Two Ways to Play Mortgage Lenders

If Eckert is correct and Impac pays a $1 dividend, the stock's dividend yield would jump to 16% from its current 6.5%.

Of course, trying to get a handle on loss rates is no easy task. Eckert's analysis assumes that Impac's first-quarter 60-day delinquency rate of 6.5% won't get much worse, since the fallout from the subprime meltdown in the credit markets was most severe in that period.

In actuality, delinquency rates could increase further this year. Nationally, the 60-day delinquency rate on Alt-A loans for all lenders was 3.1% in March, up from 1.2% a year earlier and the highest level since 2003, according to data firm First American Loan Performance.

If delinquency rates head to higher levels of 10% in Impac's portfolio, then the stock is expensive. The losses could begin to meaningfully eat into the company's loan loss reserves, says a trader who closely follows the stock.

IndyMac Attack

On the flip side of the Alt-A coin is IndyMac, a large-cap mortgage bank that grabs most of its profits from buying and selling Alt-A mortgages. Historically, this business represents about 75% of IndyMac's net income, and lately it has been under pressure.

Originations are down, and so are margins for selling loans. Wall Street banks that purchase IndyMac's loans are driving down prices because of fears of increased default risk from home borrowers. Those fears are similar to what happened with the subprime market.