PennyMac Financial Services, Inc. (NYSE: PFSI) reported net income of $69.4 million for the third quarter of 2024, with pretax income of $93.9 million, down from $133.9 million in the prior quarter and $126.8 million in the third quarter of 2023.
Total loan acquisitions and originations, including those fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT), were $31.7 billion in unpaid principal balance (UPB), up 17% from the second quarter and 26% from the third quarter of 2023.
Concerning third-quarter production, Pennymac saw a substantial boost in its consumer direct and broker channels, which rose 93% and 24% on a quarterly basis, respectively. The $5.2 billion locked through consumer direct channels represents a 206% year-over-year increase, while the $5.3 billion locked through broker channels represents a 78% YOY increase.
On the correspondent side, government acquisitions totaled $12.4 billion, up 12% percent quarterly and 24% annually. Conventional correspondent totaled $8.2 billion, down 17% quarterly and 20% annually. This was due to Pennymac’s investment trust retaining a higher percentage of its conventional correspondent production volumes, the company said in its press release.
Pennymac continued to grow its servicing portfolio in the third quarter, which Pennymac’s Chairman and CEO David Spector directly linked to the company’s improved production.
“Our production segment pretax income nearly tripled from last quarter as lower mortgage rates provided us the opportunity to help many customers in our servicing portfolio lower their monthly mortgage payments through a refinance,” said Spector. “At the same time, our servicing portfolio — now near $650 billion in unpaid principal balance and nearly 2.6 million customers — continues to grow, driving increased revenue and cash flow contributions, as well as low-cost leads for our consumer direct lending division.”
The company’s strong annualized return on equity (ROE) of 20% -- a metric that helps investors understand how efficiently a company uses its money to generate profit -- Spector said, is “anchored by the continued growth of our servicing portfolio and low-cost structure.” Pennymac’s servicing portfolio grew to $648.1 billion in UPB, up 2% from the second quarter and 10% from the third quarter of 2023.
The growth in Pennymac’s servicing portfolio was “driven by production volumes which more than offset prepayment activity,” the company said in its earnings announcement.
However, Pennymac took a pretax loss of $14.6 million on its servicing in the third quarter, compared to pretax servicing income of $88.5 million in the second quarter and $101.2 million in the third quarter of 2023. Net servicing revenues totaled $107.1 million, down from $194.2 million in the second quarter (-44%) and $217.1 million from the third quarter of 2023 (-50%).
Revenue from net loan servicing fees totaled $75.8 million in the third quarter, down from $167.6 million in the prior quarter (-54%) and $185.4 million in the third quarter of 2023 (-59%). Loan servicing fees totaled $462 million in the second quarter, up from $440.7 million in the second quarter (+4.8%), “primarily due to growth in PFSI’s owned portfolio, reduced by $225.8 million in realization of cash flows, which was up from last quarter due to higher prepayment expectations as a result of lower market interest rates,” the company said.
Net valuation related declines were $160.4 million, compared to $72.4 million of such losses in the prior quarter. MSR fair value losses, before realization of cash flows, were $402.4 million due to lower market interest rates and hedging gains were $242.1 million, also driven by declining interest rates.
