PennyMac REIT Invests $69M in Private-Label RMBS

In its first two months of operation, PennyMac Mortgage Investment Trust (PMT: 17.60 +0.06%), a newly formed mortgage real estate investment trust (REIT), invested nearly $70m in private-label — or non-agency — mortgage-related securities.

The REIT’s initial investments produced $816,000 of total revenues, offset by management fees and other expenses that brought results for the period ending September 30 to a net loss of $730,000 or $0.04 per share.

“In PMT’s first two months of operations, our manager reviewed residential whole loan and securities portfolios with cumulative unpaid principal balances of over $6.9bn and bid on several of those portfolios at levels consistent with our yield requirements,” said chairman and CEO Stanford Kurland. “While some market participants have been willing to accept lower yields and bid more aggressively, we still believe that it is in the best interest of our shareholders over the long term to remain patient in order to maximize the returns from our long-term investment opportunities.”

The REIT is pursuing high-yield investment opportunities primarily in residential mortgage loans and mortgage-related assets that should provide attractive, long-term, risk-adjusted returns. As of September 30, the company invested $69.5m of proceeds from its equity offerings in residential mortgage-backed securities (RMBS) with an aggregate unpaid principal balance of $72.9m.

The company acquired these RMBS pending the anticipated reinvestment of the proceeds in suitable pools of mortgage loans or longer-lived, higher-yield MBS. The securities PennyMac acquired are backed by non-agency Alt-A, subprime and prime jumbo loans. The securities are currently cash-flowing, senior priority securities with a weighted average remaining life of about 1.5 years and a weighted average yield of 7.13%.

More than 53% — or $36.4m — of the REIT’s initial investments acquired non-agency Alt-A RMBS, while nearly 25% — or $16.9m — of its investments acquired non-agency subprime RMBS. The remaining 22% — or $14.7m — was invested in non-agency prime jumbo RMBS.

“Currently, our manager is reviewing over $1.9bn in unpaid principal balances of residential whole loan and securities portfolios, and we expect that the volume of troubled residential mortgage loans available for sale will continue to grow,” Kurland said. “Additionally, our manager continues to build a conduit operation that could potentially allow us to capitalize on current market opportunities to provide small mortgage lenders an outlet for their newly originated mortgage loans.”

Write to Diana Golobay.