Pennymac is taking a larger bite out of wholesale competition

Pennymac
Financial
Services
is
coming
off
smaller
profits
but
eying
a
larger
play
in
the
wholesale
space.

The
massive
lender
and
servicer
Tuesday
afternoon
reported
a
net
profit
of
$69
million
in
the
third
quarter.
That
was
a
drop-off
from


$92.9
million
a
year
ago
and


$98.3
million
in
the
recent
second
quarter.
Its
diluted
earnings
per
share
also
fell
to
$1.30
per
share
on
revenue
of
$411.8
million,
a
steeper
drop-off
from
$1.85
a
quarter
ago. 

Servicing
pretax
income
slipped
in
the
red
to
a
$15
million
loss,
an
improvement
from
last
quarter’s
$60
million
deficit
but
far
below
a
$101.2
million
profit
the
same
time
a
year
ago.
A
massive
$242
million
hedging
gain
was
mitigated
by
a
$402
million
fair
value
change
in
mortgage
servicing
rights,
as
lower
market
interest
rates
affected
Pennymac’s
holdings. 

That
compared
to
production
segment
revenue
that
more
than
doubled
quarterly
and
quadrupled
annually
to
$108
million.
Executives
in
a
conference
call
touted
the
production
gains,
including
rises
in
correspondent,
broker
direct
and
consumer
direct
channels.

On
top
of
$20.7
billion
in
correspondent
lock
volume,
Pennymac’s
broker
direct
and
consumer
direct
channels
reported
similar
lock
volume
of
$5.3
billion
and
$5.2
billion,
respectively.
The
lender
says
it
now
works
with
a
quarter
of
the
broker
population,
with
4,411
approved
brokers.

Pennymac
is
positioning
itself
as
a
strong
second
alternative
to
brokers
compared
to
the
wholesale
channel
leaders,
United
Wholesale
Mortgage
and
Rocket
Pro
TPO,
who
are
Pennymac
Chairman
and
CEO
David
A.
Spector
says
are
going
after
each
other
on
an
exclusive
basis. 

“I
look
at
our
tech
versus
the
tech
that’s
provided
by
two
very
well
run
organizations
for
the
number
one
and
two
slots,
and
I
think
we
are
just
as
good,
if
not
better,
in
our
tech,”
said
Spector. 

Company
leaders
promised
more
technology
tools
for
brokers
this
winter
and
anticipated
broker
direct
gain-on-sale
margins,
largely
flat
around
97
basis
points,
to
eventually
rise. 

The
lender’s
leading
correspondent
operations
reported
consistent
lock
and
gain-on-sale
margins,
but
consumer
direct
margins
thinned
from
474
basis
points
a
year
ago
to
323
bps
in
the
third
quarter.
Pennymac
blamed
higher
production
expenses
on
more
refinance
transactions
and
more
activity
in
its
direct
lending
channels
overall. 

The
servicer’s
portfolio
inched
up
to
$648
billion
in
unpaid
principal
balance
ending
September.
It
reported
a
refi
recapture
rate
of
just
9%
for
its
conventional
loan
portfolio,
but
a
stronger
42%
recapture
rate
for
its
government-backed
home
loans.
Including
closed-end
second
loans,
that
government
recapture
rate
rose
to
52%
for
the
first
nine
months
of
2024. 

Executives
also
hinted
at
more
hiring
as
mortgage
rates
continue
their
rocky
path
downward,
after
running
Pennymac “capacity
tight”
in
2023. 

“Versus
the
alternatives
in
hedging
the
MSR,
it’s
the
least
expensive
path
that
we
can
take
with
the
most
economic
opportunity
on
the
upside
when
rates
do
decline,”
said
Spector.