Pennymac Financial Services earned a profit of $98.3 million in second-quarter 2024, more than double the $39.3 million it raked in during the prior quarter. And the company is getting its ducks in a row to seize on opportunities when interest rates fall, relying on its scale and servicing portfolio to outmuscle competitors.
The California-based lender generated production revenue of $202.6 million from April through June, up 10% from the prior quarter and 19% higher than in second-quarter 2023. Higher revenues drove more income for its loan production channel, which rose to $41.3 million in Q2 2024, compared to $35.9 million in Q1 2024 and $24.4 million in Q2 2023.
The company has previously touted the strength of its servicing business and that sentiment was backed up by the $88.5 million in pretax income for the channel in Q2 2024. By comparison, servicing generated $4.9 million in pretax income in the prior quarter and $46.5 million in Q2 2023.
“PennyMac Financial generated strong earnings in the second quarter with an annualized operating return on equity of 16%,” chairman and CEO David Spector said in prepared remarks. “Our large and growing servicing business continues to drive revenue and cash flow in this higher interest rate environment and notably, our per loan servicing expenses were at record low levels as we continue to leverage our proprietary technology and operational scale.
Pennymac’s loan acquisition and origination volumes totaled $27 billion in the second quarter, up 25% from the first quarter. This drove growth in its servicing portfolio, which totaled $632.7 billion in unpaid principal balance (UPB) at the end of June, up 2% on a quarterly basis and up 10% on a yearly basis. This was “driven by production volumes which more than offset prepayment activity,“ its earnings report stated.
“Our multifaceted approach to mortgage production and our position as one of the largest producers in the country provide us with unique access to acquire newly originated mortgages in the current market, driving the continued growth of our servicing portfolio,“ Spector told analysts during an earnings call on Tuesday.
Spector went on to say that the company believes that the “origination market is resetting“ and lenders like Pennymac are poised to benefit if they can capture the “strong, pent-up demand from key homebuying demographics.“ The company estimates that in recent years, about $2.5 trillion in mortgages have been originated with a note rate of 6% or higher.
“It is our belief that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels,“ he said.
The company’s growth in servicing revenue and profits are tied to technological efficiencies. Spector told analysts that Pennymac expects to be the first servicer to successfully incorporate the requirements of the Veterans Affairs Servicing Purchase (VASP) program through the U.S. Department of Veterans Affairs.
“This management team has done a tremendous job developing our proprietary servicing system, which has the flexibility to rapidly adjust for regulatory changes and incorporate new and emerging technologies, including artificial intelligence, to drive operating efficiencies,“ Spector said.
In May, Pennymac announced a private offering of $650 million in senior notes that will come due in November 2030. The notes are priced at an annual rate of 7.125%. The company explained that the proceeds will go toward repaying debt that was taken on in securing itsmortgage servicingrights (MSRs) facilities, other unspecified debts and “other general corporate purchases.”
“This transaction reflects our continued focus on the strength and flexibility of our liquidity and capital structure as the new notes have extended the duration of our liabilities and enhanced our overall liquidity position,“ Pennymac chief financial officer Daniel Perotti said during the earnings call.
In response to an investor question about lower employee headcounts across the mortgage industry, Spector indicated that Pennymac was well positioned to weather any further downturns or capitalize on any near-term opportunities.
“In our consumer direct channel, one of the main reasons we came out with our closed-end second product was to keep capacity in place for our consumer direct channel if rates were to pivot down. And I think that’s something we’re already seeing taking place,“ he said.
“Similarly, we’ve been very, very active in modeling out what we would need in certain interest rate environments while maintaining excess capacity, so we don’t take 30 to 60 days to seize on an opportunity. We have three large classes of LOs already in the queue. They’re going to be up and trained and ready to go. Even if rates stay where they are, we believe there’s value there, given the high note rate servicing that we have and given the fact that you can’t really start to refinance those loans until they’re seasoned six months.“
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FAQs
“Similarly, we've been very, very active in modeling out what we would need in certain interest rate environments while maintaining excess capacity, so we don't take 30 to 60 days to seize on an opportunity. We have three large classes of LOs already in the queue. They're going to be up and trained and ready to go.
What is the PennyMac controversy? ›
PennyMac Financial Services has paid $158.4 million to Black Knight Servicing Technologies, concluding a five-year legal battle over allegations of trade secret theft involving two of the biggest companies in the housing industry.
How long does PennyMac underwriting take? ›
Underwriting mortgages is an essential part of the overall home loan process and generally takes about 30–60 days, depending on the type of loan, lender and current volume of borrowers.
Is PennyMac easy to get approved for? ›
PennyMac doesn't share the exact minimum requirements it uses to approve or deny your application. However, based on nationwide data from 2022, we can say that PennyMac approved customers who — on average — had a 74% loan-to-value (LTV) ratio or better. Most had a debt-to-income (DTI) ratio under 40%.
Where does PennyMac rank? ›
Pennymac is the second-largest FHA lender by loan volume in the nation — and is rated by Yahoo Finance as the best overall FHA lender. It's also on our list of the best VA loan lenders, and you'll find Pennymac in our review of the best lenders for first-time homebuyers.
What is the class action against PennyMac? ›
A unit of mortgage giant PennyMac Financial Services Inc. baited veterans into a payment-deferral program during the Covid-19 pandemic before forcing them into modified high-interest loans without warning, a proposed class action alleges.
Who is PennyMac owned by? ›
PennyMac was founded in 2008 with initial investments from BlackRock, HC Partners and the Company's founding management. Currently, approximately 20% of PFSI is owned by HC Partners, and 21% is owned by PFSI's executive officers and directors.
How often do mortgages fall through during underwriting? ›
A mortgage underwriter typically denies about 1 in 10 mortgage loan applications. A mortgage loan application can be denied for many reasons, including a borrower's low credit score, recent employment change or high debt-to-income ratio.
Does appraisal happen before underwriting? ›
While the underwriting process is happening, the lender will order an appraisal, typically conducted by a licensed appraiser, to assess and evaluate the property a borrower wishes to purchase.
How long does it take an underwriter to approve a refinance? ›
The mortgage underwriting process can take anywhere from a few days to a few weeks. The timeline varies depending on whether the underwriter needs more information from you, how busy the lender is and how streamlined the lender's practices are.
Currently, Pennymac requires a minimum 620 FICO Score on all government loan programs.
What is the hardest home loan to get? ›
Conventional loans
A conventional loan is any mortgage that's not backed by the federal government. Conventional loans have higher minimum credit score requirements than other loan types — typically 620 — and are harder to qualify for than government-backed mortgages.
Is it hard to get approved for a refinance? ›
To be approved for a conventional mortgage, you typically need a minimum 620 credit score. If your score is below the mid-600s, however, you may have a harder time qualifying for a refinance. Your credit score can change over time.
Who is the #1 mortgage lender in America? ›
1. Rocket Mortgage. Rocket Mortgage -- formally Quicken Loans -- has been the largest mortgage lender by number of originations for years.
What's the best mortgage lender? ›
- Bank of America. ...
- Alliant Credit Union. Best for credit union home loans. ...
- Wells Fargo. Best for conventional loans. ...
- Veterans United Home Loans. Best for VA loans. ...
- BMO Bank. Best for specialty loan programs. ...
- PNC Bank. Best for first-time homebuyers. ...
- Rocket Mortgage. Best online mortgage. ...
- SoFi. Best for customer experience.
Wells Fargo Bank and PNC Real Estate / Midland Loan Services were the two largest commercial real estate mortgage loan servicing firms in the U.S. in 2023. Each of the two companies serviced close to 700 billion U.S. dollars of loans secured by commercial or multifamily properties in that year.
PennyMac just bought my mortgage, should I be ...Reddithttps://www.reddit.com ›
I looked them up and I've seen some concerning reviews ranging from them messing up the escrow payments to insurance, to messing up the tax at the end of th...
In light of higher mortgage rates, the lender launched a home equity loan product that allows homeowners to take a lump sum from their equity. It consistently r...
Check for reviews and ratings to learn more about PennyMac Mortgage on CreditKarma.com before making a decision on a mortgage lender.
Is Pennymac Reputable? Pennymac has an A+ rating with the Better Business Bureau.
What is the mortgage protection scandal? ›
Regency, the FSA said, had sold PPI to "right-to-buy" mortgage customers who would not have been able to claim, or who already held insurance. Many more followed, with Liverpool Victoria Banking Services fined £860,000 in 2008 for adding PPI to many customers' loans without their knowledge.
What is the Freedom mortgage controversy? ›
In August 2023, the Bureau fined Freedom $1.75 million for paying illegal kickbacks to real estate brokers and agents for mortgage loan referrals, an example of "anticompetitive behavior" and "a clear violation of federal law," Chopra said at the time.
The regulators said an accounting fraud at Fannie Mae included manipulations to reach earnings targets so that Mr. Raines, Mr. Howard, Ms. Spencer and other company executives could pocket hundreds of millions in bonuses from 1998 to 2004.
