PennyMac Mortgage Investment Trust has entered into a repurchase agreement with Bank of America to finance roughly $550 million in newly originated mortgage loans, though its subsidiary PennyMac Operating Partnership.
Up to $350 million of this amount will be committed to a loan repo facility that will fund loans purchased from various correspondent lenders by the company's other subsidiary, PennyMac Corp., for sale or securitization. The facility is fully guaranteed by PennyMac and committed until Jan. 30 of next year, according to a securities filing. (The other $200 million is uncommitted.)
The principal amount paid by B of A for each loan is based on a percentage "of the lesser of the market value, unpaid principal balance, purchase price or takeout price of such mortgage loan." PennyMac Operating Partnership has agreed to repurchase the loans from B of A by repaying the value of the loan's principal value plus interest to be calculated based on the London Interbank Offered Rate at the moment of sale, plus a margin, and other fees.
Under the agreement the loan repo facility includes "certain rights" designed to help compensate B of A if the market value of the purchased loans declines. Such rights include cash transfers or additional eligible mortgage loans with comparable value.
The facility has a number of other financial requirements. For example, PennyMac Operating Partnership and PennyMac Mortgage Investment Trust must maintain a minimum net worth of $700 million and $860 million, respectively, and each must have a minimum of $40 million in cash as of the end of each calendar month.
In addition, the facility includes specific loan default related requirements that are customary for this type of transaction. PennyMac Loan Services, a subsidiary of PennyMac Financial Services, will act as loan servicer. (Aside from the name, the investment trust and the financial services company have some managers in common, and the former contracts for services from the latter.)
The July 9 master repurchase agreement filed with the Securities and Exchange Commission amends a similar agreement on Nov. 7, 2011.