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

Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, some of which are based on various assumptions and events that are beyond our control, may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "likely," "should," "could," "seem to," "anticipate," 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: the ongoing volatility in the mortgage industry; our ability to manage successfully through the current market environment; our compliance with applicable local, state and federal laws and regulations and other general market and economic conditions; our ability to meet liquidity needs from current cash flows or generate new sources of revenue; management's ability to manage successfully and grow the Company's mortgage and real estate business activities including mortgage lending operations; the ability to make interest payments; increases in default rates or loss severities and mortgage related losses; our ability to obtain additional financing and the terms of any financing that we do obtain; inability to effectively liquidate properties to mitigate losses; increase in loan repurchase requests and ability to adequately settle repurchase obligations; decreases in value of our residual interests that differ from our assumptions; the ability of our common stock to continue trading in an active market; the outcome of litigation or regulatory actions pending against us or other legal contingencies.

For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the period ended December 31, 2011, and other reports we file under the Securities and Exchange Act of 1934. This document speaks only as of its date and we do not undertake, and specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

The Mortgage Industry and Discussion of Relevant Fiscal Periods

The mortgage industry is continually vulnerable to current events that occur in the financial services industry. These events include changes in economic indicators, government regulation, interest rates, price competition, geographic shifts, disposable income, housing prices, market liquidity, market anticipation, and customer perception, as well as others. The factors that affect the industry change rapidly and can be unforeseeable.

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

Market Update

While there were positive economic signs during the first quarter of 2012, the United States economy continues to face a number of challenges. Employment conditions began to show signs of improvement during the first quarter. Unemployment continues to be on a favorable downward trend, although still remains high above 8%. However, according to the Wall Street Journal, most of the declines were due to more Americans leaving the work force. As the economic recovery continues at a slow rate, Federal Reserve policymakers currently anticipate that economic conditions are likely to warrant exceptionally low levels for the federal funds interest rate at least through late 2014.

Real estate activity showed some encouraging signs of stability although home prices continued to decline in many parts of the U.S. during the first quarter. Although the pace of new foreclosures has fallen from its peak, in part due to industry-wide compliance issues, further declines in home prices may be necessary before substantial progress in reducing the inventory of homes occurs. Serious threats to economic growth remain however, including continued pressure and uncertainty in the housing market and elevated unemployment levels. Although the economy added jobs in 2012, the pace of new job creation continues to be slower than needed to meaningfully reduce unemployment. As a result, there continues to be uncertainty as to how pronounced the economic recovery will be and whether it can be sustained.

Selected Financial Results for the Three Months Ended March 31, 2012

Continuing Operations

† Loss from continuing operations increased to $3.3 million for the three months ended March 31, 2012, compared to a loss of $1.0 million for the comparable 2011 period primarily due to a decrease in fair value of net trust assets associated with cash received and an increase in expected forward LIBOR rates in the first quarter offset by an increase in mortgage and real estate service fees and a decline in expenses.

† Non-interest (loss) income-net trust assets was a loss of $3.0 million for the three months ended March 31, 2012, compared to income of $647 thousand for the comparable 2011 period. Loss in the first quarter was due to a change in fair value of net trust assets and REO losses of $3.0 million associated with $3.2 million in cash received and an increase in expected forward LIBOR rates in the first quarter. The estimated fair values of securitized mortgage collateral and securitized mortgage bonds increased in the quarter primarily due to improvement in bond prices and yields since December 31, 2011. Should this trend continue, estimated bond prices and yield assumptions may need to be updated in future periods.

† Earnings from the mortgage and real estate services segment increased to $3.3 million in the first quarter of 2012, compared to $930 thousand in the comparable period in 2011.

† The mortgage lending operations originated $365.0 million and sold $355.7 million of loans during the three months ended March 31, 2012 as compared to $57.3 million and $26.3 million of loans originated and sold, respectively, for the comparable 2011 period. Additionally, mortgage lending revenues increased to $9.2 million during the three months ended March 31, 2012 as compared to $551 thousand for the comparable 2011 period.

Discontinued Operations

† Loss from discontinued operations, net of tax was $1.3 million for the three months ended March 31, 2012, compared to a loss of $350 thousand for the comparable 2011 period primarily due to a change in the discontinued operations repurchase provision related to additional repurchase claims received from Fannie Mae and legal costs associated with previously disclosed discontinued operations matters..

Status of Operations, Liquidity and Capital Resources

Mortgage and Real Estate Services

The mortgage and real estate services include the mortgage lending operations and portfolio loss mitigation and real estate services, and had net earnings of $3.3 million in the first quarter of 2012, compared to $930 thousand in the comparable period in 2011. The increase was due to an increase in revenues and a decrease in expenses. Mortgage and real estate services fees were $14.0 million for the three months ended March 31, 2012, compared to $12.2 million for 2011 with the increase primarily due to an increase in mortgage lending net revenues, partially offset by a decrease in title and escrow fees due to the sale of the title company. The increase was primarily due to an increase in lending activities which produced revenues of $9.2 million while portfolio loss mitigation and real estate services revenues were $4.8 million. Additionally, title and escrow fees declined $4.3 million due to the sale of the title insurance company in 2011. As expected the portfolio loss mitigation and real estate services activities and revenues declined as lending activities and revenues increased including the increase in sales to and of the respective servicing portfolios of Fannie Mae and Ginnie Mae loans.

Mortgage Lending Operations-During the three months ended March 31, 2012, the Company originated $365.0 million and sold $355.7 million of loans, respectively, as compared to $57.3 million and $26.3 million of loans originated and sold, respectively, during the three months ended March 31, 2011.

The Company is currently focusing on originating Fannie Mae, Freddie Mac, and government loans as it believes that having the ability to sell loans to Fannie Mae, Freddie Mac, and issue Ginnie Mae securities makes it more competitive in the overall mortgage origination market with regard to products, pricing, operational efficiencies and overall recruitment of higher quality loan originators. Consistent with the Company's strategy, during 2012, the Company sold $249.2 million in service retained loans to Fannie Mae and Freddie Mac, issued $78.0 million in Ginnie Mae securities through its AmeriHome Mortgage Corporation indirect subsidiary and sold $28.5 million in loans on a service released basis to other investors. In March 2012, the Company sold $250

million in unpaid principal balance of Fannie Mae servicing rights with an expected transfer date in May 2012. The mortgage servicing portfolio increased to $891.7 million in unpaid principal balance at March 31, 2012 (including $250 million sold but not transferred) as compared to $605.4 million at December 31, 2011.

In April and May 2012, two of the Company's warehouse lenders approved increases from $32.5 million and $25.0 million to $38.5 million and $50.0 million, respectively. As of May 2012, the Company increased its warehouse borrowings capacity to $118.5 million from $87.5 million at December 31, 2011.

Portfolio Loss Mitigation and Real Estate Services-The Company provides 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. During the three months ended March 31, 2012, fees from real estate services, loss mitigation and portfolio services decreased to $4.8 million as compared to $7.2 million for the three months ended March 31, 2011, primarily due to a decline in the real estate and recovery activities declined in the long-term mortgage portfolio.

Although the Company seeks to expand its portfolio loss mitigation and real estate services to more third parties in the marketplace, the revenues from these business activities have historically been generated from the Company's long-term mortgage portfolio. Furthermore, as the distressed mortgage and real estate markets remain unstable and uncertain due to the number of foreclosure properties that need to be sold, there remains uncertainty about the ongoing need and delivery of these services in the future.

For the three months ended March 31, 2012 and 2011, mortgage and real estate services fees were as follows:

                                                       For the Three Months
                                                         Ended March 31,
                                                        2012          2011
Mortgage lending                                     $     9,209    $     551
Portfolio loss mitigation and real estate services         4,827        7,381
Title and escrow (1)                                           -        4,308
Total mortgage and real estate services fees         $    14,036    $  12,240

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 the real estate market becomes more stable, home prices improve across the United States, and there is a significant decline in the number of foreclosure properties in the market. Existing conditions are unprecedented and result in uncertainty around the long-term performance of the portfolio.

At March 31, 2012, our residual interest in securitizations (represented by the difference between total trust assets and total trust liabilities) decreased to $22.5 million, compared to $26.5 million at December 31, 2011. The decrease in residual fair value for the three months ended March 31, 2012 was primarily due to $3.2 million in cash received and an increase in expected forward LIBOR interest rates.

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. The Company employs 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. The Company hires 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.

The Company uses 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 overcollateralized, the Company 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, the Company gathers 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, the Company determines an acceptable range of expected yields an investor would require including an appropriate risk premium for each bond tranche. The Company uses 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).

The following table presents changes in the Company's trust assets and trust liabilities for the three months ended March 31, 2012:

                                                          TRUST ASSETS                                                               TRUST LIABILITIES
                            Level 3 Recurring Fair Value Measurements                 NRV (2)                            Level 3 Recurring Fair Value Measurements
                     Investment
                     securities              Securitized                                                                Securitized                                           Net trust assets
                   available-for-              mortgage              Derivative     Real estate    Total trust            mortgage         Derivative     Total trust            and trust
                        sale                  collateral               assets          owned          assets             borrowings       liabilities     liabilities           liabilities
Recorded book
value at
12/31/2011                     688                    5,449,001               37          56,467      5,506,193             (5,454,901 )       (24,786 )    (5,479,687 )                 26,506
Total
gains/(losses)
included in
earnings:
Interest income                 13                       51,940                -               -         51,953                      -               -               -                   51,953
Interest
expense                          -                            -                -               -              -               (120,997 )             -        (120,997 )               (120,997 )
Change in FV of
net trust
assets,
excluding REO                 (443 )                    231,360                1                        230,918  (1)          (223,956 )          (562 )      (224,518 ) (1)              6,400
Change in FV of
long-term debt                   -                            -                -               -              -                      -               -               -                        -
Losses from REO
- not at FV but
at NRV                           -                            -                -          (9,427 )       (9,427 ) (1)                -               -               -                   (9,427 )
Total gains
(losses)
included in
earnings                      (430 )                    283,300                1          (9,427 )      273,444               (344,953 )          (562 )      (345,515 )                (72,071 )
Transfers in
and/or out of
level 3
Purchases,
issuances and
settlements                    (69 )                   (158,936 )              -           3,024       (155,981 )              220,342           3,663         224,005                   68,024
Recorded book
value at
3/31/2012         $            189     $              5,573,365     $         38   $      50,064   $  5,623,656       $     (5,579,512 )  $    (21,685 )  $ (5,601,197 )     $           22,459

(2) Accounted for at net realizable value.

The increase in fair value of securitized mortgage collateral resulted in gains of $231.4 million, offset by losses of $224.0 million resulting from the increase in the fair value of securitized mortgage borrowings for the three months ended March 31, 2012. For the three months ended March 31, 2012, the change in the net realizable value (NRV) of REO resulted in a loss of $9.4 million. Inclusive of losses from REO, trust assets reflect a net gain of $221.5 million as a result of an increase in fair value of securitized mortgage collateral of $231.4 million, losses from REO of $9.4 million and losses from other trust assets of $443 thousand. Net losses on trust liabilities were $224.5 million as a result of $224.0 million in losses from the increase in fair value of securitized mortgage borrowings and losses from derivative liabilities of $562 thousand. As a result, non-interest income-net trust assets totaled $3.0 million for the three months ended March 31, 2012.

Liquidity and capital resources

During the first three months of 2012, the Company continued to fund its operations primarily from mortgage and real estate services fees which includes mortgage lending activities, portfolio loss mitigation and real estate services fees primarily generated from its long-term mortgage portfolio, and cash flows from our residual interests in securitizations. In addition, the Company funded mortgage loan production using warehouse facilities which are repaid once the loan is sold as well as cash to fund associated haircuts.

The Company believes that current cash balances, cash flows from its mortgage lending activities, mortgage and real estate services fees generated from the long-term mortgage portfolio, and residual interest cash flows from the long-term mortgage portfolio are adequate for current operating needs. However, the Company believes the mortgage lending and real estate services markets are 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 the Company's market area as well as operations throughout the United States. The Company competes for loans principally on the basis of the interest rates and loan fees charged, the types of loans originated and the quality of services provided to borrowers. Additionally, competition for real estate recovery services, loss mitigation servicing, loan modification services and other portfolio services has increased due to the unprecedented difficult mortgage environment and severe credit tightening, coupled with the stagnant economy. The Company's competitors include mega mortgage servicers, established special servicers, and newer entrants to the specialty servicing and recovery collections business. Efforts to market the Company's ability to provide mortgage and real estate services for others is more difficult

than many of its competitors because the Company has not historically provided such services to unrelated third parties, and the Company is 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 continued deterioration in the real estate market and current economic conditions. Cash flows from the residual interests in securitizations can be volatile, because they are sensitive to delinquencies, defaults and credit losses associated with the securitized loans and interest rates associated with the securitized bonds. Losses in excess of current estimates will reduce the residual interest cash receipts from the long-term mortgage portfolio.

At March 31, 2012 and December 31, 2011, the condensed components of stockholders' equity were comprised of the following significant assets and liabilities:

                                                Condensed Components of
                                                 Stockholders' Equity
                                         March 31, 2012      December 31, 2011
Cash                                    $          7,358    $             7,665
Restricted cash                                    1,404                  5,019
Residual interests in securitizations             22,459                 26,506
Loans held-for-sale                               58,916                 61,718
Warehouse borrowings                             (55,415 )              (58,691 )
Mortgage servicing rights                          4,807                  4,141
Line of credit                                         -                 (4,000 )
Note payable                                      (6,797 )               (5,182 )
Long-term debt ($71,120 par)                     (12,163 )              (11,561 )
Repurchase reserve (1)                            (6,361 )               (5,816 )
Lease liability (2)                               (2,201 )               (2,131 )
Deferred charge                                   11,974                 11,974
Net other assets (liabilities)                     2,578                  1,455
Stockholders' equity                    $         26,559    $            31,097

(2) Included within discontinued operations and guaranteed by IMH

At March 31, 2012, cash decreased to $7.4 million from $7.7 million at December 31, 2011. The primary sources of cash between periods were $14.0 million in fees generated from the mortgage and real estate services, $2.4 million from residual interests in securitizations (net of the $823 thousand restricted excess cash in the reserve account) and $7.0 million from the issuance of the note payable. Offsetting the sources of cash were operating expenses totaling $14.7 million, repayments of the line of credit totaling $4.0 million, payments on the notes payable of $6.5 million (including $3.9 million which came from the reserve account) and settlements of repurchase requests associated with loans sold by the discontinued non-conforming mortgage operations of approximately $251 thousand.

Since our consolidated and unconsolidated securitization trusts are nonrecourse to us, we have netted trust assets and liabilities to present the Company's interest in these trusts more simply, which are considered our residual interests in securitizations. For unconsolidated securitizations our residual interests represent the fair value of investment securities available-for-sale. For consolidated securitizations, our 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 $22.5 million at March 31, 2012, compared to $26.5 million at December 31, 2011.

At March 31, 2012, the note payable was $6.8 million as compared to $5.2 million at December 31, 2011. During 2012, the Company entered into a new $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 (net of the reserve account) on the previous debt agreement. The Company received proceeds of $7.0 million, net of the . . .