PennyMac protecting record profits with purchases, TPO and its REIT

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In the third quarter, PennyMac Financial Services generated record earnings and made preparations to reduce its reliance on refinancing, should demand for that loan type dry up in 2021.

The company, which earned $535 million in net income in 3Q20, has been prioritizing purchase volume and managing costs to account for a possible decline in originations next year, President and CEO David Spector noted during the company’s pre-recorded earnings call. PennyMac earned almost $122 million in 3Q19 and nearly $353 million in 2Q20.

Purchase originations in 2021 are expected to increase 5% year-over-year while refinance originations are expected to decline, Spector noted. The result will likely be a net decline in originations, so he plans to work on controlling costs as well as prioritizing purchases.

PennyMac’s strategy is in line with a growing number of lenders that have been using third-party originations to address capacity concerns amid the refinance boom while potentially controlling costs later, but Spector said the company’s operations overall are expected to allow for scalability that outperforms traditional underwriting and processing models.

The company’s loan channel costs range from roughly 15 basis points for correspondent to 150 basis points for consumer-direct, according to Spector.

“Correspondent lending and our rapidly growing broker-direct business position us well for growth in the more sustainable and growing purchase market,” he said.
Spector said PennyMac also is using the access it has to tax-advantaged capital through its affiliate real estate investment trust to compete.

Industry forecasts vary but generally call for between $3.2 trillion and $4.1 trillion in total home loan volume this year and $2.5 trillion to $2.7 trillion next year. PennyMac is currently anticipating 2020 will be a $3.6 trillion year for the industry.

Refis have made up more than half of overall originations in 2020. Forecasts suggest they’ll account for just 36% to 46% of originations in 2021.

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Earnings Stocks Originations Purchase Refinance Correspondent Mortgage brokers REITs