`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-34416
PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)
Maryland
27-0186273
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
3043 Townsgate Road, Westlake Village, California
91361
(Address of principal executive offices)
(Zip Code)
(818) 224-7442
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol (s)
Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, $0.01 Par Value
PMT
New York Stock Exchange
8.125% Series A Cumulative Redeemable PreferredShares of Beneficial Interest, $0.01 Par Value
PMT/PRA
8.00% Series B Cumulative Redeemable PreferredShares of Beneficial Interest, $0.01 Par Value
6.75% Series C Cumulative Redeemable PreferredShares of Beneficial Interest, $0.01 Par Value
PMT/PRB
PMT/PRC
8.50% Senior Note Due 2028
PMTU
9.00% Senior Notes Due 2030
PMTV
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Outstanding at April 28, 2025
Common Shares of Beneficial Interest, $0.01 par value
87,010,608
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
March 31, 2025
TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements
1
PART I. FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
5
Consolidated Statements of Changes in Shareholders’ Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
55
Our Company
Results of Operations
59
Net Investment Income
60
Expenses
67
Balance Sheet Analysis
70
Asset Acquisitions
Investment Portfolio Composition
71
Cash Flows
73
Liquidity and Capital Resources
74
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
79
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
80
PART II. OTHER INFORMATION
81
Legal Proceedings
Item 1A
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
82
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:
Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”) on February 20, 2025.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, income and/or financial condition.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
2
Item 1. Financial Statements
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31,
December 31,
2025
2024
(in thousands, except share information)
ASSETS
Cash
$
247,941
337,694
Short-term investments at fair value
204,158
103,198
Mortgage-backed securities at fair value pledged to creditors
4,035,862
4,063,706
Loans acquired for sale at fair value ($1,963,075 and $2,087,615 pledged to creditors, respectively)
2,002,207
2,116,318
Loans at fair value ($3,227,176 and $2,191,869 pledged to creditors, respectively)
3,228,991
2,193,575
Derivative assets ($28,474 and $29,377 pledged to creditors, respectively)
45,162
56,840
Deposits securing credit risk transfer arrangements pledged to creditors
1,087,949
1,110,708
Mortgage servicing rights at fair value ($3,707,879 and $3,807,065 pledged to creditors, respectively)
3,770,034
3,867,394
Servicing advances ($70,604 and $89,396 pledged to creditors, respectively)
84,733
105,037
Due from PennyMac Financial Services, Inc.
15,155
16,015
Other ($527 pledged to creditors as of December 31, 2024)
154,034
438,221
Total assets
14,876,226
14,408,706
LIABILITIES
Assets sold under agreements to repurchase
6,202,539
6,500,938
Mortgage loan participation purchase and sale agreements
4,576
11,593
Notes payable secured by credit risk transfer and mortgage servicing assets
2,683,368
2,929,790
Unsecured senior notes
773,122
605,860
Asset-backed financings of variable interest entities at fair value
2,967,631
2,040,375
Interest-only security payable at fair value
35,954
34,222
Derivative and credit risk transfer strip liabilities at fair value
17,941
7,351
Accounts payable and accrued liabilities
105,451
139,124
Due to PennyMac Financial Services, Inc.
29,198
30,206
Income taxes payable
147,773
163,861
Liability for losses under representations and warranties
5,955
6,886
Total liabilities
12,973,508
12,470,206
Commitments and contingencies ─ Note 17
SHAREHOLDERS’ EQUITY
Preferred shares of beneficial interest, $0.01 par value per share—authorized 100,000,000 shares, issued and outstanding 22,400,000, liquidation preference $560,000,000
541,482
Common shares of beneficial interest, $0.01par value—authorized, 500,000,000 issued and outstanding, 87,010,608 and 86,860,960 shares, respectively
870
869
Additional paid-in capital
1,924,902
1,925,067
Accumulated deficit
(564,536
)
(528,918
Total shareholders’ equity
1,902,718
1,938,500
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and liabilities (the assets of each VIE can only be used to settle liabilities of that VIE) are summarized below:
(in thousands)
Loans at fair value
3,227,176
2,191,709
Derivative assets
28,474
29,377
Deposits securing credit risk transfer arrangements
Other—interest receivable
11,874
6,382
4,355,473
3,338,176
Asset-backed financings of the variable interest entities at fair value
15,885
4,060
Accounts payable and accrued liabilities—interest payable
3,031,344
2,085,039
4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter ended March 31,
(in thousands, except earnings per common share)
Net investment income
Net gains on investments and financings
62,313
39,753
Net gains on loans acquired for sale:
From nonaffiliates
10,329
12,913
From PennyMac Financial Services, Inc.
2,015
1,605
12,344
14,518
Loan origination fees
3,152
2,008
Net loan servicing fees:
Contractually specified
152,199
160,357
Other
3,917
3,011
156,116
163,368
Change in fair value of mortgage servicing rights
(144,590
(28,202
Mortgage servicing rights hedging results
(39,944
(89,814
(28,418
45,352
1,208
353
(27,210
45,705
Net interest expense:
Interest income
176,091
143,559
Interest expense
182,137
171,527
Net interest expense
(6,046
(27,968
Results of real estate acquired in settlement of loans
(141
134
53
44,465
74,205
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
21,729
20,262
Management fees
7,012
7,188
Loan fulfillment fees
5,290
4,016
Professional services
6,982
1,758
Compensation
2,970
1,916
Loan collection and liquidation
1,969
1,369
Safekeeping
1,110
932
Loan origination
686
473
3,016
3,910
Total expenses
50,764
41,824
(Loss) income before benefit from income taxes
(6,299
32,381
Benefit from income taxes
(15,979
(15,227
Net income
9,680
47,608
Dividends on preferred shares of beneficial interest
10,455
Net (loss) income attributable to common shareholders
(775
37,153
(Loss) earnings per common share
Basic
(0.01
0.43
Diluted
0.39
Weighted average common shares outstanding
86,907
86,689
111,017
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Quarter ended March 31, 2025
Preferred shares
Common shares
Number
Additional
of
Par
paid-in
Accumulated
shares
Amount
value
capital
deficit
Total
(in thousands, except per share amounts)
Balance at December 31, 2024
22,400
86,861
—
Share-based compensation
150
(165
(164
Dividends:
(10,455
Common shares ($0.40 per share)
(34,843
Balance at March 31, 2025
87,011
Quarter ended March 31, 2024
Balance at December 31, 2023
86,624
866
1,923,437
(508,695
1,957,090
221
(483
(481
(34,849
Balance at March 31, 2024
86,845
868
1,922,954
(506,391
1,958,913
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cash flows from operating activities
Adjustments to reconcile net income to net cash used in operating activities:
(62,313
(39,753
Net gains on loans acquired for sale
(12,344
(14,518
144,590
28,202
39,944
89,814
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans at fair value, and asset-backed financings
(10,751
(464
Amortization of debt issuance costs
3,919
4,184
141
(134
Share-based compensation expense
963
1,365
Purchase of loans acquired for sale from nonaffiliates
(23,337,077
(18,410,727
Purchase of loans acquired for sale from PennyMac Financial Services, Inc.
(654,808
Sale to nonaffiliates and repayment of loans acquired for sale
2,613,958
1,928,336
Sale of loans acquired for sale to PennyMac Financial Services, Inc.
20,437,666
16,302,059
Repurchase of loans subject to representations and warranties
(4,845
(7,514
Decrease in servicing advances
20,236
80,123
Decrease in due from PennyMac Financial Services, Inc.
860
Decrease (increase) in other assets
266,688
(104,330
Decrease in accounts payable and accrued liabilities
(33,678
(232,977
(Decrease) increase in due to PennyMac Financial Services, Inc.
(1,008
1,573
Decrease in income taxes payable
(16,088
(15,273
Net cash used in operating activities
(594,267
(342,371
Cash flows from investing activities
Net increase in short-term investments
(100,960
(215,005
Purchase of mortgage-backed securities
(159,585
Sale and repayment of mortgage-backed securities
102,769
1,011,092
Repayment of loans at fair value
42,282
21,797
Net settlement of derivative financial instruments
2,806
(2,884
Distribution from credit risk transfer arrangements
35,339
37,491
Purchase of mortgage servicing rights
(26,497
Transfer of mortgage servicing rights relating to delinquent loans to Agency
(221
(142
Sale of real estate acquired in settlement of loans
46
52
(Increase) decrease in margin deposits
(41,833
104,477
Net cash provided by investing activities
40,228
770,796
Statements continued on the next page
(Continued)
Cash flows from financing activities
Sale of assets under agreements to repurchase
34,797,503
23,278,163
Repurchase of assets sold under agreements to repurchase
(35,096,910
(23,783,768
Issuance of mortgage loan participation purchase and sale agreements
295,892
335,689
Repayment of mortgage loan participation purchase and sale agreements
(302,940
(310,473
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets
306,000
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets
(247,977
(335,237
Issuance of asset-backed financings of variable interest entities
940,457
Repayment of asset-backed financings of variable interest entities
(41,256
(21,067
Issuance of senior exchangeable notes
172,500
Payment of debt issuance costs
(6,563
(5,188
Payment of dividends to preferred shareholders
Payment of dividends to common shareholders
(34,838
(34,750
Payment of vested share-based compensation tax withholdings
(1,127
(1,846
Net cash provided by (used in) financing activities
464,286
(582,932
Net decrease in cash
(89,753
(154,507
Cash at beginning of quarter
281,085
Cash at end of quarter
126,578
Supplemental cash flow information
Payments, net:
Income taxes
109
Interest
220,334
187,619
Non cash investing activities:
Recognition of loans at fair value resulting from initial consolidation of variable interest entities
1,049,704
Receipt of mortgage servicing rights as proceeds from sales of loans
47,009
31,249
Unsettled purchase of mortgage servicing rights
2,944
Non-cash financing activities:
Dividends declared, not paid
34,843
34,849
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) is a specialty finance company, which invests in residential mortgage-related assets. The Company operates in three operating and reportable segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. All other activities are included in corporate:
The Company primarily sells the loans it acquires through its correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or to PLS primarily for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"), or the GSEs. Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” The Company may also securitize loans directly and retain interests in the securitizations of the loans, such as subordinate MBS.
The Company conducts substantially all of its operations and makes substantially all of its investments through its subsidiary, PennyMac Operating Partnership, L.P. (the “Operating Partnership”), and the Operating Partnership’s subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner, and the Company is the sole limited partner, of the Operating Partnership.
The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. To maintain its tax status as a REIT, the Company is required to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.
Note 2—Basis of Presentation and Recently Issued Accounting Pronouncement
Basis of Presentation
The Company’s consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
These unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations that may be anticipated for the full year. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
The Company held no restricted cash during the periods presented. Therefore, the consolidated statements of cash flows do not include references to restricted cash.
Recently Issued Accounting Pronouncements
During 2023 the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), that is intended to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 does not require any changes to the Company’s accounting for income taxes. ASU 2023-09 requires disclosures of:
The disclosures required by ASU 2023-09 are required in the Company’s annual financial statements beginning with the year ended December 31, 2025, with early adoption permitted.
Note 3—Concentration of Risks
As discussed in Note 1 – Organization above, PMT’s operating and investing activities are centered in residential mortgage-related assets, including CRT arrangements, subordinate MBS, Agency and senior Non-Agency MBS and MSRs. The Company carries its non-cash financial assets and MSRs at fair value with changes in fair value included in its results of operations. The fair values of CRT arrangements and subordinate MBS are more sensitive to borrower credit performance than other mortgage-related investments such as traditional loans. The fair values of Agency MBS, interest-only (“IO”) and principal-only stripped MBS and senior non-Agency MBS are sensitive to changes in market interest rates. The fair values of MSRs are sensitive to changes in market interest rates, prepayment rate activity and expectations, and costs to service the underlying loans.
Credit Risk
Note 6 – Variable Interest Entities details the Company’s investments in CRT arrangements whereby the Company sold pools of loans into Fannie Mae guaranteed loan securitizations which became reference pools underlying the CRT arrangements. Fannie Mae transferred IO ownership interests and recourse obligations based upon the securitized reference pools of loans subject to the CRT arrangements into trust entities, and the Company acquired the IO ownership interests and assumed the recourse obligations in the CRT arrangements through the acquisition of beneficial interests in the trust entities.
The Company also invests in subordinate MBS, which are among the first beneficial interests in the issuing trusts to absorb credit losses on the underlying loans.
The Company’s retention of credit risk through its investment in CRT arrangements and subordinate MBS subjects it to risks associated with delinquency and foreclosure similar to the risks of loss associated with owning the underlying loans, which is greater than the risk of loss associated with selling loans to the Agencies without the retention of credit risk in the case of CRT arrangements and investing in senior mortgage-backed securities in the case of subordinate MBS.
Certain of the Company's investments in CRT arrangements are structured such that loans that reach a specific number of days delinquent trigger losses chargeable to the CRT arrangements based on the sizes of the delinquent loans and a contractual schedule of loss severity. Therefore, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the related loans because the structure of those CRT arrangements provides that the Company may be required to absorb losses in the event of delinquency or foreclosure even when there is ultimately no loss realized with respect to such loans (e.g., as a result of a borrower’s re-performance). In contrast, the structure of the Company’s other investments in CRT arrangements requires PMT to absorb losses only when the reference loans realize losses.
The Company maintains cash and short-term investment balances at financial institutions in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limits. Should one or more of the financial institutions at which the Company's deposits are maintained fail, there is no guarantee as to the extent that the Company would recover the funds deposited, whether through FDIC coverage or otherwise, or the timing of any recovery.
Fair Value Risk
The Company is exposed to fair value risk in addition to the risks specific to credit and, as a result of prevailing market conditions, may be required to recognize losses associated with adverse changes to the fair value of its investments in MSRs, CRT arrangements, and MBS:
10
Note 4—Transactions with Related Parties
The Company enters into transactions with subsidiaries of PFSI in support of its operating, investing and financing activities as summarized below.
Operating Activities
Servicing Agreement
The Company has a loan servicing agreement with PLS (the “Servicing Agreement”) pursuant to which PLS provides subservicing for the Company's portfolio of MSRs, loans held for sale, loans held in VIEs (prime servicing), and its portfolio of residential loans purchased with credit deterioration (special servicing). The terms of the Servicing Agreement were amended effective January 1, 2025. Under the Servicing Agreement, as amended, servicing fees are established at a per loan monthly amount based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or real estate acquired in settlement of loans (“REO") as shown below:
Through December 31, 2024, servicing fees were based on the schedule below:
Prime Servicing
Special Servicing
The Servicing Agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
11
MSR Recapture Agreement
The Company has an MSR recapture agreement with PLS. The MSR Recapture Agreement was amended effective January 1, 2025. Pursuant to the terms of the MSR recapture agreement, if PLS refinances (recaptures) mortgage loans for which the Company previously held the MSRs, PLS is generally required to transfer and convey to the Company cash in an amount equal to:
The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance ("UPB") of all refinance mortgage loans originated in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second loans originated in such month, to (ii) the aggregate UPB of all mortgage loans from the portfolio that PLS has determined in good faith were refinanced in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second lien loans originated in such month. For purposes of such calculation, “preserved mortgage loan” means a mortgage loan in PMT’s portfolio as to which PLS or its affiliates originated a new closed end second lien loan in a subordinate position to such mortgage loan. PFSI has further agreed to allocate sufficient resources to target a recapture rate of at least 30%.
Through December 2024, the MSR recapture agreement provided for the fee to be determined as follows:
Through December 31, 2024, the “recapture rate” meant, during each month, the ratio of (i) the aggregate UPB of all recaptured loans, to (ii) the aggregate UPB of all mortgage loans for which the Company held the MSRs and that were refinanced or otherwise paid off in such month.
The MSR recapture agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
Following is a summary of loan servicing and recapture fees earned by PLS:
Loan servicing fees:
Loans acquired for sale
223
90
168
62
Mortgage servicing rights
21,338
20,110
Average investment in loans:
Acquired for sale
1,997,488
704,809
At fair value
2,626,335
1,425,584
Average MSR portfolio unpaid principal balance
225,515,018
230,591,966
Mortgage servicing rights recapture fees
Unpaid principal balance of loans recaptured
159,472
62,073
12
Correspondent Production Activities
Mortgage Banking Servicing Agreement
The Company is provided fulfillment and other services for the operation of its correspondent production business under an amended and restated mortgage banking services agreement with PLS. These services include: provision of models and technology for the pricing of loans and MSRs; reviews of loan data; documentation and appraisals to assess loan quality and risk; hedging the fair value of the Company's mortgage loan inventory and commitments to purchase mortgage loans to reduce the risk of loss arising from fluctuations in fair value due to movements in interest rates; correspondent seller performance and credit monitoring procedures; and the sale of loans through secondary mortgage markets on behalf of the Company. The mortgage banking servicing agreement was amended effective January 1, 2025.
Effective January 1, 2025, fulfillment fees in any quarter shall not exceed the following:
Through December 2024, the mortgage banking services agreement provided for a quarterly fulfillment fee not to exceed the following:
The Company does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and/or to act as a servicer for loans in Ginnie Mae MBS. Accordingly, under the mortgage banking services agreement, PLS purchases mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at cost less an administrative fee plus accrued interest and a sourcing fee ranging from one to two basis points of the UPB of the loan, generally based on the average number of calendar days the loans are held by the Company before purchase by PLS. PLS may also acquire conventional loans from the Company on the same terms upon mutual agreement between the Company and PLS.
While PLS purchases these mortgage loans “as is” and without recourse of any kind from the Company, where PLS has a claim for repurchase, indemnity or otherwise against a correspondent seller, it is entitled, at its sole expense, to pursue any such claim through or in the name of the Company.
In December 2024, the mortgage banking services agreement was renewed and amended to provide for PLS to assume the role of initial correspondent loan purchaser instead of the Company effective July 1, 2025. Under this agreement, the Company retains the right to purchase up to 100% of the non-government insured or guaranteed loans purchased by PLS at its cost plus accrued interest, less any loan administrative fee paid to PLS by the correspondent seller, and subject to quarterly fulfillment fees as described above. PLS may hold or otherwise sell correspondent loans to other investors if the Company chooses not to purchase such loans. Accordingly, the sourcing fee arrangement will no longer have any effect beginning July 1, 2025.
13
The mortgage banking services agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
The Company may also purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under a mortgage loan purchase and sale agreement.
Following is a summary of correspondent production activity and other loan purchases between the Company and PLS:
Loan fulfillment fees earned by PLS
Unpaid principal balance of loans fulfilled by PLS
2,781,722
1,771,681
Sourcing fees received from PLS included in Net gains on loans acquired for sale
Unpaid principal balance of loans sold to PLS:
Government guaranteed or insured
11,191,880
7,856,925
Conventional conforming
8,960,796
8,189,930
20,152,676
16,046,855
Purchases of loans acquired for sale from PLS
654,808
Tax service fees paid to PLS
477
359
December 31, 2024
Loans included in Loans acquired for sale at fair value pending sale to PLS
1,135,302
602,108
Management Agreement
The Company has a management agreement with PCM pursuant to which PMT pays PCM management fees as follows:
A base management fee that is calculated quarterly and is equal to the sum of (i) 1.5% per year of average shareholders’ equity up to $2 billion, (ii) 1.375% per year of average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of average shareholders’ equity in excess of $5 billion. “Shareholders’ equity” is defined as the sum of net proceeds from issuance and repurchases of equity securities since inception, plus retained earnings or reduced by accumulated deficit.
The performance incentive fee is equal to the sum of:
For the purpose of determining the amount of the performance incentive fee:
"Net income” is defined as net income or loss attributable to the Company’s common shares of beneficial interest (“Common Shares”) calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between PCM and the Company’s independent trustees and after approval by a majority of the Company’s independent trustees.
“Common shareholders’ equity” is defined as average "shareholder’s equity" less the average GAAP carrying value of the Company’s preferred equity.
14
“High watermark” is the annual adjustment that reflects the amount by which the “net income” (stated as a percentage of return on “equity”) in that year exceeds or falls short of the lesser of 8% and the average Fannie Mae 30‑year MBS Yield (the “Target Yield”) for the year then ended. If the “net income” is lower than the Target Yield, the high watermark is increased by the difference. If the “net income” is higher than the Target Yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark is reset to zero. As a result, the threshold amount required for the Company to earn a performance incentive fee is adjusted cumulatively based on the performance of the Company’s net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned. The high watermark is calculated based on the two years preceding the fiscal year for which the incentive fee is calculated, and will never be less than zero after including all high watermark increases and high watermark decreases over any such rolling two fiscal year period.
The base management fee is paid quarterly in arrears and the performance incentive fee is paid annually in arrears. The performance incentive fee may be paid in cash or a combination of cash and the Company’s Common Shares (subject to a limit of no more than 50% paid in Common Shares), at the Company’s option.
In the event of termination of the management agreement between the Company and PCM, PCM may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by PCM, in each case during the 24-month period before termination of the management agreement.
Following is a summary of management fee expenses:
Base management
Performance incentive
Average shareholders' equity amounts used to calculate base management fee expense
1,895,785
1,927,401
The management agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
Through 2024, under the Management Agreement, both base management and performance incentive fees were paid quarterly and the high watermark was assessed and calculated on a cumulative basis since inception
Expense Reimbursement
Under the Management Agreement, the Company reimburses PCM for its organizational and operating expenses, including third-party expenses, incurred on the Company’s behalf, it being understood that PCM and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax, accounting, internal audit and investor relations services for the direct benefit of the Company. The Company is also required to pay its pro rata portion of the rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of PCM and its affiliates required for the Company’s and its subsidiaries’ operations. These expenses are based on the resources PCM and its affiliates dedicate to investment management activities for the Company, as determined by PCM in its sole discretion.
Through 2024, the Company reimbursed PCM for its organizational and operating expenses, including third-party expenses, incurred on the Company’s behalf, it being understood that PCM and its affiliates would allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of the Company. With respect to the allocation of PCM’s and its affiliates’ personnel compensation, PCM was reimbursed $165,000 per fiscal quarter. Overhead expenses were previously allocated based on the ratio of the Company’s proportion of gross assets compared to all remaining gross assets owned or managed PCM and its affiliates, as calculated at each fiscal quarter end.
.
15
Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:
Reimbursement of:
Expenses incurred on the Company’s behalf, net
4,601
6,414
1,629
165
Common overhead incurred by PCM and its affiliates
981
1,944
7,211
8,523
Payments and settlements during the quarter (1)
28,048
30,085
Financing Activities
PFSI Investment in the Company
PFSI held 75,000 of the Company’s Common Shares at both March 31, 2025 and December 31, 2024.
Amounts Receivable from and Payable to PFSI
Amounts receivable from and payable to PFSI are summarized below:
Due from PFSI-Miscellaneous receivables
Due to PFSI:
Correspondent production fees
9,097
11,122
7,266
6,822
7,149
Allocated expenses and expenses and costs paid by PFSI on PMT’s behalf
5,823
3,508
Fulfillment fees
The Company has also transferred cash to PLS to fund loan servicing advances and REO property acquisition and preservation costs on its behalf. Such amounts are included in various of the Company's balance sheet items as summarized below:
Balance sheet line including advance amount
Servicing advances
Other assets-Real estate acquired in settlement of loans
1,287
1,265
86,020
106,302
Note 5—Loan Sales
The following table summarizes cash flows between the Company and transferees in transfers of loans that are accounted for as sales where the Company maintains continuing involvement with the loans:
Cash flows:
Proceeds from sales
Loan servicing fees received
16
The following table summarizes for the dates presented collection status information for loans that are accounted for as sales where the Company maintains continuing involvement:
Unpaid principal balance of loans outstanding
221,157,980
222,761,227
Collection status (Unpaid principal balance)
Delinquency:
30-89 days delinquent
2,381,406
2,618,767
90 or more days delinquent:
Not in foreclosure
1,064,810
1,078,362
In foreclosure
122,136
105,810
Bankruptcy
296,022
281,821
Custodial funds managed by the Company (1)
2,631,284
2,385,602
Note 6—Variable Interest Entities
The Company is a variable interest holder in various VIEs that relate to its investing and financing activities as discussed below.
Credit Risk Transfer Arrangements
The Company has previously entered into certain loan sales arrangements pursuant to which it accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’s investments in CRT arrangements.
The Company, through its subsidiary, PennyMac Mortgage Corp (“PMC"), entered into CRT arrangements with Fannie Mae, pursuant to which the Company sold pools of loans into Fannie Mae-guaranteed securitizations while retaining recourse obligations as part of the retention of IO ownership interests in such loans. CRT arrangements include:
The Company placed Deposits securing credit risk transfer arrangements into subsidiary trust entities to secure its recourse obligations. The Deposits securing credit risk transfer arrangements represent the Company’s maximum contractual exposure to claims under its recourse obligations and are the sole source of settlement of losses under the CRT arrangements.
The Company’s exposure to losses under its recourse obligations was initially established at rates ranging from 3.5% to 4.0% of the UPB of the loans sold under the CRT arrangements. As the UPB of the underlying loans subject to each CRT arrangement decreased through repayments, the percentage exposure to losses of each CRT arrangement increased to maximums ranging from 4.5% to 5.0% of outstanding UPB, although the total dollar amount of exposure to losses did not increase.
The Company has concluded that the subsidiary trust entities holding its CRT arrangements are VIEs and the Company is the primary beneficiary of the VIEs as it is the holder of the primary beneficial interests which absorb the variability of the trusts’ results of operations. For CRT arrangements where losses are triggered based on the loans’ delinquency status, the Company recognizes its IO ownership interests and recourse obligations on the consolidated balance sheets as CRT derivatives in Derivative assets and Derivative and credit risk transfer strip liabilities. For CRT securities where losses are absorbed when the reference loans realize credit losses, the Company recognizes its IO ownership interests and recourse obligations as CRT strips which are included on the consolidated balance sheet in Derivative and credit risk transfer strip liabilities. Gains and losses on the derivatives and strips (including the IO ownership interest sold to a nonaffiliate) included in the CRT arrangements are included in Net gains on investments and financings in the consolidated statements of operations.
17
Following is a summary of the CRT arrangements:
Net investment income:
Credit risk transfer derivatives and strips:
Credit risk transfer derivatives
Realized
2,803
3,409
Valuation changes
(823
6,781
1,980
10,190
Credit risk transfer strips
9,777
11,685
(11,825
29,340
(2,048
41,025
Interest-only security payable at fair value - valuation changes
(1,732
440
(1,800
51,655
Interest income — Deposits securing credit risk transfer arrangements
11,675
15,696
9,875
67,351
Net payments made to settle losses on credit risk transfer arrangements
1,243
185
Carrying value of credit risk transfer arrangements:
Derivative assets - credit risk transfer derivatives
Derivative and credit risk transfer liabilities - credit risk transfer strip liabilities
(15,885
(4,060
(35,954
(34,222
1,064,584
1,101,803
Credit risk transfer arrangement assets pledged to secure borrowings:
Deposits securing credit risk transfer arrangements (1)
Unpaid principal balance of loans underlying credit risk transfer arrangements
20,849,101
21,249,304
Collection status (unpaid principal balance):
Delinquency
Current
20,269,686
20,628,148
382,091
414,605
90-180 days delinquent
112,616
131,191
180 or more days delinquent
62,902
51,343
Foreclosure
21,806
24,017
62,489
63,697
Subordinate and Senior Non-Agency Mortgage-Backed Securities
The Company retains or purchases subordinate and senior non-agency MBS in transactions sponsored by PMC or a nonaffiliate. Cash inflows from the loans underlying these securities are distributed to investors and service providers in accordance with the respective securities' contractual priorities of payments and, as such, most of these inflows must be directed first to service and repay the senior securities.
18
The rights of holders of subordinate securities to receive distributions of principal and/or interest, as applicable, are subordinate to the rights of holders of senior securities. After the senior securities are repaid, substantially all cash inflows will be directed to the subordinate securities, including those held by the Company, until they are fully repaid.
The Company’s retention or purchase of subordinate MBS exposes PMT to the credit risk in the underlying loans because the Company’s subordinate MBS investments are among the first beneficial interests to absorb credit losses on those assets. The Company’s exposure to losses from its investments in subordinate MBS is limited to its recorded investment in such securities.
The Company has concluded that the trusts holding the assets underlying these transactions are VIEs. The Company also has concluded that it is the primary beneficiary of certain of the VIEs as it has the power, through PLS, in its role as the servicer or sub-servicer of the underlying loans, to direct the activities of the trusts that most significantly impact the trusts’ economic performance and, as a holder of subordinate securities, that PMT is exposed to losses that could potentially be significant to the VIEs. Therefore, PMT consolidates those VIEs.
The Company recognizes the interest income earned on the loans owned by the VIEs and the interest expense attributable to the asset-backed securities issued to nonaffiliates by the VIEs on its consolidated statements of operations.
Following is a summary of the Company’s investment in subordinate and senior non-agency MBS backed by assets held in consolidated VIEs:
Net gains on investments and financings:
28,712
(1,240
Asset-backed financings at fair value
(29,423
7,476
33,673
12,108
28,715
12,678
4,247
5,666
Retained subordinate and senior non-agency mortgage-backed securities at fair value pledged to secure Assets sold under agreements to repurchase
226,874
130,839
Financing of Mortgage Servicing Assets
The Company entered into financing transactions in which it pledged participation interests in its MSRs to VIEs which issued variable funding notes, term notes and term loans backed by beneficial interests in Fannie Mae MSRs. The Company holds the variable funding notes and acts as guarantor of the variable funding notes, term notes and term loans. The Company determined that it is the primary beneficiary of the VIEs because, as the holder of the variable funding notes and issuer of performance guarantees, it holds the variable interests in the VIEs. Therefore, the Company consolidates the VIEs.
For financial reporting purposes, the MSRs financed by the consolidated VIEs are included in Mortgage servicing rights at fair value, the variable funding notes sold under agreements to repurchase are included in Assets sold under agreements to repurchase and the term notes and term loans are included in Notes payable secured by credit risk transfer and mortgage servicing assets on the Company’s consolidated balance sheets. These financings are described in Note 15— Long-Term Debt.
Note 7— Fair Value
The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement at or based on fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Company has elected to carry the item at its fair value as discussed in the following paragraphs.
19
The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:
As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.
The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the significant inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the significant inputs required to establish fair value at a higher level of the hierarchy become available.
Fair Value Accounting Elections
The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets at fair value so such changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company’s performance.
The Company has also identified its Asset-backed financings at fair value and Interest-only security payable at fair value to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.
20
Financial Statement Items Measured at Fair Value on a Recurring Basis
Following is a summary of financial statement items that are measured at fair value on a recurring basis:
Level 1
Level 2
Level 3
Assets:
Short-term investments
Mortgage-backed securities at fair value
3,954,819
81,043
Loans acquired for sale at fair value
1,996,756
5,451
1,815
Derivative assets:
Call options on interest rate futures sell contracts
5,828
Put options on interest rate futures sell contracts
1,918
Forward purchase contracts
3,913
Forward sale contracts
4,072
Interest rate lock commitments
4,848
Total derivative assets before netting
7,746
7,985
33,322
49,053
Netting
(3,891
Total derivative assets after netting
Mortgage servicing rights at fair value
211,904
9,186,736
3,891,665
13,286,414
Liabilities:
Derivative and credit risk transfer strip liabilities:
Call options on interest rate futures purchase contracts
2,344
297
Forward sales contracts
10,792
229
Total derivative liabilities before netting
11,089
13,662
(11,606
Total derivative liabilities after netting
2,056
Total derivative and credit risk transfer strip liabilities
16,114
2,978,720
52,068
3,021,526
21
3,977,446
86,260
2,108,347
7,971
1,866
156
Put options on interest rate futures purchase contracts
6,372
614
54,056
MBS put options
2,114
CRT derivatives
3,562
6,528
56,784
32,939
96,251
(39,411
109,726
8,334,286
3,996,430
12,401,031
Derivative liabilities and credit risk transfer strips:
6,336
1,753
3,118
8,089
11,207
(7,916
3,291
7,178
2,048,464
41,400
2,081,948
22
The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the quarters presented:
Assets (1)
Interest-only stripped mortgage-backed securities
Loans acquiredfor sale
Loans at fairvalue
Interest ratelockcommitments
CRTstrips
Balance, December 31, 2024
444
3,989,252
Purchases and issuances
28
4,599
4,627
Repayments and sales
(4,636
(2,678
(20
(2,883
(9,777
(19,994
Accrual of unearned discounts
2,285
Amounts received pursuant to sales of loans
Changes in fair value included in results of operations arising from
Changes in instrument - specific credit risk
Other factors
(2,866
130
(31
7,391
(140,034
Transfers of:
Interest rate lock commitments to loans acquired for sale (2)
(7,815
Mortgage servicing rights relating to delinquent loans to Agency
Balance, March 31, 2025
4,619
3,875,551
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2025
(14
(155,530
Liabilities
Interest-only security payable:
Changes in fair value included in results of operations arising from:
1,732
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2025
23
Loans atfairvalue
CRTderivatives
Interestrate lockcommitments
CRT strips
Mortgageservicingrights
Balance, December 31, 2023
94,231
6,318
2,131
16,160
7,532
(46,692
3,919,107
3,998,787
1,484
3,111
29,441
34,036
(5,070
(2,658
(59
(3,451
(11,685
(22,923
Accrual of unearned discount
2,216
3,290
(48
(38
(855
25,362
(4,943
142
Balance, March 31, 2024
94,667
5,096
2,034
22,899
4,845
(17,352
3,951,737
4,063,926
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2024
(55
(41
15,958
32,667
Changes in instrument-specific credit risk
(440
32,227
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2024
24
Financial Statement Items Measured at Fair Value under the Fair Value Option
Following are the fair values and related principal amounts due upon maturity of loans accounted for under the fair value option (including loans acquired for sale, loans held in consolidated VIEs, and distressed loans):
Fair value
Principalamount dueupon maturity
Difference
Loans acquired for sale at fair value:
Current through 89 days delinquent
2,000,168
1,945,651
54,517
2,114,556
2,092,030
22,526
1,156
1,336
(180
1,687
(427
883
1,002
(119
75
96
(21
2,039
2,338
(299
1,762
2,210
(448
1,947,989
54,218
2,094,240
22,078
Loans at fair value:
Held in consolidated VIEs:
3,225,107
3,381,776
(156,669
2,190,432
2,413,214
(222,782
2,069
2,564
(495
1,277
1,658
(381
3,384,340
(157,164
2,414,872
(223,163
Distressed:
418
575
(157
445
595
(150
1,203
3,256
(2,053
1,421
3,796
(2,375
194
539
(345
1,397
3,795
(2,398
4,370
(2,555
4,391
(2,525
3,388,710
(159,719
2,419,263
(225,688
Following are the changes in fair value included in current period results of operations by consolidated statement of operations line item for financial statement items accounted for under the fair value option:
Net loanservicing fees
Net interestexpense
64,855
10,070
74,925
46,511
28,681
(687
27,994
Credit risk transfer strips at fair value
MSRs at fair value
91,488
9,383
2,792
1,368
(28,055
(31,155
(29,787
25
(38,198
3,091
(35,107
(337
(1,278
(2,135
(3,413
1,549
956
(26,034
492
7,968
7,916
8,408
Financial Statement Item Measured at Fair Value on a Nonrecurring Basis
Following is a summary of the carrying value of assets that were remeasured during the quarter based on fair value on a nonrecurring basis:
Real estate acquired in settlement of loans
414
532
The following table summarizes the fair value changes recognized during the quarter on assets held at quarter end that were remeasured at fair value on a nonrecurring basis:
(140
The Company remeasures its REO based on fair value when it evaluates the REO properties for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less costs to sell. REO may be revalued after acquisition due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s fair value may not be supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of operations.
Fair Value of Financial Instruments Carried at Amortized Cost
Most of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets and the Exchangeable Notes, defined in Note 15 – Long-Term Debt, are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values. The Company classifies its senior notes, as detailed in Note 15 – Long-Term Debt, as “Level 2” fair value liabilities.
The Company has concluded that the fair values of these borrowings other than term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets and the Unsecured senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.
The Company estimates the fair values of the term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets using indications of fair value provided by nonaffiliate brokers for the term notes, internal estimates of
26
fair value for the term loans, and pricing services for the Unsecured senior notes. The fair values and carrying values of these liabilities are summarized below:
Instrument
Carrying value
2,695,530
2,944,956
797,585
606,185
Valuation Governance
Most of the Company’s assets, its Asset-backed financings of variable interest entities at fair value, Interest-only security payable at fair value and Derivative and credit risk transfer strip liabilities at fair value are carried at fair value with changes in fair value recognized in current period results of operations. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair values of these assets and liabilities to specialized staff within PFSI's capital markets group and subjects the valuation process to significant senior management oversight.
With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff reports to PFSI’s senior management valuation subcommittee, which oversees the valuations. The capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and reports those results to PFSI’s senior management valuation subcommittee. PFSI’s senior management valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, risk management and capital markets staffs.
The capital markets valuation staff is responsible for reporting to PFSI’s senior management valuation subcommittee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuation of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value and key inputs to those procured from nonaffiliate brokers and published surveys.
The fair values of the Company’s IRLCs are developed by PFSI's capital markets risk management staff and are reviewed by its capital markets operations staff.
Valuation Techniques and Inputs
The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:
Mortgage-Backed Securities
The Company’s categorization of its current holdings of MBS is based on whether the respective security is an IO stripped MBS:
27
Following are the key inputs used in determining the fair value of IO stripped MBS:
Fair value (in thousands)
Key inputs (1)
Pricing spread (2)
Range
5.9% – 6.5%
Weighted average
6.5%
Annual total prepayment speed (3)
10.7% – 11.4%
9.4% – 10.2%
10.7%
9.4%
Equivalent life (in years)
4.4 – 7.4
4.6 – 8.0
7.4
7.9
Changes in the fair value of MBS are included in Net gains on investments and financings in the consolidated statements of operations.
Loans
Fair value of loans is estimated based on whether the loans are saleable into active markets:
Derivative and Credit Risk Transfer Strip Assets and Liabilities
CRT Derivatives
The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair values of CRT derivatives are based on indications of fair value provided to the Company by nonaffiliate brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the recourse obligations and the IO ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair values of the CRT derivatives are derived by deducting the balances of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates.
The Company assesses the fair values it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net gains on investments and financings in the consolidated statements of operations.
Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:
(dollars in thousands)
UPB of loans in reference pools
4,856,861
4,961,644
Discount rate
9.1% – 15.0%
9.0% – 11.4%
9.3%
Voluntary prepayment speed (2)
7.2% – 8.3%
7.0% – 7.6%
7.3%
Involuntary prepayment speed (3)
0.1% – 0.2%
0.1%
Remaining loss expectation
0.0% – 0.2%
Interest Rate Lock Commitments
The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, the probability that the loans will be purchased under the commitments (the “pull-through rate”) and the Company’s estimate of the fair values of the MSRs it expects to receive upon sale of the loans.
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rates and the estimated MSRs attributed to the mortgage loans subject to the commitments. Significant changes in the pull-through rates or the MSR components of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair values. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of an IRLC’s fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans acquired for sale in the consolidated statements of operations.
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
Fair value (in thousands) (1)
Committed amount (in thousands)
975,404
1,166,566
Key inputs (2)
Pull-through rate
19.4% - 100%
51.0% – 98.0%
91.2%
86.3%
MSR fair value expressed as
Servicing fee multiple
1.9 - 8.0
2.6 – 7.8
5.6
5.7
Percentage of unpaid principal balance
0.5% - 2.6%
0.6% – 2.7%
1.8%
1.9%
29
Hedging Derivatives
Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net gains on investments and financings, Net gains on loans acquired for sale or Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results as applicable, in the consolidated statements of operations.
Credit Risk Transfer Strips
The Company categorizes CRT strips as “Level 3” fair value liabilities. The fair values of CRT strips are based on indications of fair value provided to the Company by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interests and the recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.
Fair values of the CRT strips are derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the indications of fair value of the securities provided by the nonaffiliate brokers.
The Company assesses the indications of fair value it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net gains on investments and financings in the consolidated statements of operations.
Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the broker-provided fair values used to derive the fair value of the CRT strip liabilities:
Unpaid principal balance of loans in the reference pools
15,992,240
16,287,660
6.8% – 9.2%
7.1% – 9.1%
8.9%
8.8%
7.0% – 7.5%
6.9% – 7.5%
7.1%
7.0%
0.1% – 0.3%
0.4% – 1.4%
0.4% – 1.5%
0.5%
Mortgage Servicing Rights
The Company categorizes MSRs as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of MSRs. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements and generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and is generally entitled to retain any placement fees earned on certain custodial funds held pending remittance of mortgagor principal, interest, tax and insurance payments.
The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spreads (a component of the discount rate), the prepayment speeds of the underlying loans, and the annual per-loan costs to service the loans, all of which are
30
unobservable. Significant changes to any of those inputs in isolation could result in significant changes in the MSR fair value measurements. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of operations.
MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (pricing spreads) increase, or when annual per-loan costs of servicing increase. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:
MSRs recognized (in thousands)
Unpaid principal balance of underlying loans (in thousands)
2,594,638
1,831,018
Weighted average annual servicing fee rate (in basis points)
32
36
5.2% - 7.3%
5.5% – 8.5%
5.5%
5.6%
Prepayment speed (3)
9.4% - 15.3%
11.2% – 17.5%
9.9%
13.5%
Equivalent average life (in years)
3.7– 8.2
3.6 – 6.5
6.4
Annual per-loan cost of servicing
$68 – $87
$70 – $70
$69
$70
31
Following is a quantitative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:
224,568,111
226,237,613
Weighted average note interest rate
3.8%
5.4% – 8.1%
5.4%
Effect on fair value (in thousands) of (3):
5% adverse change
$(46,630)
$(47,568)
10% adverse change
$(92,156)
$(94,018)
20% adverse change
$(180,040)
$(183,710)
Prepayment speed (4)
7.1% – 18.6%
6.5% – 17.7%
6.7%
2.3 – 8.7
2.4 – 8.9
8.3
8.6
$(54,038)
$(51,798)
$(106,340)
$(102,010)
$(206,073)
$(197,970)
$68 – $88
$69 – $89
$(16,476)
$(16,645)
$(32,952)
$(33,291)
$(65,905)
$(66,582)
Real Estate Acquired in Settlement of Loans
REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, a full appraisal, or the price given in a pending contract of sale.
REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers obtain an additional appraisal to determine fair value. Recognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of operations.
Note 8— Mortgage-Backed Securities
Following is a summary of activity in the Company’s holdings of MBS:
Balance at beginning of quarter
4,836,292
Purchases
159,585
Sales
(941,340
Repayments
(102,769
(69,752
Changes in fair value included in income arising from:
Amortization and accrual of net purchase premiums and discounts
Valuation adjustments, net
Balance at end of quarter
3,949,678
Fair value of mortgage-backed securities pledged to secure Assets sold under agreements to repurchase
Following is a summary of the Company’s investments in MBS:
Security type
Principalbalance or notional amount
Unamortizednet purchase discounts
Cumulativevaluationchanges
Agency fixed-rate pass-through securities
3,062,429
(1,832
(8,161
3,052,436
Principal-only stripped securities
751,942
(152,028
5,064
604,978
Subordinate credit-linked securities
174,813
(4,653
24,941
195,101
Senior non-Agency securities
107,436
(3,124
(2,008
102,304
4,096,620
(161,637
19,836
Interest-only stripped securities
377,481
3,132,005
(901
(51,612
3,079,492
776,455
(160,960
(19,195
596,300
(4,292
25,951
196,472
111,479
(3,269
(3,028
105,182
4,194,752
(169,422
(47,884
386,040
33
Maturities of MBS
MBS maturities (based on final maturity dates) are as follows:
Maturing after five years through ten years
Maturing after ten years
40,428
154,673
3,995,434
Note 9—Loans Acquired for Sale at Fair Value
Following is a summary of the distribution of the Company’s loans acquired for sale at fair value:
Loan type
Held for sale to nonaffiliates—GSE eligible (1)
663,795
1,311,754
Held for sale to PLS
GSE eligible
785,665
175,145
Government insured or guaranteed
349,637
426,963
Jumbo
197,659
194,485
Home equity lines of credit
1,233
Repurchased pursuant to representations and warranties
4,218
6,603
Loans pledged to secure:
1,958,317
2,075,473
4,758
12,142
1,963,075
2,087,615
Note 10—Loans at Fair Value
Loans at fair value are comprised primarily of loans held in VIEs securing asset-backed financings as described in Note 6 –Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities.
Following is a summary of the distribution of the Company’s loans at fair value:
Loans in VIEs:
Agency-conforming loans secured by non-owner occupied properties
3,182,501
2,146,328
Fixed interest rate jumbo loans
44,675
45,381
Distressed loans
Loans at fair value pledged to secure:
Asset-backed financings at fair value (1)
160
2,191,869
34
Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities
Derivative and credit risk transfer assets and liabilities are summarized below:
Derivative liabilities
Credit risk transfer strip liabilities
The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period results of operations.
Derivative Activities
The Company holds and issues derivative financial instruments in connection with its operating, investing and financing activities. Derivative financial instruments are created as a result of certain of the Company’s operations and the Company also enters into derivative transactions as part of its interest rate risk management activities.
Derivative financial instruments created as a result of the Company’s operations include:
The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by the effects of changes in interest rates on the fair values of certain of its assets and liabilities. The Company bears price risk related to its mortgage production, servicing assets and MBS financing activities due to changes in market interest rates as discussed below:
To manage the price risk resulting from these interest rate risks, the Company uses derivative financial instruments with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair values of the Company’s MBS, inventory of loans acquired for sale, IRLCs and MSRs. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.
Cash flows from derivative financial instruments relating to hedging of IRLCs and loans acquired for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans acquired for sale at fair value. Cash flows from derivative financial instruments relating to hedging of MSRs are included in Cash flows from investing activities.
35
Derivative Notional Amounts and Fair Value of Derivatives
The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative and credit risk transfer strip liabilities and related margin deposits on the consolidated balance sheets:
Notional
Derivative
amount (1)
assets
liabilities
Hedging derivatives subject to master netting arrangements (2):
2,250,000
500,000
2,200,000
1,690,000
750,000
1,799,146
1,154,515
6,269,059
7,080,982
250,000
450,000
Bond futures
1,771,500
1,713,000
Swap futures
951,200
Other derivatives not subject to master netting arrangements:
Total derivative instruments before netting
Margin deposits (received from) placed with derivative counterparties included in derivative balances above, net
7,715
(31,497
Derivative assets pledged to secure:
(1)Notional amounts provide an indication of the volume of the Company’s derivative activity.
(2) All hedging derivatives are interest rate derivatives that are used as economic hedges.
Netting of Financial Instruments
The Company has elected to net derivative asset and liability positions, and cash collateral placed with or received from its counterparties when such positions are subject to legally enforceable master netting arrangements and the Company intends to set off. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of March 31, 2025 and December 31, 2024, the Company was not a party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.
Derivative Assets, Financial Instruments and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amounts of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.
Net amount
Gross amounts
of assets
not offset in the
presented
consolidated
in the
balance sheet
balance
Financial
collateral
Net
Counterparty
sheet
instruments
received
amount
RJ O’Brien & Associates, LLC
5,402
Bank of America, N.A.
3,270
3,150
Goldman Sachs & Co. LLC
762
251
J.P. Morgan Securities LLC
617
1,237
Wells Fargo Securities, LLC
392
895
Mizuho Financial Group
300
-
Morgan Stanley & Co. LLC
257
9,303
Citigroup Global Markets Inc.
712
840
1,825
37
Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty
The following table summarizes by significant counterparty the amounts of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance to qualify for setoff accounting. All assets sold under agreements to repurchase are secured by sufficient collateral with fair values that exceed the liability amounts recorded on the consolidated balance sheets.
of liabilities
(1)
pledged
1,493,038
(1,493,038
1,695,007
(1,695,007
889,447
(889,447
787,883
(787,883
Barclays Capital Inc.
611,712
(610,919
793
545,678
(545,678
595,026
(595,026
670,605
(670,605
Atlas Securitized Products, L.P.
484,410
(484,410
609,780
(609,780
394,386
(394,386
431,201
(431,201
365,773
(365,773
311,997
(311,997
Santander US Capital
364,132
(364,132
362,196
(362,196
RBC Capital Markets, L.P.
290,321
(290,321
353,765
(353,765
214,058
(214,058
280,561
(280,561
Daiwa Capital Markets
212,751
(212,550
201
230,033
(230,033
BNP Paribas
122,346
(122,346
59,729
(59,729
87,483
(87,483
98,196
(98,121
Bank of Montreal
68,390
(68,390
72,859
(72,859
Nomura Holdings America, Inc
17,762
(17,729
800
6,212,064
(6,210,008
6,512,706
(6,509,415
Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
Derivative activity
Consolidated statements of operations line
Net gains on loans acquired for sale (1)
4,174
(2,688
Hedged item:
Interest rate lock commitments and loans acquired for sale
(26,359
2,610
Net loan servicing fees
20,098
38
Note 12—Mortgage Servicing Rights
Following is a summary of MSRs:
MSRs resulting from loan sales
Transfers to Agency of mortgage servicing rights relating to delinquent loans
Changes in fair value:
Due to changes in inputs used in valuation model (1)
(55,831
71,570
Other changes in fair value (2)
(88,759
(99,772
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets
3,707,879
3,807,065
Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of operations and are summarized below:
Contractually specified servicing fees
Ancillary and other fees:
Late charges
1,027
993
2,890
2,018
Average UPB of underlying loans
Note 13— Other Assets
Other assets are summarized below:
Margin deposits
59,725
346,241
Interest receivable
44,698
38,661
Servicing fees receivable
24,276
10,820
Correspondent lending receivables
2,507
3,930
Other receivables
4,439
16,706
2,345
2,464
16,044
19,399
Real estate acquired in settlement of loans pledged to secure Assets sold under agreements to repurchase
527
39
Note 14— Short-Term Debt
The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenants governing the Company and its subsidiaries’ net worth, debt-to-equity ratio, and liquidity. Management believes that the Company was in compliance with these covenants as of March 31, 2025.
Assets Sold Under Agreements to Repurchase
Following is a summary of financial information relating to assets sold under agreements to repurchase:
Weighted average interest rate (1)
5.21
%
6.17
Average balance
6,180,911
5,144,834
Total interest expense
81,148
80,557
Maximum daily amount outstanding
7,068,600
6,494,643
March 31, 2025 and 2024, respectively.
Carrying value:
Unpaid principal balance
6,210,008
6,509,415
Unamortized debt issuance costs
(7,469
(8,477
Weighted average interest rate
5.08
5.37
Available borrowing capacity (1):
Committed
458,264
565,488
Uncommitted
5,198,880
4,559,239
5,657,144
5,124,727
Margin deposits placed with counterparties included in Other assets, net
9,470
296,922
Assets securing agreements to repurchase:
Mortgage-backed securities
Securities retained in asset-backed financings
Distressed
195,645
199,965
Mortgage servicing rights (2)
1,845,093
1,906,043
42,241
50,333
40
Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
Remaining maturity at March 31, 2025 (1)
Unpaidprincipal balance
Within 30 days
4,520,252
Over 30 to 90 days
1,428,891
Over 90 days to 180 days
Over 180 days to 1 year
145,000
Over 1 year to 2 years
115,865
Weighted average maturity (in months)
1.4
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) and maturity information relating to the Company’s assets sold under agreements to repurchase is summarized by pledged asset and counterparty below as of March 31, 2025:
Loans, REO and MSRs
Weighted-average maturity
Amount at risk
Advances
Facility
149,649
May 27, 2025
March 28, 2026
111,459
June 26, 2026
Citibank, N.A.
59,968
April 25, 2025
June 11, 2026
55,002
April 18, 2025
June 10, 2026
JPMorgan Chase & Co.
7,905
June 10, 2025
June 28, 2026
17,730
June 9, 2025
March 6, 2026
1,367
June 14, 2025
October 15, 2025
2,539
April 21, 2025
17,293
June 1, 2025
May 22, 2026
16,948
June 29, 2025
February 12, 2026
5,206
June 22, 2025
September 30, 2026
Nomura Holdings America, Inc.
4,337
April 28, 2025
Securities
12,242
April 13, 2025
42,593
April 17, 2025
13,095
49,884
April 12, 2025
32,375
18,964
15,837
7,338
May 14, 2025
5,112
April 5, 2025
Daiwa Capital Markets America Inc.
4,190
April 3, 2025
41
CRT arrangements
43,246
April 8, 2025
23,395
Mortgage Loan Participation Purchase and Sale Agreement
One of the borrowing facilities secured by loans acquired for sale is in the form of a mortgage loan participation purchase and sale agreement. Participation certificates, each of which represents an undivided beneficial ownership interest in a pool of loans that have been pooled with Fannie Mae or Freddie Mac, are sold to the lender pending the securitization of such loans and the sale of the resulting security. The commitment between the Company and a nonaffiliate to sell such security is also assigned to the lender at the time a participation certificate is sold.
The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount. The holdback amount is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender.
The mortgage loan participation purchase and sale agreement is summarized below:
8,653
12,731
5.68
6.78
152
246
49,266
44,762
Amount outstanding
4,602
11,650
(26
(57
5.57
5.58
Loans acquired for sale pledged to secure mortgage loan participation purchase and sale agreement
Note 15— Long-Term Debt
Notes Payable Secured By Credit Risk Transfer and Mortgage Servicing Assets
CRT Arrangement Financing
The Company, through various wholly-owned subsidiaries, issued secured term notes (the “CRT Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). All of the CRT Term Notes rank pari passu with each other.
Following is a summary of the CRT Term Notes outstanding:
CRT TermNotes
Issuance date
Issuance amount
Unpaid principalbalance
Annual interest rate spread (1)
Maturity date
2024 3R
August 28, 2024
158,500
148,123
3.10%
September 27, 2028
2024 2R
April 4, 2024
247,000
225,937
3.35%
March 29, 2027
2024 1R
March 6, 2024
278,291
3.50%
March 1, 2027
652,351
42
Fannie Mae MSR Financing
The Company, through two subsidiaries, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the "Issuer Trusts"), finances MSRs owned by PMC and the related excess servicing spread ("ESS") owned by PennyMac Holdings, LLC (“PMH”), another subsidiary of PMT, through a combination of repurchase agreements and term financing.
The repurchase agreement financings for Fannie Mae MSRs and ESS are effected through the issuance of variable funding notes (a Series 2017-VF1 Note, a Series 2024-VF1 Note, and a Series 2024-VF2 Note, together the "FMSR VFNs") by the Issuer Trusts to PMC and PMH, which are then sold to qualified institutional buyers under agreements to repurchase. The amounts outstanding under the FMSR VFNs are included in Assets sold under agreements to repurchase in the Company’s consolidated balance sheets. The FMSR VFNs have a combined committed borrowing capacity of $1.1 billion under two-year repurchase agreement facilities.
The term financing for Fannie Mae MSRs through the Issuer Trusts is effected through the issuance of term notes (the “FT-1 Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act and a series of syndicated term loans with various lenders (the “FTL-1 Term Loans").
The FT-1 Term Notes, FTL-1 Term Loans and the FMSR VFNs are secured by certain participation certificates relating to Fannie Mae MSRs and ESS and rank pari passu with each other.
Following is a summary of the term financing of the Company’s Fannie Mae MSRs:
Issuance
Annual interest rate spread(1)
Stated
Optional extension (2)
Term Loans
2023
May 25, 2023
370,000
3.00%
May 25, 2028
May 25, 2029
Term Notes
June 27, 2024
355,000
2.75%
December 27, 2027
June 26, 2028
2021
March 30, 2021
350,000
March 25, 2026
March 27, 2028
1,075,000
Freddie Mac MSR and Servicing Advance Receivables Financing
The Company, through PMC and PMH, finances certain MSRs (including any related ESS) relating to loans pooled into Freddie Mac securities through various credit agreements. The total loan amount available under the agreements is approximately $2.0 billion, bearing interest at an annual rate equal to SOFR plus a spread as defined in each agreement. The agreements have maturities on various dates through August 2026. The total loan amount available under the agreements may be reduced by other debt outstanding with the counterparties. Advances under the credit agreements are secured by MSRs relating to loans serviced for Freddie Mac guaranteed securities.
On August 10, 2023, the Company, through its indirect, wholly owned subsidiaries, PMT ISSUER TRUST - FHLMC SAF, PMT SAF Funding, LLC, and PMC, entered into a structured finance transaction that PMC may use to finance Freddie Mac servicing advance receivables (the “Series 2023-VF1”). The maturity date of the related Series 2023-VF1, Class A-VF1 Variable Funding Note is March 6, 2026 and has a maximum principal amount of $175 million.
Following is a summary of financial information relating to notes payable secured by credit risk transfer and mortgage servicing assets:
2,830,048
2,866,504
7.59
8.84
55,255
64,989
43
Unpaid principal balance:
CRT arrangement financing
710,329
Fannie Mae MSR financing
Freddie Mac MSR and servicing advance receivable financing
963,486
1,153,486
2,690,837
2,938,815
(9,025
7.52
7.60
Assets securing notes payable:
MSRs (1)
Servicing advances (1)
28,363
39,063
CRT arrangements:
Deposits securing CRT arrangements
892,304
910,743
Unsecured Senior Notes
Exchangeable Senior Notes
The exchangeable senior notes are summarized below:
Initial issuance date
Annual interest rate
Conversion rates (1)
Maturity date (2)
May 24, 2024 (3)
216,500
8.50%
63.3332
June 1, 2029
March 5, 2021
345,000
5.50%
46.1063
March 15, 2026
561,500
The exchangeable senior notes are exchangeable for: (1) cash for the principal amount of the notes to be exchanged; and (2) cash, Common Shares or a combination of cash and Common Shares, at the Company’s election, for the remainder, if any, of the exchange obligation in excess of the principal amount of the notes being exchanged, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The exchangeable senior notes are fully and unconditionally guaranteed by the Company.
Senior Notes
The senior notes are summarized below:
Annual interest rate spread
Redemption date
February 2025
9.00%
February 15, 2030
February 15, 2027
September 2023
53,500
September 30, 2028
September 30, 2025
226,000
44
Interest on the senior notes is payable quarterly. PMT may redeem for cash all or any portion of the senior notes, at its option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The senior notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal and interest, whether at stated maturity, upon acceleration, call for redemption or otherwise.
Following is financial information relating to the unsecured senior notes:
708,917
608,500
7.23
5.80
13,613
9,684
787,500
615,000
(14,378
(9,140
Asset-Backed Financing of Variable Interest Entities at Fair Value
Following is a summary of financial information relating to the asset-backed financings of VIEs at fair value described in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities:
2,633,042
1,581,818
4.63
3.10
3,147,901
2,269,742
3.22
The asset-backed financings are non-recourse liabilities and are secured solely by the assets of consolidated VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment of the asset-backed financings.
Maturities of Long-Term Debt
Contractual maturities of long-term debt obligations (based on final maturity dates) are as follows:
Twelve months March 31,
2026
2027
2028
2029
2030
Thereafter
Notes payable secured by credit risk transfer and mortgage servicing assets (1)
368,486
1,449,228
518,123
389,000
Asset-backed financings at fair value (2)
Interest-only security payable at fair value (2)
6,662,192
713,486
571,623
3,183,855
45
Note 16—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
Balance, beginning of quarter
26,143
Provision for losses:
Pursuant to loan sales
304
254
Reduction in liability due to change in estimate
(1,168
(6,878
Losses incurred
(67
Balance, end of quarter
19,519
UPB of loans subject to representations and warranties at end of quarter
220,977,898
225,439,542
Note 17—Commitments and Contingencies
Commitments
The following table summarizes the Company’s outstanding contractual commitments:
Commitments to purchase loans acquired for sale
From time to time, the Company may be involved in various legal and regulatory proceedings, lawsuits and claims arising in the ordinary course of business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, income, or cash flows of the Company.
Litigation
On June 14, 2024, a purported shareholder of the Company’s Series A Preferred Shares and Series B Preferred Shares (each, as defined hereafter) filed a complaint in a putative class action in the United States District Court for the Central District of California, captioned Roberto Verthelyi v. PennyMac Mortgage Investment Trust and PNMAC Capital Management, LLC, Case No. 2:24-cv-05028 (the “Verthelyi Action”). The Verthelyi Action alleges, among other things, that the Company (and its external investment advisor, PCM), committed unlawful and unfair acts in violation of California’s Unfair Competition Law by replacing its floating three-month London Inter-bank Offered Rate ("LIBOR") dividend rate for the Series A and Series B Preferred Shares with a fixed rate, in violation of the LIBOR Act, 12 U.S.C. § 5801 et seq., and the LIBOR Rule, 12 C.F.R. § 253 et seq.
The Verthelyi Action seeks injunctive relief requiring the Company to implement SOFR as a replacement to the three-month LIBOR rate and damages for the putative class in the form of restitution, interest, disgorgement and other relief. The Company believes it has interpreted the Articles Supplementary to its Series A and Series B Preferred Shares consistent with their terms and, more specifically, the interest rate fallback provisions contained therein, as applied under the LIBOR Act and the LIBOR rules, and that the Verthelyi Action is without merit. Accordingly, while no assurance can be provided as to the ultimate outcome of this claim, the Company and PCM plan to vigorously defend the matter.
The Company has assumed the defense of PCM in the Verthelyi Action pursuant to the terms of the management agreement.
Note 18—Shareholders’ Equity
Preferred Shares of Beneficial Interest
Preferred shares of beneficial interest are summarized below:
Dividends per share, Quarter ended March 31,
Series
Description (1)
Number of shares
Liquidation preference
Issuance discount
(in thousands, except dividends per share)
A
8.125% Issued March 2017
4,600
115,000
3,828
111,172
0.51
B
8.00% Issued July 2017
7,800
195,000
6,465
188,535
0.50
C
6.75% Issued August 2021
10,000
8,225
241,775
0.42
560,000
18,518
In accordance with the Articles Supplementary for each of the Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) and the Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B Preferred Shares”), and disregarding the polling provisions contained in the Articles Supplementary for the Series A Preferred Shares and the Series B Preferred Shares that are deemed null and void in accordance with Federal Reserve rules, the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, are and will continue being calculated at the dividend rate in effect for the immediately preceding dividend period and will not transition to floating reference rates.
The Series A Preferred Shares became redeemable on March 15, 2024 and the Series B Preferred Shares became redeemable on June 15, 2024. The Series C Cumulative Redeemable Preferred Shares will not be redeemable before August 24, 2026, except in connection with the Company’s qualification as a REIT for U.S. federal income tax purposes or upon the occurrence of a change of control. On or after the date the preferred shares become redeemable, or 120 days after the first date on which such change of control occurs, the Company may, at its option, redeem any or all of the preferred shares at $25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date. No preferred shares were redeemed during the quarter ended March 31, 2025.
The preferred shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless redeemed or repurchased by the Company or converted into Common Shares in connection with a change of control by the holders of the preferred shares.
Common Shares of Beneficial Interest
“At-The-Market” (“ATM”) Equity Offering Program
On June 14, 2024, the Company filed a shelf registration statement and a prospectus supplement, and entered into separate equity distribution agreements to sell from time to time, through an ATM equity offering program under which the counterparties will act as sales agents and/or principals, the Company’s Common Shares having an aggregate offering price of up to $200 million. As of March 31, 2025, the Company had not sold any Common Shares under the ATM equity offering program.
Common Share Repurchase Program
The Company has a Common Share repurchase program with a repurchase authorization of $500 million before transaction fees.
The following table summarizes the Company’s Common Share repurchase activity:
Cumulative
total (1)
Common Shares repurchased
29,102
Cost of Common Shares repurchased (2)
427,229
47
Note 19— Net Gains on Investments and Financings
Net gains on investments and financings are summarized below:
Asset-backed financings
Hedging derivatives
Note 20— Net Gains on Loans Acquired for Sale
Net gains on loans acquired for sale are summarized below:
From nonaffiliates:
Cash losses:
Sales of loans
(1,915
(31,177
Hedging activities
(58,062
(69,956
(59,977
(101,133
Non-cash gains:
Receipt of MSRs in mortgage loan sale transactions
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loans sales
(304
(254
Reduction of liability due to change in estimate
1,168
6,878
864
6,624
Changes in fair value of loans and derivatives
(13,444
6,295
31,703
72,566
22,433
76,173
70,306
114,046
Total from nonaffiliates
From PFSI ‒ cash gains
48
Note 21—Net Interest Expense
Net interest expense is summarized below:
Interest income:
Cash and short-term investments
5,686
8,192
58,234
59,771
33,235
11,946
33,679
12,116
Placement fees relating to custodial funds
32,029
35,440
1,553
398
Interest expense:
Interest shortfall on repayments of loans serviced for Agency securitizations
1,429
1,293
Interest on loan impound deposits
1,454
1,347
371
733
Note 22—Share-Based Compensation
The Company has an equity incentive plan that provides for the issuance of equity based awards based on Common Shares that may be made by the Company to its officers and trustees, and the members, officers, trustees, directors and employees of PCM, PFSI, or their affiliates and to PCM, PFSI and other entities that provide services to PMT and the employees of such other entities.
The equity incentive plan is administered by the Company’s compensation committee, pursuant to authority delegated by PMT’s board of trustees, which has the authority to make awards to the eligible participants referenced above, and to determine what form the awards will take, and the terms and conditions of the awards.
The equity incentive plan allows for the grant of restricted and performance-based share and unit awards.
The shares underlying award grants will again be available for award under the equity incentive plan if:
Restricted share units have been awarded to trustees and officers of the Company and to other employees of PFSI and its subsidiaries at no cost to the grantees. Such awards generally vest over a one- to three-year period.
49
The following table summarizes the Company’s share-based compensation activity:
Grants:
Restricted share units
199
176
Performance share units
140
367
316
Grant date fair value:
2,815
2,522
2,365
2,007
5,180
4,529
Vestings:
138
149
Performance share units (1)
91
203
352
Forfeitures:
Compensation expense relating to share-based grants
Shares expected to vest:
Number of restricted shares units (in thousands)
278
Grant date average fair value per unit
14.06
14.05
Note 23—Income Taxes
The Company’s effective tax rate was 253.7% and (47.0)% with consolidated pretax loss of $6.3 million and consolidated pretax income of $32.4 million for the quarters ended March 31, 2025 and March 31, 2024, respectively. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million for the quarter ended March 31, 2025. The TRS loss was primarily due to decreases in MSR fair values. For the same period in 2024, the TRS recognized a tax benefit of $15.0 million on a pretax loss of $60.9 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2025, the valuation allowance remains zero. The conclusion was primarily based on the fact that the TRS has reported cumulative GAAP income over the three-year period ended March 31, 2025. The amount of deferred tax assets considered realizable may be adjusted in future periods based on future income.
In general, cash dividends declared by the Company will be considered ordinary income to the shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or a return of capital. For tax years beginning after December 31, 2017, the 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.
Note 24—(Loss) Earnings Per Common Share
The Company determines (loss) earnings per share using the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to Common Shares and participating securities based on their respective rights to receive dividends. The Company’s participating securities are grants of restricted share units that entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of Common Shares.
50
Basic (loss) earnings per share is determined by dividing net income available to common shareholders (net (loss) income reduced by preferred dividends and income attributable to the participating securities) by the weighted average Common Shares outstanding during the period.
Diluted (loss) earnings per share is determined by dividing net income by the weighted average number of Common Shares and dilutive securities. The Company’s potentially dilutive securities are share-based compensation awards and the exchangeable senior notes described in Note 15— Long-Term Debt. The number of dilutive securities included in diluted earnings per share is calculated using either the treasury stock or if-converted method (whichever is most dilutive) for share-based compensation awards and the if-converted method for the exchangeable senior notes.
The following table summarizes the basic and diluted earnings per share calculations:
(in thousands except per share amounts)
Dividends on preferred shares
Effect of participating securities—share-based compensation awards
(39
(117
(814
37,036
Interest on Exchangeable Notes, net of income taxes
6,363
Diluted net (loss) income attributable to common shareholders
43,399
Weighted average basic shares outstanding
Dilutive securities:
Shares issuable pursuant to exchange of the exchangeable senior notes
24,328
Diluted weighted average shares outstanding
Basic (loss) earnings per share
Diluted (loss) earnings per share
Calculation of diluted earnings per share requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the diluted earnings per share calculation:
Shares issuable under share-based compensation plan
312
365
Note 25—Segments
The Company operates in three segments as described in Note 1 ‒ Organization.
The Company’s reportable segments are identified based on PMT’s investment strategies. The following disclosures about the Company’s business segments are presented consistent with the way the Company’s chief operating decision maker organizes and evaluates financial information for making operating decisions and assessing performance. The reportable segments are evaluated based on income or loss before benefit from income taxes. The chief operating decision maker uses pre-tax segments results to assess segment performance and allocate operating and capital resources among the segments. The Company’s chief operating decision maker is its chief executive officer.
During the year ended December 31, 2024, the Company adopted the FASB’s Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. Prior year amounts have been recast to conform those years’ presentations to current year presentation.
51
Financial highlights by segment are summarized below:
Credit
Interest rate
Reportable
sensitive
Correspondent
segment
Consolidated
strategies
production
total
Corporate
Net investment income (1):
(1,010
65,865
2,767
(3,509
(742
Credit risk transfer arrangements
(43
62,356
19,549
119,896
33,198
172,643
3,448
18,117
135,332
27,522
180,971
1,166
1,432
(15,436
5,676
(8,328
2,282
3,205
3,064
1,248
19,710
21,225
42,183
Expenses:
21,727
4,880
2,102
1,927
1,034
76
Other (2)
94
496
166
756
2,260
25,184
11,098
36,420
14,344
Pretax (loss) income
(5,474
10,127
5,763
(12,062
Total assets at end of quarter
1,517,529
10,860,903
2,045,113
14,423,545
452,681
Net gains (losses) on investments and financings
4,445
(22,545
(18,100
3,491
2,707
6,198
59,591
(19,838
24,209
104,179
11,891
140,279
3,280
23,010
134,825
12,261
170,096
1,431
1,199
(30,646
(370
(29,817
1,849
2,063
2,197
60,924
(4,779
16,211
72,356
20,242
1,314
878
54
56
3,854
98
22,466
4,544
27,108
14,716
60,826
(27,245
11,667
45,248
(12,867
1,502,800
9,377,573
943,008
11,823,381
470,319
12,293,700
Note 26—Regulatory Capital and Liquidity Requirements
The Company, through PMC, is subject to financial eligibility requirements established by the Federal Housing Finance Agency for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac.
The Agencies' applicable capital and liquidity amounts and requirements are summarized below:
Net worth (1)
Tangible net worth / total assets ratio (1)
Liquidity (1)
Actual
Required
827,415
577,269
475,028
213,052
876,324
579,383
564,311
215,801
Noncompliance with the Agencies’ capital and liquidity requirements can result in the Agencies taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the Agencies.
Note 27—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period, all agreements to repurchase assets that matured before the date of this Report were extended or renewed.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and the related notes of PennyMac Mortgage Investment Trust (“PMT”) included within this Quarterly Report on Form 10-Q (this “Report”).
Statements contained in this Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Report and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Report are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. Unless the context indicates otherwise, references in this Report to the words “we,” “us,” “our” and the “Company” refer to PMT and its consolidated subsidiaries.
We are a specialty finance company that invests in mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate credit-linked MBS and interest-only (“IO”) and principal-only (“PO”) stripped MBS. We have also historically invested in distressed mortgage assets (distressed loans and real estate acquired in settlement of loans (“REO”)), which we have substantially liquidated.
We are externally managed by PNMAC Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loans and MSRs are serviced by PennyMac Loan Services, LLC (“PLS”). PCM and PLS are both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.
We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. Non-segment activities are included in our corporate operations. Our segment and corporate activities are described below.
We primarily sell the loans we acquire through our correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or the GSEs, or to PLS for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"). Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” We also securitize certain of our loans directly and may retain interests, such as subordinate MBS, from these securitizations.
Our Investment Activities
Credit Sensitive Investments
CRT Arrangements
We have previously entered into loan sales arrangements with Fannie Mae pursuant to which we accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’s investments in CRT arrangements.
We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.1 billion at March 31, 2025.
Subordinate Credit-Linked Mortgage-Backed Securities
Subordinate credit-linked MBS provide us with a higher yield than senior MBS. However, we incur credit risk in the subordinate credit-linked MBS since they are the first securities to absorb credit losses relating to the underlying loans. During the quarter ended March 31, 2025, we retained approximately $66.0 million of subordinate credit-linked securities from our securitizations of loans secured by investment properties. As the result of the Company’s consolidation of the variable interest entities that issued the subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities to the consolidated financial statements included in this Report, we reflect our investments in these securities as loans at fair value net of the associated asset-backed financing.
At March 31, 2025, we held subordinate credit-linked MBS issued by nonaffiliates with fair values totaling approximately $195.1 million.
Interest Rate Sensitive Investments
Our interest rate sensitive investments include:
Correspondent Production
Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production has served as the source of our investments in MSRs, private label non-Agency securitizations and CRT arrangements. Our correspondent production and resulting investment activity are summarized below:
Sales of loans acquired for sale:
To nonaffiliates
To PennyMac Financial Services, Inc.
23,051,624
18,230,395
Investment activities resulting from correspondent production:
Receipt of MSRs as proceeds from sales of loans
Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings (1)
94,021
Total investments resulting from correspondent activities
141,030
During the quarter ended March 31, 2025, we purchased newly originated prime credit quality residential loans with fair values totaling $24.0 billion, including $654.8 million from PLS, as compared to $18.4 billion for the quarter ended March 31, 2024, in our
correspondent production business. Our loan sales included $20.4 billion and $16.3 billion of loans we sold to PLS during the quarters ended March 31, 2025 and March 31, 2024, respectively. We receive a sourcing fee based on the unpaid principal balance (“UPB”) of each loan that we sell to PLS under such arrangement, and earn interest income on the loan for the period we hold it before the sale. During the quarters ended March 31, 2025 and March 31, 2024, we received sourcing fees totaling $2.0 million and $1.6 million, respectively.
To the extent that we purchase loans that are insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, we and PLS have agreed that PLS will fulfill and purchase such loans, as PLS is a Ginnie Mae approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. We may also sell conventional loans that we purchase to PLS subject to our and PLS's mutual agreement. During the quarter ended March 31, 2025, we sold $9.0 billion in UPB of conventional loans to PLS in order to optimize our use and allocation of capital.
Beginning in July 2025, we expect PLS will become the initial purchaser of loans from correspondent sellers and begin transferring agreed-upon volumes of such loans to us. Accordingly, we will no longer purchase government loans. We retain the right to purchase up to 100% of PLS's non-government correspondent production.
Taxation
We believe that we qualify to be taxed as a REIT and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable REIT asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification.
A portion of our activities, including our correspondent production business, is conducted in our taxable REIT subsidiary (“TRS”), which is subject to corporate federal and state income taxes. Accordingly, we make a provision for income taxes with respect to the operations of our TRS. We expect that the effective rate for the provision for income taxes may be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to us as a REIT.
We evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of all available positive and negative evidence using a “more-likely-than-not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.
Non-Cash Investment Income
A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions. Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”), to record certain of our financial assets (comprised of MBS, loans acquired for sale at fair value and loans at fair value), our derivatives and CRT strips, our MSRs, and our asset-backed financings and interest-only security payable at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value.
The amounts of net non-cash investment income items included in net investment income are as follows:
(12,648
36,121
49,733
4,561
Net loan servicing fees‒MSR valuation adjustments (2)
(81,079
143,922
38,960
262,529
Non-cash items as a percentage of net investment income
88
354
57
We receive or pay cash relating to:
Business Trends
Recent actions by the U.S. government administration with respect to trade, tariffs and government cost reduction initiatives have led to significant volatility in financial markets and uncertainty regarding the economic outlook, including inflation and interest rates. Elevated interest rates in recent years have constrained growth in the size of the mortgage origination market, which is currently projected to rise from $1.7 trillion in 2024 to $2.0 trillion in 2025, according to mortgage industry economists.
Opportunity for refinancing has increased in recent periods, driven by interest rate volatility and a greater proportion of outstanding mortgage loans with note rates near current market rates. If such interest rate volatility continues, it may drive greater mortgage production activity and higher prepayment speeds than we have experienced in recent years. Additionally, recent reductions to the federal funds rate put into place by the Federal Reserve have led to a decline in the costs of floating rate borrowings and a reduction of placement fees we receive relating to custodial funds that we manage as compared to the same period in the prior year.
The current period of economic uncertainty and market volatility may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increased losses. If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as our CRT arrangements or subordinate credit-linked notes and increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.
We are continuing to aggregate Agency eligible non-owner occupied loans and have begun to aggregate jumbo mortgage loans, and we expect to continue investing in subordinate MBS generated from the securitization of these loans in the private label market in 2025.
58
The following is a summary of our key performance measures:
(dollar amounts in thousands, except per common share amounts)
Loan production income (1)
15,496
16,526
(88
189
Net (loss) income
Pretax (loss) income by segment and corporate:
Credit sensitive strategies
Interest rate sensitive strategies
Correspondent production
Corporate operations
Annualized return on average common shareholders' equity
(0.2
)%
10.4
Dividends per common share
0.40
Book value per common share
15.43
15.87
Closing price per common share
14.65
12.59
Our results of operations decreased by $37.9 million during the quarter ended March 31, 2025, as compared to the quarter ended March 31, 2024, reflecting the effect of the increased fair value losses from our MSRs and CRT investments, partially offset by increased gains on MBS:
The decrease in pretax results is summarized below:
Our net investment income is summarized below:
Net Gains on Investments and Financings
The increase in net gains on investments for the quarter ended March 31, 2025, as compared to the same period in 2024, was primarily due to gains from our investments in MBS as interest rates decreased.
During the quarter ended March 31, 2025, we recognized net valuation gain of $64.9 million, as compared to valuation losses of $38.2 million for the same period in 2024. The gain recognized reflects decreasing interest rates during the quarter ended March 31, 2025, as compared to increasing interest rates during the quarter ended March 31, 2024.
Loans at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value
Loans at fair value held in VIEs and Asset-backed financings at fair value recorded a combined net valuation loss of $0.7 million during the quarter ended March 31, 2025, as compared to a net gain of $6.2 million during the quarter ended March 31, 2024. The net loss during the quarter ended March 31, 2025 reflects the losses on the asset-backed financing exceeding the gains on the underlying assets as the result of credit spread widening on our net investments secured by jumbo loans and investment properties, partially offset by the positive effect on fair value of decreasing interest rates.
The activity in and balances relating to our CRT arrangements are summarized below:
The performance of our investments in CRT arrangements during the quarter ended March 31, 2025 reflects credit spread widening, as compared to the quarter ended March 31, 2024, which reflected credit spread tightening.
61
Net Gains on Loans Acquired for Sale
Our net gains on loans acquired for sale are summarized below:
From non-affiliates:
Receipt of MSRs in loan sale transactions
Changes in fair value of financial instruments held at end of quarter:
From PFSI—cash
Interest rate lock commitments issued on loans acquired for sale:
2,735,356
2,482,135
To PFSI
22,095,355
17,080,857
24,830,711
19,562,992
Acquisition of loans for sale (unpaid principal balance):
20,223,633
16,356,544
23,005,355
18,128,225
The changes in gain on loans acquired for sale during the quarter ended March 31, 2025, as compared to the same period in 2024, reflect the effect of reduced gain on sale margins.
Non-cash elements of gain on sale of loans:
Our Net gains on loans acquired for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair values of our IRLCs as the loan acquisition process progresses until we complete the acquisitions or the commitments are canceled. Such adjustments are included in our Net gains on loans acquired for sale. The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans. The methods and key inputs we use to measure the fair values of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
The MSRs and liabilities for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our results of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our results of operations.
The methods we use to measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
Liability for Losses Under Representations and Warranties
We recognize liabilities for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions. The representations and warranties we provide require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local laws.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects, reimburse the investor for its loss or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit losses on the loans. Our credit losses may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.
We recorded a provision for losses relating to representations and warranties relating to current period loan sales of $304,000 and $254,000 for the quarters ended March 31, 2025 and 2024, respectively.
Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:
Indemnification activity (unpaid principal balance):
Loans indemnified at beginning of quarter
15,289
12,123
New indemnifications
493
Less: indemnified loans sold, repaid or refinanced
Loans indemnified at end of quarter
15,782
13,881
Indemnified loans indemnified by correspondent lenders at end of quarter
6,045
5,969
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter
5,488
Repurchase activity (unpaid principal balance):
Loans repurchased
4,846
7,515
Less:
Loans repurchased by correspondent sellers
4,783
5,979
Loans resold or repaid by borrowers
2,703
2,788
Net loans repurchased (resolved) with losses chargeable to liability to representations and warranties
(2,640
(1,252
Losses charged to liability for representations and warranties
At end of quarter:
Loans subject to representations and warranties
Liability for representations and warranties
The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers. As the outstanding balance of loans we purchase and sell subject to representations and warranties increases, as the loans outstanding season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase.
The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers. We establish a liability at our estimate of its fair value at the time loans are sold and review the adequacy of our recorded liability on a periodic basis.
The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying
63
loans. We may be required to incur losses related to such representations and warranties for several periods after the loans are sold or liquidated.
We record adjustments to our liability for losses on representations and warranties as economic fundamentals change, as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent sellers’ ability or willingness to fulfill their recourse obligations to us. Such adjustments may be material to our financial position and results of operations in future periods.
Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans acquired for sale at fair value. We recorded a $1.2 million reduction in liability for representations and warranties during the quarter ended March 31, 2025 due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
Loan Origination Fees
Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loanorigination fees increased during the quarter ended March 31, 2025, as we purchased more loans for sale to nonaffiliates compared to the same period in 2024.
Net Interest Expense
income/
Average
yield/
expense
cost %
517,590
4.47
580,594
5.67
4,059,457
5.83
4,143,942
6.77
6.82
3.42
1,101,503
4.31
1,200,301
5.26
142,509
10,302,373
5.63
107,721
8,055,230
5.38
6.95
7.17
5.34
6.30
7.14
7.77
7.94
9.12
7.81
6.40
4.43
178,883
12,361,571
5.88
168,154
10,214,387
6.62
5.99
6.75
64
The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:
vs.
Increase (decrease)due to changes in
Rate
Volume
(1,660
(846
(2,506
(1,726
(1,537
(89
21,378
21,289
8,285
13,278
21,563
(2,761
(1,260
(4,021
3,964
30,824
34,788
(3,411
1,155
32,532
(13,558
14,149
591
(19
(75
(94
(8,862
(872
(9,734
Senior notes
2,245
1,684
3,929
5,793
10,244
16,037
(14,401
25,130
10,729
136
107
(362
10,610
18,365
5,694
21,922
The decrease in net interest expense during the quarter ended March 31, 2025, as compared to the same period in 2024, is due to yields on our interest-earning assets decreasing slower than the cost of our interest-bearing liabilities, partially offset by a decrease in earnings from placement fees relating to custodial funds managed for borrowers and investors.
Net Loan Servicing Fees
Our net loan servicing fees have two primary components: fees earned for servicing loans and the effects of MSR valuation changes, net of hedging results, as summarized below:
Effect of mortgage servicing rights and hedging results
(183,326
(117,663
65
Loan Servicing Fees
Following is a summary of our loan servicing fees:
Loan servicing fees that relate to our MSRs are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the UPB of the loans serviced and we collect these fees from borrower payments. Other loan servicing fees are comprised primarily of borrower-contracted fees, such as late charges and reconveyance fees, as well as incentive fees we receive from the Agencies for loss mitigation activities and fees we charge to correspondent lenders for loans repaid by the borrower shortly after purchase.
The change in contractually-specified fees during the quarter ended March 31, 2025, is due primarily to the slight reduction in our MSR servicing portfolio, reflecting the shift of a portion of our loan sales from sales to nonaffiliates with servicing rights retained to sales to PLS that include the transfer of servicing rights to PLS.
Mortgage Servicing Rights and Hedging
We have elected to carry our MSRs at fair value. Changes in fair value have two components: changes due to realization of the expected servicing cash flows and changes due to changes in the inputs used to estimate fair value. We endeavor to moderate the effects of changes in fair value attributable to changes in fair value inputs (market conditions) primarily by entering into derivative transactions.
Changes in fair value of MSRs and hedging results are summarized below:
Change in fair value of MSRs
Changes in valuation inputs used in valuation model
Recapture income from PFSI
Hedging results
(94,567
(17,891
Realization of expected cash flows
Average balance of mortgage servicing rights
3,816,665
3,955,320
Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2025 reflect the effects of expectations for faster future prepayments of the underlying loans due to decreases in interest rates during the quarter ended March 31, 2025 compared to increasing interest rates during the same period in 2024.
The increase in loan recapture income from PFSI reflects the increase in refinancing activity in our MSR portfolio during the quarter ended March 31, 2025, as compared to the same period in 2024. We have an agreement with PFSI that requires that when PFSI refinances a loan for which we held the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ Transactions with Related Parties – Operating Activities to the consolidated financial statements included in this Report.
Hedging results during the quarter ended March 31, 2025, were primarily attributable to the impact of decreasing interest rates and were partially offset by fair value gains in Agency MBS.
66
Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of remaining cash flows to be realized.
Following is a summary of our loan servicing portfolio:
UPB of loans outstanding
Collection status (unpaid principal balance)
2,409,343
2,645,952
1,073,472
1,084,587
122,489
106,092
300,027
285,163
Following is a summary of characteristics of our MSR servicing portfolio as of March 31, 2025:
Loan count
Note rate
Seasoning (months)
Remainingmaturity (months)
Loan size
FICO credit score at origination
Original LTV (1)
Current LTV (1)
60+ Delinquency (by UPB)
(Dollars and loan count in thousands)
Agency:
Fannie Mae
110,253,704
427
3.8
258
757
1.0
Freddie Mac
109,846,374
280
761
0.6
4,468,033
5.1
321
283
72
0.7
835
301
269
759
0.8
Our expenses are summarized below:
Expenses increased $8.9 million, or 21%, during the quarter ended March 31, 2025, as compared to the same period in 2024, as discussed below.
Loan servicing fees payable to PLS are summarized below:
Loan servicing fees increased by $1.5 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to an increase in supplemental fees relating to loan modifications and servicing of delinquent loans.
Management Fees
Management fees payable to PCM are summarized below:
Base fee
Management fees decreased by $176,000 during the quarter ended March 31, 2025, as compared to the same period in 2024. This decrease reflects lower average shareholders’ equity during the quarter ended March 31, 2025, as compared to the quarter ended March 31, 2024.
Loan Fulfillment Fees
Loan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of loans. Fulfillment fees increased $1.3 million during the quarter ended March 31, 2025, as compared to the same period in 2024. The increase was due to an increase in the volume of loans purchased for sale to nonaffiliates. Our loan fulfillment fee structure is described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Professional services expense increased by $5.2 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to increased legal and consulting fees as a result of our securitization activities during the quarter ended March 31, 2025.
Compensation expense increased $1.1 million during the quarter ended March 31, 2025, as compared to the same period in 2024, primarily due to an increased allocation of compensation relating to support staff based on the updated terms of the management agreement as described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report. This increase was partially offset by a $1.0 million decrease in common overhead allocation from PFSI, which is included in Other expense.
Loan collection and liquidation expenses increased by $600,000 during the quarter ended March 31, 2025, as compared to the same period in 2024, due to increased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs.
68
Other Expenses
Other expenses are summarized below:
Common overhead allocation from PFSI
982
Bank service charges
697
Insurance
450
476
Technology
415
442
472
556
Common overhead allocation from PFSI declined by $1.0 million during the quarter ended March 31, 2025, as compared to the same period in 2024, due to changes to the allocation method included in the management agreement, described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Income Taxes
We have elected to treat PennyMac Corp. (“PMC”), as a taxable REIT subsidiary (“TRS”). Income from a TRS is only included as a component of REIT taxable income to the extent that the TRS makes dividend distributions of income to us. A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of income.
The Company’s effective tax rate was 253.7% and (47.0)% with consolidated pretax loss of $6.3 million and consolidated pretax income of $32.4 million for the quarters ended March 31, 2025 and March 31,2024, respectively. The Company’s TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million for the quarter ended March 31, 2025. The TRS loss was primarily due to decreases in MSR fair market values. For the same period in 2024, the TRS recognized a tax benefit of $15.0 million on a pretax loss of $60.9 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2025, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended March 31, 2025. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
69
Following is a summary of key balance sheet items as of the dates presented:
Management Basis (1)
Assets
452,099
440,892
Mortgage servicing rights and servicing advances
3,854,767
3,972,431
14,707,037
13,954,470
169,189
454,236
Debt:
Short-term
6,207,115
6,512,531
Long-term:
Recourse
3,456,490
3,535,650
Non-recourse
3,003,585
2,074,597
6,460,075
5,610,247
12,667,190
12,122,778
306,318
347,428
Shareholders’ equity
Total assets increased by approximately $467.5 million, or 3%, from December 31, 2024 to March 31, 2025, primarily due to an increase of $1.0 billion in Loans at fair value, offset by a decrease of $114.1 million in Loans acquired for sale at fair value.
Our asset acquisitions are summarized below:
Following is a summary of our correspondent production acquisitions at fair value:
Correspondent loan purchases:
GSE-Eligible Loans (1)
12,194,110
10,080,120
Government insured or guaranteed (2)
11,449,035
8,328,018
Jumbo loans
348,740
2,589
23,991,885
18,410,727
During the quarter ended March 31, 2025, we purchased for sale $24.0 billion in fair value of correspondent production loans as compared to $18.4 billion during the quarter ended March 31, 2024.
Other Investment Activities
Following is a summary of our (sales) acquisitions of mortgage-related investments held in our credit sensitive strategies and interest rate sensitive strategies segments:
Credit sensitive assets:
(111,044
Loans secured by non-owner occupied properties, net of associated asset-backed financing
65,535
Interest rate sensitive assets:
(830,296
Principal-only stripped mortgage-backed securities
28,486
Mortgage servicing rights:
Received in loan sales
75,495
(610,021
(721,065
Our acquisitions during the quarters ended March 31, 2025 and 2024 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays. However, we expect that, over time, our ability to continue our investment portfolio growth will depend on our ability to raise additional equity capital.
Following is a summary of our MBS holdings:
Fair
Principal/
Life
notional
(in years)
Coupon
Agency pass-through securities
8.2
5.4
8.7
0.1
6.7
3.4
12.2
3.6
12.4
5.0
9.2
7.5
4.8
8.0
4,474,101
4,580,792
Our Mortgage-backed securities at fair value does not include any mortgage-backed securities held from variable interest entities that we consolidate.
Following is a summary of our investment in CRT arrangements:
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives
Derivative and credit risk transfer strip liabilities- CRT strips
UPB of loans subject to credit guarantee obligations
Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2025:
Year of origination
2020
2019
2018
2017
2016
2015
(in millions)
UPB:
Outstanding
4,291
9,703
2,489
2,101
1,728
537
20,849
Liquidations:
Balances
1.7
10.5
61.2
167.9
125.4
62.5
429.2
Losses
6.1
21.0
13.4
7.7
49.2
Modifications (1):
68.8
556.2
308.3
933.3
2.1
22.8
17.5
42.4
Weighted average:
Original debt-to income ratio
33.5
35.9
39.1
36.5
35.1
35.7
35.8
Origination FICO credit score
765
754
736
745
751
743
753
Origination loan-to value ratio
80.7
83.3
83.5
82.4
80.6
80.9
Current loan-to value ratio (2)
49.8
49.6
47.3
42.2
38.3
Distribution by state
California
456
969
314
225
340
104
2,408
Florida
468
927
318
219
181
2,160
Texas
506
836
200
178
210
2,009
Virginia
233
431
97
121
1,024
171
419
114
2,457
6,121
1,453
1,261
12,279
Regional geographicdistribution (1)
Southeast
1,457
3,310
888
721
540
163
7,079
Southwest
2,130
466
410
110
4,540
West
925
2,019
627
463
494
144
4,672
Northeast
402
1,225
295
306
224
2,534
Midwest
397
1,019
213
2,024
Collection status
Current - 89 Days
4,270
9,600
2,434
2,090
1,723
535
20,652
90 - 179 Days
112
180+ Days
Our cash flows for the quarters ended March 31, 2025 and 2024 are summarized below:
Operating activities
Investing activities
Financing activities
Net cash flows
Our cash flows resulted in a net decrease in cash of $89.8 million during the quarter ended March 31, 2025, as discussed below.
Cash used in operating activities totaled $594.3 million during the quarter ended March 31, 2025, as compared to cash used in our operating activities of $342.4 million during the quarter ended March 31, 2024. Cash flows from operating activities are influenced by cash flows from loans acquired for sale as shown below:
Operating cash flows from:
(945,106
(187,846
350,839
(154,525
Cash flows from loans acquired for sale primarily reflect changes in the level of production inventory as well as cash flows relating to associated hedging activities from the beginning to end of the quarters presented. Our inventory of loans held for sale increased during the quarter ended March 31, 2025, as compared to the same period in 2024, offset by other operating cash flows during 2025, which include a decrease in margin deposits of $286.5 million along with a reduction in accounts payable and accrued liabilities of approximately $33.7 million.
Net cash provided by our investing activities was $40.2 million for the quarter ended March 31, 2025, as compared to net cash provided by our investing activities of $770.8 million for the quarter ended March 31, 2024, which included significant sales of MBS.
Net cash provided by our financing activities was $464.3 million for the quarter ended March 31, 2025, as compared to net cash used in our financing activities of $582.9 million for the quarter ended March 31, 2024. This change primarily reflectsthe increase in borrowings required to finance the increase in inventory of loans held for sale during the quarter ended March 31, 2025.
As discussed below in Liquidity and Capital Resources, our Manager continually evaluates and pursues additional sources of financing to provide us with future investing capacity. We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends. We believe that our cash earnings are adequate to fund our operating expenses and dividend payment requirements. However, we manage our liquidity in the aggregate and are reinvesting our cash flows in new investments as well as using such cash to fund our dividend requirements.
Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders. We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code of 1986. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.
We expect our primary sources of liquidity to be cash flows from our investment portfolio, including cash earnings on our investments, cash flows from business activities, liquidation of existing investments and proceeds from borrowings and/or additional equity offerings. When we finance a particular asset, the amount borrowed is less than the asset’s fair value and we must provide the cash in the amount of such difference. Our ability to continue making investments is dependent on our ability to invest the cash representing such difference.
On March 15, 2024, the Company, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the"Issuer Trusts"), PMT and PennyMac Holdings, LLC (“PMH”) entered into a Series 2024-VF1 Note with Goldman Sachs Bank, USA, as part of the structured finance transaction that PMC uses to finance Fannie Mae MSRs and related excess servicing spread and servicing advance receivables. The initial two-year term of the Series 2024-VF1 Note is set to expire on March 15, 2026, at which point the Series 2024-VF1 Note amortizes over 12 months prior to termination.
On April 4, 2024, we issued in a private offering $247 million aggregate principal amount of CRT term notes that mature on March 29, 2027 at a rate of 3.35% over the Secured Overnight Financing Rate.
On May 24, 2024 and June 4, 2024, PMC issued in a private offering $216.5 million aggregate principal amount of exchangeable senior notes due 2029 (the “2029 Exchangeable Notes”) that mature on June 1, 2029 at a rate of 8.500% per year. The 2029 Exchangeable Notes are fully and unconditionally guaranteed by PMT. Upon exchange, PMC will pay cash up to the aggregate principal amount of the Exchangeable Notes to be exchanged and pay or deliver, as the case may be, cash, Common Shares, or a combination thereof, at PMT’s election, in respect of the remainder, if any, of its exchange obligation in excess of the aggregate principal amount of the 2029 Exchangeable Notes to be exchanged. The exchange rate initially equals 63.3332 Common Shares per $1,000 principal amount of the 2029 Exchangeable Notes.
On June 27, 2024, the Company, the Issuer Trusts, PMC and PMH issued an aggregate principal amount of $355 million in secured term notes (the “Series 2024-FT1 Term Notes”) as part of the structured finance transaction that PMC and PMH use to finance Fannie Mae MSRs and related excess servicing spread and servicing advance receivables. The initial 3.5 year term of the Series 2024-FT1 Term Notes is set to mature on December 27, 2027, unless the Company exercises a six-month optional extension.
On December 20, 2024, the Company, the Issuer Trusts, PMC and PMH entered into a secured term note (the “Series 2024-VF2 Note”) with Citibank, N.A., as part of the structured finance transaction that PMC uses to finance Fannie Mae mortgage servicing rights and related excess servicing spread and servicing advance receivables. The initial term of the Series 2024-VF2 Note is set to expire on June 26, 2026 and the maximum principal balance of the Series 2024-VF2 Note is $1 billion and the aggregate committed amount is $500 million.
Debt Financing
Our current debt financing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements that have allowed us to match the term of our borrowings more closely to the expected lives of the assets securing those borrowings. We have also borrowed money by issuing unsecured senior notes.
Our debt financing is summarized below:
Financing
Adjustments for VIE Financing
Excluding VIE Financing
Assets sold under agreements torepurchase
Mortgage loan participationpurchase and sale agreements
Notes payable secured by CRTarrangements and MSRs
(in thousands except for debt-to equity amounts)
Agency-backed securities
3,738,457
3,590,368
Non-consolidated subordinate credit-linked securities
139,899
95,099
Credit risk transfer securities relating to consolidated variable interest entities
129,227
649,921
779,148
Subordinate credit-linked and senior non-agency securities relating to consolidated VIEs
182,559
1,291,458
5,327,320
4,137,152
4,787,073
1,811,155
1,815,731
(3,227,176
(28,474
16,688
(1,087,949
32,314
3,887,081
254,232
2,033,447
2,287,679
(3,019,827
11,687,210
8,890,483
Total assets and secured financing
11,856,399
Unsecured debt
Debt excluding non-recourse
9,663,605
Debt in consolidated variable interest entities
Total debt
Equity
Debt-to equity ratio:
Excluding non-recourse debt (2)
5.1:1
Total (3)
6.7:1
Sales of Assets Under Agreements to Repurchase
Our repurchase agreements represent the sales of assets together with agreements for us to buy back the assets at a later date. Following is a summary of the activities in our repurchase agreements financing:
Average balance outstanding
Maximum daily balance outstanding
Ending balance
5,122,203
The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business. The total facility size of our Assets sold under agreements to repurchase was approximately $11.9 billion at March 31, 2025.
Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to either renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.
As discussed above, all of our repurchase agreements, and mortgage loan participation purchase and sale agreements have short-term maturities:
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our Assets sold under agreements to repurchase is summarized by counterparty below as of March 31, 2025:
205,137
102,561
91,492
57,789
50,105
20,331
18,376
717,674
In February 2025, the Company issued $172.5 million principal amount of unsecured 9.00% senior notes dueFebruary 15, 2030 (the "2030 Senior Notes”) and in September 2023, the Company issued $53.5 million principal amount of unsecured8.50% senior notes due September 30, 2028 (the "2028 Senior Notes”). The 2030 Senior Notes and the 2028 Senior Notes are referredto collectively as the “Senior Notes”.
On or after February 15, 2027, we may redeem for cash all or any portion of the 2030 Senior Notes and on or after September 30, 2025, we may redeem for cash all or any portion of the 2028 Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No “sinking fund” will be provided for the Senior Notes.
The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal of and interest on the Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”). PMC’s operations and investing activities are centered in residential mortgage-related assets, including the creation of and investment in MSRs.
Under the terms of the PMC Guarantee, holders of the Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC. PMC’s obligations under the guarantee are limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of PMC, result in the guarantee constituting a fraudulent transfer or conveyance. The PMC Guarantee will:
The following summarized financial information for PMT and PMC is presented on a combined basis. Intercompany balances and transactions between PMT and PMC have been eliminated:
3,802,348
Other assets
555,094
From PFSI
15,123
From non-issuer or non-guarantor subsidiaries (1)
409,932
6,784,704
Payable to nonaffiliates
1,782,281
Payable to non-issuer or non-guarantor subsidiaries
4,717,676
Payable to PFSI
20,287
6,520,244
8,176
3,223
(55,528
11,341
32,101
Pre-tax loss
(87,571
(21,411
Net loss
(66,160
77
Debt Covenants
Our debt financing agreements require us and certain of our subsidiaries to comply with various financial covenants. As of the filing of this Report, these financial covenants include the following:
Although these financial covenants limit the amount of indebtedness we may incur and impact our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose.
PLS is also subject to various financial covenants, both as a borrower under its own financing arrangements and as our servicer under certain of our debt financing agreements. The most significant of these financial covenants currently include the following:
Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires us to maintain positive net income for at least one (1) of the previous two consecutive quarters, or other similar measures. For the most recent fiscal quarter, the Company is compliant with all such conditions. However, we may be required to obtain waivers from certain lenders in the future if this condition precedent is not met.
Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement, although in some instances we may agree with the lender upon certain thresholds (in dollar amounts or percentages based on the market value of the assets) that must be exceeded before a margin deficit will arise. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.
Regulatory Capital and Liquidity Requirements
In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for their approved single-family issuers, and Ginnie Mae has also issued risk-based capital requirements. We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of March 31, 2025.
We and our Manager continue to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and unsecured debt and equity offerings. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful.
78
Off-Balance Sheet Arrangements
As of March 31, 2025, we have not entered into any off-balance sheet arrangements.
Our management, servicing, and loan fulfillment fee agreements are described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Critical Accounting Estimates
Preparation of financial statements in compliance with GAAP requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.
Our Annual Report on Form 10-K for the year ended December 31, 2024 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market-based risks. The primary market risks that we are exposed to are real estate risk, credit risk, interest rate risk, prepayment risk, inflation risk and market value risk.
Our primary trading asset is our inventory of loans acquired for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated loans. Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, CRT arrangements and MBS. We believe that the fair values of MSRs and MBS also respond primarily to changes in the market interest rates for comparable loans or yields on MBS. Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation. We believe that the primary market risks to the fair values of our investment in CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such arrangements.
The following sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes to other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as earnings forecasts.
The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2025, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:
Interest rate shift in basis points
-200
-75
-50
Change in fair value
151,913
128,373
93,935
(111,893
(171,231
(492,504
The following tables summarize the estimated change in fair value of MSRs as of March 31, 2025, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing:
Change in fair value attributable to shift in:
-20%
-10%
-5%
+5%
+10%
+20%
Pricing spread
198,314
96,718
47,770
(46,630
(92,156
(180,040
Prepayment speed
235,450
113,656
55,865
(54,038
(106,340
(206,073
65,905
32,952
16,476
(16,476
(32,952
(65,905
Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread:
Pricing spread shift in basis points
-100
-25
100
37,581
18,522
9,195
(9,064
(18,001
(35,501
Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts:
Property value shift in %
-15%
5%
10%
15%
(9,553
(5,739
(2,604
2,161
3,957
5,446
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. See Note 17 — Commitments and Contingencies, to the consolidated financial statements included in this Report for a discussion of legal actions, claims and proceedings that are incorporated by reference into this Item 1.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended March 31, 2025.
The following table provides information about our repurchases of common shares of beneficial interest (“Common Shares”) during the quarter ended March 31, 2025:
Period
Totalnumber ofsharespurchased
Averageprice paidper share
Total number ofsharespurchased aspart of publiclyannounced plansor programs (1)
Amountavailable forfuture sharerepurchasesunder theplans orprograms (1)
(in thousands, except average price paid per share)
January 1, 2025 – January 31, 2025
73,353
February 1, 2025 –February 28, 2025
March 1, 2025 – March 31, 2025
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
(c) Trading Plans
During the quarter ended March 31, 2025, none of our trustees or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
Item 6. Exhibits
Incorporated by Reference from the
Below-Listed Form (Each Filed under
SEC File Number 001-34416)
Exhibit No.
Exhibit Description
Form
Filing Date
3.1
Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated.
10-Q
November 6, 2009
3.2
Second Amended and Restated Bylaws of PennyMac Mortgage Investment Trust
8-K
March 16, 2018
3.3
Articles Supplementary classifying and designating the 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.
8-A
March 7, 2017
Articles Supplementary classifying and designating the 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.
June 30, 2017
3.5
Articles Supplementary classifying and designating the 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest.
August 20, 2021
4.1
Second Supplemental Indenture, dated as of February 11, 2025, among PennyMac Mortgage Investment Trust, as issuer, PennyMac Corp., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee.
February 11, 2025
4.2
Form of 9.00% Senior Notes due 2030 (included in Exhibit 4.1 hereto)
10.1†
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (2025).
*
10.2†
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (Non-Employee Trustee) (2025).
10.3†
Form of Performance Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (2025).
31.1
Certification of David A. Spector pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Daniel S. Perotti pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of David A. Spector pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
32.2**
Certification of Daniel S. Perotti pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 (ii) the Consolidated Statements of Operations for the quarter ended March 31, 2025 and March 31, 2024, (iii) the Consolidated Statements of Changes in Shareholders' Equity for the quarter ended March 31, 2025 and March 31, 2024, (iv) the Consolidated Statements of Cash Flows for the quarter ended March 31, 2025 and March 31, 2024 and (v) the Notes to the Consolidated Financial Statements.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement.
** The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pennymac Mortgage Investment Trust
(Registrant)
Dated: April 30, 2025
By:
/s/ David A. Spector
David A. Spector
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Daniel S. Perotti
Daniel S. Perotti
Senior Managing Director and Chief Financial Officer
(Principal Financial Officer)
84