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What changed in PennyMac Financial Services, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PennyMac Financial Services, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+177 added−358 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-21)

Top changes in PennyMac Financial Services, Inc.'s 2024 10-K

177 paragraphs added · 358 removed · 140 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

123 edited+37 added−24 removed183 unchanged
Biggest changeChanges in prevailing interest rates, rising inflation rates, U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our business and earnings. ● Our revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions. ● We may not be able to effectively manage significant increases or decreases in our loan production volume, which could negatively affect our business, financial condition, liquidity and results of operations. ● Increases in delinquencies and defaults may adversely affect our business, financial condition, liquidity and results of operations. ● We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ● We have a substantial amount of indebtedness, which may limit our financial and operating activities, expose us to substantial increases in costs due to interest rate fluctuations, expose us to the risk of default under our debt obligations and may adversely affect our ability to incur additional debt to fund future needs. ● We rely on external financial arrangements to fund mortgage loans and operate our business and our inability to refinance or enter new financial arrangements could be detrimental to our business. ● Our acquisition and ownership of mortgage servicing rights exposes us to significant risks. ● A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ● We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ● Our failure to appropriately address various issues that may give rise to reputational risk could cause harm to our business and adversely affect our earnings. ● Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ● Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition. ● Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business. ● We operate in a highly regulated industry and the continually changing federal, state and local laws and regulations could materially and adversely affect our business, financial condition, liquidity and results of operations. 17 Table of Contents ● New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. ● We are highly dependent on U.S. government-sponsored entities and government agencies, and any organizational or pricing changes at such entities or their regulators could materially and adversely affect our business, liquidity, financial condition and results of operations. ● We are required to have various Agency approvals and state licenses in order to conduct our business and there is no assurance we will be able to obtain or maintain those Agency approvals or state licenses. ● We rely on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ● A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ● Our failure to comply with the extensive amount of regulation applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may encounter conflicts of interest in trying to appropriately allocate our time and services between activities for our own account and for PMT, or in trying to appropriately allocate investment opportunities among ourselves and for PMT. ● Our risk management efforts may not be effective. ● Initiating new business activities, developing new products or significantly expanding existing business activities may expose us to new risks and increase our cost of doing business. ● We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ Risk Factors ​ In addition to the other information set forth in this Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, liquidity and results of operations in future periods.
Biggest changeIf our estimates prove to be inaccurate, we may be required to write down the fair values of our investments or suffer a loss that could adversely affect our business, financial condition, liquidity and results of operations. ● Our ownership of mortgage servicing rights exposes us to prepayment, delinquency, interest rate and regulatory risks. 17 Table of Contents ● A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. ● We may be required to indemnify the purchasers of loans that we originate, acquire or assist in the fulfillment of, or repurchase those loans, if those loans fail to meet certain criteria or characteristics or under other circumstances and we may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties they make to us. ● We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ● Our failure to appropriately address various issues that may give rise to reputational risk could cause harm to our business and adversely affect our earnings. ● Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ● Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition. ● The development, implementation, maintenance and protection of our proprietary technologies require significant capital and legal expenditures for us to remain competitive. ● Climate change, adverse weather conditions, man-made or natural disasters, pandemics, wars and armed conflicts, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service. ● We operate in a highly regulated industry and the continually changing federal, state and local laws and regulations could materially and adversely affect our business, financial condition, liquidity and results of operations. ● Enforcement of existing or new rules and regulations by the CFPB and state regulators could result in enforcement actions, fines, penalties and reputational harm. ● We are highly dependent on U.S. government-sponsored entities and government agencies, and any organizational or pricing changes at such entities or their regulators could materially and adversely affect our business, liquidity, financial condition and results of operations. ● We are required to have various Agency approvals and state licenses to conduct our business and failure to maintain our licenses could materially and adversely impact our business, financial condition, liquidity, and results of operations. ● PennyMac Mortgage Investment Trust (“PMT”) is a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ● A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ● We may encounter conflicts of interest in trying to appropriately allocate our time and services between activities for our own account and for PMT, or in trying to appropriately allocate investment opportunities among ourselves and for PMT. ● Our risk management efforts may not be effective in identifying our significant risks and designing and implementing adequate internal controls to mitigate those risks. ● Developing new products, updating our operational processes and initiating or expanding our business activities may expose us to new risks, regulatory compliance requirements and costs. ● We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ 18 Table of Contents Risk Factors ​ In addition to the other information set forth in this Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, liquidity and results of operations in future periods.
An increase in prevailing interest rates could: ​ ● adversely affect our loan production volume, as refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; ● adversely affect our Ginnie Mae early buyout (“EBO”) loans because modifications would become less economically feasible; and ● increase the cost of servicing our outstanding debt, including debt related to servicing assets and loan production. ​ A decrease in prevailing interest rates could: ● cause an increase in the expected volume of loan refinancings, which would require us to record decreases in fair value on our MSRs; and ● reduce our earnings from our custodial deposit accounts. ​ Furthermore, borrowings under our warehouse lines of credit, and MSR and servicing advance facilities are [generally] at variable rates of interest, which exposes us to interest rate risk.
An increase in prevailing interest rates could: ​ ● adversely affect our loan production volume, as refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; ​ ● adversely affect our Ginnie Mae early buyout (“EBO”) loans because modifications would become less economically feasible; and ● increase the cost of servicing our outstanding debt, including debt related to servicing assets and loan production. ​ A decrease in prevailing interest rates could: ​ ● cause an increase in the expected volume of loan refinancing, which would require us to record decreases in fair value on our MSRs; and ​ ● reduce our earnings from our custodial deposit accounts. ​ Furthermore, borrowings under our warehouse lines of credit, and MSR and servicing advance facilities are generally at variable rates of interest, which exposes us to interest rate risk.
If an event of default occurs, our financing arrangements could be immediately due and payable, requiring us to apply all available cash to repay our financing arrangements, and if we were unable to repay or refinance our financial arrangements then any collateral securing the financial borrowing may be sold by our lenders. ​ Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We pursue hedging strategies primarily in an effort to mitigate the effect of changes in interest rates on the fair value of our assets.
If an event of default occurs, our financing arrangements could be immediately due and payable, requiring us to apply all available cash to repay our financing arrangements, and if we were unable to repay or refinance our financial arrangements then any collateral securing the financial borrowing may be sold by our lenders. ​ Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity, results of operations and cash flows. ​ We pursue hedging strategies primarily in an effort to mitigate the effect of changes in interest rates on the fair value of our assets.
We have experienced, and may in the future experience, service disruptions and failures caused by system or software failure, human error or misconduct, external attacks (e.g., computer hackers, hacktivists, nation state-backed hackers), denial of service or information, malicious or destructive code (e.g., ransomware, computer viruses and disabling devices), as well as natural disasters, health pandemics, strikes, and other similar events, and our contingency planning may not be sufficient for all situations.
We have experienced, and may in the future experience, service disruptions and failures caused by system or software failure, human error or misconduct, external attacks (e.g., computer hackers, hacktivists, nation state-backed hackers), denial of service or information, malicious or destructive code (e.g., ransomware, computer viruses and disabling devices), as well as natural disasters, pandemics, strikes, and other similar events, and our contingency planning may not be sufficient for all situations.
Such actions may increase our cost of capital and limit or otherwise eliminate our access to capital, in which case our business, financial condition, liquidity and results of operations would be materially and adversely affected. ​ 22 Table of Contents In the event that any of our financial arrangements is terminated or is not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all, which could be detrimental to our business. ​ We finance our loans, MSRs and other assets under secured financing agreements and utilize various other sources of borrowings, which exposes us to significant risk and may materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We finance and, to the extent available, we intend to continue to leverage the loans produced through our loan production businesses with borrowings under repurchase agreements.
Such actions may increase our cost of capital and limit or otherwise eliminate our access to capital, in which case our business, financial condition, liquidity and results of operations would be materially and adversely affected. ​ In the event that any of our financial arrangements is terminated or is not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all, which could be detrimental to our business. ​ 23 Table of Contents We finance our loans, MSRs and other assets under secured financing agreements and utilize various other sources of borrowings, which exposes us to significant risk and may materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We finance and, to the extent available, we intend to continue to leverage the loans produced through our loan production businesses with borrowings under repurchase agreements.
Among other things, these provisions: ​ ● authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval; ● prohibit stockholder action by written consent unless the matter as to which action is being taken has been approved by our board of directors; ● provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws (provided that, if that action adversely affects HC Partners when that entity, together with its affiliates, holds at least 5% of the voting power of our outstanding shares of capital stock, our stockholder agreements provide that such action must be approved by that entity); ● establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ● prevent a sale of substantially all of our assets or completion of a merger or other business combination that constitutes a change of control without the approval of a majority of our independent directors. ​ 41 Table of Contents These and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company or negatively affect the trading price of our common stock.
Among other things, these provisions: ​ ● authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval; ​ ● prohibit stockholder action by written consent unless the matter as to which action is being taken has been approved by our board of directors; ​ ● provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws (provided that, if that action adversely affects HC Partners when that entity, together with its affiliates, holds at least 5% of the voting power of our outstanding shares of capital stock, our stockholder agreements provide that such action must be approved by that entity); ​ ● establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ​ ● prevent a sale of substantially all of our assets or completion of a merger or other business combination that constitutes a change of control without the approval of a majority of our independent directors. ​ These and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company or negatively affect the trading price of our common stock.
This substantial indebtedness and any future indebtedness we incur could have adverse consequences and, for example, could: 21 Table of Contents ● require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, including indebtedness we may incur in the future, thereby reducing the funds available for operations, capital expenditures and other general corporate purposes; ● make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including any restrictive covenants, could result in an event of default under the indentures governing the unsecured senior notes or under the agreements governing our other indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness under our other debt instruments or the unsecured senior notes; ● subject us to increased sensitivity to interest rate increases; ● make us more vulnerable to economic downturns, adverse industry conditions or catastrophic events; ● reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or ● place us at a competitive disadvantage to competitors that have relatively less debt than we have. ​ In addition, our substantial level of indebtedness could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital and general corporate purposes.
This substantial indebtedness and any future indebtedness we incur could have adverse consequences and, for example, could: ● require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, including indebtedness we may incur in the future, thereby reducing the funds available for operations, capital expenditures and other general corporate purposes; ​ ● make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including any restrictive covenants, could result in an event of default under the indentures governing the unsecured senior notes or under the agreements governing our other indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness under our other debt instruments or the unsecured senior notes; ​ ● subject us to increased sensitivity to interest rate increases; ​ ● make us more vulnerable to economic downturns, adverse industry conditions or catastrophic events; ​ ● reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or ​ ● place us at a competitive disadvantage to competitors that have relatively less debt than we have. ​ In addition, our substantial level of indebtedness could limit our ability to obtain additional financing on acceptable terms, or at all, for working capital and general corporate purposes.
Some of the factors that could negatively affect the market price or trading volume of our common stock include: ​ ● variations in our actual and anticipated financial and operating results and those expected by investors and analysts; ● changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock and similar companies; ● changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors or our industry; ● litigation and governmental investigations; ● increases in market interest rates that may lead purchasers of our shares to demand a higher yield; ● announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and ● general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located. ​ These broad market and industry factors may decrease the market price and trading volume of our common stock, regardless of our actual operating performance. ​ 42 Table of Contents The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock into the public trading market. ​ We were founded in 2008 by members of our executive leadership team and strategic investors, including HC Partners, our largest stockholder.
Some of the factors that could negatively affect the market price or trading volume of our common stock include: ​ ● variations in our actual and anticipated financial and operating results and those expected by investors and analysts; ● changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock and similar companies; ● changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors or our industry; ● litigation and governmental investigations; ● increases in market interest rates that may lead purchasers of our shares to demand a higher yield; ● announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and ● general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located. ​ These broad market and industry factors may decrease the market price and trading volume of our common stock, regardless of our actual operating performance. ​ The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock into the public trading market. ​ We were founded in 2008 by members of our executive leadership team and strategic investors, including HC Partners, our largest stockholder.
We are also held accountable for the actions and inactions of our third party vendors and service providers regarding cybersecurity and other consumer-related matters. ​ Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, additional regulatory scrutiny, significant litigation exposure and harm to our reputation, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition. ​ Many of our services are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including our computer systems, related software applications and cloud-based systems, as well as those of certain third parties and affiliates.
We are also held accountable for the actions and inactions of our third party vendors and service providers regarding cybersecurity and other consumer-related matters. ​ Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, additional regulatory scrutiny, significant litigation exposure and harm to our reputation, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 32 Table of Contents Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition. ​ Many of our services are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including our computer systems, related software applications and cloud-based systems, as well as those of certain third parties and affiliates.
These state rules and regulations generally provide for, but are not limited to: originator, servicer and debt collector licensing requirements, requirements as to the form and content of contracts and other documentation, employee licensing and background check requirements, fee requirements, interest rate limits, and disclosure and record-keeping requirements. ​ Regulatory agencies and consumer advocacy groups are becoming more aggressive in asserting fair lending, fair housing and other claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.
These state rules and regulations generally provide for, but are not limited to: originator, servicer and debt collector licensing requirements, requirements as to the form and content of loan agreements and other documentation, employee licensing and background check requirements, fee requirements, interest rate limits, and disclosure and record-keeping requirements. ​ Regulatory agencies and consumer advocacy groups are becoming more aggressive in asserting fair lending, fair housing and other claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.
A liquid secondary market may not exist for a hedging instrument purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.
Further, a liquid secondary market may not exist for a hedging instrument purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.
We believe that our subsidiary, PLS, qualifies for one or more exemptions provided in the Investment Company Act because of the historical and current composition of its assets and income; however, there can be no assurances that the composition of PLS’ assets and income will remain the same over time such that one or more exemptions will continue to be applicable. ​ If PLS is required to register as an investment company, we would be required to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things: limitations on capital structure; restrictions on specified investments; prohibitions on transactions with affiliates; compliance with reporting, record keeping, voting and proxy disclosure; and, other rules and regulations that would significantly increase our operating expenses.
We believe that our subsidiary, PLS, qualifies for one or more exemptions provided in the Investment Company Act because of the historical and current composition of its assets and income; however, there can be no assurances that the composition of PLS’ assets and income will remain the same over time such that one or more exemptions will continue to be applicable. ​ If PLS is required to register as an investment company, we would be required to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things: limitations on capital 39 Table of Contents structure; restrictions on specified investments; prohibitions on transactions with affiliates; compliance with reporting, record keeping, voting and proxy disclosure; and, other rules and regulations that would significantly increase our operating expenses.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or 36 Table of Contents secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations and our ability to make distributions to our stockholders. ​ Our ability to generate revenue from newly originated loans that we acquire or assist PMT in acquiring is highly dependent on the fact that the Agencies have not historically acquired such loans directly from mortgage lenders, but have instead relied on banks and non-bank aggregators such as us to acquire, aggregate and securitize or otherwise sell such loans to investors in the secondary market.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations and our ability to make distributions to our stockholders. ​ Our ability to generate revenue from newly originated loans that we acquire or assist PMT in acquiring is highly dependent on the fact that the Agencies have not historically acquired such loans directly from mortgage lenders, but have instead relied on banks and non-bank aggregators such as us to acquire, aggregate and securitize or otherwise sell such loans to investors in the secondary market.
An increase in required advances also may cause an increase in our interest expense and affect our liquidity as a result of increased borrowings under our financing agreements to fund any such increase in the advances. ​ 20 Table of Contents We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ​ During any period in which a borrower is not making payments, we may be required under our servicing agreements in respect of our MSRs to advance our own funds to pay property taxes and insurance premiums, legal expenses and other protective advances, and may be required to advance scheduled principal and interest payments to security holders of the MBS into which the loans are sold.
An increase in required advances also may cause an increase in our interest expense and affect our liquidity as a result of increased borrowings under our financing agreements to fund any such increase in the advances. ​ We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable due to delinquencies, defaults and foreclosures that could adversely affect our business, financial condition, liquidity and results of operations. ​ During any period in which a borrower is not making payments, we may be required under our servicing agreements in respect of our MSRs to advance our own funds to pay property taxes and insurance premiums, legal expenses and other protective advances, and may be required to advance scheduled principal and interest payments to security holders of the MBS into which the loans are sold.
Either of these 38 Table of Contents scenarios would potentially impair PMT’s financial position and its ability to raise capital, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ​ PMT, as the owner of a substantial number of MSRs or mortgage loans that we subservice, may, under certain circumstances, terminate our subservicing contract with or without cause, in some instances with little notice and little to no compensation.
Either of these scenarios would potentially impair PMT’s financial position and its ability to raise capital, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ A significant portion of our loan servicing operations are conducted pursuant to subservicing contracts with PMT, and any termination by PMT of these contracts, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations. ​ PMT, as the owner of a substantial number of MSRs or mortgage loans that we subservice, may, under certain circumstances, terminate our subservicing contract with or without cause, in some instances with little notice and little to no compensation.
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us, which could cause 37 Table of Contents us to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ The failure of PennyMac Loan Services, LLC to avail itself of an appropriate exemption from registration as an investment company under the Investment Company Act of 1940 could have a material and adverse effect on our business. ​ We intend to operate so that we, and each of our subsidiaries, are not required to register as investment companies under the Investment Company Act of 1940, as amended (“Investment Company Act”).
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us, which could cause us to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ The failure of PennyMac Loan Services, LLC to avail itself of an appropriate exemption from registration as an investment company under the Investment Company Act of 1940 could have a material and adverse effect on our business. ​ We intend to operate so that we, and each of our subsidiaries, are not required to register as investment companies under the Investment Company Act of 1940, as amended (“Investment Company Act”).
As these technological advancements and investor and compliance requirements increase in the future, we will need to further develop these technological capabilities to remain competitive, and we will need to implement, execute and maintain them in an operating and regulatory environment that exposes us to significant risk. ​ There is no assurance that we will be able to successfully adopt new technologies as critical systems and applications become obsolete and better ones become available.
As these technologies advance and investor and compliance requirements increase in the future, we will need to further develop these technological capabilities to remain competitive, and we will need to implement, execute and maintain them in an operating and regulatory environment that exposes us to significant risk. ​ There is no assurance that we will be able to successfully adopt new technologies as critical systems and applications become obsolete and better ones become available.
If we were to have our subservicing terminated by PMT, or if there was a change in the terms under which we perform subservicing for PMT that was material and adverse to us, this would have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ PMT has an exclusive right to acquire conventional conforming loans that are produced through our correspondent production activities, which may limit the revenues that we could otherwise earn in respect of those loans. ​ Our mortgage banking services agreement with PMT requires PLS to provide fulfillment services for correspondent production activities exclusively to PMT as long as PMT has the legal and financial capacity to purchase correspondent loans.
If we were to have our subservicing terminated by PMT, or if there was a change in the terms under which we perform subservicing for PMT that was material and adverse to us, this would have a material adverse effect on our business, financial condition, liquidity and results of operations. 40 Table of Contents ​ PMT has an exclusive right to acquire conventional conforming loans that are produced through our correspondent production activities, which may limit the revenues that we could otherwise earn in respect of those loans. ​ Our mortgage banking services agreement with PMT requires PLS to provide fulfillment services for correspondent production activities exclusively to PMT as long as PMT has the legal and financial capacity to purchase correspondent loans.
If we are required to indemnify PMT or other purchasers against losses, or repurchase loans from PMT or other purchasers, that result in losses that exceed the recorded liability, this could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ We depend on the accuracy and completeness of information about borrowers and counterparties and any misrepresented information could adversely affect our business, financial condition, liquidity and results of operations. ​ In deciding whether to approve loans or to enter into other transactions across our businesses with counterparties, including borrowers, brokers and correspondent lenders, we may rely on information furnished to us by or on behalf of borrowers and such counterparties, including financial statements and other financial information.
If we are required to indemnify PMT or other purchasers against losses, or repurchase loans from PMT or other purchasers, that result in losses that exceed the recorded liability, this could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 29 Table of Contents We depend on the accuracy and completeness of information about borrowers and counterparties and any misrepresented information could adversely affect our business, financial condition, liquidity and results of operations. ​ In deciding whether to approve loans or to enter into other transactions across our businesses with counterparties, including borrowers, brokers and correspondent lenders, we may rely on information furnished to us by or on behalf of borrowers and such counterparties, including financial statements and other financial information.
Although we are generally indemnified by PMT, our rights to indemnification may be challenged, and if we are required to incur all or a portion of the costs arising out of litigation or investigations as a result of inadequate insurance proceeds or failure to obtain indemnification, our business, financial condition, liquidity and results of operations could be materially and adversely affected. ​ We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ​ We have a number of counterparties and vendors, who provide us with financial, technology and other services that are critical to support our businesses.
Although we are generally indemnified by PMT, our rights to indemnification may be challenged, and if we are required to incur all or a portion of 30 Table of Contents the costs arising out of litigation or investigations as a result of inadequate insurance proceeds or failure to obtain indemnification, our business, financial condition, liquidity and results of operations could be materially and adversely affected. ​ We depend on counterparties and vendors to provide services that are critical to our business, which subjects us to a variety of risks. ​ We have a number of counterparties and vendors who provide us with financial, technology and other services that are critical to support our businesses.
Changes in accounting interpretations or assumptions as well as accounting rule misinterpretations could result in differences in our financial results or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 30 Table of Contents Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ​ A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.
Changes in accounting interpretations or assumptions as well as accounting rule misinterpretations could result in differences in our financial results or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results. ​ A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.
Alternatively, if a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, liquidity and results of operations. ​ Ownership of Our Common Stock ​ The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders. ​ The market price and trading volume of our common stock has fluctuated significantly in the past and may be highly volatile in the future and could be subject to wide fluctuations.
Alternatively, if a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, liquidity and results of operations. ​ 43 Table of Contents Ownership of Our Common Stock ​ The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders. ​ The market price and trading volume of our common stock has fluctuated significantly in the past and may be highly volatile in the future and could be subject to wide fluctuations.
However, the termination of such management agreement and the loss of PMT as a client would significantly affect our investment management segment and negatively impact our management fees and incentive fees. ​ The historical returns on the assets that we select and manage for PMT, and our resulting management and incentive fees, may not be indicative of future results. ​ The historical returns of the assets that we manage should not be considered indicative of the future returns on those assets or future returns on other assets that we may select for investment by PMT.
However, the termination of such management agreement and the loss of PMT as a client would significantly affect our investment manager and negatively impact our management fees and incentive fees. ​ The historical returns on the assets that we select and manage for PMT, and our resulting management and incentive fees, may not be indicative of future results. ​ The historical returns of the assets that we manage should not be considered indicative of the future returns on those assets or future returns on other assets that we may select for investment by PMT.
We also purchase all government-insured and some conventional loans from PMT at PMT’s cost plus a sourcing fee and fulfill these loans for our own account. We earn interest income and gains or losses during the holding period and upon the sale of these securities, and we retain the MSRs with respect to the loans.
We currently purchase all government insured and some conventional loans from PMT at PMT’s cost plus a sourcing fee and fulfill these loans for our own account. We earn interest income and gains or losses during the holding period and upon the sale of these securities, and we retain the MSRs with respect to the loans.
In addition, on November 3, 2023, FSOC revised its guidance governing the potential designation of nonbank financial companies for supervision by the Federal Reserve Board and application of prudential standards and an “analytic framework” for identifying, assessing, and responding to financial stability risks that could facilitate new nonbank financial company designations.
On November 3, 2023, FSOC revised its guidance governing the potential designation of nonbank financial companies for supervision by the Federal Reserve Board and application of prudential standards and an “analytic framework” for identifying, assessing and responding to financial stability risks that could facilitate new nonbank financial company designations.
If we are unable to satisfy a margin call, we would be in default of our agreement, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ We use estimates in determining the fair value of our investments and for credit decisions.
If we are unable to satisfy a margin call, we would be in default of our agreement, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and cash flows. ​ We use estimates in determining the fair value of our investments and for credit decisions.
If our credit decisioning models contain programming or other errors, are ineffective or the data provided by borrowers or third parties is incorrect or stale, or if we are unable to obtain accurate data from borrowers or third parties, our loan process could be negatively affected, resulting in mispriced or misclassified loans or incorrect approvals or denials of loans, resulting in loan losses. ​ 25 Table of Contents The geographic concentration of our servicing portfolio may be affected by weaker economic conditions or adverse events specific to certain regions which could decrease the fair value of our MSRs and adversely affect our business, financial condition, liquidity and results of operations. ​ A decline in the economy or other negative macroeconomic events in certain real estate markets may cause a decline in the fair value of residential properties.
If our credit models contain programming or other errors, are ineffective or the data provided by borrowers or third parties is incorrect or stale, or if we are unable to obtain accurate data from borrowers or third parties, our loan process could be negatively affected, resulting in mispriced or misclassified loans or incorrect approvals or denials of loans, resulting in loan losses. ​ The geographic concentration of our servicing portfolio may be affected by weaker economic conditions or adverse events specific to certain regions which could decrease the fair value of our MSRs and adversely affect our business, financial condition, liquidity and results of operations. ​ A decline in the economy or other negative macroeconomic events in certain real estate markets may cause a decline in the fair value of residential properties.
Although we paid, and anticipate continuing to pay, quarterly dividends to our stockholders, our board of directors has the sole discretion to determine the timing, form and amount of any future dividends to our stockholders, and such determination will depend upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, capital requirements and other expense obligations, debt covenants, contractual legal, tax, regulatory and other restrictions and such other factors as our board of directors may deem relevant from time to time.
Although we paid, and anticipate continuing to pay, quarterly dividends to our stockholders, our board of directors has the sole discretion to determine the timing, form and amount of any future dividends to our stockholders, and such 42 Table of Contents determination will depend upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, capital requirements and other expense obligations, debt covenants, contractual legal, tax, regulatory and other restrictions and such other factors as our board of directors may deem relevant from time to time.
Accordingly, our failure to maintain effective internal control over financial reporting could result in misstatements of our financial results or restatements of our financial statements or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. 44 Table of Contents ​ We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes.
Accordingly, our failure to maintain effective internal control over financial reporting could result in misstatements of our financial results or restatements of our financial statements or otherwise have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations. ​ We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes.
In addition, with respect to our MSRs, we may use MBS forward purchase and sale contracts to address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, and use options and swaptions to achieve target coverage levels for larger interest rate shocks. ​ Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and other changing market conditions.
In addition, with respect to our MSRs, we may use MBS forward purchase and sale contracts to address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, options, swaptions and principal only securities to achieve target coverage levels for larger interest rate shocks. ​ Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and other changing market conditions.
In addition, the liquidity of the MBS market may be impacted by future sales and reallocations of the Federal Reserve’s MBS portfolio.
In addition, the pricing and liquidity of the MBS market may be impacted by future sales and reallocations of the Federal Reserve’s MBS portfolio.
If our operations are disrupted or otherwise negatively affected 31 Table of Contents by a technology disruption or failure, this could result in material adverse impacts on our business. ​ Our products rely on software and services from third party vendors and if any of these services became unavailable or unreliable, it could adversely affect the quality and timeliness of services. ​ We license third party software and depend on services from various third parties for use in our products.
If our operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in material adverse impacts on our business. ​ Our products rely on software and services from third party vendors and if any of these services became unavailable or unreliable, it could adversely affect the quality and timeliness of services. ​ We license third party software and depend on services from various third parties for use in our products.
Risks Related to Our Investment Management Segment ​ We currently manage assets for a single client, the loss of which would significantly reduce our management and incentive fees and have a material adverse effect on our results of operations. ​ Our management and incentive fees result from our management of PMT.
Risks Related to Our Investment Manager ​ We currently manage assets for a single client, the loss of which would significantly reduce our management and incentive fees and have a material adverse effect on our results of operations. ​ Our management and incentive fees result from our management of PMT.
In addition, the servicer is only reimbursed for any interest accrued and unpaid from a date 60 days after the borrower’s first uncorrected failure to perform, and the interest is reimbursed at the HUD debenture interest rate that may be lower than the actual loan rate. ● VA and USDA Guarantees - VA and USDA loans are only partially guaranteed by the government and if such loan defaults or goes into foreclosure, the VA or USDA guarantees may not fully cover all principal, interest and other fees and advances we may have incurred on the outstanding VA or USDA loan, and we may suffer a loss.
In addition, the servicer is only reimbursed for any interest accrued and unpaid from a date 60 days after the borrower’s first uncorrected failure to perform, and the interest is reimbursed at the HUD debenture interest rate that may be lower than the actual loan rate. 21 Table of Contents ● VA and USDA Guarantees - VA and USDA loans are only partially guaranteed by the government and if such loan defaults or goes into foreclosure, the VA or USDA guarantees may not fully cover all principal, interest and other fees and advances we may have incurred on the outstanding VA or USDA loan, and we may suffer a loss.
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Increases in delinquencies and defaults may adversely affect our business, financial condition, liquidity and results of operations. ​ Delinquencies can result from many factors including unemployment, weak economic conditions or real estate values, or catastrophic events such as man-made or natural disasters, pandemics, war or terrorist attacks.
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Increases in delinquencies and defaults may adversely affect our business, financial condition, liquidity and results of operations. ​ Delinquencies can result from many factors including unemployment, weak economic conditions or real estate values, or catastrophic events such as man-made or natural disasters, pandemics, wars and armed conflicts, and terrorist attacks.
In addition, our failure to comply with these laws, regulations and rules may result in increased costs of doing business, reduced payments by borrowers, modification of 34 Table of Contents the original terms of mortgage loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation, reputational damage, enforcement actions, and repurchase and indemnification obligations.
In addition, our failure to comply with these laws, regulations and rules may result in increased costs of doing business, reduced payments by borrowers, modification of the original terms of mortgage loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation, reputational damage, enforcement actions, and repurchase and indemnification obligations.
Factors such as inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, government shutdowns, pandemics, climate change and the availability and cost of credit may contribute to increased volatility and unclear expectations for the economy in general and the real estate, mortgage market and financial markets in particular going forward.
Factors such as inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, government shutdowns, pandemics, wars and armed conflicts, climate change and the availability and cost of credit may contribute to increased volatility and unclear expectations for the economy in general and the real estate, mortgage market and financial markets in particular going forward.
When the estimated fair value of MSRs is reduced, we could suffer a loss, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. 26 Table of Contents Changes in interest rates are a key driver of the performance of MSRs.
When the estimated fair value of MSRs is reduced, we could suffer a loss, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ Changes in interest rates are a key driver of the performance of MSRs.
If we or our vendors had to curtail or 29 Table of Contents cease operations in these countries due to political unrest or natural disasters and then transfer some or all of these operations to another geographic area, we could experience disruptions in service and incur significant transition costs as well as higher future overhead costs.
If we or our vendors had to curtail or cease operations in these countries due to political unrest or natural disasters and then transfer some or all of these operations to another geographic area, we could experience disruptions in service and incur significant transition costs as well as higher future overhead costs.
The future reduction of the Federal Reserve’s balance sheet or MBS portfolio may result in higher interest rate volatility and wider mortgage-backed security spreads that could negatively impact our investments. ​ Our financial performance and profitability are directly affected by changes in prevailing interest rates.
Future reductions of the Federal Reserve’s balance sheet or its MBS portfolio may result in higher interest rate volatility and wider mortgage-backed security spreads that could negatively impact our investments. ​ Our financial performance and profitability are directly affected by changes in prevailing interest rates.
Any such misrepresented information could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 28 Table of Contents Failure to successfully modify, resell or refinance EBO loans or defaults of the EBO loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations.
Any such misrepresented information could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Failure to successfully modify, resell or refinance EBO loans or defaults of the EBO loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations.
Various federal regulatory agencies and departments take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionately negative affect on a protected class of individuals). ​ ​ The failure of our correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences.
Various federal regulatory agencies and departments take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a 36 Table of Contents disproportionately negative effect on a protected class of individuals). ​ The failure of our correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences.
If we are unable to access and use data collected from or on behalf of applicants and borrowers, or other third party data, or our access to such data is limited, our ability to provide our services and enable our customers to verify applicant data would be compromised.
If we are unable 34 Table of Contents to access and use data collected from or on behalf of applicants and borrowers, or other third party data, or our access to such data is limited, our ability to provide our services and enable our customers to verify applicant data would be compromised.
Changes in prevailing interest rates, rising inflation rates, U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our business and earnings. ​ 18 Table of Contents Our operations, financial performance and earnings are affected by factors including prevailing interest rates, United States monetary policies or other macroeconomic conditions such as inflation fluctuations, recessions, consumer confidence and demand.
Changes in prevailing interest rates, rising inflation rates, U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our business and earnings. ​ Our operations, financial performance and earnings are affected by factors including prevailing interest rates, United States monetary policies or other macroeconomic conditions such as inflation fluctuations, recessions, consumer confidence and demand.
Any of the foregoing could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ 19 Table of Contents We may not be able to effectively manage significant increases or decreases in our loan production volume, which could negatively affect our business, financial condition, liquidity and results of operations. ​ If we do not effectively manage loan production volumes and are unable to consistently maintain quality of execution, our reputation and existing relationships with mortgage lenders and brokers could be damaged, we may not be able to maintain PMT’s existing relationships or develop new relationships with mortgage lenders and brokers, our new mortgage products may not gain widespread acceptance and the quality of our correspondent production, consumer direct lending and wholesale broker lending operations could suffer, all of which could negatively affect our brand and operating results. ​ Our loan production segment is also subject to overall market factors that could adversely impact our loan production volumes.
Any of the foregoing could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ We may not be able to effectively manage significant increases or decreases in our loan production volume, which could negatively affect our business, financial condition, liquidity and results of operations. ​ If we do not effectively manage loan production volumes and are unable to consistently maintain quality of execution, our reputation and existing relationships with mortgage lenders and brokers could be damaged, we may not be able to maintain PMT’s existing relationships or develop new relationships with mortgage lenders and brokers, our new mortgage products may not gain widespread acceptance and the quality of our correspondent production, consumer direct lending and broker lending operations could suffer, all of which could negatively affect our brand and operating results. ​ Our loan production business is subject to market factors that could adversely impact our loan production volumes.
Our inability to raise such capital or obtain financing on favorable terms could materially and adversely impact our business, financial condition, liquidity and results of operations. ​ 23 Table of Contents Our financing agreements contain financial and restrictive covenants that could adversely affect our business, financial condition, liquidity and results of operations. ​ Our various financing agreements require us and/or our subsidiaries to comply with various restrictive covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth.
Our inability to raise such capital or obtain financing on favorable terms could materially and adversely impact our business, financial condition, liquidity and results of operations. ​ 24 Table of Contents Our financing agreements contain financial and restrictive covenants that could adversely affect our business, financial condition, liquidity and results of operations. ​ Our various financing agreements require us and/or our subsidiaries to comply with various restrictive covenants and conditions precedent to funding, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth.
Consumers, clients and other counterparties could also become increasingly litigious, and we may experience a significant volume of litigation and other disputes, including claims for contractual indemnification, with counterparties regarding relative rights and responsibilities. ​ We could also be exposed to potential liability from PCM, our investment management subsidiary who manages PMT, or litigation arising from investor dissatisfaction with PMT’s financial performance or allegations we exercised improper control or influence over PMT.
Consumers, clients and other counterparties could also become increasingly litigious, and we may experience a significant volume of litigation and other disputes, including claims for contractual indemnification, with counterparties regarding relative rights and responsibilities. ​ Our investment management subsidiary manages PMT and could expose us to potential liability, or litigation arising from investor dissatisfaction with PMT’s financial performance or allegations we exercised improper control or influence over PMT.
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Any of the increases or decreases discussed above could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Our revenues are highly dependent on macroeconomic factors and real estate market, mortgage market and financial market conditions.
In addition, we may not be able to adjust our operational capacity and staffing in a timely manner, or at all, in response to increases or decreases in loan production volume resulting from changes in prevailing interest rates. ​ Any of the increases or decreases discussed above could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ 19 Table of Contents Our revenues are highly dependent on macroeconomic factors and real estate, mortgage and financial market conditions that could materially and adversely affect our business, financial condition, liquidity and results of operations.
We originate mortgage loans directly with borrowers and brokers and assist PMT in acquiring loans from mortgage lenders through our correspondent production activities that qualify under existing standards for inclusion in MBS issued by Fannie Mae or Freddie Mac or guaranteed by Ginnie Mae.
We acquire mortgage loans from borrowers, brokers and mortgage lenders and assist PMT in acquiring loans through our correspondent production activities that qualify under existing standards for inclusion in MBS issued by Fannie Mae or Freddie Mac or guaranteed by Ginnie Mae.
To the extent that certain states in which we have greater concentrations of business in the future experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, such concentration may disproportionately decrease the fair value of our MSRs and adversely affect our loan production businesses.
To the extent that states in which we have greater concentrations of business in the future, such as California, Florida and Texas, experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, such concentration may disproportionately decrease the fair value of our MSRs and adversely affect our loan production businesses.
Freddie Mae MSRs are pledged through a special purpose entity to secure borrowings under a master repurchase agreement.
Freddie Mac MSRs are pledged through a special purpose entity to secure borrowings under a master repurchase agreement.
Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of 44 Table of Contents equity securities issuable upon conversion.
Hedging instruments involve risk because they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities, and our interest rate hedging may fail to protect or could adversely affect us because, among other things: ​ ● interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; ● available interest rate hedging instruments may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability or asset; ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and 24 Table of Contents ● the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay. ​ In addition, we may fail to recalculate, re-adjust and execute hedges in an efficient manner.
Hedging instruments involve risk because they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities, and our interest rate hedging may fail to protect or could adversely affect us because, among other things: ​ ● interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; 25 Table of Contents ● available interest rate hedging instruments may not correspond directly with the interest rate risk for which protection is sought; ​ ● the duration of the hedge may not match the duration of the related liability or asset; ​ ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; ​ ● the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay; and ​ ● we may fail to recalculate, re-adjust and execute hedges in an efficient manner. ​ Any hedging activity, which is intended to limit losses, may materially and adversely affect our financial position, operations and cash flows.
Furthermore, we would remain contractually obligated to fund loans under our 27 Table of Contents outstanding IRLCs without being able to sell our existing inventory of mortgage loans.
Furthermore, we would remain contractually obligated to fund loans under our outstanding IRLCs without being able to sell our existing inventory of mortgage loans.
We also may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the methods of attack change frequently or may not be recognized until after such attack has been launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with external service providers.
We also may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the methods of attack change frequently, have become increasingly sophisticated, including through the use of artificial intelligence, and may not be recognized until after such attack has been launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with external service providers.
Accordingly, the management and incentive fees that we have earned in the past based on those returns should not be considered indicative of the management or incentive fees that we may earn in the future from managing those same assets or from managing other assets for PMT. ​ 39 Table of Contents Changes in regulations applicable to our investment management segment could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ The legislative and regulatory environment in which we operate is constantly evolving.
Accordingly, the management and incentive fees that we have earned in the past should not be considered indicative of the management or incentive fees that we may earn in the future from managing those same assets or from managing other assets for PMT. ​ Changes in regulations applicable to our investment manager could materially and adversely affect our business, financial condition, liquidity and results of operations. ​ The legislative and regulatory environment in which we operate is constantly evolving.
In addition, as a result of the size of its individual equity holding it may be able to significantly influence the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and may be able to cause or prevent a change in the composition of our board of directors or a change in control of our Company that could deprive our other public stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. ​ We have not established a minimum dividend payment level and no assurance can be given that we will be able to make dividends to our stockholders in the future at current levels or at all.
In addition, as a result of the size of its individual equity holding it may be able to significantly influence the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and may be able to cause or prevent a change in the composition of our board of directors or a change in control of our Company that could deprive our other public stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. ​ We have not established a minimum dividend payment level and no assurance can be given that we will be able to make dividends to our stockholders in the future at current levels or at all. ​ We have not established a minimum dividend payment level, and our ability to pay dividends to our stockholders may be materially and adversely affected by the risk factors discussed in our SEC periodic reports.
Further, we may be required to pay substantial penalties imposed by our regulators due to compliance errors, or we may lose our licenses to originate and/or service loans. ​ We must also comply with a number of federal, state and local consumer protection and state foreclosure laws.
Further, we may be required to pay substantial penalties imposed by our regulators due to compliance errors, lose our licenses to originate and/or service loans or pay penalties associated with class action lawsuits or other judgments. ​ We must also comply with a number of federal, state and local consumer protection and state foreclosure laws.
In addition, under certain Agency capital rules, loans sourced from loan aggregators such as PMT that we assist have higher capital requirements and may incur higher Agency fees for third party originated loans that PMT aggregates and delivers to the Agencies as compared to individual loans delivered by third party mortgage lenders directly to the Agencies’ cash windows without the assistance of a loan aggregator.
In addition, under certain Agency capital rules, loans sourced from loan aggregators such as ourselves or PMT have higher capital requirements and may incur higher Agency fees for third party originated loans aggregated and delivered to the Agencies as compared to individual loans delivered by third party mortgage lenders directly to the Agencies’ cash windows without the assistance of a loan aggregator.
Negative publicity or fines and penalties incurred in one jurisdiction may cause investigations or other actions by regulators in other jurisdictions and could adversely impact our business. ​ Our inability to meet certain net worth and liquidity requirements imposed by the Agencies could have a material adverse effect on our business, financial condition, liquidity and results of operation.
Negative publicity or fines and penalties incurred in one or more jurisdictions may cause investigations or other actions by regulators in other jurisdictions and could adversely impact our business. ​ Our inability to meet certain net worth and liquidity requirements imposed by the Agencies could have a material adverse effect on our business, financial condition, liquidity and results of operation. ​ We are subject to minimum financial eligibility requirements established by the Agencies.
If we are unable to attract and retain qualified personnel, we may not be able to take advantage of future business opportunities and this could materially affect our business, financial condition and results of operations. ​ The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.
If we are unable to attract and retain qualified personnel, we may not be able to take advantage of future business opportunities and this could materially affect our business, financial condition and results of operations. ​ 46 Table of Contents The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services, including cloud computing and artificial intelligence.
This could also subject us to civil or criminal actions or regulatory proceedings, or result in a court appointed receiver to take control of us and liquidate our business, any or all of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Related Party Risks ​ We rely on PMT as a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ​ PMT is the counterparty that currently acquires newly originated mortgage loans in connection with our correspondent production activities.
This could also subject us to civil or criminal actions or regulatory proceedings, or result in a court appointed receiver to take control of us and liquidate our business, any or all of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. ​ Related Party Risks ​ PMT is a significant source of financing for, and revenue related to, our mortgage banking business, and the termination of, or material adverse change in, the terms of this relationship, or a material adverse change to PMT or its operations, could adversely affect our business, financial condition, liquidity and results of operations. ​ PMT currently acquires conventional mortgage loans in connection with our correspondent business for which we earn fulfillment fees.
The term of the management agreement that we have entered into with PMT, as amended, expires on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
The term of the management agreement that we have entered into with PMT, as amended, expires on December 31, 2029, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
General Risks ​ Our risk management efforts may not be effective. ​ We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, climate risk and other market-related risks, as well as operational and legal risks related to our business, assets, and liabilities.
General Risks ​ Our risk management efforts may not be effective in identifying our significant risks and designing and implementing adequate internal controls to mitigate those risks. ​ We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, climate risk and other market-related risks, as well as operational and legal risks related to our business, assets, and liabilities.
The terms of these agreements extend until June 30, 2025, subject to automatic renewal for additional 18-month periods, but any of the agreements may be terminated earlier under certain circumstances or otherwise non-renewed.
The terms of these agreements extend until December 31, 2029, subject to automatic renewal for additional 18-month periods, but any of the agreements may be terminated earlier under certain circumstances or otherwise non-renewed.
Negative public opinion can also result from social media and media coverage, whether accurate or not. Our reputation may also be negatively impacted by our environmental, social, governance and other corporate sustainability practices (“Corporate Sustainability”). In addition, various private third party organizations have developed ratings processes for evaluating companies on their approach to Corporate Sustainability matters.
Negative public opinion can also result from social media and media coverage, whether accurate or not. Our reputation may also be negatively impacted by our corporate sustainability practices as various private third party organizations and investors have developed ratings processes for evaluating companies on their approach to corporate sustainability matters.
To the extent any new minimum net worth, capital ratio and liquidity standards and requirements are overly burdensome, complying with such standards and requirements may have a material adverse effect on our business, financial condition and results of operations. ​ New CFPB or state rules and regulations or more stringent enforcement of existing rules and regulations by these regulators could result in enforcement actions, fines, penalties and the inherent reputational risk that results from such actions. ​ The CFPB and state regulators have authority over certain aspects of our business as a result of our residential mortgage banking activities, including, without limitation, the authority to conduct investigations, bring enforcement actions, impose monetary penalties, require remediation of practices, pursue administrative proceedings or litigation, and obtain cease and desist orders for violations of applicable federal consumer financial laws.
To the extent any new minimum net worth, capital ratio and liquidity standards and requirements are overly burdensome, complying with such standards and requirements may have a material adverse effect on our business, financial condition and results of operations. ​ Enforcement of existing or new rules and regulations by the CFPB and state regulators could result in enforcement actions, fines, penalties and reputational harm. ​ The CFPB and state regulators have authority over certain aspects of our business as a result of our residential mortgage banking activities, including, without limitation, the authority to conduct investigations, bring enforcement actions, impose monetary penalties, require remediation of practices, pursue administrative proceedings or litigation, and obtain cease and desist orders for violations of applicable federal consumer financial laws. 37 Table of Contents ​ The publication and adoption of new and amended laws, regulations and informal guidance by the CFPB could have a substantial impact on our business operations.
Although our indemnification and repurchase exposure cannot be quantified with certainty, to recognize these potential indemnification and repurchase losses, we have recorded a liability of $30.8 million relating to $354.4 billion in UPB of loans subject to representations and warranties as of December 31, 2023.
Although our indemnification and repurchase exposure cannot be quantified with certainty, to recognize these potential indemnification and repurchase losses, we have recorded a liability of $29.1 million relating to $413.4 billion in UPB of loans subject to representations and warranties as of December 31, 2024.
These credit decision models are continuously updated based on new data and changing macroeconomic conditions.
Our credit models are continuously updated based on new data and changing macroeconomic conditions.
Our acquisition and ownership of mortgage servicing rights exposes us to significant risks. MSRs arise from contractual agreements between us and the investors (or their agents) in loans and MBS that we service on their behalf.
Our ownership of mortgage servicing rights exposes us to prepayment, delinquency, interest rate and regulatory risks. ​ MSRs arise from contractual agreements between us and the investors (or their agents) in loans and MBS that we service on their behalf.
Significant differences in performance could increase the chance that we do not adequately estimate the effect of these factors on our valuations which could result in misstatements of our financial results, restatements of our financial statements, or otherwise materially and adversely affect our business, financial condition, liquidity and results of operations. ​ Our credit decision models are based on estimates and algorithms that evaluate a number of factors, including behavioral data, transactional data and employment information, which may not effectively predict future loan losses.
Significant differences in performance could increase the chance that we do not adequately estimate the effect of these factors on our valuations which could result in misstatements of our financial results, restatements of our financial 26 Table of Contents statements, or otherwise materially and adversely affect our business, financial condition, liquidity and results of operations. ​ Our credit models are based on numerous estimates and algorithms that evaluate a multitude of factors, including behavioral data, transactional data and employment information, which may not effectively predict whether a mortgage loan defaults or realizes a profit or loss.
To manage this price risk, we use derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, primarily prepayment exposure on our MSR investments as well as interest rate lock commitments (“IRLCs”) and our inventory of loans held for sale.
To manage this price risk, we use derivative financial instruments and principal only securities to moderate the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, such as prepayment exposure on our MSR investments, interest rate lock commitments (“IRLCs”) and our inventory of loans held for sale.
Furthermore, any foreclosure or similar proceeds will only be available to satisfy the outstanding balance of a second lien mortgage loan to the extent that the claim of the holders of the first lien and other senior liens have been satisfied in full, including any foreclosure costs. ​ We cannot be certain that we will be able to manage these risks and compliance requirements effectively.
Furthermore, any foreclosure or similar proceeds will only be available to satisfy the outstanding balance of a second lien mortgage loan to the extent that the claim of the holders of the first lien and other senior liens have been satisfied in full, including any foreclosure costs.
To the extent that the current government administration takes action by proposing and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition and results of operations. ​ The outcome of the 2024 U.S.
To the extent that the new government administration takes action by proposing and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.
Any such perceived or actual conflicts of interest could damage our reputation and materially and adversely affect our business, financial condition, liquidity and results of operations. 40 Table of Contents Risks Related to Our Organizational Structure ​ HC Partners may be able to significantly influence the outcome of votes of our common stock, or exercise certain other rights pursuant to a stockholder agreement we have entered into with it, and its interests may differ from those of our other public stockholders. ​ HC Partners, our largest stockholder, has the right under a stockholder agreement to nominate up to two individuals for election to our board of directors depending on the percentage of the voting power of our outstanding shares common stock that it holds, and we are obligated to use our best efforts to cause the election of those director nominees.
Risks Related to Our Organizational Structure ​ HC Partners may be able to significantly influence the outcome of votes of our common stock, or exercise certain other rights pursuant to a stockholder agreement we have entered into with it, and its interests may differ from those of our other public stockholders. ​ HC Partners, our largest stockholder, has the right under a stockholder agreement to nominate up to two individuals for election to our board of directors depending on the percentage of the voting power of our outstanding shares common stock that it holds, and we are obligated to use our best efforts to cause the election of those director nominees.
Our failure to maintain any necessary licenses, comply with applicable licensing laws or satisfy the various requirements to maintain them over time could restrict our direct business activities, result in litigation or civil and other monetary penalties, or cause us to default under certain of our lending arrangements, any of which could materially and adversely impact our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders.
Our failure to maintain any necessary licenses, comply with applicable licensing laws or satisfy the various requirements to maintain them over time could restrict our direct business activities, result in litigation or civil and other monetary penalties, or cause us to default under certain of our lending arrangements, any of which could materially and adversely impact our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders. ​ We are also required to hold the Agency approvals in order to sell loans to the Agencies and service such loans on their behalf.
As of December 31, 2023, we had $8.6 billion of total indebtedness outstanding (approximately $6.1 billion of which was secured) and up to $6.8 billion of additional capacity under our secured borrowings and other secured debt financing arrangements.
As of December 31, 2024, we had $14.4 billion of total indebtedness outstanding (approximately $11.2 billion of which was secured) and up to $3.6 billion of additional capacity under our secured borrowings and other secured debt financing arrangements.
We are required to maintain an effective compliance program, and are subject to inspection and examinations by the SEC and state regulators. ​ The failure by us or our service providers to comply with applicable laws or regulations, or our failure to design and successfully implement and administer our compliance program, could result in fines, suspensions of individual employees, limitations on engaging in other businesses and other sanctions, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
The failure by us or our service providers to comply with applicable laws or regulations, or our failure to design and successfully implement and administer our compliance program, could result in fines, suspensions of individual employees, termination of our registered investment advisor, limitations on engaging in other businesses and other sanctions, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
Any such ineffective correlation may prevent us from achieving the intended hedge and expose us to risk of loss. Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. and non-U.S. courts.
We also may be adversely affected by changes in the interpretation or enforcement of existing laws and regulations by governmental authorities, self-regulatory organizations and courts.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Technology Committee, the CIO and the CISO periodically provide cybersecurity reports about our Cybersecurity Program to senior management’s Executive Committee and the board of directors and its Risk Committee. 47 Table of Contents
Biggest changeThe CIO, CISO and our management committees periodically provide cybersecurity reports about our Cybersecurity Program to senior management, the board of directors and our board committees. ​
The CISO and the internal incident team will also elevate any material cybersecurity incidents or unauthorized occurrences that jeopardize the confidentiality, integrity or availability of enterprise information to senior management and the board of directors. ​ Enterprise Risk Management Framework and Governance ​ The Cybersecurity Program is integrated with our enterprise risk management framework and is primarily managed by the CIO, the CISO, and other information security personnel and consultants, and is overseen by risk management, internal audit, senior management and the board of directors to ensure the confidentiality, integrity and availability of the Company’s enterprise information systems, data and business operations.
The CISO and the internal incident team will also elevate any material cybersecurity incidents or unauthorized occurrences that jeopardize the confidentiality, integrity or availability of enterprise information to senior management and the board of directors. ​ Enterprise Risk Management Framework and Governance ​ The Cybersecurity Program is integrated with our enterprise risk management framework and is primarily managed by the CIO, the CISO, and other information security personnel and consultants, and is overseen by risk management, internal audit, senior management and the board of directors to ensure the confidentiality, integrity and the availability of the Company’s enterprise information systems, data and business operations.
Our Risk Factors include further detail about our material cybersecurity risks. ​ Our Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”) each have over 24 years of information system experience and are primarily responsible for implementing the Cybersecurity Program and managing our information security personnel and consultants.
Our Risk Factors include further detail about our material cybersecurity risks. ​ Our Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”) each have over 25 years of information system experience and are primarily responsible for implementing the Cybersecurity Program and managing our information security personnel and consultants.
The Cybersecurity Program utilizes specialized third-party cybersecurity service providers to periodically perform penetration testing across certain internet-facing and business critical applications as well as external and internal network penetration tests. ​ Our Enterprise Risk Management unit separately provides independent oversight and monitoring of the Cybersecurity Program through periodic quality control testing and regulatory compliance verification of the Cybersecurity Program’s controls.
The Cybersecurity Program utilizes specialized third-party cybersecurity service providers to periodically perform penetration testing across certain internet-facing and business critical applications as well as external and internal network penetration tests. ​ Our Enterprise Risk Management unit separately provides independent oversight and monitoring of the 48 Table of Contents Cybersecurity Program through periodic quality control testing and regulatory compliance verification of the Cybersecurity Program’s controls.
The CISO served in a variety of cybersecurity operations, cybersecurity architecture, and critical infrastructure cybersecurity enhancement programs in the finance industry, the utility industry and in government and holds a B.S.in Management Information Systems and Decision Sciences. ​ The Cybersecurity Program, which is integrated into our enterprise risk management framework, assesses, identifies and protects our enterprise information systems, data and business operations from various security threats and contains the following elements: ​ ● Information Security Risk Assessment - Conducting internal and external risk and control assessment, quality control and assurance testing. ​ ● I dentity and Access Management - Managing enterprise identity and access control systems. ​ ● Security Architecture - Managing security architecture, including secure code deployment standards, architecture security reviews, and cybersecurity advisory support. ​ ● Security Engineering - Designing, implementing and operating security technologies, including but not limited to malware protections, security event and incident management, data loss prevention, and phishing defenses. ​ ● Security Operations - Ensuring continuous operational coverage of security events and alerts, maintaining and executing processes for triage, containment, investigation and escalation/communication and threat intelligence. ​ ● Attack Surface Management - Managing vulnerability and patch management, network penetration testing, application security testing and exercises, including cyber-attack simulations and tabletop exercises with senior management to detect control gaps. ​ ● Third-Party Assessments - Coordinating, reviewing and analyzing third-party providers’ assessments of the Cybersecurity Program.
The CISO served in a variety of cybersecurity operations, cybersecurity architecture, and critical infrastructure cybersecurity enhancement programs in the finance industry, the utility industry and in government and holds a Bachelor of Science in Management Information Systems and Decision Sciences. ​ 47 Table of Contents The Cybersecurity Program, which is integrated into our enterprise risk management framework, assesses, identifies and protects our enterprise information systems, data and business operations from various security threats and contains the following elements: ​ ● Information Security Risk Assessment - Conducting internal and external risk and control assessment, quality control and assurance testing. ​ ● I dentity and Access Management - Managing enterprise identity and access control systems. ​ ● Security Architecture - Managing security architecture, including secure code deployment standards, architecture security reviews, and cybersecurity advisory support. ​ ● Security Engineering - Designing, implementing and operating security technologies, including but not limited to malware protections, security event and incident management, data loss prevention, and phishing defenses. ​ ● Security Operations - Ensuring continuous operational coverage of security events and alerts, maintaining and executing processes for triage, containment, investigation and escalation/communication and threat intelligence. ​ ● Attack Surface Management - Managing vulnerability and patch management, network penetration testing, application security testing and exercises, including cybersecurity training, cyber-attack simulations and tabletop exercises with senior management to detect control gaps. ​ ● Third-Party Assessments - Coordinating, reviewing and analyzing third-party providers’ assessments of the Cybersecurity Program.
Internal Audit may also perform a periodic cybersecurity program audit that may be supported by external consulting firms. ​ 46 Table of Contents ● Third-Party Service Provider Reviews – Identifying and reviewing material risks from cybersecurity threats associated with certain third-party service providers. ​ Cybersecurity Monitoring and Incident Reporting ​ We continuously monitor our enterprise information systems and user activity to detect anomalous activity and identify potential security related incidents.
Internal Audit may also perform a periodic cybersecurity program audit that may be supported by external consulting firms. ​ ● Third-Party Service Provider Reviews – Identifying and reviewing material risks from cybersecurity threats associated with certain third-party service providers. ​ Monitoring and Incident Reporting ​ We continuously monitor our enterprise information systems and user activity to detect anomalous activity and identify potential security related incidents.
The Cybersecurity Program is informed by the National Institute of Standards and Technology’s (“NIST”) cybersecurity framework standard and is integrated into our overall enterprise risk management framework, along with our compliance requirements under federal and state cybersecurity and related regulations. ​ We have not identified any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected, or are reasonably likely to materially affect, us, including our business strategy, results of operations or financial condition.
The Cybersecurity Program is informed by the National Institute of Standards and Technology’s (“NIST”) cybersecurity framework standard and is integrated into our overall enterprise risk management framework, along with our compliance requirements under federal and state cybersecurity and related regulations. ​ We are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected, or are reasonably likely to materially affect, us, including our business strategy, results of operations or financial condition as of the end of fiscal year 2024.
The CIO has served in a variety of information technology leadership positions in the finance industry and holds a B.S. in Electrical Engineering.
The CIO has served in a variety of information technology leadership positions in the finance industry and holds a Bachelor of Science in Electrical Engineering.
The Audit Committee oversees the internal and external auditors’ review of our cybersecurity risks. ​ Management Oversight ​ Senior management’s Technology Committee, includes the CIO, the CISO and other senior executives who oversee the Company’s enterprise IT infrastructure and ensures that our enterprise information systems are protected from internal and external cybersecurity threats by monitoring cybersecurity controls, risk assessments and information system reports.
The Audit Committee oversees the internal and external auditors’ review of our cybersecurity risks. ​ Management Oversight ​ Our CIO, CISO and other senior executives who oversee the Company’s enterprise IT infrastructure periodically meet in management committees to ensure that our enterprise information systems are protected from internal and external cybersecurity threats by monitoring cybersecurity controls, risk assessments and information system reports.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur business segment operations and support offices are primarily in the following locations in the United States: ​ ● Our servicing segment is primarily located in California, Texas and Nevada. ● Our production segment is primarily located in California, Texas, Florida, Arizona, Missouri and North Carolina.
Biggest changeOur business segment operations and support offices are primarily in the following locations in the United States: ​ ● Our production segment is primarily located in California, Texas, Florida, Arizona, Missouri and North Carolina. ​ ● Our servicing segment is primarily located in California, Texas and Nevada. ​ ● Our corporate operations are primarily located in California and Texas.
Item 2. Properties ​ As of December 31, 2023, we have approximately 15 leased facilities in various locations throughout the United States. Our principal executive offices are located at 3043 & 3059 Townsgate Road, Westlake Village, California 91361 and total approximately 66,000 of leased square feet.
Item 2. Properties ​ As of December 31, 2024, we have approximately 15 leased facilities in various locations throughout the United States. Our principal executive offices are located at 3043 & 3059 Townsgate Road, Westlake Village, California 91361 and total approximately 66,000 of leased square feet.
We periodically review our space requirements and we look to expand into new facilities if necessary or consolidate and exit facilities we no longer need, as and when appropriate. ​ The financial commitments of our leases are disclosed in Note 12— Leases to our consolidated financial statements included in Item 8 of this Report. ​
We periodically review our space requirements and we look to expand into new facilities if necessary or consolidate and exit facilities we no longer need, as and when appropriate. ​ The financial commitments of our leases are disclosed in Note 13— Leases to our consolidated financial statements included in Item 8 of this Report. ​
We maintain loan production centers in California, Tennessee, Minnesota and Hawaii. ● Our investment management segment and corporate operations are primarily located in California. We believe that our current facilities are sufficient for the operation of our business.
We believe that our current facilities are sufficient for the operation of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 18 — Commitments and Contingencies , to the financial statements contained in this Report for a discussion of legal proceedings that are incorporated by reference into this Item 3. ​
Biggest changeSee Note 19 — Commitments and Contingencies , to the financial statements contained in this Report for a discussion of legal proceedings that are incorporated by reference into this Item 3. ​ 49 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur ability to pay dividends may be adversely affected for the reasons described in Item 1A of this Report in the section entitled Risk Factors . ​ 48 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds ​ There were no sales of unregistered equity securities during the year ended December 31, 2023. ​ Stock Repurchase Program ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares purchased ​ Average price paid per share Total number of shares purchased as part of publicly announced plans or program (1) ​ Approximate dollar value of shares that may yet be purchased under the plans or program (1) October 1, 2023 – October 31, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 November 1, 2023 – November 30, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 December 1, 2023 – December 31, 2023 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 Total ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 (1) In August 2021, our board of directors approved an increase to our common stock repurchase program from $1 billion to $2 billion.
Biggest changeOur ability to pay dividends may be adversely affected for the reasons described in Item 1A of this Report in the section entitled Risk Factors . ​ Unregistered Sales of Equity Securities and Use of Proceeds ​ There were no sales of unregistered equity securities during the year ended December 31, 2024. ​ Stock Repurchase Program ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares purchased ​ ​ Average price paid per share ​ Total number of shares purchased as part of publicly announced plans or program (1) ​ Approximate dollar value of shares that may yet be purchased under the plans or program (1) October 1, 2024 – October 31, 2024 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 November 1, 2024 – November 30, 2024 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 December 1, 2024 – December 31, 2024 ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 Total ​ ​ — ​ $ — ​ ​ — ​ $ 212,338,815 (1) In August 2021, our board of directors approved an increase to our common stock repurchase program from $1 billion to $2 billion.
As of February 16, 2024, our shares of common stock were held by 23 holders of record. ​ Our dividend level is reviewed each quarter and determined based on a number of factors, including, among other things, our earnings, our financial condition, growth outlook, the capital required to support ongoing growth opportunities and compliance with other internal and external requirements.
As of February 14, 2025, our shares of common stock were held by 28 holders of record. ​ Our dividend level is reviewed each quarter and determined based on a number of factors, including, among other things, our earnings, our financial condition, growth outlook, the capital required to support ongoing growth opportunities and compliance with other internal and external requirements.
We did not repurchase our common stock during the quarter ended December 31, 2023. ​ Item 6. Reserved ​ ​ Item 7.
We did not repurchase our common stock during the quarter ended December 31, 2024. ​
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Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Report. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties.
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When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Report.
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These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. ​ Critical Accounting Policies ​ Preparation of financial statements in compliance with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period.
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Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments.
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Our critical accounting policies primarily relate to our fair value estimates. ​ 49 Table of Contents Fair Value ​ We group assets measured at or based on fair value in three levels based on the markets in which the assets are traded and the observability of the inputs used to determine fair value.
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These levels are: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ ​ Percentage of ​ Level/Description ​ Carrying value of assets ​ Total assets ​ Total stockholders' equity ​ ​ ​ (in thousands) ​ ​ ​ ​ 1: Prices determined using quoted prices in active markets for identical assets or liabilities. ​ $ 88,608 ​ 0% ​ 3% ​ 2: Prices determined using other significant observable inputs.
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Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of us. ​ ​ 3,953,674 ​ 21% ​ 112% ​ 3: Prices determined using significant unobservable inputs.
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Unobservable inputs reflect our judgements about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances. ​ ​ 7,683,207 ​ 41% ​ 217% ​ Total assets measured at or based on fair value (1) ​ $ 11,725,489 ​ 62% ​ 331% ​ Total assets ​ $ 18,844,563 ​ ​ ​ ​ ​ Total stockholders' equity ​ $ 3,538,603 ​ ​ ​ ​ ​ (1) Includes assets measured on both a recurring and nonrecurring basis based on the accounting principles applicable to the specific asset and whether we have elected to carry the asset at its fair value. ​ At December 31, 2023, $11.7 billion or 62% of our total assets were carried at fair value on a recurring basis and $15.0 million (real estate acquired in settlement of loans (“REO”)), were carried based on fair value on a non-recurring basis when fair value indicates evidence of impairment of individual properties. ​ Changes in fair value of our holdings of assets carried at fair value have significant effects on our financial position and results of operations.
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As summarized above, changes in fair values of “Level 1” and “Level 2” fair value assets are determinable with reference to direct quotes in active markets on the measurement date in the case of “Level 1” fair value assets, or reference to publicly available pricing inputs (such as reference interest rates and credit spreads and prices of similar assets) in the case of “Level 2” fair value assets. ​ $7.7 billion or 41% of our total assets are measured using “Level 3” fair value inputs – significant inputs where there is difficulty observing the inputs used by market participants to establish fair value.
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Different approaches to valuing those assets or changes in inputs to measurement of these assets can have a significant effect on the amounts reported for these items including their reported balances and their effects on our income. ​ 50 Table of Contents During the three years ended December 31, 2023, we recognized significant changes in the fair value of our holdings of “Level 3” fair value assets and liabilities as shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ Loans held ​ Mortgage ​ Excess ​ Mortgage ​ ​ ​ ​ ​ ​ Year ended ​ rate lock ​ for sale at ​ servicing ​ servicing ​ servicing ​ ​ ​ ​ Pre-tax December 31, ​ commitments ​ fair value ​ rights (1) ​ spread financing ​ liabilities (1) ​ Total ​ Income ​ ​ (positive (negative) effects on net revenues in thousands) ​ ​ ​ 2023 ​ $ 130,424 ​ ​ 68,773 ​ ​ 56,757 ​ ​ — ​ ​ 50 ​ $ 256,004 ​ $ 183,631 2022 ​ $ (624,905) ​ ​ (66,639) ​ ​ 877,324 ​ ​ — ​ ​ 347 ​ $ 186,127 ​ $ 665,247 2021 ​ $ 489,547 ​ ​ 285,501 ​ ​ (136,350) ​ ​ (1,037) ​ ​ 68,020 ​ $ 705,681 ​ $ 1,359,183 (1) Excludes changes in fair value attributable to realization of cash flows. ​ The changes above primarily reflect changes attributable to our observations of changes in the markets for those assets and liabilities as opposed to changes in accounting policies or approaches to the valuation of those instruments. ​ As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets and liabilities, we are required to make judgments regarding these items’ fair values.
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Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements.
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Likewise, due to the general illiquidity of some of these assets, subsequent transactions may be at values significantly different from those reported. ​ Because the fair value of “Level 3” fair value assets and liabilities are difficult to estimate, our valuation process includes performance of these items’ fair value estimation by specialized staff with significant senior management oversight.
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We have assigned the responsibility for estimating the fair values of non-interest rate lock commitment (“IRLC”) “Level 3” fair value assets and liabilities to our capital markets valuation staff, which is responsible for valuing and monitoring these items and maintenance of our valuation policies and procedures for non- IRLC assets and liabilities.
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The capital markets valuation staff submits the results of its valuations to our senior management valuation committee, which oversees the valuations.
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Our senior management valuation committee includes the Company’s chief financial, risk, and capital markets officers as well as other senior members of the Company’s finance, capital markets and risk management staff. ​ The fair value of our IRLCs is developed by our capital markets risk management staff and is reviewed by our capital markets operations group. ​ Following is a discussion of our approach to measuring the balance sheet items that are most affected by “Level 3” fair value estimates. ​ Interest Rate Lock Commitments ​ Our net gains on loans held for sale include our estimates of the gains or losses we expect to realize upon the sale of loans we have contractually committed to fund or purchase but have not yet funded, purchased or sold.
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We recognize a substantial portion of our net gains on loans held for sale at fair value before we fund or purchase the loans as the result of these commitments. We call these commitments IRLCs.
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We recognize the fair value of IRLCs at the time we make the commitment to the correspondent seller, broker or loan applicant and adjust the fair value of such IRLCs as the loan approaches the point of funding or purchase or the prospective transaction is canceled. ​ We carry IRLCs as either Derivative assets or Derivative liabilities on our consolidated balance sheet.
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The fair value of an IRLC is transferred to Loans held for sale at fair value when the loan is funded or purchased. ​ An active, observable market for IRLCs does not exist. Therefore, we measure the fair value of IRLCs using methods we believe that market participants use in pricing IRLCs.
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We estimate the fair value of IRLCs based on observable Agency MBS prices, our estimates of the fair value of the MSRs we expect to receive in the sale of the loans and the probability that we will fund or purchase the loans (the “pull-through rate”). ​ 51 Table of Contents Pull-through rates and MSR fair values are based on our estimates as these inputs are difficult to observe in the marketplace.
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Market interest rates and our estimate of the probability that a loan will be funded are updated as the loans move through the funding or purchase process and as market interest rates change and these updates may result in significant changes in our estimates of the fair value of the IRLCs.
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Such changes are reflected in the change in fair value of IRLCs which is a component of our Net gains on loans held for sale at fair value in the period of the change. The financial effects of changes in these inputs are generally inversely correlated.
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Increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value but increase the pull-through rate for the loan principal and interest payment cash flow component, which decreases in fair value. ​ A shift in our assessment of an input to the valuation of IRLCs can have a significant effect on the amount of Net gains on loans held for sale at fair value for the period.
Removed
We believe that the most significant “Level 3” fair value input to the measurement of IRLCs is the pull-through rate. At December 31, 2023, we held $89.6 million of net IRLC assets at fair value.
Removed
Following is a quantitative summary of the effect of changes in the pull-through rate input on the fair value of IRLCs at December 31, 2023: ​ ​ ​ ​ ​ ​ Change in input (1) ​ Effect on fair value of IRLC of a change in pull-through rate (2) ​ ​ ​ (in thousands) (20) % ​ $ (21,086) (10) % ​ $ (10,540) (5) % ​ $ (5,266) 5 % ​ $ 3,822 10 % ​ $ 7,162 20 % ​ $ 13,541 (1) The upward shift in input amount on a per-loan basis is limited to the amount of shift required to reach a 100% pull-through rate. ​ (2) This analysis holds constant all of the other inputs to show an estimate of the effect on fair value of a change in the pull-through rate.
Removed
We expect that in a market shock event, multiple inputs would be affected and the effects of these changes may compound or counteract each other.
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Therefore this analysis is not a projection of the effects of a shock event or a change in our estimate of an input and should not be relied upon as an earnings projection. ​ Loans Held for Sale ​ We carry loans at their fair values.
Removed
We recognize changes in the fair value of loans in current period income as a component of Net gains on loans held for sale at fair value .
Removed
How we estimate the fair value of loans is based on whether the loans are saleable into active markets with observable fair value inputs. ​ ● We categorize loans that are saleable into active markets as “Level 2” fair value assets. We estimate the fair value of such loans using their quoted market price or market price equivalent.
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At December 31, 2023, we held $3.9 billion of such loans. ​ 52 Table of Contents ● We categorize loans that are not saleable into active markets as “Level 3” fair value assets.
Removed
“Level 3” fair value loans arise primarily from the following sources: ​ - We may purchase certain delinquent government guaranteed or insured loans from Ginnie Mae guaranteed securitizations included in our loan servicing portfolio. Our right to purchase such loans arises as the result of the loan being at least three months delinquent when we buy the loan.
Removed
Our ability to purchase delinquent loans provides us with an alternative to our obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security.
Removed
Such repurchased loans are referred to as early buyout (“EBO”) loans and may be resold to investors and thereafter may be repurchased to the extent eligible for resale into a new Ginnie Mae guaranteed security.
Removed
Such eligibility occurs when a repurchased loan either becomes current through completion of a modification of its terms or otherwise after three months of timely payments and when the issuance date of the new security into which the loan is placed is at least 120 days after the date the loan was last delinquent.
Removed
At December 31, 2023, we held $146.6 million at fair value of such loans. ​ - Certain of our loans may become non-saleable into active markets due to our identification of one or more defects or we may repurchase defective loans subject to representations and warranties.
Removed
At December 31 2023, we held $10.0 million at fair value of such loans. ​ - The closed-end second lien mortgage loans we produce do not have an active market with observable inputs that are significant to the estimation of their fair value.
Removed
At December 31, 2023, we held $322.0 million at fair value of such loans. ​ We use a discounted cash flow model to estimate the fair value of “Level 3” fair value loans.
Removed
The significant unobservable inputs used in the fair value measurement of our “Level 3” fair value loans held for sale are discount rates, home price projections and prepayment speeds.
Removed
Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurements. ​ Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ MSRs and MSLs represent the fair value assigned to contracts that obligate us to service the mortgage loans on behalf of the owners of the mortgage loans in exchange for servicing fees and the right to collect certain ancillary income from the borrower.
Removed
We recognize MSRs and MSLs at our estimate of the fair value of the contract to service the loans. We include changes in fair value of MSRs and MSLs in current period income as a component of Net loan servicing fees — Change in fair value of mortgage servicing rights and mortgage servicing liabilities.
Removed
Both our estimate of the change in fair value attributable to realization of cash flows and of other changes in fair value are affected by changes in fair value inputs.
Removed
In the year ended December 31, 2023, we recognized a $605.6 million net decrease in fair value of MSRs and MSLs: $662.4 million of decrease due to realization of cash flows underlying the fair value of MSRs, partially offset by $56.8 million of increase due to changes in fair value inputs. ​ We estimate fair value of MSRs and MSLs using a discounted cash flow approach.
Removed
We believe the most significant “Level 3” fair value inputs to the valuation of MSRs and MSLs are the pricing spread (discount rates), prepayment speed and annual per-loan cost of servicing. ​ A shift in the market for MSRs and MSLs or a change in our assessment of an input to the valuation of MSRs and MSLs can have a significant effect on their fair value and in our income for the period.
Removed
The net fair value of MSRs and MSLs that we held at December 31, 2023 was $7.1 billion. ​ 53 Table of Contents Following is a summary of the effect on fair value of MSRs of various changes to these key inputs at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect on fair value of MSRs and MSLs of a change in input value (1) ​ Change in input Pricing spread Prepayment speed Servicing cost ​ ​ ​ (in thousands) ​ (20) % ​ $ 404,028 ​ $ 474,636 ​ $ 178,289 ​ (10) % ​ $ 196,450 ​ $ 228,063 ​ $ 89,145 ​ (5) % ​ $ 96,886 ​ $ 111,857 ​ $ 44,572 ​ 5 % ​ $ (94,307) ​ $ (107,757) ​ $ (44,572) ​ 10 % ​ $ (186,129) ​ $ (211,643) ​ $ (89,145) ​ 20 % ​ $ (362,671) ​ $ (408,638) ​ $ (178,289) ​ (1) This analysis holds constant all of the inputs other than the input that is being changed in order to show an estimate of the effect on fair value of a change in a specific input.
Removed
We expect that in a market shock event, multiple inputs would be affected and the effects of these changes may compound or counteract each other.
Removed
Therefore these analyses are not projections of the effects of a shock event or a change in our estimate of an input and should not be relied upon as earnings projections. ​ Accounting Developments ​ Refer to Note 3 – Significant Accounting Policies ‒ Recently Issued Accounting Pronouncements to our consolidated financial statements for a discussion of recent accounting developments and the expected effect on the Company. ​ Business Trends ​ Due to significant inflationary pressures, the U.S.
Removed
Federal Reserve raised the federal funds rates during the first three quarters of 2023, as well as reduced its overall holdings of Treasury securities and MBS. Higher interest rates are expected to contribute to reducing the size of the mortgage origination market from approximately $2.3 trillion in 2022 to an estimated $1.4 trillion in 2023.
Removed
The mortgage market is expected to grow to approximately $2.0 trillion in 2024 according to mortgage industry economists, with an expectation that interest rates and mortgage rates will decline during the year. ​ Lower mortgage transaction volumes and higher interest rates decreased our mortgage production activities, reduced gains from the redelivery of loans bought out from Ginnie Mae securities, increased competition and lowered profit margins in our production business in 2023 as compared to the prior year.
Removed
However, increased regulatory scrutiny and higher potential capital requirements on the banking sector have caused certain banks to reduce their footprint in mortgage products and business lines, leading to reduced competition in some channels.
Removed
Higher interest rates also increased the costs of floating rate borrowings, increased interest income from placement fees we receive relating to custodial funds that we manage on deposits and loans held for sale and reduced prepayment speeds in our mortgage servicing portfolio in 2023 as compared to the prior year.
Removed
Due to the significant contraction in the mortgage market during the year, we maintained a lower level of operating expenses than we had in prior years when then mortgage market was larger.
Removed
If interest rates decrease and mortgage volumes increase in 2024 as industry economists project, certain of the trends observed in our business in 2023 may begin to soften or reverse. ​ 54 Table of Contents Results of Operations ​ ​ Our results of operations are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (dollars in thousands except per share amounts) ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan production revenues ​ $ 719,887 ​ $ 1,029,483 ​ $ 3,027,482 ​ Net loan servicing fees ​ ​ 642,600 ​ ​ 951,329 ​ ​ 182,954 ​ Net interest expense ​ ​ (4,853) ​ ​ (41,365) ​ ​ (90,530) ​ Management fees from PennyMac Mortgage Investment Trust ​ ​ 28,762 ​ ​ 31,065 ​ ​ 37,801 ​ Other ​ ​ 15,260 ​ ​ 15,243 ​ ​ 9,654 ​ Total net revenues ​ ​ 1,401,656 ​ ​ 1,985,755 ​ ​ 3,167,361 ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation ​ ​ 576,964 ​ ​ 735,231 ​ ​ 999,802 ​ Legal settlements ​ ​ 162,770 ​ ​ 4,649 ​ ​ (4) ​ Technology ​ ​ 143,152 ​ ​ 139,950 ​ ​ 141,426 ​ Loan origination ​ ​ 114,500 ​ ​ 173,622 ​ ​ 330,788 ​ Servicing ​ ​ 69,433 ​ ​ 59,628 ​ ​ 109,835 ​ Other ​ ​ 151,206 ​ ​ 207,428 ​ ​ 226,331 ​ Total expenses ​ ​ 1,218,025 ​ ​ 1,320,508 ​ ​ 1,808,178 ​ Income before provision for income taxes ​ ​ 183,631 ​ ​ 665,247 ​ ​ 1,359,183 ​ Provision for income taxes ​ ​ 38,975 ​ ​ 189,740 ​ ​ 355,693 ​ Net income ​ $ 144,656 ​ $ 475,507 ​ $ 1,003,490 ​ Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.89 ​ $ 8.96 ​ $ 15.73 ​ Diluted ​ $ 2.74 ​ $ 8.50 ​ $ 14.87 ​ Return on average stockholders' equity ​ ​ 4.1% ​ ​ 13.8% ​ ​ 28.9% ​ Dividends declared per share ​ $ 0.80 ​ $ 0.80 ​ $ 0.80 ​ Income before provision for income taxes by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage banking: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Production ​ $ 69,325 ​ $ 48,480 ​ $ 1,044,411 ​ Servicing ​ ​ 109,669 ​ ​ 613,626 ​ ​ 306,678 ​ Total mortgage banking ​ ​ 178,994 ​ ​ 662,106 ​ ​ 1,351,089 ​ Investment management ​ ​ 4,637 ​ ​ 3,141 ​ ​ 8,094 ​ ​ ​ $ 183,631 ​ $ 665,247 ​ $ 1,359,183 ​ Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") (1) ​ $ 701,162 ​ $ 591,055 ​ $ 2,040,581 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ Common stock closing per share prices: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ High ​ $ 92.93 ​ $ 70.10 ​ $ 70.57 ​ Low ​ $ 55.82 ​ $ 39.73 ​ $ 56.53 ​ At end of year ​ $ 88.37 ​ $ 56.66 ​ $ 70.57 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments outstanding ​ $ 6,349,628 ​ $ 7,009,119 ​ $ 14,111,795 ​ Unpaid principal balance of loan servicing portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owned: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage servicing rights and liabilities ​ $ 370,269,011 ​ $ 314,600,796 ​ $ 278,385,373 ​ Loans held for sale ​ ​ 4,294,689 ​ ​ 3,498,214 ​ ​ 9,430,766 ​ ​ ​ ​ 374,563,700 ​ ​ 318,099,010 ​ ​ 287,816,139 ​ Subserviced for PMT ​ ​ 232,653,069 ​ ​ 233,575,672 ​ ​ 221,892,142 ​ ​ ​ $ 607,216,769 ​ $ 551,674,682 ​ $ 509,708,281 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net assets of PennyMac Mortgage Investment Trust ​ $ 1,957,090 ​ $ 1,962,815 ​ $ 2,367,518 ​ Book value per share ​ $ 70.52 ​ $ 69.44 ​ $ 60.11 ​ (1) To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted EBITDA as a non-GAAP measure.
Removed
Adjusted EBITDA is a measure that is frequently used in our industry to measure performance and we believe that this measure provides supplemental information that is useful to investors.
Removed
Adjusted EBITDA is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income, or any other performance measure calculated in accordance with GAAP. ​ 55 Table of Contents We define “Adjusted EBITDA” as net income plus provision for income taxes, depreciation and amortization, excluding decrease (increase) in fair value of MSRs net of MSLs, due to changes in the valuation inputs we use in our valuation models, increase (decrease) in fair value of excess servicing spread (“ESS”) payable to PMT, hedging losses (gains) associated with MSRs, stock-based compensation and interest expense on corporate debt or corporate revolving credit facilities and capital lease and non-recurring items such as significant awards of damages against us due to litigation. ​ We believe that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business.
Removed
However, other companies may define Adjusted EBITDA differently, and as a result, our measures of Adjusted EBITDA may not be directly comparable to those of other companies. ​ Adjusted EBITDA measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
Removed
Some of these limitations are: ● they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; ● they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; and ● they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows. ​ Because of these limitations, Adjusted EBITDA measures are not intended as alternatives to net income as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. ​ The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) Net income ​ $ 144,656 ​ $ 475,507 ​ $ 1,003,490 Provision for income taxes ​ ​ 38,975 ​ ​ 189,740 ​ ​ 355,693 Income before provision for income taxes ​ ​ 183,631 ​ ​ 665,247 ​ ​ 1,359,183 Depreciation and amortization ​ ​ 53,214 ​ ​ 34,409 ​ ​ 28,645 Decrease (increase) in fair value of MSRs net of MSLs due to changes in valuation inputs used in valuation models ​ ​ (56,807) ​ ​ (877,671) ​ ​ 68,330 Increase in fair value of ESS payable to PennyMac Mortgage Investment Trust ​ ​ — ​ ​ — ​ ​ 1,037 Hedging losses associated with MSRs ​ ​ 236,778 ​ ​ 631,484 ​ ​ 475,215 Stock‑based compensation ​ ​ 27,582 ​ ​ 42,552 ​ ​ 37,794 Effect of fourth quarter arbitration accrual ​ ​ 158,368 ​ ​ — ​ ​ — Interest expense on corporate debt or corporate revolving credit facilities and capital lease ​ ​ 98,396 ​ ​ 95,034 ​ ​ 70,377 Adjusted EBITDA ​ $ 701,162 ​ $ 591,055 ​ $ 2,040,581 ​ 56 Table of Contents Comparison of the years ended December 31, 2023, 2022 and 2021 ​ Income Before Provisions for Income Taxes ​ In the year ended December 31, 2023, we recorded income before provision for income taxes of $183.6 million, a decrease of $481.6 million or 72% from 2022.
Removed
The decrease was due to a $309.6 million decrease in production revenues (net gains on sales of loans, loan origination fees and fulfillment fees) primarily due to lower production volume and a shift in the mix of production to lower margin channels and a $308.7 million decrease in Net loan servicing fees reflecting decreased valuation of our MSRs, net of hedging results, partially offset by a $102.5 million decrease in total expenses.
Removed
The decrease in the total expense was primarily due to a $246.5 million reduction in compensation, loan origination and marketing and advertising expenses, partially offset by a $158.1 million increase in legal settlements. The increase in legal settlements expense reflects an arbitrator’s finding in a claim made against us by Black Knight Servicing Technologies, LLC.
Removed
This claim, which is discussed in detail in Note 18– Commitments and Contingencies to the consolidated financial statements included in this Report, resulted in a charge to our results of operations of $115.8 million net of income taxes or a reduction to earnings per diluted share of common stock of $2.20. ​ In the year ended December 31, 2022, we recorded income before provision for income taxes of $665.2 million, a decrease of $693.9 million or 51% from 2021.
Removed
The decrease was primarily due to a $2.0 billion decrease in production revenues primarily due to lower production volume and gain on sale margins across all channels, partially offset by a $768.4 million increase in Net loan servicing fees reflecting improved valuation results in our MSRs, net of hedging results, and a $487.7 million decrease in total expenses, primarily due to reductions in compensation, loan origination and servicing expenses. ​ Net gains on loans held for sale at fair value ​ In our production segment, revenues reflect the effects of increasing interest rates on both demand for mortgage loans and gain on sale margins during the years ended December 31, 2023 and 2022, compared to the strong demand due to the historically low interest rate environment that prevailed during 2021. ​ In the year ended December 31, 2023, we recognized Net gains on loans held for sale at fair value totaling $545.9 million, as compared to $791.6 million and $2.5 billion in 2022 and 2021, respectively.
Removed
The decrease was primarily due to lower gains from production due to decreased production volumes and gain on sale margins and lower EBO loan redelivery gains due to reduced reperformance and modifications and diminished redelivery margins in the year ended December 31, 2023 compared to 2022 and 2021. ​ 57 Table of Contents Our net gains on loans held for sale are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ From non - affiliates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash (losses) gains: ​ ​ ​ ​ ​ ​ ​ Loans ​ $ (1,337,613) ​ $ (2,128,195) ​ $ 600,840 ​ Hedging activities ​ ​ (99,515) ​ ​ 1,347,843 ​ ​ 443,341 ​ Total cash (losses) gains ​ ​ (1,437,128) ​ ​ (780,352) ​ ​ 1,044,181 ​ Non-cash gains (losses): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in fair values of loans and derivative financial instruments outstanding at end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments ​ ​ 63,749 ​ ​ (296,349) ​ ​ (354,833) ​ Loans ​ ​ (71,425) ​ ​ 188,849 ​ ​ 210,961 ​ Hedging derivatives ​ ​ 146,456 ​ ​ (20,879) ​ ​ (124,200) ​ ​ ​ ​ 138,780 ​ ​ (128,379) ​ ​ (268,072) ​ Mortgage servicing rights and mortgage servicing liabilities resulting from loan sales ​ ​ 1,849,957 ​ ​ 1,718,094 ​ ​ 1,755,318 ​ Provisions for losses relating to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pursuant to loan sales ​ ​ (12,997) ​ ​ (9,617) ​ ​ (31,590) ​ Reductions in liability due to changes in estimate ​ ​ 9,115 ​ ​ 8,451 ​ ​ 16,037 ​ Total non-cash gains ​ ​ 1,984,855 ​ ​ 1,588,549 ​ ​ 1,471,693 ​ Total gains on sale from non-affiliates ​ ​ 547,727 ​ ​ 808,197 ​ ​ 2,515,874 ​ From PennyMac Mortgage Investment Trust (primarily cash) ​ ​ (1,784) ​ ​ (16,564) ​ ​ (51,473) ​ ​ ​ $ 545,943 ​ $ 791,633 ​ $ 2,464,401 ​ During the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments issued: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ By loan type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government-insured or guaranteed loans ​ $ 50,202,197 ​ $ 57,882,469 ​ $ 95,070,027 ​ Conventional conforming loans ​ ​ 41,388,408 ​ ​ 22,060,564 ​ ​ 46,363,332 ​ Jumbo loans ​ ​ 154,899 ​ ​ 98,158 ​ ​ — ​ Closed-end second lien mortgage loans ​ ​ 1,020,995 ​ ​ 102,215 ​ ​ — ​ ​ ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ By production channel: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct ​ $ 7,667,490 ​ $ 18,925,722 ​ $ 58,018,371 ​ Broker direct ​ ​ 11,149,351 ​ ​ 9,625,043 ​ ​ 18,920,730 ​ Correspondent ​ ​ 73,949,658 ​ ​ 51,592,641 ​ ​ 64,494,258 ​ ​ ​ $ 92,766,499 ​ $ 80,143,406 ​ $ 141,433,359 ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale at fair value ​ $ 4,420,691 ​ $ 3,509,300 ​ $ 9,742,483 ​ Commitments to fund and purchase loans ​ $ 6,349,628 ​ $ 7,009,119 ​ $ 14,111,795 ​ ​ Non-Cash Elements of Gain on Sale of Loans Held for Sale ​ Our gains on loans held for sale include both cash and non-cash elements.
Removed
We recognize a significant portion of our gains on loans held for sale when we make commitments to purchase or fund mortgage loans. We recognize this gain in the form of IRLCs. We adjust our initial gain estimate as the loan purchase or origination process progresses until the loan is either funded or cancelled.
Removed
We also receive non-cash proceeds on sale that include our estimate of the fair value of MSRs and we incur liabilities for MSLs (which represent the fair value of the costs we expect to incur in excess of the fees we receive to service the EBO loans we have resold) and for the fair value of our estimate of the losses we expect to incur relating to the representations and warranties we provide in our loan sale transactions. ​ 58 Table of Contents The MSRs, MSLs, and liability for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future.
Removed
These estimates represented approximately 338% of our gain on sale of loans at fair value for the year ended December 31, 2023, as compared to 217% and 71% in 2022 and 2021, respectively.
Removed
These estimates change as circumstances change and changes in these estimates are recognized in income in subsequent periods. ​ Interest Rate Lock Commitments, Mortgage Servicing Rights and Mortgage Servicing Liabilities ​ The methods and key inputs we use to measure and update our measurements of IRLCs, MSRs and MSLs is detailed in Note 6 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Annual Report. ​ Representations and Warranties – Loan Repurchases ​ Our agreements with the purchasers and insurers include representations and warranties related to the loans we sell.
Removed
The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law. ​ In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects or indemnify the purchaser or insurer.
Removed
In such cases, we bear any subsequent credit loss on the loans. Our credit loss may be reduced by any recourse we have to correspondent originators that sold such loans to us and breached similar or other representations and warranties.
Removed
In such event, we have the right to seek a recovery of related repurchase losses from that correspondent seller. ​ Our representations and warranties are generally not subject to stated limits of exposure.
Removed
However, we believe that the current UPB of loans sold by us and subject to representation and warranty liability to date represents the maximum exposure to repurchases related to representations and warranties. ​ The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable judgment.
Removed
The level of loan repurchase losses is dependent on economic factors, purchaser or insurer loss mitigation strategies, and other external conditions that may change over the lives of the underlying loans.
Removed
Our estimate of the liability for representations and warranties is developed by our credit administration staff and approved by our senior management credit committee which includes our senior executives and senior management in our loan production, loan servicing and credit risk management areas. ​ The method used to estimate our losses on representations and warranties is a function of our estimate of future defaults, loan repurchase rates, the severity of loss in the event of default, if applicable, and the probability of reimbursement by the correspondent loan seller.
Removed
We establish a liability at the time loans are sold and periodically assess the adequacy of our recorded liability. ​ In the years ended December 31, 2023, 2022, and 2021 we recorded provisions for losses under representations and warranties relating to current loan sales as a component of Net gains on loans held for sale at fair value totaling $13.0 million, $9.6 million, and $31.6 million, respectively.
Removed
The increase in the provision relating to current loan sales in the year ended December 31, 2023 compared to 2022 was primarily attributable to an increase in loans sold and a change in the mix between government guaranteed or insured loans and conventional loans during 2023.
Removed
The decrease in provision relating to current loan sales from the year ended December 31, 2021 compared to the year ended December 31, 2022 reflects the decrease in our loan production in 2022. ​ We also recorded reductions in the liability relating to previously sold loans of $9.1 million, $8.5 million, and $16.0 million, for the years ended December 31, 2023, 2022 and 2021, respectively.
Removed
The reductions in the liability relating to previously sold loans resulted from those loans meeting performance criteria established by the Agencies which significantly limits the likelihood of certain repurchase or indemnification claims. ​ 59 Table of Contents Following is a summary of mortgage loan repurchase activity and the unpaid balance of mortgage loans subject to representations and warranties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) During the year: ​ ​ ​ ​ ​ ​ Indemnification activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans indemnified at beginning of year ​ $ 35,961 ​ $ 15,079 ​ $ 13,788 New indemnifications ​ ​ 43,469 ​ ​ 24,016 ​ ​ 9,544 Less indemnified loans sold, repaid or refinanced ​ ​ 3,706 ​ ​ 3,134 ​ ​ 8,253 Loans indemnified at end of year ​ $ 75,724 ​ $ 35,961 ​ $ 15,079 Repurchase activity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Total loans repurchased ​ $ 50,327 ​ $ 93,011 ​ $ 99,496 Less: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans repurchased by correspondent lenders ​ ​ 23,327 ​ ​ 32,660 ​ ​ 37,280 Loans repaid by borrowers or resold ​ ​ 72,511 ​ ​ 54,044 ​ ​ 25,223 Net loans (resolved) repurchased with losses chargeable to liability for representations and warranties ​ $ (45,511) ​ $ 6,307 ​ $ 36,993 Losses charged to liability for representations and warranties ​ $ 5,515 ​ $ 12,266 ​ $ 4,720 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At end of year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unpaid principal balance of loans subject to representations and warranties ​ $ 354,423,684 ​ $ 296,774,121 ​ $ 257,369,777 Liability for representations and warranties ​ $ 30,788 ​ $ 32,421 ​ $ 43,521 ​ In the year ended December 31, 2023, we repurchased loans with unpaid principal balances totaling $50.3 million and charged $5.5 million in net incurred losses relating to repurchases against our liability for representations and warranties.
Removed
Our losses arising from representations and warranties have historically been reduced by our ability to either recover most of the losses from our correspondent sellers or from our ability to profitably refinance and resell repurchased loans. ​ If the outstanding balance of loans we purchase and sell subject to representations and warranties increases, the loans sold continue to season, economic conditions change, correspondent lenders become unwilling or unable to repurchase defective loans, or investor and insurer loss mitigation strategies are adjusted, the level of repurchase and loss activity may increase.
Removed
Furthermore, as expected economic conditions, such as interest rates, home values and borrower default rates change, our realized loss rates may increase. Such increases may require us to adjust our estimate of future losses relating to loans previously sold.
Removed
Such increased loss estimates, if recognized, would be reflected in Net gains on loans held for sale at fair value in the period we recognize the change. ​ The increases in market interest rates in recent years have affected certain of our correspondent sellers’ ability to honor their obligations to repurchase defective loans.

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