based in california Pennymac Financial Services Reported gains in its servicing portfolio that offset losses with its origination activity in the first quarter of 2023, allowing the company to deliver overall profitability over the period.
Thank you for reading this post, don't forget to subscribe!However, PennyMac’s profitability dipped compared to the previous quarter amid a still challenging mortgage market. The company reported Thursday that its net income will be $30.4 million in the first quarter of 2023, up from $37.6 million in the fourth quarter of 2022 and $173.5 million in the first quarter of 2022.
Servicing “is a critically important asset and has driven much of the success we’ve had in mortgage banking,” David Spector, president and CEO, said in a recorded earnings message. “Our large servicing portfolio provides strong and consistent cash flow, allowing us to remain profitable as we continue to invest in the technology that supports our businesses.”
Servicing segment pretax income was $57.4 million in Q1 2023, down from $75.6 million in the previous quarter and $225.2 million in the same period in 2022. The servicing portfolio grew to $564.5 billion in unpaid principal balances (UPB) as of March 31, up 2% from December 31.
PennyMac had $90.3 million in mortgage servicing rights (MSR) fair value losses in the first quarter. This was partially offset by $47.2 million in hedging gains.
Senior Managing Director and CFO Dan Perotti said in a recorded earnings message, “The fair value of PFSI’s MSRs, before recognition of cash flow accruals, decreased $90 million during the quarter, driven by lower market interest rates. ” “Hedge gains totaled $47 million and were impacted by $32 million in hedge costs, which increased due to significant interest rate volatility.”
mortgage origination
With respect to the origination segment, PennyMac had a pretax loss of $19.6 million from January to March, compared with a loss of $9 million in the prior quarter and pretax income of $9.3 million in the same period in 2022.
However, according to its executives, there are signs of recovery in production on the horizon. Originations are currently expected to reach $2 trillion in 2024, compared to the $1.6 trillion to $1.8 trillion range for 2023.
“While many industry participants have taken appropriate steps to reduce capacity, the pace of this reduction has been slow, and we believe that over capacity still remains,” Spector said. “That said, the average quarterly origination forecast for the remainder of 2023 is meaningfully higher than the industry’s projected origination volume in the first quarter, which is consistent with our own expectations as we move into a more typical home buying season.” grow.”
PennyMac’s total loan acquisitions reached $22.8 billion in UPB in Q1 2023, unchanged from the previous quarter and down 32% from Q1 2022.
Consumer Direct Interest Rate Lock Commitments (IRLC) in UPB came in at $2.2 billion, up 31% quarter-on-quarter. PennyMac executives said that although volume in this channel has been limited recently, it provides opportunities if rates decline or become volatile.
“We saw some of this activity at the end of the first quarter when interest rates fell due to pressure on regional banks, which restrained the increase in lock volume from last quarter in this channel,” Spector said.
In the Broker Direct channel, PennyMac had commitments of $2.6 billion in the first quarter of 2023, up 27% quarter over quarter. Meanwhile, correspondent channel commitments declined to $21.7 billion from $22.9 billion in the previous quarter.
PennyMac is gaining market share when competitors are exiting the channels. Last year, Wells Fargoonce the top US correspondent lender, announced plans to exit the space, and loandepot Shut down its wholesale division. in April, home pointnumber three in wholesale, sold its operations to loan reserves,
PennyMac estimates that it represents 17% of the correspondent channel, 4% of the loan servicing market, 2.2% of the broker direct space and 0.8% of the consumer direct segment.
Shares of PFSI closed at $65.92 on Thursday, up 2.98%. Shares declined 1.40% in the aftermarket following the earnings publication.
