based in california Pennymac Financial Services The executives right-sized the company and invested in its servicing portfolio in 2022 amid a shrinking market.
Thank you for reading this post, don't forget to subscribe!The company reported on Thursday that despite their efforts, profits still fell to $475.5 million last year, down from less than $1 billion in 2021. In Q4 2022, net income came in at $37.6 million, up from $135 million in Q3 2022 and $173 million in Q4 2021.
“The decline in PennyMac’s profitability through Q3 2022 is credit negative,” Warren Kornfeld said. moodysaid the senior vice president of “However, the company was able to report a profit in Q4 in addition to seasonally lower purchase originations in an extremely difficult operating environment for residential mortgage originators.”
Kornfeld said PennyMac’s profitability is the strongest among its rated non-bank mortgage peers — as it was in 2018, the last downturn.
“Therefore, its results reflect a challenging quarter for the non-bank mortgage sector,” Kornfeld said.
Looking ahead, PennyMac executives expect the market to shrink further this year as overcapacity remains. And, to navigate the challenging landscape, they’ll stick to the same strategy.
“The most recent third-party forecast for 2023 originations ranges from $1.6 trillion to $1.9 trillion, which is meaningfully down from 2022,” PennyMac Chairman and CEO David Spector said in a recorded earnings message. “While many industry participants have taken appropriate steps to reduce capacity, this is happening gradually, and we believe that more capacity remains.”
According to Spector, companies like PennyMac, with larger servicing portfolios and diversified business models, are better positioned to offset the decline in origination profitability resulting from lower volumes.
And, the company is willing to right-size again if need be.
Spector added, “While we believe the majority of spend management activities have been completed, we remain disciplined, continuing to rapidly adjust capacity levels relative to the size of the origination market, whether growing or contracting. ”
capitalize on competitive exit
PennyMac, the nation’s largest correspondent aggregator, also has smaller wholesale and direct-to-consumer businesses. Through three channels, the company’s loan generation came in at $109 billion in principal outstanding (UPB), down 54% from the prior year.
PennyMac’s loan acquisitions and originations in the fourth quarter were $23 billion in UPB, down 12% from the prior quarter and 51% from the same period last year.
The company’s market share in correspondent channels is expected to decline from 16.7% in 2021 to 15.3% in 2022. Meanwhile, consumer direct share fell from 1.6% to 1.2%, and broker direct channel share declined from 2.4% to 2.0%.
Executives tell HousingWire that PennyMac will try to capitalize on Wells Fargo and other contestants exiting the correspondent space.
“The scale we have achieved in our correspondent business, combined with our low-cost structure and operational excellence in the channel, allows us to operate efficiently through volatile market environments, even as other participants exit the channel. have gone or backed out,” Doug Jones, president and chief mortgage banking officer, said in a recorded message.
service to the rescue
The firm’s earnings were primarily driven by its servicing portfolio, which grew to $551 billion in unpaid balances in 2022, up 8% from December 31, 2021.
PennyMac’s servicing segment generated $75.6 million in pretax income in the fourth quarter, down from $145.3 million in the prior quarter and $126.1 million in the fourth quarter of 2021.
“Even as interest rates rise, on a quarterly basis our production volume UPB consistently represents 4 to 5% of total servicing portfolio balances,” Spector said. “As we continue to add significant volumes of servicing to our portfolio at current market rates, we will continue to create significant refinancing opportunities for our consumer direct division in the future if mortgage rates decline.”
Shares of PFSI closed at $72.55 on Thursday, up 5.21%. Shares fell 13% in the aftermarket following the earnings publication.
