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PennyMac posts strong profits in Q4 despite MSR losses

The publicly traded servicer and lender posted $2.2B in profits for 2020

PennyMac, the nation’s largest mortgage aggregator, posted net profits of $452.8 million in the fourth quarter of 2020.

In all, the nonbank brought in $1 billion in revenue during the fourth quarter of 2020, its latest earnings report showed.

The gains were driven by “core production and servicing results partially offset by fair value losses on mortgage servicing rights (MSRs) and associated hedging and other losses,” the firm said in a statement to investors.

PennyMac’s pretax income for originations checked in at $572.6 million, down 7% from the third quarter, but up 182% over the same period in 2019. Direct lending interest rate lock commitments (IRLCs) came in at a record $18.6 billion in unpaid balance – nearly $13 billion of which came through the consumer direct channel, and about $5.7 billion in the broker channel.

“PennyMac Financial delivered another strong quarter, with book value per share increasing 15% on record production levels,” President and CEO David Spector said in a statement. “PFSI’s third-quarter momentum carried into the fourth quarter with net income near record levels and producing a return on equity of 56% for the quarter. Our direct lending channels showed incredible growth with consumer direct and broker direct originations growing 27% and 29%, respectively.”

Total loan acquisitions and originations during the fourth quarter came in at a record $69.4 billion in unpaid balance, up 28% from the prior quarter and 64% from the fourth quarter of 2019. Correspondent acquisitions of conventional loans fulfilled by its mortgage investment trust were $38.0 billion in UPB, up 39% from the prior quarter and 85% from the fourth quarter of 2019.

PennyMac’s servicing portfolio grew to $427 million, up 6% from the prior quarter and 16% from the same period a year prior. The record production volume offset higher-than-usual prepayments.

Company executives on the earnings call on Thursday spoke of the challenges with managing the servicing portfolio.

PennyMac “successfully protected our asset values as our disciplined hedging and risk management strategy largely offset the $1 billion write-down on the fair value of the MSR,” Spector said in a statement. “Additionally, we granted approximately 291,000 homeowners forbearance plans in 2020 and have helped, or are in the process of helping, approximately 145,000 borrowers successfully emerge from their forbearance plans.”

The correspondent lender and servicer has been using its profits in recent quarters to buy back shares of its stock. It repurchased about $89 million worth of stock during the fourth quarter, and its corporate board approved another repurchase of between $500 million and $1 billion. During 2020, it repurchased about $337 million worth of stock.

PennyMac posted $2.2 billion in net income in total for 2020, with revenue at $3.7 billion.

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