PennyMac touts broker channel gains as earnings rebound

PennyMac
Financial
Services
reported
some
green
shoots
in
its
origination
business,
part
of
a
larger
earnings
recovery
that
was
somewhat
dampened
by
hedging
losses.

The
California
mortgage
giant
posted
a
$39.3
million
profit
in
the
first
quarter,
following
a

$36.8
million
net
loss
to
close
2023.
The
rebound,
also
a
29%
improvement
from
the
same
time
last
year,
was
driven
in
part
by
far

smaller
settlement
obligations
to
technology
rival
Black
Knight.

The
multichannel
lender
recorded
slight
quarter-over-quarter
declines
in
production
pretax
net
income,
coming
in
at
$35.9
million,
and
overall
volume
of
$21.7
billion.
Its
correspondent
and
broker
gain-on-sale
margins
ticked
up
however,
with
the
broker
direct
channel
leaping
from
79
basis
points
to
close
2023
to
103
in
the
recent
period.
Its
consumer
direct
lock
volume
was
also
up
35%
quarterly.

The
company
said
it
counts
over
4,000
brokers,
up
36%
from
the
same
time
last
year.
PennyMac
Chairman
and
CEO
David
Spector
attributed
the
broker
margin
and
population
gains
to
his
firm’s
technology
and
more
jumbo
home
loan
activity,
among
other
reasons.

“There
was
a
period
of
time
a
year
or
two
back
when
there
was
irrational
pricing
taking
place
in
this
part
of
the
market,
and
I
think
we’ve
seen
a
kind
of
a
return
to
more
rational
pricing,”
he
said,
appearing
to
refer
to
the

wholesale
pricing
wars
of
yesteryear.

The
firm’s
servicing
operations
recorded
$4.9
million
in
pretax
net
income
in
the
first
quarter,
up
from
a
$95.5
million
loss
in
the
last
three-month
stretch.
PennyMac
also
saw
$170
million
in
mortgage
servicing
rights
fair
value
gains,
a
figure
offset
by
$294.6
million
in
hedging
declines
for
a
$125
million
total
decline.

Executives,
responding
to
analyst
questions
about
the
hedging
loss,
said
the
company
had
an
increased
exposure
to
interest
rate
volatility
and
cited
the
inverted
yield
curve.

“We
were
seeing
pretty
significant
potential
costs
for
maintaining
our
typical
hedge
position,”
said
Daniel
Perotti,
senior
managing
director
and
chief
financial
officer. “We
needed
to
identify
if
we
wanted
to
accept
those
hedge
costs
or
open
up
certain
exposures.”

Company
leaders
said
PennyMac
has
since
repositioned
its
hedge
in
the
second
quarter
to
a “more
traditional
profile.”

PennyMac’s
revenue
meanwhile
wavered
at
$305.7
million
ending
March,
down
from
the
fourth
quarter’s
$361.9
million
mark
and
slightly
up
from
$302.8
million
at
the
same
time
last
year.

Spector
and
Perotti
also
addressed
the
company’s
Department
of
Veterans
Affairs
loan
profile
in
speaking
on
the
upcoming
VA
Servicing
Purchase
program,
or
VASP.
The
initiative
is
a
successor
to
the

VA’s
pandemic-era
partial
claim
for
its
distressed
borrowers.

PennyMac
counts
4,700
VA
loans
in
a
deep
delinquency
position,
or
$1.2
billion
of
unpaid
principal
balance
among
its
vast
servicing
portfolio.
Executives
appeared
cautiously
optimistic
when
asked
about
VASP.

“Where
we
have
potential
concern
today
is
around
the
moral
hazard
and
how
that
could
eventually
play
out,”
said
Perotti.