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  4. [10-Q] PennyMac Mortgage Investment Trust Quarterly Earnings Report

[10-Q] PennyMac Mortgage Investment Trust Quarterly Earnings Report

Filing Impact
(Neutral)
Filing Sentiment
(Neutral)
Form Type
10-Q
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`

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 September 30, 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 Preferred
Shares of Beneficial Interest, $0.01 Par Value

PMT/PRA

New York Stock Exchange

8.00% Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest, $0.01 Par Value

6.75% Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest, $0.01 Par Value

PMT/PRB

 

PMT/PRC

 

New York Stock Exchange

 

New York Stock Exchange

 

8.50% Senior Note Due September 2028

 

PMTU

 

New York Stock Exchange

9.00% Senior Notes Due February 2030

 

PMTV

 

New York Stock Exchange

9.00% Senior Notes Due June 2030

 

PMTW

 

New York Stock Exchange

 

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 October 27, 2025

Common Shares of Beneficial Interest, $0.01 par value

87,016,604

 

 

 

PENNYMAC MORTGAGE INVESTMENT TRUST

FORM 10-Q

September 30, 2025

TABLE OF CONTENTS

 

 

 

Page

Special Note Regarding Forward-Looking Statements

1

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Income

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

61

 

Our Company

61

 

Results of Operations

65

 

Net Investment Income

66

 

Expenses

76

 

Balance Sheet Analysis

78

 

Asset Acquisitions

79

 

Investment Portfolio Composition

80

 

Cash Flows

82

 

Liquidity and Capital Resources

83

 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

88

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

88

Item 4.

Controls and Procedures

89

PART II. OTHER INFORMATION

90

Item 1.

Legal Proceedings

90

Item 1A

 

Risk Factors

 

90

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

90

Item 3.

Defaults Upon Senior Securities

90

Item 4.

Mine Safety Disclosures

90

Item 5.

Other Information

90

Item 6.

Exhibits

91

 

 

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:

•
projections of our revenues, income, earnings per share, capital structure or other financial items;
•
descriptions of our plans or objectives for future operations, products or services;
•
forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and
•
descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

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:

•
changes in interest rates;
•
our ability to comply with various federal, state and local laws and regulations that govern our business;
•
volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets;
•
events or circumstances which undermine confidence in the financial and housing markets or otherwise have a broad impact on financial and housing markets; changes in real estate values, housing prices and housing sales;
•
changes in macroeconomic, consumer and real estate market conditions;
•
a prolonged federal government shutdown could increase loan delinquencies, delay the processing of government loan applications and make it more difficult for customers in flood-prone areas to procure government-backed insurance;
•
the degree and nature of our competition;
•
the availability of, and level of competition for, attractive risk-adjusted investment opportunities in mortgage loans and mortgage-related assets that satisfy our investment objectives;
•
the inherent difficulty in winning bids to acquire mortgage loans, and our success in doing so;
•
the concentration of credit risks to which we are exposed;
•
our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities;
•
changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates;
•
our ability to mitigate cybersecurity risks, cybersecurity incidents and technology disruptions;
•
the availability, terms and deployment of short-term and long-term capital;
•
the adequacy of our cash reserves and working capital;
•
our ability to maintain the desired relationship between our financing and the interest rates and maturities of our assets;
•
the timing and amount of cash flows, if any, from our investments;

1

 

•
our substantial amount of indebtedness;
•
the performance, financial condition and liquidity of borrowers;
•
our exposure to risks of loss and disruptions in operations resulting from severe weather events, man-made or other natural conditions, including climate change and pandemics;
•
the ability of our servicer to approve and monitor correspondent sellers and underwrite loans to investor standards;
•
incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties;
•
our indemnification and repurchase obligations in connection with mortgage loans we may purchase, sell or securitize;
•
the quality and enforceability of the collateral documentation evidencing our ownership rights in our investments;
•
increased rates of delinquency, defaults and forbearances and/or decreased recovery rates on our investments;
•
the performance of mortgage loans underlying mortgage-backed securities in which we retain credit risk;
•
our ability to foreclose on our investments in a timely manner or at all;
•
increased prepayments of the mortgages and other loans underlying our mortgage-backed securities or relating to our mortgage servicing rights and other investments;
•
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•
the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations;
•
our ability to maintain appropriate internal control over financial reporting;
•
our ability to detect misconduct and fraud;
•
developments in the secondary markets for our mortgage loan products;
•
legislative and regulatory changes that impact the mortgage loan industry or housing market;
•
regulatory or other changes that impact government agencies or government-sponsored entities, or such changes that increase the cost of doing business with such agencies or entities;
•
the Consumer Financial Protection Bureau and its issued and future rules and the enforcement thereof;
•
changes in government support of home ownership and home affordability programs;
•
changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks;
•
limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries for U.S. federal income tax purposes;
•
changes in governmental regulations, accounting treatment, tax rates and similar matters;
•
our ability to make distributions to our shareholders in the future;
•
our failure to deal appropriately with issues that may give rise to reputational risk;
•
and our organizational structure and certain requirements in our charter documents.

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

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

 

 

(in thousands, except share information)

 

ASSETS

 

 

 

 

 

 

Cash

 

$

263,488

 

 

$

337,694

 

Short-term investments at fair value

 

 

181,043

 

 

 

103,198

 

Mortgage-backed securities at fair value pledged to creditors

 

 

4,609,164

 

 

 

4,063,706

 

Loans held for sale at fair value ($2,398,221 and $2,087,615 pledged to creditors, respectively)

 

 

2,421,033

 

 

 

2,116,318

 

Loans held for investment at fair value ($5,981,451 and $2,191,869 pledged to creditors, respectively)

 

 

5,983,197

 

 

 

2,193,575

 

Derivative assets with non-affiliates ($31,432 and $29,377 pledged to creditors, respectively)

 

 

51,345

 

 

 

56,840

 

Derivative assets with PennyMac Financial Services, Inc.

 

 

7,097

 

 

 

—

 

Deposits securing credit risk transfer arrangements pledged to creditors

 

 

1,033,008

 

 

 

1,110,708

 

Mortgage servicing rights at fair value ($3,608,170 and $3,807,065 pledged to creditors, respectively)

 

 

3,668,755

 

 

 

3,867,394

 

Servicing advances ($50,338 and $89,396 pledged to creditors, respectively)

 

 

61,599

 

 

 

105,037

 

Due from PennyMac Financial Services, Inc.

 

 

18,171

 

 

 

16,015

 

Other ($527 pledged to creditors as of December 31, 2024)

 

 

227,771

 

 

 

438,221

 

Total assets

 

$

18,525,671

 

 

$

14,408,706

 

LIABILITIES

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

7,708,183

 

 

$

6,500,938

 

Mortgage loan participation purchase and sale agreements

 

 

—

 

 

 

11,593

 

Notes payable secured by credit risk transfer and mortgage servicing assets

 

 

2,248,609

 

 

 

2,929,790

 

Unsecured senior notes

 

 

876,510

 

 

 

605,860

 

Interest-only security payable at fair value

 

 

36,558

 

 

 

34,222

 

Asset-backed financings of variable interest entities at fair value

 

 

5,439,582

 

 

 

2,040,375

 

Derivative and credit risk transfer strip liabilities with non-affiliates at fair value

 

 

10,407

 

 

 

7,351

 

Derivative liabilities with PennyMac Financial Services, Inc.

 

 

1,779

 

 

 

—

 

Accounts payable and accrued liabilities

 

 

135,585

 

 

 

139,124

 

Due to PennyMac Financial Services, Inc.

 

 

40,165

 

 

 

30,206

 

Income taxes payable

 

 

143,832

 

 

 

163,861

 

Liability for losses under representations and warranties

 

 

5,152

 

 

 

6,886

 

Total liabilities

 

 

16,646,362

 

 

 

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

 

 

 

541,482

 

Common shares of beneficial interest, $0.01 par value—authorized, 500,000,000 issued
   and outstanding, 87,016,604 and 86,860,960 shares, respectively

 

 

870

 

 

 

869

 

Additional paid-in capital

 

 

1,926,552

 

 

 

1,925,067

 

Accumulated deficit

 

 

(589,595

)

 

 

(528,918

)

Total shareholders’ equity

 

 

1,879,309

 

 

 

1,938,500

 

Total liabilities and shareholders’ equity

 

$

18,525,671

 

 

$

14,408,706

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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:

 

 

 

September 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

ASSETS

 

 

 

 

 

 

Loans held for investment at fair value

 

$

5,981,451

 

 

$

2,191,709

 

Derivative assets

 

 

31,432

 

 

 

29,377

 

Deposits securing credit risk transfer arrangements

 

 

1,033,008

 

 

 

1,110,708

 

Other—interest receivable

 

 

25,190

 

 

 

6,382

 

 

$

7,071,081

 

 

$

3,338,176

 

LIABILITIES

 

 

 

 

 

 

Asset-backed financings of the variable interest entities at fair value

 

$

5,439,582

 

 

$

2,040,375

 

Derivative and credit risk transfer strip liabilities at fair value

 

 

9,330

 

 

 

4,060

 

Interest-only security payable at fair value

 

 

36,558

 

 

 

34,222

 

Accounts payable and accrued liabilities—interest payable

 

 

25,190

 

 

 

6,382

 

 

$

5,510,660

 

 

$

2,085,039

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands, except earnings per common share)

 

Net investment income

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

$

64,087

 

 

$

146,695

 

 

$

160,080

 

 

$

166,705

 

Net gains on loans held for sale at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

From nonaffiliates

 

 

14,326

 

 

 

18,065

 

 

 

39,803

 

 

 

41,088

 

From PennyMac Financial Services, Inc.

 

 

531

 

 

 

1,994

 

 

 

5,204

 

 

 

5,649

 

 

 

14,857

 

 

 

20,059

 

 

 

45,007

 

 

 

46,737

 

Loan origination fees

 

 

3,095

 

 

 

6,640

 

 

 

9,632

 

 

 

11,099

 

Net loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

From nonaffiliates

 

 

 

 

 

 

 

 

 

 

 

 

Contractually specified

 

 

151,395

 

 

 

162,605

 

 

 

456,705

 

 

 

485,089

 

Other

 

 

4,428

 

 

 

4,012

 

 

 

13,472

 

 

 

9,838

 

 

 

155,823

 

 

 

166,617

 

 

 

470,177

 

 

 

494,927

 

Change in fair value of mortgage servicing rights

 

 

(116,379

)

 

 

(184,918

)

 

 

(336,097

)

 

 

(263,676

)

Mortgage servicing rights hedging results

 

 

(27,360

)

 

 

(67,220

)

 

 

(127,941

)

 

 

(175,399

)

 

 

12,084

 

 

 

(85,521

)

 

 

6,139

 

 

 

55,852

 

From PennyMac Financial Services, Inc.

 

 

3,345

 

 

 

441

 

 

 

6,027

 

 

 

1,267

 

 

 

 

15,429

 

 

 

(85,080

)

 

 

12,166

 

 

 

57,119

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

230,088

 

 

 

176,734

 

 

 

602,660

 

 

 

472,128

 

Interest expense

 

 

228,394

 

 

 

184,171

 

 

 

615,680

 

 

 

527,539

 

 

 

 

1,694

 

 

 

(7,437

)

 

 

(13,020

)

 

 

(55,411

)

Results of real estate acquired in settlement of loans

 

 

(27

)

 

 

(65

)

 

 

(169

)

 

 

(155

)

Other

 

 

97

 

 

 

52

 

 

 

202

 

 

 

173

 

Net investment income

 

 

99,232

 

 

 

80,864

 

 

 

213,898

 

 

 

226,267

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

 

21,012

 

 

 

22,240

 

 

 

64,386

 

 

 

62,766

 

Management fees

 

 

6,912

 

 

 

7,153

 

 

 

20,793

 

 

 

21,474

 

Loan fulfillment fees

 

 

6,162

 

 

 

11,492

 

 

 

17,266

 

 

 

19,935

 

Professional services

 

 

8,608

 

 

 

2,614

 

 

 

23,952

 

 

 

6,738

 

Compensation

 

 

2,817

 

 

 

1,326

 

 

 

8,623

 

 

 

4,611

 

Loan collection and liquidation

 

 

1,503

 

 

 

2,257

 

 

 

5,857

 

 

 

4,297

 

Safekeeping

 

 

1,194

 

 

 

1,174

 

 

 

3,532

 

 

 

3,067

 

Loan origination

 

 

794

 

 

 

1,408

 

 

 

2,146

 

 

 

2,414

 

Other

 

 

3,232

 

 

 

4,666

 

 

 

9,638

 

 

 

13,441

 

Total expenses

 

 

52,234

 

 

 

54,330

 

 

 

156,193

 

 

 

138,743

 

Income before benefit from income taxes

 

 

46,998

 

 

 

26,534

 

 

 

57,705

 

 

 

87,524

 

Benefit from income taxes

 

 

(11,298

)

 

 

(14,873

)

 

 

(17,805

)

 

 

(26,925

)

Net income

 

 

58,296

 

 

 

41,407

 

 

 

75,510

 

 

 

114,449

 

Dividends on preferred shares of beneficial interest

 

 

10,455

 

 

 

10,455

 

 

 

31,364

 

 

 

31,364

 

Net income attributable to common shareholders

 

$

47,841

 

 

$

30,952

 

 

$

44,146

 

 

$

83,085

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

Diluted

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

87,017

 

 

 

86,861

 

 

 

86,979

 

 

 

86,800

 

Diluted

 

 

87,017

 

 

 

86,861

 

 

 

86,979

 

 

 

86,800

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

 

 

 

Quarter ended September 30, 2025

 

 

 

Preferred shares

 

 

Common shares

 

 

 

 

 

 

 

 

 

Number of
 shares

 

 

Amount

 

 

Number of
 shares

 

 

Par
value

 

 

Additional paid-in capital

 

 

Accumulated
 deficit

 

 

Total

 

 

 

(in thousands, except per share amounts)

 

Balance at June 30, 2025

 

 

22,400

 

 

$

541,482

 

 

 

87,017

 

 

$

870

 

 

$

1,925,740

 

 

$

(602,447

)

 

$

1,865,645

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

58,296

 

 

 

58,296

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

812

 

 

 

—

 

 

 

812

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,455

)

 

 

(10,455

)

Common shares ($0.40 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(34,989

)

 

 

(34,989

)

Balance at September 30, 2025

 

 

22,400

 

 

$

541,482

 

 

 

87,017

 

 

$

870

 

 

$

1,926,552

 

 

$

(589,595

)

 

$

1,879,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2024

 

 

 

Preferred shares

 

 

Common shares

 

 

 

 

 

 

 

 

 

Number of
 shares

 

 

Amount

 

 

Number of
 shares

 

 

Par
value

 

 

Additional paid-in capital

 

 

Accumulated
 deficit

 

 

Total

 

 

 

(in thousands, except per share amounts)

 

Balance at June 30, 2024

 

 

22,400

 

 

$

541,482

 

 

 

86,861

 

 

$

869

 

 

$

1,923,780

 

 

$

(526,262

)

 

$

1,939,869

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41,407

 

 

 

41,407

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

816

 

 

 

—

 

 

 

816

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,455

)

 

 

(10,455

)

Common shares ($0.40 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(34,850

)

 

 

(34,850

)

Balance at September 30, 2024

 

 

22,400

 

 

$

541,482

 

 

 

86,861

 

 

$

869

 

 

$

1,924,596

 

 

$

(530,160

)

 

$

1,936,787

 

 

 

 

Nine months ended September 30, 2025

 

 

 

Preferred shares

 

 

Common shares

 

 

 

 

 

 

 

 

 

Number of
 shares

 

 

Amount

 

 

Number of
 shares

 

 

Par
value

 

 

Additional paid-in capital

 

 

Accumulated
 deficit

 

 

Total

 

 

 

(in thousands, except per share amounts)

 

Balance at December 31, 2024

 

 

22,400

 

 

$

541,482

 

 

 

86,861

 

 

$

869

 

 

$

1,925,067

 

 

$

(528,918

)

 

$

1,938,500

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

75,510

 

 

 

75,510

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

156

 

 

 

1

 

 

 

1,485

 

 

 

—

 

 

 

1,486

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(31,364

)

 

 

(31,364

)

Common shares ($1.20 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(104,823

)

 

 

(104,823

)

Balance at September 30, 2025

 

 

22,400

 

 

$

541,482

 

 

 

87,017

 

 

$

870

 

 

$

1,926,552

 

 

$

(589,595

)

 

$

1,879,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2024

 

 

 

Preferred shares

 

 

Common shares

 

 

 

 

 

 

 

 

 

Number of
 shares

 

 

Amount

 

 

Number of
 shares

 

 

Par
value

 

 

Additional paid-in capital

 

 

Accumulated
 deficit

 

 

Total

 

 

 

(in thousands, except per share amounts)

 

Balance at December 31, 2023

 

 

22,400

 

 

$

541,482

 

 

 

86,624

 

 

$

866

 

 

$

1,923,437

 

 

$

(508,695

)

 

$

1,957,090

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

114,449

 

 

 

114,449

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

237

 

 

 

3

 

 

 

1,159

 

 

 

—

 

 

 

1,162

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(31,364

)

 

 

(31,364

)

Common shares ($1.20 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(104,550

)

 

 

(104,550

)

Balance at September 30, 2024

 

 

22,400

 

 

$

541,482

 

 

 

86,861

 

 

$

869

 

 

$

1,924,596

 

 

$

(530,160

)

 

$

1,936,787

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

75,510

 

 

$

114,449

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Net gains on investments and financings

 

 

(160,080

)

 

 

(166,705

)

Net gains on loans held for sale

 

 

(45,007

)

 

 

(46,737

)

Change in fair value of mortgage servicing rights

 

 

336,097

 

 

 

263,676

 

Mortgage servicing rights hedging results

 

 

127,941

 

 

 

175,399

 

Accrual of unearned discounts and amortization of purchase premiums on
   mortgage-backed securities, loans held for investment, and asset-backed financings

 

 

(27,036

)

 

 

(25,967

)

Amortization of debt issuance costs

 

 

15,322

 

 

 

16,742

 

Results of real estate acquired in settlement of loans

 

 

169

 

 

 

155

 

Share-based compensation expense

 

 

2,613

 

 

 

3,008

 

Purchase of loans held for sale from nonaffiliates

 

 

(59,033,943

)

 

 

(67,670,193

)

Purchase of loans held for sale from PennyMac Financial Services, Inc.

 

 

(5,673,014

)

 

 

(191,250

)

Sale to nonaffiliates and repayment of loans held for sale

 

 

7,480,047

 

 

 

9,340,802

 

Sale of loans held for sale to PennyMac Financial Services, Inc.

 

 

52,856,500

 

 

 

57,502,461

 

Repurchase of loans subject to representations and warranties

 

 

(21,113

)

 

 

(25,318

)

Decrease in servicing advances

 

 

43,309

 

 

 

134,885

 

Increase in due from PennyMac Financial Services, Inc.

 

 

(2,156

)

 

 

(8,482

)

Decrease (increase) in other assets

 

 

131,263

 

 

 

(225,737

)

Decrease in accounts payable and accrued liabilities

 

 

(3,838

)

 

 

(242,451

)

Increase in due to PennyMac Financial Services, Inc.

 

 

9,959

 

 

 

3,341

 

Decrease in income taxes payable

 

 

(20,029

)

 

 

(34,459

)

Net cash used in operating activities

 

 

(3,907,486

)

 

 

(1,082,381

)

Cash flows from investing activities

 

 

 

 

 

 

Net (increase) decrease in short-term investments

 

 

(77,845

)

 

 

25,551

 

Purchase of mortgage-backed securities

 

 

(942,462

)

 

 

(479,960

)

Sale and repayment of mortgage-backed securities

 

 

552,184

 

 

 

1,245,129

 

Repayment of loans held for investment

 

 

299,531

 

 

 

75,113

 

Net settlement of derivative financial instruments

 

 

5,110

 

 

 

(1,346

)

Distribution from credit risk transfer arrangements

 

 

115,232

 

 

 

118,668

 

Purchase of mortgage servicing rights

 

 

—

 

 

 

(27,981

)

Transfer of mortgage servicing rights relating to delinquent loans to Agency

 

 

(675

)

 

 

(341

)

Sale of real estate acquired in settlement of loans

 

 

686

 

 

 

1,127

 

(Increase) decrease in margin deposits

 

 

(74,811

)

 

 

122,389

 

Net cash (used in) provided by investing activities

 

 

(123,050

)

 

 

1,078,349

 

 

 

Statements continued on the next page

7

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Continued)

 

 

Nine months ended September 30,

 

 

2025

 

 

2024

 

 

(in thousands)

 

Cash flows from financing activities

 

 

 

 

 

Sale of assets under agreements to repurchase

 

88,710,128

 

 

 

91,889,781

 

Repurchase of assets sold under agreements to repurchase

 

(87,506,607

)

 

 

(91,766,070

)

Issuance of mortgage loan participation purchase and sale agreements

 

665,124

 

 

 

1,771,100

 

Repayment of mortgage loan participation purchase and sale agreements

 

(676,775

)

 

 

(1,742,221

)

Issuance of notes payable secured by credit risk transfer and mortgage servicing assets

 

150,000

 

 

 

1,306,500

 

Repayment of notes payable secured by credit risk transfer and mortgage servicing assets

 

(835,552

)

 

 

(1,384,419

)

Issuance of unsecured senior notes

 

277,500

 

 

 

216,500

 

Issuance of asset-backed financings of variable interest entities

 

3,617,501

 

 

 

8,137

 

Repayment of asset-backed financings of variable interest entities

 

(293,955

)

 

 

(73,083

)

Payment of debt issuance costs

 

(14,019

)

 

 

(21,260

)

Payment of dividends to preferred shareholders

 

(31,364

)

 

 

(31,364

)

Payment of dividends to common shareholders

 

(104,524

)

 

 

(104,450

)

Payment of vested share-based compensation tax withholdings

 

(1,127

)

 

 

(1,846

)

Net cash provided by financing activities

 

3,956,330

 

 

 

67,305

 

Net (decrease) increase in cash

 

(74,206

)

 

 

63,273

 

Cash at beginning of period

 

337,694

 

 

 

281,085

 

Cash at end of period

$

263,488

 

 

$

344,358

 

Supplemental cash flow information

 

 

 

 

 

Payments, net:

 

 

 

 

 

Income taxes

$

2,223

 

 

$

7,534

 

Interest

$

615,598

 

 

$

564,417

 

Non-cash investing activities:

 

 

 

 

 

Recognition of loans held for investment resulting from initial consolidation
   of variable interest entities

$

4,013,749

 

 

$

—

 

Receipt of mortgage servicing rights as proceeds from sales of loans

$

136,783

 

 

$

159,456

 

Unsettled purchase of mortgage servicing rights

$

—

 

 

$

1,447

 

Exchange of mortgage servicing spread for interest-only stripped mortgage-backed
   securities and interest receivable

$

—

 

 

$

35,609

 

Non-cash financing activities:

 

 

 

 

 

Dividends declared, not paid

$

35,137

 

 

$

34,850

 

 

The accompanying notes are an integral part of these consolidated financial statements.

8

 

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

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 reportable segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. All other activities are included in corporate:

•
The credit sensitive strategies segment represents the Company’s investments in credit risk transfer (“CRT”) arrangements referencing loans from its own correspondent production (“CRT arrangements”) and subordinate mortgage-backed securities (“MBS”).
•
The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), Agency and senior non-Agency MBS and the related interest rate hedging activities.
•
The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PNMAC Capital Management, LLC (“PCM”) and PennyMac Loan Services, LLC (“PLS”), both wholly-owned subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.

The Company primarily sells the loans it acquires through its correspondent production activities to government-sponsored enterprises ("GSEs") such as the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”) or to PLS primarily for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"), or the GSEs. Freddie Mac, Fannie Mae and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” The Company may also securitize loans directly and retain senior and subordinate MBS created in the securitizations.

•
Corporate activities include management fees, corporate expense amounts and certain interest income and expense. None of the corporate activities qualify as reportable segments.

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, income, and cash flows for the interim periods presented, but are not necessarily indicative of the income that may be expected 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.

 

9

 

Recently Issued Accounting Pronouncement

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:

•
Reconciliation of the expected income tax at the applicable statutory federal income tax rate to the reported income tax in a tabular format, using both percentages and amounts, broken out into specific categories with certain reconciling items of five percent or greater of the expected tax further broken out by nature and/or jurisdiction; and
•
Income taxes paid, net of refunds received, broken out between federal and state and local income taxes. Payments to individual jurisdictions representing five percent or more of the total income tax payments must also be separately disclosed.

The disclosures required by ASU 2023-09 are required in the Company’s annual financial statements beginning with the year ended December 31, 2025.

 

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 is exposed to fair value risk and credit risk 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 as well as credit losses arising from its investments in CRT arrangements and subordinate MBS.

Fair Value Risk

The Company carries its non-cash financial assets and MSRs at fair value with changes in fair value included in its income:

•
The fair value of MSRs is sensitive to changes in prepayment speed expectation and experience, the returns demanded by market participants and estimates of cost to service the underlying loans;
•
The fair values of Agency and senior non-Agency MBS are sensitive to changes in market interest rates; and
•
The fair values of CRT arrangements and subordinate MBS are sensitive to market perceptions of future credit performance of the underlying loans as well as the actual credit performance of such loans and the returns required by market participants to hold such investments.

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 interest-only (“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

10

 

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.

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 or distressed loans).

Under the Servicing Agreement, as amended, servicing fees for all subserviced MSRs and loans 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 September 30, 2025, the per-loan base servicing fees for loans subserviced by PLS on the Company’s behalf were $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans. Effective October 1, 2025, the per loan base servicing fees for mortgage loans are $7.00 per month for fixed-rate loans and $8.00 per month for adjustable-rate loans.
•
To the extent that these prime loans became delinquent, PLS is entitled to an additional servicing fee per loan ranging from $18 to $80 per month based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes REO.
•
PLS is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees, pass through of Agency incentive fees to PLS for loss mitigation activities and a fee for processing insurance and guarantee claims on defaulted loans.

 

Through 2024, the loan servicing fees were established based on whether the serviced loans were “prime” loans (loans included in PMT’s MSRs, private label securitization portfolios and its inventory of loans held for sale) or “special servicing” loans (loans purchased by PMT with credit deterioration) as follows:

Prime Servicing

•
The per-loan base servicing fees for prime loans subserviced by PLS on the Company’s behalf were $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans.
•
To the extent that prime loans became delinquent, PLS was entitled to an additional servicing fee per loan ranging from $10 to $55 per month based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property became REO.
•
PLS was also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption and modification and origination fees and certain fees for forbearance and modification activities.

Special Servicing

•
The per-loan base servicing fee rates for distressed loans ranged from $30 per month for current loans up to $95 per month for loans in foreclosure proceedings. The base servicing fee rate for REO was $75 per month. PLS also received a supplemental servicing fee of $25 per month for each special servicing loan.
•
PLS received activity-based fees for modifications, foreclosures and liquidations that it facilitated with respect to special servicing, as well as other market-based refinancing and loan disposition fees.

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. 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:

•
70% of the fair market value of the MSRs relating to the recaptured loans subject to the first 30% of the “recapture rate”;
•
50% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30% and up to 50%;
•
40% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 50%; and
•
a recapture fee of $900 per loan if PLS originates a mortgage loan for the purpose of purchasing a property where the customer has or had a mortgage loan for which PMT holds or held the MSR.

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:

•
40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”;
•
35% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 15% and up to 30%; and
•
30% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30%.

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

383

 

 

$

158

 

 

$

891

 

 

$

342

 

Loans held for investment

 

 

(233

)

 

 

60

 

 

 

161

 

 

 

185

 

Mortgage servicing rights

 

 

20,862

 

 

 

22,022

 

 

 

63,334

 

 

 

62,239

 

 

$

21,012

 

 

$

22,240

 

 

$

64,386

 

 

$

62,766

 

Average investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

Held for sale

 

$

2,058,167

 

 

$

1,069,653

 

 

$

2,087,048

 

 

$

1,002,719

 

Held for investment

 

$

5,235,047

 

 

$

1,388,368

 

 

$

3,885,345

 

 

$

1,401,643

 

Average MSR portfolio unpaid principal balance

 

$

220,178,747

 

 

$

227,804,449

 

 

$

222,854,243

 

 

$

229,174,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights recapture fees

 

$

3,345

 

 

$

441

 

 

$

6,027

 

 

$

1,267

 

Unpaid principal balance of loans recaptured

 

$

205,055

 

 

$

71,370

 

 

$

547,577

 

 

$

207,651

 

 

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; correspondent seller performance and credit monitoring; and the sale of loans through secondary mortgage markets on behalf of the Company.

The mortgage banking services agreement was amended and renewed effective January 1, 2025. As part of the amendment of the mortgage banking services agreement, PLS assumed the role of initial correspondent loan purchaser instead of the Company effective July 1, 2025. Under the amended 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 below. PLS may hold or otherwise sell correspondent loans to other investors if the Company chooses not to purchase such loans. As a result of the new structure, the sourcing fee arrangement described below no longer has any effect for correspondent loan commitments entered into beginning on July 1, 2025.

Effective January 1, 2025, fulfillment fees in any quarter shall not exceed the following:

•
the number of non-Ginnie Mae loan commitments issued during the quarter after applying a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, and then multiplied by a ratio of (i) the number of loan commitments relating to loans intended to be purchased by PMT during the quarter and thereafter retained by PMT prior to sale or securitization, to (ii) the total number of non-Ginnie Mae loan commitments issued during the quarter (as determined after applying the applicable pull-through factor to each such non-Ginnie Mae loan commitment), plus
•
$315 multiplied by the number of purchased loans up to and including 16,500 per quarter and $195 multiplied by the number of purchased loans in excess of 16,500 per quarter, multiplied by a ratio of (i) the number of loans purchased by the Company during the quarter and thereafter retained by PMT prior to sale or securitization to (ii) the total number of non-Ginnie Mae loans purchased during the quarter, plus
•
$500 multiplied by the number of all purchased loans that are sold or securitized to parties other than Freddie Mac or Fannie Mae; provided however, that no fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae mortgage loans, any Freddie Mac mortgage loan or Fannie Mae mortgage loan acquired by PLS from the Company on a discretionary basis, or any mortgage loan acquired by the Company from PLS on or before June 30, 2025, provided that supplemental fees may still be charged in connection with the securitization or sale of any such mortgage loans.

Through December 2024, the mortgage banking services agreement provided for a quarterly fulfillment fee not to exceed the following:

•
the number of loan commitments issued by the Company multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus
•
$315 multiplied by the number of purchased loans up to and including 16,500 per quarter and $195 multiplied by the number of purchased loans in excess of 16,500 per quarter, plus
•
$750 multiplied by the number of all purchased loans that are sold to parties other than Fannie Mae and Freddie Mac;
•
provided however, that no fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae loans and designated Fannie Mae or Freddie Mac loans acquired by PLS.

13

 

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, through June 30, 2025, PLS purchased mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at its 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 were held by the Company before purchase by PLS. PLS could also acquire conventional loans from the Company on the same terms upon mutual agreement between the Company and PLS.

While PLS purchased 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.

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 between the Company and PLS:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Loan fulfillment fees earned by PLS

 

$

6,162

 

 

$

11,492

 

 

$

17,266

 

 

$

19,935

 

Unpaid principal balance of loans fulfilled by PLS (1)

 

$

3,343,181

 

 

$

5,948,057

 

 

$

9,210,743

 

 

$

9,949,135

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcing fees received from PLS included in
   Net gains on loans held for sale

 

$

531

 

 

$

1,994

 

 

$

5,204

 

 

$

5,649

 

Unpaid principal balance of loans sold to PLS:

 

 

 

 

 

 

 

 

 

 

 

 

Government guaranteed or insured

 

$

3,081,974

 

 

$

11,843,268

 

 

$

27,060,094

 

 

$

30,200,608

 

Conventional conforming

 

 

2,322,914

 

 

 

8,092,380

 

 

 

24,984,726

 

 

 

26,289,016

 

 

$

5,404,888

 

 

$

19,935,648

 

 

$

52,044,820

 

 

$

56,489,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of loans held for sale from PLS:

 

 

 

 

 

 

 

 

 

 

 

 

Under the fulfillment agreement

 

$

2,656,334

 

 

$

—

 

 

$

2,656,334

 

 

$

—

 

Other

 

 

1,326,988

 

 

 

191,250

 

 

 

3,016,680

 

 

 

191,250

 

 

 

$

3,983,322

 

 

$

191,250

 

 

$

5,673,014

 

 

$

191,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax service fees paid to PLS

 

$

558

 

 

$

1,112

 

 

$

1,537

 

 

$

1,902

 

 

(1)
Amounts include loans purchased directly by the Company and loans purchased from PLS under the fulfillment agreement.

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(in thousands)

 

 

Loans included in Loans held for sale at fair value pending sale to PLS

 

$

2,584

 

 

$

602,108

 

 

 

Management Agreement

PMT has a management agreement with PCM, pursuant to which the Company 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.
•
A performance incentive fee that is calculated annually at a defined annualized percentage of the amount by which “net income,” for a fiscal year and before deducting the incentive fee, exceeds certain levels of return on “common shareholders’ equity.”

14

 

The performance incentive fee is equal to the sum of:

•
10% of the amount by which “net income” for the year exceeds (i) an 8% return on the average “common shareholders’ equity” plus the “high watermark”, up to (ii) a 12% return on “common shareholders’ equity” during the fiscal year; plus
•
15% of the amount by which “net income” for the year exceeds (i) a 12% return on the average “common shareholders’ equity” plus the “high watermark”, up to (ii) a 16% return on “common shareholders’ equity” during the fiscal year; plus
•
20% of the amount by which “net income” for the year exceeds a 16% return on the average “common shareholders’ equity” during the fiscal year plus the “high watermark.”

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.

“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.

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.

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Base management fee

 

$

6,912

 

 

$

7,153

 

 

$

20,793

 

 

$

21,474

 

Performance incentive fee

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

$

6,912

 

 

$

7,153

 

 

$

20,793

 

 

$

21,474

 

Average shareholders' equity amounts used to calculate
    base management fee expense

 

$

1,828,365

 

 

$

1,897,006

 

 

$

1,853,613

 

 

$

1,912,310

 

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.

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,

15

 

machinery and other office, internal and overhead expenses (common overhead) 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.

Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Reimbursement of:

 

 

 

 

 

 

 

 

 

 

 

 

Expenses incurred on the Company’s behalf, net

 

$

6,873

 

 

$

6,318

 

 

$

16,437

 

 

$

15,511

 

Compensation

 

 

1,629

 

 

 

165

 

 

 

4,886

 

 

 

495

 

Common overhead

 

 

982

 

 

 

1,867

 

 

 

2,945

 

 

 

5,811

 

 

$

9,484

 

 

$

8,350

 

 

$

24,268

 

 

$

21,817

 

Payments and settlements during the period (1)

 

$

27,709

 

 

$

31,752

 

 

$

88,385

 

 

$

91,100

 

 

(1)
Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PCM and its affiliates for the operating, investing and financing activities itemized in this Note.

Financing Activities

PFSI Investment in the Company

PFSI held 75,000 of the Company’s Common Shares at both September 30, 2025 and December 31, 2024.

Amounts Receivable from and Payable to PFSI

Amounts receivable from and payable to PFSI are summarized below:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

(in thousands)

 

Due from PFSI-Miscellaneous receivables

 

$

18,171

 

 

$

16,015

 

 

 

 

 

 

 

Due to PFSI:

 

 

 

 

 

 

Correspondent production activities

 

$

24,277

 

 

$

11,122

 

Management fees

 

 

6,912

 

 

 

7,149

 

Loan servicing fees

 

 

6,778

 

 

 

6,822

 

Allocated expenses and expenses and costs

 

 

2,198

 

 

 

3,508

 

Fulfillment fees

 

 

—

 

 

 

1,605

 

 

$

40,165

 

 

$

30,206

 

 

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

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

Servicing advances

 

$

61,599

 

 

$

105,037

 

Other assets-Real estate acquired in settlement of loans

 

 

835

 

 

 

1,265

 

 

$

62,434

 

 

$

106,302

 

 

16

 

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sales

 

$

2,496,351

 

 

$

5,172,208

 

 

$

7,480,047

 

 

$

9,340,802

 

Loan servicing fees received

 

$

151,395

 

 

$

162,605

 

 

$

456,705

 

 

$

485,089

 

The following table summarizes for the dates presented collection status information for loan transfers that are accounted for as sales where the Company maintains continuing involvement:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(in thousands)

 

 

Unpaid principal balance of loans outstanding

 

$

215,531,799

 

 

$

222,761,227

 

 

Collection status (Unpaid principal balance)

 

 

 

 

 

 

 

Delinquency:

 

 

 

 

 

 

 

30-89 days delinquent

 

$

2,714,650

 

 

$

2,618,767

 

 

90 or more days delinquent:

 

 

 

 

 

 

 

Not in foreclosure

 

$

980,439

 

 

$

1,078,362

 

 

In foreclosure

 

$

117,024

 

 

$

105,810

 

 

Bankruptcy

 

$

336,957

 

 

$

281,821

 

 

 

 

 

 

 

 

 

 

Custodial funds managed by the Company (1)

 

$

3,338,306

 

 

$

2,385,602

 

 

 

(1)
Custodial funds represent borrower and investor custodial cash accounts relating to loans serviced under mortgage servicing agreements and are not included on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, and these fees are included in Interest income in the Company’s consolidated statements of income.

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:

•
securities which are structured such that loans that reach a specific number of days delinquent (including loans in forbearance) trigger losses chargeable to the CRT arrangement based on the sizes of the delinquent loans and a contractual schedule of loss severity; and
•
securities which require the Company to absorb losses only when the reference loans realize credit losses.

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.

17

 

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’ income. 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, strips and 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 income.

Following is a summary of the CRT arrangements:

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer derivatives and strips:

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

$

2,599

 

 

$

3,275

 

 

$

8,034

 

 

$

10,248

 

Valuation changes

 

 

348

 

 

 

5,460

 

 

 

2,268

 

 

 

13,716

 

 

 

2,947

 

 

 

8,735

 

 

 

10,302

 

 

 

23,964

 

Credit risk transfer strips

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

9,623

 

 

 

10,990

 

 

 

29,350

 

 

 

34,368

 

Valuation changes

 

 

1,177

 

 

 

3,499

 

 

 

(5,124

)

 

 

33,217

 

 

 

10,800

 

 

 

14,489

 

 

 

24,226

 

 

 

67,585

 

Interest-only security payable at fair value — valuation
   changes

 

 

(5

)

 

 

(2,390

)

 

 

(2,336

)

 

 

(2,431

)

 

 

13,742

 

 

 

20,834

 

 

 

32,192

 

 

 

89,118

 

Interest income — Deposits securing credit risk transfer
    arrangements

 

 

11,125

 

 

 

15,042

 

 

 

34,201

 

 

 

46,121

 

 

$

24,867

 

 

$

35,876

 

 

$

66,393

 

 

$

135,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net payments made to settle losses on credit risk transfer
   arrangements

 

$

1,250

 

 

$

827

 

 

$

3,718

 

 

$

1,140

 

 

18

 

 

 

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

 

 

 

(in thousands)

 

Carrying value of credit risk transfer arrangements:

 

 

 

 

 

 

 

 

 

 

Derivative assets - credit risk transfer derivatives

 

 

 

 

 

$

31,432

 

 

$

29,377

 

Derivative and credit risk transfer liabilities — credit risk transfer strip liabilities

 

 

(9,330

)

 

 

(4,060

)

Deposits securing credit risk transfer arrangements

 

 

 

 

 

 

1,033,008

 

 

 

1,110,708

 

Interest-only security payable at fair value

 

 

 

 

 

 

(36,558

)

 

 

(34,222

)

 

 

 

 

 

 

$

1,018,552

 

 

$

1,101,803

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer arrangement assets pledged to secure borrowings:

 

 

 

 

 

 

 

 

Derivative assets

 

 

 

 

 

$

31,432

 

 

$

29,377

 

Deposits securing credit risk transfer arrangements (1)

 

 

 

$

1,033,008

 

 

$

1,110,708

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of loans underlying credit risk transfer arrangements

 

$

19,937,381

 

 

$

21,249,304

 

Collection status (unpaid principal balance):

 

 

 

 

 

 

 

 

Delinquency

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

19,314,008

 

 

$

20,628,148

 

30-89 days delinquent

 

 

 

 

 

$

433,928

 

 

$

414,605

 

90-179 days delinquent

 

 

 

 

 

$

105,783

 

 

$

131,191

 

180 or more days delinquent

 

 

 

 

 

$

59,042

 

 

$

51,343

 

Foreclosure

 

 

 

 

 

$

24,620

 

 

$

24,017

 

Bankruptcy

 

 

 

 

 

$

68,491

 

 

$

63,697

 

 

(1)
Deposits securing credit risk transfer arrangements also secure $9.3 million and $4.1 million in CRT strip liabilities at September 30, 2025 and December 31, 2024, respectively.

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.

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 earned on the loans owned by the VIEs as Interest income and the interest attributable to the asset-backed securities issued to nonaffiliates by the VIEs as Interest expense on its consolidated statements of income.

19

 

Following is a summary of the Company’s investment in MBS backed by assets held in consolidated VIEs:

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment at fair value

 

$

48,488

 

 

$

75,360

 

 

$

90,800

 

 

$

71,381

 

Asset-backed financings at fair value

 

 

(35,707

)

 

 

(72,922

)

 

 

(79,923

)

 

 

(64,151

)

Interest income

 

 

67,153

 

 

 

16,037

 

 

 

151,513

 

 

 

41,594

 

Interest expense

 

 

65,409

 

 

 

10,838

 

 

 

140,573

 

 

 

34,918

 

 

 

$

14,525

 

 

$

7,637

 

 

$

21,817

 

 

$

13,906

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(in thousands)

 

 

Loans held for investment at fair value

 

$

5,981,451

 

 

$

2,191,709

 

 

Asset-backed financings at fair value

 

$

5,439,582

 

 

$

2,040,375

 

 

Retained mortgage-backed securities at fair value pledged
   to secure Assets sold under agreements to repurchase

 

$

473,472

 

 

$

130,839

 

 

Financing of Mortgage Servicing Assets

The Company entered into financing transactions in which it pledged participation interests in its Fannie Mae MSRs to VIEs which issued variable funding notes, term notes and term loans backed by the participation interests. 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.

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 assigned inputs used to determine fair value. The fair value level assigned to an asset or liability is based on the lowest level of input that is significant to the fair value measurement. These levels are:

•
Level 1—Quoted prices in active markets for identical assets or liabilities.
•
Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.
•
Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. 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 in the circumstances.

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.

20

 

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 income 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.

21

 

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:

 

 

September 30, 2025

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

181,043

 

 

$

—

 

 

$

—

 

 

$

181,043

 

Mortgage-backed securities

 

 

—

 

 

 

4,533,807

 

 

 

75,357

 

 

 

4,609,164

 

Loans held for sale

 

 

—

 

 

 

2,418,699

 

 

 

2,334

 

 

 

2,421,033

 

Loans held for investment

 

 

—

 

 

 

5,981,451

 

 

 

1,746

 

 

 

5,983,197

 

Derivative assets with non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase contracts

 

 

3,387

 

 

 

—

 

 

 

—

 

 

 

3,387

 

Put options on interest rate futures purchase contracts

 

 

4,508

 

 

 

—

 

 

 

—

 

 

 

4,508

 

Forward purchase contracts

 

 

—

 

 

 

2,466

 

 

 

—

 

 

 

2,466

 

Forward sale contracts

 

 

—

 

 

 

8,051

 

 

 

—

 

 

 

8,051

 

Credit risk transfer derivatives

 

 

—

 

 

 

—

 

 

 

31,432

 

 

 

31,432

 

Total derivative assets with non-affiliates before netting

 

 

7,895

 

 

 

10,517

 

 

 

31,432

 

 

 

49,844

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,501

 

Total derivative assets with non-affiliates after netting

 

 

7,895

 

 

 

10,517

 

 

 

31,432

 

 

 

51,345

 

Derivative assets with PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

7,097

 

 

 

7,097

 

Forward purchase contracts

 

 

—

 

 

 

534

 

 

 

—

 

 

 

534

 

Total derivative assets with PennyMac Financial
   Services, Inc. before netting

 

 

—

 

 

 

534

 

 

 

7,097

 

 

 

7,631

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(534

)

Total derivative assets with PennyMac Financial
   Services, Inc. after netting

 

 

—

 

 

 

534

 

 

 

7,097

 

 

 

7,097

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

3,668,755

 

 

 

3,668,755

 

 

$

188,938

 

 

$

12,945,008

 

 

$

3,786,721

 

 

$

16,921,634

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

—

 

 

$

—

 

 

$

36,558

 

 

$

36,558

 

Asset-backed financings of variable interest entities

 

 

—

 

 

 

5,439,582

 

 

 

—

 

 

 

5,439,582

 

Derivative and credit risk transfer strip liabilities with
   non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

 

—

 

 

 

2,467

 

 

 

—

 

 

 

2,467

 

Forward sales contracts

 

 

—

 

 

 

26,696

 

 

 

—

 

 

 

26,696

 

Total derivative liabilities with non-affiliates before netting

 

 

—

 

 

 

29,163

 

 

 

—

 

 

 

29,163

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(28,086

)

Total derivative liabilities with non-affiliates after netting

 

 

—

 

 

 

29,163

 

 

 

—

 

 

 

1,077

 

Credit risk transfer strips

 

 

—

 

 

 

—

 

 

 

9,330

 

 

 

9,330

 

Total derivative and credit risk transfer strip liabilities
    with non-affiliates

 

 

—

 

 

 

29,163

 

 

 

9,330

 

 

 

10,407

 

Derivative liabilities with PennyMac Financial Services, Inc:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

1,608

 

 

 

1,608

 

Forward purchase contracts

 

 

—

 

 

 

705

 

 

 

—

 

 

 

705

 

Total derivative liabilities with PennyMac Financial
   Services, Inc before netting

 

 

—

 

 

 

705

 

 

 

1,608

 

 

 

2,313

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(534

)

Total derivative liabilities with PennyMac Financial
  Services, Inc after netting:

 

 

—

 

 

 

705

 

 

 

1,608

 

 

 

1,779

 

 

$

—

 

 

$

5,469,450

 

 

$

47,496

 

 

$

5,488,326

 

 

 

22

 

 

 

December 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

103,198

 

 

$

—

 

 

$

—

 

 

$

103,198

 

Mortgage-backed securities

 

 

—

 

 

 

3,977,446

 

 

 

86,260

 

 

 

4,063,706

 

Loans held for sale

 

 

—

 

 

 

2,108,347

 

 

 

7,971

 

 

 

2,116,318

 

Loans held for investment

 

 

—

 

 

 

2,191,709

 

 

 

1,866

 

 

 

2,193,575

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase contracts

 

 

156

 

 

 

—

 

 

 

—

 

 

 

156

 

Put options on interest rate futures purchase contracts

 

 

6,372

 

 

 

—

 

 

 

—

 

 

 

6,372

 

Forward purchase contracts

 

 

—

 

 

 

614

 

 

 

—

 

 

 

614

 

Forward sale contracts

 

 

—

 

 

 

54,056

 

 

 

—

 

 

 

54,056

 

MBS put options

 

 

—

 

 

 

2,114

 

 

 

—

 

 

 

2,114

 

CRT derivatives

 

 

—

 

 

 

—

 

 

 

29,377

 

 

 

29,377

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

3,562

 

 

 

3,562

 

Total derivative assets before netting

 

 

6,528

 

 

 

56,784

 

 

 

32,939

 

 

 

96,251

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(39,411

)

Total derivative assets after netting

 

 

6,528

 

 

 

56,784

 

 

 

32,939

 

 

 

56,840

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

3,867,394

 

 

 

3,867,394

 

 

$

109,726

 

 

$

8,334,286

 

 

$

3,996,430

 

 

$

12,401,031

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

—

 

 

$

—

 

 

$

34,222

 

 

$

34,222

 

Asset-backed financings of variable interest entities

 

 

—

 

 

 

2,040,375

 

 

 

—

 

 

 

2,040,375

 

Derivative liabilities and credit risk transfer strips:

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

 

—

 

 

 

6,336

 

 

 

—

 

 

 

6,336

 

Forward sales contracts

 

 

—

 

 

 

1,753

 

 

 

—

 

 

 

1,753

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

3,118

 

 

 

3,118

 

Total derivative liabilities before netting

 

 

—

 

 

 

8,089

 

 

 

3,118

 

 

 

11,207

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,916

)

Total derivative liabilities after netting

 

 

—

 

 

 

8,089

 

 

 

3,118

 

 

 

3,291

 

Credit risk transfer strips

 

 

—

 

 

 

—

 

 

 

4,060

 

 

 

4,060

 

Total derivative and credit risk transfer strip liabilities

 

 

—

 

 

 

8,089

 

 

 

7,178

 

 

 

7,351

 

 

$

—

 

 

$

2,048,464

 

 

$

41,400

 

 

$

2,081,948

 

 

23

 

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 periods presented:

 

 

Quarter ended September 30, 2025

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
held
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments (2)

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, June 30, 2025

 

$

79,052

 

 

$

7,165

 

 

$

1,854

 

 

$

31,147

 

 

$

6,485

 

 

$

(10,479

)

 

$

3,739,106

 

 

$

3,854,330

 

Purchases and issuances

 

 

—

 

 

 

(1,305

)

 

 

—

 

 

 

—

 

 

 

13,533

 

 

 

—

 

 

 

—

 

 

 

12,228

 

Repayments and sales

 

 

(4,387

)

 

 

(3,771

)

 

 

(99

)

 

 

(2,662

)

 

 

—

 

 

 

(9,651

)

 

 

—

 

 

 

(20,570

)

Accrual of unearned discounts

 

 

2,161

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,161

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

45,744

 

 

 

45,744

 

Changes in fair value included in
   income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument - specific
   credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(1,469

)

 

 

245

 

 

 

(9

)

 

 

2,947

 

 

 

11,290

 

 

 

10,800

 

 

 

(116,379

)

 

 

(92,575

)

 

 

(1,469

)

 

 

245

 

 

 

(9

)

 

 

2,947

 

 

 

11,290

 

 

 

10,800

 

 

 

(116,379

)

 

 

(92,575

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments to
   loans held for sale (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(25,819

)

 

 

—

 

 

 

—

 

 

 

(25,819

)

Mortgage servicing rights relating
   to delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

284

 

 

 

284

 

Balance, September 30, 2025

 

$

75,357

 

 

$

2,334

 

 

$

1,746

 

 

$

31,432

 

 

$

5,489

 

 

$

(9,330

)

 

$

3,668,755

 

 

$

3,775,783

 

Changes in fair value recognized
  during the quarter relating to
  assets still held at September 30, 2025

 

$

(1,469

)

 

$

(15

)

 

$

(31

)

 

$

348

 

 

$

5,489

 

 

$

1,177

 

 

$

(116,379

)

 

$

(110,880

)

 

(1)
For the purpose of this table, interest rate lock commitments (“IRLC”) and CRT strip asset and liability positions are shown net.
(2)
Includes IRLCs with non-affiliates and PFSI.
(3)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans held for sale upon purchase of the respective loans.

 

 

Liabilities

 

Quarter ended September 30, 2025

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, June 30, 2025

 

$

36,553

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

5

 

 

 

5

 

Balance, September 30, 2025

 

$

36,558

 

Changes in fair value recognized during the quarter relating
    to liability outstanding at September 30, 2025

 

$

5

 

 

24

 

 

Quarter ended September 30, 2024

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
held
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, June 30, 2024

 

$

87,841

 

 

$

7,994

 

 

$

1,998

 

 

$

24,305

 

 

$

1,552

 

 

$

(16,974

)

 

$

3,941,861

 

 

$

4,048,577

 

Purchases and issuances

 

 

—

 

 

 

(156

)

 

 

—

 

 

 

—

 

 

 

18,971

 

 

 

—

 

 

 

—

 

 

 

18,815

 

Repayments and sales

 

 

(40,487

)

 

 

(1,728

)

 

 

(38

)

 

 

(3,350

)

 

 

—

 

 

 

(10,990

)

 

 

—

 

 

 

(56,593

)

Accrual of unearned discounts

 

 

2,264

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,264

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

87,588

 

 

 

87,588

 

Changes in fair value included in
   income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument -
   specific credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(3,971

)

 

 

(41

)

 

 

(10

)

 

 

8,735

 

 

 

27,776

 

 

 

14,489

 

 

 

(184,918

)

 

 

(137,940

)

 

 

(3,971

)

 

 

(41

)

 

 

(10

)

 

 

8,735

 

 

 

27,776

 

 

 

14,489

 

 

 

(184,918

)

 

 

(137,940

)

Exchange of mortgage servicing spread
    for interest-only stripped mortgage
    -backed securities

 

 

35,609

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(35,609

)

 

 

—

 

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments
   to loans held for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(42,397

)

 

 

—

 

 

 

—

 

 

 

(42,397

)

Mortgage servicing rights relating
   to delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

125

 

 

 

125

 

Balance, September 30, 2024

 

$

81,256

 

 

$

6,069

 

 

$

1,950

 

 

$

29,690

 

 

$

5,902

 

 

$

(13,475

)

 

$

3,809,047

 

 

$

3,920,439

 

Changes in fair value recognized during
   the quarter relating to assets still held
   at September 30, 2024

 

$

(3,971

)

 

$

(9

)

 

$

(19

)

 

$

5,460

 

 

$

5,902

 

 

$

3,499

 

 

$

(180,885

)

 

$

(170,023

)

 

(1)
For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans held for sale upon purchase of the respective loans.

 

Liabilities

 

Quarter ended September 30, 2024

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, June 30, 2024

 

$

32,708

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

2,390

 

 

 

2,390

 

Balance, September 30, 2024

 

$

35,098

 

Changes in fair value recognized during the quarter relating
    to liability outstanding at September 30, 2024

 

$

2,390

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

Nine months ended September 30, 2025

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
held
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments (2)

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, December 31, 2024

 

$

86,260

 

 

$

7,971

 

 

$

1,866

 

 

$

29,377

 

 

$

444

 

 

$

(4,060

)

 

$

3,867,394

 

 

$

3,989,252

 

Purchases and issuances

 

 

—

 

 

 

1,826

 

 

 

—

 

 

 

—

 

 

 

21,685

 

 

 

—

 

 

 

—

 

 

 

23,511

 

Repayments and sales

 

 

(13,547

)

 

 

(7,989

)

 

 

(139

)

 

 

(8,247

)

 

 

—

 

 

 

(29,496

)

 

 

—

 

 

 

(59,418

)

Accrual of unearned discounts

 

 

6,611

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,611

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

136,783

 

 

 

136,783

 

Changes in fair value included in income
   arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument - specific
   credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(3,967

)

 

 

526

 

 

 

19

 

 

 

10,302

 

 

 

23,210

 

 

 

24,226

 

 

 

(336,097

)

 

 

(281,781

)

 

 

(3,967

)

 

 

526

 

 

 

19

 

 

 

10,302

 

 

 

23,210

 

 

 

24,226

 

 

 

(336,097

)

 

 

(281,781

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments to
   loans held for sale (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(39,850

)

 

 

—

 

 

 

—

 

 

 

(39,850

)

Mortgage servicing rights relating to
   delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

675

 

 

 

675

 

Balance, September 30, 2025

 

$

75,357

 

 

$

2,334

 

 

$

1,746

 

 

$

31,432

 

 

$

5,489

 

 

$

(9,330

)

 

$

3,668,755

 

 

$

3,775,783

 

Changes in fair value recognized during
   the period relating to assets still held
   at September 30, 2025

 

$

(3,967

)

 

$

89

 

 

$

(1

)

 

$

2,268

 

 

$

5,489

 

 

$

(5,124

)

 

$

(336,097

)

 

$

(337,343

)

 

(1)
For the purpose of this table, IRLCs and CRT strip asset and liability positions are shown net.
(2)
Includes IRLCs with non-affiliates and PFSI.
(3)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans held for sale upon purchase of the respective loans.

 

 

Liabilities

 

Nine months ended September 30, 2025

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, December 31, 2024

 

$

34,222

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

2,336

 

 

 

2,336

 

Balance, September 30, 2025

 

$

36,558

 

Changes in fair value recognized during the period relating
    to liability outstanding at September 30, 2025

 

$

2,336

 

 

 

 

26

 

 

 

Nine months ended September 30, 2024

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
held
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments

 

 

CRT strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, December 31, 2023

 

$

94,231

 

 

$

6,318

 

 

$

2,131

 

 

$

16,160

 

 

$

7,532

 

 

$

(46,692

)

 

$

3,919,107

 

 

$

3,998,787

 

Purchases and issuances

 

 

—

 

 

 

5,341

 

 

 

—

 

 

 

—

 

 

 

26,842

 

 

 

—

 

 

 

29,428

 

 

 

61,611

 

Repayments and sales

 

 

(50,541

)

 

 

(5,404

)

 

 

(129

)

 

 

(10,434

)

 

 

—

 

 

 

(34,368

)

 

 

—

 

 

 

(100,876

)

Accrual of unearned discount

 

 

6,870

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,870

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

159,456

 

 

 

159,456

 

Changes in fair value included in income
   arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument -
   specific credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(4,913

)

 

 

(186

)

 

 

(52

)

 

 

23,964

 

 

 

22,774

 

 

 

67,585

 

 

 

(263,676

)

 

 

(154,504

)

 

 

(4,913

)

 

 

(186

)

 

 

(52

)

 

 

23,964

 

 

 

22,774

 

 

 

67,585

 

 

 

(263,676

)

 

 

(154,504

)

Exchange of mortgage servicing spread
    for interest-only stripped mortgage
    -backed securities

 

 

35,609

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(35,609

)

 

 

—

 

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments
  to loans held for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(51,246

)

 

 

—

 

 

 

—

 

 

 

(51,246

)

Mortgage servicing rights relating to
   delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

341

 

 

 

341

 

Balance, September 30, 2024

 

$

81,256

 

 

$

6,069

 

 

$

1,950

 

 

$

29,690

 

 

$

5,902

 

 

$

(13,475

)

 

$

3,809,047

 

 

$

3,920,439

 

Changes in fair value recognized during
   the period relating to assets still held
   at September 30, 2024

 

$

(4,913

)

 

$

(154

)

 

$

(71

)

 

$

13,716

 

 

$

5,902

 

 

$

33,217

 

 

$

(261,304

)

 

$

(213,607

)

(1)
For the purpose of this table, IRLCs and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale upon purchase of the respective loans.

 

Liabilities

 

Nine months ended September 30, 2024

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, December 31, 2023

 

$

32,667

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

2,431

 

 

 

2,431

 

Balance, September 30, 2024

 

$

35,098

 

Changes in fair value recognized during the period relating
    to liability outstanding at September 30, 2024

 

$

2,431

 

 

27

 

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 held for sale, loans held in consolidated VIEs, and distressed loans):

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

Fair value

 

 

Principal
amount due
upon maturity

 

 

Difference

 

 

Fair value

 

 

Principal
amount due
upon maturity

 

 

Difference

 

 

 

(in thousands)

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

$

2,418,553

 

 

$

2,348,387

 

 

$

70,166

 

 

$

2,114,556

 

 

$

2,092,030

 

 

$

22,526

 

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

1,870

 

 

 

1,817

 

 

 

53

 

 

 

1,687

 

 

 

2,114

 

 

 

(427

)

In foreclosure

 

 

610

 

 

 

826

 

 

 

(216

)

 

 

75

 

 

 

96

 

 

 

(21

)

 

 

2,480

 

 

 

2,643

 

 

 

(163

)

 

 

1,762

 

 

 

2,210

 

 

 

(448

)

 

$

2,421,033

 

 

$

2,351,030

 

 

$

70,003

 

 

$

2,116,318

 

 

$

2,094,240

 

 

$

22,078

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held in consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

$

5,980,525

 

 

$

5,943,621

 

 

$

36,904

 

 

$

2,190,432

 

 

$

2,413,214

 

 

$

(222,782

)

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

765

 

 

 

904

 

 

 

(139

)

 

 

1,277

 

 

 

1,658

 

 

 

(381

)

In foreclosure

 

 

161

 

 

 

203

 

 

 

(42

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

926

 

 

 

1,107

 

 

 

(181

)

 

 

1,277

 

 

 

1,658

 

 

 

(381

)

 

 

5,981,451

 

 

 

5,944,728

 

 

 

36,723

 

 

 

2,191,709

 

 

 

2,414,872

 

 

 

(223,163

)

Distressed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

 

387

 

 

 

495

 

 

 

(108

)

 

 

445

 

 

 

595

 

 

 

(150

)

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

1,084

 

 

 

2,942

 

 

 

(1,858

)

 

 

1,421

 

 

 

3,796

 

 

 

(2,375

)

In foreclosure

 

 

275

 

 

 

732

 

 

 

(457

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,359

 

 

 

3,674

 

 

 

(2,315

)

 

 

1,421

 

 

 

3,796

 

 

 

(2,375

)

 

 

1,746

 

 

 

4,169

 

 

 

(2,423

)

 

 

1,866

 

 

 

4,391

 

 

 

(2,525

)

 

$

5,983,197

 

 

$

5,948,897

 

 

$

34,300

 

 

$

2,193,575

 

 

$

2,419,263

 

 

$

(225,688

)

 

Following are the changes in fair value included in current period income by consolidated statements of income line item for financial statement items accounted for under the fair value option:

 

 

Quarter ended September 30, 2025

 

 

 

Net gains on investments and financings

 

 

Net gains on loans held
for sale

 

 

Net loan
servicing fees

 

 

Net interest
income
(expense)

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

37,572

 

 

$

—

 

 

$

—

 

 

$

20,537

 

 

$

58,109

 

Loans held for sale

 

 

—

 

 

 

51,146

 

 

 

—

 

 

 

—

 

 

 

51,146

 

Loans held for investment

 

 

48,480

 

 

 

—

 

 

 

—

 

 

 

(11,240

)

 

 

37,240

 

Credit risk transfer strips

 

 

10,800

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,800

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(116,379

)

 

 

—

 

 

 

(116,379

)

 

$

96,852

 

 

$

51,146

 

 

$

(116,379

)

 

$

9,297

 

 

$

40,916

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(5

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(5

)

Asset-backed financings of VIEs

 

 

(35,707

)

 

 

—

 

 

 

—

 

 

 

2,389

 

 

 

(33,318

)

 

$

(35,712

)

 

$

—

 

 

$

—

 

 

$

2,389

 

 

$

(33,323

)

 

28

 

 

 

 

Quarter ended September 30, 2024

 

 

 

Net gains on investments and financings

 

 

Net gains on loans held
for sale

 

 

Net loan
servicing fees

 

 

Net interest
income
(expense)

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

123,433

 

 

$

—

 

 

$

—

 

 

$

15,663

 

 

$

139,096

 

Loans held for sale

 

 

—

 

 

 

65,611

 

 

 

—

 

 

 

—

 

 

 

65,611

 

Loans held for investment

 

 

75,350

 

 

 

—

 

 

 

—

 

 

 

2,229

 

 

 

77,579

 

Credit risk transfer strips

 

 

14,489

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14,489

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(184,918

)

 

 

—

 

 

 

(184,918

)

 

$

213,272

 

 

$

65,611

 

 

$

(184,918

)

 

$

17,892

 

 

$

111,857

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(2,390

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(2,390

)

Asset-backed financings of VIEs

 

 

(72,922

)

 

 

—

 

 

 

—

 

 

 

1,026

 

 

 

(71,896

)

 

$

(75,312

)

 

$

—

 

 

$

—

 

 

$

1,026

 

 

$

(74,286

)

 

 

 

 

Nine months ended September 30, 2025

 

 

 

Net gains on investments and financings

 

 

Net gains on loans held
for sale

 

 

Net loan
servicing fees

 

 

Net interest
income
(expense)

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

116,991

 

 

$

—

 

 

$

—

 

 

$

38,189

 

 

$

155,180

 

Loans held for sale

 

 

—

 

 

 

131,737

 

 

 

—

 

 

 

—

 

 

 

131,737

 

Loans held for investment

 

 

90,820

 

 

 

—

 

 

 

—

 

 

 

(15,415

)

 

 

75,405

 

Credit risk transfer strips

 

 

24,226

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

24,226

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(336,097

)

 

 

—

 

 

 

(336,097

)

 

$

232,037

 

 

$

131,737

 

 

$

(336,097

)

 

$

22,774

 

 

$

50,451

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(2,336

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(2,336

)

Asset-backed financings of VIEs

 

 

(79,923

)

 

 

—

 

 

 

—

 

 

 

4,262

 

 

 

(75,661

)

 

$

(82,259

)

 

$

—

 

 

$

—

 

 

$

4,262

 

 

$

(77,997

)

 

 

 

 

 

Nine months ended September 30, 2024

 

 

 

Net gains on investments and financings

 

 

Net gains on loans held
for sale

 

 

Net loan
servicing fees

 

 

Net interest
income
(expense)

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

50,310

 

 

$

—

 

 

$

—

 

 

$

25,340

 

 

$

75,650

 

Loans held for sale

 

 

—

 

 

 

67,243

 

 

 

—

 

 

 

—

 

 

 

67,243

 

Loans held for investment

 

 

71,330

 

 

 

—

 

 

 

—

 

 

 

(511

)

 

 

70,819

 

Credit risk transfer strips

 

 

67,585

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

67,585

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(263,676

)

 

 

—

 

 

 

(263,676

)

 

$

189,225

 

 

$

67,243

 

 

$

(263,676

)

 

$

24,829

 

 

$

17,621

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(2,431

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(2,431

)

Asset-backed financings of VIEs

 

 

(64,151

)

 

 

—

 

 

 

—

 

 

 

1,138

 

 

 

(63,013

)

 

$

(66,582

)

 

$

—

 

 

$

—

 

 

$

1,138

 

 

$

(65,444

)

 

29

 

 

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 period based on fair value on a nonrecurring basis:

Real estate acquired in settlement of loans

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

September 30, 2025

 

$

—

 

 

$

—

 

 

$

243

 

 

$

243

 

December 31, 2024

 

$

—

 

 

$

—

 

 

$

532

 

 

$

532

 

Following is a summary of the fair value changes recognized during the period on assets held at period end that were remeasured at fair value on a nonrecurring basis:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Real estate acquired in settlement of loans

 

$

(28

)

 

$

9

 

 

$

(78

)

 

$

105

 

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 income.

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 included in Unsecured senior notes 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 “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 and internal estimates of fair value for the term loans. The Company estimates the fair values of its Unsecured senior notes using pricing services. The fair values and carrying values of these liabilities are summarized below:

 

 

September 30, 2025

 

 

December 31, 2024

 

Instrument

 

Carrying value

 

 

Fair value

 

 

Carrying value

 

 

Fair value

 

 

 

(in thousands)

 

Notes payable secured by credit risk transfer
    and mortgage servicing assets

 

$

2,248,609

 

 

$

2,260,335

 

 

$

2,929,790

 

 

$

2,944,956

 

Unsecured senior notes

 

$

876,510

 

 

$

903,824

 

 

$

605,860

 

 

$

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 income. 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.

30

 

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:

•
The Company categorizes its current holdings of MBS other than IO stripped MBS as “Level 2” fair value assets. Fair value of these securities is established based on quoted market prices for the Company’s MBS holdings or similar securities.
•
The Company categorizes its current holdings of IO stripped MBS as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of its IO stripped MBS.

 

The key inputs used in the estimation of the fair value of IO stripped MBS include pricing spread or option-adjusted spreads ("OAS") (pricing spread and OAS are each a component of discount rate) and prepayment speed. Significant changes to those inputs in isolation may result in significant changes in the IO stripped MBS' fair value measurements. Changes in these key inputs are not directly related.

Following are the key inputs used in determining the fair value of IO stripped MBS:

 

 

 

September 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands)

 

$

75,357

 

 

$

86,260

 

Key inputs (1)

 

 

 

 

 

 

Option-adjusted spread (2)

 

 

 

 

 

 

Range

 

4.5% – 4.5%

 

 

 

 

Weighted average

 

4.5%

 

 

 

 

Pricing spread (3)

 

 

 

 

 

 

Range

 

 

 

 

5.9% – 6.5%

 

Weighted average

 

 

 

 

6.5%

 

Annual total prepayment speed (4)

 

 

 

 

 

 

Range

 

11.1% – 13.7%

 

 

9.4% – 10.2%

 

Weighted average

 

11.2%

 

 

9.4%

 

Equivalent life (in years)

 

 

 

 

 

 

Range

 

4.1 – 7.7

 

 

4.6 – 8.0

 

Weighted average

 

7.6

 

 

7.9

 

 

(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Beginning in the third quarter of 2025, the Company enhanced its period-end discounted cash flow valuation of IO stripped MBS by utilizing an OAS discounted cashflow model, which utilizes an option-adjusted spread rather than a pricing spread. The Company applies an option-adjusted spread to multiple simulated paths of a derived Treasury yield curve for purposes of discounting cash flows relating to IO stripped MBS. Adoption of the OAS model did not have a significant effect on the fair value of IO stripped MBS.
(3)
Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. Through June 30, 2025, the Company applied a pricing spread to a derived United States Treasury Securities (“Treasury”) yield curve for purposes of discounting cash flows relating to IO stripped MBS.

31

 

(4)
Prepayment speed is measured using life total Conditional Prepayment Rate (“CPR”). Equivalent life is provided as supplementary information.

Changes in the fair value of MBS are included in Net gains on investments and financings in the consolidated statements of income.

Loans

Fair value of loans is estimated based on whether the loans are saleable into active markets:

•
Loans that are saleable into active markets, comprised of most of the Company’s loans held for sale and all of the loans held for investment held in VIEs, are categorized as “Level 2” fair value assets:
•
Fair values of loans held for sale are established using the loans’ contracted selling prices, quoted market prices or market price equivalents.
•
Fair values of loans held for investment held in VIEs are developed using the quoted indications of fair value of all of the individual securities issued by the securitization trusts holding the loans. The Company obtains indications of fair value from nonaffiliate brokers based on comparable securities and/or pricing services and validates the brokers’ or pricing services’ indications of fair value using pricing models and inputs the Company believes are similar to the pricing models and inputs used by other market participants. The Company adjusts the fair values received from brokers and/or pricing services to include the fair value of MSRs attributable to the loans included in the VIEs.
•
Loans that are not saleable into active markets, comprised of home equity lines of credit, previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets:
•
Fair values of loans held for sale categorized as “Level 3” assets (home equity lines of credit and previously sold loans repurchased pursuant to representation and warrants) are estimated using a discounted cash flow approach or the loans' contracted selling prices when applicable. Inputs to the discounted cash flow model include current interest rates, payment statuses, property types, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds and loss severities.
•
Fair values of distressed loans are estimated based on the fair values of the real estate collateralizing the loans.

Changes in fair values of loans held for sale are included in Net gains on loans held for sale in the consolidated statements of income. Changes in fair values of loans held for investment are included in Net gains on investments and financings in the consolidated statements of income.

Derivative and Credit Risk Transfer Strip Assets and Liabilities

CRT Derivatives

The Company categorizes CRT derivatives as “Level 3” fair value assets. 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 representing the beneficial interests in the trusts.

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 income.

32

 

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:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Fair value

 

$

31,432

 

 

$

29,377

 

UPB of loans in reference pools

 

$

4,663,673

 

 

$

4,961,644

 

Key inputs (1)

 

 

 

 

 

 

Discount rate

 

 

 

 

 

 

Range

 

8.6% – 12.9%

 

 

9.0% – 11.4%

 

Weighted average

 

8.8%

 

 

9.3%

 

Voluntary prepayment speed (2)

 

 

 

 

 

 

Range

 

6.0% – 7.1%

 

 

7.0% – 7.6%

 

Weighted average

 

7.0%

 

 

7.3%

 

Involuntary prepayment speed (3)

 

 

 

 

 

 

Range

 

0.1% – 0.2%

 

 

0.1% – 0.2%

 

Weighted average

 

0.1%

 

 

0.1%

 

Remaining loss expectation

 

 

 

 

 

 

Range

 

0.0% – 0.1%

 

 

0.0% – 0.2%

 

Weighted average

 

0.1%

 

 

0.1%

 

 

(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.
(2)
Voluntary prepayment speed is measured using life voluntary CPR.
(3)
Involuntary prepayment speed is measured using life involuntary CPR.

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 held for sale at fair value in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

 

 

September 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands) (1)

 

$

5,489

 

 

$

444

 

Committed amount (in thousands)

 

$

1,222,335

 

 

$

1,166,566

 

Key inputs (2)

 

 

 

 

 

 

Pull-through rate

 

 

 

 

 

 

Range

 

57.7% – 100%

 

 

51.0% – 98.0%

 

Weighted average

 

88.5%

 

 

86.3%

 

MSR fair value expressed as

 

 

 

 

 

 

Servicing fee multiple

 

 

 

 

 

 

Range

 

1.6 – 8.4

 

 

2.6 – 7.8

 

Weighted average

 

5.7

 

 

5.7

 

Percentage of unpaid principal balance

 

 

 

 

 

 

Range

 

0.4% – 2.8%

 

 

0.6% – 2.7%

 

Weighted average

 

1.7%

 

 

1.9%

 

 

(1)
For purposes of this table, IRLC asset and liability positions are shown net.
(2)
Weighted-average inputs are based on the committed amounts.

33

 

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 held for sale at fair value or Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results as applicable, in the consolidated statements of income.

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 income.

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:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Fair value

 

$

9,330

 

 

$

4,060

 

Unpaid principal balance of loans in the reference pools

 

$

15,273,708

 

 

$

16,287,660

 

Key inputs (1)

 

 

 

 

 

 

Discount rate

 

 

 

 

 

 

Range

 

5.5% – 8.7%

 

 

7.1% – 9.1%

 

Weighted average

 

8.2%

 

 

8.8%

 

Voluntary prepayment speed (2)

 

 

 

 

 

 

Range

 

6.9% – 7.4%

 

 

6.9% – 7.5%

 

Weighted average

 

7.0%

 

 

7.0%

 

Involuntary prepayment speed (3)

 

 

 

 

 

 

Range

 

0.1% – 0.3%

 

 

0.1% – 0.3%

 

Weighted average

 

0.1%

 

 

0.1%

 

Remaining loss expectation

 

 

 

 

 

 

Range

 

0.4% – 1.5%

 

 

0.4% – 1.5%

 

Weighted average

 

0.5%

 

 

0.5%

 

 

(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.
(2)
Voluntary prepayment speed is measured using life voluntary CPR.
(3)
Involuntary prepayment speed is measured using life involuntary CPR.

Mortgage Servicing Rights

The Company categorizes MSRs as “Level 3” fair value assets. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company uses a discounted cash flow approach to estimate the fair values of MSRs. 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.

Beginning in the third quarter of 2025, the company enhanced its discounted cash flow approach to estimate the period-end fair value of its MSRs with the adoption of an OAS discounted cashflow model. The OAS model allows the Company to account for the likelihood of interest rates moving along different paths as economic conditions change in its assessment of the fair value of MSRs as opposed to a single assumed rate path.

34

 

The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), OAS or pricing spread (the OAS and pricing spread are components of the discount rate), and annual per-loan cost to service the underlying loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. 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 income.

MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (expressed as OAS or pricing spreads) increase, or when annual per-loan cost of servicing increases. 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:

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

MSRs recognized (in thousands)

 

$

45,744

 

 

$

87,588

 

 

$

136,783

 

 

$

159,456

 

Unpaid principal balance of underlying loans (in thousands)

 

$

2,488,333

 

 

$

5,130,285

 

 

$

7,433,949

 

 

$

9,203,814

 

Weighted average annual servicing fee rate (in basis points)

 

32

 

 

35

 

 

32

 

 

35

 

Key inputs (1)

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed (2)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

9.8% – 15.3%

 

 

11.7% - 26.7%

 

 

9.4% – 15.5%

 

 

10.8% - 26.7%

 

Weighted average

 

9.9%

 

 

13.6%

 

 

9.8%

 

 

13.1%

 

Equivalent average life (in years)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

3.8– 8.0

 

 

3.5 – 6.4

 

 

3.7– 8.2

 

 

3.4 – 7.2

 

Weighted average

 

7.9

 

 

6.3

 

 

8.0

 

 

6.5

 

Pricing spread (3)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

5.2% - 7.3%

 

 

5.4% - 7.3%

 

 

5.2% - 7.3%

 

 

5.4% - 8.5%

 

Weighted average

 

5.2%

 

 

5.5%

 

 

5.3%

 

 

5.6%

 

Annual per-loan cost of servicing

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

$68 – $91

 

 

$68 – $87

 

 

$68 – $91

 

 

$68 – $87

 

Weighted average

 

$68

 

 

$68

 

 

$69

 

 

$69

 

 

(1)
Weighted average inputs are based on UPB of the underlying loans.
(2)
Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to a derived Treasury yield curve for purposes of discounting cash flows relating to its initial recognition of MSRs.

35

 

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:

 

 

 

September 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands)

 

$

3,668,755

 

 

$

3,867,394

 

Unpaid principal balance of underlying loans (in thousands)

 

$

218,799,013

 

 

$

226,237,613

 

Weighted average annual servicing fee rate (in basis points)

 

28

 

 

27

 

Weighted average note interest rate

 

3.9%

 

 

3.8%

 

Key inputs (1)

 

 

 

 

 

 

Prepayment speed (2)

 

 

 

 

 

 

Range

 

7.0% – 21.7%

 

 

6.5% – 17.7%

 

Weighted average

 

8.5%

 

 

6.7%

 

Equivalent average life (in years)

 

 

 

 

 

 

Range

 

2.2 – 8.0

 

 

2.4 – 8.9

 

Weighted average

 

7.7

 

 

8.6

 

Effect on fair value (in thousands) of (3):

 

 

 

 

 

 

5% adverse change

 

$(61,314)

 

 

$(51,798)

 

10% adverse change

 

$(120,466)

 

 

$(102,010)

 

20% adverse change

 

$(232,710)

 

 

$(197,970)

 

Option-adjusted spread (4)

 

 

 

 

 

 

Range

 

3.6% – 6.1%

 

 

 

 

Weighted average

 

3.6%

 

 

 

 

Pricing spread (5)

 

 

 

 

 

 

Range

 

 

 

 

5.4% – 8.1%

 

Weighted average

 

 

 

 

5.4%

 

Effect on fair value (in thousands) of (3) (4):

 

 

 

 

 

 

5% adverse change

 

$(30,525)

 

 

$(47,568)

 

10% adverse change

 

$(60,542)

 

 

$(94,018)

 

20% adverse change

 

$(119,102)

 

 

$(183,710)

 

Annual per-loan cost of servicing

 

 

 

 

 

 

Range

 

$68 – $91

 

 

$69 – $89

 

Weighted average

 

$68

 

 

$69

 

Effect on fair value (in thousands) of (3):

 

 

 

 

 

 

5% adverse change

 

$(16,094)

 

 

$(16,645)

 

10% adverse change

 

$(32,187)

 

 

$(33,291)

 

20% adverse change

 

$(64,374)

 

 

$(66,582)

 

 

(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
These sensitivity analyses are limited in that they were performed as of a particular date; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in those inputs in relation to other inputs; are subject to the accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments to account for changing circumstances. For these reasons, these analyses should not be viewed as earnings forecasts.
(4)
Beginning in the third quarter of 2025, the Company enhanced its period-end discounted cash flow valuation of MSRs by utilizing an OAS discounted cashflow model, which utilizes an OAS rather than a pricing spread. The option-adjusted spread is a margin that is applied to a reference interest rate’s projected curve to develop periodic discount rates. The Company applies an option-adjusted spread to multiple simulated paths of a derived Treasury yield curve for purposes of discounting cash flows relating to MSRs. Adoption of the OAS model did not have a significant effect on the fair value of MSRs.
(5)
Through June 30, 2025, the Company applied a fixed pricing spread to a derived Treasury yield curve for purposes
of discounting cash flows relating to period-end MSRs.

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.

36

 

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 income.

Note 8— Mortgage-Backed Securities

Following is a summary of activity in the Company’s holdings of MBS:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Balance at beginning of period

 

$

3,967,045

 

 

$

4,068,337

 

 

$

4,063,706

 

 

$

4,836,292

 

Purchases

 

 

905,380

 

 

 

80,500

 

 

 

942,462

 

 

 

479,960

 

Sales

 

 

(194,513

)

 

 

(35,667

)

 

 

(194,513

)

 

 

(977,007

)

Repayments

 

 

(126,857

)

 

 

(105,493

)

 

 

(357,671

)

 

 

(268,122

)

Exchange of mortgage servicing spread for interest-only
   stripped mortgage-backed securities

 

 

—

 

 

 

35,609

 

 

 

—

 

 

 

35,609

 

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization and accrual of net purchase
   premiums and discounts

 

 

20,537

 

 

 

15,663

 

 

 

38,189

 

 

 

25,340

 

Valuation adjustments, net

 

 

37,572

 

 

 

123,433

 

 

 

116,991

 

 

 

50,310

 

 

 

58,109

 

 

 

139,096

 

 

 

155,180

 

 

 

75,650

 

Balance at end of period

 

$

4,609,164

 

 

$

4,182,382

 

 

$

4,609,164

 

 

$

4,182,382

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(in thousands)

 

 

Fair value of mortgage-backed securities pledged to secure
    Assets sold under agreements to repurchase

 

$

4,609,164

 

 

$

4,063,706

 

 

 

Following is a summary of the Company’s investments in MBS:

 

 

September 30, 2025

 

Security type (1)

 

Principal
balance or notional amount

 

 

Purchase premiums
 (discounts), net

 

 

Cumulative
valuation
changes

 

 

Fair value

 

 

 

(in thousands)

 

Agency fixed-rate pass-through

 

$

2,899,578

 

 

$

(2,076

)

 

$

29,554

 

 

$

2,927,056

 

Principal-only stripped

 

 

682,939

 

 

 

(131,512

)

 

 

21,329

 

 

 

572,756

 

Floating rate collateralized mortgage
   obligations

 

 

871,733

 

 

 

1,105

 

 

 

282

 

 

 

873,120

 

Senior non-Agency

 

 

163,981

 

 

 

(386

)

 

 

(2,720

)

 

 

160,875

 

 

$

4,618,231

 

 

$

(132,869

)

 

$

48,445

 

 

 

4,533,807

 

Interest-only stripped

 

$

356,387

 

 

 

 

 

 

 

 

 

75,357

 

 

 

 

 

 

 

 

 

 

 

 

$

4,609,164

 

 

(1)
All MBS have maturities of more than ten years.

 

37

 

 

 

December 31, 2024

 

Security type

 

Principal
balance or notional amount

 

 

Purchase premiums
 (discounts), net

 

 

Cumulative
valuation
changes

 

 

Fair value

 

 

 

(in thousands)

 

Agency fixed-rate pass-through

 

$

3,132,005

 

 

$

(901

)

 

$

(51,612

)

 

$

3,079,492

 

Principal-only stripped

 

 

776,455

 

 

 

(160,960

)

 

 

(19,195

)

 

 

596,300

 

Subordinate credit-linked

 

 

174,813

 

 

 

(4,292

)

 

 

25,951

 

 

 

196,472

 

Senior non-Agency

 

 

111,479

 

 

 

(3,269

)

 

 

(3,028

)

 

 

105,182

 

 

$

4,194,752

 

 

$

(169,422

)

 

$

(47,884

)

 

 

3,977,446

 

Interest-only stripped

 

$

386,040

 

 

 

 

 

 

 

 

 

86,260

 

 

 

 

 

 

 

 

 

 

 

$

4,063,706

 

 

 

Note 9—Loans Held for Sale at Fair Value

Following is a summary of the distribution of the Company’s loans held for sale at fair value:

Loan type

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

Held for sale to PLS:

 

 

 

 

 

 

GSE eligible (1)

 

$

—

 

 

$

175,145

 

Government insured or guaranteed

 

 

2,584

 

 

 

426,963

 

 

 

 

2,584

 

 

 

602,108

 

Held for sale to nonaffiliates—GSE eligible

 

 

1,843,932

 

 

 

1,311,754

 

Jumbo

 

 

572,183

 

 

 

194,485

 

Home equity lines of credit

 

 

969

 

 

 

1,368

 

Repurchased pursuant to representations and warranties

 

 

1,365

 

 

 

6,603

 

 

$

2,421,033

 

 

$

2,116,318

 

Loans pledged to secure:

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

2,398,221

 

 

$

2,075,473

 

Mortgage loan participation purchase and sale agreements

 

 

—

 

 

 

12,142

 

 

$

2,398,221

 

 

$

2,087,615

 

 

(1)
GSE eligibility refers to the eligibility of loans for sale to Freddie Mac or Fannie Mae. The Company sells or finances a portion of its GSE eligible loan production to or with other investors, including PLS.

Note 10—Loans Held for Investment at Fair Value

Loans held for investment 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 held for investment:

Loan type

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

Loans in variable interest entities:

 

 

 

 

 

 

Agency-conforming loans secured by non-owner occupied properties

 

$

5,302,478

 

 

$

2,146,328

 

Fixed interest rate jumbo loans

 

 

678,973

 

 

 

45,381

 

 

 

5,981,451

 

 

 

2,191,709

 

Distressed loans

 

 

1,746

 

 

 

1,866

 

 

$

5,983,197

 

 

$

2,193,575

 

Loans held for investment pledged to secure:

 

 

 

 

 

 

Asset-backed financings at fair value (1)

 

$

5,981,451

 

 

$

2,191,709

 

Assets sold under agreements to repurchase

 

 

—

 

 

 

160

 

 

$

5,981,451

 

 

$

2,191,869

 

 

38

 

 

(1)
As discussed in Note 6 ‒ Variable Interest Entities ‒ Subordinate and Senior Non-Agency Mortgage-Backed Securities, the Company holds a portion of the securities issued by the VIEs. At September 30, 2025 and December 31, 2024, $473.5 million and $130.8 million, respectively, of such retained securities were pledged to secure Assets sold under agreements to repurchase.

 

Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities

Derivative and credit risk transfer assets and liabilities are summarized below:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

Derivative assets with non-affiliates

 

$

51,345

 

 

$

56,840

 

Derivative assets with PennyMac Financial Services, Inc.

 

$

7,097

 

 

$

—

 

 

 

 

 

 

 

Derivative liabilities with non-affiliates

 

$

1,077

 

 

$

3,291

 

Credit risk transfer strip liabilities

 

 

9,330

 

 

 

4,060

 

 

$

10,407

 

 

$

7,351

 

Derivative liabilities with PennyMac Financial Services, Inc.

 

$

1,779

 

 

$

—

 

The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period income.

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 are comprised of IRLCs that are created when the Company commits to purchase loans held for sale.

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, MSRs and MBS financing activities due to changes in market interest rates as discussed below:

•
The Company is exposed to losses if market mortgage interest rates increase, because market interest rate increases generally cause the fair values of MBS, IRLCs and loans held for sale to decrease.
•
The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally encourage increased mortgage refinancing activities, which cause the fair values of MSRs to decrease.

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 held 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 held for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans held for sale at fair value. Cash flows from derivative financial instruments relating to hedging of MSRs are included in Cash flows from investing activities.

39

 

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:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

 

 

Fair value

 

 

 

 

 

Fair value

 

 

 

Notional

 

 

Derivative

 

 

Derivative

 

 

Notional

 

 

Derivative

 

 

Derivative

 

Instrument

 

amount (1)

 

 

assets

 

 

liabilities

 

 

amount (1)

 

 

assets

 

 

liabilities

 

 

(in thousands)

 

Non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging derivatives subject to master netting
  arrangements (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase
   contracts

 

 

2,225,000

 

 

$

3,387

 

 

$

—

 

 

 

500,000

 

 

$

156

 

 

$

—

 

Put options on interest rate futures purchase
   contracts

 

 

2,850,000

 

 

 

4,508

 

 

 

—

 

 

 

1,690,000

 

 

 

6,372

 

 

 

—

 

Forward purchase contracts

 

 

4,521,515

 

 

 

2,466

 

 

 

2,467

 

 

 

1,154,515

 

 

 

614

 

 

 

6,336

 

Forward sale contracts

 

 

9,208,366

 

 

 

8,051

 

 

 

26,696

 

 

 

7,080,982

 

 

 

54,056

 

 

 

1,753

 

MBS put options

 

 

—

 

 

 

—

 

 

 

—

 

 

 

450,000

 

 

 

2,114

 

 

 

—

 

Bond futures

 

 

2,042,600

 

 

 

—

 

 

 

—

 

 

 

1,713,000

 

 

 

—

 

 

 

—

 

Swap futures

 

 

951,200

 

 

 

—

 

 

 

—

 

 

 

951,200

 

 

 

—

 

 

 

—

 

Other derivatives not subject to master netting
  arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRT derivatives

 

 

4,663,673

 

 

 

31,432

 

 

 

—

 

 

 

4,961,644

 

 

 

29,377

 

 

 

—

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,166,566

 

 

 

3,562

 

 

 

3,118

 

Total derivative instruments before netting

 

 

 

 

 

49,844

 

 

 

29,163

 

 

 

 

 

 

96,251

 

 

 

11,207

 

Netting

 

 

 

 

 

1,501

 

 

 

(28,086

)

 

 

 

 

 

(39,411

)

 

 

(7,916

)

 

 

 

 

$

51,345

 

 

$

1,077

 

 

 

 

 

$

56,840

 

 

$

3,291

 

 PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments not subject to
    master netting arrangements

 

 

1,222,335

 

 

 

7,097

 

 

 

1,608

 

 

 

—

 

 

 

—

 

 

 

—

 

Forward sale contract subject to master netting
   arrangement

 

 

203,121

 

 

 

534

 

 

 

705

 

 

 

—

 

 

 

—

 

 

 

—

 

Total derivatives before netting

 

 

 

 

 

7,631

 

 

 

2,313

 

 

 

—

 

 

 

—

 

 

 

—

 

Netting

 

 

 

 

 

(534

)

 

 

(534

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

$

7,097

 

 

$

1,779

 

 

 

 

 

$

—

 

 

$

—

 

Margin deposits placed with (received from)
   derivative counterparties included
   in derivative balances above, net

 

 

 

 

$

29,586

 

 

 

 

 

 

 

 

$

(31,497

)

 

 

 

Derivative assets pledged to secure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets Sold Under Agreements to Repurchase
   and Notes payable secured by credit risk
   transfer and mortgage servicing assets

 

 

 

 

$

31,432

 

 

 

 

 

 

 

 

$

29,377

 

 

 

 

 

(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 September 30, 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.

40

 

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:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

 

of assets

 

 

not offset in the

 

 

 

 

 

of assets

 

 

not offset in the

 

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

 

consolidated

 

 

 

 

 

Cash

 

 

 

 

 

consolidated

 

 

 

 

 

Cash

 

 

 

 

 

 

balance

 

 

Financial

 

 

collateral

 

 

Net

 

 

balance

 

 

Financial

 

 

collateral

 

 

Net

 

Counterparty

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

 

(in thousands)

 

CRT derivatives

 

$

31,432

 

 

$

—

 

 

$

—

 

 

$

31,432

 

 

$

29,377

 

 

$

—

 

 

$

—

 

 

$

29,377

 

Interest rate lock commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-affiliates

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,562

 

 

 

—

 

 

 

—

 

 

 

3,562

 

PennyMac Financial Services, Inc.

 

 

7,097

 

 

 

—

 

 

 

—

 

 

 

7,097

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

RJ O’Brien & Associates, LLC

 

 

7,895

 

 

 

—

 

 

 

—

 

 

 

7,895

 

 

 

6,528

 

 

 

—

 

 

 

—

 

 

 

6,528

 

Bank of America, N.A.

 

 

4,655

 

 

 

—

 

 

 

—

 

 

 

4,655

 

 

 

3,150

 

 

 

—

 

 

 

—

 

 

 

3,150

 

Morgan Stanley & Co. LLC

 

 

3,338

 

 

 

—

 

 

 

—

 

 

 

3,338

 

 

 

9,303

 

 

 

—

 

 

 

—

 

 

 

9,303

 

Citigroup Global Markets Inc.

 

 

870

 

 

 

—

 

 

 

—

 

 

 

870

 

 

 

712

 

 

 

—

 

 

 

—

 

 

 

712

 

Mizuho Financial Group

 

 

695

 

 

 

—

 

 

 

—

 

 

 

695

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

David Kempner Capital Management

 

 

531

 

 

 

—

 

 

 

—

 

 

 

531

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Barclays Capital Inc.

 

 

517

 

 

 

—

 

 

 

—

 

 

 

517

 

 

 

12

 

 

 

—

 

 

 

—

 

 

 

12

 

Bank of Montreal

 

 

501

 

 

 

—

 

 

 

—

 

 

 

501

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Nomura

 

 

170

 

 

 

—

 

 

 

—

 

 

 

170

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Goldman Sachs & Co. LLC

 

 

167

 

 

 

—

 

 

 

—

 

 

 

167

 

 

 

251

 

 

 

—

 

 

 

—

 

 

 

251

 

J.P. Morgan Securities LLC

 

 

152

 

 

 

—

 

 

 

—

 

 

 

152

 

 

 

1,237

 

 

 

—

 

 

 

—

 

 

 

1,237

 

Wells Fargo Securities, LLC

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

895

 

 

 

—

 

 

 

—

 

 

 

895

 

Other

 

 

422

 

 

 

—

 

 

 

—

 

 

 

422

 

 

 

1,813

 

 

 

—

 

 

 

—

 

 

 

1,813

 

 

$

58,442

 

 

$

—

 

 

$

—

 

 

$

58,442

 

 

$

56,840

 

 

$

—

 

 

$

—

 

 

$

56,840

 

 

41

 

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.

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

 

of liabilities

 

 

not offset in the

 

 

 

 

 

of liabilities

 

 

not offset in the

 

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

 

consolidated

 

 

Financial

 

 

Cash

 

 

 

 

 

consolidated

 

 

Financial

 

 

Cash

 

 

 

 

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

Counterparty

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

 

(in thousands)

 

Interest rate lock commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-affiliates

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

3,118

 

 

$

—

 

 

$

—

 

 

$

3,118

 

PennyMac Financial Services, Inc.

 

 

1,779

 

 

 

—

 

 

 

—

 

 

 

1,779

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

J.P. Morgan Securities LLC

 

 

1,471,218

 

 

 

(1,471,218

)

 

 

—

 

 

 

—

 

 

 

1,695,007

 

 

 

(1,695,007

)

 

 

—

 

 

 

—

 

Bank of America, N.A.

 

 

1,160,940

 

 

 

(1,160,940

)

 

 

—

 

 

 

—

 

 

 

787,883

 

 

 

(787,883

)

 

 

—

 

 

 

—

 

Atlas Securitized Products, L.P.

 

 

948,133

 

 

 

(948,133

)

 

 

—

 

 

 

—

 

 

 

609,780

 

 

 

(609,780

)

 

 

—

 

 

 

—

 

Santander US Capital

 

 

911,983

 

 

 

(911,954

)

 

 

—

 

 

 

29

 

 

 

362,196

 

 

 

(362,196

)

 

 

—

 

 

 

—

 

Wells Fargo Securities, LLC

 

 

747,199

 

 

 

(746,964

)

 

 

—

 

 

 

235

 

 

 

670,605

 

 

 

(670,605

)

 

 

—

 

 

 

—

 

Citigroup Global Markets Inc.

 

 

645,596

 

 

 

(645,596

)

 

 

—

 

 

 

—

 

 

 

431,201

 

 

 

(431,201

)

 

 

—

 

 

 

—

 

Barclays Capital Inc.

 

 

491,764

 

 

 

(491,764

)

 

 

—

 

 

 

—

 

 

 

545,678

 

 

 

(545,678

)

 

 

—

 

 

 

—

 

Morgan Stanley & Co. LLC

 

 

324,328

 

 

 

(324,328

)

 

 

—

 

 

 

—

 

 

 

280,561

 

 

 

(280,561

)

 

 

—

 

 

 

—

 

RBC Capital Markets, L.P.

 

 

274,092

 

 

 

(274,092

)

 

 

—

 

 

 

—

 

 

 

353,765

 

 

 

(353,765

)

 

 

—

 

 

 

—

 

Goldman Sachs & Co. LLC

 

 

204,388

 

 

 

(204,388

)

 

 

—

 

 

 

—

 

 

 

311,997

 

 

 

(311,997

)

 

 

—

 

 

 

—

 

Daiwa Capital Markets

 

 

200,415

 

 

 

(200,415

)

 

 

—

 

 

 

—

 

 

 

230,033

 

 

 

(230,033

)

 

 

—

 

 

 

—

 

Bank of Montreal

 

 

161,147

 

 

 

(161,147

)

 

 

—

 

 

 

—

 

 

 

72,859

 

 

 

(72,859

)

 

 

—

 

 

 

—

 

Mizuho Financial Group

 

 

83,277

 

 

 

(83,277

)

 

 

—

 

 

 

—

 

 

 

98,196

 

 

 

(98,121

)

 

 

—

 

 

 

75

 

Nomura Holdings America, Inc

 

 

56,320

 

 

 

(56,320

)

 

 

—

 

 

 

—

 

 

 

36

 

 

 

—

 

 

 

—

 

 

 

36

 

BNP Paribas

 

 

32,508

 

 

 

(32,401

)

 

 

—

 

 

 

107

 

 

 

59,729

 

 

 

(59,729

)

 

 

—

 

 

 

—

 

Other

 

 

706

 

 

 

—

 

 

 

—

 

 

 

706

 

 

 

62

 

 

 

—

 

 

 

—

 

 

 

62

 

 

$

7,715,793

 

 

$

(7,712,937

)

 

$

—

 

 

$

2,856

 

 

$

6,512,706

 

 

$

(6,509,415

)

 

$

—

 

 

$

3,291

 
(1)
Amounts represent the UPB of Assets sold under agreements to repurchase.

Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of income line items where such gains and losses are included:

 

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

Derivative activity

 

Consolidated statements of income line

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

 

 

(in thousands)

 

Interest rate lock commitments

 

Net gains on loans held for sale (1)

 

$

(2,033

)

 

$

4,349

 

 

$

5,045

 

 

$

(1,631

)

CRT derivatives

 

Net gains on investments and
  financings

 

$

2,947

 

 

$

8,735

 

 

$

10,302

 

 

$

23,964

 

Hedged item:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock
  commitments and loans
  acquired for sale

 

Net gains on loans held for sale

 

$

(30,433

)

 

$

(45,471

)

 

$

(69,130

)

 

$

(35,698

)

Mortgage servicing rights

 

Net loan servicing fees

 

$

(27,360

)

 

$

(67,220

)

 

$

(127,941

)

 

$

(175,399

)

Assets sold under agreements
   to repurchase

 

Net gains on investments and
  financings

 

$

—

 

 

$

—

 

 

$

—

 

 

$

20,098

 

 

(1)
Represents net change in fair value of IRLCs from the beginning to the end of the period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan or cancellation of the commitment are shown in the rollforwards of IRLCs for the period in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.

42

 

Note 12—Mortgage Servicing Rights

Following is a summary of MSRs:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

 

Balance at beginning of period

 

$

3,739,106

 

 

$

3,941,861

 

 

$

3,867,394

 

 

$

3,919,107

 

 

Purchases

 

 

—

 

 

 

—

 

 

 

—

 

 

 

29,428

 

 

MSRs resulting from loan sales

 

 

45,744

 

 

 

87,588

 

 

 

136,783

 

 

 

159,456

 

 

Transfers to Agency of mortgage servicing
   rights relating to delinquent loans

 

 

284

 

 

 

125

 

 

 

675

 

 

 

341

 

 

Exchange of mortgage servicing spread for
     interest-only stripped mortgage-backed
     securities and interest receivable

 

 

—

 

 

 

(35,609

)

 

 

—

 

 

 

(35,609

)

 

Changes in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to changes in inputs used in valuation
   model (1)

 

 

(26,975

)

 

 

(84,306

)

 

 

(60,093

)

 

 

33,303

 

 

Other changes in fair value (2)

 

 

(89,404

)

 

 

(100,612

)

 

 

(276,004

)

 

 

(296,979

)

 

 

 

(116,379

)

 

 

(184,918

)

 

 

(336,097

)

 

 

(263,676

)

 

Balance at end of period

 

$

3,668,755

 

 

$

3,809,047

 

 

$

3,668,755

 

 

$

3,809,047

 

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(in thousands)

 

 

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

 

$

3,608,170

 

 

$

3,807,065

 

 

 

(1)
Primarily reflects changes in pricing spread, prepayment speed, servicing cost, and UPB of underlying loan inputs.
(2)
Represents changes due to realization of expected cash flows.

Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of income and are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

 

(in thousands)

Contractually specified servicing fees

 

$

151,395

 

 

$

162,605

 

 

$

456,705

 

 

$

485,089

 

 

Ancillary and other fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Late charges

 

 

1,092

 

 

 

1,044

 

 

 

3,155

 

 

 

3,019

 

 

Other

 

 

3,336

 

 

 

2,968

 

 

 

10,317

 

 

 

6,819

 

 

 

 

4,428

 

 

 

4,012

 

 

 

13,472

 

 

 

9,838

 

 

 

$

155,823

 

 

$

166,617

 

 

$

470,177

 

 

$

494,927

 

 

Average UPB of underlying loans

 

$

220,178,747

 

 

$

227,804,449

 

 

$

222,854,243

 

 

$

229,174,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

Note 13— Other Assets

Other assets are summarized below:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Margin deposits

 

$

89,133

 

 

$

346,241

 

Interest receivable

 

 

65,433

 

 

 

38,661

 

Servicing fees receivable

 

 

9,606

 

 

 

10,820

 

Correspondent lending receivables

 

 

7,272

 

 

 

3,930

 

Other receivables

 

 

24,104

 

 

 

16,706

 

Real estate acquired in settlement of loans

 

 

1,738

 

 

 

2,464

 

Other

 

 

30,485

 

 

 

19,399

 

 

 

$

227,771

 

 

$

438,221

 

Real estate acquired in settlement of loans pledged to secure
   Assets sold under agreements to repurchase

 

$

—

 

 

$

527

 

 

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 September 30, 2025.

Assets Sold Under Agreements to Repurchase

Following is a summary of financial information relating to assets sold under agreements to repurchase:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Weighted average interest rate (1)

 

 

5.16

%

 

 

6.02

%

 

 

5.19

%

 

 

6.09

%

Average balance

 

$

6,670,245

 

 

$

5,513,519

 

 

$

6,408,372

 

 

$

5,225,906

 

Total interest expense

 

$

88,587

 

 

$

86,900

 

 

$

254,071

 

 

$

244,821

 

Maximum daily amount outstanding

 

$

8,082,484

 

 

$

6,474,799

 

 

$

8,733,460

 

 

$

7,624,113

 

 

(1)
Excludes the effect of amortization of debt issuance costs of $1.8 million and $5.4 million for the quarter and nine months ended

September 30, 2025, respectively, and $3.4 million and $6.4 million for the quarter and nine months ended September 30, 2024, respectively.

 

44

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(dollars in thousands)

 

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance

 

$

7,712,937

 

 

$

6,509,415

 

 

Unamortized debt issuance costs

 

 

(4,754

)

 

 

(8,477

)

 

 

 

$

7,708,183

 

 

$

6,500,938

 

 

Weighted average interest rate

 

 

5.06

%

 

 

5.37

%

 

Available borrowing capacity (1):

 

 

 

 

 

 

 

Committed

 

$

500,894

 

 

$

565,488

 

 

Uncommitted

 

 

4,625,949

 

 

 

4,559,239

 

 

 

$

5,126,843

 

 

$

5,124,727

 

 

Margin deposits placed with counterparties included in Other assets, net

 

$

53,781

 

 

$

296,922

 

 

Assets securing agreements to repurchase:

 

 

 

 

 

 

 

Mortgage-backed securities at fair value

 

$

4,609,164

 

 

$

4,063,706

 

 

Loans held for sale at fair value

 

$

2,398,221

 

 

$

2,075,473

 

 

Loans held for investment at fair value:

 

 

 

 

 

 

 

Securities retained in asset-backed financings

 

$

473,472

 

 

$

130,839

 

 

Distressed

 

$

—

 

 

$

160

 

 

Credit risk transfer arrangements:

 

 

 

 

 

 

 

Deposits securing credit risk transfer arrangements

 

$

180,873

 

 

$

199,965

 

 

Derivative assets

 

$

12,020

 

 

$

—

 

 

Mortgage servicing rights at fair value (2)

 

$

1,785,681

 

 

$

1,906,043

 

 

Servicing advances (3)

 

$

30,182

 

 

$

50,333

 

 

Real estate acquired in settlement of loans

 

$

—

 

 

$

527

 

 

 

(1)
The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets financed.
(2)
Beneficial interests in Fannie Mae MSRs are pledged to secure both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.
(3)
Beneficial interests in Fannie Mae servicing advances are pledged to secure Assets sold under agreements to repurchase.

Maturities

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:

Remaining maturity at September 30, 2025 (1)

 

Unpaid
principal
balance

 

 

 

(in thousands)

 

Within 30 days

 

$

1,996,630

 

Over 30 to 90 days

 

 

4,880,798

 

Over 90 days to 180 days

 

 

386,775

 

Over 180 days to 1 year

 

 

448,734

 

 

$

7,712,937

 

Weighted average maturity (in months)

 

 

1.7

 

 

(1)
The Company is subject to margin calls during the period the repurchase agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective repurchase agreements mature if the fair values (as determined by the applicable lender) of the assets securing those repurchase agreements decrease.

45

 

 

Amounts at Risk

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 September 30, 2025:

Loans and MSRs

 

 

 

 

 

Weighted-average maturity

Counterparty

 

Amounts at risk

 

 

Advances

 

Facility

 

 

(in thousands)

 

 

 

 

 

Atlas Securitized Products, L.P.

 

$

464,900

 

 

November 19, 2025

 

June 27, 2026

Citibank, N.A.

 

$

85,288

 

 

October 5, 2025

 

July 22, 2026

Bank of America, N.A.

 

$

74,440

 

 

October 5, 2025

 

January 19, 2027

Goldman Sachs & Co. LLC

 

$

73,472

 

 

December 8, 2025

 

March 30, 2026

JPMorgan Chase & Co.

 

$

3,004

 

 

November 30, 2025

 

June 28, 2026

Morgan Stanley & Co. LLC

 

$

23,673

 

 

December 11, 2025

 

April 28, 2026

Barclays Capital Inc.

 

$

13,884

 

 

December 5, 2025

 

February 11, 2026

Wells Fargo Securities, LLC

 

$

3,180

 

 

November 28, 2025

 

June 11, 2027

Nomura Holdings America, Inc.

 

$

12,629

 

 

October 19, 2025

 

October 19, 2025

RBC Capital Markets, L.P.

 

$

11,703

 

 

December 30, 2025

 

August 10, 2026

BNP Paribas

 

$

1,704

 

 

November 19, 2025

 

September 30, 2026

Santander US Capital

 

$

2,660

 

 

October 9, 2025

 

October 9, 2025

 

Securities

Counterparty

 

Amounts at risk

 

 

Weighted-average maturity

 

 

(in thousands)

 

 

 

Citibank, N.A.

 

$

8,816

 

 

October 20, 2025

Bank of America, N.A.

 

$

19,179

 

 

November 7, 2025

Goldman Sachs & Co. LLC

 

$

15,687

 

 

October 7, 2025

JPMorgan Chase & Co.

 

$

53,754

 

 

November 1, 2025

Barclays Capital Inc.

 

$

11,748

 

 

October 21, 2025

Wells Fargo Securities, LLC

 

$

17,755

 

 

October 31, 2025

Bank of Montreal

 

$

10,826

 

 

November 9, 2025

Mizuho Financial Group

 

$

4,635

 

 

October 23, 2025

Daiwa Capital Markets America Inc.

 

$

3,002

 

 

November 5, 2025

Santander US Capital

 

$

36,492

 

 

November 24, 2025

 

 

 

 

 

 

 

CRT arrangements

Counterparty

 

Amounts at risk

 

 

Weighted-average maturity

 

 

(in thousands)

 

 

 

Morgan Stanley & Co. LLC

 

$

17,900

 

 

January 28, 2026

RBC Capital Markets, L.P.

 

$

26,527

 

 

March 25, 2026

Mortgage Loan Participation Purchase and Sale Agreement

One of the borrowing facilities secured by loans held 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 Freddie Mac or Fannie Mae, 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

46

 

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Average balance

 

$

1,612

 

 

$

32,353

 

 

$

6,618

 

 

$

18,829

 

Weighted average interest rate (1)

 

 

5.93

%

 

 

6.59

%

 

 

5.69

%

 

 

6.66

%

Total interest expense

 

$

55

 

 

$

568

 

 

$

375

 

 

$

1,033

 

Maximum daily amount outstanding

 

$

11,371

 

 

$

78,068

 

 

$

49,266

 

 

$

78,068

 

 

(1)
Excludes the effect of amortization of debt issuance costs of $31,000 and $94,000 for the quarter and nine months ended September 30, 2025 and 2024, respectively.

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

(dollars in thousands)

 

 

Carrying value:

 

 

 

 

 

 

Amount outstanding

 

 

 

$

11,650

 

 

Unamortized debt issuance costs

 

 

 

 

(57

)

 

 

 

 

$

11,593

 

 

Weighted average interest rate

 

 

 

 

5.58

%

 

Loans held for sale pledged to secure mortgage loan participation
   purchase and sale agreement

 

 

 

$

12,142

 

 

 

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
Term
Notes

 

Issuance date

 

Issuance amount

 

 

Unpaid principal
balance

 

 

Annual interest rate spread (1)

 

Maturity date

 

 

 

 

(in thousands)

 

 

 

 

 

2024 3R

 

August 28, 2024

 

$

158,500

 

 

$

140,553

 

 

3.10%

 

September 27, 2028

2024 2R

 

April 4, 2024

 

$

247,000

 

 

 

216,312

 

 

3.35%

 

March 29, 2027

2024 1R

 

March 6, 2024

 

$

306,000

 

 

 

266,455

 

 

3.50%

 

March 1, 2027

 

 

 

 

 

 

$

623,320

 

 

 

 

 

 

(1)
Interest rates are charged at a spread to the Secured Overnight Financing Rate ("SOFR").

47

 

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 in exchange for participation certificates for MSRs and ESS. The FMSR VFNs are then sold by PMC and PMH 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 is effected through the issuance of term notes (the “FT-1 Term Notes”) by the Issuer Trusts 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 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:

 

 

 

 

 

 

 

 

 

Maturity date

Issuance

 

Issuance date

 

Unpaid principal
balance

 

 

Annual interest
 rate spread (1)

 

Stated

 

Optional extension (2)

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Term Loans

 

 

 

 

 

 

 

 

 

2023

 

May 25, 2023

 

$

370,000

 

 

3.00%

 

May 25, 2028

 

May 25, 2029

Term Notes

 

 

 

 

 

 

 

 

 

2024

 

June 27, 2024

 

 

355,000

 

 

2.75%

 

December 27, 2027

 

June 26, 2028

 

 

 

 

$

725,000

 

 

 

 

 

 

 

 

(1)
Interest rates are charged at a spread to SOFR.
(2)
The indentures relating to these issuances provide the Company with the option of extending the maturity dates of certain of the FT-1 Term Notes and FTL-1 Term Loans under the conditions specified in the respective agreements.

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.

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Average balance

 

$

2,539,717

 

 

$

2,854,487

 

 

$

2,693,728

 

 

$

2,871,883

 

Weighted average interest rate (1)

 

 

7.69

%

 

 

8.60

%

 

 

7.64

%

 

 

8.84

%

Total interest expense

 

$

51,465

 

 

$

66,305

 

 

$

160,524

 

 

$

198,760

 

 

(1)
Excludes the effect of amortization of debt issuance costs of $2.2 million and $6.7 million for the quarter and nine months ended September 30, 2025, respectively, and $4.6 million and $8.7 million for the quarter and nine months ended September 30, 2024, respectively.

 

48

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(dollars in thousands)

 

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance:

 

 

 

 

 

 

 

Credit risk transfer arrangement financing

 

$

623,320

 

 

$

710,329

 

 

Fannie Mae mortgage servicing rights financing

 

 

725,000

 

 

 

1,075,000

 

 

Freddie Mac mortgage servicing rights and servicing advance receivable financing

 

 

904,942

 

 

 

1,153,486

 

 

 

 

 

2,253,262

 

 

 

2,938,815

 

 

Unamortized debt issuance costs

 

 

(4,653

)

 

 

(9,025

)

 

 

$

2,248,609

 

 

$

2,929,790

 

 

Weighted average interest rate

 

 

7.39

%

 

 

7.60

%

 

Assets securing notes payable:

 

 

 

 

 

 

 

Mortgage servicing rights at fair value (1)

 

$

3,608,170

 

 

$

3,807,065

 

 

Servicing advances (1)

 

$

20,156

 

 

$

39,063

 

 

Credit risk transfer arrangements:

 

 

 

 

 

 

 

Deposits securing credit risk transfer arrangements

 

$

852,135

 

 

$

910,743

 

 

Derivative assets

 

$

19,412

 

 

$

29,377

 

 

 

(1)
Beneficial interests in Freddie Mac MSRs and related servicing advances are pledged as collateral for the Notes payable secured by credit risk transfer and mortgage servicing assets. Beneficial interests in Fannie Mae MSRs are pledged for both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.

 

Unsecured Senior Notes

Exchangeable Senior Notes

The exchangeable senior notes are summarized below:

 

Initial issuance date

 

Unpaid principal balance

 

 

Annual interest rate

 

Conversion rates (1)

 

Maturity date (2)

 

(in thousands)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

(1)
Common Shares per $1,000 principal amount.
(2)
Unless repurchased or exchanged in accordance with their terms before such date.
(3)
Balance includes $16.5 million issued on June 4, 2024.

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:

 

Issuance date

 

Unpaid principal balance

 

 

Annual interest
rate spread

 

Maturity date

 

Redemption date

 

(in thousands)

 

 

 

 

 

 

 

June 2025

 

$

105,000

 

 

9.00%

 

June 15, 2030

 

June 15, 2027

February 2025

 

 

172,500

 

 

9.00%

 

February 15, 2030

 

February 15, 2027

September 2023

 

 

53,500

 

 

8.50%

 

September 30, 2028

 

September 30, 2025

 

 

$

331,000

 

 

 

 

 

 

 

 

49

 

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 applicable 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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Average balance

 

$

892,500

 

 

$

825,000

 

 

$

805,055

 

 

$

710,496

 

Weighted average interest rate (1)

 

 

7.43

%

 

 

6.45

%

 

 

7.34

%

 

 

6.16

%

Interest expense

 

$

18,010

 

 

$

14,571

 

 

$

47,610

 

 

$

35,884

 

 

(1)
Excludes the effect of amortization of debt issuance costs of $1.3 million and $3.4 million for the quarter and nine months ended September 30, 2025, respectively, and $1.2 million and $3.1 million for the quarter and nine months ended September 30, 2024, respectively.

 

 

 

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

 

 

 

(in thousands)

 

Carrying value:

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance

 

 

 

 

 

 

 

 

 

 

Exchangeable senior notes

 

 

 

 

 

$

561,500

 

 

$

561,500

 

Senior notes

 

 

 

 

 

 

331,000

 

 

 

53,500

 

 

 

 

 

 

 

 

892,500

 

 

 

615,000

 

Unamortized debt issuance costs

 

 

 

 

 

 

(15,990

)

 

 

(9,140

)

 

 

 

 

 

$

876,510

 

 

$

605,860

 

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Average balance

 

$

4,888,507

 

 

$

1,542,753

 

 

$

3,727,458

 

 

$

1,561,810

 

Weighted average interest rate (1)

 

 

5.50

%

 

 

3.06

%

 

 

5.20

%

 

 

3.08

%

Total interest expense

 

$

65,409

 

 

$

10,838

 

 

$

140,573

 

 

$

34,918

 

 

(1)
Excludes the effect of amortization of issuance premiums of $2.4 million and $4.3 million for the quarter and nine months ended September 30, 2025, respectively, and $1.0 million and $1.1 million for the quarter and nine months ended September 30, 2024, respectively.

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

(dollars in thousands)

 

 

Fair value

 

$

5,439,582

 

 

$

2,040,375

 

 

Unpaid principal balance

 

$

5,494,442

 

 

$

2,269,742

 

 

Weighted average interest rate

 

 

5.90

%

 

 

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.

50

 

Maturities of Long-Term Debt

Contractual maturities of long-term debt obligations (based on final maturity dates) are as follows:

 

 

 

 

Twelve months ending September 30,

 

 

 

 

 

Total

 

 

2026

 

 

2027

 

 

2028

 

 

2029

 

 

2030

 

 

Thereafter

 

 

(in thousands)

 

Notes payable secured by credit risk transfer
    and mortgage servicing assets (1)

$

2,253,262

 

 

$

904,942

 

 

$

482,767

 

 

$

865,553

 

 

$

—

 

 

$

—

 

 

$

—

 

Unsecured senior notes

 

892,500

 

 

 

345,000

 

 

 

—

 

 

 

53,500

 

 

 

216,500

 

 

 

277,500

 

 

 

—

 

Interest-only security payable at fair value (2)

 

36,558

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

36,558

 

Asset-backed financings at fair value (2)

 

5,494,442

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,494,442

 

Total

$

8,676,762

 

 

$

1,249,942

 

 

$

482,767

 

 

$

919,053

 

 

$

216,500

 

 

$

277,500

 

 

$

5,531,000

 

(1)
Based on stated maturity. As discussed above, certain of the Notes payable secured by credit risk and mortgage servicing assets allow the Company to exercise optional extensions.
(2)
Contractual maturity does not reflect expected repayment as borrowers of the underlying loans generally have the right to repay their loans at any time.

Note 16—Liability for Losses Under Representations and Warranties

Following is a summary of the Company’s liability for losses under representations and warranties:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Balance, beginning of period

 

$

5,064

 

 

$

13,183

 

 

$

6,886

 

 

$

26,143

 

Provision for losses:

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to loan sales

 

 

222

 

 

 

459

 

 

 

753

 

 

 

917

 

Reduction in liability due to change in estimate

 

 

(39

)

 

 

(5,180

)

 

 

(2,119

)

 

 

(18,598

)

Losses incurred

 

 

(95

)

 

 

(147

)

 

 

(368

)

 

 

(147

)

Balance, end of period

 

$

5,152

 

 

$

8,315

 

 

$

5,152

 

 

$

8,315

 

UPB of loans subject to representations and warranties at
   end of period

 

 

 

 

 

 

 

$

216,361,811

 

 

$

223,245,804

 

 

Note 17—Commitments and Contingencies

Commitments

The following table summarizes the Company’s outstanding contractual commitments:

 

 

September 30, 2025

 

 

 

(in thousands)

 

Commitments to purchase loans held for sale from PLS

 

$

1,222,335

 

 

Legal Proceedings

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 (the "District Court”), 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.

51

 

On August 20, 2024, the Company filed a Motion to Dismiss that was denied by the District Court in an order dated February 26, 2025. The Company responded by filing a motion to certify the order denying the motion for interlocutory appeal, and on May 5, 2025, the District Court issued an Order Granting Certification for Interlocutory Appeal and Staying Action. The Company subsequently petitioned the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) for permission to appeal, and that petition was granted by the Ninth Circuit in an order dated July 17, 2025. The matter remains pending.

While no assurance can be provided as to the ultimate outcome of this claim, the Company and PCM plan to vigorously defend the matter. Pursuant to the terms of the Third Amended and Restated Management Agreement, dated as of June 30, 2020, by and between the Company and PCM, the Company has assumed the defense of PCM in the Verthelyi Action.

Note 18—Shareholders’ Equity

Preferred Shares of Beneficial Interest

Preferred shares of beneficial interest are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share, period ended September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter

 

 

Nine months

 

Series

 

Description (1)

 

Number of shares

 

 

Liquidation preference

 

 

Issuance discount

 

 

Carrying value

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands, except dividends per share)

 

A

 

8.125% Issued March 2017

 

 

4,600

 

 

$

115,000

 

 

$

3,828

 

 

$

111,172

 

 

$

0.51

 

 

$

0.51

 

 

$

1.53

 

 

$

1.53

 

B

 

8.00% Issued July 2017

 

 

7,800

 

 

 

195,000

 

 

 

6,465

 

 

 

188,535

 

 

$

0.50

 

 

$

0.50

 

 

$

1.50

 

 

$

1.50

 

C

 

6.75% Issued August 2021

 

 

10,000

 

 

 

250,000

 

 

 

8,225

 

 

 

241,775

 

 

$

0.42

 

 

$

0.42

 

 

$

1.26

 

 

$

1.26

 

 

 

 

 

22,400

 

 

$

560,000

 

 

$

18,518

 

 

$

541,482

 

 

 

 

 

 

 

 

 

 

 

 

 
(1)
Par value is $0.01 per share.

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 and nine months ended September 30, 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 September 30, 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 Company made no share repurchases during the nine months ended September 30, 2025, or 2024 and has made cumulative repurchases under the Common Share repurchase program totaling $427.2 million, which includes $582,000 of transaction fees.

52

 

Note 19— Net Gains on Investments and Financings

Net gains on investments and financings are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Mortgage-backed securities

 

$

37,572

 

 

$

123,433

 

 

$

116,991

 

 

$

50,310

 

Loans held for investment

 

 

48,480

 

 

 

75,350

 

 

 

90,820

 

 

 

71,330

 

CRT arrangements

 

 

13,742

 

 

 

20,834

 

 

 

32,192

 

 

 

89,118

 

Asset-backed financings

 

 

(35,707

)

 

 

(72,922

)

 

 

(79,923

)

 

 

(64,151

)

Hedging derivatives

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,098

 

 

$

64,087

 

 

$

146,695

 

 

$

160,080

 

 

$

166,705

 

 

Note 20— Net Gains on Loans Held for Sale

Net gains on loans held for sale are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

From nonaffiliates:

 

 

 

 

 

 

 

 

 

 

 

 

Cash losses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales of loans

 

$

5,289

 

 

$

(23,594

)

 

$

(8,244

)

 

$

(94,999

)

Hedging activities

 

 

(18,535

)

 

 

(72,868

)

 

 

(97,652

)

 

 

(116,797

)

 

 

(13,246

)

 

 

(96,462

)

 

 

(105,896

)

 

 

(211,796

)

Non-cash gains:

 

 

 

 

 

 

 

 

 

 

 

 

Receipt of MSRs in mortgage loan sale
   transactions

 

 

45,744

 

 

 

87,588

 

 

 

136,783

 

 

 

159,456

 

Provision for losses relating to representations
   and warranties provided in loan sales:

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to loan sales

 

 

(222

)

 

 

(459

)

 

 

(753

)

 

 

(917

)

Reduction of liability due to change in estimate

 

 

39

 

 

 

5,180

 

 

 

2,119

 

 

 

18,598

 

 

 

(183

)

 

 

4,721

 

 

 

1,366

 

 

 

17,681

 

Changes in fair value of loans and derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

(2,033

)

 

 

4,349

 

 

 

5,045

 

 

 

(1,631

)

Loans

 

 

(4,058

)

 

 

(9,528

)

 

 

(26,017

)

 

 

(3,721

)

Hedging derivatives

 

 

(11,898

)

 

 

27,397

 

 

 

28,522

 

 

 

81,099

 

 

 

(17,989

)

 

 

22,218

 

 

 

7,550

 

 

 

75,747

 

 

 

27,572

 

 

 

114,527

 

 

 

145,699

 

 

 

252,884

 

Total from nonaffiliates

 

 

14,326

 

 

 

18,065

 

 

 

39,803

 

 

 

41,088

 

From PFSI ‒ cash gains

 

 

531

 

 

 

1,994

 

 

 

5,204

 

 

 

5,649

 

 

$

14,857

 

 

$

20,059

 

 

$

45,007

 

 

$

46,737

 

 

53

 

Note 21—Net Interest Income (Expense)

Net interest income (expense) is summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

5,694

 

 

$

7,590

 

 

$

16,955

 

 

$

22,867

 

Mortgage-backed securities

 

 

69,908

 

 

 

66,573

 

 

 

182,903

 

 

 

184,762

 

Loans held for sale

 

 

33,100

 

 

 

23,900

 

 

 

102,252

 

 

 

50,804

 

Loans held for investment

 

 

67,160

 

 

 

16,044

 

 

 

151,533

 

 

 

41,617

 

Deposits securing CRT arrangements

 

 

11,125

 

 

 

15,042

 

 

 

34,201

 

 

 

46,121

 

Placement fees relating to custodial funds

 

 

42,306

 

 

 

47,256

 

 

 

112,071

 

 

 

124,226

 

Other

 

 

795

 

 

 

329

 

 

 

2,745

 

 

 

1,731

 

 

 

230,088

 

 

 

176,734

 

 

 

602,660

 

 

 

472,128

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

 

88,587

 

 

 

86,900

 

 

 

254,071

 

 

 

244,821

 

Mortgage loan participation purchase and sale agreements

 

 

55

 

 

 

568

 

 

 

375

 

 

 

1,033

 

Notes payable secured by credit risk transfer and
   mortgage servicing assets

 

 

51,465

 

 

 

66,305

 

 

 

160,524

 

 

 

198,760

 

Unsecured senior notes

 

 

18,010

 

 

 

14,571

 

 

 

47,610

 

 

 

35,884

 

Asset-backed financings

 

 

65,409

 

 

 

10,838

 

 

 

140,573

 

 

 

34,918

 

Interest shortfall on repayments of loans serviced
   for Agency securitizations

 

 

2,405

 

 

 

1,913

 

 

 

6,289

 

 

 

5,011

 

Interest on loan impound deposits

 

 

2,235

 

 

 

2,285

 

 

 

5,149

 

 

 

5,284

 

Other

 

 

228

 

 

 

791

 

 

 

1,089

 

 

 

1,828

 

 

 

 

228,394

 

 

 

184,171

 

 

 

615,680

 

 

 

527,539

 

 

 

$

1,694

 

 

$

(7,437

)

 

$

(13,020

)

 

$

(55,411

)

 

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:

•
any shares subject to an award granted under the equity incentive plan are forfeited, canceled, exchanged or surrendered;
•
an award terminates or expires without a distribution of shares to the participant; or
•
shares are surrendered or withheld by PMT as payment of either the exercise price of an award and/or withholding taxes for an award.

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.

54

 

The following table summarizes the Company’s share-based compensation activity:

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Grants:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted share units

 

 

—

 

 

 

—

 

 

 

199

 

 

 

182

 

Performance share units

 

 

—

 

 

 

—

 

 

 

168

 

 

 

140

 

 

 

—

 

 

 

—

 

 

 

367

 

 

 

322

 

Grant date fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted share units

 

$

—

 

 

$

—

 

 

$

2,815

 

 

$

2,605

 

Performance share units

 

 

—

 

 

 

—

 

 

 

2,365

 

 

 

2,007

 

 

$

—

 

 

$

—

 

 

$

5,180

 

 

$

4,612

 

Vestings:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted share units

 

 

—

 

 

 

—

 

 

 

144

 

 

 

164

 

Performance share units (1)

 

 

—

 

 

 

—

 

 

 

91

 

 

 

203

 

 

 

—

 

 

 

—

 

 

 

235

 

 

 

367

 

Forfeitures:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted share units

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

Performance share units

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7

 

Compensation expense relating to share-based grants

 

$

812

 

 

$

816

 

 

$

2,613

 

 

$

3,008

 

 

(1)
The actual number of performance-based restricted share units (“RSUs”) that vested during the nine months ended September 30, 2025 was approximately 89% of the 103,081 originally granted performance-based RSUs.

 

 

 

September 30, 2025

 

 

 

Restricted share units

 

 

Performance share units

 

Shares expected to vest:

 

 

Number of restricted shares units (in thousands)

 

 

291

 

 

 

279

 

Grant date average fair value per unit

 

$

14.06

 

 

$

14.05

 

 

Note 23—Income Taxes

The Company’s effective tax rate was (24.0)% and (30.9)% with consolidated pretax income of $47.0 million and $57.7 million for the quarter and nine months ended September 30, 2025. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax benefit of $11.2 million on a pretax loss of $43.8 million and a tax benefit of $18.7 million on a pretax loss of $131.0 million for the quarter and nine months ended September 30, 2025. For the same periods in 2024, the TRS recognized a tax benefit of $15.5 million on a pretax loss of $64.7 million and a tax benefit of $27.5 million on a pretax loss of $115.6 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 results for the nine months ended September 30, 2025 were impacted by the enactment of California Senate Bill 132, signed into law on June 27, 2025 and effective January 1, 2025. The law requires financial institutions to apportion their California income using a single sales factor instead of a factor equally weighted with property, payroll and sales. The change in apportionment method resulted in the TRS providing for taxes at a higher rate and a repricing of the TRS’s net deferred tax liability.

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 September 30, 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 September 30, 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.

55

 

Note 24—Earnings Per Common Share

The Company determines 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.

Basic earnings per share is determined by dividing net income available to common shareholders (net income reduced by preferred dividends and income attributable to the participating securities) by the weighted average Common Shares outstanding during the period.

Diluted 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 number of potentially dilutive securities relating to the exchangeable senior notes is calculated based on the exchange obligation in excess of the principal amount of the exchangeable notes as described in Note 15.

The following table summarizes the basic and diluted earnings per share calculations:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands except per share amounts)

 

Net income

 

$

58,296

 

 

$

41,407

 

 

$

75,510

 

 

$

114,449

 

Dividends on preferred shares

 

 

(10,455

)

 

 

(10,455

)

 

 

(31,364

)

 

 

(31,364

)

Effect of participating securities—share-based compensation
   awards

 

 

(226

)

 

 

(106

)

 

 

(405

)

 

 

(323

)

Net income attributable to common shareholders

 

$

47,615

 

 

$

30,846

 

 

$

43,741

 

 

$

82,762

 

Weighted average basic and diluted shares outstanding

 

 

87,017

 

 

 

86,861

 

 

 

86,979

 

 

 

86,800

 

Basic earnings per share

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

Diluted earnings per share

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

 

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:

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Shares issuable under share-based compensation plan

 

 

140

 

 

 

151

 

 

 

216

 

 

 

210

 

 

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 segment 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.

56

 

Financial highlights by segment are summarized below:

 

 

Credit

 

 

Interest rate

 

 

 

 

 

Reportable

 

 

 

 

 

 

 

 

 

sensitive

 

 

sensitive

 

 

Correspondent

 

 

segment

 

 

 

 

 

Consolidated

 

 Quarter ended September 30, 2025

 

strategies

 

 

strategies

 

 

production

 

 

total

 

 

Corporate

 

 

total

 

 

 

(in thousands)

 

Net investment income (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(817

)

 

$

38,389

 

 

$

—

 

 

$

37,572

 

 

$

—

 

 

$

37,572

 

Loans held for investment

 

 

4,655

 

 

 

8,118

 

 

 

—

 

 

 

12,773

 

 

 

—

 

 

 

12,773

 

Credit risk transfer arrangements

 

 

13,742

 

 

 

—

 

 

 

—

 

 

 

13,742

 

 

 

—

 

 

 

13,742

 

 

 

 

17,580

 

 

 

46,507

 

 

 

—

 

 

 

64,087

 

 

 

—

 

 

 

64,087

 

Net gains on loans held for sale

 

 

—

 

 

 

—

 

 

 

14,857

 

 

 

14,857

 

 

 

—

 

 

 

14,857

 

Net loan servicing fees

 

 

—

 

 

 

15,429

 

 

 

—

 

 

 

15,429

 

 

 

—

 

 

 

15,429

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

20,912

 

 

 

173,810

 

 

 

33,071

 

 

 

227,793

 

 

 

2,295

 

 

 

230,088

 

Interest expense

 

 

19,615

 

 

 

179,206

 

 

 

28,214

 

 

 

227,035

 

 

 

1,359

 

 

 

228,394

 

 

 

1,297

 

 

 

(5,396

)

 

 

4,857

 

 

 

758

 

 

 

936

 

 

 

1,694

 

Other

 

 

(28

)

 

 

—

 

 

 

3,193

 

 

 

3,165

 

 

 

—

 

 

 

3,165

 

 

 

18,849

 

 

 

56,540

 

 

 

22,907

 

 

 

98,296

 

 

 

936

 

 

 

99,232

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

 

1

 

 

 

21,011

 

 

 

—

 

 

 

21,012

 

 

 

—

 

 

 

21,012

 

Management fees

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,912

 

 

 

6,912

 

Loan fulfillment fees

 

 

—

 

 

 

—

 

 

 

6,162

 

 

 

6,162

 

 

 

—

 

 

 

6,162

 

Professional services

 

 

—

 

 

 

—

 

 

 

6,589

 

 

 

6,589

 

 

 

2,019

 

 

 

8,608

 

Compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,817

 

 

 

2,817

 

Loan collection and liquidation

 

 

9

 

 

 

1,494

 

 

 

—

 

 

 

1,503

 

 

 

—

 

 

 

1,503

 

Safekeeping

 

 

—

 

 

 

1,112

 

 

 

82

 

 

 

1,194

 

 

 

—

 

 

 

1,194

 

Loan origination

 

 

—

 

 

 

—

 

 

 

794

 

 

 

794

 

 

 

—

 

 

 

794

 

Other (2)

 

 

85

 

 

 

577

 

 

 

36

 

 

 

698

 

 

 

2,534

 

 

 

3,232

 

 

 

95

 

 

 

24,194

 

 

 

13,663

 

 

 

37,952

 

 

 

14,282

 

 

 

52,234

 

Pretax income (loss)

 

 

18,754

 

 

 

32,346

 

 

 

9,244

 

 

 

60,344

 

 

 

(13,346

)

 

 

46,998

 

Total assets at end of quarter

 

$

1,442,766

 

 

$

14,161,304

 

 

$

2,477,016

 

 

$

18,081,086

 

 

$

444,585

 

 

$

18,525,671

 

 

(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.

57

 

 

 

Credit

 

 

Interest rate

 

 

 

 

 

Reportable

 

 

 

 

 

 

 

 

 

sensitive

 

 

sensitive

 

 

Correspondent

 

 

segment

 

 

 

 

 

Consolidated

 

Quarter ended September 30, 2024

 

strategies

 

 

strategies

 

 

production

 

 

total

 

 

Corporate

 

 

total

 

 

 

(in thousands)

 

Net investment income (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

559

 

 

$

122,874

 

 

$

—

 

 

$

123,433

 

 

$

—

 

 

$

123,433

 

Loans held for investment

 

 

5,721

 

 

 

(3,292

)

 

 

—

 

 

 

2,429

 

 

 

—

 

 

 

2,429

 

Credit risk transfer arrangements

 

 

20,833

 

 

 

—

 

 

 

—

 

 

 

20,833

 

 

 

—

 

 

 

20,833

 

 

 

 

27,113

 

 

 

119,582

 

 

 

—

 

 

 

146,695

 

 

 

—

 

 

 

146,695

 

Net gains on loans held for sale

 

 

—

 

 

 

—

 

 

 

20,059

 

 

 

20,059

 

 

 

—

 

 

 

20,059

 

Net loan servicing fees

 

 

—

 

 

 

(85,080

)

 

 

—

 

 

 

(85,080

)

 

 

—

 

 

 

(85,080

)

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

21,389

 

 

 

128,458

 

 

 

23,853

 

 

 

173,700

 

 

 

3,034

 

 

 

176,734

 

Interest expense

 

 

21,921

 

 

 

136,873

 

 

 

24,273

 

 

 

183,067

 

 

 

1,104

 

 

 

184,171

 

 

 

(532

)

 

 

(8,415

)

 

 

(420

)

 

 

(9,367

)

 

 

1,930

 

 

 

(7,437

)

Other

 

 

(65

)

 

 

—

 

 

 

6,692

 

 

 

6,627

 

 

 

—

 

 

 

6,627

 

 

 

26,516

 

 

 

26,087

 

 

 

26,331

 

 

 

78,934

 

 

 

1,930

 

 

 

80,864

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

 

20

 

 

 

22,220

 

 

 

—

 

 

 

22,240

 

 

 

—

 

 

 

22,240

 

Management fees

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,153

 

 

 

7,153

 

Loan fulfillment fees

 

 

—

 

 

 

—

 

 

 

11,492

 

 

 

11,492

 

 

 

—

 

 

 

11,492

 

Professional services

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,614

 

 

 

2,614

 

Compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,326

 

 

 

1,326

 

Loan collection and liquidation

 

 

40

 

 

 

2,217

 

 

 

—

 

 

 

2,257

 

 

 

—

 

 

 

2,257

 

Safekeeping

 

 

—

 

 

 

994

 

 

 

180

 

 

 

1,174

 

 

 

—

 

 

 

1,174

 

Loan origination

 

 

—

 

 

 

—

 

 

 

1,408

 

 

 

1,408

 

 

 

—

 

 

 

1,408

 

Other (2)

 

 

7

 

 

 

165

 

 

 

2

 

 

 

174

 

 

 

4,492

 

 

 

4,666

 

 

 

67

 

 

 

25,596

 

 

 

13,082

 

 

 

38,745

 

 

 

15,585

 

 

 

54,330

 

Pretax income (loss)

 

$

26,449

 

 

$

491

 

 

$

13,249

 

 

$

40,189

 

 

$

(13,655

)

 

$

26,534

 

Total assets at end of quarter

 

$

1,453,245

 

 

$

9,429,883

 

 

$

1,724,696

 

 

$

12,607,824

 

 

$

447,830

 

 

$

13,055,654

 

 

(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.

58

 

 

 

Credit

 

 

Interest rate

 

 

 

 

 

Reportable

 

 

 

 

 

 

 

 

 

sensitive

 

 

sensitive

 

 

Correspondent

 

 

segment

 

 

 

 

 

Consolidated

 

Nine months ended September 30, 2025

 

strategies

 

 

strategies

 

 

production

 

 

total

 

 

Corporate

 

 

total

 

 

 

(in thousands)

 

Net investment income (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(1,321

)

 

$

118,312

 

 

$

—

 

 

$

116,991

 

 

$

—

 

 

$

116,991

 

Loans held for investment

 

 

6,465

 

 

 

4,432

 

 

 

—

 

 

 

10,897

 

 

 

—

 

 

 

10,897

 

Credit risk transfer arrangements

 

 

32,192

 

 

 

—

 

 

 

—

 

 

 

32,192

 

 

 

—

 

 

 

32,192

 

 

 

 

37,336

 

 

 

122,744

 

 

 

—

 

 

 

160,080

 

 

 

—

 

 

 

160,080

 

Net gains on loans held for sale

 

 

—

 

 

 

—

 

 

 

45,007

 

 

 

45,007

 

 

 

—

 

 

 

45,007

 

Net loan servicing fees

 

 

—

 

 

 

12,166

 

 

 

—

 

 

 

12,166

 

 

 

—

 

 

 

12,166

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

61,432

 

 

 

431,199

 

 

 

102,155

 

 

 

594,786

 

 

 

7,874

 

 

 

602,660

 

Interest expense

 

 

56,557

 

 

 

469,151

 

 

 

86,009

 

 

 

611,717

 

 

 

3,963

 

 

 

615,680

 

 

 

4,875

 

 

 

(37,952

)

 

 

16,146

 

 

 

(16,931

)

 

 

3,911

 

 

 

(13,020

)

Other

 

 

(169

)

 

 

—

 

 

 

9,834

 

 

 

9,665

 

 

 

—

 

 

 

9,665

 

 

 

42,042

 

 

 

96,958

 

 

 

70,987

 

 

 

209,987

 

 

 

3,911

 

 

 

213,898

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

 

5

 

 

 

64,381

 

 

 

—

 

 

 

64,386

 

 

 

—

 

 

 

64,386

 

Management fees

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,793

 

 

 

20,793

 

Loan fulfillment fees

 

 

—

 

 

 

—

 

 

 

17,266

 

 

 

17,266

 

 

 

—

 

 

 

17,266

 

Professional services

 

 

—

 

 

 

—

 

 

 

17,850

 

 

 

17,850

 

 

 

6,102

 

 

 

23,952

 

Compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,623

 

 

 

8,623

 

Loan collection and liquidation

 

 

72

 

 

 

5,785

 

 

 

—

 

 

 

5,857

 

 

 

—

 

 

 

5,857

 

Safekeeping

 

 

—

 

 

 

3,290

 

 

 

242

 

 

 

3,532

 

 

 

—

 

 

 

3,532

 

Loan origination

 

 

—

 

 

 

—

 

 

 

2,146

 

 

 

2,146

 

 

 

—

 

 

 

2,146

 

Other (2)

 

 

267

 

 

 

1,520

 

 

 

388

 

 

 

2,175

 

 

 

7,463

 

 

 

9,638

 

 

 

344

 

 

 

74,976

 

 

 

37,892

 

 

 

113,212

 

 

 

42,981

 

 

 

156,193

 

Pretax income (loss)

 

$

41,698

 

 

$

21,982

 

 

$

33,095

 

 

$

96,775

 

 

$

(39,070

)

 

$

57,705

 

Total assets at end of period

 

$

1,442,766

 

 

$

14,161,304

 

 

$

2,477,016

 

 

$

18,081,086

 

 

$

444,585

 

 

$

18,525,671

 

 

(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.

59

 

 

 

Credit

 

 

Interest rate

 

 

 

 

 

Reportable

 

 

 

 

 

 

 

 

 

sensitive

 

 

sensitive

 

 

Correspondent

 

 

segment

 

 

 

 

 

Consolidated

 

Nine months ended September 30, 2024

 

strategies

 

 

strategies

 

 

production

 

 

total

 

 

Corporate

 

 

total

 

 

 

(in thousands)

 

Net investment income (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

7,256

 

 

$

63,152

 

 

$

—

 

 

$

70,408

 

 

$

—

 

 

$

70,408

 

Loans held for investment

 

 

7,740

 

 

 

(561

)

 

 

—

 

 

 

7,179

 

 

 

—

 

 

 

7,179

 

Credit risk transfer arrangements

 

 

89,118

 

 

 

—

 

 

 

—

 

 

 

89,118

 

 

 

—

 

 

 

89,118

 

 

 

 

104,114

 

 

 

62,591

 

 

 

—

 

 

 

166,705

 

 

 

—

 

 

 

166,705

 

Net gains on loans held for sale

 

 

—

 

 

 

—

 

 

 

46,737

 

 

 

46,737

 

 

 

—

 

 

 

46,737

 

Net loan servicing fees

 

 

—

 

 

 

57,119

 

 

 

—

 

 

 

57,119

 

 

 

—

 

 

 

57,119

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

68,520

 

 

 

343,954

 

 

 

50,652

 

 

 

463,126

 

 

 

9,002

 

 

 

472,128

 

Interest expense

 

 

69,204

 

 

 

403,262

 

 

 

51,541

 

 

 

524,007

 

 

 

3,532

 

 

 

527,539

 

 

 

(684

)

 

 

(59,308

)

 

 

(889

)

 

 

(60,881

)

 

 

5,470

 

 

 

(55,411

)

Other

 

 

(155

)

 

 

—

 

 

 

11,272

 

 

 

11,117

 

 

 

—

 

 

 

11,117

 

 

 

103,275

 

 

 

60,402

 

 

 

57,120

 

 

 

220,797

 

 

 

5,470

 

 

 

226,267

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

 

61

 

 

 

62,705

 

 

 

—

 

 

 

62,766

 

 

 

—

 

 

 

62,766

 

Management fees

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21,474

 

 

 

21,474

 

Loan fulfillment fees

 

 

—

 

 

 

—

 

 

 

19,935

 

 

 

19,935

 

 

 

—

 

 

 

19,935

 

Professional services

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,738

 

 

 

6,738

 

Compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,611

 

 

 

4,611

 

Loan collection and liquidation

 

 

94

 

 

 

4,203

 

 

 

—

 

 

 

4,297

 

 

 

—

 

 

 

4,297

 

Safekeeping

 

 

—

 

 

 

2,765

 

 

 

302

 

 

 

3,067

 

 

 

—

 

 

 

3,067

 

Loan origination

 

 

—

 

 

 

—

 

 

 

2,414

 

 

 

2,414

 

 

 

—

 

 

 

2,414

 

Other (2)

 

 

107

 

 

 

607

 

 

 

—

 

 

 

714

 

 

 

12,727

 

 

 

13,441

 

 

 

262

 

 

 

70,280

 

 

 

22,651

 

 

 

93,193

 

 

 

45,550

 

 

 

138,743

 

Pretax income (loss)

 

$

103,013

 

 

$

(9,878

)

 

$

34,469

 

 

$

127,604

 

 

$

(40,080

)

 

$

87,524

 

Total assets at end of period

 

$

1,453,245

 

 

$

9,429,883

 

 

$

1,724,696

 

 

$

12,607,824

 

 

$

447,830

 

 

$

13,055,654

 

 

(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.

 

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

 

 

Actual

 

 

Required

 

 

Actual

 

 

Required

 

 

 

(dollars in thousands)

 

September 30, 2025

 

$

782,035

 

 

$

570,252

 

 

 

11

%

 

 

6

%

 

$

504,751

 

 

$

212,125

 

December 31, 2024

 

$

876,324

 

 

$

579,383

 

 

 

12

%

 

 

6

%

 

$

564,311

 

 

$

215,801

 

 

(1)
Calculated in accordance with the Agencies’ requirements.

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.

60

 

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.

Our Company

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”), senior and 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 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.

•
The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate MBS.
•
The interest rate sensitive strategies segment represents our investments in MSRs, Agency and senior non-Agency MBS and the related interest rate hedging activities.
•
The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.

We primarily sell the loans we acquire through our correspondent production activities to government-sponsored enterprises ("GSEs") such as the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”), or the GSEs, or to PLS for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"). Freddie Mac, Fannie Mae 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 senior and subordinate MBS, from these securitizations.

•
Our corporate operations include management fees, compensation, professional services, and other amounts attributable to the Company’s corporate operations and certain interest income and expense.

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.

61

 

We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.0 billion at September 30, 2025.

Subordinate 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 September 30, 2025, we sold our holdings of the subordinate credit-linked securities that we account for as MBS.

As the result of the Company’s consolidation of the variable interest entities that issued certain of our holdings of 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 those securities as loans held for investment and reflect the securities we sell to nonaffiliates as asset-backed financings. During the nine months ended September 30, 2025, we invested approximately $235.9 million in non-Agency subordinate bonds and held $372.8 million at September 30, 2025.

Interest Rate Sensitive Investments

Our interest rate sensitive investments include:

•
Mortgage servicing rights. During the nine months ended September 30, 2025, we received approximately $136.8 million of MSRs as proceeds from sales of loans held for sale. We held approximately $3.7 billion of MSRs at fair value at September 30, 2025.
•
REIT-eligible Agency, senior non-Agency, and Agency IO and PO stripped MBS, and Agency floating rate collateralized mortgage obligations ("CMOs"). During the nine months ended September 30, 2025, we purchased approximately $66.1 million and $876.1 million of senior non-Agency fixed-rate MBS and Agency floating rate CMOs issued by nonaffiliates, respectively, and we held Agency fixed-rate pass-through, senior non-Agency, IO and PO stripped MBS and Agency floating rate CMOs with fair values totaling approximately $4.6 billion at September 30, 2025.
•
During the nine months ended September 30, 2025, we invested approximately $105.9 million in senior non-Agency bonds from our securitizations of loans secured by investment properties and jumbo loans. We account for these investments as loans and reflect the securities we sold to nonaffiliates as asset-backed financings as described above. At September 30, 2025, we held senior non-Agency securities with fair values totaling approximately $160.9 million from our securitization of loans secured by investment properties.

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Sales of loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

To nonaffiliates

 

$

2,496,351

 

 

$

5,172,208

 

 

$

7,480,047

 

 

$

9,340,802

 

To PennyMac Financial Services, Inc.

 

 

5,474,275

 

 

 

20,341,142

 

 

 

52,856,500

 

 

 

57,502,461

 

 

$

7,970,626

 

 

$

25,513,350

 

 

$

60,336,547

 

 

$

66,843,263

 

Net gains on loans held for sale

 

$

14,857

 

 

$

20,059

 

 

$

45,007

 

 

$

46,737

 

Investment activities resulting from correspondent production:

 

 

 

 

 

 

 

 

 

 

 

 

Retention of interests in securitizations of loans, net of
    associated asset-backed financings (1)

 

$

133,264

 

 

$

—

 

 

$

341,849

 

 

$

—

 

Receipt of MSRs as proceeds from sales of loans

 

 

45,744

 

 

 

87,588

 

 

 

136,783

 

 

 

159,456

 

Total investments resulting from correspondent activities

 

$

179,008

 

 

$

87,588

 

 

$

478,632

 

 

$

159,456

 

 

(1)
The trusts issuing the securities are consolidated on our consolidated balance sheets. Therefore, our investments in these securities are shown as their underlying assets, Loans held for investment at fair value, with the securities held by non-affiliates being shown as Asset-backed financings of variable interest entities at fair value.

Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we retain the right to purchase up to 100% of PLS's non-government correspondent production.

62

 

During the nine months ended September 30, 2025, we purchased newly originated prime credit quality residential loans with fair values totaling $64.7 billion, including $5.7 billion from PLS, as compared to $67.9 billion for the nine months ended September 30, 2024, in our correspondent production business. Our loan sales included $52.9 billion and $57.5 billion of loans we sold to PLS during the nine months ended September 30, 2025 and September 30, 2024, respectively. We received a sourcing fee based on the unpaid principal balance (“UPB”) of each loan that we sold to PLS under such arrangement, and earned interest income on the loan for the period we held it before the sale. During the nine months ended September 30, 2025 and September 30, 2024, we received sourcing fees totaling $5.2 million and $5.6 million, respectively.

To the extent that we purchased loans that were 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 previously agreed that PLS would fulfill and purchase such loans, as PLS is a Ginnie Mae approved issuer and we are not. This arrangement enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. We also sold conventional loans that we purchased to PLS subject to our and PLS's mutual agreement. During the nine months ended September 30, 2025, we sold $25.0 billion in UPB of conventional loans to PLS in order to optimize our use and allocation of capital.

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 held for sale at fair value and loans held for investment 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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Net gains on investments and financings:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

37,572

 

 

$

123,433

 

 

$

116,991

 

 

$

50,310

 

Loans held for investment

 

 

48,480

 

 

 

75,350

 

 

 

90,820

 

 

 

71,330

 

CRT arrangements

 

 

1,525

 

 

 

8,959

 

 

 

(2,856

)

 

 

46,933

 

Interest-only security payable

 

 

(5

)

 

 

(2,390

)

 

 

(2,336

)

 

 

(2,431

)

Asset-backed financings

 

 

(35,707

)

 

 

(72,922

)

 

 

(79,923

)

 

 

(64,151

)

 

 

51,865

 

 

 

132,430

 

 

 

122,696

 

 

 

101,991

 

Net gains on loans held for sale (1)

 

 

27,572

 

 

 

114,527

 

 

 

145,699

 

 

 

252,884

 

Net loan servicing fees‒MSR valuation adjustments (2)

 

 

(22,284

)

 

 

(78,905

)

 

 

(127,029

)

 

 

122,378

 

 

$

57,153

 

 

$

168,052

 

 

$

141,366

 

 

$

477,253

 

Net investment income

 

$

99,232

 

 

$

80,864

 

 

$

213,898

 

 

$

226,267

 

Non-cash items as a percentage of net investment income

 

 

58

%

 

 

208

%

 

 

66

%

 

 

211

%

 

63

 

(1)
Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, interest rate lock commitments (“IRLCs") and hedging derivatives held at the end of the period.
(2)
Includes fair value changes due to changes in fair value inputs and fair value changes related to MSR derivative hedging instruments held at the end of the period.

We receive or pay cash relating to:

•
MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments;
•
Loan investments when the investments are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold;
•
CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid;
•
MSRs in the form of loan servicing fees (including both base servicing and excess servicing spread) and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service;
•
Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades; and
•
Our liability for representations and warranties when we repurchase loans or settle loss claims from investors.

Business Trends

Recent actions by the U.S. government administration with respect to trade, tariffs and government cost reduction initiatives and the shutdown of the federal government 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, reductions in the Federal Reserve's federal funds rate have reduced the costs of floating rate borrowings and placement fees we receive in relation 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 MBS and increase losses from our representations and warranties. A prolonged federal government shutdown could increase loan delinquencies, delay the processing of government loan applications and make it more difficult for customers in flood-prone areas to procure government-backed insurance. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to moderate the negative effects of credit performance in an economic downturn.

We expect to acquire a portion of the conventional loans and all of the jumbo loans produced in the correspondent channel from PFSI in the fourth quarter of 2025.

We expect to continue investing in subordinate MBS generated from the private label securitization of Agency eligible non-owner occupied and jumbo loans as well as begin to invest in subordinate MBS generated from the private label securitization of Agency eligible owner-occupied loans. This investment activity is also expected to increase our asset-back financing of variable interest entities.

64

 

Results of Operations

The following is a summary of our key performance measures:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(dollar amounts in thousands, except per common share amounts)

 

Net gains on investments and financings

 

$

64,087

 

 

$

146,695

 

 

$

160,080

 

 

$

166,705

 

Loan production income (1)

 

 

17,952

 

 

 

26,699

 

 

 

54,639

 

 

 

57,836

 

Net loan servicing fees

 

 

15,429

 

 

 

(85,080

)

 

 

12,166

 

 

 

57,119

 

Net interest income (expense)

 

 

1,694

 

 

 

(7,437

)

 

 

(13,020

)

 

 

(55,411

)

Other

 

 

70

 

 

 

(13

)

 

 

33

 

 

 

18

 

Net investment income

 

 

99,232

 

 

 

80,864

 

 

 

213,898

 

 

 

226,267

 

Expenses

 

 

52,234

 

 

 

54,330

 

 

 

156,193

 

 

 

138,743

 

Pretax income

 

 

46,998

 

 

 

26,534

 

 

 

57,705

 

 

 

87,524

 

Benefit from income taxes

 

 

(11,298

)

 

 

(14,873

)

 

 

(17,805

)

 

 

(26,925

)

Net income

 

 

58,296

 

 

 

41,407

 

 

 

75,510

 

 

 

114,449

 

Dividends on preferred shares

 

 

10,455

 

 

 

10,455

 

 

 

31,364

 

 

 

31,364

 

Net income attributable to common
   shareholders

 

$

47,841

 

 

$

30,952

 

 

$

44,146

 

 

$

83,085

 

Pretax income by segment and corporate:

 

 

 

 

 

 

 

 

 

 

 

 

Credit sensitive strategies

 

$

18,754

 

 

$

26,449

 

 

$

41,698

 

 

$

103,013

 

Interest rate sensitive strategies

 

 

32,346

 

 

 

491

 

 

 

21,982

 

 

 

(9,878

)

Correspondent production

 

 

9,244

 

 

 

13,249

 

 

 

33,095

 

 

 

34,469

 

Corporate operations

 

 

(13,346

)

 

 

(13,655

)

 

 

(39,070

)

 

 

(40,080

)

 

$

46,998

 

 

$

26,534

 

 

$

57,705

 

 

$

87,524

 

Annualized return on average common
   shareholders' equity

 

 

14.3

%

 

 

8.8

%

 

 

4.3

%

 

 

7.8

%

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

Diluted

 

$

0.55

 

 

$

0.36

 

 

$

0.50

 

 

$

0.95

 

Dividends per common share

 

$

0.40

 

 

$

0.40

 

 

$

1.20

 

 

$

1.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

Total assets

 

 

 

 

 

 

 

$

18,525,671

 

 

$

14,408,706

 

Book value per common share

 

 

 

 

 

 

 

$

15.16

 

 

$

15.87

 

Closing price per common share

 

 

 

 

 

 

 

$

12.26

 

 

$

12.59

 

 

(1)
Includes net gains on loans held for sale and loan origination fees.

Our net income increased by $16.9 million during the quarter ended September 30, 2025, as compared to the quarter ended September 30, 2024, reflecting the effect of reduced mortgage servicing rights and hedging losses partially offset by decreased gains on our investments.

 

The increase in the quarterly pretax results is summarized below:

•
Our credit sensitive strategies segment recognized a $7.1 million decrease in net gains on our CRT arrangements as market credit spreads (which represent the interest rate premium demanded by investors for instruments over those that are considered “risk free”) did not tighten as significantly during the quarter ended September 30, 2025 as compared to credit spread changes during the quarter ended September 30, 2024.
•
Our interest rate sensitive strategies segment recognized a $100.5 million increase in net servicing fees resulting from decreased net MSR valuation losses compared to the quarter ended September 30, 2024 and a $3.0 million decrease in net interest expense, partially offset by an $84.5 million decrease in valuation gains on MBS caused by less significant decreases in interest rates during the quarter compared to the same period in 2024.
•
Our correspondent production segment recognized a $5.2 million decrease in our gain on sale during the quarter ended September 30, 2025, as compared to the same period in 2024, reflecting a reduction in our volume of sales to nonaffiliates.

65

 

•
Our benefit from income taxes recognized a $3.6 million decrease during the quarter ended September 30, 2025, as compared to the same period in 2024, reflecting decreased net MSR valuation losses.

 

Our net income decreased by $38.9 million during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, reflecting the effect of the increased fair value losses from our MSRs and reduced gains on our CRT-related investments, partially offset by increased gains on MBS and loans held for investment.

 

The decrease in the nine months pretax results is summarized below:

•
Our credit sensitive strategies segment recognized a $56.9 million decrease in net gains on our CRT arrangements as market credit spreads did not tighten as significantly during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.
•
Our interest rate sensitive strategies segment recognized a $45.0 million decrease in net servicing fees resulting from increased net MSR valuation losses due to more significant decreases in interest rates during nine months ended September 30, 2025, compared to the same period in 2024. These decreases were partially offset by a $55.2 million increase in valuation gains on MBS as well as a $21.4 million decrease in net interest expense.
•
Our correspondent production segment recognized a $1.7 million decrease in our gain on sale during the nine months ended September 30, 2025, as compared to the same period in 2024, reflecting the decrease in our sales of loans to nonaffiliates.

Net Investment Income

Our net investment income is summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Net gains on investments and financings

 

$

64,087

 

 

$

146,695

 

 

$

160,080

 

 

$

166,705

 

Net gains on loans held for sale

 

 

14,857

 

 

 

20,059

 

 

 

45,007

 

 

 

46,737

 

Loan origination fees

 

 

3,095

 

 

 

6,640

 

 

 

9,632

 

 

 

11,099

 

Net loan servicing fees

 

 

15,429

 

 

 

(85,080

)

 

 

12,166

 

 

 

57,119

 

Net interest expense

 

 

1,694

 

 

 

(7,437

)

 

 

(13,020

)

 

 

(55,411

)

Other

 

 

70

 

 

 

(13

)

 

 

33

 

 

 

18

 

 

$

99,232

 

 

$

80,864

 

 

$

213,898

 

 

$

226,267

 

Net Gains on Investments and Financings

Net gains on investments and financings are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Mortgage-backed securities

 

$

37,572

 

 

$

123,433

 

 

$

116,991

 

 

$

50,310

 

Loans held for investment

 

 

48,480

 

 

 

75,350

 

 

 

90,820

 

 

 

71,330

 

CRT arrangements

 

 

13,742

 

 

 

20,834

 

 

 

32,192

 

 

 

89,118

 

Asset-backed financings

 

 

(35,707

)

 

 

(72,922

)

 

 

(79,923

)

 

 

(64,151

)

Hedging derivatives

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,098

 

 

$

64,087

 

 

$

146,695

 

 

$

160,080

 

 

$

166,705

 

The decrease in net gains on investments for the quarter and nine months ended September 30, 2025, as compared to the same periods in 2024, was primarily due to decreased gains from our CRT-related investments. Credit spreads tightened less significantly during the quarter and nine months ended September 30, 2025, compared to the same periods in 2024.

Mortgage-Backed Securities

During the quarter and nine months ended September 30, 2025, we recognized net valuation gain of $37.6 million and $117.0 million, respectively, as compared to valuation gains of $123.4 million and $50.3 million for the same periods in 2024. The decreased gains recognized during the quarter ended September 30, 2025 reflects interest rates decreasing to a lesser degree compared to the same period in 2024. The increased gains recognized during the nine months ended September 30, 2025 reflect more significant reductions in interest rates compared to the same period in 2024.

66

 

 

Loans Held for Investment – Held in VIEs and Asset-backed Financings at Fair Value

Loans held for investment in VIEs and Asset-backed financings at fair value recorded combined net valuation gains of $12.8 million and $10.9 million during the quarter and nine months ended September 30, 2025, respectively, as compared to valuation gains of $2.4 million and $7.2 million during the quarter and nine months ended September 30, 2024, respectively. The net gains during the quarter and nine months ended September 30, 2025 reflect the gains on the underlying assets exceeding the losses on the asset-backed financing as the result of interest rate declines and credit spread tightening on our net investments secured by jumbo loans and investment properties.

CRT Arrangements

The activity in and balances relating to our CRT arrangements are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on investments and financings

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer derivatives and strips:

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

$

2,599

 

 

$

3,275

 

 

$

8,034

 

 

$

10,248

 

Valuation changes

 

 

348

 

 

 

5,460

 

 

 

2,268

 

 

 

13,716

 

 

 

2,947

 

 

 

8,735

 

 

 

10,302

 

 

 

23,964

 

Credit risk transfer strips

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

9,623

 

 

 

10,990

 

 

 

29,350

 

 

 

34,368

 

Valuation changes

 

 

1,177

 

 

 

3,499

 

 

 

(5,124

)

 

 

33,217

 

 

 

10,800

 

 

 

14,489

 

 

 

24,226

 

 

 

67,585

 

Interest-only security payable at fair value — valuation
   changes

 

 

(5

)

 

 

(2,390

)

 

 

(2,336

)

 

 

(2,431

)

 

 

13,742

 

 

 

20,834

 

 

 

32,192

 

 

 

89,118

 

Interest income — Deposits securing credit risk transfer
    arrangements

 

 

11,125

 

 

 

15,042

 

 

 

34,201

 

 

 

46,121

 

 

$

24,867

 

 

$

35,876

 

 

$

66,393

 

 

$

135,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net payments made to settle losses on credit risk transfer
   arrangements

 

$

1,250

 

 

$

827

 

 

$

3,718

 

 

$

1,140

 

 

67

 

 

 

 

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

 

 

 

(in thousands)

 

Carrying value of credit risk transfer arrangements:

 

 

 

 

 

 

 

 

 

 

Derivative assets - credit risk transfer derivatives

 

 

 

 

 

$

31,432

 

 

$

29,377

 

Derivative and credit risk transfer liabilities — credit risk transfer strip liabilities

 

 

(9,330

)

 

 

(4,060

)

Deposits securing credit risk transfer arrangements

 

 

 

 

 

 

1,033,008

 

 

 

1,110,708

 

Interest-only security payable at fair value

 

 

 

 

 

 

(36,558

)

 

 

(34,222

)

 

 

 

 

 

 

$

1,018,552

 

 

$

1,101,803

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer arrangement assets pledged to secure borrowings:

 

 

 

 

 

 

 

 

Derivative assets

 

 

 

 

 

$

31,432

 

 

$

29,377

 

Deposits securing credit risk transfer arrangements (1)

 

 

 

$

1,033,008

 

 

$

1,110,708

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of loans underlying credit risk transfer arrangements

 

$

19,937,381

 

 

$

21,249,304

 

Collection status (unpaid principal balance):

 

 

 

 

 

 

 

 

Delinquency

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

19,314,008

 

 

$

20,628,148

 

30-89 days delinquent

 

 

 

 

 

$

433,928

 

 

$

414,605

 

90-179 days delinquent

 

 

 

 

 

$

105,783

 

 

$

131,191

 

180 or more days delinquent

 

 

 

 

 

$

59,042

 

 

$

51,343

 

Foreclosure

 

 

 

 

 

$

24,620

 

 

$

24,017

 

Bankruptcy

 

 

 

 

 

$

68,491

 

 

$

63,697

 

 

(1)
Deposits securing credit risk transfer arrangements also secure $9.3 million and $4.1 million in CRT strip and CRT derivative liabilities at September 30, 2025 and December 31, 2024, respectively.

The performance of our investments in CRT arrangements during the nine months ended September 30, 2025 reflects credit spread widening, as compared to the nine months ended September 30, 2024.

68

 

Net Gains on Loans Held for Sale

Our net gains on loans held for sale are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

From non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

Cash losses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales of loans

 

$

5,289

 

 

$

(23,594

)

 

$

(8,244

)

 

$

(94,999

)

Hedging activities

 

 

(18,535

)

 

 

(72,868

)

 

 

(97,652

)

 

 

(116,797

)

 

 

(13,246

)

 

 

(96,462

)

 

 

(105,896

)

 

 

(211,796

)

Non-cash gains:

 

 

 

 

 

 

 

 

 

 

 

 

Receipt of MSRs in loan sale transactions

 

 

45,744

 

 

 

87,588

 

 

 

136,783

 

 

 

159,456

 

Provision for losses relating to representations and
   warranties provided in loan sales:

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to loan sales

 

 

(222

)

 

 

(459

)

 

 

(753

)

 

 

(917

)

Reduction in liability due to change in estimate

 

 

39

 

 

 

5,180

 

 

 

2,119

 

 

 

18,598

 

 

 

(183

)

 

 

4,721

 

 

 

1,366

 

 

 

17,681

 

Changes in fair value of financial instruments held at
  end of period:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

(2,033

)

 

 

4,349

 

 

 

5,045

 

 

 

(1,631

)

Loans

 

 

(4,058

)

 

 

(9,528

)

 

 

(26,017

)

 

 

(3,721

)

Hedging derivatives

 

 

(11,898

)

 

 

27,397

 

 

 

28,522

 

 

 

81,099

 

 

 

(17,989

)

 

 

22,218

 

 

 

7,550

 

 

 

75,747

 

 

 

27,572

 

 

 

114,527

 

 

 

145,699

 

 

 

252,884

 

Total from nonaffiliates

 

 

14,326

 

 

 

18,065

 

 

 

39,803

 

 

 

41,088

 

From PFSI—cash

 

 

531

 

 

 

1,994

 

 

 

5,204

 

 

 

5,649

 

 

$

14,857

 

 

$

20,059

 

 

$

45,007

 

 

$

46,737

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments issued on loans acquired
   for sale (unpaid principal balance):

 

 

 

 

 

 

 

 

 

 

 

 

To nonaffiliates

 

$

4,399,438

 

 

$

7,373,266

 

 

$

10,673,417

 

 

$

12,447,372

 

To PFSI

 

 

—

 

 

 

8,229,074

 

 

 

50,753,290

 

 

 

26,756,917

 

 

 

$

4,399,438

 

 

$

15,602,340

 

 

$

61,426,707

 

 

$

39,204,289

 

Acquisition of loans for sale (unpaid principal balance):

 

 

 

 

 

 

 

 

 

 

 

 

To nonaffiliates

 

$

3,343,181

 

 

$

5,948,057

 

 

$

9,210,743

 

 

$

9,949,135

 

To PFSI

 

 

1,816,268

 

 

 

19,880,534

 

 

 

48,795,472

 

 

 

56,544,379

 

 

$

5,159,449

 

 

$

25,828,591

 

 

$

58,006,215

 

 

$

66,493,514

 

The changes in gain on loans held for sale during the quarter and nine months ended September 30, 2025, as compared to the same periods in 2024, reflect decreased interest rate lock commitments.

Non-cash elements of gain on sale of loans:

Interest Rate Lock Commitments

Our Net gains on loans held 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 held for sale at fair value. 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

69

 

recognized in our consolidated statements of income in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our income.

Mortgage Servicing Rights

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 $222,000 and $753,000 for the quarter and nine months ended September 30, 2025, respectively, and $459,000 and $917,000 for the quarter and nine months ended September 30, 2024, respectively.

Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Indemnification activity (unpaid principal balance):

 

 

 

 

 

 

 

 

 

 

 

 

Loans indemnified at beginning of period

 

$

15,587

 

 

$

15,178

 

 

$

15,289

 

 

$

12,124

 

New indemnifications

 

 

620

 

 

 

343

 

 

 

1,113

 

 

 

3,397

 

Less: indemnified loans sold, repaid or refinanced

 

 

—

 

 

 

540

 

 

 

195

 

 

 

540

 

Loans indemnified at end of period

 

$

16,207

 

 

$

14,981

 

 

$

16,207

 

 

$

14,981

 

Indemnified loans indemnified by correspondent lenders at
  end of period

 

 

 

 

 

 

 

$

6,045

 

 

$

5,772

 

UPB of loans with deposits received from correspondent
   sellers collateralizing prospective indemnification losses
   at end of period

 

 

 

 

 

 

 

$

5,488

 

 

$

5,488

 

Repurchase activity (unpaid principal balance):

 

 

 

 

 

 

 

 

 

 

 

 

Loans repurchased

 

$

8,094

 

 

$

7,612

 

 

$

21,191

 

 

$

25,383

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Loans repurchased by correspondent sellers

 

 

9,321

 

 

 

7,621

 

 

 

19,253

 

 

 

19,622

 

Loans resold or repaid by borrowers

 

 

2,711

 

 

 

1,810

 

 

 

5,414

 

 

 

5,267

 

Net loans repurchased (resolved) with losses chargeable
    to liability to representations and warranties

 

$

(3,938

)

 

$

(1,819

)

 

$

(3,476

)

 

$

494

 

Losses charged to liability for representations and warranties

 

$

95

 

 

$

147

 

 

$

368

 

 

$

147

 

At end of period:

 

 

 

 

 

 

 

 

 

 

 

 

Loans subject to representations and warranties

 

 

 

 

 

 

 

$

216,361,811

 

 

$

223,245,804

 

Liability for representations and warranties

 

 

 

 

 

 

 

$

5,152

 

 

$

8,315

 

 

70

 

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 and guarantor 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 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 held for sale at fair value. We recorded a $39,000 and $2.1 million reduction in liability for representations and warranties during the quarter and nine months ended September 30, 2025, respectively, compared to $5.2 million and $18.6 million for the quarter and nine months ended September 30, 2024, respectively, 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. Loan
origination fees decreased during the quarter and nine months ended September 30, 2025, as we purchased fewer loans for sale to nonaffiliates compared to the same periods in 2024.

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

 

(in thousands)

Loan servicing fees

 

$

155,823

 

 

$

166,617

 

 

$

470,177

 

 

$

494,927

 

 

Effect of mortgage servicing rights and hedging
   results

 

 

(140,394

)

 

 

(251,697

)

 

 

(458,011

)

 

 

(437,808

)

 

Net loan servicing fees

 

$

15,429

 

 

$

(85,080

)

 

$

12,166

 

 

$

57,119

 

 

Loan Servicing Fees

Following is a summary of our loan servicing fees:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

 

(in thousands)

Contractually specified servicing fees

 

$

151,395

 

 

$

162,605

 

 

$

456,705

 

 

$

485,089

 

 

Ancillary and other fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Late charges

 

 

1,092

 

 

 

1,044

 

 

 

3,155

 

 

 

3,019

 

 

Other

 

 

3,336

 

 

 

2,968

 

 

 

10,317

 

 

 

6,819

 

 

 

 

4,428

 

 

 

4,012

 

 

 

13,472

 

 

 

9,838

 

 

 

$

155,823

 

 

$

166,617

 

 

$

470,177

 

 

$

494,927

 

 

Average UPB of underlying loans

 

$

220,178,747

 

 

$

227,804,449

 

 

$

222,854,243

 

 

$

229,174,686

 

 

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

71

 

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 and nine months ended September 30, 2025 is due primarily to the slight reduction in our MSR servicing portfolio, reflecting the reduction of loan sales to nonaffiliates with servicing right retained.

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:

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

(in thousands)

 

Change in fair value of MSRs

 

 

 

 

 

 

 

 

 

 

 

 

Changes in valuation inputs used in valuation model

 

$

(26,975

)

 

$

(84,306

)

 

$

(60,093

)

 

$

33,303

 

Recapture income from PFSI

 

 

3,345

 

 

 

441

 

 

 

6,027

 

 

 

1,267

 

Hedging results

 

 

(27,360

)

 

 

(67,220

)

 

 

(127,941

)

 

 

(175,399

)

 

 

(50,990

)

 

 

(151,085

)

 

 

(182,007

)

 

 

(140,829

)

Realization of expected cash flows

 

 

(89,404

)

 

 

(100,612

)

 

 

(276,004

)

 

 

(296,979

)

 

$

(140,394

)

 

$

(251,697

)

 

$

(458,011

)

 

$

(437,808

)

Average balance of mortgage servicing rights

 

$

3,717,551

 

 

$

3,876,497

 

 

$

3,769,381

 

 

$

3,935,371

 

 

Changes in fair value due to changes in valuation inputs used in our valuation model during the nine months ended September 30, 2025 reflect the effects of expectations for faster future prepayments of the underlying loans due to decreases in interest rates during the nine months ended September 30, 2025, compared to a steepening interest rate yield curve in the same period in 2024 reflecting slower prepayments and higher projected revenues from custodial deposits.

The increase in loan recapture income from PFSI reflects the increase in refinancing activity in our MSR portfolio during the quarter and nine months ended September 30, 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 and nine months ended September 30, 2025 were primarily attributable to the impact of volatile interest rates and resulting elevated hedging costs, which were partially offset by fair value gains in Agency MBS.

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 by collection status:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

UPB of loans outstanding

 

$

218,799,013

 

 

$

226,237,613

 

Collection status (unpaid principal balance)

 

 

 

 

 

 

Delinquency:

 

 

 

 

 

 

30-89 days delinquent

 

$

2,743,880

 

 

$

2,645,952

 

90 or more days delinquent:

 

 

 

 

 

 

Not in foreclosure

 

$

987,929

 

 

$

1,084,587

 

In foreclosure

 

$

117,916

 

 

$

106,092

 

Bankruptcy

 

$

341,438

 

 

$

285,163

 

 

 

72

 

Following is a summary of characteristics of the loans comprising our MSR servicing portfolio as of September 30, 2025:

 

 

 

 

 

 

 

 

 

Average

 

 

Loan type

 

Unpaid principal balance

 

 

Loan count

 

 

Note rate

 

 

Seasoning (months)

 

 

Remaining
maturity (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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Freddie Mac

 

$

107,787,836

 

 

 

387

 

 

 

3.9

%

 

 

47

 

 

 

301

 

 

$

278

 

 

 

762

 

 

 

75

%

 

 

55

%

 

 

0.6

%

Fannie Mae

 

 

106,716,106

 

 

 

417

 

 

 

3.8

%

 

 

57

 

 

 

293

 

 

$

256

 

 

 

757

 

 

 

76

%

 

 

51

%

 

 

1.0

%

Other (2)

 

 

4,295,072

 

 

 

15

 

 

 

5.1

%

 

 

42

 

 

 

315

 

 

$

281

 

 

 

762

 

 

 

72

%

 

 

57

%

 

 

0.8

%

 

 

$

218,799,013

 

 

 

819

 

 

 

3.9

%

 

 

52

 

 

 

297

 

 

$

267

 

 

 

760

 

 

 

75

%

 

 

53

%

 

 

0.8

%

 

 

(1)
Loan-to-value.
(2)
Represents MSRs on conventional loans sold to private investors.

73

 

 

Net Interest income (expense)

Net interest income (expense) is summarized below:

 

 

Quarter ended September 30, 2025

 

 

Quarter ended September 30, 2024

 

 

 

Interest

 

 

 

 

 

Interest

 

 

Interest

 

 

 

 

 

Interest

 

 

 

income/

 

 

Average

 

 

yield/

 

 

income/

 

 

Average

 

 

yield/

 

 

 

expense

 

 

balance

 

 

cost %

 

 

expense

 

 

balance

 

 

cost %

 

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

5,694

 

 

$

503,038

 

 

 

4.50

%

 

$

7,590

 

 

$

502,592

 

 

 

6.01

%

Mortgage-backed securities

 

 

69,908

 

 

 

4,188,259

 

 

 

6.64

%

 

 

66,573

 

 

 

4,105,749

 

 

 

6.45

%

Loans held for sale

 

 

33,100

 

 

 

2,058,167

 

 

 

6.40

%

 

 

23,900

 

 

 

1,069,653

 

 

 

8.89

%

Loans held for investment

 

 

67,160

 

 

 

5,235,047

 

 

 

5.10

%

 

 

16,044

 

 

 

1,388,368

 

 

 

4.60

%

Deposits securing CRT arrangements

 

 

11,125

 

 

 

1,051,697

 

 

 

4.21

%

 

 

15,042

 

 

 

1,157,694

 

 

 

5.17

%

 

 

186,987

 

 

 

13,036,208

 

 

 

5.71

%

 

 

129,149

 

 

 

8,224,056

 

 

 

6.25

%

Placement fees relating to custodial funds

 

 

42,306

 

 

 

 

 

 

 

 

 

47,256

 

 

 

 

 

 

 

Other

 

 

795

 

 

 

 

 

 

 

 

 

329

 

 

 

 

 

 

 

 

$

230,088

 

 

$

13,036,208

 

 

 

7.02

%

 

$

176,734

 

 

$

8,224,056

 

 

 

8.55

%

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

88,587

 

 

$

6,670,245

 

 

 

5.28

%

 

$

86,900

 

 

$

5,513,519

 

 

 

6.27

%

Mortgage loan participation purchase and sale
   agreements

 

 

55

 

 

 

1,612

 

 

 

13.57

%

 

 

568

 

 

 

32,353

 

 

 

6.98

%

Notes payable secured by credit risk transfer
    and mortgage servicing assets

 

 

51,465

 

 

 

2,539,717

 

 

 

8.06

%

 

 

66,305

 

 

 

2,854,487

 

 

 

9.24

%

Unsecured senior notes

 

 

18,010

 

 

 

892,500

 

 

 

8.03

%

 

 

14,571

 

 

 

825,000

 

 

 

7.03

%

Asset-backed financings

 

 

65,409

 

 

 

4,888,507

 

 

 

5.32

%

 

 

10,838

 

 

 

1,542,753

 

 

 

2.79

%

 

 

223,526

 

 

 

14,992,581

 

 

 

5.93

%

 

 

179,182

 

 

 

10,768,112

 

 

 

6.62

%

Interest shortfall on repayments of loans serviced
   for Agency securitizations

 

 

2,405

 

 

 

 

 

 

 

 

 

1,913

 

 

 

 

 

 

 

Interest on loan impound deposits

 

 

2,235

 

 

 

 

 

 

 

 

 

2,285

 

 

 

 

 

 

 

Other

 

 

228

 

 

 

 

 

 

 

 

 

791

 

 

 

 

 

 

 

 

 

228,394

 

 

$

14,992,581

 

 

 

6.06

%

 

 

184,171

 

 

$

10,768,112

 

 

 

6.80

%

 

 

$

1,694

 

 

 

 

 

 

 

 

$

(7,437

)

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2025

 

 

Nine months ended September 30, 2024

 

 

 

Interest

 

 

 

 

 

Interest

 

 

Interest

 

 

 

 

 

Interest

 

 

 

income/

 

 

Average

 

 

yield/

 

 

income/

 

 

Average

 

 

yield/

 

 

 

expense

 

 

balance

 

 

cost %

 

 

expense

 

 

balance

 

 

cost %

 

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

16,955

 

 

$

499,325

 

 

 

4.55

%

 

$

22,867

 

 

$

535,677

 

 

 

5.70

%

Mortgage-backed securities

 

 

182,903

 

 

 

4,078,026

 

 

 

6.01

%

 

 

184,762

 

 

 

4,087,442

 

 

 

6.04

%

Loans held for sale

 

 

102,252

 

 

 

2,087,048

 

 

 

6.57

%

 

 

50,804

 

 

 

1,002,719

 

 

 

6.77

%

Loans held for investment

 

 

151,533

 

 

 

3,885,345

 

 

 

5.23

%

 

 

41,617

 

 

 

1,401,643

 

 

 

3.97

%

Deposits securing CRT arrangements

 

 

34,201

 

 

 

1,077,318

 

 

 

4.26

%

 

 

46,121

 

 

 

1,176,798

 

 

 

5.24

%

 

 

487,844

 

 

 

11,627,062

 

 

 

5.63

%

 

 

346,171

 

 

 

8,204,279

 

 

 

5.64

%

Placement fees relating to custodial funds

 

 

112,071

 

 

 

 

 

 

 

 

 

124,226

 

 

 

 

 

 

 

Other

 

 

2,745

 

 

 

 

 

 

 

 

 

1,731

 

 

 

 

 

 

 

 

$

602,660

 

 

$

11,627,062

 

 

 

6.95

%

 

$

472,128

 

 

$

8,204,279

 

 

 

7.69

%

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

254,071

 

 

$

6,408,372

 

 

 

5.32

%

 

$

244,821

 

 

$

5,225,906

 

 

 

6.26

%

Mortgage loan participation purchase and sale
  agreements

 

 

375

 

 

 

6,618

 

 

 

7.60

%

 

 

1,033

 

 

 

18,829

 

 

 

7.33

%

Notes payable secured by credit risk transfer and
  mortgage servicing assets

 

 

160,524

 

 

 

2,693,728

 

 

 

7.99

%

 

 

198,760

 

 

 

2,871,883

 

 

 

9.24

%

Unsecured senior notes

 

 

47,610

 

 

 

805,055

 

 

 

7.93

%

 

 

35,884

 

 

 

710,496

 

 

 

6.75

%

Asset-backed financings

 

 

140,573

 

 

 

3,727,458

 

 

 

5.06

%

 

 

34,918

 

 

 

1,561,810

 

 

 

2.99

%

 

 

603,153

 

 

 

13,641,231

 

 

 

5.93

%

 

 

515,416

 

 

 

10,388,924

 

 

 

6.63

%

Interest shortfall on repayments of loans serviced for
    Agency securitizations

 

 

6,289

 

 

 

 

 

 

 

 

 

5,011

 

 

 

 

 

 

 

Interest on loan impound deposits

 

 

5,149

 

 

 

 

 

 

 

 

 

5,284

 

 

 

 

 

 

 

Other

 

 

1,089

 

 

 

 

 

 

 

 

 

1,828

 

 

 

 

 

 

 

 

 

615,680

 

 

$

13,641,231

 

 

 

6.05

%

 

 

527,539

 

 

$

10,388,924

 

 

 

6.78

%

 

 

$

(13,020

)

 

 

 

 

 

 

 

$

(55,411

)

 

 

 

 

 

 

 

74

 

The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:

 

 

Quarter ended September 30, 2025

 

 

Nine months ended September 30, 2025

 

 

 

vs.

 

 

vs.

 

 

 

Quarter ended September 30, 2024

 

 

Nine months ended September 30, 2024

 

 

 

Increase (decrease)
due to changes in

 

 

Increase (decrease)
due to changes in

 

 

 

Rate

 

 

Volume

 

 

Total

 

 

Rate

 

 

Volume

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

(1,903

)

 

$

7

 

 

$

(1,896

)

 

$

(4,423

)

 

$

(1,489

)

 

$

(5,912

)

Mortgage-backed securities

 

 

1,981

 

 

 

1,354

 

 

 

3,335

 

 

 

(1,195

)

 

 

(664

)

 

 

(1,859

)

Loans held for sale

 

 

(8,138

)

 

 

17,338

 

 

 

9,200

 

 

 

(1,539

)

 

 

52,987

 

 

 

51,448

 

Loans held for investment

 

 

1,954

 

 

 

49,162

 

 

 

51,116

 

 

 

16,740

 

 

 

93,176

 

 

 

109,916

 

Deposits securing CRT arrangements

 

 

(2,624

)

 

 

(1,293

)

 

 

(3,917

)

 

 

(8,209

)

 

 

(3,711

)

 

 

(11,920

)

 

 

(8,730

)

 

 

66,568

 

 

 

57,838

 

 

 

1,374

 

 

 

140,299

 

 

 

141,673

 

Placement fees relating to custodial funds

 

 

 

 

 

 

 

 

(4,950

)

 

 

 

 

 

 

 

 

(12,155

)

Other

 

 

 

 

 

 

 

 

466

 

 

 

 

 

 

 

 

 

1,014

 

 

$

(8,730

)

 

$

66,568

 

 

$

53,354

 

 

$

1,374

 

 

$

140,299

 

 

$

130,532

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to
   repurchase

 

$

(14,905

)

 

$

16,592

 

 

$

1,687

 

 

$

(40,416

)

 

$

49,666

 

 

$

9,250

 

Mortgage loan participation purchase
   and sale agreements

 

 

282

 

 

 

(795

)

 

 

(513

)

 

 

36

 

 

 

(694

)

 

 

(658

)

Notes payable secured by credit risk
   transfer and mortgage servicing assets

 

 

(7,961

)

 

 

(6,879

)

 

 

(14,840

)

 

 

(26,247

)

 

 

(11,989

)

 

 

(38,236

)

Unsecured senior notes

 

 

2,185

 

 

 

1,254

 

 

 

3,439

 

 

 

6,664

 

 

 

5,062

 

 

 

11,726

 

Asset-backed financings

 

 

16,063

 

 

 

38,508

 

 

 

54,571

 

 

 

35,208

 

 

 

70,447

 

 

 

105,655

 

 

 

(4,336

)

 

 

48,680

 

 

 

44,344

 

 

 

(24,755

)

 

 

112,492

 

 

 

87,737

 

Interest shortfall on repayments of loans
   serviced for Agency securitizations

 

 

 

 

 

 

 

 

492

 

 

 

 

 

 

 

 

 

1,278

 

Interest on loan impound deposits

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(135

)

Other

 

 

 

 

 

 

 

 

(563

)

 

 

 

 

 

 

 

 

(739

)

 

 

(4,336

)

 

 

48,680

 

 

 

44,223

 

 

 

(24,755

)

 

 

112,492

 

 

 

88,141

 

 

 

$

(4,394

)

 

$

17,888

 

 

$

9,131

 

 

$

26,129

 

 

$

27,807

 

 

$

42,391

 

The changes in net interest income (expense) during the quarter and nine months ended September 30, 2025, as compared to the same periods in 2024, is due to an increased volume of interest earning assets decreased costs of repurchase agreement financing in relation to the long-lived assets they finance, along with reduced financing of MSRs and CRT arrangements.

 

75

 

 

 

Expenses

Our expenses are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Earned by PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees

 

$

21,012

 

 

$

22,240

 

 

$

64,386

 

 

$

62,766

 

Management fees

 

 

6,912

 

 

 

7,153

 

 

 

20,793

 

 

 

21,474

 

Loan fulfillment fees

 

 

6,162

 

 

 

11,492

 

 

 

17,266

 

 

 

19,935

 

Professional services

 

 

8,608

 

 

 

2,614

 

 

 

23,952

 

 

 

6,738

 

Compensation

 

 

2,817

 

 

 

1,326

 

 

 

8,623

 

 

 

4,611

 

Loan collection and liquidation

 

 

1,503

 

 

 

2,257

 

 

 

5,857

 

 

 

4,297

 

Safekeeping

 

 

1,194

 

 

 

1,174

 

 

 

3,532

 

 

 

3,067

 

Loan origination

 

 

794

 

 

 

1,408

 

 

 

2,146

 

 

 

2,414

 

Other

 

 

3,232

 

 

 

4,666

 

 

 

9,638

 

 

 

13,441

 

 

$

52,234

 

 

$

54,330

 

 

$

156,193

 

 

$

138,743

 

Expenses decreased $2.1 million, or 4%, and increased $17.5 million, or 13%, during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024, as discussed below.

Loan Servicing Fees

Loan servicing fees payable to PLS are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

383

 

 

$

158

 

 

$

891

 

 

$

342

 

Loans held for investment

 

 

(233

)

 

 

60

 

 

 

161

 

 

 

185

 

Mortgage servicing rights

 

 

20,862

 

 

 

22,022

 

 

 

63,334

 

 

 

62,239

 

 

$

21,012

 

 

$

22,240

 

 

$

64,386

 

 

$

62,766

 

Average investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

Held for sale

 

$

2,058,167

 

 

$

1,069,653

 

 

$

2,087,048

 

 

$

1,002,719

 

Held for investment

 

$

5,235,047

 

 

$

1,388,368

 

 

$

3,885,345

 

 

$

1,401,643

 

Average MSR portfolio unpaid principal balance

 

$

220,178,747

 

 

$

227,804,449

 

 

$

222,854,243

 

 

$

229,174,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights recapture fees

 

$

3,345

 

 

$

441

 

 

$

6,027

 

 

$

1,267

 

Unpaid principal balance of loans recaptured

 

$

205,055

 

 

$

71,370

 

 

$

547,577

 

 

$

207,651

 

Loan servicing fees decreased by $1.2 million and increased by $1.6 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The decrease is due to a decline in the MSR portfolio during the quarter ended September 30, 2025, and the increase is due to an increase in supplemental fees relating to loan modifications and servicing of delinquent loans in our MSR portfolio.

Management Fees

Management fees payable to PCM are summarized below:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Base fee

 

$

6,912

 

 

$

7,153

 

 

$

20,793

 

 

$

21,474

 

Average shareholders' equity amounts used
   to calculate base management fee expense

 

$

1,828,365

 

 

$

1,897,006

 

 

$

1,853,613

 

 

$

1,912,310

 

 

76

 

 

Management fees decreased by $241,000 and $681,000 during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. This decrease reflects lower average shareholders’ equity during the quarter and nine months ended September 30, 2025, as compared to the same periods in 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 decreased $5.3 million and $2.7 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The decrease was due to the decrease 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

Professional services expense increased by $6.0 million and $17.2 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024, due to increased legal and consulting fees as a result of our securitization activities during the quarter and nine months ended September 30, 2025.

Compensation

Compensation expense increased $1.5 million and $4.0 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024, primarily due to an increased allocation of compensation 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 an $885,000 and $2.9 million decrease in common overhead allocation from PFSI during the quarter and nine months ended September 30, 2025, respectively, which is included in Other expense.

Loan collection and liquidation

Loan collection and liquidation expenses decreased by $754,000 and increased by $1.6 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The increase during the nine months ended September 30, 2025, is due to increased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs compared to the same period in 2024.

Other Expenses

Other expenses are summarized below:

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Common overhead allocation from PFSI

 

$

982

 

 

$

1,867

 

 

$

2,945

 

 

$

5,811

 

Bank service charges

 

 

702

 

 

 

622

 

 

 

2,187

 

 

 

1,662

 

Technology

 

 

554

 

 

 

511

 

 

 

1,514

 

 

 

1,449

 

Insurance

 

 

468

 

 

 

436

 

 

 

1,169

 

 

 

1,390

 

Other

 

 

526

 

 

 

1,230

 

 

 

1,823

 

 

 

3,129

 

 

$

3,232

 

 

$

4,666

 

 

$

9,638

 

 

$

13,441

 

Common overhead allocation from PFSI decreased by $885,000 and $2.9 million during the quarter and nine months ended September 30, 2025, respectively, as compared to the same periods 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 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 (24.0)% and (30.9)% with consolidated pretax income of $47.0 million and $57.7 million for the quarter and nine months ended September 30, 2025. The Company’s TRS recognized a tax benefit of $11.2 million on a pretax loss of $43.8 million and a tax benefit of $18.7 million on a pretax loss of $131.0 million for the quarter and nine months ended September 30, 2025. For the same periods in 2024, the TRS recognized a tax benefit of $15.5 million on a pretax loss of $64.7 million and a tax benefit of $27.5 million on a pretax loss of $115.6 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

77

 

September 30, 2025 nine month results were impacted by the enactment of California Senate Bill 132, signed into law on June 27, 2025 and effective January 1, 2025. The law requires financial institutions to apportion their California income using a single sales factor instead of a factor equally weighted with property, payroll and sales. The change in apportionment method resulted in the TRS providing for taxes at a higher rate and a repricing of the TRS’s net deferred tax liability.

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 September 30, 2025, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended September 30, 2025. The amount of deferred tax assets considered realizable could 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. One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently extends the 20% deduction. The remainder of the Act’s provisions are not expected to have a material impact on the Company.

Balance Sheet Analysis

Following is a summary of key balance sheet items as of the dates presented:

 

 

September 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

Cash and short-term investments

 

$

444,531

 

 

$

440,892

 

Mortgage-backed securities at fair value

 

 

4,609,164

 

 

 

4,063,706

 

Loans held for sale

 

 

2,421,033

 

 

 

2,116,318

 

Loans held for investment

 

 

5,983,197

 

 

 

2,193,575

 

Derivative assets

 

 

58,442

 

 

 

56,840

 

Deposits securing credit risk transfer arrangements

 

 

1,033,008

 

 

 

1,110,708

 

Mortgage servicing rights and servicing advances

 

 

3,730,354

 

 

 

3,972,431

 

 

 

18,279,729

 

 

 

13,954,470

 

Other

 

 

245,942

 

 

 

454,236

 

Total assets

 

$

18,525,671

 

 

$

14,408,706

 

Liabilities

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

Short-term

 

$

7,708,183

 

 

$

6,512,531

 

Long-term:

 

 

 

 

 

 

Recourse

 

 

3,125,119

 

 

 

3,535,650

 

Non-recourse

 

 

5,476,140

 

 

 

2,074,597

 

 

 

 

8,601,259

 

 

 

5,610,247

 

 

 

 

16,309,442

 

 

 

12,122,778

 

Other

 

 

336,920

 

 

 

347,428

 

Total liabilities

 

 

16,646,362

 

 

 

12,470,206

 

Shareholders’ equity

 

 

1,879,309

 

 

 

1,938,500

 

Total liabilities and shareholders’ equity

 

$

18,525,671

 

 

$

14,408,706

 

 

Total assets increased by approximately $4.1 billion, or 29%, from December 31, 2024 to September 30, 2025, primarily due to an increase of $3.8 billion in Loans held for investment at fair value and $304.7 million in loans held for sale at fair value, offset by a decrease of $242.1 million in mortgage servicing rights and servicing advances. The increase in Loans held for investments reflect the Company’s ongoing securitizations of loans in non-Agency securitizations. As described in Note 6 – Variable Interest Entities to the consolidated financial statements included in this Report, such transactions are accounted for as on-balance sheet financings, with the loans included in Loans held for investment at fair value and the securities sold treated as Asset-backed financings at fair value.

78

 

Asset Acquisitions

Our asset acquisitions are summarized below:

Correspondent Production

Following is a summary of our correspondent production acquisitions at fair value:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Correspondent loan purchases:

 

 

 

 

 

 

 

 

 

 

 

 

GSE-Eligible Loans (1)

 

$

6,473,445

 

 

$

14,384,633

 

 

$

36,205,387

 

 

$

36,834,544

 

Government insured or guaranteed (2)

 

 

2,164,041

 

 

 

12,047,525

 

 

 

27,097,047

 

 

 

30,892,013

 

Jumbo loans

 

 

706,045

 

 

 

97,982

 

 

 

1,404,523

 

 

 

134,886

 

 

$

9,343,531

 

 

$

26,530,140

 

 

$

64,706,957

 

 

$

67,861,443

 

 

(1)
GSE eligibility refers to the eligibility of loans for sale to Freddie Mac or Fannie Mae. The Company sells or finances a portion of its GSE eligible loan production to other investors, including PLS.
(2)
The Company sells all of its loans eligible for inclusion in Ginnie Mae securities to PLS. The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed loans. The Company earns a sourcing fee for all loans that it purchases from correspondent sellers and subsequently sells to PLS as described in Note 4 – Transactions with Related Parties – Operating activities – Correspondent Production Activities.

During the quarter and nine months ended September 30, 2025, we purchased for sale $9.3 billion and $64.7 billion, respectively, in fair value of correspondent production loans as compared to $26.5 billion and $67.9 billion during the same periods in 2024. The decrease in loan purchases during the quarter ended September 30, 2025, relates to PFSI's assumption of the role of initial purchaser of correspondent loans as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.

Other Investment Activities

Following is a summary of our acquisitions (sales) of mortgage-related investments held in our credit sensitive strategies and interest rate sensitive strategies segments:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Credit sensitive assets:

 

 

 

 

 

 

 

 

 

 

 

 

Subordinate credit-linked securities

 

$

(194,513

)

 

$

—

 

 

$

(194,513

)

 

$

(111,044

)

Loans secured by non-owner occupied properties and
   jumbo loans, net of associated asset-backed
   financing (subordinate MBS)

 

 

83,321

 

 

 

—

 

 

 

235,930

 

 

 

—

 

 

 

 

(111,192

)

 

 

—

 

 

 

41,417

 

 

 

(111,044

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate sensitive assets:

 

 

 

 

 

 

 

 

 

 

 

 

Agency fixed-rate pass-through securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(830,296

)

Principal-only stripped mortgage-backed securities

 

 

—

 

 

 

80,442

 

 

 

—

 

 

 

479,902

 

Floating rate collateralized mortgage
   obligations

 

 

876,394

 

 

 

—

 

 

 

876,394

 

 

 

—

 

Senior non-Agency securities

 

 

28,987

 

 

 

—

 

 

 

66,069

 

 

 

—

 

Loans secured by non-owner occupied properties and
   jumbo loans, net of associated asset-backed
   financing (senior MBS)

 

 

49,943

 

 

 

—

 

 

 

105,919

 

 

 

—

 

Mortgage servicing rights:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

—

 

 

 

—

 

 

 

—

 

 

 

29,428

 

Received in loan sales

 

 

45,744

 

 

 

51,979

 

 

 

136,783

 

 

 

123,847

 

 

 

1,001,068

 

 

 

132,421

 

 

 

1,185,165

 

 

 

(197,119

)

 

$

889,876

 

 

$

132,421

 

 

$

1,226,582

 

 

$

(308,163

)

Our acquisitions during the quarter and nine months ended September 30, 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

79

 

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.

Investment Portfolio Composition

Mortgage-Backed Securities

Following is a summary of our MBS holdings:

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Average

 

 

 

Fair

 

 

Principal/

 

 

Life

 

 

 

 

 

Fair

 

 

Principal/

 

 

Life

 

 

 

 

 

 

 

value

 

 

notional

 

 

(in years)

 

 

Coupon

 

 

value

 

 

notional

 

 

(in years)

 

 

 

Coupon

 

 

 

(dollars in thousands)

 

Agency pass-through securities

 

$

2,927,056

 

 

$

2,899,578

 

 

 

7.9

 

 

 

5.3

%

 

$

3,079,492

 

 

$

3,132,005

 

 

 

8.7

 

 

 

 

5.4

%

Principal-only stripped securities

 

 

572,756

 

 

 

682,939

 

 

 

4.6

 

 

 

0.1

%

 

 

596,300

 

 

 

776,455

 

 

 

6.7

 

 

 

 

0.1

%

Floating rate collateralized mortgage
    obligations

 

 

873,120

 

 

 

871,733

 

 

 

7.9

 

 

 

5.5

%

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

Subordinate credit-linked securities

 

 

—

 

 

 

—

 

 

 

0.0

 

 

 

0.0

%

 

 

196,472

 

 

 

174,813

 

 

 

3.6

 

 

 

 

12.4

%

Senior non-Agency securities

 

 

160,875

 

 

 

163,981

 

 

 

5.5

 

 

 

5.4

%

 

 

105,182

 

 

 

111,479

 

 

 

9.2

 

 

 

 

5.1

%

Interest-only stripped securities

 

 

75,357

 

 

 

356,387

 

 

 

7.7

 

 

 

4.8

%

 

 

86,260

 

 

 

386,040

 

 

 

8.0

 

 

 

 

4.8

%

 

 

$

4,609,164

 

 

$

4,974,618

 

 

 

 

 

 

 

 

$

4,063,706

 

 

$

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.

Credit Risk Transfer Arrangements

Following is a summary of our investment in CRT arrangements:

 

 

 

September 30, 2025

 

 

December 31, 2024

 

 

 

(in thousands)

 

Carrying value of CRT arrangements:

 

 

 

 

 

 

Derivative assets - CRT derivatives

 

$

31,432

 

 

$

29,377

 

Derivative and credit risk transfer strip liabilities- CRT strips

 

 

(9,330

)

 

 

(4,060

)

Deposits securing CRT arrangements

 

 

1,033,008

 

 

 

1,110,708

 

Interest-only security payable at fair value

 

 

(36,558

)

 

 

(34,222

)

 

$

1,018,552

 

 

$

1,101,803

 

UPB of loans subject to credit guarantee obligations

 

$

19,937,381

 

 

$

21,249,304

 

 

80

 

Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of September 30, 2025:

 

 

Year of origination

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Total

 

 

 

(in millions)

 

UPB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

$

4,102

 

 

$

9,266

 

 

$

2,406

 

 

$

2,103

 

 

$

1,671

 

 

$

389

 

 

$

19,937

 

Liquidations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances

 

$

1.7

 

 

$

12.7

 

 

$

64.6

 

 

$

172.9

 

 

$

127.4

 

 

$

62.9

 

 

$

442.2

 

Losses

 

$

—

 

 

$

1.6

 

 

$

6.7

 

 

$

21.9

 

 

$

13.7

 

 

$

7.8

 

 

$

51.7

 

Modifications (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances

 

$

71.1

 

 

$

572.8

 

 

$

314.4

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

958.3

 

Losses

 

$

2.4

 

 

$

26.2

 

 

$

19.9

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

48.5

 

Weighted average:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original debt-to
   income ratio

 

 

33.5

%

 

 

35.9

%

 

 

39.1

%

 

 

36.8

%

 

 

35.1

%

 

 

35.8

%

 

 

35.8

%

Origination FICO
  credit score

 

 

765

 

 

 

754

 

 

 

735

 

 

 

743

 

 

 

750

 

 

 

743

 

 

 

752

 

Origination loan-to
  value ratio

 

 

80.6

%

 

 

83.3

%

 

 

83.5

%

 

 

82.5

%

 

 

80.6

%

 

 

80.9

%

 

 

82.4

%

Current loan-to
  value ratio (2)

 

 

48.3

%

 

 

48.1

%

 

 

46.2

%

 

 

41.5

%

 

 

37.2

%

 

 

34.9

%

 

 

46.0

%

 

(1)
Includes only modifications that generate losses according to the terms of the CRT arrangements.
(2)
Based on current UPB compared to estimated fair value of the property securing the loan.

 

 

 

Year of origination

 

Distribution by state

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Total

 

 

 

(in millions)

 

California

 

$

440

 

 

$

932

 

 

$

308

 

 

$

233

 

 

$

333

 

 

$

71

 

 

$

2,317

 

Florida

 

 

447

 

 

 

881

 

 

 

306

 

 

 

219

 

 

 

173

 

 

 

32

 

 

 

2,058

 

Texas

 

 

477

 

 

 

796

 

 

 

191

 

 

 

180

 

 

 

200

 

 

 

61

 

 

 

1,905

 

Virginia

 

 

221

 

 

 

412

 

 

 

88

 

 

 

95

 

 

 

117

 

 

 

40

 

 

 

973

 

Maryland

 

 

163

 

 

 

400

 

 

 

110

 

 

 

121

 

 

 

110

 

 

 

23

 

 

 

927

 

Other

 

 

2,354

 

 

 

5,845

 

 

 

1,403

 

 

 

1,255

 

 

 

738

 

 

 

162

 

 

 

11,757

 

 

$

4,102

 

 

$

9,266

 

 

$

2,406

 

 

$

2,103

 

 

$

1,671

 

 

$

389

 

 

$

19,937

 

 

 

 

Year of origination

 

Regional geographic
   distribution (1)

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Total

 

 

 

(in millions)

 

Southeast

 

$

1,391

 

 

$

3,154

 

 

$

853

 

 

$

715

 

 

$

520

 

 

$

118

 

 

$

6,751

 

Southwest

 

 

1,056

 

 

 

2,031

 

 

 

450

 

 

 

413

 

 

 

301

 

 

 

83

 

 

 

4,334

 

West

 

 

888

 

 

 

1,940

 

 

 

613

 

 

 

472

 

 

 

481

 

 

 

101

 

 

 

4,495

 

Northeast

 

 

388

 

 

 

1,172

 

 

 

285

 

 

 

307

 

 

 

217

 

 

 

60

 

 

 

2,429

 

Midwest

 

 

379

 

 

 

969

 

 

 

205

 

 

 

196

 

 

 

152

 

 

 

27

 

 

 

1,928

 

 

 

$

4,102

 

 

$

9,266

 

 

$

2,406

 

 

$

2,103

 

 

$

1,671

 

 

$

389

 

 

$

19,937

 

 

(1)
Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV; Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX, UT; West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY; Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT, VI and Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD, WI.

 

81

 

 

 

Year of origination

 

Collection status

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Total

 

 

 

(in millions)

 

Delinquency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current - 89 Days

 

$

4,084

 

 

$

9,180

 

 

$

2,354

 

 

$

2,080

 

 

$

1,663

 

 

$

388

 

 

$

19,749

 

90 - 179 Days

 

 

9

 

 

 

49

 

 

 

25

 

 

 

15

 

 

 

7

 

 

 

1

 

 

 

106

 

180+ Days

 

 

7

 

 

 

26

 

 

 

19

 

 

 

6

 

 

 

1

 

 

 

—

 

 

 

59

 

Foreclosure

 

 

2

 

 

 

11

 

 

 

8

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

23

 

 

$

4,102

 

 

$

9,266

 

 

$

2,406

 

 

$

2,103

 

 

$

1,671

 

 

$

389

 

 

$

19,937

 

Bankruptcy

 

$

4

 

 

$

33

 

 

$

17

 

 

$

9

 

 

$

5

 

 

$

—

 

 

$

68

 

 

Cash Flows

Our cash flows for the quarters ended September 30, 2025 and 2024 are summarized below:

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Operating activities

 

$

(3,907,486

)

 

$

(1,082,381

)

Investing activities

 

 

(123,050

)

 

 

1,078,349

 

Financing activities

 

 

3,956,330

 

 

 

67,305

 

Net cash flows

 

$

(74,206

)

 

$

63,273

 

Our cash flows resulted in a net decrease in cash of $74.2 million during the nine months ended September 30, 2025, as discussed below.

Operating activities

Cash used in operating activities totaled $3.9 billion for the nine months ended September 30, 2025, as compared to cash used in our operating activities of $1.1 billion during the nine months ended September 30, 2024. Cash flows from operating activities are influenced by cash flows from loans held for sale as shown below:

 

 

Nine months ended September 30,

 

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Operating cash flows from:

 

 

 

 

 

 

Loans held for sale

 

$

(4,391,523

)

 

$

(1,043,498

)

Other

 

 

484,037

 

 

 

(38,883

)

 

$

(3,907,486

)

 

$

(1,082,381

)

The primary source of negative operating cashflow from loans held for sale relates to the transfer of loans to held for investment pursuant to our securitization activities. The securitization of portions of our correspondent loan production and cash received from such securitizations is accounted for as a financing activity. We may sell these loans based on the market conditions before committing to securitize the loans.

Investing activities

Net cash used in our investing activities was $123.1 million for the nine months ended September 30, 2025, as compared to net cash provided by our investing activities of $1.1 billion during the nine months ended September 30, 2024, which included significant sales of MBS.

Financing activities

Net cash provided by our financing activities was $4.0 billion for the nine months ended September 30, 2025, as compared to net cash used in our financing activities of $67.3 million during the nine months ended September 30, 2024. This change primarily reflects
the increase in borrowings required to finance the increase in inventory of loans held for sale and newly created investments from our ongoing securitization efforts during the nine months ended September 30, 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

82

 

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.

Liquidity and Capital Resources

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.

We expect to continue investing in subordinate MBS generated from the private label securitization which is also expected to increase our variable interest entities’ asset-backed financings.

On August 20, 2025, the Company, PMT ISSUER TRUST—FMSR, PennyMac Corp. (“PMC”), and PennyMac Holdings, LLC (“PMH”) redeemed $350 million of secured term notes (the “Series 2021-FT1 Term Notes”).

83

 

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:

 

 

September 30, 2025

 

 

 

Assets (1)

 

 

Financing

 

 

 

Consolidated

 

 

Adjustments for VIE Financing (2)

 

 

Excluding VIE Financing

 

 

Assets sold under agreements to
repurchase

 

 

Notes payable secured by CRT
arrangements and MSRs

 

 

Total

 

 

 

(in thousands except for debt-to equity amounts)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

444,531

 

 

$

—

 

 

$

444,531

 

 

$

—

 

 

$

—

 

 

$

—

 

Mortgage-backed securities at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency-backed securities

 

 

4,448,289

 

 

 

—

 

 

 

4,448,289

 

 

 

4,290,063

 

 

 

—

 

 

 

4,290,063

 

Senior non-agency securities

 

 

160,875

 

 

 

—

 

 

 

160,875

 

 

 

148,895

 

 

 

—

 

 

 

148,895

 

Credit risk transfer securities relating to
    consolidated variable interest entities

 

 

—

 

 

 

1,018,552

 

 

 

1,018,552

 

 

 

141,443

 

 

 

621,439

 

 

 

762,882

 

Non-agency securities relating to
    consolidated variable interest entities

 

 

—

 

 

 

473,472

 

 

 

473,472

 

 

 

389,379

 

 

 

—

 

 

 

389,379

 

 

 

 

4,609,164

 

 

 

1,492,024

 

 

 

6,101,188

 

 

 

4,969,780

 

 

 

621,439

 

 

 

5,591,219

 

Loans held for sale at fair value

 

 

2,421,033

 

 

 

—

 

 

 

2,421,033

 

 

 

2,225,084

 

 

 

—

 

 

 

2,225,084

 

Loans held for investment at fair value

 

 

5,983,197

 

 

 

(5,981,451

)

 

 

1,746

 

 

 

—

 

 

 

—

 

 

 

—

 

Derivative assets

 

 

58,442

 

 

 

(31,432

)

 

 

27,010

 

 

 

—

 

 

 

—

 

 

 

—

 

Deposits securing credit risk transfer arrangements

 

 

1,033,008

 

 

 

(1,033,008

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mortgage servicing rights and servicing advances

 

 

3,730,354

 

 

 

68,397

 

 

 

3,798,751

 

 

 

513,319

 

 

 

1,627,170

 

 

 

2,140,489

 

 

 

18,279,729

 

 

 

(5,485,470

)

 

 

12,794,259

 

 

 

7,708,183

 

 

 

2,248,609

 

 

 

9,956,792

 

Other

 

 

245,942

 

 

 

—

 

 

 

245,942

 

 

 

—

 

 

 

—

 

 

 

—

 

Total assets and secured financing

 

$

18,525,671

 

 

$

(5,485,470

)

 

$

13,040,201

 

 

$

7,708,183

 

 

$

2,248,609

 

 

 

9,956,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

876,510

 

Debt excluding non-recourse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,833,302

 

Debt in consolidated variable interest entities (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,476,140

 

Total debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

16,309,442

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,879,309

 

Debt-to equity ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding non-recourse debt (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.8:1

 

Total (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.7:1

 

 

(1)
The balance sheet information depicted under the column captioned “Consolidated” represents GAAP information and the subsequent columns reflect adjustments to deconsolidate the loan and CRT VIEs to provide investors with a more creditor-aligned view of how our debt relates to the assets we finance. After adjustment, the assets are shown in the securitized form in which they are financed which excludes non-recourse VIE financing. The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as calculated based upon GAAP.
(2)
Does not include adjustments for credit risk transfer strip liabilities of $9.3 million.
(3)
Total borrowings reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity.
(4)
Total borrowings divided by shareholders’ equity.

 

84

 

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:

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

Assets sold under agreements to repurchase

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Average balance outstanding

 

$

6,670,245

 

 

$

5,513,519

 

 

$

6,408,372

 

 

$

5,225,906

 

Maximum daily balance outstanding

 

$

8,082,484

 

 

$

6,474,799

 

 

$

8,733,460

 

 

$

7,624,113

 

Ending balance (UPB)

 

 

 

 

 

 

 

$

7,712,937

 

 

$

5,751,519

 

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 $12.8 billion at September 30, 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 transactions relating to loans and real estate acquired in settlement of loans under agreements to repurchase generally provide for terms of approximately one to two years;
•
The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year;
•
The transactions relating to assets under notes payable provide for terms ranging from two to five years; and
•
All repurchase agreements that matured between September 30, 2025 and the date of this Report have been renewed, extended or replaced.

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 September 30, 2025:

Counterparty

 

Amount at risk

 

 

(in thousands)

 

Atlas Securitized Products, L.P.

 

$

464,900

 

Citibank, N.A.

 

 

94,104

 

Bank of America, N.A.

 

 

93,619

 

Goldman Sachs & Co. LLC

 

 

89,159

 

JPMorgan Chase & Co.

 

 

56,758

 

Morgan Stanley & Co. LLC

 

 

41,573

 

Santander US Capital

 

 

39,152

 

Royal Bank of Canada

 

 

38,230

 

Barclays Capital Inc.

 

 

25,632

 

Wells Fargo Securities, LLC

 

 

20,935

 

Nomura Holdings America, Inc.

 

 

12,629

 

Bank of Montreal

 

 

10,826

 

Mizuho Financial Group

 

 

4,635

 

Daiwa Capital Markets America Inc.

 

 

3,002

 

BNP Paribas

 

 

1,704

 

 

$

996,858

 

 

Senior Notes

In June 2025, the Company issued $105 million principal amount of unsecured 9.00% senior notes due June 15, 2030 (the “June 2030 Senior Notes”) and in February 2025, the Company issued $172.5 million principal amount of unsecured 9.00% senior notes due February 15, 2030, together (the "February 2030 Senior Notes” and, collectively with the June 2030 Senior Notes, the “2030 Senior

85

 

Notes”). In September 2023, the Company issued $53.5 million principal amount of unsecured 8.50% senior notes due September 30, 2028 (the "2028 Senior Notes”). The 2030 Senior Notes and the 2028 Senior Notes are referred to collectively as the “Senior Notes”.

We may redeem for cash all or any portion of the 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 applicable redemption date. No “sinking fund” will be provided for the Senior Notes. The 2028 Senior Notes may be redeemed on or after September 30, 2025, the June 2030 Senior Notes may be redeemed on or after June 15, 2027 and the February 2030 Senior Notes may be redeemed on or after February 15, 2027.

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:

•
rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC;
•
be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and
•
be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting.

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:

 

 

 

September 30, 2025

 

 

 

(in thousands)

 

Loans held for sale at fair value

 

$

2,421,033

 

Mortgage servicing rights at fair value

 

 

3,736,821

 

Other assets

 

 

 

From nonaffiliates

 

 

641,829

 

From PFSI

 

 

25,235

 

From non-issuer or non-guarantor subsidiaries (1)

 

 

534,322

 

Total assets

 

$

7,359,240

 

 

 

 

 

Total liabilities

 

 

 

Payable to nonaffiliates

 

$

2,100,203

 

Payable to PFSI

 

 

33,485

 

Payable to non-issuer or non-guarantor subsidiaries

 

 

5,108,027

 

 

 

$

7,241,715

 

 

 

 

 

86

 

 

 

Nine months ended September 30, 2025

 

 

(in thousands)

 

Net investment income

 

 

From nonaffiliates

$

197,351

 

From PFSI

 

279,889

 

From non-issuer or non-guarantor subsidiaries (1)

 

(33,741

)

 

 

443,499

 

Expenses

 

 

From nonaffiliates

 

38,122

 

From PFSI

 

94,898

 

 

 

133,020

 

Pre-tax income

 

310,479

 

Provision for income taxes

 

79,483

 

Net income

$

230,996

 

 

(1)
Excludes equity in earnings of non-guarantor subsidiaries.

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:

•
a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH;
•
a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million;
•
a maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 10:1 for the Company and our Operating Partnership; and
•
at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements.

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:

•
a minimum in unrestricted cash and cash equivalents of $100 million;
•
a minimum tangible net worth of $1.25 billion;
•
a maximum ratio of total indebtedness to tangible net worth of 10:1; and
•
at least one other warehouse or repurchase facility that finances amounts and assets that are similar to those being financed under certain of our existing secured financing agreements.

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.

87

 

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 September 30, 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.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements

As of September 30, 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 and are filed as exhibits to our periodic reports.

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 held 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.

88

 

Mortgage-backed securities at fair value

The following table summarizes the estimated change in fair value of our mortgage-backed securities as of September 30, 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

 

 

50

 

 

75

 

 

200

 

 

 

(in thousands)

 

Change in fair value

 

$

131,885

 

 

$

125,994

 

 

$

92,761

 

 

$

(110,296

)

 

$

(167,511

)

 

$

(448,623

)

 

Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs as of September 30, 2025, given several shifts in option adjusted spreads, prepayment speeds and annual per-loan cost of servicing:

Change in fair value attributable to shift in:

 

-20%

 

 

-10%

 

 

-5%

 

 

+5%

 

 

+10%

 

 

+20%

 

 

 

(in thousands)

 

Option-adjusted spread

 

$

127,414

 

 

$

62,619

 

 

$

31,044

 

 

$

(30,525

)

 

$

(60,542

)

 

$

(119,102

)

Prepayment speed

 

$

269,307

 

 

$

129,583

 

 

$

63,591

 

 

$

(61,314

)

 

$

(120,466

)

 

$

(232,710

)

Annual per-loan cost of servicing

 

$

64,374

 

 

$

32,187

 

 

$

16,094

 

 

$

(16,094

)

 

$

(32,187

)

 

$

(64,374

)

 

CRT Arrangements

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

 

 

-50

 

 

-25

 

 

25

 

 

50

 

 

100

 

 

 

(in thousands)

 

Change in fair value

 

$

35,232

 

 

$

17,369

 

 

$

8,624

 

 

$

(8,507

)

 

$

(16,898

)

 

$

(33,337

)

 

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%

 

 

-10%

 

 

-5%

 

 

5%

 

 

10%

 

 

15%

 

 

 

(in thousands)

 

Change in fair value

 

$

(9,549

)

 

$

(5,764

)

 

$

(2,625

)

 

$

2,222

 

 

$

4,078

 

 

$

5,625

 

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 September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

89

 

PART II. OTHER INFORMATION

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 and nine months ended September 30, 2025.

The following table provides information about our repurchases of common shares of beneficial interest (“Common Shares”) during the quarter ended September 30, 2025:

Period

 

Total
number of
shares
purchased

 

 

Average
price paid
per share

 

 

Total number of
shares
purchased as
part of publicly
announced plans
or programs (1)

 

 

Amount
available for
future share
repurchases
under the
plans or
programs (1)

 

 

 

(in thousands, except average price paid per share)

 

July 1, 2025 – July 31, 2025

 

 

—

 

 

$

—

 

 

 

—

 

 

$

73,353

 

August 1, 2025 – August 30, 2025

 

 

—

 

 

$

—

 

 

 

—

 

 

$

73,353

 

September 1, 2025 – September 30, 2025

 

 

—

 

 

$

—

 

 

 

—

 

 

$

73,353

 

 

(1)
On October 24, 2022, the Company’s board of trustees approved an increase to the Company’s Common Share repurchase authorization from $400 million to $500 million (the “share repurchase program”). The share repurchase program does not require the Company to purchase a specific number of Common Shares, and the timing and amount of any Common Shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Common Share repurchases may be effected through privately negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Exchange Act. The share repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.

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 September 30, 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).

90

 

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

 

 

 

 

 

 

 

3.4

 

Articles Supplementary classifying and designating the 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.

 

8-A

 

June 30, 2017

 

 

 

 

 

 

 

3.5

 

Articles Supplementary classifying and designating the 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest.

 

8-A

 

August 20, 2021

 

 

 

 

 

 

 

10.1

 

 

Amendment No. 1 to Fifth Amended and Restated Flow Servicing Agreement, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC, dated as of September 15, 2025.

 

*

 

 

 

 

 

 

 

 

 

 

10.2

 

Amendment No. 1 to Amended and Restated Flow Servicing Agreement, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC, dated as of September 15, 2025.

 

*

 

 

 

 

 

 

 

 

 

 

10.3

 

Amendment No. 2 to Third Amended and Restated Mortgage Banking Services Agreement, between PennyMac Loan Services, LLC and PennyMac Corp., dated as of September 16, 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 September 30, 2025 and December 31, 2024 (ii) the consolidated statements of income for the quarter and nine months ended September 30, 2025 and September 30, 2024, (iii) the Consolidated Statements of Changes in Shareholders' Equity for the quarter and nine months ended September 30, 2025 and September 30, 2024, (iv) the Consolidated Statements of Cash Flows for the quarter and nine months ended September 30, 2025 and September 30, 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

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

91

 

 

* Filed herewith.

** 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, except as shall be expressly set forth by specific reference in such filing.

 

 

92

 

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: October 29, 2025

 

By:

 

/s/ David A. Spector

 

 

 

 

David A. Spector

 

 

 

 

Chairman and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

Dated: October 29, 2025

 

By:

 

/s/ Daniel S. Perotti

 

 

 

 

Daniel S. Perotti

 

 

 

 

Senior Managing Director and Chief Financial Officer

(Principal Financial Officer)

 

93

Source: View Original Filing on SEC EDGAR

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PMT Latest SEC Filings

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