California-based nonbank mortgage lender Pennymac Financial Services posted record loan production last year, but a significant decline in net profits. Reflecting the higher rate landscape, in the last three months of 2021, the servicing segment brought more returns to the company than production.
The company reported a net income of $1 billion in 2021, down from a record of $1.6 billion in the previous year. In the fourth quarter, the pretax income was $234.1 million, a 31% decrease from the previous quarter and a 62% decline compared to the same period of 2020.
In all, the nonbank brought in a record $234.5 billion in unpaid balance in 2021, up 19% from 2020, its latest earnings report showed. In the direct lending channel, origination volume was $59.8 billion, a year-over-year increase of 68%.
David Spector, Pennymac’s chairman and CEO, said that the results in the fourth quarter reflect a balanced mortgage banking model, “with pretax income from our servicing business exceeding that from our production business.”
Pennymac’s servicing portfolio achieved $509.7 billion in December 2021, up 3% from the prior quarter and 19% from the same period a year prior. The production volume offset higher-than-usual prepayments.
The servicing segment pretax income was $126.1 million in the fourth quarter, up from $8 million in the prior quarter and $42 million in the same period of 2020. The company had a $58 million fair value decline for MSRs in the fourth quarter.
The production segment pretax income was $106.5 million, down 68% from the previous quarter and 81% year-over-year. The company said the performance was “primarily due to lower volumes and margins resulting from a transitioning mortgage market and a return to more normal seasonal trends.”
In the fourth quarter, Pennymac registered consumer direct interest lock commitments (IRLCs) of $14.2 billion in unpaid principal balance, a reduction of 13% from the previous quarter and 11% compared to the same period of 2020. Broker direct IRLCs declined (32%) more than government correspondent IRLCs (21%).
Total loan acquisitions and originations during the fourth quarter came in at $47.1 billion in unpaid balance, down 20% from the prior quarter and 32% from the fourth quarter of 2020.
According to Spector, the company increased market share in its most profitable channel, consumer direct, which is expected to improve the long-term earnings. Other aspects that will help the company to achieve its goals are a newly brand and marketing focus and the deployment of transformational technologies in the direct lending channel, the executive said in a statement.
The company estimates its market share in the consumer direct channel at 1.4%, compared to 2.3% in the broker channel and 16.8% in correspondent production, where it is the market leader. In loan service, it is at 4.1%.
Regarding the wholesale channel, in January, Pennymac Financial Services announced its launching a new technology platform and it has rebranded its broker division from PennyMac Broker Direct to Pennymac TPO.
“As the market is transitioning to a higher rate environment with elevated levels of competition, we will remain disciplined, taking advantage of our operational scale, while staying focused on profitability and shareholder returns,” Spector said.
The mortgage lender has been using its profits in recent quarters to buy back shares of its stock. It repurchased about $257.3 million worth of stock during the fourth quarter, and $56 million in January.
PFSI’s stock closed yesterday at $58.71, down 1.59%. In the after hours, following the earnings publication, the stocks were up 2.20% to $60.