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Press Release: PennyMac Financial Services, Inc. -2-

· 02/04/2021 16:30
December 31, September December 31, 2020 30, 2020 2019 ------------ ------------ --------------- (in thousands) Prime servicing: Owned Mortgage servicing rights Originated $196,873,590 $187,134,080 $ 166,188,825 Acquisitions 41,537,219 47,716,917 59,598,279 ----------- ----------- ----------- 238,410,809 234,850,997 225,787,104 Mortgage servicing liabilities 2,857,492 1,799,562 2,758,454 Loans held for sale 11,063,938 8,749,673 4,724,006 ----------- ----------- ----------- 252,332,239 245,400,232 233,269,564 Subserviced for PMT 174,360,317 156,425,439 135,288,944 ----------- ----------- ----------- Total prime servicing 426,692,556 401,825,671 368,558,508 Special servicing - subserviced forQuarter ended ------------------------------------ December September December 31, 31, 2020 30, 2020 2019 ---------- ---------- ------------ (in thousands) Loan servicing fees (1) $ 262,740 $ 250,368 $ 234,871 Changes in fair value of MSRs and MSLs resulting from: Realization of cash flows (89,611) (90,187) (113,102) Change in fair value inputs (44,163) (37,030) 160,611 Change in fair value of excess servicing spread financing 6,677 3,135 (2,263) Hedging (losses) gains (109,147) 6,521 (192,386) -------- -------- -------- Net change in fair value of MSRs and MSLs (236,244) (117,561) (147,140) -------- -------- -------- Net loan servicing fees $ 26,496 $ 132,807 $ 87,731 ======== ======== ======== (1) Includes contractually-specified servicing feesQuarter ended ------------------------------------------------- December 31, September 30, December 31, 2020 2020 2019 -------------- --------------- ---------------- (in thousands) Receipt of MSRs and recognition of MSLs in loan sale transactions $ 367,501 $ 245,946 $ 328,182 Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust (11,868) (9,776) (2,624) Provision of liability for representations and warranties, net (4,667) (2,746) (1,583) Cash gain (1) 459,887 533,292 4,694 Fair value changes of pipeline, inventory and hedges 48,208 88,553 (71,182) --------- ---------- --------- Net gains on mortgage loans held for sale $ 859,061 $ 855,269 $ 257,487 ========= ========== ========= Net gains on mortgage loans held for sale by segment: Production $ 659,915 $ 700,830 $ 227,751 ========= ========== ========= Servicing $ 199,146 $ 154,439 $ 29,736 ========= ========== ========= (1) Net of cash hedging results------- ------- --------- ------ --------- Pretax income $ 572,646 $ 42,021 $ 614,667 $ 2,559 $ 617,226 ======= ======= ========= ====== =========

Production Segment

The Production segment includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financial's own account, fulfillment services on behalf of PMT and direct lending through the consumer direct and broker direct channels, including the underwriting and acquisition of loans from correspondent sellers on a non-delegated basis.

PennyMac Financial's loan production activity for the quarter totaled $69.4 billion in UPB, $31.4 billion of which was for its own account, and $38.0 billion of which was fee-based fulfillment activity for PMT. Correspondent government and direct lending IRLCs totaled $38.3 billion in UPB, up 5 percent from the prior quarter and 64 percent from the fourth quarter of 2019.

Production segment pretax income was $572.6 million, down 7 percent from the prior quarter and up 182 percent from the fourth quarter of 2019. Production revenue totaled $824.9 million, down 2 percent from the prior quarter and up 134 percent from the fourth quarter of 2019. The quarter-over-quarter decrease was primarily driven by a $40.9 million decrease in net gains on loans held for sale. The decrease was driven by lower production margins and was offset by a $17.9 million increase in loan origination fees and a $17.8 million increase in fulfillment fees, driven by record volumes across all channels.

The components of net gains on loans held for sale are detailed in the following table:

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT from non-affiliates in its correspondent production business. These services include, but are not limited to, marketing, relationship management, correspondent seller approval and monitoring, loan file review, underwriting, pricing, hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT.

Fees earned from the fulfillment of correspondent loans on behalf of PMT totaled $72.6 million in the fourth quarter, up 32 percent from the prior quarter and up 25 percent from the fourth quarter of 2019. The quarter-over-quarter increase in fulfillment fee revenue was driven primarily by a 39 percent increase in acquisition volumes by PMT slightly offset by a decrease in the weighted average fulfillment fee rate to 19 basis points from 20 basis points in the prior quarter.

Net interest expense totaled $1.3 million, down from net interest income of $7.7 million in the prior quarter and net interest income of $2.9 million in the fourth quarter of 2019.

Production segment expenses were $252.3 million, up 12 percent from the prior quarter and 68 percent from the fourth quarter of 2019, as a result of record volumes across all channels.

Servicing Segment

The Servicing segment includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $42.0 million, versus pretax income of $111.7 million in the prior quarter and a pretax loss of $5.1 million in the fourth quarter of 2019. Servicing segment net revenues totaled $207.6 million, down 23 percent from the prior quarter and up 65 percent from the fourth quarter of 2019. The quarter-over-quarter decrease was driven by lower net loan servicing fees.

Revenue from net loan servicing fees totaled $26.5 million, down from $132.8 million in the prior quarter, as a result of higher net valuation related losses. Revenue from net loan servicing fees included $262.7 million in servicing fees, reduced by $89.6 million from the realization of MSR cash flows. Net valuation-related losses totaled $146.6 million, and included MSR fair value losses of $44.2 million, and hedging and other losses of $102.5 million.

The following table presents a breakdown of net loan servicing fees:

Servicing segment revenue included $199.1 million in net gains on loans held for sale related to reperforming government-insured and guaranteed loans, up significantly from $154.4 million in the prior quarter and $29.7 million in the fourth quarter of 2019, as a result of increased loss mitigation activity on loans emerging from forbearance. These previously delinquent loans were purchased out of Ginnie Mae securitizations and brought back to performing status through PennyMac Financial's successful servicing efforts, primarily through loan modifications or FHA Partial Claims. With respect to the FHA Partial Claims, the reperforming loans must remain current for a minimum of six months to be eligible for resecuritization. Net interest expense totaled $18.2 million, versus net interest expense of $17.9 million in the prior quarter and net interest income of $8.0 million in the fourth quarter of 2019. Interest income was $44.4 million, up from $26.9 million in the prior quarter, driven by the increase in interest received on loans bought out in prior periods. Interest expense was $62.6 million, up from $44.9 million in the prior quarter driven by the financing of increased balances of loans purchased out of Ginnie Mae securitizations.

Servicing segment expenses totaled $165.6 million, up 4 percent from the prior quarter driven by portfolio growth.

The total servicing portfolio grew to $426.8 billion in UPB at December 31, 2020, an increase of 6 percent from September 30, 2020 and 16 percent from December 31, 2019. PennyMac Financial subservices and conducts special servicing for $174.4 billion in UPB, an increase of 11 percent from September 30, 2020 and 29 percent from December 31, 2019. PennyMac Financial's owned MSR portfolio grew to $252.3 billion in UPB, an increase of 3 percent from September 30, 2020 and 8 percent from December 31, 2019.

The table below details PennyMac Financial's servicing portfolio UPB:

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February 04, 2021 16:30 ET (21:30 GMT)