The company has previously touted the strength of its services business, a sentiment supported by the channel’s second-quarter 2024 pre-tax revenue of $88.5 million. pre-tax income, generating $46.5 million in pre-tax income in the second quarter.
“PennyMac Financial’s second quarter earnings were strong, with an annualized operating return on equity of 16%,” Chairman and CEO David Spector said in prepared remarks. “In this high interest rate environment, our large and growing servicing business continues to drive revenue and cash flow, and notably, our per loan servicing fees increased as we continue to leverage our proprietary technology and operating scale. at record low levels.
Pennymac’s loan acquisitions and originations totaled $27 billion in the second quarter, a 25% increase from the first quarter. This has driven growth in its services portfolio, with unpaid principal balances (UPB) totaling $632.7 billion at the end of June, up 2% quarter-on-quarter and 10% year-over-year. This was “driven by volume, which more than offset prepayment activity,” its earnings report said.
“Our multi-faceted approach to mortgage production and our position as one of the nation’s largest producers provides us with a unique position to capture new mortgage originations in the current market,” Spector told analysts in the earnings call. approach, driving continued growth in our service portfolio.
Spector went on to say that the company believes the “original market is resetting” and that lenders like Pennymac will benefit greatly if they can capture “strong, pent-up demand from key homebuying segments.” , about $2.5 trillion in mortgages in recent years have had interest rates of 6% or higher.
“We believe that when rates do fall, many borrowers will undoubtedly seek lower mortgage rates, driving refinance volumes higher and lifting total originations to more normalized levels,” he said.
The company’s service revenue and profit growth are closely related to technical efficiency. Spector told analysts that Pennymac expects to be the first service provider to be successfully included in requirements through the Veterans Affairs Purchase of Services (VASP) program U.S. Department of Veterans Affairs.
Spector said: “The management team has worked tremendously to develop our proprietary servicing system that has the flexibility to quickly adjust to regulatory changes and employs emerging technologies, including artificial intelligence, to improve operational efficiencies. “
In May this year, Pennymac announced a private placement of US$650 million in senior notes due in November 2030. The company explained that the proceeds will be used to repay debt assumed to secure its mortgage servicing rights (MSR) facility, other unspecified debt and “other general corporate purchases.”
“This transaction reflects our continued focus on the strength and flexibility of our liquidity and capital structure as the new notes extend the maturity of our liabilities and enhance our overall liquidity,” Pennymac Chief Financial Officer Daniel Perotti said on the earnings call. situation.
In response to investor questions about headcount reductions across the mortgage industry, Specter said Pennymac is well-positioned to weather any further downturn or take advantage of any near-term opportunities.
“In our consumer direct pipeline, one of the main reasons we launched a closed second product is to maintain capacity in our consumer direct pipeline if rates come down. I think we’re already seeing that happen It’s happening,” he said.
“Again, we have been very, very aggressive in modeling what we would need in certain rate environments while maintaining excess capacity so we don’t need to take 30 to 60 days to seize opportunities. We already have three broad categories of LOs lined up. They’re going to be up and trained and ready to go, even if rates stay the same, we believe there’s value there because we have high note rate servicing and given that you can’t really start servicing these loans until they’re six months into maturity. Refinance.
