PennyMac Mortgage Trust Pivots Away From Agency MSRs Toward Credit
PennyMac Mortgage Investment Trust posted $20 million in net income for the second quarter as it agreed to sell $13 billion in mortgage-servicing-rights UPB and redirect capital into non-Agency credit investments.
PennyMac Mortgage Investment Trust (PMT) reported second-quarter net income attributable to common shareholders of $20 million, or $0.23 a share, up 45% from $14 million, or $0.16 a share, in the first quarter. The real estate investment trust also disclosed a strategic shift away from the Agency-eligible correspondent business that has anchored its balance sheet for years.
In June, PennyMac Mortgage Investment Trust agreed to sell $13 billion in unpaid principal balance of mortgage servicing rights and stopped acquiring Agency-eligible correspondent loans. The move redirects capital toward non-Agency credit and subordinate bond investments, a business the company has been building through its private-label securitization program.
The quarter's profit improvement did not restore the trust to its late-2023 run rate. Net income remained well below the $41.9 million, or $0.48 a share, posted in the fourth quarter, and annualized return on equity rose to 6% from 4% in the first quarter but stayed short of the 13% recorded three quarters earlier. Net investment income fell 11% from the prior quarter to $73 million, even as it rose 4% from $70 million a year earlier. Book value per share declined for a third consecutive quarter, to $14.83 at June 30 from $14.98 at March 31 and $15.25 at year-end 2023, down 1% both sequentially and year over year.
The segment results traced the pivot in progress. Credit sensitive strategies, PMT's subordinate-bond business, contributed $11 million to income, down 32% from $17 million in the first quarter and down 49% from $22 million a year earlier, with segment ROE falling to 11% from 17%. Even so, the fair value of subordinate bonds from private-label securitizations climbed 16% to $853 million and more than tripled from a year earlier, as PennyMac Mortgage Investment Trust acquired $2.2 billion of UPB from PFSI production for securitization, up from $1.5 billion in the first quarter. The company closed six securitizations totaling $2.2 billion in UPB during the quarter, generating $120 million in net new subordinate bond investments, down from eight securitizations and more than $200 million in the first quarter.
The legacy Agency-correspondent franchise continued to shrink. Correspondent production volume fell 8% to $2.6 billion in UPB, following a 21% drop in the first quarter, and PMT's share of parent PennyMac Financial Services' correspondent production slipped to 15% from 18%. Within that mix, conventional conforming volume fell 34% from the prior quarter and 50% from a year earlier, while jumbo volume rose 42% and Non-QM volume jumped 212%, reflecting the shift away from Agency-eligible acquisitions. The aggregation and securitization segment's pretax income fell to $11 million from $16 million, with segment ROE dropping to 21% from 33%.
The interest rate sensitive segment, which houses PMT's mortgage servicing rights, posted pretax income of $9 million, up from $8 million in the first quarter and a reversal of a $5 million loss a year earlier, even as MSR fair value continued to decline, to $3.576 billion from $3.624 billion. Net loan servicing fees fell to $40 million from $84 million, as MSR fair value gains narrowed to $19 million from $46 million and hedging losses widened to $33 million from $12 million. Net interest expense in the segment widened to $20 million from $13 million as interest expense outpaced the rise in interest income. The company also recorded a $14.1 million tax benefit tied to hedging losses in its taxable REIT subsidiary.
PennyMac Mortgage Investment Trust held its quarterly dividend at $0.40 a share for a third consecutive quarter, unchanged despite the decline in book value and the swing in quarterly earnings. For full-year 2023, net income attributable to common shareholders had fallen to $86.1 million, or $0.99 a share, from $119.2 million, or $1.37 a share, in 2022, with net investment income declining to $307.5 million from $334.2 million.