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PennyMac Mortgage Investment Trust

PennyMac Mortgage Investment TrustPMTEarnings & Financial Report

NYSE · Financials · Real Estate Investment Trusts

PennyMac Mortgage Investment Trust is a U.S.-headquartered real estate investment trust specializing in residential mortgage assets. It invests in performing and non-performing mortgage loans, mortgage-backed securities, and credit risk transfer instruments, operating across investment management and mortgage servicing segments in the U.S. housing market.

What changed in PennyMac Mortgage Investment Trust's 10-K — 2024 vs 2025

Top changes in PennyMac Mortgage Investment Trust's 2025 10-K

484 paragraphs added · 473 removed · 387 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+12 added−15 removed71 unchanged
As part of the sale of the participation certificates, we arrange to deliver the resulting securities to the lender, and assign the commitments between us and nonaffiliates to sell the securities.
As part of the sale of the participation certificates, we arrange to deliver the resulting securities to the lender, and assign to the lender the commitments between us and nonaffiliates to sell the securities.
Specifically: • We are externally managed by PNMAC Capital Management, LLC (“PCM” or our “Manager”), a wholly-owned subsidiary of PFSI and an investment adviser registered with the United States Securities and Exchange Commission (“SEC”) that specializes in, and focuses on, U.S. mortgage assets. • Our loan production and servicing activities (as described below) are performed on our behalf by another wholly-owned PFSI subsidiary, PennyMac Loan Services, LLC (“PLS” or our “Servicer”).
Specifically: • We are externally managed by Pennymac Capital Management, LLC (“PCM” or our “Manager”), a wholly-owned subsidiary of PFSI and an investment adviser registered with the United States Securities and Exchange Commission (“SEC”) that specializes in, and focuses on, U.S. mortgage assets. • Our loan production and servicing activities (as described below) are performed on our behalf by another wholly-owned PFSI subsidiary, PennyMac Loan Services, LLC (“PLS” or our “Servicer”).
Our Board of Trustees and board committees oversee our human capital resource programs and initiatives. Community Involvement PFSI has a corporate philanthropy program is governed by a philosophy of giving that prioritizes the support of causes and issues of importance in our local communities, and drives a culture of employee engagement and collaboration throughout our and PFSI’s organization.
Our board of trustees and board committees oversee our human capital resource programs and initiatives. 17 Community Involvement PFSI has a corporate philanthropy program that is governed by a philosophy of giving that prioritizes the support of causes and issues of importance in our local communities, and drives a culture of employee engagement and collaboration throughout our and PFSI’s organization.
A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold.
A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate and senior mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold.
As a result, we have historically relied on shorter-term financing arrangements, primarily sales of the assets under agreements to repurchase, to finance our longer-lived assets. As we have grown, we have financed more of our assets under longer term secured financing arrangements that more closely align the term of the borrowings with the expected life of the corresponding assets.
As a result, we have historically relied on shorter-term financing arrangements, primarily sales of the assets under agreements to repurchase, to finance our longer-lived assets. As we have grown, we have financed more of our assets under longer 11 term secured financing arrangements that more closely align the term of the borrowings with the expected life of the corresponding assets.
We also rely on unsecured financing arrangements. 11 Following is a summary of the types of debt we use to finance our investing and operating activities: Short-term debt Sales of assets under agreements to repurchase Our largest source of debt financing is the sale of assets under agreements to repurchase.
We also rely on unsecured financing arrangements. Following is a summary of the types of debt we use to finance our investing and operating activities: Short-term debt Sales of assets under agreements to repurchase Our largest source of debt financing is the sale of assets under agreements to repurchase.
The exchangeable senior notes are exchangeable into 46.1063 PMT common shares of beneficial interest (“Common Shares”) per $1,000 principal amount for the notes maturing on March 15, 2026 (the “2026 Exchangeable Notes”) and 43.3332 PMT Common Shares per $1,000 principal amount for the notes maturing on June 1, 2029 (the “2029 Exchangeable Notes”), subject to adjustment upon the occurrence of certain events.
The exchangeable senior notes are exchangeable into 46.1063 PMT common shares of beneficial interest (“Common Shares”) per $1,000 principal amount for the exchangeable senior notes maturing on March 15, 2026 (the “2026 Exchangeable Notes”) and 63.3332 PMT Common Shares per $1,000 principal amount for the exchangeable senior notes maturing on June 1, 2029 (the “2029 Exchangeable Notes”), subject to adjustment upon the occurrence of certain events.
Under these agreements, we sell assets or participation certificates to a lender under a commitment to repurchase the asset or participation certificate within a specified period - generally ranging from 30 to 90 days for MBS and CRT assets, 60 to 120 days for mortgage loans and two to five years for participation certificates secured by MSRs.
Under these agreements, we sell assets or participation certificates to a lender under a commitment to repurchase the asset or participation certificate within a specified period - generally ranging from 30 to 90 days for MBS and CRT assets, 60 to 120 days for mortgage loans and one to two years for participation certificates secured by MSRs.
We must comply with a number of federal consumer protection laws, including, among others: • the Real Estate Settlement Procedures Act (“RESPA”), and Regulation X thereunder, which require certain disclosures to mortgagors regarding the costs of mortgage loans, the administration of tax and insurance escrows, the transferring of servicing of mortgage loans, the management of mortgage loans in default, loss mitigation and foreclosure events, the response to consumer complaints, and payments between lenders and vendors of certain settlement services; • the Truth in Lending Act (“TILA”), and Regulation Z thereunder, which require certain disclosures to mortgagors regarding the terms of their mortgage loans, notices of sale, assignments or transfers of ownership of mortgage loans, new servicing rules involving payment processing, and adjustable rate mortgage change notices and periodic statements; • the Equal Credit Opportunity Act and Regulation B thereunder, which prohibit discrimination on the basis of age, race and certain other characteristics, in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Home Mortgage Disclosure Act and Regulation C thereunder, which require financial institutions to report certain public loan data; • the Homeowners Protection Act, which requires the cancellation of private mortgage insurance once certain equity levels are reached, sets disclosure and notification requirements, and requires the return of unearned premiums; • the Servicemembers Civil Relief Act, which provides, among other things, interest and foreclosure protections for service members on active duty; • the Gramm‑Leach‑Bliley Act and Regulation P thereunder, which require us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters; • the Fair Debt Collection Practices Act, which regulates the timing and content of debt collection communications; • the Fair Credit Reporting Act and Regulation V thereunder, which regulate the use and reporting of information related to the credit history of consumers; and 16 • the National Flood Insurance Reform Act of 1994, which provides for lenders to require borrowers/owners of properties in special flood hazard areas to purchase flood insurance for such properties, or for lenders to purchase flood insurance on behalf of such borrowers/owners.
We must comply with a number of federal consumer protection laws, including, among others: • the Real Estate Settlement Procedures Act (“RESPA”), and Regulation X thereunder, which require certain disclosures to mortgagors regarding the costs of mortgage loans, the administration of tax and insurance escrows, the transferring of servicing of mortgage loans, the management of mortgage loans in default, loss mitigation and foreclosure events, the response to consumer complaints, and payments between lenders and vendors of certain settlement services; • the Truth in Lending Act (“TILA”), and Regulation Z thereunder, which require certain disclosures to mortgagors regarding the terms of their mortgage loans, notices of sale, assignments or transfers of ownership of mortgage loans, new servicing rules involving payment processing, and adjustable rate mortgage change notices and periodic statements; • the Equal Credit Opportunity Act and Regulation B thereunder, which prohibit discrimination on the basis of age, race and certain other characteristics, in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Home Mortgage Disclosure Act and Regulation C thereunder, which require financial institutions to report certain public loan data; • the Homeowners Protection Act, which requires the cancellation of private mortgage insurance once certain equity levels are reached, sets disclosure and notification requirements, and requires the return of unearned premiums; • the Servicemembers Civil Relief Act, which provides, among other things, interest and foreclosure protections for service members on active duty; • the Gramm‑Leach‑Bliley Act and Regulation P thereunder, which require us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters; • the Fair Debt Collection Practices Act, which regulates the timing and content of debt collection communications; • the Fair Credit Reporting Act and Regulation V thereunder, which regulate the use and reporting of information related to the credit history of consumers; and • the National Flood Insurance Reform Act of 1994, which provides for lenders to require borrowers/owners of properties in special flood hazard areas to purchase flood insurance for such properties, or for lenders to purchase flood insurance on behalf of such borrowers/owners. 16 Our Manager and Our Servicer We are externally managed and advised by PCM pursuant to a management agreement.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”) requires all states to enact laws that require all individuals acting in the United States as mortgage loan originators to be individually licensed or registered if they intend to offer mortgage loan products.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 requires all states to enact laws that require all individuals acting in the United States as mortgage loan originators to be individually licensed or registered if they intend to offer mortgage loan products.
Taxable income generally differs from net income reported on our financial statements because the determination of taxable income is based on tax laws and regulations and not financial accounting principles. 15 Compliance and Regulation Our business is subject to extensive federal, state and local regulation.
Taxable income generally differs from net income reported on our financial statements because the determination of taxable income is based on tax laws and regulations and not financial accounting principles. 15 Legal and Regulatory Compliance Our business is subject to extensive federal, state and local regulation.
At December 31, 2024, we had $200 million of Common Shares available for issuance under our at-the-market equity offering program and $73.4 million authorized for share repurchases. 14 Following is a summary of our repurchases of Common Shares: Year ended December 31, Share repurchases (in thousands) 2024 $ — 2023 $ 28,490 2022 $ 87,992 Our preferred shares are comprised of three series of $25 par value cumulative preferred shares that have dividend rates ranging from 6.75% to 8.125% of their par values and liquidation preferences totaling $560 million.
At December 31, 2025, we had $200 million of Common Shares available for issuance under our at-the-market equity offering program and $73.4 million authorized for share repurchases. 14 Following is a summary of our repurchases of Common Shares: Year ended December 31, Share repurchases (in thousands) 2025 $ — 2024 $ — 2023 $ 28,490 Our preferred shares are comprised of three series of $25 par value cumulative preferred shares that have dividend rates ranging from 6.75% to 8.125% of their par values and liquidation preferences totaling $560 million.
Upon exchange, PMC will pay (1) cash for the principal amount of the notes to be exchanged; and (2) cash, Common Shares or a combination of cash and Common Shares, at the Company’s election, for the remainder, if any, of the exchange obligation in excess of the principal amount of the notes exchanged.
Upon exchange, PMC will pay (1) cash for the principal amount of the exchangeable senior notes to be exchanged; and (2) cash, Common Shares or a combination of cash and Common Shares, at the Company’s election, for the remainder, if any, of the exchange obligation in excess of the principal amount of the exchangeable senior notes exchanged.
Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and amounts available for distribution to our shareholders. Even though we have elected to be taxed as a REIT, we are subject to some U.S. federal, state and local taxes on our income or property.
Accordingly, our failure to qualify as a REIT could have a material adverse impact on our income and amounts available for distribution to our shareholders. Even though we have elected to be taxed as a REIT, we are subject to some U.S. federal, state and local taxes on our income or property.
Because we hold substantially all of the subordinate securities created in these transactions and we or PLS is the servicer or subservicer of the underlying loans, we include the assets of the issuing trust on our consolidated balance sheet, in Loans at fair value.
Because we hold substantially all of the subordinate securities created in these transactions and we or PLS is the servicer or subservicer of the underlying loans, we include the assets of the issuing trust on our consolidated balance sheet, in Loans held for investment at fair value.
As the fair value of the underlying MSRs is subject to periodic fluctuation, we may be required to either pledge additional MSR participation certificates or cash to the subsidiary trust when the fair value of the MSR participation certificates decreases even though the borrowings have long-term maturities. • $1.2 billion in various credit agreements secured by Freddie Mac MSRs. • $710 million of term notes secured by our investment in CRT assets issued to qualified institutional buyers under Rule 144A of the Securities Act.
As the fair value of the underlying MSRs is subject to periodic fluctuation, we may be required to either pledge additional MSR participation certificates or cash to the subsidiary trust when the fair value of the MSR participation certificates decreases even though the borrowings have long-term maturities. • $928 million in various credit agreements secured by Freddie Mac MSRs. • $609 million of term notes secured by our investment in CRT assets issued to qualified institutional buyers under Rule 144A of the Securities Act.
Mortgage loan participation purchase and sale agreements We finance a portion of our inventory of loans acquired for sale using mortgage loan participation purchase and sale agreements.
Mortgage loan participation purchase and sale agreements We finance a portion of our inventory of loans held for sale using mortgage loan participation purchase and sale agreements.
PLS’ loan servicing activities include collecting principal, interest and escrow account payments, accounting for and remitting collections to investors in the loans, responding to customer inquiries, and default management activities, including managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications and refinancings, foreclosures, short sales and sales of REO.
PLS’ loan servicing activities include collecting principal, interest and escrow account payments, accounting for and remitting collections to investors in the loans, responding to customer inquiries, and default management activities, including managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications and refinancings, foreclosures, short sales and sales of real estate acquired in settlement of loans (“REO").
In our correspondent production activities, we compete with large financial institutions, the government-sponsored enterprise cash windows and other independent residential loan producers and servicers such as Mr. Cooper, Rithm Capital Corp., Freedom Mortgage, Truist Financial, Western Alliance Bank and Onity Group Inc. We compete on the basis of product offerings, technical knowledge, loan quality, speed of execution, rate and fees.
In our correspondent production activities, we compete with large financial institutions, the GSE cash windows and other independent residential loan producers and servicers such as Rocket Mortgage, Rithm Capital Corp., Freedom Mortgage, Truist Financial Corporation, Western Alliance Bank and Onity Group Inc. We compete on the basis of product offerings, technical knowledge, loan quality, speed of execution, rate and fees.
PCM is responsible for administering our business activities and day-to-day operations, including developing our investment strategies, and sourcing and acquiring mortgage-related assets for our investment portfolio. Pursuant to the terms of the management agreement, PCM provides us with our senior management team, including our officers and support personnel.
PCM specializes in and focuses on investments in U.S. mortgage assets. PCM is responsible for administering our business activities and day-to-day operations, including developing our investment strategies, and sourcing and acquiring mortgage-related assets for our investment portfolio. Pursuant to the terms of the management agreement, PCM provides us with our senior management team, including our officers and support personnel.
As discussed in Item 1A. of this Report entitled Risk Factors , the combination of the requirement to maintain no more than 20% of our assets in the TRS coupled with the effect of TRS dividends on our income tests creates compliance complexities for us in the maintenance of our qualified REIT status.
As discussed in Item 1A. of this Report entitled Risk Factors , the combination of the requirement to maintain no more than 20% (25% for taxable years beginning after December 31, 2025) of our assets in the TRS coupled with the effect of TRS dividends on our income tests creates compliance complexities for us in the maintenance of our qualified REIT status.
Debt Our current debt financing strategy is to finance our assets in such a way as to match the term of the liabilities used to finance them to the expected life of the underlying assets where we believe such borrowing is prudent, appropriate and available.
(4) Total borrowings divided by shareholders’ equity. Debt Our current debt financing strategy is to finance our assets in such a way as to match the term of the liabilities used to finance them to the expected life of the underlying assets where we believe such borrowing is prudent, appropriate and available.
This debt is repaid by the issuing trust from the cash flows based on the reference loans underlying this security. Cash flows from those loans represent the sole source of repayment of this security and its holder has no recourse to other assets on our consolidated balance sheet. 13 Unsecured senior notes Exchangeable senior notes Our subsidiary, PennyMac Corp.
This debt is repaid by the issuing trust from the cash flows based on the reference loans underlying this security. Cash flows from those loans represent the sole source of repayment of this security and its holder has no recourse to other assets on our consolidated balance sheet.
Our repurchase agreement facilities include a mix of committed and uncommitted amounts. Committed amounts contractually bind the lender to purchase assets meeting the criteria of the credit facility up to a committed amount, whereas the lender is not required to fund repurchase agreements on uncommitted amounts.
Committed amounts contractually bind the lender to purchase assets meeting the criteria of the credit facility up to a committed amount, whereas the lender is not required to fund repurchase agreements on uncommitted amounts.
A TRS is subject to U.S. federal, state and local corporate income taxes. To maintain our REIT election, at the end of each quarter no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs.
A TRS is subject to U.S. federal, state and local corporate income taxes. To maintain our REIT election, at the end of each quarter no more than 20% (25% for taxable years beginning after December 31, 2025) of the value of a REIT’s assets may consist of stock or securities of one or more TRSs.
The CFPB is responsible for ensuring consumers are provided with timely and understandable information to make responsible decisions about financial transactions, federal consumer financial laws are enforced and consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.
Federal and state regulators, such as the Consumer Financial Protection Bureau (“CFPB”), are responsible for ensuring consumers are provided with timely and understandable information to make responsible decisions about financial transactions, consumer financial laws are enforced and consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.
Equity Our shareholders’ equity includes both Common Shares and cumulative preferred shares, partially offset by our accumulated deficit as summarized below: December 31, 2024 2023 2022 (in thousands) Paid-in capital Preferred shares $ 541,482 $ 541,482 $ 541,482 Common shares 1,925,936 1,924,303 1,948,155 2,467,418 2,465,785 2,489,637 Accumulated deficit (528,918 ) (508,695 ) (526,822 ) $ 1,938,500 $ 1,957,090 $ 1,962,815 We actively manage our equity financing and endeavor to obtain an equity structure that optimizes the returns to our common shareholders.
Equity Our shareholders’ equity includes both Common Shares and cumulative preferred shares, partially offset by our accumulated deficit as summarized below: December 31, 2025 2024 2023 (in thousands) Paid-in capital Preferred shares $ 541,482 $ 541,482 $ 541,482 Common shares 1,928,674 1,925,936 1,924,303 2,470,156 2,467,418 2,465,785 Accumulated deficit (582,825 ) (528,918 ) (508,695 ) $ 1,887,331 $ 1,938,500 $ 1,957,090 We actively manage our equity financing and endeavor to obtain an equity structure that optimizes the returns to our common shareholders.
Non-segment activities are included in our corporate operations. • The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate MBS. • The interest rate sensitive strategies segment represents our investments in MSRs (including both base servicing and excess servicing spread (“ESS”), collectively referred to as MSR), Agency and senior non-Agency MBS and the related interest rate hedging activities. • The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.
Our segment and corporate activities are described below. • The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate and credit-linked MBS. • The interest rate sensitive strategies segment represents our investments in MSRs, Agency MBS and structured products (including IO and PO MBS and floating rate CMOs), senior non-Agency MBS and the related interest rate hedging activities. • The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.
We acquire the loans underlying these loan securitizations through our correspondent lending activities. We then either sell the loans to a nonaffiliate which pools the loans into securities, or we pool the loans into securities issued by a securitization trust. We have purchased subordinate securities from nonaffiliate sponsored transactions and retain subordinate securities in the transactions we sponsored.
We then either sell the loans to a nonaffiliate which pools the loans into securities, or we pool the loans into securities issued by a securitization trust. We have purchased subordinate securities from nonaffiliate sponsored transactions and retain subordinate securities in the transactions we sponsored.
Employee Retention and Development We and PFSI believe in attracting, developing and retaining highly skilled talent, while providing a supportive work environment that prioritizes the safety and wellness of all.
PFSI had approximately 4,900 domestic employees as of the end of fiscal year 2025. Employee Retention and Development We and PFSI believe in attracting, developing and retaining highly skilled talent, while providing a supportive work environment that prioritizes the safety and wellness of all.
Succession planning is also critical to our operations and we have established ongoing evaluations of our leadership depth and succession capabilities. 17 Workplace Engagement We and PFSI believe that building a high-performing, talented and engaged workforce where our employees bring varied perspectives and experiences to work every day creates a positive influence in our workplace, business operations and the communities we serve.
Workplace Engagement We and PFSI believe that building a high-performing, talented and engaged workforce where our employees bring varied perspectives and experiences to work every day creates a positive influence in our workplace, business operations and the communities we serve.
PLS acted as the servicer for loans with an unpaid principal balance totaling approximately $607.2 billion, of which $232.7 billion was subserviced for us as of December 31, 2024. Human Capital Resources All of our senior officers are employees of PFSI or its affiliates and we have seven employees .
PLS acted as the servicer for loans with an unpaid principal balance totaling approximately $733.6 billion, of which $226.8 billion was subserviced for us as of December 31, 2025. Human Capital Resources All of our senior officers are employees of PFSI or its affiliates and we had no employees as of the end of fiscal year 2025 .
The Series A and Series B preferred shares are presently redeemable and the Series C preferred shares become redeemable on August 24, 2026. No preferred shares were redeemed during the year ended December 31, 2024.
The Series A and Series B preferred shares are presently redeemable and the Series C preferred shares become redeemable on August 24, 2026. We did not redeem any preferred shares during the year ended December 31, 2025.
The exchangeable senior notes bear interest at rates of 5.50%, in the case of the 2026 Exchangeable Notes, and 8.50%, in the case of the 2029 Exchangeable Notes, and are fully and unconditionally guaranteed by the Company. 2028 senior notes We issued $53.5 million principal amount of unsecured 8.50% senior notes due September 30, 2028 (the "2028 Senior Notes").
The exchangeable senior notes bear interest at rates of 5.50%, in the case of the 2026 Exchangeable Notes, and 8.50%, in the case of the 2029 Exchangeable Notes, and are fully and unconditionally guaranteed by the Company.
We retain the right to purchase up to 100% of PLS's non-government correspondent production. 7 Following is a summary of our correspondent production activities: Year ended December 31, 2024 2023 2022 (in thousands) Correspondent loan purchases at fair value: GSE-Eligible Loans (1) $ 54,294,006 $ 46,395,294 $ 41,575,252 Government insured or guaranteed for sale to PLS 42,066,828 41,103,974 46,562,853 Jumbo 393,222 4,234 5,029 Home equity lines of credit 10 102 132 $ 96,754,066 $ 87,503,604 $ 88,143,266 Interest rate lock commitments issued $ 99,665,304 $ 91,096,344 $ 91,031,903 Fair value of loans at end of year pending sale to: Nonaffiliates $ 1,514,210 $ 500,715 $ 1,662,262 PLS 602,108 168,303 159,671 $ 2,116,318 $ 669,018 $ 1,821,933 Number of approved sellers at end of year (2) 789 812 722 (1) The Company sells or finances a portion of its GSE-Eligible Loans to or with other investors, including PLS.
After June 30, 2025, PLS became the initial purchaser of loans from correspondent sellers and we retained the right to purchase up to 100% of PLS's non-government correspondent production. 7 Following is a summary of our correspondent production activities: Year ended December 31, 2025 2024 2023 (in thousands) Correspondent loan purchases at fair value: GSE-eligible loans (1) $ 40,976,218 $ 54,294,006 $ 46,395,294 Government insured or guaranteed for sale to PLS 27,128,340 42,066,828 41,103,974 Jumbo 2,636,524 393,222 4,234 Non-qualified 29,638 — — Home equity lines of credit — 10 102 $ 70,770,720 $ 96,754,066 $ 87,503,604 Interest rate lock commitments issued $ 65,515,030 $ 99,665,304 $ 91,096,344 Fair value of loans at end of year pending sale to: Nonaffiliates $ 2,699,398 $ 1,514,210 $ 500,715 PLS — 602,108 168,303 $ 2,699,398 $ 2,116,318 $ 669,018 (1) The Company sells or finances a portion of its GSE-Eligible Loans to or with other investors, including PLS.
The sale of loans to nonaffiliates from our correspondent production activities serves as the primary source of our investments in MSRs and subordinate non-Agency MBS as summarized below: Year ended December 31, 2024 2023 2022 (in thousands) Sales of loans acquired for sale: To nonaffiliates $ 12,414,391 $ 15,936,124 $ 39,077,156 To PennyMac Financial Services, Inc. 81,997,773 72,441,699 50,575,617 $ 94,412,164 $ 88,377,823 $ 89,652,773 Net gains on loans acquired for sale $ 73,124 $ 39,857 $ 25,692 Investment activities resulting from correspondent production: Receipt of MSRs as proceeds from sales of loans $ 219,001 $ 292,527 $ 670,343 Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings (1) 64,253 — 23,485 Total investments resulting from correspondent activities $ 283,254 $ 292,527 $ 693,828 (1) The trusts issuing the securities are consolidated on our consolidated balance sheets.
Our correspondent production activities generate investments in MSRs and non-Agency interests through loan sales to nonaffiliates and the retention of interests in securitizations, as summarized below: Year ended December 31, 2025 2024 2023 (in thousands) Sales of loans held for sale: To nonaffiliates $ 10,292,463 $ 12,414,391 $ 15,936,124 To PennyMac Financial Services, Inc. 52,895,921 81,997,773 72,441,699 $ 63,188,384 $ 94,412,164 $ 88,377,823 Net gains on loans held for sale $ 52,194 $ 73,124 $ 39,857 Investments resulting from correspondent production: Retention of interests in securitizations of loans, net of associated asset-backed financings (1) $ 527,752 $ 64,253 $ — Receipt of MSRs as proceeds from sales of loans 190,141 219,001 292,527 Total investments resulting from correspondent production activities $ 717,893 $ 283,254 $ 292,527 (1) The trusts issuing the securities are consolidated on our consolidated balance sheets.
Under the agreements, we borrow amounts collateralized by the MSRs, the fair value of which is determined by the lender or a third-party agent, on a monthly basis, or at the discretion of the lender. The lender makes available both committed and uncommitted amounts, with the maximum maturity of borrowed balances not to exceed the maturity of the agreements.
Under the agreements, we borrow amounts collateralized by the MSRs, the fair value of which is determined by the lender or a third-party agent, on a monthly basis, or at the discretion of the lender.
We and PFSI also offer a comprehensive selection of health and welfare benefits to employees including emotional well-being support and paid parental leave programs.
We and PFSI also offer a comprehensive selection of health and welfare benefits to employees including emotional well-being support and paid parental leave programs. Succession planning is also critical to our operations and we have established ongoing evaluations of our leadership depth and succession capabilities.
Following is a summary of our segment and corporate results for the years presented: Year ended December 31, 2024 2023 2022 (in thousands) Net investment income: Credit sensitive strategies $ 123,675 $ 232,624 $ (106,772 ) Interest rate sensitive strategies 112,305 132,941 297,726 Correspondent production 90,494 56,239 111,078 Corporate 7,720 7,216 1,739 $ 334,194 $ 429,020 $ 303,771 Pretax income (loss): Credit sensitive strategies $ 123,112 $ 230,304 $ (112,566 ) Interest rate sensitive strategies 15,588 44,593 207,802 Correspondent production 56,981 23,285 27,557 Corporate (53,033 ) (53,787 ) (59,706 ) $ 142,648 $ 244,395 $ 63,087 Total assets at end of year: Credit sensitive strategies $ 1,474,751 $ 1,632,431 $ 1,614,977 Interest rate sensitive strategies 10,322,044 10,281,904 9,991,621 Correspondent production 2,170,638 788,771 1,936,797 Corporate 441,273 410,781 378,169 $ 14,408,706 $ 13,113,887 $ 13,921,564 In our correspondent production segment, we purchase Agency-eligible and jumbo loans.
Following is a summary of our segment and corporate results for the years presented: Year ended December 31, 2025 2024 2023 (in thousands) Net investment income: Credit sensitive strategies $ 65,643 $ 123,675 $ 232,624 Interest rate sensitive strategies 149,644 112,305 132,941 Correspondent production 87,402 90,494 56,239 Corporate 4,772 7,720 7,216 $ 307,461 $ 334,194 $ 429,020 Pretax income (loss): Credit sensitive strategies $ 65,203 $ 123,112 $ 230,304 Interest rate sensitive strategies 50,453 15,588 44,593 Correspondent production 32,079 56,981 23,285 Corporate (53,917 ) (53,033 ) (53,787 ) $ 93,818 $ 142,648 $ 244,395 Total assets at end of year: Credit sensitive strategies $ 1,604,694 $ 1,474,751 $ 1,632,431 Interest rate sensitive strategies 16,512,045 10,322,044 10,281,904 Correspondent production 2,767,400 2,170,638 788,771 Corporate 462,743 441,273 410,781 $ 21,346,882 $ 14,408,706 $ 13,113,887 In our correspondent production segment, we purchase Agency-eligible, jumbo, and non-qualified mortgage loans.
Competition In our investing and acquisition of mortgage assets, we compete with specialty finance companies, private funds, thrifts, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, governmental bodies and other mortgage REITs such as Chimera Investment Corporation, Invesco Mortgage Capital Inc., Rithm Capital Corp., Ellington Financial, Inc., MFA Financial, Inc., New York Mortgage Trust, Inc., Redwood Trust Inc. 9 and Two Harbors Investment Corp., all of which may also be focused on acquiring mortgage-related assets, and therefore may increase competition for the available supply of mortgage assets suitable for purchase.
We also have written policies and procedures for the review and approval of related party transactions, including oversight by designated committees of our board of trustees and PFSI’s board of directors. 9 Competition In our investing and acquisition of mortgage assets, we compete with specialty finance companies, private funds, thrifts, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, governmental bodies and other mortgage REITs such as Chimera Investment Corporation, Invesco Mortgage Capital Inc., Rithm Capital Corp., Ellington Financial, Inc., MFA Financial, Inc., Adamas Trust, Inc., Redwood Trust Inc.
We are exposed to loss in the event the lender makes a margin call to us and we are unable to fund the margin call.
As a result, we are subject to margin calls during the period if any amount is outstanding under the agreements. We are exposed to loss in the event the lender makes a margin call to us and we are unable to fund the margin call.
A jumbo loan is a loan in an amount that exceeds the maximum loan amount for loans that are eligible for sale to the Agencies under their guidelines.
A jumbo loan is a loan in an amount that exceeds the maximum loan amount for loans that are eligible for sale to the Agencies under their guidelines. A non-qualified mortgage loans is a residential mortgage loan that is not eligible for treatment as a “qualified mortgage” under the ability-to-repay rules but is underwritten to alternative credit standards.
In such a circumstance, the lender is contractually allowed to liquidate any portion of the MSRs securing the agreements and pursue repayment from us for any balance not satisfied through their subsequent sale of the MSRs. 12 Long-term debt Notes payable secured by CRT arrangements and MSRs Our notes payable secured by CRT arrangements and MSRs represent long-term financing of our CRT and MSR assets and include: • $1.1 billion in secured term notes issued to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), and syndicated secured term loans issued to banking entities.
Long-term debt Notes payable secured by credit risk transfer and mortgage servicing assets Our notes payable secured by CRT arrangements and MSRs represent long-term financing of our CRT and MSR assets and include: • $725 million in secured term notes issued to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), and syndicated secured term loans issued to banking entities.
Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” We also securitize certain of our loans directly and may retain interests, such as subordinate MBS, from these private securitizations. 6 • Our corporate operations includes management fee and corporate expense amounts as well as certain interest income and expense.
We also securitize certain of our loans directly and may retain interests, such as senior and subordinate MBS, from these securitizations. 6 • Our corporate operations include management fees, compensation, professional services, and other amounts attributable to the Company’s corporate operations and certain interest income and expense.
Our correspondent production segment involves purchases of loans from approved mortgage originators that meet specific criteria related to management experience, financial strength, risk management controls and loan quality. During 2024, we were the largest correspondent aggregator in the United States as ranked by Inside Mortgage Finance.
Our correspondent production segment involves purchases of loans through PLS from approved mortgage originators that meet specific criteria related to management experience, financial strength, risk management controls and loan quality. Before July 1, 2025, we were the initial purchaser of loans from correspondent sellers and sold a portion of our correspondent production, including all of the U.S.
We also invest in MBS as shown below: Year ended December 31, 2024 2023 2022 (in thousands) MBS, net of sales $ (433,537 ) $ 542,653 $ 2,638,267 8 Our portfolio of mortgage investments was comprised of the following: December 31, 2024 2023 2022 (in thousands) Credit sensitive assets: CRT arrangements, net (1) $ 1,101,803 $ 1,146,299 $ 1,144,078 Subordinate credit-linked mortgage-backed securities 196,472 301,180 177,898 Subordinate interests in loans held in VIEs, net of associated asset-backed financings 130,839 85,344 84,044 Distressed loans at fair value 1,866 2,131 3,457 Real estate acquired in settlement of loans 2,464 4,541 7,734 Home equity lines of credit 1,368 1,803 2,424 1,434,812 1,541,298 1,419,635 Interest rate sensitive assets: Agency and senior non-Agency mortgage-backed securities 3,867,234 4,535,112 4,284,703 Mortgage servicing rights at fair value 3,867,394 3,919,107 4,012,737 Net interest rate hedges 23,728 149,603 77,483 7,758,356 8,603,822 8,374,923 $ 9,193,168 $ 10,145,120 $ 9,794,558 (1) Investments in CRT arrangements include deposits securing CRT arrangements, CRT strips, CRT derivatives and an interest-only security payable.
Therefore, our investments in these securities are shown as their underlying assets, Loans held for investment at fair value, with the securities held by nonaffiliates being shown as Asset-backed financings of variable interest entities at fair value . 8 Our portfolio of mortgage investments was comprised of the following: Year ended December 31, 2025 2024 2023 (in thousands) Credit sensitive assets: CRT arrangements, net (1) $ 998,344 $ 1,101,803 $ 1,146,299 Subordinate interests in loans held in variable interest entities, net of associated asset-backed financings 554,927 130,839 85,344 Subordinate credit-linked mortgage-backed securities — 196,472 301,180 Distressed loans 1,705 1,866 2,131 Real estate acquired in settlement of loans 1,421 2,464 4,541 Home equity lines of credit 942 1,368 1,803 1,557,339 1,434,812 1,541,298 Interest rate sensitive assets: Mortgage-backed securities Agency fixed-rate pass-through 2,850,447 3,079,492 4,270,056 Floating rate collateralized mortgage obligations 855,997 — — Principal-only stripped 521,129 596,300 53,336 Senior non-Agency 152,784 105,182 117,489 Interest-only stripped 72,502 86,260 94,231 Mortgage servicing rights 3,644,702 3,867,394 3,919,107 Senior interests in loans held in variable interest entities, net of associated asset-backed financings 93,232 — — Net interest rate hedges 20,094 23,728 149,603 8,210,887 7,758,356 8,603,822 $ 9,768,226 $ 9,193,168 $ 10,145,120 (1) Investments in CRT arrangements include deposits securing CRT arrangements, CRT derivatives, CRT strips and an interest-only security payable.
We then either: • sell certain Agency-eligible loans meeting the guidelines of the GSEs for sale to Fannie Mae or Freddie Mac (“GSE-Eligible Loans”) on a servicing-retained basis and retain the related MSRs; • sell government loans (insured by the Federal Housing Administration or guaranteed by the U.S. Department of Veterans Affairs or U.S.
We then either: • sell certain Agency-eligible loans meeting the guidelines of the GSEs to Fannie Mae or Freddie Mac (“GSE-Eligible Loans”) on a servicing-retained basis and retain the related MSRs; • create and issue structured MBS and retain a portion of the interests, such as certain senior and subordinate securities, and sell the remaining senior MBS; or • sell loans to banks or other investors, generally on a servicing retained basis.
Although the CFPB’s actions may improve consumer protection, such actions also have resulted in a meaningful increase in costs to consumers and financial services companies including mortgage originators and servicers. Our and our Servicer’s loan production and loan servicing operations are regulated at the state level by state licensing authorities and administrative agencies.
Federal and state regulations may increase mortgage production and servicing costs. Our and our Servicer’s loan production and loan servicing operations are regulated at the state level by state licensing authorities and administrative agencies.
A portion of these term notes have terms that provide for optional extensions of two years under conditions provided in the respective agreements. Asset-backed financings We have participated in various transactions whereby we invest in subordinate securities issued in loan securitizations. These transactions are sponsored by us or a nonaffiliate.
Asset-backed financings of variable interest entities at fair value We have participated in various transactions whereby we invest in subordinate securities issued in loan securitizations. These transactions are sponsored by us or a nonaffiliate. We acquire the loans underlying these loan securitizations through our correspondent lending activities.
The agreements include provisions that require us to maintain our borrowings at a level not to exceed a specified percentage of the fair value of the MSRs pledged to secure the borrowings. As a result, we are subject to margin calls during the period if any amount is outstanding under the agreements.
The lender makes available both committed and uncommitted amounts, with the maximum maturity of borrowed balances not to exceed the maturity of the agreements. 12 The agreements include provisions that require us to maintain our borrowings at a level not to exceed a specified percentage of the fair value of the MSRs pledged to secure the borrowings.
Interest-only security payable One of the classes of the securities issued by the trusts relating to our investments in CRT arrangements is an IO security that we issued to a nonaffiliate.
The 2028 Senior Notes are redeemable beginning September 30, 2025, while the 2030 Senior Notes are redeemable beginning February 15, 2027 and June 15, 2027, respectively, in each case at 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. 13 Interest-only security payable at fair value One of the classes of the securities issued by the trusts relating to our investments in CRT arrangements is an IO security that we issued to a nonaffiliate.
(“PMC”), has $561.5 million in outstanding exchangeable senior notes with maturities through June 2029. The exchangeable senior notes are unsecured obligations.
A portion of these term notes have terms that provide for optional extensions of two years under conditions provided in the respective agreements. Unsecured senior notes Exchangeable senior notes Our subsidiary, PennyMac Corp. (“PMC”), has $711.5 million in outstanding exchangeable senior notes with maturities through June 2029. The exchangeable senior notes are unsecured obligations.
Therefore, our investments in these securities are shown as their underlying assets, Loans at fair value with the securities held by non-affiliates being shown as Asset-backed financings of variable interest entities at fair value .
After adjustment, the assets are shown in the securitized form in which they are financed which excludes non-recourse financing which we refer to as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheet.
Removed
We also invest in Agency and senior non-Agency MBS, subordinate credit-linked MBS and interest-only ("IO") and principal-only ("PO") stripped MBS. We have also historically invested in distressed mortgage assets (distressed loans and real estate acquired in settlement of loans (“REO”)), which we have substantially liquidated. Our business includes three segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production.
Added
We also invest in Agency and senior non-Agency MBS, subordinate MBS, interest-only ("IO"), principal-only ("PO") stripped MBS and Agency floating rate collateralized mortgage obligations ("CMOs"). A significant portion of our business involves Government-Sponsored Enterprises ("GSEs"), specifically the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
Removed
We primarily sell the loans we acquire through our correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or to PLS for sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"), or the GSEs.
Added
Freddie Mac and Fannie Mae are each referred to as an “Agency” and, collectively as the "Agencies". We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. Non-segment activities are included in our corporate operations.
Removed
Department of Agriculture) and certain GSE-Eligible Loans on a servicing-released basis to PLS, a Ginnie Mae approved issuer and servicer, for which we earn sourcing fees as described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report; • create and issue structured MBS, retain a portion of the subordinate securities and sell the remaining senior MBS to nonaffiliates; or • sell loans with certain specified characteristics to banks or other investors, generally on a servicing retained basis.
Added
We primarily sell the loans we acquire through our correspondent production activities to the Agencies.
Removed
As of December 31, 2024, we had 789 approved sellers with delegated underwriting authority, primarily independent mortgage originators and small banks located across the United States. PLS also serves as a source of correspondent production to us.
Added
Two Harbors Investment Corp., AGNC Investments Corp., and Annaly Capital Management Inc., all of which may also be focused on acquiring mortgage-related assets, and therefore may increase competition for the available supply of mortgage assets suitable for purchase.
Removed
Beginning July 1, 2025, PLS will become the initial purchaser of loans from correspondent sellers and will begin transferring agreed-upon volumes of such purchases to us.
Added
The demand for loans made to refinance existing loans is most significantly influenced by movements in interest rates and to a lesser extent, to changes in property values and employment. 10 Financing Our debt financing is summarized below: December 31, 2025 Assets (1) Financing Consolidated Adjustments for VIE Financing (2) Excluding VIE Financing Assets sold under agreements to repurchase Notes payable secured by CRT arrangements and MSRs Total (in thousands except for debt-to equity amounts) Assets Cash and short-term investments $ 462,488 $ — $ 462,488 $ — $ — $ — Mortgage-backed securities at fair value Agency-backed securities 4,300,075 — 4,300,075 4,241,557 — 4,241,557 Senior non-agency securities 152,784 — 152,784 146,089 — 146,089 Credit risk transfer securities relating to consolidated variable interest entities — 998,344 998,344 141,443 607,297 748,740 Non-agency securities relating to consolidated variable interest entities — 648,159 648,159 531,750 — 531,750 4,452,859 1,646,503 6,099,362 5,060,839 607,297 5,668,136 Loans held for sale at fair value 2,699,398 — 2,699,398 2,462,629 — 2,462,629 Loans held for investment at fair value 8,532,644 (8,530,939 ) 1,705 — — — Derivative assets 55,943 (32,659 ) 23,284 — — — Deposits securing credit risk transfer arrangements 1,009,334 (1,009,334 ) — — — — Mortgage servicing rights and servicing advances 3,741,532 93,478 3,835,010 495,133 1,650,831 2,145,964 20,954,198 (7,832,951 ) 13,121,247 8,018,601 2,258,128 10,276,729 Other 392,684 — 392,684 — — — Total assets and secured financing $ 21,346,882 $ (7,832,951 ) $ 13,513,931 $ 8,018,601 $ 2,258,128 10,276,729 Unsecured debt 1,028,300 Debt excluding non-recourse 11,305,029 Debt in consolidated variable interest entities (2) 7,826,953 Total debt $ 19,131,982 Equity $ 1,887,331 Debt-to equity ratio: Excluding non-recourse debt (3) 6.0:1 Total (4) 10.1:1 (1) The balance sheet information depicted under the column captioned “Consolidated” represents information prepared in compliance with accounting principles generally accepted in the United States (“GAAP”).
Removed
(2) Includes only sellers with delegated underwriting authority.
Added
T he subsequent columns reflect adjustments to deconsolidate the assets held in the trusts issuing beneficial interests in those assets and to provide investors with a more creditor-aligned view of how our debt relates to the assets we finance.
Removed
We also have written policies and procedures for the review and approval of related party transactions, including oversight by designated committees of our board of trustees and PFSI’s board of directors.
Added
The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as calculated based upon GAAP. (2) Does not include adjustments for credit risk transfer strip liabilities of $6.0 million. (3) Total borrowings reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity.
Removed
The demand for loans made to refinance existing loans is most significantly influenced by movements in interest rates and to a lesser extent, to changes in property values and employment. 10 Financing Following is a summary of our financing, including borrowings and the assets pledged to secure those borrowings as of December 31, 2024: Assets pledged Financing MBS Loans acquired for sale Loans at fair value CRT assets Servicing assets (1) REO Total (in thousands) Borrowings Short term Assets sold under agreements to repurchase $ 4,094,983 $ 1,958,365 $ 103,346 $ 90,813 $ 253,431 $ — $ 6,500,938 Mortgage loan participation purchase and sale agreements — 11,593 — — — — 11,593 Long term Notes payable secured by CRT arrangements and MSRs — — — 707,450 2,222,340 — 2,929,790 Asset-backed financings — — 2,040,375 — — — 2,040,375 Interest-only security payable — — — 34,222 — — 34,222 Total secured borrowings 4,094,983 1,969,958 2,143,721 832,485 2,475,771 — 11,516,918 Unsecured senior notes 605,860 Total borrowings $ 4,094,983 $ 1,969,958 $ 2,143,721 $ 832,485 $ 2,475,771 $ — 12,122,778 Shareholders' equity 1,938,500 Total financing $ 14,061,278 Assets pledged to secure borrowings $ 4,063,706 $ 2,087,615 $ 2,191,869 $ 1,140,085 $ 3,896,461 $ 527 $ 13,380,263 Debt-to-equity ratio: Excluding non-recourse debt (2) 5.2:1 Total (3) 6.3:1 (1) Amounts pledged to secure borrowings include pledged servicing advances.
Added
To mitigate this market-price volatility, in December 2025, we began financing certain subordinate bonds related to our securitizations under a “mark-to-credit” facility. This change represents a significant benefit to PMT, as it eliminates exposure to mark-to-market margin calls for these assets.
Removed
(2) Total borrowings reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity. (3) Total borrowings divided by shareholders’ equity.
Added
While the facility remains subject to certain credit-related paydown requirements, it effectively shields our liquidity position from non-credit related market price volatility and provides greater stability to our financing structure. Our repurchase agreement facilities include a mix of committed and uncommitted amounts.
Removed
The 2028 Senior Notes bear interest at a rate of 8.50% per year and are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal and interest on the 2028 Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise.
Added
In such a circumstance, the lender is contractually allowed to liquidate any portion of the MSRs securing the agreements and pursue repayment from us for any balance not satisfied through their subsequent sale of the MSRs.
Removed
On or after September 30, 2025, we may redeem for cash all or any portion of the 2028 Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Added
Senior notes The Company issued three tranches of senior unsecured notes totaling $331.0 million in principal amount, including $53.5 million of 8.50% senior notes due September 30, 2028 (the "2028 Senior Notes"), and $172.5 million and $105.0 million of 9.00% senior notes due February 15, 2030 and June 15, 2030, respectively (collectively, the "2030 Senior Notes").
Removed
The Consumer Financial Protection Bureau (“CFPB”) was established on July 21, 2010 under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Added
The Senior notes are fully and unconditionally guaranteed by PMC.
Removed
Many of these laws are further impacted by the SAFE Act and implementation of new rules by the CFPB. Our Manager and Our Servicer We are externally managed and advised by PCM pursuant to a management agreement. PCM specializes in and focuses on investments in U.S. mortgage assets.
Removed
PFSI had approximately 4,100 domestic employees as of the end of fiscal year 2024.
Removed
In addition, as of the end of fiscal year 2024, PFSI’s workforce was 51.3% female and 48.7% male, and the ethnicity of PFSI’s workforce was 43.8% White, 23.4% Hispanic or Latino, 13.9% Black or African American, 14.5% Asian and 4.4% other (which includes American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, Two or More Races, or Not Specified as defined in PFSI’s EE0-1 Report filed with the Department of Labor) .

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

168 edited+47 added−30 removed317 unchanged
Our or PLS’ failure to comply with the laws, rules or regulations to which we are subject, whether actual or alleged, would expose us or PLS to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our or PLS’ business, liquidity, financial condition and results of operations and our ability to make distributions to our shareholders.
Our or PLS’ failure to comply with the laws, rules or regulations to which we and PLS are subject, whether actual or alleged, would expose us and PLS to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our or PLS’ business, liquidity, financial condition and results of operations and our ability to make distributions to our shareholders.
Our correspondent production activities are currently dependent, in part, upon the ability of PLS to effectively interface with our mortgage lenders and other third parties and to efficiently process loan fundings and closings. The correspondent production process is becoming more dependent upon technological advancement, and our correspondent sellers expect and require certain conveniences and service levels.
Our correspondent production activities are currently dependent, in part, upon the ability of PLS to effectively interface with our mortgage lenders and other third parties and to efficiently process loan fundings and closings. The correspondent production process is becoming more dependent upon technological advancement, and correspondent sellers expect and require certain conveniences and service levels.
Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we or our Manager does business, could disrupt our or our Manager’s business, cause legal or reputational harm and adversely impact our results of operations and financial condition.
Technology disruptions or failures, including a failure in our and our Manager’s information systems or those of third parties with whom we or our Manager does business, could disrupt our or our Manager’s business, cause legal or reputational harm and adversely impact our results of operations and financial condition.
We and our Manager 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 contingency planning may not be sufficient for all situations.
We and our Manager 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.
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.
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 may rely on additional common and preferred equity issuances to fund our business, which may rank senior and/or be dilutive to our current shareholders, or on additional forms of debt financing that rank senior to our Common 50 Shares, such as our unsecured senior notes, which may result in us dedicating a substantial portion of our cash flow from operations towards the payment of principal and interest on such debt financing, thereby reducing funds available for our operations, future business opportunities, cash distributions to our shareholders and other purposes.
We may rely on additional common and preferred equity issuances to fund our business, which may rank senior and/or be dilutive to our current shareholders, or on additional forms of debt financing that rank senior to our Common Shares, such as our unsecured senior notes, which may result in us dedicating a substantial portion of our cash flow from operations towards the payment of principal and interest on such debt financing, thereby reducing funds available for our operations, future business opportunities, cash distributions to our shareholders and other purposes.
Our failure or the failure by PLS 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 shareholders.
Our failure or the failure by PLS 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 21 impact our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.
A prolonged economic slowdown, a recession, high unemployment or declining real estate values significantly increase the likelihood that borrowers may default on their debt service obligations and that we will incur losses on our investments in the event of a default on a particular investment because the fair value of any collateral we foreclose upon may be insufficient to cover the full amount of such investment or may require a significant amount of time to realize.
A prolonged economic slowdown, a recession, high unemployment or declining real estate values significantly increase the likelihood that borrowers may default on their debt service obligations and that we will incur losses on our investments in the event of a default on a particular investment because the fair value of any collateral we foreclose upon may be insufficient to cover the full amount of such investment or may require a significant 20 amount of time to realize.
Our ability to generate revenues from newly originated loans that we acquire through our correspondent production activities is also 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.
Our ability to generate revenues from newly originated loans that we acquire from PLS through our correspondent production activities is also 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.
While we generally have exclusive rights to these services from PLS during the term of our mortgage banking services agreement, in the event of a termination we may not be able to replace these services in a timely manner or on favorable terms, or at all, and we ultimately would be required to compete against PLS as it relates to our correspondent business activities.
While we generally have exclusive rights to these services from PLS during the term of our mortgage banking services agreement, in the event of a termination we may 38 not be able to replace these services in a timely manner or on favorable terms, or at all, and we ultimately would be required to compete against PLS as it relates to our correspondent business activities.
Although our agreements with PFSI’s subsidiaries, PCM and PLS, provide us with certain exclusivity and other rights and we and PCM have adopted policies to specifically address some of the conflicts relating to our investment opportunities, there is no assurance that these measures will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.
Although our agreements with PFSI’s subsidiaries, PCM and PLS, provide us with certain exclusivity and other rights and we and PCM have adopted policies and procedures to specifically address some of the conflicts relating to our investment opportunities, there is no assurance that these measures will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.
If we eventually collect less than we had previously reported as income, there may be a bad debt deduction available to us at that time or we may record a capital loss in a disposition of such asset, but our ability to benefit from that bad debt deduction or capital loss would 46 depend on our having taxable income or capital gains, respectively, in that later taxable year or a subsequent taxable year.
If we eventually collect less than we had previously reported as income, there may be a bad debt deduction available to us at that time or we may record a capital loss in a disposition of such asset, but our ability to benefit from that bad debt deduction or capital loss would depend on our having taxable income or capital gains, respectively, in that later taxable year or a subsequent taxable year.
If we are unable to maintain these liquidity levels, we could be forced to sell additional investments at a loss and our financial condition could deteriorate rapidly. Our existing financing agreements also contain certain events of default and other financial and non‑financial covenants and restrictions that impact our flexibility to determine our operating policies and investment strategies.
If we are unable to maintain these liquidity levels, we could be forced to sell additional investments at a loss and our financial condition could deteriorate rapidly. 23 Our existing financing agreements also contain certain events of default and other financial and non‑financial covenants and restrictions that impact our flexibility to determine our operating policies and investment strategies.
The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, which, in turn, may lead to increased costs to protect our network and systems.
The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers and foreign governments, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, which, in turn, may lead to increased costs to protect our network and systems.
Our ability to generate revenues through loan sales depends on programs administered by the Agencies and others that facilitate the issuance of MBS in the secondary market. We acquire loans from mortgage lenders and PLS through our correspondent production activities that qualify under existing standards for inclusion in mortgage securities backed by the Agencies.
Our ability to generate revenues through loan sales depends on programs administered by the Agencies and others that facilitate the issuance of MBS in the secondary market. We acquire loans from PLS through our correspondent production activities that qualify under existing standards for inclusion in mortgage securities backed by the Agencies.
In certain cases, PCM’s estimation of the fair value of our investments includes inputs provided by third-party dealers and pricing services, and valuations of certain securities or other assets in which we invest are often difficult to obtain and are subject to judgments that may vary among market participants.
In certain cases, PCM’s estimation of the fair value of our investments includes inputs provided by third-party dealers and pricing services, and valuations of certain securities or other assets in which we invest are often difficult to obtain and are subject to 36 judgments that may vary among market participants.
The staggered terms of our trustees may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interests of our shareholders. Further, our declaration of trust authorizes us to issue additional authorized but unissued Common Shares and preferred shares.
The staggered 40 terms of our trustees may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interests of our shareholders. Further, our declaration of trust authorizes us to issue additional authorized but unissued Common Shares and preferred shares.
Accordingly, in either event, the fair value of our 37 Common Shares could be materially and adversely affected by our determinations regarding the fair value of our investments, and such valuations may fluctuate over short periods. Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
Accordingly, in either event, the fair value of our Common Shares could be materially and adversely affected by our determinations regarding the fair value of our investments, and such valuations may fluctuate over short periods. Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
We may hold a substantial amount of assets in one or 47 more TRSs that are subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and our ability to make distributions to our shareholders.
We may hold a substantial amount of assets in one or more TRSs that are subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and our ability to make distributions to our shareholders.
Its failure to do so, or the termination of our MSR recapture agreement, could result in accelerated runoff of our MSR assets without offsetting compensation, decreasing its fair value and adversely impacting our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.
Its failure to do so, or the termination of our MSR recapture agreement, could result in accelerated runoff of our MSR assets without offsetting compensation, decreasing its fair value and 33 adversely impacting our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.
We also may change our investment strategies and policies and targeted asset classes at any time without the consent of our shareholders, and this could result in our making investments that are different in type from, and possibly riskier than our current investments or the currently contemplated investments.
We also may change our investment strategies and policies and targeted asset classes at any time without the consent of our shareholders, and this could result in our making investments that are different in type from, and possibly riskier than our current investments or the 34 currently contemplated investments.
In addition, PCM, its affiliates and other entities or accounts that may be managed by PCM or an affiliate in the future may participate in some of our investments, which may not be the result 41 of arm’s length negotiations and may involve or later result in potential conflicts between our interests in the investments and those of PCM, its affiliates or such other entities.
In addition, PCM, its affiliates and other entities or accounts that may be managed by PCM or an affiliate in the future may participate in some of our investments, which may not be the result of arm’s length negotiations and may involve or later result in potential conflicts between our interests in the investments and those of PCM, its affiliates or such other entities.
For example, our outstanding preferred shares have preferences on distribution payments, including liquidating distributions, which could limit our ability to make distributions, including liquidating distributions, to holders of our Common Shares. In addition, upon liquidation, holders of our debt securities and other loans would receive a distribution of our available assets before holders of our common shares.
For example, our outstanding preferred shares have preferences on distribution payments, including liquidating distributions, which could limit our ability to make distributions, including liquidating 48 distributions, to holders of our Common Shares. In addition, upon liquidation, holders of our debt securities and other loans would receive a distribution of our available assets before holders of our common shares.
Each of the secured financing arrangements pursuant to which we finance MSRs is further subject to the terms of an acknowledgement agreement with Fannie Mae, Freddie Mac or Ginnie Mae, as applicable, pursuant to which our and the secured parties’ rights are subordinate in all respects to the rights of the applicable Agency.
Each of the secured financing arrangements pursuant to which we finance MSRs is further subject to the terms of an acknowledgement agreement with Fannie Mae or Freddie Mac, as applicable, pursuant to which our and the secured parties’ rights are subordinate in all respects to the rights of the applicable Agency.
A decrease in the fair value of the pledged collateral can result in a margin call. Any such margin call may require that we liquidate assets at a disadvantageous time or provide that the secured parties may sell the collateral, either of which could 23 result in significant losses to us.
A decrease in the fair value of the pledged collateral can result in a margin call. Any such margin call may require that we liquidate assets at a disadvantageous time or provide that the secured parties may sell the collateral, either of which could result in significant losses to us.
Changes in accounting interpretations or assumptions could impact our financial statements. Accounting rules for mortgage loan sales and securitizations, valuations of financial instruments and MSRs, investment consolidations, income taxes and other aspects of our operations are highly complex and involve significant judgment and assumptions.
Changes in accounting interpretations or assumptions could impact our financial statements. Accounting rules for mortgage loan sales and securitizations, VIEs, valuations of financial instruments and MSRs, investment consolidations, income taxes and other aspects of our operations are highly complex and involve significant judgment and assumptions.
In addition, the 39 average share of borrowers' mortgage payments allocated to property taxes and insurance premiums has been steadily rising in recent years due to inflation and other factors, which could impact housing affordability, mortgage delinquencies, defaults, and foreclosures.
In addition, the average share of borrowers' mortgage payments allocated to property taxes and insurance premiums has been steadily rising in recent years due to inflation and other factors, which could impact housing affordability, mortgage delinquencies, defaults, and foreclosures.
In addition, each of PCM and PLS and their respective affiliates, including each such entity’s managers, officers, trustees, directors, employees and members, will be held harmless from, and indemnified by us against, certain liabilities on customary terms.
In addition, each of PCM and PLS and their respective affiliates, including each such entity’s managers, officers, directors, employees and members, will be held harmless from, and indemnified by us against, certain liabilities on customary terms.
To the extent we satisfy the 90% distribution requirement but distribute less than 100% of our taxable income, we will be subject to U.S. 45 federal corporate income tax on our undistributed taxable income.
To the extent we satisfy the 90% distribution requirement but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income.
The CFPB and state regulators have regulatory 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.
Federal 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.
If we default on our obligations under a credit or financing agreement, fail to comply with certain covenants and restrictions or breach our representations and are unable to cure, the lender may be able to terminate the transaction or its commitments, accelerate any amounts outstanding, require us to post additional collateral or repurchase the assets, and/or cease entering into any other credit transactions with us.
If we default on our obligations under a credit or financing agreement, fail to comply with certain covenants and restrictions or breach our representations and are unable to cure, the lender may be able to terminate the transaction or its commitments, accelerate any amounts outstanding, require us to post additional collateral or repurchase the assets, and/or cease entering into any other credit or financing arrangement with us.
If our or our Manager’s operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in material adverse impacts on our or our Manager’s business.
If our or our Manager’s operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in material adverse impacts on our and our Manager’s business.
Any such misrepresented information could materially and 38 adversely affect our business, financial condition, results of operations and our ability to make distributions to our shareholders. We are subject to counterparty risk and may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties, which could cause us to suffer losses.
Any such 37 misrepresented information could materially and adversely affect our business, financial condition, results of operations and our ability to make distributions to our shareholders. We are subject to counterparty risk and may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties, which could cause us to suffer losses.
Reputational risk incurred in connection with conflicts of interest could negatively affect our financial condition and business, strain our working relationships with regulators and government agencies, expose us to litigation and regulatory action, impact our ability to attract and retain 49 customers, trading counterparties, investors and employees and adversely affect our business, financial condition, liquidity, results of operations and our ability to make distributions to our shareholders.
Reputational risk incurred in connection with conflicts of interest could negatively affect our financial condition and business, strain our working relationships with regulators and government agencies, expose us to litigation and 47 regulatory action, impact our ability to attract and retain customers, trading counterparties, investors and employees and adversely affect our business, financial condition, liquidity, results of operations and our ability to make distributions to our shareholders.
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 underwriting criteria could materially and adversely affect our business, liquidity, financial condition, results of operations and our ability to make distributions to our shareholders.
Any discontinuation of, or significant reduction in or significant organizational change in, the operations 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 underwriting criteria could materially and adversely affect our business, liquidity, financial condition, results of operations and our ability to make distributions to our shareholders.
Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, taxes on income from some activities conducted as a result 44 of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes.
Even if we qualify for taxation as a REIT, we and our subsidiaries may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, taxes on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes.
For example, on January 20, 2025, an executive order established the “Department of Government Efficiency” to reform federal government processes and reduce expenditures that could result in significant changes to federal housing and consumer financial regulatory agencies. Significant changes to federal agency structures, regulatory policies, or housing funding priorities could reduce funding for federal housing programs and increase regulatory uncertainty.
For example, in January 2025, an executive order established the “Department of Government Efficiency” to reform federal government processes and reduce expenditures that could result in significant changes to federal housing and consumer financial regulatory agencies. Significant changes to federal agency structures, regulatory policies, or housing funding priorities could reduce funding for federal housing programs and increase regulatory uncertainty.
As part of our correspondent production activities, PLS re-underwrites a percentage of the loans that we acquire, and we rely upon PLS to ensure quality underwriting by our correspondent sellers, accurate third-party appraisals, and strict compliance with the representations and warranties that we require from our correspondent sellers and that are required from us by our investors.
As part of our correspondent production activities, PLS re-underwrites a percentage of the loans that we acquire and we rely upon PLS to ensure quality underwriting from PLS’ correspondent sellers, accurate third-party appraisals, and strict compliance with the representations and warranties that are required from us by our investors.
The lenders under our repurchase agreements require us and/or our subsidiaries to comply with various financial covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth. Our lenders also require us to maintain minimum amounts of cash or cash equivalents sufficient to maintain a specified liquidity position.
The lenders under our repurchase agreements may require us and/or our subsidiaries to comply with various financial covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth. Our lenders may require us to maintain minimum amounts of cash or cash equivalents sufficient to maintain a specified liquidity position.
However, there can be no assurance that PLS will continue to be successful in operating this business on our behalf or that we will continue to be able to capitalize on these opportunities on favorable terms or at all. In particular, we have committed, and expect to continue to commit, capital and other resources to this operation.
There can be no assurance that PLS will continue to be successful in operating this business on our behalf or that it will continue to be able to capitalize on these opportunities on favorable terms or at all. In particular, we have committed, and expect to continue to commit, capital and other resources to this operation.
In addition, some of our or our Manager’s competitors, partners, or other service providers may take actions that disrupt the inter-operability of our or our Manager’s business with their own products or services, or exert strong business influence on our or our Manager’s ability to, and the terms on which we or our Manager operates our or its business.
In addition, some of our or our Manager’s competitors, partners, or other service providers may take actions that disrupt the inter-operability of our or our Manager’s business with their own products or services, or exert strong business influence on our or our Manager’s ability to, and the terms on which we or our Manager operate our or its business.
Our or PLS’ 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 and our servicer are subject to minimum financial eligibility requirements established by the Agencies, as applicable.
Our or PLS’ 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 and PLS are subject to minimum financial eligibility requirements established by the Agencies, as applicable.
There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including guidance and interpretations from the Division of Investment Management of the SEC regarding the exceptions and exclusions therefrom, will not change in a manner that adversely affects our operations.
There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including guidance and interpretations from the Division of Investment Management of the SEC regarding the exemptions and exclusions therefrom, will not change in a manner that adversely affects our operations.
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, however, there can be no assurance that one or more of the exceptions and exclusions from the Investment Company Act will continue to be applicable to us and our subsidiaries.
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, however, there can be no assurance that one or more of the exemptions and exclusions from the Investment Company Act will continue to be applicable to us and our subsidiaries.
For example, by relying on incorrect models and data, especially valuation models, PCM may invest at prices that are too high, sell investments at prices that are too low or miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.
For example, by relying on incorrect models and data, especially valuation models, we may invest at prices that are too high, sell investments at prices that are too low or miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.
For example, as discussed further below, the discontinuation of LIBOR has resulted in the filing of a shareholder complaint in the United States District Court for the Central District of California alleging that the replacement of the floating three-month LIBOR dividend rate for our Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) and Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B Preferred Shares”) with a fixed rate per the “fallback” provisions of our Series A Preferred Shares and Series B Preferred Shares violated California’s Unfair Competition Law.
For example, as discussed further below, the discontinuation of LIBOR has resulted in the filing of a shareholder complaint in the United States District Court for the Central District of California alleging that the replacement of the floating three-month LIBOR dividend rate for our Series A preferred shares of beneficial interest (the “Series A Preferred Shares”) and Series B preferred shares of beneficial interest (the “Series B Preferred Shares”) with a fixed rate per the “fallback” provisions of our Series A Preferred Shares and Series B Preferred Shares violated California’s Unfair Competition Law.
Further, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the underlying loans because the structure of certain of the CRT Agreements provides that we may be required to realize losses in the event of delinquency or foreclosure even where there is ultimately no loss realized with respect to the underlying loan (e.g., as a result of a borrower’s re-performance).
For example, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the underlying loans because the structure of certain of the CRT Agreements provides that we may be required to realize losses in the event of delinquency or foreclosure even where there is ultimately no loss realized with respect to the underlying loan (e.g., as a result of a borrower’s re-performance).
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.
To the extent any future 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.
Any or all of these factors could cause the fair value of our investments to decline substantially and have a material 51 adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.
Any or all of these factors could cause the fair value of our investments to decline substantially and have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. 49
We are also exposed to market risk and, as a result of prevailing market conditions or the economy generally, may be required to recognize losses associated with adverse changes to the fair value of the CRT Agreements.
We are also exposed to market risk and, as a result of prevailing market conditions or the economy generally, may be required to recognize losses associated with adverse changes to the fair value of the CRT Agreements and VIE Securitizations.
However, we and PLS may not detect every violation of law and, to the extent any correspondent sellers with which we do business fail to comply with applicable laws or regulations and any of their loans or MSRs become part of our assets, it could subject us, as an assignee or purchaser of the related loans or MSRs, to monetary penalties or other losses.
However, we and PLS may not detect every violation of law and to the extent any correspondent sellers fail to comply with applicable laws or regulations and any of their loans or MSRs become part of our assets, it could subject us, as an assignee or purchaser of the related loans or MSRs, to monetary penalties or other losses.
We and our Manager license third-party software and depend on services from various third parties for use in our and our Manager’s services. For example, we and our Manager rely on third-party vendors for cloud-based systems and for certain mortgage production and servicing applications.
We and our Manager license third-party software and depend on services from various third parties for use in our and our Manager’s services. For example, we and our Manager rely on third-party vendors for cloud-based and artificial intelligence systems and for certain mortgage production and servicing applications.
Delinquency can result from many factors including unemployment, weak economic conditions or real estate values, or catastrophic events such as man-made or natural disaster, pandemics, wars and armed conflicts, or terrorist attacks.
Delinquency 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, or terrorist attacks.
Catastrophic events may also be uninsurable or not economically insurable and might make the insurance proceeds insufficient to repair or replace a property if it is damaged or destroyed. There is an increasing global concern over the risks of climate change and related environmental sustainability matters.
Catastrophic events may also be uninsurable or not economically insurable and might make the insurance proceeds insufficient to repair or replace a property if it is damaged or destroyed. There continues to be global concern over the risks of climate change and related environmental sustainability matters.
We are externally advised and managed by PCM, a subsidiary of PFSI, and we also have other separate contract agreements with other PFSI subsidiaries, such as PLS, to provide various services.
We are externally advised and managed by PCM, a subsidiary of PFSI, and we also have other separate contractual agreements with other PFSI subsidiaries, such as PLS, to provide various services.
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 shareholders.
To the extent that the federal 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 shareholders.
We may engage in mortgage loan securitizations that could adversely affect our business, financial condition, liquidity and results of operations. We may engage in mortgage loan securitizations in which we conduct due diligence on a representative sample of mortgage loans related to the securitization and make representations and warranties relating to those mortgage loans.
We may engage in mortgage loan securitizations that could adversely affect our business, financial condition, liquidity and results of o perations. We may engage in mortgage loan securitizations in which we conduct due diligence on a representative sample of mortgage loans related to the securitization and make representations and warranties relating to those mortgage loans.
If our Operating Partnership or one or more of its subsidiaries fail to maintain their exceptions or exclusions from the Investment Company Act and we do not have available to us another basis on which we may avoid registration, we may have to register under the Investment Company Act.
If our Operating Partnership or one or more of its subsidiaries fail to maintain their exemptions or exclusions from the Investment Company Act and we do not have 41 available to us another basis on which we may avoid registration, we may have to register under the Investment Company Act.
In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on our net income may lead PCM to place undue emphasis on higher yielding investments and the maximization of short-term income at the expense of other criteria, such as preservation of capital, maintenance of sufficient liquidity and/or management of market risk, in order to achieve higher incentive compensation.
In evaluating investments and other management strategies, the opportunity to earn performance incentives based on our net income may lead PCM to place undue emphasis on higher yielding investments and the maximization of short-term income at the expense of other criteria, such as preservation of capital, maintenance of sufficient liquidity and/or management of market risk, in order to achieve higher performance incentives.
PLS uses artificial intelligence and we believe the development and proliferation of artificial intelligence will have a significant impact in our industry; however, the incipient nature of artificial intelligence presents risks, challenges, and unintended consequences, including potential defects in the design and development of the technologies used to automate processes, misapplication of technologies, the reliance on data, rules or assumptions that may prove inadequate, information security vulnerabilities and failure to meet customer expectations, among others.
We believe the development and proliferation of artificial intelligence will have a significant impact in our industry; however, the recent development of artificial intelligence presents risks, challenges, and unintended consequences, including potential defects in the design and development of the technologies used to automate processes, misapplication of technologies, the reliance on data, rules or assumptions that may prove inadequate, information security vulnerabilities and failure to meet customer expectations, among others.
As our and our Manager’s reliance on rapidly changing technology has increased, so have the risks posed to our and our Manager’s information systems, both proprietary and those provided by third party service providers including cloud-based computing service providers.
As our and our Manager’s reliance on rapidly changing technology has increased, so have the risks posed to our and our Manager’s information systems, both proprietary and those provided by third party service providers including cloud-based and artificial intelligence service providers.
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 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; • the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay; • the federal tax regulations applicable to REITs limit our hedge activity outside of the TRS to hedging interest rate fluctuations with respect to debt used to acquire or carry real estate assets; and • we may fail to recalculate, re‑adjust and execute hedges in an efficient manner. 29 Any hedging activity, which is intended to limit losses, if unsuccessful, may materially and adversely affect our financial position, operations and cash flows.
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 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; • the hedging counterparty owing the money in the hedging transaction may default on its obligation to pay; • the federal tax regulations applicable to REITs limit our hedge activity outside of the TRS to hedging interest rate fluctuations with respect to debt used to acquire or carry real estate assets; and • we may fail to recalculate, re‑adjust and execute hedges in an efficient manner.
Some of our more significant challenges and risks include, but are not limited to, the following, which are described in greater detail below: • Interest rate fluctuations could significantly decrease our results of operations and cash flows and the fair value of our investments. • A prolonged economic slowdown, recession or declining real estate values could materially and adversely affect us. • Difficult conditions in the mortgage, real estate and financial markets and the economy generally may adversely affect the performance and fair value of our investments. • A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. 18 • 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 and/or PLS 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. • Our or PLS’ 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 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 adversely affect our ability to incur additional debt to fund future needs. • We finance our investments with borrowings, which may materially and adversely affect our return on our investments and may reduce cash available for distribution to our shareholders. • We may not be able to raise the debt or equity capital required to finance our assets or grow our business. • We are subject to risks associated with the discontinuation of LIBOR, including its impact on our Series A Preferred Shares and Series B Preferred Shares. • Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity, results of operations and cash flows. • Our correspondent production activities could subject us to increased risk of loss that could adversely affect our business, financial condition, liquidity and results of operations. • We are not an approved Ginnie Mae issuer and an increase in the percentage of government loans we acquire could be detrimental to our results of operations. • Cybersecurity risks, cyber incidents and technology failures may adversely affect our and our Manager’s business by causing a disruption to our or our Manager’s operations, a compromise or corruption of our or our Manager’s confidential information or personal customer information, and/or damage to our or our Manager’s 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 or our Manager does business, could disrupt our or our Manager’s business, cause legal or reputational harm and adversely impact our results of operations and financial condition. • Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to a risk of loss. • The loans in which we invest subject us to costs and losses arising from delinquency and foreclosure, as well as the risks associated with residential real estate and residential real estate-related investments, any of which could result in losses to us. • Our ownership of mortgage servicing rights exposes us to prepayment, delinquency, interest rate and regulatory risks. • 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. 19 • We may be materially and adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from unfavorable changes in the related geographic regions. • Many of our investments are illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions. • Fair values of many of our investments are estimates and the realization of reduced values from our recorded estimates may materially and adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our shareholders. • We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, which could adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. • We are dependent upon PCM and PLS and their resources and may not find suitable replacements if any of our service agreements with PCM or PLS are terminated. • The management fee structure may provide incentives not fully aligned with our interest and/or create greater investment risk. • Certain provisions of Maryland law, our staggered board of trustees and certain provisions in our declaration of trust could each inhibit a change in our control. • Failure to maintain exemptions or exclusions from registration under the Investment Company Act could materially and adversely affect us. • Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our shareholders. • Even if we qualify as a REIT, we face tax liabilities that reduce our cash flow, and a significant portion of our income may be earned through TRSs that are subject to U.S. federal income taxation. • The percentage of our assets held through TRSs and the amount of our income that we can receive in the form of TRS dividends are subject to statutory limitations that could jeopardize our REIT status and limit our pursuit of certain investment strategies. • Our and our Manager’s risk management efforts may not be effective in identifying our significant risks and designing and implementing adequate internal controls to mitigate those risks .
Some of our more significant challenges and risks include, but are not limited to, the following, which are described in greater detail below: • Interest rate fluctuations could significantly decrease our results of operations and cash flows and the fair value of our investments. • Our investments are highly dependent on macroeconomic, real estate, mortgage and financial market conditions that could materially and adversely affect our business, financial condition, liquidity and results of operations. • Rising homeownership costs may negatively impact housing affordability and increase mortgage delinquencies, defaults, and foreclosures. • A disruption in our correspondent production activities or the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations. • We and/or PLS 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. • Our or PLS’ 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 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 adversely affect our ability to incur additional debt to fund future needs. • We finance our investments with borrowings, which may materially and adversely affect our return on our investments and may reduce cash available for distribution to our shareholders. • We may not be able to raise the debt or equity capital required to finance our assets or grow our business. 18 • We may engage in mortgage loan securitizations that could adversely affect our business, financial condition, liquidity and results of operations. • 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. • Existing or new rules and regulations by federal 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 subject to risks associated with the discontinuation of LIBOR, including its impact on our Series A Preferred Shares and Series B Preferred Shares. • We are subject to market risk and declines in credit quality and changes in credit spreads, which may adversely affect investment income and cause realized and unrealized losses. • Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity, results of operations and cash flows. • Our correspondent production activities could subject us to increased risk of loss that could adversely affect our business, financial condition, liquidity and results of operations. • Cybersecurity risks, cyber incidents and technology failures may adversely affect our and our Manager’s business by causing a disruption to our or our Manager’s operations, a compromise or corruption of our or our Manager’s confidential information or personal customer information, and/or damage to our or our Manager’s 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 or our Manager does business, could disrupt our or our Manager’s business, cause legal or reputational harm and adversely impact our results of operations and financial condition. • Our retention of credit risk underlying loans is inherently uncertain and exposes us to a risk of loss. • The loans in which we invest subject us to costs and losses arising from delinquency and foreclosure, as well as the risks associated with residential real estate and residential real estate-related investments, any of which could result in losses to us. • Our ownership of mortgage servicing rights exposes us to prepayment, delinquency, interest rate and regulatory risks. • We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, which could adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. • 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 may be materially and adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from unfavorable changes in the related geographic regions. • Many of our investments are illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions. • Fair values of many of our investments are estimates and the realization of reduced values from our recorded estimates may materially and adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our shareholders. • We are dependent upon PCM and PLS and their resources and may not find suitable replacements if any of our service agreements with PCM or PLS are terminated. • The management fee structure may provide incentives not fully aligned with our interest and may create greater investment risk. • Certain provisions of Maryland law, our staggered board of trustees and certain provisions in our declaration of trust could each inhibit a change in our control. 19 • Failure to maintain exemptions or exclusions from registration under the Investment Company Act could materially and adversely affect us. • Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our shareholders. • Even if we qualify as a REIT, we face tax liabilities that reduce our cash flow, and a significant portion of our income may be earned through TRSs that are subject to U.S. federal income taxation. • The percentage of our assets held through TRSs and the amount of our income that we can receive in the form of TRS dividends are subject to statutory limitations that could jeopardize our REIT status and limit our pursuit of certain investment strategies. • Our and our Manager’s risk management efforts may not be effective in identifying our significant risks and designing and implementing adequate internal controls to mitigate those risks .
Laws and regulations related to artificial intelligence are evolving, and there is uncertainty as to the potential adoption of new laws and regulations that may restrict or impose burdensome and costly requirements on our ability to use artificial intelligence.
Laws and regulations related to artificial intelligence are evolving, and there is uncertainty as to potential adoption of new laws and regulations that may restrict or impose burdensome and costly requirements on our and our Manager’s ability to use and scale the deployment of artificial intelligence.
We and PLS may receive claims from third parties, including our competitors, alleging that the use of artificial intelligence technology infringes on or violates such third party’s intellectual property rights.
We and our Manager may receive claims from third parties, including our and our Manager’s competitors, alleging that the use of artificial intelligence technology infringes on or violates such third party's intellectual property rights.
PCM utilizes analytical models and data in connection with the valuation of our investments, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks.
We and PCM utilize analytical models and data in connection with the valuation of our investments, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks.
In addition, any securitization entities that own collateral underlying the mortgage loan securitizations may be held liable for acts of third parties. For example, the CFPB has asserted the power to investigate and bring enforcement actions directly against securitization entities for the bad acts of the entities’ servicers or sub-servicers. On March 19, 2024, the U.S.
In addition, any securitization entities that own collateral underlying the mortgage loan securitizations may be held liable for acts of third parties. For example, the CFPB has sought to investigate and bring enforcement actions directly against securitization entities for the bad acts of the entities’ servicers or sub-servicers. In addition, in March 2024 the U.S.
Our inability to continue to maintain debt financing for MSRs could require us to seek equity capital that may be more costly or unavailable to us. We are also dependent on a limited number of banking institutions and private equity firms to extend us credit on terms that we have determined to be commercially reasonable.
Our inability to continue to maintain debt financing for MSRs could require us to seek equity capital that may be more costly or unavailable to us. We are also dependent on a limited number of banks, private equity firms and institutional investors to extend us credit on terms that we have determined to be commercially reasonable.
In order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we hold a significant portion of our assets through, and may derive a significant portion of our taxable income and gains in, a TRS, subject to the limitation that securities in a TRS may not represent more than 20% of our assets in order for us to remain qualified as a REIT.
In order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we hold a significant portion of our assets through, and may derive a significant portion of our taxable income and gains in, a TRS, subject to the limitation that securities in a TRS may not represent more than 20% (25% for taxable years beginning after December 31, 2025) of our assets in order for us to remain qualified as a REIT.
The fair value of subordinate investments are generally more sensitive to adverse actual or perceived economic downturns or individual issuer developments than more highly rated investments. In addition, the liquidity of the mortgage securities market may be impacted by future sales and reallocations of the Federal Reserve’s MBS portfolio, resulting in wider mortgage-backed security spreads.
The fair value of subordinate investments is generally more sensitive to adverse actual or perceived economic downturns or individual issuer developments than more highly rated investments. In addition, the liquidity of the mortgage securities market may be impacted by significant changes in and reallocations of the Federal Reserve’s MBS portfolio, resulting in wider mortgage-backed security spreads.
Many of our investments are illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions. Our investments in MSRs, CRT, and securities and loans held in consolidated variable interest entities may be illiquid.
Many of our investments are illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions. Our investments in MSRs, CRT, and securities and loans held in consolidated VIEs may be illiquid.
PCM may also terminate our management agreement upon at least 60 days’ prior written notice if we default in the performance of any material term of our management agreement and the default continues for a period of 30 days after written notice to us, or where we terminate our loan servicing agreement, our mortgage banking services agreement or certain other of our related party agreements with PCM or PLS without cause (at any time other than at the end of the current term or any automatic renewal term), whereupon in any case we would be required to pay to PCM a significant termination fee.
PCM may also terminate our management agreement upon a default in the performance of any material term of our management agreement and the default continues after written notice to us, or where we terminate our loan servicing agreement, our mortgage banking services agreement or certain other of our related party agreements with PCM or PLS without cause (at any time other than at the end of the current term or any automatic renewal term), whereupon in any case we would be required to pay to PCM a significant termination fee.
These banking institutions and private equity firms are subject 24 to their own risk management frameworks, profitability and risk thresholds and tolerances, any of which may change materially and negatively impact their business strategies, including their extension of credit to us specifically or mortgage lenders and servicers generally.
These banks, private equity firms and institutional investors are subject to their own risk management frameworks, profitability and risk thresholds and tolerances, any of which may change materially and negatively impact their business strategies, including their extension of credit to us specifically or mortgage lenders and servicers generally.
Conversely, PCM is also entitled to receive incentive compensation under our management agreement based on our performance on an annual basis.
Conversely, PCM is also entitled to receive performance incentives under our management agreement based on our performance on an annual basis.
Changes in the level of interest rates also may affect our ability to make investments, the fair value of our investments (including our pipeline of loan commitments) and any related hedging instruments, the value of newly originated loans acquired through our correspondent production activities, and our ability to realize gains from the disposition of assets.
Changes in the level of interest rates also may affect our ability to make investments, the fair value of our investments and any related hedging instruments, the value of loans acquired through our correspondent production activities, and our ability to realize gains from the disposition of our assets.
Although a TRS is subject to U.S. federal, state and local income tax on its taxable income, we may from time to time need to make distributions of such after-tax income in order to keep the value of our TRS below 20% of our total assets.
Although a TRS is subject to U.S. federal, state and local income tax on its taxable income, we may from time to time need to make distributions of such after-tax income in order to keep the value of our TRS below 20% (25% for taxable years beginning after December 31, 2025) of our total assets.
The failure of our correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences. We and PLS have in place a compliance program designed to assess areas of risk with respect to loans we acquire from such correspondent sellers.
The failure of PLS’ correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences. We and PLS have in place a compliance program designed to assess areas of risk with respect to loans PLS acquires from such correspondent sellers that we may subsequently purchase.
That is, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the value of our TRS below 20% of the required percentage of our assets, but be unable to do so without violating the requirement that 75% of our gross income in the taxable year be derived from real estate assets.
That is, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the value of our TRS below 20% (25% for taxable years beginning after December 31, 2025) of the required percentage of our assets, but be unable to do so without violating the requirement that 75% of our gross income in the taxable year be derived from real estate assets.
Specifically, we have financed certain of our investments through repurchase agreements, pursuant to which we may sell securities or loans to lenders (i.e., repurchase agreement counterparties). CRT investments have been financed through term notes and repurchase agreements.
Specifically, we have financed certain of our investments through repurchase agreements, pursuant to which we may sell securities or loans to lenders (i.e., repurchase agreement counterparties).
Additionally, reforming federal agencies and regulations could fragment federal regulatory oversight among local, state, and federal regulators resulting in additional compliance costs and heightened regulatory uncertainty for our industry.
Additionally, reforming federal agencies such as the CFPB and federal housing regulations could fragment federal regulatory oversight among local, state, and federal regulators resulting in additional compliance costs and heightened regulatory uncertainty for our industry.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Internal Audit may also perform a periodic cybersecurity program audit that may be supported by external consulting firms. 52 • Third-Party Service Provider Reviews – Identifying and reviewing material risks from cybersecurity threats associated with certain third-party service providers.
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 and our Manager continuously monitor our enterprise information systems and user activity to detect anomalous activity and identify potential security related incidents. Our cybersecurity monitoring and incident reporting program is informed by NIST guidelines and is internally and externally monitored.
Monitoring and Incident Reporting We and our Manager continuously monitor our enterprise information systems and user activity to detect anomalous activity and identify potential security related incidents. Our cybersecurity monitoring and incident reporting program is informed by NIST 50 guidelines and is internally and externally monitored.
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 fiscal year ended December 31, 2024.
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 fiscal year ended December 31, 2025 .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal P roceedings From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. As of December 31, 2024, we were not involved in any material legal actions, claims or proceedings.
Item 3. Legal P roceedings From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business.
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See Note 17 — Commitments and Contingencies , to the consolidated financial statements included in this Report for a discussion of legal actions, claims and proceedings that are incorporated by reference into this Item 3.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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We intend to pay quarterly dividends and to distribute to our shareholders at least 90% of our taxable income in each year (subject to certain adjustments). This is one requirement to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code.
We intend to pay quarterly dividends and to distribute to our shareholders at least 90% of our taxable income in each year (subject to certain adjustments). This is one requirement to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code of 1986.
Repurchase of our Common Shares The following table summarizes repurchase activity for PMT Common Shares for the quarter ended December 31, 2024: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (1) Amount available for future share repurchases under the plans or programs (1) (in thousands, except average price paid per share) October 1, 2024 – October 31, 2024 — $ — — $ 73,353 November 1, 2024 – November 30, 2024 — $ — — $ 73,353 December 1, 2024 – December 31, 2024 — $ — — $ 73,353 (1) On October 24, 2022, the Company’s board of trustees approved an increase to the Company’s Common Share repurchase authorization from $400 million to $500 million (the “share repurchase program”).
Repurchase of our Common Shares The following table summarizes repurchase activity for PMT Common Shares for the quarter ended December 31, 2025: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (1) Amount available for future share repurchases under the plans or programs (1) (in thousands, except average price paid per share) October 1, 2025 – October 31, 2025 — $ — — $ 73,353 November 1, 2025 – November 30, 2025 — $ — — $ 73,353 December 1, 2025 – December 31, 2025 — $ — — $ 73,353 (1) On October 24, 2022, the Company’s board of trustees approved an increase to the Company’s Common Share repurchase authorization from $400 million to $500 million (the “share repurchase program”).
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2024.
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2025.
Item 5. Market for the Regis trant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Shares are listed on the New York Stock Exchange (Symbol: PMT). As of February 18, 2025, our Common Shares were held by 153 registered holders.
Item 5. Market for the Regis trant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Shares are listed on the New York Stock Exchange (Symbol: PMT). As of February 13, 2026, our Common Shares were held by 151 registered holders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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PFSI’s valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, capital markets and risk management staffs. The fair value of our IRLCs is developed by PFSI's capital markets risk management staff and is reviewed by PFSI's capital markets operations group in the exercise of their internal control responsibilities.
PFSI’s management valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, capital markets and risk management staffs. The fair value of our IRLCs is developed by PFSI's capital markets risk management staff and is reviewed by PFSI's capital markets operations group in the exercise of their internal control responsibilities.
The VIEs that hold participation certificates relating to our financing of MSRs are shown as the MSRs underlying the participation certificates and the liabilities financing the MSRs as Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets .
The assets of the VIEs that hold participation certificates relating to our financing of MSRs are shown as the MSRs underlying the participation certificates, and the liabilities financing the MSRs are shown as Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets .
As of the filing of this Report, these financial covenants include the following: • a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH; • a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million; • a maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 10:1 for the Company and our Operating Partnership; and • at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements.
As of the filing of this Report, these financial covenants include the following: • a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH; 82 • a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million; • a maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 10:1 for the Company and our Operating Partnership; and • at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements.
A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold.
A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), senior and subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold.
The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction. The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.
The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction. 73 The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.
We have assigned the responsibility for estimating the fair values of our “Level 3” fair value assets and liabilities, except for interest rate lock commitments (“IRLCs”), to specialized staff within PFSI's capital markets group. With respect to those valuations, PFSI’s capital markets valuation staff reports to PFSI’s valuation subcommittee, which oversees the valuations.
We have assigned the responsibility for estimating the fair values of our “Level 3” fair value assets and liabilities, except for interest rate lock commitments (“IRLCs”), to specialized staff within PFSI's capital markets group. With respect to those valuations, PFSI’s capital markets valuation staff reports to PFSI’s management valuation subcommittee, which oversees the valuations.
PMC’s operations and investing activities are centered in residential mortgage-related assets, including the creation of and investment in MSRs. Under the terms of the PMC Guarantee, holders of the 2028 Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC.
PMC’s operations and investing activities are centered in residential mortgage-related assets, including the creation of and investment in MSRs. Under the terms of the PMC Guarantee, holders of the Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC.
The level of loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans.
The level of loan repurchase losses is dependent on economic factors, investor and guarantor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans.
PMC’s obligations under the guarantee are limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of PMC, result in the guarantee constituting a fraudulent transfer or conveyance.
PMC’s obligations under the guarantee are limited to the maximum amount that will not, 81 after giving effect to all other contingent and fixed liabilities of PMC, result in the guarantee constituting a fraudulent transfer or conveyance.
For our financial reporting purposes, the underlying assets owned by the securitization VIEs that we presently consolidate are shown under Loans at fair value, Derivative assets, Mortgage servicing rights, Derivative and credit risk transfer strip liabilities and Deposits securing credit risk transfer agreements on our consolidated balance sheets: • The VIEs that hold loans we have securitized are shown as their constituent assets and liabilities- Loans at fair value , and the securities issued to third parties by the consolidated VIE are shown as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheets.
For our financial reporting purposes, the underlying assets owned by the securitization VIEs that we presently consolidate are shown under Loans held for investment at fair value, Derivative assets, Mortgage servicing rights, Deposits securing credit risk transfer agreements and Derivative and credit risk transfer strip liabilities on our consolidated balance sheets: • The VIEs that hold loans we have securitized are shown as their constituent assets and liabilities- Loans held for investment at fair value , and the securities issued to third parties by the consolidated VIE are shown as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheets.
As the outstanding balance of loans we purchase and sell subject to representations and warranties increases, as the loans outstanding season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase. 70 The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers.
As the outstanding balance of loans we purchase and sell subject to representations and warranties increases, as the loans outstanding season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase. 67 The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers.
Our management, servicing, and loan fulfillment fee agreements are described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Our management, servicing, and loan fulfillment fee agreements are described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report. 83
We include the interest earned on the loans held by the VIEs in Interest income and interest attributable to the asset-backed securities issued by the VIEs in Interest expense in our consolidated statements of operations.
We include the interest earned on the loans held by the VIEs in Interest income and interest attributable to the asset-backed securities issued by the VIEs in Interest expense in our consolidated statements of income.
(2) Includes Deposit Securing CRT arrangements, CRT derivatives, CRT strips and IO security payable. (3) Excluding changes in fair value attributable to realization of cash flows. As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, we are required to make judgments regarding these items’ fair values.
(2) Includes Deposits securing CRT arrangements , CRT derivatives, CRT strips and IO security payable. (3) Excluding changes in fair value attributable to realization of cash flows. As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, we are required to make judgments regarding these items’ fair values.
We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of December 31, 2024. We continue to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and unsecured debt and equity offerings.
We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of December 31, 2025. We continue to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and unsecured debt and equity offerings.
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. Our critical accounting policies primarily relate to our fair value estimates. Fair value Our consolidated balance sheet is substantially comprised of assets that are measured at or based on their fair values.
Certain of these estimates significantly influence the portrayal of our financial condition and income, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates. Fair value Our consolidated balance sheet is substantially comprised of assets that are measured at or based on their fair values.
We group financial statement items 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. 57 The fair value level assigned to an asset or liability is identified based on the lowest level of inputs used that are significant to determining the respective asset's or liability’s fair value.
We group financial statement items 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. 55 The fair value level assigned to an asset or liability is identified based on the lowest level of inputs used that are significant to determining the respective asset's or liability’s fair value.
Likewise, due to the general 58 illiquidity of some of these fair value assets and liabilities, subsequent transactions may be at values significantly different from those reported. Because the fair value of “Level 3” fair value assets and liabilities is difficult to estimate, our valuation process is conducted by specialized staff and receives significant management oversight.
Likewise, due to the general illiquidity of some of these fair value assets and liabilities, subsequent transactions may be at values significantly different from those reported. 56 Because the fair value of “Level 3” fair value assets and liabilities is difficult to estimate, our valuation process is conducted by specialized staff and receives significant management oversight.
Our acquisitions during the years ended December 31, 2024, 2023 and 2022 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays.
Our acquisitions during the years ended December 31, 2025, 2024 and 2023 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays.
However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Off-Balance Sheet Arrangements As of December 31, 2024, we have not entered into any off-balance sheet arrangements.
However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Off-Balance Sheet Arrangements As of December 31, 2025, we have not entered into any off-balance sheet arrangements.
Loan Origination Fees Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan origination fees decreased during the year ended December 31, 2024, as compared to the years ended December 31, 2023 and 2022, reflecting the overall decrease in our purchase volume of loans for sale from nonaffiliates during 2024.
Loan Origination Fees Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan origination fees decreased during the year ended December 31, 2025, as compared to the years ended December 31, 2024 and 2023, reflecting the overall decrease in our purchase volume of loans for sale to nonaffiliates.
The fair value of an IRLC is transferred to the fair value of Loans acquired for sale at fair value when the loan is funded. An active, observable market for IRLCs does not exist. Therefore, we measure the fair value of IRLCs using methods and inputs we believe that market participants use in pricing IRLCs.
The fair value of an IRLC is transferred to the fair value of Loans held for sale at fair value when the loan is funded. An active, observable market for IRLCs does not exist. Therefore, we measure the fair value of IRLCs using methods and inputs we believe that market participants use in pricing IRLCs.
Therefore, we recognize a substantial portion of our net gains on loans acquired for sale at fair value before we purchase the loans. In the course of our correspondent production activities, we make contractual commitments to correspondent sellers to purchase loans at specified terms. We call these commitments IRLCs.
Therefore, we recognize a substantial portion of our net gains on loans held for sale at fair value before we purchase the loans. In the course of our correspondent production activities, we make contractual commitments to correspondent sellers to purchase loans at specified terms. We call these commitments IRLCs.
Non-cash elements of gain on sale of loans: Interest Rate Lock Commitments Our Net gains on loans acquired for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold.
Non-cash elements of gain on sale of loans: Interest Rate Lock Commitments Our Net gains on loans held for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold.
We include the income we receive from the IO ownership interests and changes in fair value of the Derivative assets, Derivative and credit risk liabilities and Interest-only security payable at fair value in Net gains (losses) on investments and financings in our consolidated statements of operations.
We include the income we receive from the IO ownership interests and changes in fair value of the Derivative assets, Derivative and credit risk liabilities and Interest-only security payable at fair value in Net gains on investments and financings in our consolidated statements of income.
Derivative Assets Interest Rate Lock Commitments Our net gains on loans acquired for sale include our estimates of gains or losses we expect to realize upon the sale of loans we have committed to purchase but have not yet purchased or sold.
Derivative Assets Interest Rate Lock Commitments Our net gains on loans held for sale include our estimates of gains or losses we expect to realize upon the sale of loans we have committed to purchase but have not yet purchased or sold.
We recorded a provision for losses relating to representations and warranties relating to current loan sales of $1.2 million, $2.4 million and $4.4 million as part of our loan sales in each of the years ended December 31, 2024, 2023 and 2022, respectively.
We recorded a provision for losses relating to representations and warranties relating to current loan sales of $1.1 million, $1.2 million and $2.4 million as part of our loan sales in each of the years ended December 31, 2025, 2024 and 2023, respectively.
Such adjustments may be material to our financial position and income in future periods. Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans acquired for sale at fair value .
Such adjustments may be material to our financial position and income in future periods. Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans held for sale at fair value .
We recorded $20.3 million, $15.2 million and $4.2 million reductions in liability for representations and warranties during the years ended December 31, 2024, 2023 and 2022, respectively, due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
We recorded $2.2 million, $20.3 million and $15.2 million reductions in liability for representations and warranties during the years ended December 31, 2025, 2024 and 2023, respectively, due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
Such changes are reflected in the change in fair value of IRLCs which is a component of our Net gains on loans acquired for sale and may be included in Net loan servicing fees – From nonaffiliates – Mortgage servicing rights hedging results when we include the IRLCs in our MSR hedging activities in the period of the 59 change.
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 and may be included in Net loan servicing fees – From nonaffiliates – Mortgage servicing rights hedging results when we include the IRLCs in our MSR hedging activities in the period of the change.
Liquidity and Ca pital Resources Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders.
Liquidity and Ca pital Resources Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from PLS, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders.
Such adjustments are included in our Net gains on loans acquired for sale at fair value . The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans.
Such adjustments are included in our Net gains on loans held for sale at fair value . The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans.
Our results of operations decreased by $38.7 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, reflecting the fair value performance of our MBS and MSRs and CRT-related investments, partially offset by increased loan production income and benefits from income taxes.
Our net income decreased by $38.7 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, reflecting the fair value performance of our MBS and MSRs and CRT-related investments, partially offset by increased loan production income and benefits from income taxes.
We carry the strips or derivative assets or liabilities relating to these transactions at fair value and recognize changes in the respective asset's or liability’s fair values in Net gains (losses) on investments and financings in the consolidated statements of operations.
We carry the strips or derivative assets or liabilities relating to these transactions at fair value and recognize changes in the respective asset's or liability’s fair values in Net gains on investments and financings in the consolidated statements of income.
We receive or pay cash relating to: • Our investment in MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments; • Loan investments when the investments are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold; • CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid; • MSRs in the form of loan servicing fees (including both base servicing and ESS) and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service; • Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades; and • Our liability for representations and warranties when we repurchase loans or settle loss claims from investors. 63 Business Trends The U.S.
We receive or pay cash relating to: • MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments; • Loan investments when the loans are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold; • CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid; • MSRs in the form of loan servicing fees (including both base servicing and excess servicing spread), ancillary fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service; • Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades; and • Our liability for representations and warranties when we repurchase loans or settle loss claims from investors.
Changes in the fair value of loans held in the VIEs and the associated asset-backed financings are included in Net gains (losses) on investments and financings in our consolidated statements of operations. 61 • The VIEs that hold assets relating to our CRT arrangements are shown as their constituent assets and liabilities – the Deposit securing credit risk transfer agreements, Derivative assets and Derivative and credit risk liabilities which represent our IO ownership interest and obligation to absorb credit losses arising from the reference loans, and Interest-only security payable at fair value .
Changes in the fair value of loans held in the VIEs and the associated asset-backed financings are included in Net gains on investments and financings in our consolidated statements of income. • The VIEs that hold assets relating to our CRT arrangements are shown as their constituent assets and liabilities – the Deposits securing credit risk transfer agreements, Derivative assets and Derivative and credit risk liabilities which represent our IO ownership interest and obligation to absorb credit losses arising from the reference loans, and Interest-only security payable at 59 fair value .
A shift in the market for CRT arrangements or a change in our assessment of an input to the valuation of CRT arrangements can have a significant effect on the fair value of CRT arrangements and in our results of operations for the period.
A shift in the market for CRT arrangements or a change in our assessment of an input to the valuation of CRT arrangements can have a significant effect on the fair value of CRT arrangements and in our income for the period.
A shift in the market for MSRs or a change in our assessment of an input to the valuation of MSRs can have a significant effect on the fair value of MSRs and in our results of operations for the period.
A shift in the market for MSRs or a change in our assessment of an input to the valuation of MSRs can have a significant effect on the fair value of MSRs and in our income for the period.
We include the interest expense incurred in these financings in Interest expense in our consolidated statements of operations. Income Taxes We have elected to be taxed as a REIT and believe we comply with the provisions of the Internal Revenue Code applicable to REITs.
We include the interest expense incurred in these financings in Interest expense in our consolidated statements of income. Income Taxes We have elected to be taxed as a REIT and believe we comply with the provisions of the Internal Revenue Code of 1986 (the “Internal Revenue Code”) applicable to REITs.
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 effect of these developments on us. 62 Non-Cash Investment Income A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions.
Accounting Developments Refer to Note 3 – Significant Accounting Policies – Recently Adopted Accounting Pronouncement to our consolidated financial statements for a discussion of recent accounting developments and the effect of these developments on us. 60 Non-Cash Investment Income A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions.
During the year ended December 31, 2024, we purchased newly originated prime credit quality residential loans with fair values totaling $96.8 billion as compared to $87.5 billion and $88.1 billion for the years ended December 31, 2023 and December 31, 2022, respectively, in our correspondent production business.
During the year ended December 31, 2025, we purchased newly originated prime credit quality residential loans with fair values totaling $70.8 billion as compared to $96.8 billion and $87.5 billion for the years ended December 31, 2024 and December 31, 2023, respectively, in our correspondent production business.
Subsequent changes in the fair value of our MSRs significantly affect our income. 69 Mortgage Servicing Rights The methods we use to measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
Mortgage Servicing Rights The methods we use to measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
Different approaches to valuing or changes in inputs used to measure these assets can have a significant effect on the amounts reported for these items and their effects on our results of operations.
Different approaches to valuing or changes in inputs used to measure these assets can have a significant effect on the amounts reported for these items and their effects on our income.
Investing activities Net cash provided by our investing activities was $1.4 billion for the years ended December 31, 2024 compared to net cash used in our investing activities of $21.7 million and $1.9 billion for the years ended December 31, 2023 and December 31, 2022, respectively, primarily due to our net sale of MBS.
Investing activities Net cash provided by our investing activities was $429.7 million and $1.4 billion for the years ended December 31, 2025 and December 31, 2024, respectively, compared to net cash used in our investing activities of $21.7 million for the year ended December 31, 2023, primarily due to our net sale of MBS.
The decrease in pretax results is summarized below: • Our credit sensitive strategies segment recognized a $68.9 million decrease in net gains on our CRT arrangements as market credit spreads (which represent the interest rate premium demanded by investors for instruments over those that are considered “risk free”) tightened less during the year ended December 31, 2024, compared to the year ended December 31, 2023. • Our interest rate sensitive strategies segment recognized a $24.1 million decrease in net servicing fees as well as a $23.9 million decrease in fair value of MBS caused by an increase in market interest rates during the year ended December 31, 2024, offset by a $24.1 million decrease in net interest expense compared to the year ended December 31, 2023. • Our correspondent production segment recognized a $33.3 million increase in gains on sales of loans during the year ended December 31, 2024, reflecting increased gain on sale margins for mortgage 65 loans and a larger reduction of our liability for representations and warranties due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
The decrease in pretax results is summarized below: • Our credit sensitive strategies segment recognized a $68.9 million decrease in net gains on our CRT arrangements as market credit spreads tightened less during the year ended December 31, 2024, compared to the year ended December 31, 2023. • Our interest rate sensitive strategies segment recognized a $24.1 million decrease in net servicing fees as well as a $23.9 million decrease in fair value of MBS caused by an increase in market interest rates during the year ended December 31, 2024, offset by a $24.1 million decrease in net interest expense compared to the year ended December 31, 2023. • Our correspondent production segment recognized a $33.3 million increase in gains on sales of loans during the year ended December 31, 2024, reflecting increased gain on sale margins for mortgage loans and a larger reduction of our liability for representations and warranties due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
During the year ended December 31, 2024, we purchased for sale $96.8 billion in fair value of correspondent production loans as compared to $87.5 billion and $88.1 billion during the same periods in 2023 and 2022, respectively.
During the year ended December 31, 2025, we purchased for sale $70.8 billion in fair value of correspondent production loans as compared to $96.8 billion and $87.5 billion during the same periods in 2024 and 2023, respectively.
Our segment and corporate activities are described below. • The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate MBS. • The interest rate sensitive strategies segment represents our investments in MSRs, Agency and senior non-Agency MBS and the related interest rate hedging activities. • The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.
Our segment and corporate activities are described below. • The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate and credit-linked MBS. • The interest rate sensitive strategies segment represents our investments in MSRs, Agency pass through MBS and structured products (including IO and PO MBS and floating rate CMOs), senior non-Agency MBS and the related interest rate hedging activities. • The correspondent production segment represents our operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.
We estimate fair value of loans based on whether the loans are saleable into active markets with observable pricing. • We categorize loans that are saleable into active markets with observable pricing inputs as “Level 2” fair value assets. Such loans include substantially all of our loans acquired for sale and our loans held in variable interest entities (“ VIEs").
We estimate fair value of loans based on whether the loans are saleable into active markets with observable pricing: • We categorize loans that are saleable into active markets with observable pricing inputs as “Level 2” fair value assets. Such loans include substantially all of our loans held for sale and our loans held in consolidated VIEs.
During the years ended December 31, 2024, 2023 and 2022, we received sourcing fees totaling $8.1 million, $7.2 million and $5.0 million, respectively. To the extent that we purchase loans that are insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S.
During the years ended December 31, 2025, 2024 and 2023, we received sourcing fees totaling $5.2 million, $8.1 million and $7.2 million, respectively. To the extent that we purchased loans that were insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S.
We believe the most significant 60 “Level 3” fair value inputs to the valuation of MSRs are the pricing spread (a component of the discount rate), prepayment speed and annual per-loan cost of servicing. We held $3.9 billion of MSRs at December 31, 2024.
We believe the most significant “Level 3” fair value inputs to the valuation of MSRs are the pricing 58 spread (a component of the discount rate), prepayment speed and annual per-loan cost of servicing. We held $3.6 billion of MSRs at December 31, 2025.
Therefore, our investments in these securities are shown as their underlying assets, Loans at fair value, with the securities held by non-affiliates being shown as Asset-backed financings of variable interest entities at fair value .
Therefore, our investments in these securities are shown as their underlying assets, Loans held for investment at fair value, with the securities held by nonaffiliates being shown as Asset-backed financings of variable interest entities at fair value .
We establish a liability at our estimate of its fair value at the time loans are sold and review our liability estimate on a periodic basis and adjust the liability for estimated losses in excess of the recorded liability. The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment.
We establish a liability at our estimate of its fair value at the time loans are sold and review the adequacy of our recorded liability on a periodic basis. The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment.
We estimate the fair value of an IRLC based on quoted Agency MBS prices, our estimate of the fair value of the MSRs we expect to receive in the sale of the loan and the probability that the loan will be purchased as a percentage of the commitment we have made (the “pull-through rate”).
We estimate the fair value of an IRLC based on quoted Agency MBS prices, our estimate of the fair value of the MSRs we expect to receive in the sale of the loan and the probability that the loan will be purchased (the “pull-through rate”).
No “sinking fund” will be provided for the 2028 Senior Notes. The 2028 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal of and interest on the 2028 Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”).
The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal of and interest on the Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”).
We carry all of our investments in MSRs at fair value and recognize changes in fair value in current period results of operations. Changes in fair value of MSRs are recognized as a component of Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in our consolidated statements of operations.
We carry all of our investments in MSRs at fair value and recognize changes in fair value in current period income. Changes in fair value of MSRs are recognized in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in our consolidated statements of income.
The total facility size of our assets sold under agreements to repurchase was approximately $11.6 billion at December 31, 2024.
The total facility size of our assets sold under agreements to repurchase was approximately $13.6 billion at December 31, 2025.
Loan origination Loan origination expenses decreased by $1.3 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, and $7.4 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily reflecting a decrease in our loan originations purchased for sale to non-affiliates across the three-year period.
Loan origination Loan origination expenses decreased by $1.1 million during the year ended December 31, 2025, as compared to the year ended December 31, 2024, and $1.3 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily reflecting a decrease in our loan originations purchased for sale to nonaffiliates across the three-year period.
Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”), to record certain of our financial assets (comprised of MBS, loans acquired for sale at fair value, loans at fair value and CRT strips), our derivatives, our MSRs, and our asset-backed financings and IO security payable at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value.
Because we have elected, or are required by GAAP, to record certain of our financial assets (comprised of MBS, loans held for sale at fair value and loans held for investment at fair value), our derivatives and CRT strips, our MSRs, and our asset-backed financings and IO security payable at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value.
These levels are: December 31, 2024 Percentage of Level Description Carrying value of assets measured (1) Total assets Total shareholders' equity (in thousands) 1 Prices determined using quoted prices in active markets for identical assets or liabilities. $ 109,726 1 % 6 % 2 Prices determined using other significant observable inputs.
These levels are: December 31, 2025 Percentage of Level Description Carrying value of assets measured (1) Total assets Total shareholders' equity (in thousands) 1 Prices determined using quoted prices in active markets for identical assets or liabilities. $ 195,916 1 % 10 % 2 Prices determined using other significant observable inputs.
The PMC Guarantee will: • rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC; • be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and • be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting. 85 The following summarized financial information for PMT and PMC is presented on a combined basis.
The PMC Guarantee will: • rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC; • be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and • be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting.
Our loan sales included $82.0 billion, $72.4 billion and $50.6 billion of loans we sold to PLS during the years ended December 31, 2024, 2023 and 2022, respectively.
Our loan sales included $52.9 billion, $82.0 billion and $72.4 billion of loans we sold to PLS during the years ended December 31, 2025, 2024 and 2023, respectively.
Financing activities Net cash provided by our financing activities was $1.4 billion for the year ended December 31, 2024, as compared to net cash used in our financing activities of $1.1 billion for the year ended December 31, 2023.
Financing activities Net cash provided by our financing activities was $6.7 billion and $1.4 billion for the years ended December 31, 2025 and December 31, 2024, respectively, as compared to net cash used in our financing activities of $1.1 billion for the year ended December 31, 2023.
Of these assets, $5.1 billion, or 35%, of total assets are measured using “Level 3” fair value inputs-significant inputs where there is difficulty observing the inputs used by the market participants to establish fair value.
Of these assets, $4.8 billion, or 22%, of total assets are measured using “Level 3” fair value inputs-significant inputs where there is difficulty observing the inputs used by other market participants to establish fair value.
Mortgage-Backed Securities During the year ended December 31, 2024, we recognized net valuation losses of $80.8 million compared to valuation gains of $75.0 million for the year ended December 31, 2023.
Mortgage-Backed Securities During the year ended December 31, 2025, we recognized net valuation gains of $148.3 million compared to valuation losses of $80.8 million for the year ended December 31, 2024.
Changes in inputs to measurement of Level 3 fair value financial statement items have a significant effect on the amounts reported for these items including their reported balances and their effects on our pre-tax income as summarized below: Change in fair value Year ended December 31, Loans at fair value (1) IO stripped MBS Interest rate lock commitments CRT net assets (2) Mortgage servicing rights (3) Total Pre-tax income (in thousands) 2024 $ (461 ) 2,624 (10,882 ) 54,606 217,182 $ 263,069 $ 142,648 2023 $ (191 ) (8,572 ) 15,205 117,779 87,811 $ 212,032 $ 244,395 2022 $ (2,680 ) — (234,146 ) (163,908 ) 819,727 $ 418,993 $ 63,087 (1) Includes loans held for sale and loans at fair value.
Changes in inputs to measurement of Level 3 fair value financial statement items have a significant effect on the amounts reported for these items including their reported balances and their effects on our pre-tax income as summarized below: Change in fair value Year ended December 31, Loans (1) IO stripped MBS Interest rate lock commitments CRT net assets (2) Mortgage servicing rights (3) Total Pre-tax income (in thousands) 2025 $ 583 $ (4,633 ) $ 29,718 $ (1,583 ) $ (33,846 ) $ (9,761 ) $ 93,818 2024 $ (461 ) $ 2,624 $ (10,882 ) $ 54,606 $ 217,182 $ 263,069 $ 142,648 2023 $ (191 ) $ (8,572 ) $ 15,205 $ 117,779 $ 87,811 $ 212,032 $ 244,395 (1) Includes loans held for sale and loans at fair value.
Cash flows from operating activities are most influenced by cash flows from loans acquired for sale as shown below: Year ended December 31, 2024 2023 2022 (in thousands) Operating cash flows from: Loans acquired for sale $ (2,377,330 ) $ 815,464 $ 1,417,213 Other (325,553 ) 524,709 367,258 $ (2,702,883 ) $ 1,340,173 $ 1,784,471 82 Cash flows from loans acquired for sale primarily reflect changes in the level of production inventory as well as cash flows relating to associated hedging activities from the beginning to end of the years presented.
Cash flows from operating activities are most influenced by cash flows from loans held for sale as shown below: Year ended December 31, 2025 2024 2023 (in thousands) Operating cash flows from: Loans held for sale $ (7,608,227 ) $ (2,377,330 ) $ 815,464 Other 394,996 (325,553 ) 524,709 $ (7,213,231 ) $ (2,702,883 ) $ 1,340,173 Cash flows from loans held for sale primarily reflect changes in the level of production inventory as well as cash flows relating to associated hedging activities from the beginning to end of the years presented.
As discussed below in Liquidity and Capital Resources , our Manager continually evaluates and pursues additional sources of financing to provide us with future investing capacity. We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends.
This change primarily reflects the increase in asset-backed financing related to our increased securitization activity. As discussed below in Liquidity and Capital Resources , our Manager continually evaluates and pursues additional sources of financing to provide us with future investing capacity. We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends.
We recognize changes in the fair value of loans in current period results of operations as a component of either Net gains on loans acquired for sale or Net gains (losses) on investments and financings .
We recognize changes in the fair value of loans in current period income as a component of either Net gains on loans held for sale at fair value or Net gains on investments and financings .
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 the Company. 8,334,286 58 % 430 % 3 Prices determined using significant unobservable inputs.
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 the Company. 15,615,391 73 % 827 % 3 Prices determined using significant unobservable inputs.
Department of Agriculture, we and PLS have agreed that PLS will fulfill and purchase such loans, as PLS is a Ginnie Mae approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans.
Department of Agriculture, we and PLS previously agreed that PLS would fulfill and purchase such loans, as PLS is a Government National Mortgage Association-approved issuer and we are not. This arrangement enabled us to compete with other correspondent aggregators that purchase both government and conventional loans.
During 2025, we expect PLS will become the initial purchaser of loans from correspondent sellers and begin transferring agreed-upon volumes of such loans to us. Accordingly, we will no longer purchase government loans. We retain the right to purchase up to 100% of PLS's non-government correspondent production.
Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we retain the right to purchase up to 100% of PLS's non-government correspondent production.
Such loans include our investments in distressed loans, home equity loans held for sale and certain of the loans acquired for sale which we subsequently repurchased pursuant to representations and warranties or that we identified as non-salable to the Agencies. We held $9.8 million of such loans at fair value at December 31, 2024.
Such loans include our investments in distressed loans, home equity loans held for sale and certain of the loans held for sale which we subsequently repurchased pursuant to representations and warranties or that we identified as non-salable to the Agencies.
Changes in fair value due to changes in valuation inputs used in our valuation model during the year ended December 31, 2024 reflect the effects of expectations for slower future prepayments of the underlying loans as a result of interest rates increasing more significantly during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Changes in fair value due to changes in valuation inputs used in our valuation model during the year ended December 31, 2025 reflect the effects of expectations for faster future repayments of the underlying loans as a result of interest rates decreasing during the year ended December 31, 2025 compared to the increasing rate environments in 2024 and 2023.
We held $1.1 billion of net CRT arrangement assets at December 31, 2024.
We held approximately $1.0 billion of net CRT arrangement assets at December 31, 2025.
Management Fees Management fees payable to PCM are summarized below: Year ended December 31, 2024 2023 2022 (in thousands) Base $ 28,623 $ 28,762 $ 31,065 Average shareholders' equity amounts used to calculate base management fee expense $ 1,908,287 $ 1,917,642 $ 2,079,851 76 Management fees decreased by $139,000 during the year ended December 31, 2024, compared to the year ended 2023, and $2.3 million during the year ended December 31,2023, compared to the year ended December 31, 2022.
Management Fees Management fees payable to PCM are summarized below: Year ended December 31, 2025 2024 2023 (in thousands) Base fee $ 27,649 $ 28,623 $ 28,762 Average shareholders' equity amounts used to calculate base management fee expense $ 1,843,549 $ 1,908,287 $ 1,917,642 Management fees decreased by $974,000 during the year ended December 31, 2025, compared to the year ended 2024, and $139,000 during the year ended December 31,2024, compared to the year ended December 31, 2023.
Following is a summary of the indemnification, repurchase and loss activity and balances of loans subject to representations and warranties: Year ended December 31, 2024 2023 2022 (in thousands) Indemnification activity (UPB): Loans indemnified at beginning of year $ 12,123 $ 8,108 $ 2,782 New indemnifications 3,706 7,062 6,009 Less: indemnified loans sold, repaid or refinanced 540 3,047 683 Loans indemnified at end of year $ 15,289 $ 12,123 $ 8,108 Indemnified loans indemnified by correspondent lenders at end of year $ 5,772 $ 4,521 $ 1,312 UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of year $ 5,488 $ 4,190 $ 2,670 Repurchase activity (UPB): Loans repurchased $ 35,493 $ 59,068 $ 92,293 Less: Loans repurchased by correspondent sellers 26,913 51,369 77,813 Loans resold or repaid by borrowers 6,068 12,596 26,584 Net loans repurchased (resolved) with losses chargeable to liability to representations and warranties $ 2,512 $ (4,897 ) $ (12,104 ) Losses charged to liability for representations and warranties $ 234 $ 549 $ 993 At end of year: Loans subject to representations and warranties $ 222,063,618 $ 227,456,712 $ 228,339,312 Liability for representations and warranties $ 6,886 $ 26,143 $ 39,471 The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers.
Following is a summary of the indemnification, repurchase and loss activity and balances of loans subject to representations and warranties: Year ended December 31, 2025 2024 2023 (in thousands) Indemnification activity (unpaid principal balance): Loans indemnified at beginning of year $ 15,289 $ 12,123 $ 8,108 New indemnifications 1,113 3,706 7,062 Less: indemnified loans sold, repaid or refinanced 195 540 3,047 Loans indemnified at end of period $ 16,207 $ 15,289 $ 12,123 Indemnified loans indemnified by correspondent lenders at end of year $ 6,045 $ 5,772 $ 4,521 UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of year $ 6,108 $ 5,488 $ 4,190 Repurchase activity (unpaid principal balance): Loans repurchased $ 25,970 $ 35,493 $ 59,068 Less: Loans repurchased by correspondent sellers 22,568 26,913 51,369 Loans resold or repaid by borrowers 7,885 6,068 12,596 Net loans repurchased (resolved) with losses chargeable to liability to representations and warranties $ (4,483 ) $ 2,512 $ (4,897 ) Losses charged to liability for representations and warranties $ 479 $ 234 $ 549 At end of year: Loans subject to representations and warranties $ 214,182,746 $ 222,063,618 $ 227,456,712 Liability for representations and warranties $ 5,284 $ 6,886 $ 26,143 The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers.
Following is a quantitative summary of the effect of changes in pull-through inputs on the fair value of IRLCs at December 31, 2024: Effect on fair value of a change in pull-through rate Change in input (1) Effect on fair value (in thousands) (20%) $ (172 ) (10%) $ (86 ) (5%) $ (43 ) 5% $ 36 10% $ 70 20% $ 177 (1) Pull-through rate adjustments for individual loans are limited to adjustments that will increase the individual loan’s pull-through rate to 100%.
Following is a quantitative summary of the effect of changes in pull-through inputs on the fair value of IRLCs at December 31, 2025: Effect on fair value of a change in pull-through rate Change in input (1) Effect on fair value (in thousands) (20%) $ (941 ) (10%) $ (470 ) (5%) $ (235 ) 5% $ 147 10% $ 266 20% $ 451 (1) Pull-through rate adjustments for individual loans are limited to adjustments that will increase the individual loan’s pull-through rate to 100%.
Changes in fair value of MSRs and hedging results are summarized below: Year ended December 31, 2024 2023 2022 (in thousands) Change in fair value of MSRs Changes in valuation inputs used in valuation model $ 217,182 $ 87,811 $ 819,727 Recapture income from PFSI 2,193 1,784 13,744 Hedging results (226,608 ) (92,775 ) (204,879 ) (7,233 ) (3,180 ) 628,592 Realization of expected cash flows (387,591 ) (384,658 ) (370,292 ) $ (394,824 ) $ (387,838 ) $ 258,300 Average balance of mortgage servicing rights $ 3,911,440 $ 4,022,008 $ 3,615,920 Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which changes are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates.
Changes in fair value of MSRs and hedging results are summarized below: Year ended December 31, 2025 2024 2023 (in thousands) Change in fair value of MSRs Changes in valuation inputs used in valuation model $ (33,846 ) $ 217,182 $ 87,811 Recapture income from PFSI 10,117 2,193 1,784 Hedging results (172,931 ) (226,608 ) (92,775 ) (196,660 ) (7,233 ) (3,180 ) Realization of expected cash flows (379,863 ) (387,591 ) (384,658 ) $ (576,523 ) $ (394,824 ) $ (387,838 ) Average balance of mortgage servicing rights $ 3,736,224 $ 3,911,440 $ 4,022,008 Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which changes are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates.
On or after September 30, 2025, we may redeem for cash all or any portion of the 2028 Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
We may redeem for cash all or any portion of the Senior Notes, at our option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the applicable redemption date. No “sinking fund” will be provided for the Senior Notes.
The amounts of net non-cash investment income items included in net investment income are as follows: Year ended December 31, 2024 2023 2022 (dollars in thousands) Net gains on investments and financings: Mortgage-backed securities $ (80,838 ) $ 74,984 $ (576,758 ) Loans 15,516 17,439 (300,478 ) CRT arrangements 56,161 128,521 (152,576 ) Interest-only security payable at fair value (1,555 ) (10,742 ) (11,332 ) Asset-backed financings at fair value (7,396 ) (13,678 ) 283,586 (18,112 ) 196,524 (757,558 ) Net gains on loans acquired for sale (1) 309,113 248,742 620,813 Net loan servicing fees‒MSR valuation adjustments (2) 353,763 (36,504 ) 796,071 $ 644,764 $ 408,762 $ 659,326 Net investment income $ 334,194 $ 429,020 $ 303,771 Non-cash items as a percentage of net investment income 193 % 95 % 217 % (1) Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, IRLCs and hedging derivatives held at the end of the year.
The amounts of net non-cash investment income items included in net investment income are as follows: Year ended December 31, 2025 2024 2023 (dollars in thousands) Net gains on investments and financings: Mortgage-backed securities $ 148,344 $ (80,838 ) $ 74,984 Loans held for investment 112,838 15,516 17,439 CRT arrangements 1,845 56,161 128,521 Interest-only security payable (3,428 ) (1,555 ) (10,742 ) Asset-backed financings (96,439 ) (7,396 ) (13,678 ) 163,160 (18,112 ) 196,524 Net gains on loans held for sale (1) 209,657 309,113 248,742 Net loan servicing fees‒MSR valuation adjustments (2) (115,721 ) 353,763 (36,504 ) $ 257,096 $ 644,764 $ 408,762 Net investment income $ 307,461 $ 334,194 $ 429,020 Non-cash items as a percentage of net investment income 84 % 193 % 95 % (1) Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, IRLCs and hedging derivatives held at the end of the period.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Furthermore, our consolidated financial statements are prepared in accordance with GAAP and any distributions we may make to our shareholders will be determined by our board of trustees based primarily on our 88 taxable income and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair value without considering inflation.
Furthermore, our consolidated financial statements are prepared in accordance with GAAP and any distributions we may make to our shareholders will be determined by our board of trustees based primarily on our taxable income and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair value without considering inflation.
As we receive prepayments of principal on our MBS investments, any premiums paid for such investments will be amortized against interest income using the interest method through the expected maturity dates of the investments.
As we 84 receive prepayments of principal on our MBS investments, any premiums paid for such investments will be amortized against interest income using the interest method through the expected maturity dates of the investments.
In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects. Furthermore, such defaults could have an adverse effect on the spread between our interest earning assets and interest-bearing liabilities.
In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, income and prospects. Furthermore, such defaults could have an adverse effect on the spread between our interest earning assets and interest-bearing liabilities.
The fair value of MSRs, on the other hand, tends to respond generally in an opposite manner to that of loans acquired for sale and MBS.
The fair value of MSRs, on the other hand, tends to respond generally in an opposite manner to that of loans held for sale and MBS.
We believe that the primary market risks to the fair values of our investment in CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such arrangements. 87 Real Estate Risk Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing); construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.
Real Estate Risk Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing); construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.
Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation.
We believe that the fair values of MSRs and MBS also respond primarily to changes in the market interest rates for comparable loans or yields on MBS. Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation.
Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, CRT arrangements and MBS. We believe that the fair values of MSRs and MBS also respond primarily to changes in the market interest rates for comparable loans or yields on MBS.
Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, CRT arrangements and MBS, including those consolidated on our balance sheet as loans held for investment and asset-backed financing.
Mortgage-backed securities at fair value The following table summarizes the estimated change in fair value of our mortgage-backed securities as of December 31, 2024, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve: Interest rate shift in basis points -200 -75 -50 50 75 200 (in thousands) Change in fair value $ 256,253 $ 159,691 $ 110,814 $ (119,508 ) $ (181,431 ) $ (499,816 ) 89 Mortgage Servicing Rights The following tables summarize the estimated change in fair value of MSRs as of December 31, 2024, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing: Change in fair value attributable to shift in: -20% -10% -5% +5% +10% +20% (in thousands) Pricing spread $ 202,210 $ 98,637 $ 48,722 $ (47,568 ) $ (94,018 ) $ (183,710 ) Prepayment speed $ 224,752 $ 108,682 $ 53,465 $ (51,798 ) $ (102,010 ) $ (197,970 ) Annual per-loan cost of servicing $ 66,582 $ 33,291 $ 16,645 $ (16,645 ) $ (33,291 ) $ (66,582 ) CRT Arrangements Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread: Pricing spread shift in basis points -100 -50 -25 25 50 100 (in thousands) Change in fair value $ 39,939 $ 19,678 $ 9,768 $ (9,627 ) $ (19,116 ) $ (37,691 ) Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts: Property value shift in % -15% -10% -5% 5% 10% 15% (in thousands) Change in fair value $ (9,870 ) $ (5,922 ) $ (2,689 ) $ 2,216 $ 4,050 $ 5,566
For these reasons, the following estimates should not be viewed as earnings forecasts. 85 Mortgage-backed securities at fair value The following table summarizes the estimated change in fair value of our mortgage-backed securities as of December 31, 2025, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve: Interest rate shift in basis points -200 -75 -50 50 75 200 (in thousands) Change in fair value $ 156,066 $ 140,827 $ 103,147 $ (125,420 ) $ (191,665 ) $ (512,694 ) Mortgage Servicing Rights The following tables summarize the estimated change in fair value of MSRs as of December 31, 2025, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing: Change in fair value attributable to shift in: -20% -10% -5% +5% +10% +20% (in thousands) Option-adjusted spread $ 126,432 $ 62,141 $ 30,808 $ (30,295 ) $ (60,089 ) $ (118,218 ) Prepayment speed $ 270,324 $ 130,088 $ 63,843 $ (61,563 ) $ (120,960 ) $ (233,683 ) Annual per-loan cost of servicing $ 63,918 $ 31,959 $ 15,979 $ (15,979 ) $ (31,959 ) $ (63,918 ) CRT Arrangements Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread: Pricing spread shift in basis points -100 -50 -25 25 50 100 (in thousands) Change in fair value $ 33,617 $ 16,579 $ 8,234 $ (8,123 ) $ (16,138 ) $ (31,847 ) Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts: Property value shift in % -15% -10% -5% 5% 10% 15% (in thousands) Change in fair value $ (9,422 ) $ (5,706 ) $ (2,596 ) $ 2,215 $ 4,077 $ 5,639
Removed
For these reasons, the following estimates should not be viewed as earnings forecasts.
Added
We believe that the primary market risks to the fair values of our investment in CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such arrangements.
Added
The portfolio includes securitization of Agency eligible non-owner occupied loans, which present distinct credit risks compared to Agency eligible owner-occupied loans, as the borrower's ability to service the debt is significantly dependent on the rental income generated by the underlying property.

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