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PennyMac's 1Q 2022 Earnings Feel Sting Of Rising Rates

David Krechevsky
May 06, 2022
Pennymac Financial Services

Mortgage originator and servicer reports net income fell 54% year over year.

Add PennyMac Financial Services Inc. to the mortgage industry companies feeling the effects of shrinking home affordability due to low inventory, higher home prices and rising mortgage rates.

The Westlake Village, Calif.-based mortgage origination and servicing company reported its earnings for the first quarter of 2022 on Thursday, posting net income of $173.6 million, or $2.94 per diluted share, up just slightly from the previous quarter but down 54% from $376.9 million, or $5.15 per diluted share in the first quarter last year.

Net revenue in the first quarter also declined. PennyMac reported net revenue of $657.5 million, down just slightly from $693.8 million in the fourth quarter of last year and but down 30.4% from $944.7 million in the first quarter last year. 

PennyMac Chairman & CEO David Spector called the results “solid,” and said they demonstrate the strength of his company’s business model “against a backdrop of rapid and significant increases in mortgage rates.”

He continued, “Our earnings were driven by strong contributions from our large and growing servicing portfolio with 2.2 million customers and nearly $520 billion in unpaid principal balance. However, the unprecedented increase in mortgage rates resulted in lower overall industry origination volumes and left originators and aggregators who still hold excess operational capacity competing for a much smaller population of loans.”

He said the “transitioning mortgage origination market contributed to the reduced financial performance in our production business.”

Some key first-quarter financial highlights include:

  • Production segment pretax income of $9.3 million, down from $106.5 million in the previous quarter and down from $362.9 million in the first quarter of 2021 due to lower volumes and margins “resulting from a transitioning mortgage market,” the company said.
  • Consumer direct interest rate lock commitments (IRLCs) were $9.1 billion in unpaid principal balance (UPB), down 36% from the prior quarter and 32% from the first quarter of 2021.
  • Broker direct IRLCs were $3.5 billion in UPB, down 9% from the prior quarter and 38% from the first quarter of 2021.
  • Government correspondent IRLCs totaled $12.5 billion in UPB, down 20% from the prior quarter and 27% from the first quarter of 2021.
  • Total loan acquisitions and originations, including those fulfilled for PennyMac Mortgage Investment Trust were $33.3 billion in UPB, down 29% from the prior quarter and 50% from the first quarter of 2021.
  • Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (PMT)  were $9.8 billion in UPB, down 43% from the prior quarter and 71% from the first quarter of 2021.
  • Servicing segment pretax income was $225.2 million, up from $126.1 million in the prior quarter and $141.7 million in the first quarter of 2021.

“We remain committed to driving further efficiencies across the platform while actively aligning our expense base with the expected lower levels of activity,” Spector said. “As a public company for nearly nine years, PennyMac Financial has a long history of demonstrating success while managing through varying interest rate environments. I believe our scaled and comprehensive platform, including our commitment to enterprise risk management, and new initiatives across our business will enable us to navigate this challenging mortgage market.”

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