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What changed in PennyMac Mortgage Investment Trust's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PennyMac Mortgage Investment Trust's 2022 and 2023 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 2023 report.

+69 added−599 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-24)

Top changes in PennyMac Mortgage Investment Trust's 2023 10-K

69 paragraphs added · 599 removed · 64 edited across 3 sections

Item 1. Business

Business — how the company describes what it does

60 edited+5 added−535 removed70 unchanged
Biggest changeThe 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, 2022 2021 2020 (in thousands) Sales of loans acquired for sale: To nonaffiliates $ 39,077,156 $ 110,919,477 $ 106,306,805 To PennyMac Financial Services, Inc. 50,575,617 67,851,630 63,618,185 $ 89,652,773 $ 178,771,107 $ 169,924,990 Net gains on loans acquired for sale $ 25,692 $ 87,273 $ 379,922 Investment activities resulting from correspondent production: Receipt of MSRs as proceeds from sales of loans $ 670,343 $ 1,484,629 $ 1,158,475 Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings 23,485 42,256 — Purchase of subordinate bonds backed by previously-sold loans secured by investment properties held in consolidated variable interest entities — 28,815 — Investments in CRT arrangements: Deposits securing CRT arrangements — — 1,700,000 Recognition of firm commitment to purchase CRT securities (1) — — (38,161 ) Change in face amount of firm commitment to purchase CRT securities and commitment to fund Deposits securing CRT arrangements — — (1,502,203 ) Total investments in CRT arrangements — — 159,636 Total investments resulting from correspondent activities $ 693,828 $ 1,555,700 $ 1,318,111 (1) Initial recognition of firm commitment upon sale of loans.
Biggest changeThe 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.
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 16 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).
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).
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.
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.
PLS’ loan servicing activities include collecting principal, interest and escrow account payments, accounting for and remitting collections to investors in the loans, responding to customer inquiries, and default management activities, including managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications and refinancings, foreclosures, short sales and sales of REO.
PLS’ loan servicing activities include collecting principal, interest and escrow account payments, accounting for and remitting collections to investors in the loans, responding to customer inquiries, and 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.
A portion of these term notes have terms that provide for optional extensions of two years under conditions provided in the respective agreements. 12 Asset-backed financings We have participated in various transactions whereby we invest in subordinate securities issued in loan securitizations. These transactions are sponsored by us or a nonaffiliate.
A portion of these term notes have terms that provide for optional extensions of two years under conditions provided in the respective agreements. Asset-backed financings We have participated in various transactions whereby we invest in subordinate securities issued in loan securitizations. These transactions are sponsored by us or a nonaffiliate.
Many of these laws are further impacted by the SAFE Act and implementation of new rules by the CFPB. 15 Our Manager and Our Servicer We are externally managed and advised by PCM pursuant to a management agreement. PCM specializes in and focuses on investments in U.S. mortgage assets.
Many of these laws are further impacted by the SAFE Act and implementation of new rules by the CFPB. Our Manager and Our Servicer We are externally managed and advised by PCM pursuant to a management agreement. PCM specializes in and focuses on investments in U.S. mortgage assets.
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.
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.
The CFPB is responsible for ensuring consumers are provided with timely and understandable information to make responsible decisions about 14 financial transactions, federal consumer financial laws are enforced and consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.
The CFPB is responsible for ensuring consumers are provided with timely and understandable information to make responsible decisions about financial transactions, federal consumer financial laws are enforced and consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.
In the acquisition of mortgage assets, we compete with specialty finance companies, private funds, other mortgage REITs, thrifts, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, governmental bodies and other entities such as Chimera Investment Corporation, Invesco Mortgage Capital Inc., Rithm Capital Corp., MFA Financial, Inc., New York Mortgage Trust, Redwood Trust Inc. and Two Harbors Investment Corp., 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.
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.
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, primarily in Loans at fair value.
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.
Department of Agriculture) and certain GSEs-Eligible Loans on a servicing-released basis to PLS, a Ginnie Mae approved issuer and servicer, for which we earn sourcing fees as described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report; • create and issue structured MBS, retain a portion of the subordinate securities and sell the remaining senior MBS to nonaffiliates; or • sell loans with certain specified characteristics to banks or other investors, generally on a servicing retained basis.
Department of Agriculture) and certain GSE-Eligible Loans on a servicing-released basis to PLS, a Ginnie Mae approved issuer and servicer, for which we earn sourcing fees as described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report; • create and issue structured MBS, retain a portion of the subordinate securities and sell the remaining senior MBS to nonaffiliates; or • sell loans with certain specified characteristics to banks or other investors, generally on a servicing retained basis.
Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at www.pennymacmortgageinvestmenttrust.com through the investor relations section of our website as soon as reasonably practicable after electronically filing such material with the SEC.
Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge at www.pennymacmortgageinvestmenttrust.com through the investor relations section of our website as soon as reasonably practicable after electronically filing such material with the SEC.
We do not have a policy that expressly prohibits any such persons from engaging for their own account in business 9 activities of the types conducted by us.
We do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us.
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.
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.
Although the CFPB’s actions may improve consumer protection, such actions also have resulted in a meaningful increase in costs to consumers and financial services companies including mortgage originators and servicers. Our and our Manager’s loan production and loan servicing operations are regulated at the state level by state licensing authorities and administrative agencies.
Although the CFPB’s actions may improve consumer protection, such actions also have resulted in a meaningful increase in costs to consumers and financial services companies including mortgage originators and servicers. Our and our Servicer’s loan production and loan servicing operations are regulated at the state level by state licensing authorities and administrative agencies.
Our Manager’s employees who engage in regulated activities must apply for licensing as a mortgage banker or lender, loan servicer and debt collector pursuant to applicable state law. These state licensing requirements typically require an application process, the payment of fees, background checks and administrative review.
Our Servicer’s employees who engage in regulated activities must apply for licensing as a mortgage banker or lender, loan servicer and debt collector pursuant to applicable state law. These state licensing requirements typically require an application process, the payment of fees, background checks and administrative review.
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 2022, 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 2023, we were the largest correspondent aggregator in the United States as ranked by Inside Mortgage Finance.
As discussed in Section 1A. of this Report entitled Risk Factors , the combination of the requirement to maintain no more than 20% of our assets in the TRS coupled with the effect of TRS dividends on our income tests creates compliance complexities for us in the maintenance of our qualified REIT status.
As discussed in Item 1A. of this Report entitled Risk Factors , the combination of the requirement to maintain no more than 20% of our assets in the TRS coupled with the effect of TRS dividends on our income tests creates compliance complexities for us in the maintenance of our qualified REIT status.
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 subordinated securities.
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.
Our Manager’s servicing operations are licensed (or exempt or otherwise not required to be licensed) to service mortgage loans in all 50 states, the District of Columbia, Guam and the U.S. Virgin Islands.
Our Servicer’s servicing operations are licensed (or exempt or otherwise not required to be licensed) to service mortgage loans in all 50 states, the District of Columbia, Guam and the U.S. Virgin Islands.
Item 1. Business The following description of our business should be read in conjunction with the information included elsewhere in this Report. This description contains forward-looking statements that involve risks and uncertainties.
Item 1. Bu siness The following description of our business should be read in conjunction with the information included elsewhere in this Report. This description contains forward-looking statements that involve risks and uncertainties.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov . The above references to our website and the SEC’s website do not constitute incorporation by reference of the information contained on those websites and should not be considered part of this document. 17 Item 1A .
The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov . The above references to our website and the SEC’s website do not constitute incorporation by reference of the information contained on those websites and should not be considered part of this document.
Mortgage loan participation certificates do not contain margin call provisions. However, in the event the purchasers of the securities fail to settle the purchase, we are obligated to purchase the securities from the lender.
Mortgage loan participation purchase and sale certificates do not contain margin call provisions. However, in the event the purchasers of the securities fail to settle the purchase, we are obligated to purchase the securities from the lender.
We and PFSI are also taking proactive measures to strategically and sustainably advance equity in the workplace through Business Resource Groups (“BRGs”), a diversity hiring initiative, mentorship programs, and external partnerships with organizations such as the Mortgage Bankers Association and the National Association of Minority Mortgage Bankers of America.
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.
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; • 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; and • the CARES Act, which allows borrowers with federally-backed loans to request temporary payment forbearance in response to the increased borrower hardships resulting from the ongoing COVID-19 pandemic.
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.
The term notes are secured by MSRs on Fannie Mae loans that are pledged to a subsidiary trust that has also issued variable funding notes (“VFNs”) that may be financed with certain lenders in the form of sales of assets under agreements to repurchase.
The term notes are secured by MSR participation certificates on Fannie Mae loans that are pledged to a subsidiary trust that has also issued variable funding notes (“VFNs”) that may be financed with certain lenders in the form of sales of assets under agreements to repurchase.
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 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.
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 was offered 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 interest-only security that we issued to a nonaffiliate.
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 bear interest at 5.50%.
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.
As the fair value of MSRs is subject to periodic fluctuation, we are required to either pledge additional MSRs or cash to the subsidiary trust when the fair value of the MSRs decreases even though the borrowings have a long-term maturity. • $1.1 billion in various credit agreements secured by Freddie Mac MSRs • $593 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 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 of December 31, 2022, we had 722 approved sellers with delegated underwriting authority, primarily independent mortgage originators and small banks located across the United States.
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.
Following is a summary of the types of debt we use to finance our investing and operating activities: Short - term debt Sales of assets under agreements to repurchase Our largest source of debt financing is the sale of assets under agreements to repurchase.
We also rely on unsecured financing arrangements. Following is a summary of the types of debt we use to finance our investing and operating activities: Short-term debt Sales of assets under agreements to repurchase Our largest source of debt financing is the sale of assets under agreements to repurchase.
We then either: • sell Agency-eligible loans meeting the guidelines of the government-sponsored entities eligibility of loans for sale to Fannie Mae or Freddie Mac (“GSEs-Eligible Loans”) on a servicing-retained basis whereby we 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 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.
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 March 2023 through October 2024.
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.
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.
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.
In addition, as of the end of fiscal year 2022, PFSI’s workforce was 49.9% female and 50.1% male, and the ethnicity of PFSI’s workforce was 44.4% White, 22.6% Hispanic or Latino, 14.3% Black or African American, 14.2% Asian and 4.5% 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 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).
PLS acted as the servicer for loans with an unpaid principal balance totaling approximately $551.7 billion, of which $233.6 billion was subserviced for us as of December 31, 2022. Human Capital Resources All of our senior officers are employees of PFSI or its affiliates and we have no 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, 2023. Human Capital Resources All of our senior officers are employees of PFSI or its affiliates and we have seven employees.
As a result, we are subject to margin calls during the period the repurchase agreements are outstanding and, therefore, may be required to repay a portion of the borrowings before the respective repurchase agreements mature if the fair value (as determined by the applicable lender) of the assets securing those repurchase agreements decreases. 11 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.
As a result, we are subject to margin calls during the period the repurchase agreements are outstanding and, therefore, may be required to repay a portion of the borrowings before the respective repurchase agreements mature if the fair value (as determined by the applicable lender) of the assets securing those repurchase agreements decreases.
Our Company We are a specialty finance company that invests primarily in mortgage-related assets. We conduct substantially all of our operations, and make substantially all of our investments, through PennyMac Operating Partnership, L.P. (our “Operating Partnership”) and its subsidiaries. A wholly-owned subsidiary of ours is the sole general partner, and we are the sole limited partner, of our Operating Partnership.
Our Company We are a specialty finance company that invests primarily in mortgage-related assets. We conduct substantially all of our operations, and make substantially all of our investments, through our subsidiary, PennyMac Operating Partnership, L.P. (our “Operating Partnership”) and its subsidiaries.
PCM reviews its compliance with our investment policies regularly and reports periodically to our board of trustees regarding such compliance. • No investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • No investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”); and • With the exception of real estate and housing, no single industry shall represent more than 20% of the investments or total risk exposure in our portfolio.
Investment Policies Our board of trustees has adopted the policies set forth below for our investments and borrowings. • No investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • No investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”); and • With the exception of real estate and housing, no single industry shall represent more than 20% of the investments or total risk exposure in our portfolio.
Equity Our shareholders’ equity includes both common and cumulative preferred shares, partially offset by our accumulated deficit as summarized below: December 31, 2022 2021 2020 (in thousands) Paid-in capital Preferred shares $ 541,482 $ 541,482 $ 299,707 Common shares 1,948,155 2,082,706 2,097,886 2,489,637 2,624,188 2,397,593 Accumulated deficit (526,822 ) (256,670 ) (100,734 ) $ 1,962,815 $ 2,367,518 $ 2,296,859 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 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.
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.
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.
(2) Comprised of home equity lines of credit and a small balance commercial loan. (3) Derivative assets, net of derivative liabilities, excluding interest rate lock commitments (“IRLCs”) and CRT derivatives. 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.
(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.
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, 2022 2021 2020 (in thousands) Correspondent loan purchases at fair value: GSEs-Eligible Loans (1) $ 41,575,252 $ 113,667,618 $ 106,472,654 Held for sale to PLS ‒ Government insured or guaranteed (2) 46,562,853 67,702,945 63,574,547 Jumbo 5,029 — — Home equity lines of credit 132 — 2,569 $ 88,143,266 $ 181,370,563 $ 170,049,770 Interest rate lock commitments issued $ 91,031,903 $ 172,953,139 $ 185,414,040 Fair value of loans at year end pending sale to: Nonaffiliates $ 1,662,262 $ 3,856,030 $ 3,085,910 PLS 159,671 314,995 460,414 $ 1,821,933 $ 4,171,025 $ 3,546,324 Number of approved sellers at year-end (2) 722 768 714 (1) The Company sells or finances a portion of its GSEs-Eligible Loans production to or with other investors, including PLS.
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.
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.
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.
We may not continue to invest in certain of the investments described above if we believe those types of investments will not provide us with suitable returns or if we believe other types of our targeted assets provide us with better returns. Investment Policies Our board of trustees has adopted the policies set forth below for our investments and borrowings.
We may not continue to invest in certain of the investments described above if we believe those types of investments will not provide us with suitable returns or if we believe other types of our targeted assets provide us with better returns.
Fannie 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, 2022 2021 2020 (in thousands) Net investment income: Credit sensitive strategies $ (106,772 ) $ 323,121 $ (305,340 ) Interest rate sensitive strategies 297,726 (204,665 ) 174,558 Correspondent production 111,078 298,925 597,222 Corporate 1,739 2,916 2,911 $ 303,771 $ 420,297 $ 469,351 Pretax income: Credit sensitive strategies $ (112,566 ) $ 306,643 $ (317,143 ) Interest rate sensitive strategies 207,802 (290,065 ) 105,697 Correspondent production 27,557 86,936 344,639 Corporate (59,706 ) (58,853 ) (53,463 ) $ 63,087 $ 44,661 $ 79,730 Total assets at year end: Credit sensitive strategies $ 1,614,977 $ 1,848,294 $ 2,920,558 Interest rate sensitive strategies 9,991,621 7,363,878 4,593,127 Correspondent production 1,936,797 4,325,750 3,781,010 Corporate 378,169 234,786 197,316 $ 13,921,564 $ 13,772,708 $ 11,492,011 In our correspondent production segment, we purchase Agency-eligible and jumbo loans.
Fannie 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.
As a result, we have historically relied on shorter-term financing arrangements, primarily sales of the assets under agreements to repurchase, to finance our longer-lived assets.
As a result, we have historically relied on shorter-term financing arrangements, primarily sales of the assets under agreements to repurchase, to finance our longer-lived assets. As we have grown, we have financed more of our assets under longer term secured financing arrangements that more closely align the term of the borrowings with the expected life of the corresponding assets.
At December 31, 2022, we had $200 million of common shares available for issuance under our at-the-market equity offering program and $101.3 million authorized for share repurchases. 13 Following is a summary of our offerings and repurchases of common shares: Year ended December 31, Share offerings Share repurchases (in thousands) 2022 $ — $ 87,992 2021 $ — $ 56,855 2020 $ 5,597 $ 37,267 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.
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.
PFSI had approximately 4,000 domestic employees as of the end of fiscal year 2022.
PFSI had approximately 3,900 domestic employees as of the end of fiscal year 2023.
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, 2022 2021 2020 (in thousands) MBS, net of sales $ 2,638,267 $ 932,270 $ 352,307 ESS, net of sale — (129,304 ) 2,093 $ 2,638,267 $ 802,966 $ 354,400 Our portfolio of mortgage investments was comprised of the following: December 31, 2022 2021 2020 (in thousands) Credit sensitive assets: CRT arrangements, net (1) $ 1,144,078 $ 1,686,445 $ 2,617,509 Subordinate credit-linked mortgage-backed securities 177,898 — — Subordinate interests in loans held in VIEs, net of associated asset-backed financings 84,044 85,266 8,981 Distressed loans at fair value 3,457 4,161 8,027 Real estate acquired in settlement of loans 7,734 14,382 28,709 Other (2) 2,424 4,229 6,576 1,419,635 1,794,483 2,669,802 Interest rate sensitive assets: Mortgage-backed securities 4,284,703 2,666,768 2,213,922 Mortgage servicing rights at fair value 4,012,737 2,892,855 1,755,236 Excess servicing spread — — 131,750 Net interest rate lock commitments (478 ) 2,451 72,386 Net interest rate hedges (3) 77,483 (2,546 ) (123,490 ) 8,374,445 5,559,528 4,049,804 $ 9,794,080 $ 7,354,011 $ 6,719,606 (1) Investments in CRT arrangements include deposits securing CRT arrangements, CRT strips, CRT derivatives and an interest-only security payable.
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.
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”) of our Operating Partnership. The management of our business and execution of our operations is performed on our behalf by subsidiaries of PennyMac Financial Services, Inc. (“PFSI”).
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.
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.
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.
Our borrowings are primarily collateralized borrowings in the form of sales of assets under agreements to repurchase, loan and security agreements, and loan participation purchase and sale agreements. We supplement these borrowings with long-term securitized notes, including secured term financing for our MSRs and our CRT arrangements.
Our borrowings are primarily collateralized borrowings in the form of sales of assets under agreements to repurchase, and asset-backed financing in the form of long-term securitized notes, including secured term financing for our MSRs and our CRT arrangements. Terms of our borrowings are summarized in Notes 14 and 15 to our consolidated financial statements included in this Report.
PFSI is a specialty financial services firm focused on the production and servicing of loans and the management of investments related to the U.S. mortgage market.
The management of our business and execution of our operations are performed on our behalf by subsidiaries of PennyMac Financial Services, Inc. (“PFSI”). PFSI is a specialty financial services firm separately listed on the New York Stock Exchange focused on the production and servicing of loans and the management of investments related to the U.S. mortgage market.
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”).
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.
VFNs are typically used to finance a portion of the fair value of MSRs held by the subsidiary trust in excess of the fair value required to collateralize the secured term notes. The term notes include margin call provisions that require us to maintain a certain advance rate based on the fair value of the underlying MSRs.
VFNs are typically used to finance a portion of the fair value of MSR participation certificates held by the subsidiary trust in excess of the fair value required to collateralize the secured term notes and term loans.
This approach to managing our equity includes supplementing our common shares with issuances of preferred shares and common share repurchase activities.
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.
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 Our Financing Activities Following is a summary of our financing, including borrowings and the assets pledged to secure those borrowings as of December 31, 2022: Assets financed Financing MBS Loans acquired for sale Loans at fair value CRT assets MSRs (1) REO Total (in thousands) Borrowings Short term Assets sold under agreements to repurchase $ 4,250,638 $ 1,678,554 $ 64,501 $ 237,835 $ 385,000 $ — $ 6,616,528 Mortgage loan participation purchase and sale agreements — — — — — — — Long term Notes payable secured by CRT arrangements and MSRs — — — 591,027 2,213,001 — 2,804,028 Asset-backed financings at fair value — — 1,414,955 — — — 1,414,955 Interest-only security payable — — — 21,925 — — 21,925 Total secured borrowings 4,250,638 1,678,554 1,479,456 850,787 2,598,001 — 10,857,436 Exchangeable senior notes 546,254 Total borrowings $ 4,250,638 $ 1,678,554 $ 1,479,456 $ 850,787 $ 2,598,001 $ — 11,403,690 Shareholders' equity 1,962,815 Total financing $ 13,366,505 Assets pledged to secure borrowings $ 4,462,601 $ 1,801,368 $ 1,510,148 $ 1,326,556 $ 4,063,708 $ 3,297 $ 13,167,678 Debt-to-equity ratio: Excluding non-recourse debt 5.1:1 Total 5.8:1 (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, 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.
Exchangeable senior notes We have $210 million in outstanding exchangeable senior notes due to mature on November 1, 2024, and $345 million in outstanding exchangeable senior notes due on mature on March 15, 2026. The exchangeable senior notes are unsecured obligations.
(“PMC”), has issued $555 million in outstanding exchangeable senior notes with maturities through March 2026. The exchangeable senior notes are unsecured obligations.
Removed
Terms of our borrowings are summarized in Notes 14 and 15 to our consolidated financial statements included in this Report.
Added
Therefore, our investments in these securities are shown as their underlying assets, Loans at fair value with the securities held by non-affiliates being shown as Asset-backed financings of variable interest entities at fair value .
Removed
As we have grown, our ability to finance more of our assets under longer term arrangements that more closely align the term of the borrowings with the expected life of the corresponding assets, on terms that are economically viable for us, has increased.
Added
The term notes and term loans include margin call provisions that require us to maintain a certain advance rate based on the fair value of the underlying MSR participation certificates.
Removed
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.
Added
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.
Removed
From time to time, we or our Manager 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.
Added
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.
Removed
We and PFSI also foster a more inclusive culture through a variety of initiatives, including corporate training, special events, community outreach and corporate philanthropy.
Added
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.
Removed
Risk Factors Summary Risk Factors We are subject to a number of risks that, if realized, could have a material adverse effect on our business, financial condition, liquidity, results of operations and our ability to make distributions to our shareholders.
Removed
Some of our more significant challenges and risks include, but are not limited to, the following, which are described in greater detail below: • Interest rate fluctuations could significantly decrease our results of operations and cash flows and the fair value of our investments. • 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. • New 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 the inherent 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 • 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. • Our business, financial condition, liquidity and results of operations may be adversely affected by the long term impact of the COVID-19 pandemic. • Our correspondent production activities could subject us to increased risk of loss. • The success and growth of our correspondent production activities will depend, in part, upon PLS’ ability to adapt to and implement technological changes and to successfully develop, implement and protect its proprietary technology. • Hedging against interest rate exposure may materially and adversely affect our results of operations and cash flows. • 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. • Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to significant risk of loss. • Government-sponsored entities have wound down lender risk share transactions such as CRT investments since the end of 2020.
Removed
If we are unable to find a suitable alternative investment to investing in CRTs with similar returns, our business, liquidity, financial condition and results of operations could be materially and adversely affected . • A portion of our investments is in the form of 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. 18 • 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. • 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. • Cybersecurity risks, cyber incidents and technology failures may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
Removed
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Report, including the matters set forth below in this Item 1A.
Removed
Risk Factors In addition to the other information set forth in this Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, liquidity and results of operations in future periods. The risks described below are not the only risks that we face.
Removed
Additional risks not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, liquidity and results of operations in future periods. 19 Risks Related to Our Business Interest rate fluctuations could significantly decrease our results of operations and cash flows and the fair value of our investments.
Removed
Interest rates are highly sensitive to many factors, including United States monetary policies, domestic and international economic and political considerations and other macroeconomic conditions such as inflation fluctuations, consumer confidence and demand. Interest rate fluctuations present a variety of risks to our operations.
Removed
Our primary interest rate exposures relate to the yield on our investments, their fair values and the financing cost of our debt, as well as any derivative financial instruments that we utilize for hedging purposes.
Removed
In addition, interest rates and the liquidity of the MBS market may be impacted by the Federal Reserve increasing the federal funds rate, tapering MBS purchases or selling MBS.
Removed
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. Interest rate fluctuations resulting in our interest expense exceeding interest income may result in operating losses for us.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings 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, 2022, 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, 2023, 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 summarized PMT common shares of beneficial interest (“Common Shares”) repurchase activity for the quarter ended December 31, 2022: 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, 2022 – October 31, 2022 1,166 $ 11.80 1,166 $ 101,754 November 1, 2022 – November 30, 2022 2 $ 13.49 2 $ 101,730 December 1, 2022 – December 31, 2022 38 $ 12.42 38 $ 101,261 (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 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”).
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2022.
Unregistered Sales of Equity Securities and Use of Proceeds There were no sales of unregistered equity securities during the quarter ended December 31, 2023.
Item 5. Market for the Registrant’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 22, 2023, our common shares were held by 136 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 20, 2024, our common shares were held by 143 registered holders.

Other PMTW 10-K year-over-year comparisons