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," "appears," "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; litigation outcome; 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; and 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

According to the Wall Street Journal (WSJ), the US economy slowed in the second quarter, growing just 1.5% as compared to 2.4% in the first quarter of 2012 primarily as a result of consumers reduced spending and businesses cautious about hiring and investing, "underscoring that an already wobbly recovery is losing even more steam." The unemployment rate has only slightly changed in recent months as employers added fewer jobs in the second quarter of 2012 than they have since the labor market began recovering in 2010 (WSJ, July 28, 2012). Furthermore, there is speculation that a slowing US economy raises concern that "a sudden shock," such as an escalation of the current crisis in Europe's financial markets or an increase in next year's income tax rates, could potentially result in a contracting US economy and another recession.

Real estate activity showed some encouraging signs as nationwide average of home prices have appeared to have hit a bottom and are starting to bounce back, although home prices continued to decline in many parts of the United States during the first six months of 2012. Some positive news indicates that construction of new homes continued to grow in the second quarter, although at a slow rate. However, foreclosures remain one of the biggest risks to the housing market recovery. As the industry-wide compliance issues associated with foreclosures are resolved, an increase in foreclosures is expected which is expected to result in downward pressure and uncertainty in the housing market.

As a result of the current conditions of the United States economy, the Federal Reserve has lowered its growth projections in June and appears to be preparing to take action in the near future in hopes to spur the economy. At a minimum, management believes the current economic conditions are likely to warrant exceptionally low levels for the federal funds interest rate at least through late 2014, if not beyond.

Selected Financial Results for the Three Months Ended June 30, 2012

Continuing Operations

† Earnings from continuing operations increased to $7.6 million for the three months ended June 30, 2012, compared to earnings of $173 thousand for the comparable 2011 period primarily due to an increase in mortgage lending gains and fees, net and a decline in expenses, partially offset by a decline in real estate services fees, net including a decline in revenues from the title insurance company sold in 2011.

† Non-interest (loss) income-net trust assets was income of $1.3 million for the three months ended June 30, 2012, compared to income of $1.7 million for the comparable 2011 period due to an increase in change in fair value of net trust assets as a result of a decrease in forward LIBOR rates and continued improvement in estimated bond prices and yields offset by additional REO impairment.

† Earnings from the mortgage lending segment increased to $3.8 million in the second quarter of 2012, compared to a loss of $3.5 million in the comparable period in 2011. Additionally, mortgage lending revenues increased to $15.1 million during the three months ended June 30, 2012 as compared to $2.5 million for the comparable 2011 period.

† The mortgage lending segment originated $531.9 million and sold $474.5 million of loans during the three months ended June 30, 2012 as compared to $226.3 million and $208.4 million of loans originated and sold, respectively, for the comparable 2011 period.

† Earnings from the real estate services segment decreased to $4.0 million in the second quarter of 2012, compared to earnings of $4.6 million in the comparable period in 2011.

Discontinued Operations

† Loss from discontinued operations, net of tax, was $3.1 million for the three months ended June 30, 2012, compared to earnings of $8 thousand for the comparable 2011 period primarily due to an increase in the repurchase provision related to additional repurchase claims received from Fannie Mae and legal costs associated with previously disclosed discontinued operations matters.

Selected Financial Results for the Six Months Ended June 30, 2012

Continuing Operations

† Earnings from continuing operations increased to $4.3 million for the six months ended June 30, 2012, compared to a loss of $779 thousand for the comparable 2011 period primarily due to an increase in mortgage lending gains and fees, net and a decline in expenses offset by a decrease in real estate services fees, net, including a decline in revenues from the title insurance company sold in 2011 and a decline in non-interest income net-trust assets.

† Non-interest (loss) income-net trust assets was a loss of $1.7 million for the six months ended June 30, 2012, compared to income of $2.3 million for the comparable 2011 period due to an increase in REO impairment.

† Earnings from the mortgage lending segment increased to $4.1 million for the six months ended June 30, 2012, compared to a loss of $6.2 million in the comparable period in 2011. Additionally, mortgage lending revenues increased to $24.3 million during the six months ended June 30, 2012 as compared to $3.1 million for the comparable 2011 period.

† The mortgage lending segment originated $896.9 million and sold $830.2 million of loans during the six months ended June 30, 2012 as compared to $282.4 million and $231.5 million of loans originated and sold, respectively, for the comparable 2011 period.

† Earnings from the real estate services segment decreased to $7.0 million for the six months ended June 30, 2012, compared to earnings of $8.3 million in the comparable period in 2011.

Discontinued Operations

† Loss from discontinued operations, net of tax, was $4.4 million for the six months ended June 30, 2012, compared to a loss of $342 thousand for the comparable 2011 period primarily due to an increase 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 Lending Operations- During the three and six months ended June 30, 2012, the Company originated $531.9 million and $896.6 million and sold $474.5 million and $830.2 million of loans. During the three and six months ended June 30, 2011, the Company originated $226.3 million and $282.4 million and sold $208.4 million and $231.5 million of loans. The increase in lending activities produced mortgage lending revenues of $15.1 million and $24.3 million for the three and six months ended June 30, 2012, respectively, compared to $2.5 million and $3.1 million for the comparable period in 2011. For the three and six months ended June 30, 2012, the mortgage lending operations had net earnings of $3.8 million and $4.1 million, respectively, compared to a loss of $3.5 million and a loss of $6.2 million in the comparable period in 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 direct 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. During the second quarter of 2012, the Company sold $333.6 million in service retained loans to Fannie Mae and Freddie Mac, issued $125.5 million in Ginnie Mae securities through its AmeriHome Mortgage Corporation indirect subsidiary and sold $15.5 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. The mortgage servicing portfolio increased to $1.1 billion in unpaid principal balance at June 30, 2012 as compared to $605.4 million at December 31, 2011.

As of June 30, 2012, the Company increased its warehouse borrowings capacity to $145.0 million from $87.5 million at December 31, 2011. In June 2012, the maximum borrowing capacity of Repurchase Agreement 1 increased to $40.0 million. In May 2012, the maximum borrowing capacity of Repurchase Agreement 3 increased to $50.0 million. In May 2012, the Company, through IRES and its subsidiaries, entered into another Master Repurchase Agreement with a lender providing a $25.0 million warehouse facility bringing the total warehouse borrowings facilities to $145.0 million.

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.

For the three and six months ended June 30, 2012, the real estate services had net earnings of $4.0 million and $7.0 million, respectively, compared to $4.6 million and $8.3 million in the comparable period in 2011. During the three and six months ended June 30, 2012, fees from real estate services, loss mitigation and portfolio services decreased to $6.1 million and $11.0 million, respectively, as compared to $12.0 million and $23.5 million for the three and six months ended June 30, 2011, respectively, primarily due to a decline in the long-term mortgage portfolio and the associated real estate and recovery activities. Additionally, due to the sale of the title insurance company in 2011, title and escrow fees declined to zero during the three and six months ended June 30, 2012, as compared to $4.7 million and $9.0 million, respectively, for the same period 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.

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 and six months ended June 30, 2012 and 2011, mortgage and real estate services fees were as follows:

                                        For the Three Months          For the Six Months
                                           Ended June 30,               Ended June 30,
                                        2012           2011           2012           2011
Mortgage lending gains and fees,
net                                  $    15,129    $     2,455    $    24,263    $    3,096
Real estate services fees, net
(1)                                        6,141         11,963         11,039        23,549
Total mortgage and real estate
services fees                        $    21,270    $    14,418    $    35,302    $   26,645

Long-Term Mortgage Portfolio

Although there has been some stabilization and improvement in defaults in the long-term mortgage portfolio, the portfolio continues to suffer losses, which 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

At June 30, 2012, the Company's residual interest in securitizations (represented by the difference between total trust assets and total trust liabilities) decreased to $23.0 million, compared to $26.5 million at December 31, 2011. The decrease in residual fair value for the six months ended June 30, 2012 was primarily due to $5.9 million in cash received partially offset by a decrease in expected forward LIBOR interest rates and a reduction in the residual interest discount rate for some of the Company's earlier vintage securitizations.

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. 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. 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). During the second quarter of 2012, based on the trend of improving bond prices and declining yields, the Company adjusted the acceptable range of expected yields for some of it's earlier vintage securitizations.

The following table presents changes in the Company's trust assets and trust liabilities for the six months ended June 30, 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
December 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                 23                       91,840                -               -         91,863                     -               -               -                  91,863
Interest
expense                          -                            -                -               -              -              (227,616 )             -        (227,616 )              (227,616 )
Change in FV of
net trust
assets,
excluding REO                 (454 )                    231,282                -                        230,828 (1)          (217,397 )        (1,871 )      (219,268 )(1)             11,560
Change in FV of
long-term debt                   -                            -                -               -              -                     -               -               -                       -
Losses from REO
- not at FV but
at NRV                           -                            -                -         (13,309 )      (13,309 )(1)                -               -               -                 (13,309 )
Total gains
(losses)
included in
earnings                      (431 )                    323,122                -         (13,309 )      309,382              (445,013 )        (1,871 )      (446,884 )              (137,502 )
Transfers in
and/or out of
level 3
Purchases,
issuances and
settlements                   (117 )                   (341,680 )              -          (4,313 )     (346,110 )             473,872           6,218         480,090                 133,980
Recorded book
value at
June 30, 2012     $            140     $              5,430,443     $         37   $      38,845   $  5,469,465      $     (5,426,042 )  $    (20,439 )  $ (5,446,481 )    $           22,984

(2) Accounted for at net realizable value.

Inclusive of losses from REO, trust assets reflect a net gain of $217.5 million as a result of an increase in fair value of securitized mortgage collateral of $231.3 million, losses from REO of $13.3 million and losses from other trust assets of $454 thousand. Net losses on trust liabilities were $219.3 million as a result of $217.4 million in losses from the increase in fair value of securitized mortgage borrowings and losses from derivative liabilities of $1.9 million. As a result, non-interest income-net trust assets totaled a loss of $1.7 million for the six months ended June 30, 2012.

Liquidity and capital resources

During the first six months of 2012, the Company funded its operations primarily from mortgage lending revenues and real estate services fees which includes gains on sale of loans and other mortgage related income, 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. Furthermore, the Company has utilized the proceeds from notes payable and the line of credit as additional sources of liquidity. In addition, the Company funded mortgage loan production using warehouse facilities which are repaid once the loan is sold.

The Company believes that current cash balances, cash flows from its mortgage lending activities, real estate and loss mitigation 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 will continue to be unstable, 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 large mortgage servicers, established special servicers, and newer entrants to the specialty servicing and recovery collections business. It is more difficult for the Company than its competitors to promote its ability to provide loss mitigation, special servicing and real estate services for others 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.

The Company has experienced recent success in expanding its mortgage lending business, primarily due to its origination of mortgages eligible for sale to government agencies on a service retained basis. However, retaining servicing is a use of capital and the Company must carefully manage the size of its servicing portfolio to stay within capital constraints. The Company is currently exploring opportunities to obtain additional capital to support the growth of the mortgage servicing portfolio and expansion of its origination platform and volumes. Without additional capital, the Company's mortgage lending business may not grow at the same pace as recently experienced. Additionally, performance of the long-term mortgage portfolio is subject to the continued volatility in the real estate market and current economic conditions. Cash flows from the residual interests in securitizations can be volatile and difficult to predict, because they are sensitive to delinquencies, defaults and credit losses associated with the securitized loans and interest rates associated with the securitized bonds. To the extent the related multifamily portion of the long-term mortgage portfolio experiences higher than expected credit losses, the Company may need to make advances on the multifamily portion.

At June 30, 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
                                        June 30, 2012      December 31, 2011
Cash                                    $        6,383    $             7,665
Restricted cash                                  2,534                  5,019
. . .