PennyMac Production Flips to Loss as Servicing Recovers

The Tip Desk · October 31, 2026 · 3 min read

GAAP net income was $29 million, or $0.54 a share, as the company posted a $7 million production pretax loss and $99 million of servicing pretax income.

PennyMac Financial Services, Inc. (PFSI) reported net income of $29 million, or $0.54 a share, on total net revenues of $469 million for the third quarter of 2026, as origination volumes contracted and the production segment swung to a pretax loss.

The national mortgage producer and servicer said total loan acquisitions and originations were $24.4 billion in unpaid principal balance, down 30% from $34.9 billion in the second quarter. Total fallout adjusted locks were $23.1 billion.

Production pretax results reversed from $38 million of pretax income in the prior quarter. Chairman and Chief Executive Officer David Spector said the production segment reported a pretax loss due to an industry-wide contraction in origination activity coupled with margin pressure near the end of the quarter.

Revenues net of loan origination expenses were $175 million. Expenses net of loan origination expenses were $182 million. The company said the expense decrease from the prior quarter was due to lower volumes and previously announced headcount reductions. Production revenue margins were 76 basis points of fallout adjusted locks.

Consumer direct fallout adjusted locks were $2.8 billion, which the company attributed to lower refinance volumes from higher mortgage rates. Broker direct fallout adjusted locks were $4.7 billion. Correspondent fallout adjusted locks were $15.6 billion, which the company attributed to a smaller origination market and a highly competitive environment.

Servicing pretax income was $99 million, up from $22 million in the prior quarter. Pretax income excluding MSR fair value changes net of hedge results was $132 million.

The owned servicing portfolio totaled $496 billion in UPB at September 30, 2026, up 2% from June 30, as additions from production more than offset runoff. Actual CPR on the owned portfolio was 8.1%. Loan servicing fees were $548 million. Realization of MSR cash flows was $275 million. Servicing revenues excluding MSR fair value changes net of hedge results were $401 million. The company said the sequential increase was primarily due to lower realization of MSR cash flows and payoff-related expenses reflecting lower prepayment speeds, and higher loan servicing fees from MSR portfolio growth.

MSR fair value changes net of hedge results was a $34 million loss, compared with a $77 million loss in the prior quarter. Pretax loss from corporate and other was $49 million.

Adjusted net income was $56 million, or $1.05 a share. Annualized return on equity was 3%. Annualized adjusted ROE was 5%. Book value per share was $83.85. The board declared a $0.30 cash dividend.

Spector said the company expects mortgage demand to remain subdued due to higher interest rates and that it has taken steps to right-size the platform. By the first quarter of 2027, the company said it expects to have reduced annualized operating expenses by $160 million from the second quarter of 2026. Fourth-quarter adjusted ROE is expected to remain near current levels.

After quarter-end, the company agreed to sell $29 billion in UPB of low-coupon conventional MSRs, with expected proceeds of approximately $490 million to be used primarily to pay down debt and repurchase common shares. It said it expects to close the acquisition of Cenlar’s subservicing business in early 2027.

Doug Jones, President and Chief Mortgage Banking Officer, will retire on June 30, 2027. Kevin Ryan, Chief Strategy Officer, will become chief financial officer on January 1, 2027; Daniel Perotti will remain in the role through the rest of 2026 and in an advisory role through the first quarter of 2027.