore has over 35 years of combined experience in real estate, asset liability management, risk
management, and mortgage banking. Mr. Ashmore received a B.S. degree in Psychology from the
University of California at Los Angeles in 1971 and a Master’s degree in Social Psychology from
California State University at Northridge in 1974. The Company believes that Mr. Ashmore’s real estate,
financial and business expertise give him the qualifications and skills to serve as a director.

Todd R. Taylor was appointed to the position of Interim Chief Financial Officer in February 2008 and was
then appointed Chief Financial Officer and Executive Vice President in November 2008. Mr. Taylor joined
IMH in October 2004 as the Senior Vice President, Controller and served in this position until he was
promoted to Senior Vice President and Director of Accounting in June 2006. Mr. Taylor served as the
Senior Vice President and Director of Accounting until October 2007 when he was promoted to Chief
Accounting Officer in October 2007. Prior to joining IMH, Mr. Taylor served as the Chief Financial Officer
and Secretary for Primal Solutions, Inc. from August 2003 until October 2004. Mr. Taylor earned his B.A.
degree in Business from California State University at Fullerton and is a certified public accountant.

Ronald M. Morrison became General Counsel in July 1998 and was promoted to Executive Vice
President in August 2001. In July 1998 he was also elected Secretary of IMH and in August 1998 he was
elected Secretary of our mortgage operations and our warehouse lending operations. Mr. Morrison
received his B.A. degree in History in 1973 from the University of California Los Angeles and his Juris
Doctor degree in 1976 from Pepperdine University.

James Walsh has been a Director of IMH since August 1995. Since January 2000, he has been
Managing Director of Sherwood Trading and Consulting Corporation. The Company believes that
Mr. Walsh’s financial and business expertise, including his past senior executive positions and operating
experience with large, complex organizations give him the qualifications and skills to serve as a director.

Frank P. Filipps has been a Director of IMH since August 1995. From April 2005 to July 2008, Mr. Filipps
was Chairman and Chief Executive Officer of Clayton Holdings, Inc., a mortgage services company.
From June 1999 to April 2005, Mr. Filipps was Chairman and Chief Executive Officer of Radian
Group, Inc. (NYSE: RDN) and its principal subsidiary, Radian Guaranty, Inc., which were formed through
a merger of Amerin and Commonwealth Mortgage Assurance Company. Mr. Filipps has been a director
of Primus Guaranty, Ltd. (NYSE: PRS), a holding company primarily engaged in selling credit protection
against investment grade credit obligations of corporate and sovereign entities, since September 2004,
a director of Fortegra Financial Corp (NYSE: FRF), an insurance services company, since December
2010, and a director of Orchid Island Capital (NYSE: ORC), a specialty finance company that invests in
residential mortgage-backed securities, since February 2013. Mr. Filipps received a B.A. in Economics in
1969 from Rutgers University and a Master’s degree in Corporate Finance and International Business in
1972 from New York University. The Company believes that Mr. Filipps’s financial and business
expertise, including a diversified background of managing companies and his past senior executive
positions and operating experience with real estate-related and mortgage services companies, give him
the qualifications and skills to serve as a director.

Stephan R. Peers has been a Director of IMH since October 1995. Since January 2005, Mr. Peers has
been an independent financial advisor. From September 2001 to January 2005, Mr. Peers was a
Managing Director of Sandler O’Neill & Partners, LP practicing corporate finance covering financial
institutions. Mr. Peers received a B.S. in Civil Engineering from Manhattan College in 1974, a M.S. in
Industrial Engineering from Stanford University in 1975 and an M.B.A. from Stanford University in 1979.
The Company believes that Mr. Peers’ financial and business expertise, including his past senior
executive positions and operating experience with corporate finance companies, give him the
qualifications and skills to serve as a director.

Leigh J. Abrams has been a Director of IMH since April 2001 and lead independent director since June
2004. Mr. Abrams became Chairman of the Board of Drew Industries Incorporated (NYSE: DW), which
manufactures a wide variety of components for recreational vehicles and manufactured homes, in
January 2009. Prior to that, since August 1979, Mr. Abrams previously served as the President and Chief
Executive Officer of Drew, from which positions he resigned in May 2008 and December 2008,
respectively, to become Chairman of the Board of Drew. Mr. Abrams has served as a director of Drew
Industries since August 1979. Mr. Abrams, a CPA, has over 35 years of experience in corporate finance,
mergers and acquisitions, and operations. Mr. Abrams received a B.A. in Accounting from Baruch
College in 1964. The Company believes that Mr. Abrams’ financial and business expertise, including his
past senior executive positions and operating experience with large, complex organizations, give him
the qualifications and skills to serve as a director.

Family Relationships

There are no family relationships between any of the directors or executive officers of IMH.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more
than 10% of a registered class of our equity securities, to file reports of ownership of such securities with
the SEC. Directors, executive officers and greater than 10% beneficial owners are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely

on review of the copies of such reports furnished to us during the fiscal year ended December 31, 2012,
all Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10%
stockholders were satisfied by such persons except for the following: Richard H. Pickup, a stockholder
of the Company, filed a late Form 3 reporting his share holdings when he became a more than 10%
stockholder and a late Form 4 reporting 21 late transactions.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics. This code of ethics applies to our directors,
executive officers and employees. This code of ethics is publicly available in the corporate governance
section of the stockholder relations page of our website located at www.impaccompanies.com and in
print upon request to the Secretary at Impac Mortgage Holdings, Inc., 19500 Jamboree Road, Irvine,
California, 92612. If we make amendments to the code of ethics or grant any waiver that the SEC
requires us to disclose, we will disclose the nature of such amendment or waiver on our website.

Recommendation of Nominees to Our Board of Directors

Information concerning our procedures by which stockholders may recommend nominees to our board
of directors is set forth in our proxy statement relating to our 2012 Annual Meeting of Stockholders under
the heading ‘‘Corporate Governance and Board Matters—The Director Nomination Process.’’ We have
not made any material changes to these procedures since they were last disclosed in our proxy
statement.

Audit Committee and Financial Expert

The Audit Committee of the Board of Directors consists of four directors, all of whom are independent
pursuant to the Director Independence Standards of the NYSE MKT and other SEC rules and regulations
applicable to audit committees. The following directors are currently members of the Audit Committee:
Frank P. Filipps, who serves as the chairman, Leigh J. Abrams, Stephan R. Peers and James Walsh. The
Board of Directors has determined that Frank P. Filipps qualifies as an audit committee financial expert,
as such term is defined by Item 407(d)(5)(ii) of Regulation S-K of the Securities Exchange Act of 1934, as
amended.

ITEM 11. EXECUTIVE COMPENSATION

Compensation of Executive Officers

The following table presents compensation earned by our executive officers for the years ended
‘‘Named Executive Officers’’). The compensation of
December 31, 2012 and 2011
Messrs. Tomkinson and Ashmore is based on each of their employment agreements in effect during
2012, which are further described below under ‘‘Employment Agreements.’’

(the

Summary Compensation Table

Non-Equity

Option Incentive Plan
Awards Compensation Compensation

All Other

($)(1)

($)(5)

Name and Principal
Position

Year

Salary
($)

Bonus
($)

Joseph R. Tomkinson
2012 600,000
Chairman of the Board and 2011 600,000

— 395,168
—
—

1,007,500 (2)
— (2)

Chief Executive Officer

William S. Ashmore
President

2012 600,000
2011 600,000

— 395,168
—
—

1,007500 (3)
— (3)

Ronald M. Morrison
General Counsel and

Secretary

2012 385,000
2011 390,000

192,500 (4) 324,240
—
192,500 (4)

—
—

($)(6)

14,400
14,400

5,750
6,000

Total
($)

2,017,068
614,400

2,017,068
614,850

907,490
588,500

(1)

The amounts disclosed reflect the full grant date fair values in accordance with FASB ASC Topic 718. For
assumptions used in calculation of the option awards, see note 1- stock-based compensation to our
consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2012. See ‘‘Option Grants During 2012’’ below for a further description of the terms of the
options.

(2) Mr. Tomkinson’s annual incentive bonus earned in 2012 has been deferred for an indeterminate period of time.
Mr. Tomkinson was granted a bonus of $769,496 in 2010, of which $225,000 and $398,667 were paid during
2011 and 2012, respectively, and the remaining $145,829 continues to be deferred for an indeterminate period
of time.

(3) Mr. Ashmore’s annual incentive bonus earned in 2012 has been deferred for an indeterminate period of time.

Mr. Ashmore was granted a bonus in 2010 of $769,496 that was paid in 2011.

(4) Mr. Morrison’s bonus for 2012 has been deferred for an indeterminate period of time. $16,333 of his 2011
bonus continues to be deferred for an indeterminate period of time. Mr. Morrison was granted a bonus of
$192,500 for 2010, of which $125,000 was paid during 2011 and the remaining $67,500 was paid in 2012.
(5) Amounts set forth in this column are based on the terms of the incentive bonuses set forth in the employment

agreements as described below under ‘‘Employment Agreements.’’

(6) Consists of an annual car allowance.

Option Grants During 2012

The following table presents option awards granted to the Named Executive Officers during the year
ended December 31, 2012 pursuant to the Company’s 2010 Omnibus Incentive Plan, as amended. All of

the options expire on November 27, 2022 and vest annually in one-half increments beginning on
November 27, 2013.

Name

Joseph R. Tomkinson
Chairman of the Board and
Chief Executive Officer

William S. Ashmore
President

Ronald M. Morrison
General Counsel and Secretary

Option Awards:
Number of Securities
Grant Date Underlying Options (#)

Exercise
Price of Option
Awards ($/Sh)

11/27/2012

29,250

13.81

11/27/2012

29,250

11/27/2012

24,000

13.81

Outstanding Equity Awards at December 31, 2012

The following table sets forth the outstanding stock options for each of our Named Executive Officers as
of December 31, 2012.

OUTSTANDING OPTION AWARDS AT DECEMBER 31, 2012

Name

Joseph R. Tomkinson

William S. Ashmore

Ronald M. Morrison

Number of
Securities
Underlying
Option
Unexercised
Options (#)
Exercise
Exercisable Unexercisable Price ($)

OPTION AWARDS
Number of
Securities
Underlying
Unexercised
Options (#)

200,000

32,000 (1)
—

—
—

4,000 (2)
—
—

—
16,000 (1)
29,250

16,000 (1)
29,250

—
10,000 (1)
24,000

0.53
2.73
13.81

2.73
13.81

217.7
2.73
13.81

Option
Expiration
Date

6/9/2019
12/3/2020
11/27/2022

12/3/2020
11/27/2022

6/22/2014
12/3/2020
11/27/2022

(1) These awards were granted on December 3, 2010 and vest equally over a three year period

beginning on 12/3/2011.
(2) These awards include DERs.

Employment Agreements

Joseph R. Tomkinson and William S. Ashmore

During 2011 and 2012, Mr. Tomkinson and Mr. Ashmore were each parties to employment agreements,
which expired on December 31, 2012, pursuant to which they received a base salary of $600,000 per
year and were eligible to receive an annual bonus in an amount equal to 7.5% of the Company’s adjusted
net earnings. The annual bonus was subject to a cap in any calendar year in an amount equal to 2.5
times annual base salary; provided that there was no cap on the annual bonus if the officer pre-elected
during any year to receive 5% of adjusted net earnings during a year. For purposes of the annual bonus,
‘‘adjusted net earnings’’ means the net earnings available to common stockholders excluding (1) any

adjustments relating to change in fair value of net trust assets, change in fair value of long term debt and
noncash level yield long term debt, (ii) any accrual already made with respect to the officer’s bonus
compensation, (iii) any charge relating to amortization of deferred charges and (iv) any adjustment
relating to lower of cost or market and repurchase liability of the discontinued operations. Each officer
was also eligible to receive an incentive bonus equal to 10% of the net gain arising from the sale or
disposition of special items as identified by the Board of Directors.

Ronald M. Morrison

In the event of termination of Mr. Morrison without cause, the Company has agreed to pay Mr. Morrison
six months of his then current base salary.

As a Smaller Reporting Company, a compensation discussion and analysis is not required.

401(k) Plan

During 2012, we participated in the Impac Companies 401(k) Savings Plan for all full time employees
with at least six months of service, which is designed to be tax deferred in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The 401(k) Plan provides that each participant
may contribute from 1% to 25% of his or her salary pursuant to certain restrictions or up to $16,500
annually for 2012. We will contribute to the participant’s plan account at the end of each plan year 50%
of the first 4% of salary contributed by a participant. Under the 401(k) Plan, employees may elect to
enroll on the first day of any month, provided that they have been employed for at least six months.
Subject to the rules for maintaining the tax status of the 401(k) Plan, an additional company contribution
may be made at our discretion, as determined by the Board of Directors. The discretionary contributions
made to the plan vest over a three year period. We recorded approximately $274 thousand for matching
contributions and no discretionary contributions during 2012.

Compensation of Directors

The compensation of the Company’s non-employee directors is described below.

Board Fees. The Company’s non-employee directors are paid the following fees: (i) an annual fee of
$40,000; (ii) a meeting fee of $2,500; (iii) for services on the Audit Committee, the Compensation
Committee and the Corporate Governance Committee, fees of $2,500, $1,000 and $1,000, respectively,
per meeting; (iv) an annual fee payable to the chairperson of each of the Audit Committee, the
Compensation Committee and the Corporate Governance Committee of $20,000, $5,000 and $5,000,
respectively; and (v) an annual fee payable to the lead independent director of $10,000.

Equity Awards. Non-employee directors typically receive an annual equity award of options to
purchase shares of the Company’s common stock (the ‘‘Director Stock Options’’), or instead, at the
election of the individual director, a number of shares of restricted Company common stock equal in
value to the number of Director Stock Options (based on the binomial value of the Director Stock
Options) not taken by such director. No dividend equivalent rights will be issued with respect to the
Director Stock Options granted, although the existing dividend equivalent rights on prior option grants
continue to be retained.

Special Services. From time to time, the Company’s non-employee directors may be asked to engage
in special director services, whether or not a committee of the Board has been formed for such purpose.
Such services have included and may include strategic reviews, strategic transaction oversight,
independent major litigation oversight and like matters involving substantially greater commitments of
time from the relevant directors. In such circumstances, the directors engaged in such efforts may
receive additional fees for the duration of such service. Fees related to a special committee may be paid

whether or not the matter concludes in a transaction or other specific result and may be adjusted upward
or downward based on the amount of work required and any other criteria the committee and Board
deem appropriate.

Set forth below is the compensation earned for our non-employee directors during 2012.
Messrs. Tomkinson and Ashmore received no additional compensation for their services as directors.

Director Compensation For 2012

Name

James Walsh

Frank P. Filipps

Stephan R. Peers

Leigh J. Abrams

Fees Earned or
Paid in Cash
($)(1)

119,000

128,000

119,000

122,000

Stock
Awards
($)(2)(3)

$82,860

Option
Awards
($)(2)(4)

Total
($)

— $201,860

— $162,120

$284,120

Includes $10,500 for serving on a special committee of the Board during 2012.

(1)
(2) The amounts disclosed reflect the full grant date fair values in accordance with FASB ASC Topic
718. For assumptions used in calculation of the awards, see note 1- stock-based compensation to
our consolidated financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2012.

(3) On November 27, 2012, each director, except for Leigh J. Abrams, was granted 6,000 deferred
stock units pursuant to the Non-Employee Director Deferred Stock Unit Award Program. The
deferred stock units vest in two (2) equal annual installments, commencing with the first anniversary
of the date of grant, subject to the director’s continued service on the board of directors. The
settlement of the deferred stock units and distribution of shares are further described below. As of
December 31, 2012, each director, except for Mr. Abrams, held an aggregate of 12,000 deferred
stock units, 4,000 of which are vested and 8,000 are unvested. Mr. Abrams holds 4,000 vested and
2,000 unvested deferred stock units.

(4) On November 27, 2012, Leigh J. Abrams was granted an option to purchase 12,000 shares of
common stock with an exercise price of $13.81 per share. The options vest in two (2) equal annual
installments beginning on the first anniversary of the date of grant. As of December 31, 2012, the
directors held the following options:

Name

James Walsh

Frank P. Filipps

Stephan R. Peers

Leigh J. Abrams

Option Awards:
Number of Securities
Underlying Options (#) Option Awards ($) Expiration Date

Exercise Price of

4,000

6,000

4,000

6,000
12,000

2.73

2.73
13.81

12/3/2020

12/3/2020
11/27/2022

Non-Employee Director Deferred Stock Unit Award Program

Effective December 1, 2010, the Company adopted the Non-Employee Director Deferred Stock Unit
Award Program (the ‘‘DSU Program’’). The DSU Program provides for the grant of deferred stock units
(‘‘DSUs’’) to non-employee directors pursuant to the 2010 Plan. Each DSU grant vests in substantially

equal annual installments, commencing with the first anniversary of the date of grant, subject to the
director’s continued service on the board of directors. Upon vesting, the DSUs continue to be held in the
director’s stock account until payment becomes due. In the event a director is no longer a member of the
board of directors prior to vesting, all DSUs that remain unvested terminate and are forfeited. Dividends
and other distributions on DSUs are credited to the director’s stock account as if such DSUs were actual
shares of common stock issued and outstanding. No interest is credited on stock amounts. Dividends
and distributions are converted, based on fair market value of the common stock, into DSUs and
credited to the director’s stock account. The board may, in its sole discretion, waive vesting and
forfeiture of DSUs. In the event a change in control, all outstanding DSUs are deemed fully vested.
Directors receive a distribution of stock within thirty (30) days after the date the director no longer serves
on the board. The distribution will consist of one share of common stock for each DSU. Any shares of
common stock issued are deemed issued under the 2010 Plan.

Risk Management

The Company faces a variety of operational and market risks, including interest rate risk, credit risk,
liquidity risk and prepayment risk. The Board of Directors believes an effective risk management system
will (1) timely identify the material risks that the Company faces, (2) communicate necessary information
with respect to material risks to senior executives and, as appropriate, to the Board or Audit Committee,
(3) implement appropriate and responsive risk management strategies consistent with Company’s risk
profile, and (4) integrate risk management into Company decision-making.

The Board has designated the Audit Committee to take the lead in overseeing risk management. The
Audit Committee discusses with management the Company’s major financial risk exposures and the
steps management has taken to monitor and control such exposures, including the Company’s risk
assessment and risk management policies. The Audit Committee also reviews the significant reports to
management, including assessment of the Company’s risk management processes and systems of
internal controls.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to us with respect to beneficial ownership of our
common stock as of the April 26, 2013, on which 8,662,074 shares were outstanding, by (i) each director,
(ii) each Named Executive Officer, (iii) each person known to us to beneficially own more than five percent
of our common stock, and (iv) all directors and executive officers as a group. In computing the number of
shares beneficially owned by a person and the percentage of ownership of that person, shares of
common stock subject to options held by that person that are currently exercisable or become
exercisable within 60 days of April 26, 2013 are deemed outstanding even if they have not actually been
exercised. Those shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated in the footnotes to the table, the

beneficial owners named have, to our knowledge, sole voting and investment power with respect to the
shares beneficially owned, subject to community property laws where applicable.

Name of Beneficial Owner(1)

Richard H. Pickup (2)
Todd M. Pickup (3)
IsZo Capital LP (4)
Joseph R Tomkinson (5)
William S Ashmore (6)
Ronald M. Morrison (7)
James Walsh (8)
Leigh J Abrams (9)
Stephan R Peers (10)
Frank P Filipps (11)
Directors and executive officers as a group

(8 persons) (12)

Number of Shares
Beneficially Owned

Percentage of Shares
Beneficially Owned

1,202,902
700,000
488,423
266,575
164,462
18,892
26,377
26,710
36,943
19,810

585,127

13.9%
8.1%
5.6%
3.0%
1.9%
*
*
*
*
*

6.6%

Indicates less than 1%

*
(1) Except as otherwise noted, all named beneficial owners can be contacted at 19500 Jamboree

Road, Irvine, California 92612.

(2) According to a Schedule 13G (Amendment No. 2) filed with the SEC on April 19, 2013, (i) 800,000
shares are owned directly by RHP Trust and 100,000 shares are owned by Mr. Pickup and held in an
individual retirement account, over all of which shares Mr. Pickup exercises sole investment and
voting power, and (ii) 120,000 shares are owned directly by Dito Caree LP, and 182,902 shares are
owned directly by Dito Devcar LP, over all of which shares Mr. Pickup shares investment and voting
power. The stockholder’s address is 2532 Dupont Drive, Irvine, California 92612.

(3) According to a Schedule 13G filed on April 19, 2013, consists of the following shares over which
Mr. Pickup (A) exercises sole investment and voting power: (i) 50,000 shares owned directly by
Mr. Pickup; (ii) 200,000 shares owned by Mr. Pickup’s Grandchildren’s Trust; and (iii) 50,000 shares
owned directly by Pickup Living Trust; and (B) shares investment and voting power: (i) 300,000
shares owned directly by Vintage Trust II; and (ii) 100,000 shares owned directly by Plus Four Equity
Partners, L.P.

(5)

(4) The following information is based on a Schedule 13G filed with the SEC on February 14, 2013. IsZo
Capital LP (the ‘‘Fund’’) shares voting and dispositive power with respect to the shares with IsZo
Capital GP LLC, which is the general partner of the Fund, IsZo Capital Management LP, which is the
investment manager of the Fund, and Brian L. Sheehy, who is the managing member of IsZo
Capital GP LLC and the president of the general partner of IsZo Capital Management LP. The
address for such reporting persons is 415 Madison Avenue, 15th Floor, New York, New York 10017.
Includes (i) 7,854 shares of common stock, (ii) options to purchase an aggregate of 137,660 shares
and (iii) 121,061 shares held in trust with Mr. Tomkinson as trustee.
Includes (i) 6,495 shares of common stock, and (ii) 157,967 shares held in trust with Mr. Ashmore as
trustee.
Includes (i) 14,892 shares of common stock and (ii) options to purchase an aggregate of 4,000
shares.
Includes (i) 20,377 shares of common stock, (ii) options to purchase an aggregate of 2,000 shares,
and (iii) 4,000 shares with respect to vested deferred stock units.
Includes (i) 18,710 shares of common stock, (ii) options to purchase an aggregate of 4,000 shares,
and (iii) 4,000 shares with respect to vested deferred stock units.

(6)

(8)

(7)

(9)

(10) Includes (i) 30,943 shares of common stock, (ii) options to purchase an aggregate of 2,000 shares,

and (iii) 4,000 shares with respect to vested deferred stock units.

(11) Includes (i) 11,810 shares of common stock, (ii) options to purchase an aggregate of 2,000 shares,

and (iii) 4,000 shares with respect to vested deferred stock units.

(12) Includes (i) options to purchase an aggregate of 189,660 shares and (ii) an aggregate of 16,000

shares with respect to vested deferred stock units.

Equity Compensation Plan Information

Our current stock plan is the Company’s 2010 Omnibus Incentive Plan (the ‘‘2010 Plan’’), which was
approved by our stockholders and became effective on July 20, 2010. The 2010 Plan is administered by
the Compensation Committee of the Company’s Board of Directors, with participation and approval of
the Board of Directors. Awards under the Plan may include incentive stock options, nonqualified stock
options, stock appreciation rights, restricted shares of common stock, restricted stock units,
performance share or unit awards, other stock-based awards and cash-based incentive awards.

As a result of the approval of the 2010 Plan by the Company’s stockholders, the Company’s 2001 Stock
Plan was frozen and no further grants or awards are under such plan. Further, all outstanding awards
under the 2001 Stock Option, Deferred Stock and Restricted Stock Plan, as well as the Company’s 1995
Stock Option, Deferred Stock and Restricted Stock Plan (together, the ‘‘Prior Plans’’), were assumed by
the 2010 Plan and are deemed to be awards granted and outstanding under the 2010 Plan (the
‘‘Assumed Options’’). To the extent any of the Assumed Options are forfeited or canceled, shares of
common stock underlying those options will not be available for new awards under the 2010 Plan.

The following table summarizes our equity compensation plan information as of December 31, 2012 with
respect to outstanding awards and shares remaining available for issuance under our Plan.

Plan Category

2010 Omnibus Incentive Plan
approved by stockholders

Equity compensation plans not
approved by stockholders

Total

Number of securities to
be issued upon exercise
of outstanding options
(A)

Weighted-average
exercise price of
outstanding options
(B)

Number of securities remaining
available for future issuance
(excluding securities in
column (A)

880,795

—

880,795

7.85

—

7.85

25,236

—

25,236

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

Certain Relationships and Related Transactions

There have been no transactions since the beginning of the Company’s last fiscal year, nor are there any
currently proposed transactions, in which the Company was or is a participant and in which any related
person (as defined in the SEC’s rules) had or will have a direct or indirect material interest.

Board Member Independence

We are listed on the NYSE MKT and accordingly, we have applied the listing standards of the NYSE MKT
in determining the ‘‘independence’’ of the members of our Board of Directors. Based the listing
standards of the NYSE MKT and after reviewing the relationships with members of our Board, our Board
of Directors has determined, with the assistance of the Corporate Governance and Nomination
Committee that James Walsh, Frank P. Filipps, Stephan R. Peers and Leigh J. Abrams as independent
members of the Board of Directors. The Governance and Nomination Committee reviews with the Board

at least annually the qualifications of new and existing Board members, considering the level of
independence of individual members, together with such other factors as the Board may deem
appropriate, including overall skills and experience. The Governance and Nomination Committee also
evaluates the composition of the Board as a whole and each of its committees to ensure the Company’s
on-going compliance with the independence standards of the NYSE MKT.

In reviewing the independence of its Board members, the Board of Directors reviewed relationships with
Mr. Walsh. During 2010, Mr. Walsh performed due diligence services for the Company in connection with
a proposed transaction for which he was paid $15,000. The Board of Directors, however, believes that
Mr. Walsh’s consulting services did not jeopardize his status as an independent director. Based on the
above facts and circumstances, the Board of Directors has determined that Mr. Walsh continues to
qualify as an independent director applying the standards of the NYSE MKT.

None of the other non-employee directors currently have any material relationship with the Company, its
parents or its subsidiaries (either directly or as a partner, stockholder or officer of an organization that has
a relationship with the Company, its parents or its subsidiaries).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Fees and Services

The following table sets forth the aggregate fees billed to us by Squar Milner for the years ended
December 31, 2012 and 2011. Audit-related fees include fees for an examination under section 1122 of
Regulation AB for loan servicing as well as a separate examination of certain requirements of our master
servicing policies and procedures.

Audit fees

Audit-related fees

Tax fees

All other fees

Total

For the Year Ended
December 31,

2012

2011

$741,636

$685,800

32,400

75,600

—

$774,036

$761,400

Pre-Approval Policies and Procedures for Audit and Non-Audit Services

The Audit Committee pre-approves all auditing services and permitted non-audit services, including the
fees and terms thereof, to be performed by our independent registered public accounting firm, subject to
the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act
which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee
may form and delegate authority to subcommittees consisting of one or more members of the Audit
Committee when appropriate, including the authority to grant pre-approvals of audit and permitted
non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be
presented to the full Audit Committee at its next scheduled meeting. In pre-approving the services in
2012 and 2011 under audit related fees, tax fees or all other fees, the Audit Committee did not rely on the
de minimis exception to the SEC pre-approval requirements.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(3) Exhibits

PART IV

The exhibits listed on the accompanying Exhibit Index are incorporated by reference into this Item 15 of
this Annual Report on Form 10-K/A.

SIGNATURES

IMPAC MORTGAGE HOLDINGS, INC.

by /s/ JOSEPH R. TOMKINSON

Joseph R. Tomkinson
Chairman of the Board
and Chief Executive Officer

Exhibit
Number Description

Exhibit Index

31.1

31.2

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.1

I, Joseph R. Tomkinson, certify that:

CERTIFICATION

I have reviewed this report on Form 10-K/A of Impac Mortgage Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

/s/ JOSEPH R. TOMKINSON
Joseph R. Tomkinson
Chief Executive Officer
April 30, 2013

Exhibit 31.2

I, Todd R. Taylor, certify that:

CERTIFICATION

I have reviewed this report on Form 10-K/A of Impac Mortgage Holdings, Inc.;

/s/ TODD R. TAYLOR
Todd R. Taylor
Chief Financial Officer
April 30, 2013

Impac Mortgage Holdings, Inc.
19500 Jamboree Road
Irvine, CA 92612

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