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PennyMac Mortgage Investment Trust (PMT) posted a significant drop in net income of $39.7 million for the third quarter, down 27% from the previous quarter.

Additionally, the company posted net investment income of $86.1 million for the quarter, down 26% from a quarter earlier.

Higher mortgage rates drove a significant contract in the mortgage origination market, leading to lower lock volume and reduced margins in PMT’s corresponding lending business, explained PennyMac Mortgage Investment Trust chairman and CEO Stanford Kurland.

“However, our distressed whole loan portfolio continued to perform well, and we made significant new investments, deploying capital from the third quarter equity raise,” he said.

The correspondent-lending segment generated revenues of $18.9 million in the third quarter, down 63% from the second quarter.

Net gain on loans acquired for sale was $11 million for the quarter, down from $44.4 million from the previous quarter.

Also contributing to the segment’s revenue were $3.4 million of net income and $4.5 million of other revenue, primarily loan origination fees.

PennyMac acquired two distressed mortgage pools totaling $930 million in unpaid principal balance during the quarter, completing $550.5 million in jumbo securitization — retaining $367 million in senior, subordinate and interest only securities.

This was the largest quarterly total for distressed whole loans acquired since the company’s inception.

Additionally, the real estate investment trust’s mortgage servicing rights portfolio reached $23.7 billion with correspondent acquisitions of $7.7 billion in unpaid principal balance — down 11% from the prior quarter.

The decrease in net loan servicing fees was largely due to higher amortization from increased prepayment speed expectations, which were higher as a result of declining mortgage rates at the end of the quarter.

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