PennyMac Mortgage Investment Trust (PMT) is shifting gears, moving toward nonagency mortgage-backed securities and away from private-label securitizations, according to its fourth quarter earnings report.
The company noted that it would begin to participate in the structuring, sale and servicing of new nonagency mortgage-backed securities because investor demand for nonagency securitizations is growing as a result of limited supply in the private securitization market. Another reason for the switch is due to an improving housing market, the report said.
"The fourth-quarter results were strong in both our correspondent lending and investment activities segments," said chairman and chief executive officer Stanford Kurland.
He added, "Housing prices continued to stabilize during the quarter, driving valuation gains in our distressed portfolio. Correspondent loan purchase activity continued its robust growth, resulting in solid pretax earnings from the segment that comprised 63% of total pretax earnings."
On a seperate note, PennyMac's parent company PennyMac Financial Services filed with the U.S. Securities and Exchange Commission for its initial public offering of up to $287.5 million on Thursday, according to the filing.
The company stated that it will use the proceeds to grow its mortgage-banking business and for general corporate needs.
Additionally, PennyMac Mortgage noted that credit enhancement levels have declined since 2012, giving "increase collateral diversification and the performance of recent deals."
PennyMac Mortgage also stated that retention of the subordinate tranche is an attractive investment for the company because it provides alignment of interests between the investors and the issuer. Thus, the company noted it would begin to participate in this area as well.
The company reported a profit of $49.2 million, or $0.83 per share for the fourth quarter of 2012, up 22% from the third quarter. Also, for 2012, PennyMac reported a profit of $138.2 million, up 115% from last year, according to the report.
Mortgage-related assets also soared, increasing 14% quarter-over-quarter to $2.4 billion, the report said.
The progress mainly resulted from distressed whole loan acquisitions as well as a growing pipeline of correspondent loans acquired for sale, the report noted.
Additionally, mortgage servicing rights (MSRs) grew 95% reflecting strong correspondent activity, the PennyMac report said.
Click on the graph to view the MSR portfolio and MSR asset.
"The ability to organically growth the MSR portfolio is a key strength of PMT’s business model," PennyMac concluded.