Pennymac posts steady profits, adds brokers in 2Q

Pennymac Financial Services reported gains across the board in the second quarter, and claims it's now working with about a quarter of the mortgage broker population.

The mortgage giant ended the recent period with $98.3 million in net income, according to its earnings published Tuesday afternoon. That was a leap from a $39.8 million profit last quarter weakened by hedging losses, and a $58.3 million net income result the same time a year ago. 

The company generated higher volumes in each of its three channels, led by its dominant correspondent line responsible for $23.7 billion in lock volume ending June. Its broker direct and consumer direct channels also delivered $4.3 billion and $2.7 billion in lock volume, respectively, over the quarter.

The channels' performance led to a $41.3 million in production segment pretax income, a 15% quarterly jump and 69% year-over-year gain. Pennymac had 4,274 approved brokers as of June 30, a roster that's also grown 31% annually. The company assumes a 3.7% broker direct market share, a figure calculated without second lien originations. 

In all, the lender and servicer amassed $27.2 billion in unpaid principal balance in total loan acquisitions and originations over the quarter, up 25% from the end of March. 

The growth was dampened however by a flat gain-on-sale margin in the broker channel, and decreasing margins in correspondent and consumer direct lines. The company blamed lower margins in correspondent production, which dipped 5 bps quarterly to 30 bps this spring, on highly competitive pricing from unspecified competitors. 

That competition influences correspondent margins more so than today's incremental interest rate movements, said Daniel Perotti, senior managing director and chief financial officer, during Tuesday's earnings call. 

"One of the great things that's come out in the last two or three years has really been the maintaining of rational pricing on the production side, in absence of these one-offs of irrational pricing of people who have money to burn," said Spector, following Perotti's comments.

The Southern California-based firm also reported $88.5 million in servicing segment pretax income, massive quarterly and annual gains executives attributed to their proprietary servicing technology. That platform will also be the first in the industry to incorporate requirements for the Department of Veterans Affairs Service Purchase program, Spector claimed.

"Our strength in technology development, combined with the operational scale we have achieved has driven our cost to service to among the lowest in the industry," he said.

Servicing income was net of a $60 million loss stemming from fair value changes in mortgage servicing rights, hedging and non-recurring items. The company's portfolio stood at $632.7 billion in unpaid principal balance at the end of the quarter, up 10% year-over-year. About $176 billion of that UPB carries a note rate greater than 5%, according to its investor presentation. 

Pennymac in May issued $650 million of senior unsecured notes at 7.125% due in late 2030, one of several major players to position themselves during the quiet market. The business stated cash and available amounts to withdraw totalling $3.4 billion at the end of the second quarter.