Pennymac Financial Services is coming off smaller profits but eying a larger play in the wholesale space.
The massive lender and servicer Tuesday afternoon reported a net profit of $69 million in the third quarter. That was a drop-off from
Servicing pretax income slipped in the red to a $15 million loss, an improvement from last quarter's $60 million deficit but far below a $101.2 million profit the same time a year ago. A massive $242 million hedging gain was mitigated by a $402 million fair value change in mortgage servicing rights, as lower market interest rates affected Pennymac's holdings.
That compared to production segment revenue that more than doubled quarterly and quadrupled annually to $108 million. Executives in a conference call touted the production gains, including rises in correspondent, broker direct and consumer direct channels.
On top of $20.7 billion in correspondent lock volume, Pennymac's broker direct and consumer direct channels reported similar lock volume of $5.3 billion and $5.2 billion, respectively. The lender says it now works with a quarter of the broker population, with 4,411 approved brokers.
Pennymac is positioning itself as a strong second alternative to brokers compared to the wholesale channel leaders, United Wholesale Mortgage and Rocket Pro TPO, who are Pennymac Chairman and CEO David A. Spector says are going after each other on an exclusive basis.
"I look at our tech versus the tech that's provided by two very well run organizations for the number one and two slots, and I think we are just as good, if not better, in our tech," said Spector.
Company leaders promised more technology tools for brokers this winter and anticipated broker direct gain-on-sale margins, largely flat around 97 basis points, to eventually rise.
The lender's leading correspondent operations reported consistent lock and gain-on-sale margins, but consumer direct margins thinned from 474 basis points a year ago to 323 bps in the third quarter. Pennymac blamed higher production expenses on more refinance transactions and more activity in its direct lending channels overall.
The servicer's portfolio inched up to $648 billion in unpaid principal balance ending September. It reported a refi recapture rate of just 9% for its conventional loan portfolio, but a stronger 42% recapture rate for its government-backed home loans. Including closed-end second loans, that government recapture rate rose to 52% for the first nine months of 2024.
Executives also hinted at more hiring as mortgage rates continue their rocky path downward, after running Pennymac "capacity tight" in 2023.
"Versus the alternatives in hedging the MSR, it's the least expensive path that we can take with the most economic opportunity on the upside when rates do decline," said Spector.
