Pennymac, the country’s largest correspondent lender with about 14% market share, has its eyes fixed on absorbing origination volume that Wells Fargo is leaving behind in the correspondent channel.
The California-based lender plans to increase its client base in the bank and credit union segment where Wells Fargo was most active, Abbie Tidmore, senior managing director and chief revenue officer, at Pennymac told HousingWire. At the end of 2022, Pennymac aggregated loans from about 770 lenders across the country, Tidmore said in a previous interview.
“Wells’ exit clearly opens up [an] opportunity to other participants in the correspondent space that have capacity to take on that volume,” Tidmore said. “There are a few investors, including Pennymac, that are in a good position to take advantage of that opportunity.”
Wells Fargo was the third largest correspondent lender in the country, according to Inside Mortgage Finance, with a market share of 8%, also trailing AmeriHome Mortgage’s 8.2%.
Wells Fargo made the announcement to close the correspondent business last week, citing a desire to fund only loans that it has underwritten. It also plans to increase minority home lending through a special purpose credit program it launched last year.
While origination volume from the correspondent channel for Wells Fargo consisted of about 44% of its total origination in the fourth quarter of 2022, it’s been reducing its footprint.
Pennymac is also reviewing options to offer jumbo loans to fill the void left by Wells Fargo exiting the correspondent channel. Wells have been offering lower-rate jumbo mortgages for buyers since the post-2008 crisis years by leaving loans on their $1.9 trillion balance sheet instead of selling the loans, which makes their cost of funds cheaper.
While remaining tight-lipped on rumors of Wells Fargo potentially selling up to $150 billion in conventional mortgage servicing rights and $100 billion in Ginnie Mae MSRs, Tidmore said Pennymac can and will buy MSRs in bulk “if we can realize returns that we consider to be in line with our overall company strategy.”
“While Pennymac has not consistently been an active participant in the bulk MSR market, we have historically supplemented our growth with bulk acquisitions. We always look at potential MSR acquisitions with a return lens,” Tidmore said.
Read on for more about Pennymac’s strategies in the correspondent channel in 2023, its stance on buying MSRs that Wells Fargo plans to part with and its prospects for the channel.
Connie Kim: How does Wells Fargo exiting the correspondent lending channel affect Pennymac? What are the benefits and drawbacks?
Abbie Tidmore: Wells Fargo has historically been a significant participant in the correspondent space and we have tremendous respect for them as a competitor. Pennymac, as the #1 correspondent in the market, is fully committed to the space and is prepared to step into the void that is left by Wells’ exit. We have a very scalable model that can absorb this volume with absolutely no degradation of our industry leading service levels and turn times.
Kim: How do you think Wells Fargo’s exit from the channel will impact other corresponding players?
Tidmore: Wells’ exit clearly opens up opportunity to other participants in the correspondent space that have capacity to take on that volume. There are a few investors, including Pennymac, that are in a good position to take advantage of that opportunity.
Kim: Pennymac aggregated loans from about 770 clients across the country as of the end of 2022. Does it plan to add clients that Wells Fargo leaves behind?
Tidmore: Absolutely, we will look to increase our client base particularly in the bank and credit union segment where Wells was most active.
Kim: Is Pennymac doing jumbo loans through the correspondent channel? If so, what does Pennymac expect Wells Fargo and U.S. Bank’s exit have on pricing for those partners?
Tidmore: We are not currently offering jumbo loans through our correspondent channel, but we are exploring opportunities to release a jumbo product that will provide a viable alternative for our correspondent clients.
Kim: Margins are thinner in the correspondent channel, how will Wells Fargo’s exit impact margins of the channel at Pennymac?
Tidmore: The reality is that Wells reduced its footprint in the correspondent channel in Q4 of 2022 so any effect on margin likely already took effect.
Kim: There is rumor that Wells Fargo is trying to sell up to $150 billion in conventional MSRs and $100 billion Ginnie Mae MSRs. Does Pennymac plan on buying MSRs that Wells Fargo plans to reduce?
Tidmore: While Pennymac has not consistently been an active participant in the bulk MSR market, we have historically supplemented our growth with bulk acquisitions. We always look at potential MSR acquisitions with a return lens. If we can realize returns that we consider to be in line with our overall company strategy, we can and will buy. If Wells does indeed come to market with MSRs, we will consider them just as we would any other bulk MSR that comes to market.
Kim: What is Pennymac’s expectation for the growth of the correspondent channel this year? It’s forecasted to be another purchase market while origination volume is expected to be down from 2022.
Tidmore: It is obviously very early in 2023, but we are optimistic about the correspondent channel for Pennymac this year. We do expect the market to be smaller in 2023, but we are seeing good early momentum. We have always partnered with clients that are purchase driven and have relationships with many of the largest builder-owned mortgage companies so a purchase driven market definitely plays to our strength as an investor.