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What changed in PennyMac Mortgage Investment Trust's 10-K — 2023 vs 2024

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

+511 added−467 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-22)

Top changes in PennyMac Mortgage Investment Trust's 2024 10-K

511 paragraphs added · 467 removed · 405 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+11 added−7 removed61 unchanged
Biggest changeFannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” • Our corporate segment includes management fee and corporate expense amounts and certain interest income. 6 Following is a summary of our segment results for the years presented: Year ended December 31, 2023 2022 2021 (in thousands) Net investment income: Credit sensitive strategies $ 232,624 $ (106,772 ) $ 323,121 Interest rate sensitive strategies 132,941 297,726 (204,665 ) Correspondent production 56,239 111,078 298,925 Corporate 7,216 1,739 2,916 $ 429,020 $ 303,771 $ 420,297 Pretax income (loss): Credit sensitive strategies $ 230,304 $ (112,566 ) $ 306,643 Interest rate sensitive strategies 44,593 207,802 (290,065 ) Correspondent production 23,285 27,557 86,936 Corporate (53,787 ) (59,706 ) (58,853 ) $ 244,395 $ 63,087 $ 44,661 Total assets at year end: Credit sensitive strategies $ 1,632,431 $ 1,614,977 $ 1,848,294 Interest rate sensitive strategies 10,281,904 9,991,621 7,363,878 Correspondent production 788,771 1,936,797 4,325,750 Corporate 410,781 378,169 234,786 $ 13,113,887 $ 13,921,564 $ 13,772,708 In our correspondent production segment, we purchase Agency-eligible and jumbo loans.
Biggest changeFollowing 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.
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: • $1.0 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.
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.
Specifically: • We are 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 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”).
However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our trustees and officers, as well as employees of PFSI and its subsidiaries who 9 provide services to us, from engaging in any transaction that involves an actual or apparent conflict of interest with us without the appropriate approval.
However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our trustees and officers, as well as employees of PFSI and its subsidiaries who provide services to us, from engaging in any transaction that involves an actual or apparent conflict of interest with us without the appropriate approval.
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 16 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 REO.
Compensation and Succession Planning Our and PFSI’s compensation programs are designed to motivate and reward employees who possess the necessary skills to support our business strategy and create long-term value for our shareholders. PFSI compensation may include base salary, annual cash incentives, and long-term equity incentives, as well as life insurance and 401(k) plan matching contributions.
Compensation and Succession Planning Our and PFSI’s compensation programs are designed to motivate and reward employees who possess the necessary skills to support our business strategy and create long-term value for our shareholders. Our and PFSI’s compensation may include base salary, annual cash incentives, and long-term equity incentives, as well as life insurance and 401(k) plan matching contributions.
We then either: • sell 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 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.
Talent development is a critical component of our and PFSI’s experience and ensures that employees have career growth opportunities, including establishing development networks and relationships and fostering continued growth and learning. Employees receive regular business and compliance training to help further enhance their career development objectives.
Talent development is a critical component of our and PFSI’s employee experience and ensures that employees have career growth opportunities, including establishing development networks and relationships and fostering continued growth and learning. Employees receive regular business and compliance training to help further enhance their career development objectives.
During the period the agreement to repurchase is outstanding, our lender is generally contractually authorized to repledge the assets underlying the repurchase agreement. The repurchase agreements generally contain margin provisions that 11 require us to maintain our borrowings at a specified percentage of the fair value of the assets pledged to secure the borrowings.
During the period the agreement to repurchase is outstanding, our lender is generally contractually authorized to repledge the assets underlying the repurchase agreement. The repurchase agreements generally contain margin provisions that require us to maintain our borrowings at a specified percentage of the fair value of the assets pledged to secure the borrowings.
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.
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 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 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.
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.
To the extent we satisfy the 90% distribution 14 requirement but distribute less than 100% of our taxable income, we are subject to U.S. 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 are subject to U.S. federal corporate income tax on our undistributed taxable income.
Interest-only security payable One of the classes of the securities issued by the trusts relating to our investments in CRT arrangements is an interest-only security that we issued to a nonaffiliate.
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.
This debt is repaid by the issuing trust from the cash flows based on the reference loans underlying these securities. 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. 13 Unsecured senior notes Exchangeable senior notes Our subsidiary, PennyMac Corp.
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, 2023. 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 $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 .
PFSI has established a separate donor advised fund to facilitate donations to various local and national charitable organizations and has provided funding to several charitable organizations located near our office sites and national organizations that support missions such as sustainable homeownership, mortgage and rental assistance, food insecurity, disaster recovery, family and child advocacy, and community empowerment.
PFSI has established a separate donor advised fund to facilitate donations to various local and national charitable organizations and has provided funding to several charitable organizations located near our office sites and national organizations that support missions such as sustainable homeownership, mortgage and rental assistance, food insecurity, disaster relief, family and child advocacy, and community empowerment.
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 2023, we were the largest correspondent aggregator in the United States as ranked by Inside Mortgage Finance.
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.
On or after September 30, 2025, we may redeem for cash all or any portion of the 2023 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.
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.
As part of these efforts, PFSI strives to offer competitive compensation and benefits, foster a community where everyone feels a greater sense of belonging and purpose, and provide employees with the opportunity to give back and make an impact in the communities where we live and serve.
As part of these efforts, we and PFSI strive to offer competitive compensation and benefits, foster a community where everyone feels a greater sense of belonging and purpose, and provide employees with the opportunity to give back and make an impact in the communities where we live and serve .
A significant portion of our balance sheet is comprised of longer-lived assets - such as MSRs, servicing advances, CRT arrangements and distressed loans - that have historically been less liquid, and more difficult to finance than our newly originated mortgage loans and MBS.
A significant portion of our balance sheet is comprised of longer-lived assets - such as MSRs, servicing advances and CRT arrangements - that have historically been less liquid, and more difficult to finance than our newly originated mortgage loans and our holdings of MBS.
As discussed in Note 6 – Variable Interest Entities to the consolidated financial statements included in this Report, we consolidate the trusts that issue the securities underlying our investments in the CRT arrangements. As part of the consolidation of the CRT arrangements, we recognize this interest-only security as debt on our consolidated balance sheet.
As discussed in Note 6 – Variable Interest Entities to the consolidated financial statements included in this Report, we consolidate the trusts that issue the securities underlying our investments in the CRT arrangements. As part of the consolidation of the CRT arrangements, we recognize this IO security as debt on our consolidated balance sheet.
In the 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., MFA Financial, Inc., New York Mortgage Trust, Inc., Redwood Trust Inc. 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.
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.
Cash flows from those loans represent the sole source of repayment of this debt and the holders of this debt have no recourse to other assets on our consolidated balance sheet. The maturities of these financings are based on the loan(s) with the latest maturity of the loans in the issuing subsidiary trusts.
Cash flows from those loans and properties represent the sole source of repayment of this debt and the holders of this debt have no recourse to other assets on our consolidated balance sheet. The maturities of these financings are based on the loan(s) with the latest maturity of the loans in the issuing securitization trusts.
Any mortgage servicing rights for the loans underlying these securities are owned by us, and sub-serviced by PLS for the subsidiary trusts issuing the securities.
Any mortgage servicing rights for the loans underlying these securities are owned by us, and sub-serviced by PLS for the securitization trusts issuing the securities.
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 a long-term maturity. • $1.1 billion in various credit agreements secured by Freddie Mac MSRs. • $748 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. • $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.
Our long-term growth and success is highly dependent upon PFSI’s employees and PFSI’s ability to maintain a diverse, equitable and inclusive workplace representing a broad spectrum of backgrounds, ideas and perspectives.
Our long-term growth and success is highly dependent upon PFSI’s employees and PFSI’s ability to maintain a workplace representing a broad spectrum of backgrounds, ideas and perspectives.
These term notes do not include margin call provisions. However, these term notes must be repaid based on the amortization of the CRT assets that collateralize them. These term notes have maturities ranging from February 2024 through May 2025.
These term notes do not include margin call provisions. However, these term notes must be repaid based on the amortization of the CRT assets that collateralize them. These term notes have maturities ranging from February 2024 through September 2028.
Because we hold substantially all of the subordinate securities created in these transactions and we or PLS service 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 at fair value.
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”).
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.
Committed facilities 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.
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.
In addition, as of the end of fiscal year 2023, PFSI’s workforce was 51.8% female and 48.2% male, and the ethnicity of PFSI’s workforce was 44.3% White, 23.4% Hispanic or Latino, 14.0% Black or African American, 14.2% Asian and 4.1% other (which includes American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, Two or More Races, and Not Specified as defined in its EE0-1 Report filed with the Department of Labor).
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) .
We also include the securities issued to nonaffiliates by the issuing trusts as Asset-backed financings at fair value on our consolidated balance sheet. This debt is repaid by the issuing trust from the cash flows received on the loans underlying these subordinate securities.
We also include the securities issued to nonaffiliates by the issuing trusts as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheet. This debt is repaid by the issuing trust from the cash flows received on the loans and the related mortgaged properties underlying these subordinate securities.
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 one of our subsidiary trusts. We purchase subordinate securities from nonaffiliate sponsored transactions and retain subordinate securities in the transactions we sponsored.
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.
To the extent we finance long-lived assets with repurchase agreements, we are also exposed to the risk of our being unable to refinance these assets under terms that are reasonable to us when the repurchase agreements mature. Our repurchase agreement facilities include a mix of committed and uncommitted facilities.
To the extent we finance long-lived assets with repurchase agreements, we are also exposed to the risk of our being unable to refinance these assets under terms that are reasonable to us when the repurchase agreements mature.
Equity Our shareholders’ equity includes both common and cumulative preferred shares, partially offset by our accumulated deficit as summarized below: December 31, 2023 2022 2021 (in thousands) Paid-in capital Preferred shares $ 541,482 $ 541,482 $ 541,482 Common shares 1,924,303 1,948,155 2,082,706 2,465,785 2,489,637 2,624,188 Accumulated deficit (508,695 ) (526,822 ) (256,670 ) $ 1,957,090 $ 1,962,815 $ 2,367,518 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, 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.
Employee Retention and Development We and PFSI believe in attracting, developing and engaging the best talent, while providing a supportive work environment that prioritizes the health and safety of all.
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.
The 2023 senior notes are fully and unconditionally guaranteed on a senior unsecured basis by our subsidiary, PMC, including the due and punctual payment of principal and interest on the 2023 senior notes, whether at stated maturity, upon acceleration, call for redemption or otherwise.
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.
Our business includes four segments: credit sensitive strategies, interest rate sensitive strategies, correspondent production, and corporate. • The credit sensitive strategies segment represents our investments in CRT arrangements, subordinate MBS, distressed loans and real estate. • The interest rate sensitive strategies segment represents our investments in MSRs, excess servicing spread (“ESS”) purchased from PFSI, 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.
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.
We are exposed to loss in the event a lender makes a margin call to us and we are unable to fund the margin call. In such a circumstance, the lender is contractually allowed to liquidate the assets securing the repurchase agreement and pursue repayment from us for any balance not satisfied through the sale of the collateral.
In such a circumstance, the lender is contractually allowed to liquidate the assets securing the repurchase agreement and pursue repayment from us for any balance not satisfied through the sale of the collateral.
Following is a summary of our repurchases of common shares: Year ended December 31, Share repurchases (in thousands) 2023 $ 28,490 2022 $ 87,992 2021 $ 56,855 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, 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.
Cyclicality and Seasonality The demand for loan originations is affected by consumer demand for home loans. Demand for home loans generally comes from the demand for loans made to finance the purchase of homes and the demand for loans made to refinance existing loans.
Demand for home loans generally comes from the demand for loans made to finance the purchase of homes and the demand for loans made to refinance existing loans.
The sale of loans to nonaffiliates from our correspondent production activities serves as the source of our investments in MSRs, CRT arrangements and subordinate non-Agency MBS which are summarized below: Year ended December 31, 2023 2022 2021 (in thousands) Sales of loans acquired for sale: To nonaffiliates $ 15,936,124 $ 39,077,156 $ 110,919,477 To PennyMac Financial Services, Inc. 72,441,699 50,575,617 67,851,630 $ 88,377,823 $ 89,652,773 $ 178,771,107 Net gains on loans acquired for sale $ 39,857 $ 25,692 $ 87,273 Investment activities resulting from correspondent production: Receipt of MSRs as proceeds from sales of loans $ 292,527 $ 670,343 $ 1,484,629 Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings (1) — 23,485 42,256 Purchase of subordinate bonds backed by previously-sold loans secured by investment properties (1) — — 28,815 Total investments resulting from correspondent activities $ 292,527 $ 693,828 $ 1,555,700 (1) The trusts issuing the securities are consolidated on our consolidated balance sheets.
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.
(2) Comprised of home equity lines of credit and a small balance commercial loan. Over time, our targeted asset classes may change as a result of changes in the opportunities that are available in the market, among other factors.
Over time, our targeted asset classes may change as a result of changes in the opportunities that are available in the market, among other factors.
Compliance and Regulation Our business is subject to extensive federal, state and local regulation. 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.
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.
A wholly-owned subsidiary of ours is the sole general partner, and we are the sole limited partner, of our Operating Partnership. Certain of the activities conducted or investments made by us that are described below are conducted or made through a wholly-owned subsidiary that is a taxable REIT subsidiary (“TRS”) or through other subsidiaries of our Operating Partnership.
Certain of the activities conducted or investments made by us that are described below are conducted or made through a wholly-owned subsidiary that is a taxable real estate investment trust (“REIT”) subsidiary (“TRS”) or through other subsidiaries of our Operating Partnership.
The exchangeable senior notes are exchangeable into 40.101 PMT common shares per $1,000 principal amount for the notes maturing on November 1, 2024 and 46.1063 PMT common shares per $1,000 principal amount for the notes maturing on March 15, 2026, 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 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 dividends paid deduction of a REIT for qualifying dividends to its shareholders is computed using our taxable income as opposed to net income reported on our financial statements. 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.
The dividends paid deduction of a REIT for qualifying dividends to its shareholders is computed using our taxable income as opposed to net income reported on our financial statements.
(“PMC”), has issued $555 million in outstanding exchangeable senior notes with maturities through March 2026. The exchangeable senior notes are unsecured obligations.
(“PMC”), has $561.5 million in outstanding exchangeable senior notes with maturities through June 2029. The exchangeable senior notes are unsecured obligations.
As of December 31, 2023, we had 812 approved sellers with delegated underwriting authority, primarily independent mortgage originators and small banks located across the United States.
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.
PFSI had approximately 3,900 domestic employees as of the end of fiscal year 2023.
PFSI had approximately 4,100 domestic employees as of the end of fiscal year 2024.
We have liquidated our investment in ESS and substantially liquidated our investment in distressed mortgage assets. 8 Following is a summary of our acquisitions of other mortgage-related investments: Year ended December 31, 2023 2022 2021 (in thousands) MBS, net of sales $ 542,653 $ 2,638,267 $ 932,270 ESS, net of sale — — (129,304 ) $ 542,653 $ 2,638,267 $ 802,966 Our portfolio of mortgage investments was comprised of the following: December 31, 2023 2022 2021 (in thousands) Credit sensitive assets: CRT arrangements, net (1) $ 1,146,299 $ 1,144,078 $ 1,686,445 Subordinate credit-linked mortgage-backed securities 301,180 177,898 — Subordinate interests in loans held in VIEs, net of associated asset-backed financings 85,344 84,044 85,266 Distressed loans at fair value 2,131 3,457 4,161 Real estate acquired in settlement of loans 4,541 7,734 14,382 Other (2) 1,803 2,424 4,229 1,541,298 1,419,635 1,794,483 Interest rate sensitive assets: Agency and senior non-Agency mortgage-backed securities 4,535,112 4,284,703 2,666,768 Mortgage servicing rights at fair value 3,919,107 4,012,737 2,892,855 Net interest rate hedges 149,603 77,483 (2,546 ) 8,603,822 8,374,923 5,557,077 $ 10,145,120 $ 9,794,558 $ 7,351,560 (1) Investments in CRT arrangements include deposits securing CRT arrangements, CRT strips, CRT derivatives and an interest-only security payable.
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.
PLS also serves as a source of correspondent production to us. 7 Following is a summary of our correspondent production activities: Year ended December 31, 2023 2022 2021 (in thousands) Correspondent loan purchases at fair value: GSE-Eligible Loans (1) $ 46,395,294 $ 41,575,252 $ 113,667,618 Government insured or guaranteed for sale to PLS 41,103,974 46,562,853 67,702,945 Jumbo 4,234 5,029 — Home equity lines of credit 102 132 — $ 87,503,604 $ 88,143,266 $ 181,370,563 Interest rate lock commitments issued $ 91,096,344 $ 91,031,903 $ 172,953,139 Fair value of loans at year ended pending sale to: Nonaffiliates $ 497,426 $ 1,662,262 $ 3,856,030 PLS 168,303 159,671 314,995 $ 665,729 $ 1,821,933 $ 4,171,025 Number of approved sellers at year-end (2) 812 722 768 (1) The Company sells or finances a portion of its GSE-Eligible Loans to or with other investors, including PLS.
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.
We pay a facility commitment fee to maintain committed amounts and endeavor to minimize our borrowing costs while maintaining adequate committed amounts to fund our expected loan inventory levels during the facility commitment period.
We pay facility commitment fees to maintain adequate committed amounts to fund our expected loan inventory levels during the facility commitment period and endeavor to minimize our borrowing costs. We are exposed to loss in the event a lender makes a margin call to us and we are unable to fund the margin call.
To address this competition, we have access to PCM’s professionals and their industry expertise, which we believe provides us with a competitive advantage and helps us assess investment risks and determine appropriate pricing for certain potential investments. We expect this relationship to enable us to compete more effectively for attractive investment opportunities.
To address this competition, we have access to PCM’s professionals and their industry expertise that helps us assess investment risks and determine appropriate pricing for potential investments. Furthermore, we believe that our access to PLS servicing expertise provides us with a competitive advantage over other companies with a similar focus.
The exchangeable senior notes bear interest at 5.50%. 2023 senior notes In September 2023, we issued $53.5 million principal amount of unsecured 8.50% senior notes due September 30, 2028. The 2023 senior notes bear interest at a rate of 8.50% per year.
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").
We and PFSI also foster a more inclusive culture through a variety of initiatives, including corporate training, special events, community outreach and corporate philanthropy. 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 that are important 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. 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.
PFSI also offers a comprehensive selection of health and welfare benefits to its 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.
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.
From time to time, we or our Servicer receive requests from states and Agencies and various investors for records, documents and information regarding our policies, procedures and practices regarding our loan production and loan servicing business activities, and undergo periodic examinations by federal and state regulatory agencies. 15 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 (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.
PFSI’s five philanthropic focus areas are: community development and equitable housing, financial literacy and economic inclusion, human and social services, health and medical research, and environmental sustainability.
PFSI’s philanthropy program consists of a number of key components: an employee matching gifts program, a volunteer grants program, a charitable grants program and a corporate sponsorship program. PFSI’s five philanthropic focus areas are: community development and affordable housing, financial literacy and economic inclusion, human and social services, health and medical research, and environmental sustainability .
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. Competition 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.
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.
Cooper, Rithm Capital Corp., Truist Financial, Western Alliance Bank and Ocwen Financial. 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 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.
This approach to managing our equity includes supplementing our common shares with issuances of preferred shares and common share repurchase activities. At December 31, 2023, we had $200 million of common shares available for issuance under our at-the-market equity offering program and $73 million authorized for share repurchases.
This approach to managing our equity includes supplementing our Common Shares with issuances of preferred shares and common share repurchase activities.
Diversity, Equity and Inclusion We and PFSI believe that building a diverse, equitable and inclusive, high-performing workforce where PFSI’s employees bring varied perspectives and experiences to work every day creates a positive influence in PFSI’s workplace, community and business operations.
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.
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, 2023: Assets financed 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 $ 4,417,336 $ 616,187 $ 62,258 $ 45,592 $ 483,185 $ — $ 5,624,558 Mortgage loan participation purchase and sale agreements — — — — — — — Long term Notes payable secured by CRT arrangements and MSRs — — — 746,533 2,164,072 — 2,910,605 Asset-backed financings at fair value — — 1,336,731 — — — 1,336,731 Interest-only security payable — — — 32,667 — — 32,667 Total secured borrowings 4,417,336 616,187 1,398,989 824,792 2,647,257 — 9,904,561 Unsecured senior notes 600,458 Total borrowings $ 4,417,336 $ 616,187 $ 1,398,989 $ 824,792 $ 2,647,257 $ — 10,505,019 Shareholders' equity 1,957,090 Total financing $ 12,462,109 Assets pledged to secure borrowings $ 4,836,292 $ 659,751 $ 1,431,896 $ 1,225,658 $ 4,052,450 $ 1,905 $ 12,207,952 Debt-to-equity ratio: Excluding non-recourse debt 4.7:1 Total 5.4:1 (1) Amounts pledged to secure borrowings include pledged servicing advances.
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.
Furthermore, we believe that our access to PLS servicing expertise provides us with a competitive advantage over other companies with a similar focus. However, we can provide no assurance that we will be able to achieve our business goals or expectations due to the competition and other risks that we face.
However, we can provide no assurance that we will be able to achieve our business goals or expectations due to the competition and other risks that we face. Cyclicality and Seasonality The demand for loan originations is affected by consumer demand for home loans.
We also invest in MBS and have historically invested in ESS on MSRs acquired by PLS and distressed mortgage assets (loans and real estate acquired in settlement of loans (“REO”)).
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.
The preferred shares become redeemable between March 15, 2024 and August 24, 2026.
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.
Removed
Our investment focus is on residential mortgage-backed securities (“MBS”) and mortgage-related assets that we create through our correspondent production activities. Correspondent production activities include purchasing, pooling and selling newly originated prime credit quality residential loans (“correspondent production”).
Added
A wholly-owned subsidiary of ours is the sole general partner, and we are the sole limited partner, of our Operating Partnership.
Removed
Through our correspondent production activities, we create and hold mortgage servicing rights (“MSRs”), non-Agency MBS, credit risk transfer (“CRT”) agreements (“CRT Agreements”), and other CRT securities (together, “CRT arrangements”).
Added
Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation.
Removed
Our Board of Trustees, our Nominating and Corporate Governance Committee, our Compensation Committee, and our Risk Committee provide regular oversight of our and PFSI’s corporate sustainability program, including our diversity, equity and inclusion programs and initiatives.
Added
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.
Removed
We and PFSI are also taking proactive measures to strategically and sustainably advance equity in the workplace through Business Resource Groups (“BRGs”), a diversity initiatives, mentorship programs, and external partnerships with organizations such as the Mortgage Bankers Association and the National Association of Minority Mortgage Bankers of America.
Added
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.
Removed
We and PFSI also established leadership goals and created customized initiatives that focus on PFSI’s continued effort to increase the number of women and underrepresented minorities in management positions throughout the company and its business divisions.
Added
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.
Removed
As it relates to PFSI’s inclusive culture, PFSI established the following BRGs to emphasize career growth, networking, and learning opportunities for employees and allies with shared backgrounds and experiences: the BOLD BRG (for Black and African American employees and allies), the HOLA BRG (for Hispanic, Latino and Latinx employees and allies), the InspirASIAN BRG (for Asian American and Pacific Islander employees and allies), the Pennymac PRIDE BRG (for LGBTQIA employees and allies), the SERVE BRG (for veteran and military family employees and allies), and the wEMRG BRG (for women employees and allies).
Added
(2) Total borrowings reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity. (3) Total borrowings divided by shareholders’ equity.
Removed
We and PFSI are committed to empowering our employees to be a positive influence in the communities where we live and serve, and believe that this commitment supports our efforts to attract and engage employees and improve retention. PFSI’s philanthropy program consists of three key components: an employee matching gift program, a charitable grants program and a corporate sponsorship program.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome 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. • 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. • 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. • CFPB and state rules and regulations or more stringent enforcement of existing rules and regulations by the CFPB or state regulators could result in enforcement actions, fines, penalties and reputational harm that results from such actions. • We are highly dependent on U.S. government-sponsored entities and government agencies, and any organizational or pricing changes at such entities or their regulators could materially and adversely affect our business, liquidity, financial condition and results of operations. • We and/or PLS are required to have various Agency approvals and state licenses in order to conduct our business and there is no assurance we and/or PLS will be able to obtain or maintain those Agency approvals or state licenses. • 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 18 • 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. • Hedging against interest rate exposure may materially and adversely affect our results of operations and cash flows. • Our correspondent production activities could subject us to increased risk of loss. • Our correspondent production activities depend, in part, upon PLS’ and other PFSI subsidiaries’ ability to adapt to and implement technological changes and to successfully develop, implement and protect their proprietary technology. • 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. • Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to significant risk of loss. • A portion of our investments is in the form of residential loans, and 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 acquisition of mortgage servicing rights exposes us to significant risks. • Climate change, adverse weather conditions, man-made or natural disasters, pandemics, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service, as well as geographic areas where we conduct business. • We 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 could cause disincentive and/or create greater investment risk. • Termination of our management agreement is difficult and costly. • 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 represented by a TRS 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. • Our and our Manager’s risk management efforts may not be effective.
Biggest changeSome 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 .
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, liquidity and results of operations.
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.
These complexities could lead to a delay in preparation of financial information and the delivery of this information to our shareholders and also increase the risk of errors and restatements, as well as the cost of compliance.
These complexities could lead to a delay in preparation of financial information and the delivery of this information to our shareholders, and could also increase the risk of errors and restatements, as well as the cost of compliance.
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 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% of our assets in order for us to remain qualified as a REIT.
Thus, holders of our common shares bear the risk that our future issuances of debt or equity securities or other borrowings will reduce the market price of our common shares and dilute their ownership in us.
Thus, holders of our Common Shares bear the risk that our future issuances of equity or debt securities or other borrowings will reduce the market price of our Common Shares and dilute their ownership in us.
Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling the loans that we produce into the secondary market in a timely manner or at favorable prices and we could be required to hold a larger inventory of loans than we have committed facilities to fund, or we may be required to repay a portion of the debt secured by these assets, all of which could materially and adversely affect our business, financial condition, results of operations and our ability to make distributions to our shareholders.
Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling or securitizing the loans that we produce into the secondary market in a timely manner or at favorable prices and we could be required to hold a larger inventory of loans than we have committed facilities to fund, or we may be required to repay a portion of the debt secured by these assets, all of which could materially and adversely affect our business, financial condition, results of operations and our ability to make distributions to our shareholders.
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 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.
However, we 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 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.
Any such 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.
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.
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 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 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.
In conjunction with our correspondent business, we have previously entered into CRT arrangements with Fannie Mae, whereby we sold pools of loans into Fannie Mae guaranteed securitizations while retaining a portion of the credit risk and an interest-only (“IO”) ownership interest in such loans or purchasing Agency securities that absorb losses incurred by such loans.
In conjunction with our correspondent business, we have previously entered into CRT arrangements with Fannie Mae, whereby we sold pools of loans into Fannie Mae guaranteed securitizations while retaining a portion of the credit risk and an interest-only ownership interest in such loans or purchasing Agency securities that absorb losses incurred by such loans.
The contractual restrictions on transfer, risk retention requirements or the illiquidity of our investments may make it difficult for us to sell such investments if the need or desire arises. In the event a borrower defaults on a subordinate loan and lacks sufficient assets to satisfy such loan, we may lose all or a significant part of our investment.
The contractual restrictions on transfer, risk retention requirements or the illiquidity of our investments may make it difficult for us to sell such investments if the need or desire arises. In the event a borrower defaults on subordinate loans and lacks sufficient assets to satisfy such loan, we may lose all or a significant part of our investment.
Any such ineffective correlation may prevent 28 us from achieving the intended hedge and expose us to risk of loss. Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
Any such ineffective correlation may prevent us from achieving the intended hedge and expose us to risk of loss. Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures.
In addition, our failure to comply with applicable servicing guidelines could result in our termination under such master servicing agreements by the Agencies with little or no notice and without any compensation. The owners of other non-Agency loans that we service may also terminate certain of our MSRs if we fail to comply with applicable servicing guidelines.
In addition, our failure to comply with applicable servicing guidelines could result in our termination under such master servicing agreements by the Agencies with little or no notice and without any compensation. The owners of other non-Agency loans that we service may also terminate our MSRs if we fail to comply with applicable servicing guidelines.
We are required to comply with a wide array of federal, state and local laws and regulations that regulate, among other things, the manner in which we conduct our loan production and servicing businesses. These regulations directly impact our business and require constant compliance, monitoring and internal and external audits.
We and PLS are required to comply with a wide array of federal, state and local laws and regulations that regulate, among other things, the manner in which we conduct our loan production and servicing businesses. These regulations directly impact our business and require constant compliance, monitoring and internal and external audits.
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 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 mortgage lenders and PLS through our correspondent production activities that qualify under existing standards for inclusion in mortgage securities backed by the Agencies.
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. 40 Further, our declaration of trust authorizes us to issue additional authorized but unissued common shares and preferred shares.
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.
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 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 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.
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.
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.
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.
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.
This framework includes divisions or groups dedicated to enterprise risk management, credit risk, climate risk, corporate sustainability, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources 47 matters, vendor management and internal audit, among others.
This framework includes divisions or groups dedicated to enterprise risk management, credit risk, climate risk, corporate sustainability, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others.
In addition, MBS liquidity and interest rates may be impacted by future sales and reallocations of the Federal Reserve’s MBS portfolio. Changes in interest rates affect our net interest income, which is the difference between the interest income we earn on our interest earning investments and the interest expense we incur in financing these investments.
In addition, MBS liquidity and interest rates may be impacted by future sales and reallocations of the Federal Reserve’s MBS portfolio. Changes in interest rates affect our net interest income, which is the difference between the 20 interest income we earn on our interest earning investments and the interest expense we incur in financing these investments.
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us or PLS, which could cause us or PLS to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. 24 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.
To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us or PLS, which could cause us or PLS to cross default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. 22 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.
If 41 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 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.
Any extinguishment of our and the secured parties’ rights in the related collateral could result in significant losses to us. We may in the future utilize other sources of borrowings, including term loans, bank credit facilities and structured financing arrangements, among others.
Any extinguishment of our and the secured parties’ rights in the related collateral could result in significant losses to us. We may in the future utilize other sources of borrowings, including term loans, credit facilities and structured financing arrangements, among others.
We are also exposed to market risk and, as a 31 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.
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 30 natural disasters, health 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 contingency planning may not be sufficient for all situations.
While we may enter into such transactions seeking to reduce interest rate risk, unanticipated changes in interest rates may result in worse overall investment performance than if we had not engaged in any such hedging transactions.
Therefore, while we may enter into such transactions seeking to reduce interest rate risk, unanticipated changes in interest rates may result in worse overall investment performance than if we had not engaged in any such hedging transactions.
The repurchased loans typically 36 can only be financed at a steep discount to their repurchase price, if at all. Repurchased loans are also typically sold at a discount to the unpaid principal balance, which in some cases can be significant.
The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. Repurchased loans are also typically sold at a discount to the unpaid principal balance, which in some cases can be significant.
However, even if a domestic shareholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than rates for regular corporate dividends paid to high-taxed individuals.
However, even if a domestic non-corporate shareholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than rates for regular corporate dividends paid to high-taxed individuals.
Furthermore, MSRs and the related servicing activities are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business.
MSRs and the related servicing activities are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business.
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.
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.
Regulatory scrutiny, litigation or reputational risk incurred in connection with conflicts of interest would adversely affect our 39 business in a number of ways and may adversely affect our results of operations.
Regulatory scrutiny, litigation or reputational risk incurred in connection with conflicts of interest would adversely affect our business in a number of ways and may adversely affect our results of operations.
Various federal regulatory agencies and departments take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a “disparate impact” on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionately negative affect on a protected class of individuals).
Various federal regulatory agencies and departments take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a “disparate impact” on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionately negative effect on a protected class of individuals).
The Financial Stability Oversight Council (“FSOC”) and Conference of State Bank Supervisors have been reviewing whether state chartered nonbank mortgage servicers should be subject to “safety and soundness” standards similar 22 to those imposed by federal law on insured depository institutions, even though nonbank mortgage servicers do not have any federally insured deposit accounts.
The Financial Stability Oversight Council (“FSOC”) and Conference of State Bank Supervisors have been reviewing whether state chartered nonbank mortgage servicers should be subject to “safety and soundness” standards similar to those imposed by federal law on insured depository institutions, even though nonbank mortgage servicers do not have any 26 federally insured deposit accounts.
While it is not possible to predict when and whether significant policy or regulatory changes would occur, any such changes on the federal, state or local level could significantly impact, among other things, our operating expenses, the availability of mortgage financing, interest rates, consumer spending, the economy and the geopolitical landscape.
While it is not possible to predict when and whether significant policy or regulatory changes will occur, any such changes on the federal, state or local level could significantly impact, among other things, our operating expenses, the availability of mortgage financing, interest rates, consumer spending, the economy and the geopolitical landscape.
We also have an effective shelf registration statement allowing us to issue additional common shares, preferred shares and debt securities, including, without limitation, common shares through our “at-the-market” equity program and, as of December 31, 2023, we have approximately $200 million of common shares available for issuance under that program.
We also have an effective shelf registration statement allowing us to issue additional Common Shares, preferred shares and debt securities, including, without limitation, Common Shares through our “at-the-market” equity program and, as of December 31, 2024, we have approximately $200 million of Common Shares available for issuance under that program.
To the extent that the current government administration takes action by proposing and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders.
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.
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 segment, 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 (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.
These banking institutions and private equity firms are subject 26 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 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.
If any agreement is terminated or not renewed and not replaced by a new agreement, it would materially and adversely affect our ability to continue to execute our business plan. If our management agreement or loan servicing agreement is terminated or not renewed, we will have to obtain the services from another service provider.
If any agreement is terminated or not renewed and not replaced by a new agreement, it would materially and adversely affect our ability to continue to execute our business plan. If our management agreement, mortgage banking services agreement or loan servicing agreement is terminated or not renewed, we will have to obtain the services from another service provider.
The failure of our correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences. PLS has in place a compliance program designed to assess areas of risk with respect to loans we acquire from such correspondent sellers.
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.
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 25 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 23 result in significant losses to us.
The development, implementation and protection of these technologies and becoming more proficient with them may also require significant capital expenditures by PLS and PFSI. As these technological advancements increase in the future, PLS and PFSI will need to further develop and invest in these technological capabilities to remain competitive.
The development, implementation and protection of these technologies and becoming more proficient with them may also require significant capital expenditures by PLS and PFSI. As these technological advancements continue in the future, PLS and PFSI will need to further develop and invest in these technological capabilities to remain competitive.
To qualify for this deduction, the shareholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
To qualify for this deduction, the domestic non-corporate shareholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
Accounting rules for certain of our transactions 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, 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, 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.
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
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.
Continuing concerns over factors including inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, domestic political issues, pandemics, climate change, the availability and cost of credit and the mortgage and real estate markets have contributed to increased volatility and unclear expectations for the economy and markets going forward.
Continuing concerns over factors including inflation, deflation, unemployment, personal and business income taxes, healthcare, energy costs, domestic political issues, pandemics, wars and armed conflicts, climate change, the availability and cost of credit and the mortgage and real estate markets have contributed to increased volatility and unclear expectations for the economy and markets going forward.
A TMP is always classified as a corporation for U.S. 46 federal income tax purposes.
A TMP is always classified as a corporation for U.S. federal income tax purposes.
On November 3, 2023, FSOC revised its guidance governing the potential designation of nonbank financial companies for supervision by the Federal Reserve Board and application of prudential standards and an “analytic framework” for identifying, assessing, and responding to financial stability risks that could facilitate new nonbank financial company designations.
In November 2023, the FSOC revised its guidance governing the potential designation of nonbank financial companies for supervision by the Federal Reserve Board and application of prudential standards and an “analytic framework” for identifying, assessing and responding to financial stability risks that could facilitate new nonbank financial company designations.
In the event a borrower on a subordinated loan becomes subject to bankruptcy proceedings, we will not have any recourse to the assets, if any, of the borrower that are not pledged to secure our loan.
In the event a borrower on a subordinate loan becomes subject to bankruptcy proceedings, we will not have any recourse to the assets, if any, of the borrower that are not pledged to secure our loan.
These state rules and regulations generally provide for, but are not limited to: originator, servicer and debt collector licensing requirements, requirements as to the form and content of contracts and other documentation, employee licensing and background check requirements, fee requirements, interest rate limits, and disclosure and record-keeping requirements.
These state rules and regulations generally provide for, but are not limited to: originator, servicer and debt collector licensing requirements, requirements as to the form and content of loan agreements and other documentation, employee licensing and background check requirements, fee requirements, interest rate limits, and disclosure and record-keeping requirements.
Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and market conditions.
Our hedging activity will vary in scope based on the risks being mitigated, the level of interest rates, the type of investments held, and other changing market conditions.
The fair value of subordinate loans or subordinate or credit-linked 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 MBS 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 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.
Risks Related to Our Investments Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to significant risk of loss.
Risks Related to Our Investments Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to a risk of loss.
MSRs arise from contractual agreements between us and the investors (or their agents) in mortgage securities and loans that we service on their behalf. We generally acquire MSRs in connection with our sale of loans to the Agencies where we assume the obligation to service such loans on their behalf.
MSRs arise from contractual agreements between us and the investors (or their agents) in loans and MBS that we service on their behalf. We generally acquire MSRs in connection with our sale of loans to the Agencies where we assume the obligation to service such loans on their behalf.
If the underlying mortgage portfolio has been serviced ineffectively by the loan servicer or if the fair values of the assets subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related MBS, the securities in which we invest may suffer significant losses.
If the underlying mortgage portfolio has been serviced ineffectively by the loan servicer or if the fair values of the assets subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related mortgage securities, we may suffer significant losses.
We are not independently capable of protecting our MSR assets from borrower refinancing through targeted solicitations to, and origination of, refinance loans for borrowers in our servicing portfolio. Accordingly, unlike traditional mortgage originators and many servicers, we must rely upon PLS to refinance loans in our servicing portfolio that would otherwise be targeted by other lenders.
We are not independently capable of protecting our MSR assets from borrower refinancing through targeted solicitations to, and origination of, refinance loans for borrowers in our servicing portfolio. Accordingly, unlike other mortgage lenders and servicers, we rely upon PLS to refinance loans in our servicing portfolio that would otherwise be targeted by other lenders.
Hedging instruments involve risk because they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities, and our interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedging instruments may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related liability or asset; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; • 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.
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.
We may not be able to successfully operate our business or generate sufficient operating cash flows to make or sustain distributions to our shareholders. There can be no assurance that we will be able to generate sufficient cash to pay our operating expenses and make distributions to our shareholders.
We may not be able to successfully generate sufficient returns and cash flows to make or sustain distributions to our shareholders. There can be no assurance that we will be able to generate sufficient cash to pay our operating expenses and make distributions to our shareholders.
Furthermore, a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from MSRs, and we could ultimately receive substantially less than 32 what we paid for such assets. Moreover, delinquency rates have a significant impact on the valuation of any MSRs.
Furthermore, a significant increase in prepayment speeds could materially reduce the cash flows we receive from MSRs, and we could ultimately receive substantially less than what we paid for such assets. Delinquency rates have a significant impact on the valuation of MSRs.
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. The fair values of some of our investments are not readily determinable.
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.
To manage this price risk, we use derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, primarily prepayment exposure on our MSR investments as well as IRLCs and our inventory of loans held for sale as well as MBS and CRTs.
To manage this price risk, we use derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, such as prepayment exposure on our MSR investments, IRLCs and our inventory of loans held for sale.
Hedging against interest rate exposure may materially and adversely affect our results of operations and cash flows. We pursue hedging strategies in a manner that is consistent with the REIT qualification requirements to reduce our exposure to interest rate fluctuations.
Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity, results of operations and cash flows. We pursue hedging strategies in a manner that is consistent with the REIT qualification requirements to reduce our exposure to interest rate fluctuations.
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. 29 Government-insured or guaranteed loans that are typically securitized through the Ginnie Mae program accounted for 47% of our purchases in fiscal year 2023.
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. Government-insured or guaranteed loans that are typically securitized through the Ginnie Mae program accounted for 43% of our purchases in fiscal year 2024.
While we intend to manage our affairs so as to satisfy this requirement, there can be no assurance that we will be able to do so in all market circumstances and even if we are able to do so, compliance with this rule may reduce our flexibility in operating our business.
While we intend to manage our affairs so as to satisfy this requirement, there can be no assurance that we will be able to do so in all market circumstances and even if we are able to do so, compliance with this rule may reduce our flexibility in pursuing certain investment strategies or operating our business.
For example, by relying on incorrect models and data, especially valuation models, PCM may be induced to buy certain investments at prices that are too high, to sell certain other investments at prices that are too low or to 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, 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.
We and our Manager also may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the methods of attack change frequently or may not be recognized until after such attack has been launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with third party service providers.
We and our Manager also may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the methods of attack change frequently, have become increasingly sophisticated, including through the use of artificial intelligence, and may not be recognized until after such attack has been launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with third party service providers.
The discontinuation of LIBOR could have a significant impact on our business activities, including, but not limited to, agreements or instruments underlying our financing arrangements, and securities and liabilities with fallback language that seeks to ensure economic equivalence with our financing arrangements and securities prior to the discontinuation of LIBOR.
The discontinuation of London Inter-bank Offered Rate (“LIBOR”) could have a significant impact on our business activities, including, but not limited to, agreements or instruments underlying our financing arrangements, and securities and liabilities with fallback language that seeks to ensure economic equivalence with our financing arrangements and securities prior to the discontinuation of LIBOR.
To the extent we do not utilize derivative financial instruments to hedge against changes in fair value of MSRs or the derivatives we use in our hedging activities do not perform as expected, our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders would be more susceptible to volatility due to changes in the fair value of, or cash flows from, MSRs as interest rates change.
To the extent we do not utilize derivative financial instruments to hedge against changes in fair value of MSRs or the derivatives we use in our hedging activities do not perform as expected, our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders would be more susceptible to volatility.
As a result, our desire or ability to terminate any of our related party agreements may be adversely affected to the extent such termination would trigger the right of PCM to terminate the management agreement and our obligation to pay PCM a significant termination fee. Our relationship with PFSI, PCM and PLS may result in conflicts of interest.
Our ability to terminate any of our related party agreements may be adversely affected to the extent such termination would trigger the right of PCM to terminate the management agreement and could result in a significant termination fee or loss. Our relationship with PFSI, PCM and PLS may result in conflicts of interest.
In addition, the degree of correlation between price movements of the instruments used in hedging strategies and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not establish an effective correlation between such hedging instruments and the portfolio positions or liabilities being hedged.
The degree of correlation between price movements of the instruments used in hedging strategies and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, we may not establish an effective correlation between such hedging instruments and the portfolio positions or liabilities being hedged.
If the Internal Revenue Service (“IRS”) were to take a position adverse to our interpretation, the consequences of such action could materially and adversely affect our business, financial condition, liquidity, results of operations, and our ability to make distributions to our shareholders.
If the IRS were to take a position adverse to our interpretation, the consequences of such action could materially and adversely affect our business, financial condition, liquidity, results of operations, and our ability to make distributions to our shareholders.
Historically, the fair value of MSRs has increased when interest rates increase and has decreased when interest rates decrease due to the effect those changes in interest rates have on prepayment estimates.
Changes in interest rates are a key driver of the performance of MSRs. Historically, the fair value of MSRs has increased when interest rates increase and has decreased when interest rates decrease due to the effect those changes in interest rates have on prepayment estimates.
In addition, pursuant to the Tax Act, we generally will be required to recognize certain amounts in income no later than the time such amounts are reflected on our financial statements filed with the SEC.
In addition, we generally are required to recognize certain amounts in income no later than the time such amounts are reflected on our financial statements filed with the SEC.
If prepayment speed expectations increase significantly, the fair value of the MSRs could decline and we may be required to record a non-cash charge that would have a negative impact on our financial results.
Our expectation of prepayment speeds is a significant input to our cash flow projections. If prepayment speed expectations increase significantly, the fair value of the MSRs could decline and we may be required to record a non-cash charge that would have a negative impact on our financial results.
As a result, the Series A Preferred Shares and Series B Preferred Shares will continue to accumulate dividends from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, at their fixed rate then in effect and will not transition to floating reference rates.
As a result, the Series A Preferred Shares and Series B Preferred Shares have continued to accumulate dividends from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares at their respective fixed rates then in effect and did not transition to floating reference rates.
More specifically, as a result of the cessation of representative USD LIBOR and subsequent legislation and rulemaking, the Articles Supplementary for each of 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”) require that the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, be calculated at the dividend rate in effect for the immediately preceding dividend period.
More specifically, as a result of the cessation of representative LIBOR and subsequent legislation and rulemaking, the Articles Supplementary for each of our Series A Preferred Shares and Series B Preferred Shares require that the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, be calculated at the dividend rate in effect for the immediately preceding dividend period.
Any loss we incur may be significant and could adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. Our acquisition of mortgage servicing rights exposes us to significant risks.
Any loss we incur may be significant and could adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. Our ownership of mortgage servicing rights exposes us to significant prepayment, delinquency, interest rate and regulatory risks.
Our failure or the failure of PLS to operate effectively and in compliance with these laws, regulations and rules could subject us to lawsuits or governmental actions, reputational damages, increased costs of doing business, reduced payments by borrowers, modification of the original terms of loans, permanent forgiveness of debt, foreclosure process 21 delays, increased servicing advances, litigation, enforcement actions, and repurchase and indemnification obligations, which could materially and adversely affect our business, financial condition, liquidity and results of operations.
Our or PLS’ failure to operate effectively and in compliance with these laws, regulations and rules could subject us to lawsuits or governmental actions, reputational damages, increased costs of doing business, reduced payments by borrowers, modification of the original terms of loans, permanent forgiveness of debt, foreclosure process delays, increased servicing advances, litigation, enforcement actions, and repurchase and indemnification obligations, which could materially and adversely affect our business, financial condition, liquidity and results of operations. 25 We and PLS must also comply with a number of federal, state and local consumer protection and state foreclosure laws.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeInternal 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. 50 Information Security 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.
Biggest changeInternal 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.
Enterprise Risk Management Framework and Governance The Cybersecurity Program is integrated with our and our Manager’s enterprise risk management framework and is primarily managed by the CIO, the CISO, and other information security personnel and consultants, and is overseen by risk management, internal audit, senior management and the board of trustees to ensure the confidentiality, integrity and the availability of the Company’s enterprise information systems, data and business operations.
Enterprise Risk Management Framework and Governance The Cybersecurity Program is integrated with our and our Manager’s enterprise risk management framework and is primarily managed by the CIO, the CISO, and other information security personnel and consultants, and is overseen by risk management, internal audit, senior management and our board of trustees to ensure the confidentiality, integrity and the availability of the Company’s enterprise information systems, data and business operations.
The Cybersecurity Program is integrated into our and our Manager’s enterprise risk management framework that assesses, identifies and protects our and our Manager’s enterprise information systems, data and business operations from various security threats and contains the following elements: • Information Security Risk Assessment - Conducting internal and external risk and control assessment, quality control and assurance testing. • Identity and Access Management - Managing enterprise identity and access control systems. • Security Architecture - Managing security architecture, including secure code deployment standards, architecture security reviews, and cybersecurity advisory support. • Security Engineering - Designing, implementing and operating security technologies, including but not limited to malware protections, security event and incident management, data loss prevention, and phishing defenses. • Security Operations - Ensuring continuous operational coverage of security events and alerts, maintaining and executing processes for triage, containment, investigation and escalation/communication and threat intelligence. • Attack Surface Management - Managing vulnerability and patch management, network penetration testing, application security testing and exercises, including cyber-attack simulations and tabletop exercises with senior management to detect control gaps. • Third-Party Assessments - Coordinating, reviewing and analyzing third-party providers’ assessments of the Cybersecurity Program.
The Cybersecurity Program is integrated into our and our Manager’s enterprise risk management framework that assesses, identifies and protects our and our Manager’s enterprise information systems, data and business operations from various security threats and contains the following elements: • Information Security Risk Assessment – Conducting internal and external risk and control assessment, quality control and assurance testing. • Identity and Access Management – Managing enterprise identity and access control systems. • Security Architecture – Managing security architecture, including secure code deployment standards, architecture security reviews, and cybersecurity advisory support. • Security Engineering – Designing, implementing and operating security technologies, including but not limited to malware protections, security event and incident management, data loss prevention, and phishing defenses. • Security Operations – Ensuring continuous operational coverage of security events and alerts, maintaining and executing processes for triage, containment, investigation and escalation/communication and threat intelligence. • Attack Surface Management – Managing vulnerability and patch management, network penetration testing, application security testing and exercises, including cybersecurity training, cyber-attack simulations and tabletop exercises with senior management to detect control gaps. • Third-Party Assessments – Coordinating, reviewing and analyzing third-party providers’ assessments of the Cybersecurity Program.
The CISO and the internal incident team will also elevate any material cybersecurity incidents or unauthorized occurrences that jeopardize the confidentiality, integrity or availability of enterprise information to senior management and the board of trustees .
The CISO and the internal incident team will also elevate any material cybersecurity incidents or unauthorized occurrences that jeopardize the confidentiality, integrity or availability of enterprise information to senior management and our board of trustees .
Our cybersecurity monitoring and incident reporting program is informed by NIST guidelines and is internally and externally monitored. When a potential cybersecurity incident is detected, we and our Manager gather the necessary information to classify the incident by type and severity and activate containment plans and response teams depending on the nature of the incident.
When a potential cybersecurity incident is detected, we and our Manager gather the necessary information to classify the incident by type and severity and activate containment plans and response teams depending on the nature of the incident.
Management Oversight Senior management’s Technology Committee includes the CIO, the CISO and other senior executives who oversee the Company’s enterprise IT infrastructure and ensures that our enterprise information systems are protected from internal and external cybersecurity threats by monitoring cybersecurity controls, risk assessments and information system reports.
Management Oversight Our CIO, CISO and other senior executives who oversee the Company’s enterprise IT infrastructure periodically meet in management committees to ensure that our enterprise information systems are protected from internal and external cybersecurity threats by monitoring cybersecurity controls, risk assessments and information system reports .
Our Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”) each have over 24 years of information system experience and are primarily responsible for implementing the Cybersecurity Program and managing our information security personnel and consultants.
Our Risk Factors include further detail about our material cybersecurity risks. Our Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”) each have over 25 years of information system experience and are primarily responsible for implementing the Cybersecurity Program and managing our information security personnel and consultants.
We have not identified any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected, or are reasonably likely to materially affect, us, including our business strategy, results of operations or financial condition. Our Risk Factors include further detail about our material cybersecurity risks.
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.
The Technology Committee, the CIO and the CISO periodically provide cybersecurity reports about our Cybersecurity Program to senior management’s Executive Committee and the board of trustees and its Risk Committee.
The CIO, CISO and our management committees periodically provide cybersecurity reports about our Cybersecurity Program to senior management, the board of trustees and our board committees. .
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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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 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, 2023, we were not involved in any material legal actions, claims or proceedings.
Biggest changeItem 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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchase of our Common Shares The following table summarizes repurchase activity for PMT common shares of beneficial interest (“Common Shares”) repurchase activity for the quarter ended December 31, 2023: 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, 2023 – October 31, 2023 136 $ 10.82 136 $ 73,353 November 1, 2023 – November 30, 2023 — $ — — $ 73,353 December 1, 2023 – December 31, 2023 — $ — — $ 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”).
Biggest changeRepurchase 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”).
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2023.
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2024.
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 20, 2024, our common shares were held by 143 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 18, 2025, our Common Shares were held by 153 registered holders.

Item 7. Management's Discussion & Analysis

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

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Biggest changeIn vestment Portfolio Composition Mortgage-Backed Securities Following is a summary of our MBS holdings: December 31, 2023 December 31, 2022 Average Average Fair Principal/ Life Fair Life value notional (in years) Coupon value Principal (in years) Coupon (dollars in thousands) Agency pass-through securities $ 4,270,056 $ 4,311,342 7.6 5.1 % $ 4,262,502 $ 4,693,045 10.1 3.5 % Subordinate credit-linked securities 301,180 275,963 4.3 12.4 % 177,898 184,620 4.6 11.2 % Senior non-Agency securities 117,489 124,771 7.0 5.1 % 22,201 28,103 14.3 2.5 % Interest-only stripped securities 94,231 419,791 7.3 4.9 % — — — — Principal-only stripped securities 53,336 65,573 3.3 — — — $ 4,836,292 $ 5,197,440 $ 4,462,601 $ 4,905,768 77 Credit Risk Transfer Arrangements Following is a summary of our investment in CRT arrangements: December 31, 2023 December 31, 2022 (in thousands) Carrying value of CRT arrangements: Derivative assets - CRT derivatives $ 16,160 $ 1,262 Derivative and credit risk transfer strip liabilities: CRT strips (46,692 ) (137,193 ) CRT derivatives — (23,360 ) (46,692 ) (160,553 ) Deposits securing CRT arrangements 1,209,498 1,325,294 Interest-only security payable at fair value (32,667 ) (21,925 ) $ 1,146,299 $ 1,144,078 UPB of loans subject to credit guarantee obligations $ 23,152,230 $ 25,315,524 Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of December 31, 2023: Year of origination 2020 2019 2018 2017 2016 2015 Total (in millions) UPB: Outstanding $ 4,708 $ 10,766 $ 2,788 $ 2,357 $ 1,929 $ 604 $ 23,152 Liquidations: Balances $ 0.6 $ 6.1 $ 55.5 $ 158.4 $ 119.6 $ 60.3 $ 400.5 Losses $ 0.1 $ 0.5 $ 6.3 $ 19.6 $ 12.6 $ 7.3 $ 46.4 Modifications: Balances $ 67.5 $ 549.8 $ 303.8 $ — $ — $ — $ 921.1 Losses $ 1.3 $ 14.2 $ 11.0 $ — $ — $ — $ 26.5 Year of origination Original debt-to income ratio 2020 2019 2018 2017 2016 2015 Total (in millions) $ 967 $ 1,602 $ 255 $ 294 $ 286 $ 65 $ 3,469 25 - 30% 756 1,359 225 270 262 67 2,939 30 - 35% 830 1,649 325 364 332 91 3,591 35 - 40% 820 1,927 449 427 366 110 4,099 40 - 45% 813 2,332 662 604 508 164 5,083 >45% 522 1,897 872 398 175 107 3,971 $ 4,708 $ 10,766 $ 2,788 $ 2,357 $ 1,929 $ 604 $ 23,152 Weighted average 33.5 % 35.8 % 39.0 % 36.5 % 35.0 % 35.7 % 35.7 % Year of origination Origination FICO credit score 2020 2019 2018 2017 2016 2015 Total (in millions) 600 - 649 $ 32 $ 148 $ 66 $ 28 $ 18 $ 10 $ 302 650 - 699 231 1,018 592 357 237 119 2,554 700 - 749 1,110 3,169 984 803 609 186 6,861 750 or greater 3,328 6,404 1,139 1,165 1,065 289 13,390 Not available 7 27 7 4 — — 45 $ 4,708 $ 10,766 $ 2,788 $ 2,357 $ 1,929 $ 604 $ 23,152 Weighted average 765 754 736 745 751 742 753 78 Year of origination Origination loan-to value ratio 2020 2019 2018 2017 2016 2015 Total (in millions) $ 2,224 $ 3,810 $ 896 $ 768 $ 787 $ 246 $ 8,731 80-85% 785 2,066 657 668 518 159 4,853 85-90% 304 606 128 121 108 35 1,302 90-95% 424 1,137 320 286 212 63 2,442 95-100% 971 3,147 787 514 304 101 5,824 $ 4,708 $ 10,766 $ 2,788 $ 2,357 $ 1,929 $ 604 $ 23,152 Weighted average 80.7 % 83.3 % 83.5 % 82.4 % 80.6 % 80.9 % 82.4 % Year of origination Current loan-to value ratio (1) 2020 2019 2018 2017 2016 2015 Total (in millions) $ 4,692 $ 10,715 $ 2,771 $ 2,357 $ 1,929 $ 604 $ 23,068 80-85% 11 34 11 — — — 56 85-90% 4 12 3 — — — 19 90-95% — 3 2 — — — 5 95-100% 1 1 — — — — 2 >100% — 1 1 — — — 2 $ 4,708 $ 10,766 $ 2,788 $ 2,357 $ 1,929 $ 604 $ 23,152 Weighted average 52.7 % 52.4 % 49.8 % 44.8 % 40.9 % 38.3 % 50.1 % (1) Based on current UPB compared to estimated fair value of the property securing the loan.
Biggest changeIn vestment Portfolio Composition Mortgage-Backed Securities Following is a summary of our MBS holdings: December 31, 2024 December 31, 2023 Average Average Fair Principal/ Life Fair Principal/ Life value notional (in years) Coupon value notional (in years) Coupon (dollars in thousands) Agency pass-through securities $ 3,079,492 $ 3,132,005 8.7 5.4 % $ 4,270,056 $ 4,311,342 7.6 5.1 % Principal-only stripped securities 596,300 776,455 6.7 0.1 % 53,336 65,573 3.3 0.0 % Subordinate credit-linked securities 196,472 174,813 3.6 12.4 % 301,180 275,963 4.3 12.4 % Senior non-Agency securities 105,182 111,479 9.2 5.1 % 117,489 124,771 7.0 5.1 % Interest-only stripped securities 86,260 386,040 8.0 4.8 % 94,231 419,791 7.3 4.9 % $ 4,063,706 $ 4,580,792 $ 4,836,292 $ 5,197,440 80 Credit Risk Transfer Arrangements Following is a summary of our investment in CRT arrangements: December 31, 2024 December 31, 2023 (in thousands) Carrying value of CRT arrangements: Derivative assets - CRT derivatives $ 29,377 $ 16,160 Derivative and credit risk transfer strip liabilities- CRT strips (4,060 ) (46,692 ) Deposits securing CRT arrangements 1,110,708 1,209,498 Interest-only security payable at fair value (34,222 ) (32,667 ) $ 1,101,803 $ 1,146,299 UPB of loans subject to credit guarantee obligations $ 21,249,304 $ 23,152,230 Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of December 31, 2024: Year of origination 2020 2019 2018 2017 2016 2015 Total (in millions) UPB: Outstanding $ 4,363 $ 9,883 $ 2,544 $ 2,146 $ 1,763 $ 550 $ 21,249 Liquidations: Balances $ 1.1 $ 9.9 $ 59.9 $ 165.0 $ 124.5 $ 61.6 $ 421.9 Losses $ — $ 0.9 $ 5.8 $ 20.6 $ 13.2 $ 7.5 $ 48.0 Modifications (1): Balances $ 68.8 $ 554.8 $ 307.6 $ — $ — $ — $ 931.3 Losses $ 1.9 $ 21.1 $ 16.2 $ — $ — $ — $ 39.2 Weighted average: Original debt-to income ratio 33.5 % 35.9 % 39.1 % 36.5 % 35.1 % 35.7 % 35.8 % Origination FICO credit score 765 754 736 745 751 743 753 Origination loan-to value ratio 80.7 % 83.3 % 83.5 % 82.4 % 80.6 % 80.9 % 82.4 % Current loan-to value ratio (2) 49.9 % 49.7 % 47.4 % 42.3 % 38.4 % 36.0 % 47.4 % (1) Includes only modifications that generate losses according to the terms of the CRT arrangements.
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. • 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 (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 .
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. 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 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.
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 change.
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.
Our credit loss may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.
Our credit losses may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.
The loss from hedging activities decreased during the year ended December 31, 2023, as compared to the same period in 2022, due to a smaller increase in interest rates during the period as well as decreased prepayment sensitivity of the hedged MSRs resulting from higher interest rate levels leading to a reduced amount of required hedges.
The loss from hedging activities decreased during the year ended December 31, 2023, as compared to the year ended December 31, 2022 due to a smaller increase in interest rates during the period as well as decreased prepayment sensitivity of the hedged MSRs resulting from higher interest rate levels leading to a reduced amount of required hedges.
The increase in pretax results is summarized below: • Our credit sensitive strategies segment recognized a $247.7 million increase in net gains on our CRT arrangements as credit spreads tightened due to supply and demand dynamics and an improving macroeconomic outlook compared to the year ended December 31, 2022, in which the macroeconomic outlook was worsening. • Our interest rate sensitive strategies segment benefited less from the slower rise in interest rates and reduced interest rate sensitivity of our assets during the year ended December 31, 2023, as compared to the year ended December 31, 2022, resulting in a $651.7 million increase in valuation gains on MBS, offset by a $620.9 million decrease in net servicing fees caused by lower valuations net of hedge impact in MSRs. • Our correspondent production segment recognized a $14.2 million increase in gains on sales of loans during the year ended December 31, 2023, reflecting a reduction of our liability for representations and warranties and improved gain on sale margins partially offset by reduced volume of sales to nonaffiliates.
The increase in pretax results is summarized below: • Our credit sensitive strategies segment recognized a $247.7 million increase in net gains on our CRT arrangements as credit spreads tightened due to supply and demand dynamics and an improving macroeconomic outlook compared to the year ended December 31, 2022, in which the macroeconomic outlook was worsening. • Our interest rate sensitive strategies segment benefited less from the slower rise in interest rates and reduced interest rate sensitivity of our assets during the year ended December 31, 2023, as compared to the year ended December 31, 2022, resulting in a $526.1 million increase in valuation gains on MBS, offset by a $620.9 million decrease in net servicing fees caused by lower valuations net of hedge impact in MSRs. • Our correspondent production segment recognized a $14.2 million increase in gains on sales of loans during the year ended December 31, 2023, reflecting a reduction of our liability for representations and warranties and improved gain on sale margins partially offset by reduced volume of sales to nonaffiliates.
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. 82 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. 85 The following summarized financial information for PMT and PMC is presented on a combined basis.
If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as CRT or subordinate credit-linked notes and increase losses from our representations and warranties.
If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as our CRT arrangements or subordinate credit-linked notes and increase losses from our representations and warranties.
Although these financial covenants limit the amount of indebtedness we may incur and impact our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose. 83 PLS is also subject to various financial covenants, both as a borrower under its own financing arrangements and as our servicer under certain of our debt financing agreements.
Although these financial covenants limit the amount of indebtedness we may incur and impact our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose. 86 PLS is also subject to various financial covenants, both as a borrower under its own financing arrangements and as our servicer under certain of our debt financing agreements.
The methods and key inputs we use to measure the fair value of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
The methods and key inputs we use to measure the fair values of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
The ultimate 54 realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.
The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.
Regulatory Capital and Liquidity Requirements In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency sellers/servicers and Ginnie Mae for single-family issuers.
Regulatory Capital and Liquidity Requirements In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers.
(2) For purposes of this discussion, includes Deposits securing credit risk transfer arrangements which are carried at amortized cost. These deposits along with the related CRT derivatives and CRT strips are held in the form of securities which are the basis for valuation of the CRT derivatives and strips. (3) Percentages may not sum to total due to rounding.
(2) For purposes of this discussion, includes Deposits securing credit risk transfer arrangements which are carried at amortized cost. These deposits along with the related CRT derivatives and CRT strips are held in the form of securities whose values are the basis for valuation of the CRT derivatives and strips. (3) Percentages may not sum to total due to rounding.
Our acquisitions during the years ended December 31, 2023, 2022 and 2021 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, 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.
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, 2023, 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, 2024, we have not entered into any off-balance sheet arrangements.
We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements that has allowed us to match the term of our borrowings more closely to the expected lives of the assets securing those borrowings.
We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements that have allowed us to match the term of our borrowings more closely to the expected lives of the assets securing those borrowings.
No “sinking fund” will be provided for the 2023 Senior Notes. The 2023 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 Unsecured Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”).
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”).
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 committee, 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 valuation subcommittee, which oversees the valuations.
PFSI’s valuation committee 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 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.
On or after September 30, 2025, we may redeem for cash all or any portion of the 2023 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.
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.
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 2023 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 2028 Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC.
On the basis of this evaluation, as of December 31, 2023, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended December 31, 2023. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
On the basis of this evaluation, as of December 31, 2024, the valuation allowance remains zero as a result of cumulative GAAP income at the TRS for the three-year period ended December 31, 2024. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
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, 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 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.
Financing activities Net cash used in our financing activities was $1.1 billion for the year ended December 31, 2023, as compared to net cash provided by our financing activities of $135.9 million for the year ended December 31, 2022. This change primarily reflects decreased financing requirements relating to loans acquired for sale.
Net cash used in our financing activities was $1.1 billion for the year ended December 31, 2023, as compared to net cash provided by our financing activities of $135.9 million for the year ended December 31, 2022. This change primarily reflects changes in financing requirements relating to loans acquired for sale.
Non-cash elements of gain on sale of loans: Interest Rate Lock Commitments Our Net gains on loans acquired for sale includes 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 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.
However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help offset the negative effects of credit performance in an economic downturn.
However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.
Following is a discussion relating to our approach to measuring the assets and liabilities that are most affected by “Level 3” fair value estimates. Loans We carry loans at their fair values.
Following is a discussion relating to our approach to measuring the assets and liabilities that are most affected by “Level 3” fair value inputs. Loans We carry loans at their fair values.
Measurement at fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether we have elected to carry them at fair value.
Measurement at fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether we have elected to carry it at fair value.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit loss on the loans.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects, reimburse the investor for its loss or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit losses on the loans.
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. 59 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 sale transactions.
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.
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 PennyMac Holdings, LLC (“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 8.5:1 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; • 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.
Such adjustments may be material to our financial position and results of operations 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 acquired for sale at fair value .
Liability for Losses Under Representations and Warranties We recognize a liability for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions.
Liability for Losses Under Representations and Warranties We recognize liabilities for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions.
Unsecured Senior Notes In September 2023, we issued $53.5 million principal amount of our unsecured 8.50% senior notes due September 30, 2028 (the “2023 Senior Notes”) during September 2023. The 2023 Senior Notes bear interest at a rate of 8.50% per year payable quarterly.
Unsecured Senior Notes In September 2023, we issued $53.5 million principal amount of our unsecured 8.50% senior notes due September 30, 2028 (the “2028 Senior Notes”). The 2028 Senior Notes bear interest at a rate of 8.50% per year payable quarterly.
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 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 acquired for sale and our loans held in variable interest entities (“ VIEs").
Changes in fair value due to changes in valuation inputs used in our valuation model during the year ended December 31, 2022, as compared to 2021, 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, 2022, as compared to the year ended December 31, 2021.
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.
The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.
The representations and warranties we provide require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local laws.
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.
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.
Subsequent changes in the fair value of our MSRs significantly affect our results of operations. 68 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.
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.
Such loans include our investments in distressed loans, home equity and commercial 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 $8.4 million of such loans at fair value at December 31, 2023.
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.
In a securitization transaction, we transfer assets on our balance sheet to an SPE, which then issues various forms of interests in those assets to investors. In a securitization transaction, we typically receive cash and/or beneficial interests in the SPE in exchange for the assets we transfer. SPEs are generally considered variable interest entities (“VIEs”).
In a securitization transaction, we transfer assets on our balance sheet to an SPE, which then issues various forms of interests in those assets to investors. In a securitization transaction, we typically receive cash and/or beneficial interests in the SPE in exchange for the assets we transfer. SPEs are generally considered VIEs.
As discussed above, all of our repurchase agreements, and mortgage loan participation purchase and sale agreements have short-term maturities: • The transactions relating to loans and REO under agreements to repurchase generally provide for terms of approximately one to two years; • The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year; • The transactions relating to assets under notes payable provide for terms ranging from two to five years; and • All repurchase agreements that matured between December 31, 2023 and the date of this Report have been renewed, extended or replaced. 81 The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our assets sold under agreements to repurchase is summarized by counterparty below as of December 31, 2023: Counterparty Amount at risk (in thousands) Atlas Securitized Products, L.P. $ 102,864 Goldman Sachs & Co.
As discussed above, all of our repurchase agreements, and mortgage loan participation purchase and sale agreements have short-term maturities: • The transactions relating to loans and REO under agreements to repurchase generally provide for terms of approximately one to two years; • The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year; • The transactions relating to assets under notes payable provide for terms ranging from two to five years; and • All repurchase agreements that matured between December 31, 2024 and the date of this Report have been renewed, extended or replaced. 84 The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our Assets sold under agreements to repurchase is summarized by counterparty below as of December 31, 2024: Counterparty Amount at risk (in thousands) Goldman Sachs & Co.
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 include CRT Agreements (“CRT Agreements”) and CRT strips that 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 mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold.
Of these assets, $5.3 billion, or 40%, 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, $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.
We believe the most significant “Level 3” fair value inputs to the valuation of MSRs are the pricing spread (discount rate), prepayment speed and annual per-loan cost of servicing. We held $3.9 billion of MSRs at December 31, 2023.
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.
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. 69 The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severity of loss in the event of default and the probability of reimbursement by the correspondent loan seller.
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.
The MSRs and liability for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our results of operations in subsequent periods.
The MSRs and liabilities for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our income in subsequent periods.
We estimate such loans’ fair values using their quoted market price or market price equivalent. We held $2.1 billion of such loans at fair value at December 31, 2023. • We categorize loans that are not saleable into active markets with observable pricing inputs as “Level 3” fair value assets.
We estimate such loans’ fair values using their quoted market price or market price equivalent. We held $4.3 billion of such loans at fair value at December 31, 2024. • We categorize loans that are not saleable into active markets with observable pricing inputs as “Level 3” fair value assets.
Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair value of our IRLCs as the loan acquisition process progresses until we complete the acquisition or the commitment is canceled.
Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair values of our IRLCs as the loan acquisition process progresses until we complete the acquisitions or the commitments are canceled.
We receive or pay cash relating to: • Our investment in mortgage-backed securities through monthly principal and interest payments from the issuer of such securities or from the sale of the investment; • 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; • ESS investments through a portion of the monthly interest payments collected on the loans in the ESS reference pool or from sales of the investment; • 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; • 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; • Our liability for representations and warranties when we repurchase loans or settle loss claims from investors; and • MSRs in the form of loan servicing fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service. 60 Results of Operations Business Trends Due to significant inflationary pressures, the U.S.
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 recorded $15.2 million, $4.2 million and $5.8 million reduction in liability for representations and warranties during the years ended December 31, 2023, 2022 and 2021, 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 $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.
The change during 2021 reflects the increased borrowings to finance our investment activities. 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.
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.
The total facility size of our assets sold under agreements to repurchase was approximately $11.5 billion at December 31, 2023.
The total facility size of our assets sold under agreements to repurchase was approximately $11.6 billion at December 31, 2024.
Elevated interest rates may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increased losses.
The recent period of inflationary pressure and elevated interest rates may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increased losses.
Operating activities Cash provided by operating activities totaled $1.3 billion during the year ended December 31, 2023, as compared to cash provided by our operating activities of $1.8 billion during the year ended December 31, 2022 and net cash used in operating activities of $2.8 billion during 2021.
Operating activities Cash used in operating activities totaled $2.7 billion during the year ended December 31, 2024, as compared to cash provided by our operating activities of $1.3 billion and $1.8 billion during the years ended December 31, 2023 and 2022, respectively.
These levels are: December 31, 2023 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. $ 174,374 1 % 9 % 2 Prices determined using other significant observable inputs.
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.
We estimate the fair value of our “Level 3” fair value loans based on the expected resolution of individual loans for distressed loans and using a discounted cash flow valuation model for loans held for sale.
We estimate the fair value of our “Level 3” fair value loans based on the fair values of the real estate collateralizing individual loans for distressed loans and using a discounted cash flow valuation model for loans held for sale.
The change in contractually-specified fees during the years ended December 31, 2023 and 2022, as compared to the prior years is due primarily to increased servicing fees resulting from the growth in our loan servicing portfolio. We have elected to carry our servicing assets at fair value.
The change in contractually-specified fees during the year ended 2023, as compared to the year ended 2022, is due primarily to increased servicing fees resulting from the growth in our loan servicing portfolio. Mortgage Servicing Rights and Hedging We have elected to carry our servicing assets at fair value.
We believe that we and PLS are in compliance with the applicable and pending requirements as of December 31, 2023. Our Manager continues 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, 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 recorded a provision at fair value for losses relating to representations and warranties relating to current loan sales of $2.4 million, $4.4 million and $25.0 million as part of our loan sales in each of the years ended December 31, 2023, 2022 and 2021, respectively.
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.
Following is a summary of the activities in our repurchase agreements financing: Year ended December 31, Assets sold under agreements to repurchase 2023 2022 2021 (in thousands) Average balance outstanding $ 6,306,627 $ 5,625,345 $ 6,161,755 Maximum daily balance outstanding $ 9,460,676 $ 8,834,936 $ 8,882,538 Ending balance $ 5,624,558 $ 6,616,528 $ 6,671,890 The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business.
Following is a summary of the activities in our repurchase agreements financing: Year ended December 31, Assets sold under agreements to repurchase 2024 2023 2022 (in thousands) Average balance outstanding $ 5,478,037 $ 6,306,627 $ 5,625,345 Maximum daily balance outstanding $ 7,865,435 $ 9,460,676 $ 8,834,936 Ending balance $ 6,500,938 $ 5,624,558 $ 6,616,528 The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business.
Such adjustments are included in our Net gains on loans acquired for sale . The fair value of our IRLCs becomes part of the carrying value of our loans when we complete the purchase of the loans.
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.
Loan origination Loan origination expenses decreased by $7.4 million during the year ended December 31, 2023, as compared to the same period in 2022, and $16.8 million during 2022, as compared to the same period in 2021, primarily reflecting a decrease in our loan originations purchased for sale to non-affiliates.
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.
Our loan sales volume included $72.4 billion, $50.6 billion and $67.9 billion of loans we sold to PLS during the years ended December 31, 2023, 2022 and 2021, respectively.
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.
Compensation Compensation expense increased $1.2 million during the year ended December 31, 2023, as compared to the same period in 2022, and $1.9 million during the year ended December 31, 2022, as compared to the same period in 2021, respectively, primarily due to increased expectations in achieving performance targets included in certain performance-based restricted share awards.
Compensation Compensation expense decreased $1.5 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, and increased $1.2 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022, respectively, primarily due to the volatility of expectations in achieving performance targets included in certain performance-based restricted share awards.
Investing activities Net cash used in our investing activities was $21.7 million and $1.9 billion for the years ended December 31, 2023 and December 31, 2022, respectively, as compared to net cash provided by investing activities of $1.1 billion during 2021, primarily due to a decrease in net purchases of MBS.
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.
At December 31, 2023, $12.3 billion, or 94%, of our total assets were carried at fair value on a recurring basis and $4.5 million, or less than 1% (consisting of REO), were carried based on fair value on a non-recurring basis.
At December 31, 2024, $13.6 billion, or 94%, of our total assets were carried at fair value on a recurring basis and $2.5 million, or less than 1% (consisting of REO), were carried based on fair value on a non-recurring basis.
Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of income. 74 The Company’s effective tax rate was 18.3% for the year ended December 31, 2023 and 216.2% for the year ended December 31, 2022.
Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of operations. The Company’s effective tax rate was -12.9% for the year ended December 31, 2024 and 18.3% for the year ended December 31, 2023.
For tax years beginning after December 31, 2017, the 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.
For tax years beginning before January 1, 2026, the 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.
(2) 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 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.
Because we have elected, or are required by GAAP, to record certain of our financial assets (comprised of MBS, loans acquired for sale at fair value, loans at fair value and Excess Servicing Spread ("ESS")), our derivatives and CRT strips, our MSRs, and our asset-backed financings and interest-only 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 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.
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. 6,856,249 52 % 350 % 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. 8,334,286 58 % 430 % 3 Prices determined using significant unobservable inputs.
Correspondent Production Following is a summary of our correspondent production acquisitions at fair value: Year ended December 31, 2023 2022 2021 (in thousands) Correspondent loan purchases: GSE-Eligible Loans (1) $ 46,395,294 $ 41,575,252 $ 113,667,618 Government insured or guaranteed (2) 41,103,974 46,562,853 67,702,945 Jumbo loans 4,234 5,029 — Advances to home equity lines of credit 102 132 — $ 87,503,604 $ 88,143,266 $ 181,370,563 (1) GSE eligibility refers to the eligibility of loans for sale to Fannie Mae or Freddie Mac.
Correspondent Production Following is a summary of our correspondent production acquisitions at fair value: Year ended December 31, 2024 2023 2022 (in thousands) Correspondent loan purchases: GSE-Eligible Loans (1) $ 54,294,006 $ 46,395,294 $ 41,575,252 Government insured or guaranteed (2) 42,066,828 41,103,974 46,562,853 Jumbo loans 393,222 4,234 5,029 Advances to home equity lines of credit 10 102 132 $ 96,754,066 $ 87,503,604 $ 88,143,266 (1) GSE eligibility refers to the eligibility of loans for sale to Fannie Mae or Freddie Mac.
We believe that the most significant “Level 3” fair value inputs to the valuation of CRT arrangements are the pricing spread (discount rate) and the remaining loss expectation, which is influenced by the changes in the fair value of the properties securing the loans in the reference pool. 57 We held $1.1 billion of net CRT arrangement assets at December 31, 2023.
We believe that the most significant “Level 3” fair value inputs to the valuation of CRT arrangements are the pricing spread (discount rate) and the remaining loss expectation, which is influenced by the changes in the fair value of the properties securing the loans in the reference pool.
Cash flows from operating activities are most influenced by cash flows from loans acquired for sale as shown below: Year ended December 31, 2023 2022 2021 (in thousands) Operating cash flows from: Loans acquired for sale $ 815,464 $ 1,417,213 $ (2,704,816 ) Other 524,709 367,258 (114,898 ) $ 1,340,173 $ 1,784,471 $ (2,819,714 ) Cash flows from loans acquired for sale primarily reflect changes in the level of production inventory from the beginning to end of the periods presented as well as cash flows relating to associated hedging activities.
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.
The performance of our investments in CRT arrangements during the year ended December 31, 2023 reflects credit spread tightening for CRT securities in the credit markets.
The performance of our investments in CRT arrangements during the years ended December 31, 2024 and 2023 reflect credit spread tightening for CRT securities in the credit markets.
Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties: Year ended December 31, 2023 2022 2021 (in thousands) Indemnification activity (UPB): Loans indemnified at beginning of year $ 8,108 $ 2,782 $ 4,583 New indemnifications 7,062 6,009 345 Less: indemnified loans sold, repaid or refinanced 3,047 683 2,146 Loans indemnified at end of year $ 12,123 $ 8,108 $ 2,782 Indemnified loans indemnified by correspondent lenders at end of year $ 4,521 $ 1,312 $ 1,112 UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of year $ 4,190 $ 2,670 $ 213 Repurchase activity (UPB): Loans repurchased $ 59,068 $ 92,293 $ 86,954 Less: Loans repurchased by correspondent sellers 51,369 77,813 52,787 Loans resold or repaid by borrowers 12,596 26,584 33,950 Net loans (resolved) repurchased with losses chargeable to liability to representations and warranties $ (4,897 ) $ (12,104 ) $ 217 Losses charged to liability for representations and warranties $ 549 $ 993 $ 861 At end of year: Loans subject to representations and warranties $ 227,456,712 $ 228,339,312 $ 213,944,023 Liability for representations and warranties $ 26,143 $ 39,471 $ 40,249 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, 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 quantitative summary of the effect of changes in pull-through inputs on the fair value of IRLCs at December 31, 2023: Effect on fair value of a change in pull-through rate Change in input (1) Effect on fair value (in thousands) (20%) $ (1,869 ) (10%) $ (935 ) (5%) $ (467 ) 5% $ 394 10% $ 735 20% $ 1,351 (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, 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%.
Other Expenses Other expenses are summarized below: Year ended December 31, 2023 2022 2021 (in thousands) Common overhead allocation from PFSI $ 7,492 $ 8,588 $ 4,906 Technology 2,046 2,058 1,787 Bank service charges 2,024 2,262 1,731 Insurance 1,935 1,622 1,671 Other 5,536 4,040 3,849 $ 19,033 $ 18,570 $ 13,944 Income Taxes We have elected to treat our subsidiary, PennyMac Corp.
Other Expenses Other expenses are summarized below: Year ended December 31, 2024 2023 2022 (in thousands) Common overhead allocation from PFSI $ 7,909 $ 7,492 $ 8,588 Bank service charges 2,339 2,024 2,262 Technology 2,158 2,046 2,058 Insurance 1,957 1,935 1,622 Other 6,065 5,536 4,040 $ 20,428 $ 19,033 $ 18,570 77 Income Taxes We have elected to treat our subsidiary, PennyMac Corp.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeMortgage-backed securities at fair value The following table summarizes the estimated change in fair value of our mortgage-backed securities as of December 31, 2023, 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 $ 141,392 $ 109,032 $ 78,790 $ (95,709 ) $ (147,750 ) $ (427,601 ) 86 Mortgage Servicing Rights The following tables summarize the estimated change in fair value of MSRs as of December 31, 2023, 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 $ 205,742 $ 100,329 $ 49,550 $ (48,362 ) $ (95,575 ) $ (186,699 ) Prepayment speed $ 235,782 $ 113,681 $ 55,846 $ (53,964 ) $ (106,144 ) $ (205,509 ) Annual per-loan cost of servicing $ 69,103 $ 34,551 $ 17,276 $ (17,276 ) $ (34,551 ) $ (69,103 ) 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 $ 43,941 $ 21,623 $ 10,726 $ (10,561 ) $ (20,957 ) $ (41,272 ) 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 $ (20,808 ) $ (12,251 ) $ (5,460 ) $ 4,422 $ 8,034 $ 10,989
Biggest changeMortgage-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
Performing prime loans (along with any related recognized IRLCs), MBS, MSRs and ESS are more sensitive to changes in market interest rates, while CRT arrangements are more sensitive to changes in the market credit spreads, underlying real estate values relating to the loans underlying our investments, and other factors such as the effectiveness and servicing practices of the servicers associated with the properties securing such investment.
Performing prime loans (along with any related recognized IRLCs), MBS and MSRs are more sensitive to changes in market interest rates, while CRT arrangements are more sensitive to changes in the market credit spreads, underlying real estate values relating to the loans underlying our investments, and other factors such as the effectiveness and servicing practices of the servicers associated with the properties securing such investment.
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.
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.
In general, an increase in prepayment rates will accelerate the accrual of purchase discounts, thereby increasing the interest income earned on such MBS investments. 85 Inflation Risk Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors will influence our performance more so than inflation.
In general, an increase in prepayment rates will accelerate the accrual of purchase discounts, thereby increasing the interest income earned on such MBS investments. Inflation Risk Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors will influence our performance more so than inflation.
In general, rising interest rates negatively affect the fair value of our investments in MBS and loans, while decreasing market interest rates negatively affect the fair value of our MSRs and ESS. Our operating results will depend, in part, on differences between the income from our investments and our financing costs.
In general, rising interest rates negatively affect the fair value of our investments in MBS and loans, while decreasing market interest rates negatively affect the fair value of our MSRs. Our operating results will depend, in part, on differences between the income from our investments and our financing costs.
This effect is most pronounced with fixed-rate investments, MSRs and ESS. Changes in interest rates significantly influence the prepayment speed of the loans underlying our investment in MSRs and ESS which affects those assets’ estimated lives.
This effect is most pronounced with fixed-rate investments and MSRs. Changes in interest rates significantly influence the prepayment speed of the loans underlying our investment in MSRs which affects those assets’ estimated lives.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on such MBS investments and will accelerate the fair value decline of MSRs and ESS thereby reducing net servicing income.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on such MBS investments and will accelerate the fair value decline of MSRs thereby reducing net servicing income.
Fair Value Risk Our loans, MBS, MSRs, ESS and CRT arrangements are reported at their fair values. The fair value of these assets fluctuates primarily based on the exposure of the underlying investment.
Fair Value Risk Our loans, MBS, MSRs and CRT arrangements are reported at their fair values. The fair value of these assets fluctuates primarily based on the exposure of the underlying investment.
Changes in 84 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.
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.
The fair value of MSRs and ESS, 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 acquired for sale and MBS.
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.
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.
Removed
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.

Other PMTU 10-K year-over-year comparisons