UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-34416
PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)
Maryland |
| 27-0186273 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
|
|
|
3043 Townsgate Road, Westlake Village, California |
| 91361 |
(Address of principal executive offices) |
| (Zip Code) |
(818) 224-7442
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol (s) | Name of Each Exchange on Which Registered | ||
8.125% Series A Cumulative Redeemable Preferred | PMT/PA | New York Stock Exchange | ||
8.00% Series B Cumulative Redeemable Preferred | PMT/PB | New York Stock Exchange | ||
Common Shares of Beneficial Interest, $0.01 Par Value | PMT | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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|
|
| |||
Emerging growth company |
| ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at |
Common Shares of Beneficial Interest, $0.01 par value |
|
|
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
September 30, 2017March 31, 2021
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Off-Balance Sheet Arrangements and Aggregate Contractual Obligations |
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SPECIAL NOTE REGARDING FORWARD-LOOKINGFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:
projections of our revenues, income, earnings per share, capital structure or other financial items;
• | projections of our revenues, income, earnings per share, capital structure or other financial items; |
descriptions of our plans or objectives for future operations, products or services;
• | descriptions of our plans or objectives for future operations, products or services; |
forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and
• | forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and |
descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.
• | descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues. |
Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017.21, 2020.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks;
• | our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics such as the COVID-19 pandemic; |
volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets specifically, whether the result of market events or otherwise;
• | the impact to our CRT arrangements and agreements of increased borrower requests for forbearance under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”); |
events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts;
• | changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks; |
changes in general business, economic, market, employment and political conditions, or in consumer confidence and spending habits from those expected;
• | volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets specifically, whether the result of market events or otherwise; |
declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market;
• | events or circumstances which undermine confidence in the financial and housing markets or otherwise have a broad impact on financial and housing markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts; |
the availability of, and level of competition for, attractive risk-adjusted investment opportunities in mortgage loans and mortgage-related assets that satisfy our investment objectives;
• | changes in general business, economic, market, employment and domestic and international political conditions, or in consumer confidence and spending habits from those expected; |
the inherent difficulty in winning bids to acquire mortgage loans, and our success in doing so;
• | declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market; |
the concentration of credit risks to which we are exposed;
• | the availability of, and level of competition for, attractive risk-adjusted investment opportunities in loans and mortgage-related assets that satisfy our investment objectives; |
the degree and nature of our competition;
• | the inherent difficulty in winning bids to acquire loans, and our success in doing so; |
our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities;
• | the concentration of credit risks to which we are exposed; |
changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates;
• | the degree and nature of our competition; |
the availability, terms and deployment of short-term and long-term capital;
• | our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities; |
the adequacy of our cash reserves and working capital;
• | changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates; |
• | the adequacy of our cash reserves and working capital; |
• | our substantial amount of debt; |
• | our ability to maintain the desired relationship between our financing and the interest rates and maturities of our assets; |
the timing and amount of cash flows, if any, from our investments;
unanticipated increases or volatility in financing and other costs, including a rise in interest rates;
the performance, financial condition and liquidity of borrowers;
the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards;
incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties;
our indemnification and repurchase obligations in connection with mortgage loans we purchase and later sell or securitize;
the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest;
increased rates of delinquency, default and/or decreased recovery rates on our investments;
the performance of mortgage loans underlying mortgage-backed securities (“MBS”) in which we retain credit risk;
our ability to foreclose on our investments in a timely manner or at all;
increased prepayments of the mortgages and other loans underlying our MBS or relating to our mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) and other investments;
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon our financial condition and results of operations;
our failure to maintain appropriate internal controls over financial reporting;
technologies for loans and our ability to mitigate security risks and cyber intrusions;
our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;
our ability to detect misconduct and fraud;
our ability to comply with various federal, state and local laws and regulations that govern our business;
developments in the secondary markets for our mortgage loan products;
legislative and regulatory changes that impact the mortgage loan industry or housing market;
changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as the Government National Mortgage Association (“Ginnie Mae”), the Federal Housing Administration (the “FHA”) or the Veterans Administration (the “VA”), the U.S. Department of Agriculture (“USDA”), or government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies”), or such changes that increase the cost of doing business with such entities;
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations and regulatory agencies, and any other legislative and regulatory changes that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies;
the Consumer Financial Protection Bureau (“CFPB”) and its issued and future rules and the enforcement thereof;
changes in government support of homeownership;
changes in government or government-sponsored home affordability programs;
limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 (the “Investment Company Act”) and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries (“TRSs”) for U.S. federal income tax purposes, as applicable, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;
• | unanticipated increases or volatility in financing and other costs, including a rise in interest rates; |
• | the performance, financial condition and liquidity of borrowers; |
• | the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards; |
• | incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties; |
• | our indemnification and repurchase obligations in connection with loans we purchase and later sell or securitize; |
• | the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest; |
• | increased rates of delinquency, default and/or decreased recovery rates on our investments; |
• | the performance of loans underlying mortgage-backed securities (“MBS”) in which we retain credit risk; |
• | our ability to foreclose on our investments in a timely manner or at all; |
• | increased prepayments of the mortgages and other loans underlying our MBS or relating to our mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) and other investments; |
• | the degree to which our hedging strategies may or may not protect us from interest rate volatility; |
• | the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon our financial condition and results of operations; |
• | our ability to maintain appropriate internal control over financial reporting; |
• | technology failures, cybersecurity risks and incidents, and our ability to mitigate cybersecurity risks and cyber intrusions; |
• | our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business; |
• | our ability to detect misconduct and fraud; |
• | our ability to comply with various federal, state and local laws and regulations that govern our business; |
• | developments in the secondary markets for our loan products; |
• | legislative and regulatory changes that impact the loan industry or housing market; |
• | changes in regulations that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies or such changes that increase the cost of doing business with such entities; |
• | the Consumer Financial Protection Bureau (“CFPB”) and its issued and future rules and the enforcement thereof; |
• | changes in government support of homeownership; |
• | changes in government or government-sponsored home affordability programs; |
• | limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 (the “Investment Company Act”) and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries (“TRSs”) for U.S. federal income tax purposes, as applicable, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules; |
• | changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of REITs, or the exclusions from registration as an investment company); |
2
• | our ability to make distributions to our shareholders in the future; |
our ability to make distributions to our shareholders in the future;
• | our failure to deal appropriately with issues that may give rise to reputational risk; and |
the effect of public opinion on our reputation;
the occurrence of natural disasters or other events or circumstances that could impact our operations; and
our organizational structure and certain requirements in our charter documents.
• | our organizational structure and certain requirements in our charter documents. |
Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
PART I. FINANCIALFINANCIAL INFORMATION
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| September 30, |
|
| December 31, |
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| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
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| 2016 |
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| 2021 |
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| 2020 |
| ||||
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| (in thousands, except share information) |
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| (in thousands, except share information) |
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ASSETS |
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Cash |
| $ | 99,515 |
|
| $ | 34,476 |
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| $ | 92,842 |
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| $ | 57,704 |
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Short-term investments |
|
| 5,646 |
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|
| 122,088 |
| ||||||||
Mortgage-backed securities at fair value (includes $1,036,669 and $863,802 pledged to creditors, respectively) |
|
| 1,036,669 |
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|
| 865,061 |
| ||||||||
Mortgage loans acquired for sale at fair value (includes $1,251,916 and $1,653,748 pledged to creditors, respectively) |
|
| 1,270,340 |
|
|
| 1,673,112 |
| ||||||||
Mortgage loans at fair value (includes $1,341,671 and $1,712,190 pledged to creditors, respectively) |
|
| 1,347,943 |
|
|
| 1,721,741 |
| ||||||||
Excess servicing spread purchased from PennyMac Financial Services, Inc. at fair value pledged to secure assets sold under agreements to repurchase to PennyMac Financial Services, Inc. |
|
| 248,763 |
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|
| 288,669 |
| ||||||||
Derivative assets (includes $15,742 and $9,078 pledged to creditors, respectively) |
|
| 67,288 |
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|
| 33,709 |
| ||||||||
Real estate acquired in settlement of loans (includes $135,761 and $215,713 pledged to creditors, respectively) |
|
| 185,034 |
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|
| 274,069 |
| ||||||||
Real estate held for investment (includes $29,664 pledged to creditors at September 30, 2017) |
|
| 42,546 |
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|
| 29,324 |
| ||||||||
Mortgage servicing rights (includes $82,312 and $64,136 at fair value; $778,270 and $656,567 pledged to creditors) |
|
| 790,335 |
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|
| 656,567 |
| ||||||||
Servicing advances |
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| 61,826 |
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|
| 76,950 |
| ||||||||
Deposits securing credit risk transfer agreements (includes $408,100 and $414,610 pledged to creditors, respectively) |
|
| 545,694 |
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| 450,059 |
| ||||||||
Short-term investments at fair value |
|
| 108,375 |
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|
| 127,295 |
| ||||||||
Mortgage-backed securities at fair value pledged to creditors |
|
| 1,916,485 |
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|
| 2,213,922 |
| ||||||||
Loans acquired for sale at fair value ($4,590,193 and $3,501,847 pledged to creditors, respectively) |
|
| 4,646,761 |
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|
| 3,551,890 |
| ||||||||
Loans at fair value ($111,228 and $147,410 pledged to creditors, respectively) |
|
| 117,647 |
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|
| 151,734 |
| ||||||||
Excess servicing spread purchased from PennyMac Financial Services, Inc. at fair value pledged to secure Assets sold to PennyMac Financial Services, Inc. under agreements to repurchase |
|
| 0 |
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|
| 131,750 |
| ||||||||
Derivative and credit risk transfer strip assets ($58,134 and $58,699 pledged to creditors, respectively) |
|
| 182,969 |
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| 164,318 |
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Deposits securing credit risk transfer arrangements pledged to creditors |
|
| 2,664,420 |
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|
| 2,799,263 |
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Mortgage servicing rights at fair value ($2,423,063 and $1,742,905 pledged to creditors, respectively) |
|
| 2,441,214 |
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| 1,755,236 |
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Servicing advances ($74,522 pledged to creditors at March 31, 2021) |
|
| 150,160 |
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| 121,820 |
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Real estate acquired in settlement of loans ($10,250 and $15,365 pledged to creditors, respectively) |
|
| 17,715 |
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| 28,709 |
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Due from PennyMac Financial Services, Inc. |
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| 4,725 |
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| 7,091 |
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| 7,521 |
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|
| 8,152 |
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Other |
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| 78,719 |
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| 124,586 |
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| 176,145 |
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| 380,218 |
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Total assets |
| $ | 5,785,043 |
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| $ | 6,357,502 |
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| $ | 12,522,254 |
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| $ | 11,492,011 |
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LIABILITIES |
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Assets sold under agreements to repurchase |
| $ | 3,203,386 |
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| $ | 3,784,001 |
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| $ | 6,091,973 |
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| $ | 6,309,418 |
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Mortgage loan participation purchase and sale agreements |
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| 43,988 |
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| 25,917 |
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| 68,176 |
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| 16,851 |
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Notes payable |
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| 80,106 |
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| 275,106 |
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Notes payable secured by credit risk transfer and mortgage servicing assets |
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| 2,897,794 |
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| 1,924,999 |
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Exchangeable senior notes |
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| 494,097 |
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| 196,796 |
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Asset-backed financing of a variable interest entity at fair value |
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| 318,404 |
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| 353,898 |
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| 101,238 |
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| 134,726 |
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Exchangeable senior notes |
|
| 246,906 |
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|
| 246,089 |
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Assets sold to PennyMac Financial Services, Inc. under agreement to repurchase |
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| 148,072 |
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|
| 150,000 |
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Interest-only security payable at fair value |
|
| 6,386 |
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|
| 4,114 |
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| 18,922 |
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|
| 10,757 |
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Derivative liabilities |
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| 4,900 |
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|
| 9,573 |
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Assets sold to PennyMac Financial Services, Inc. under agreements to repurchase |
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| 0 |
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|
| 80,862 |
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Derivative and credit risk transfer strip liabilities at fair value |
|
| 229,970 |
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| 263,473 |
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Accounts payable and accrued liabilities |
|
| 76,127 |
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| 107,758 |
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|
| 122,837 |
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|
| 124,809 |
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Due to PennyMac Financial Services, Inc. |
|
| 16,008 |
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|
| 16,416 |
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|
| 68,644 |
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|
| 87,005 |
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Income taxes payable |
|
| 20,148 |
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|
| 18,166 |
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| 42,493 |
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| 23,563 |
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Liability for losses under representations and warranties |
|
| 10,047 |
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|
| 15,350 |
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|
| 28,967 |
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| 21,893 |
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Total liabilities |
|
| 4,174,478 |
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|
| 5,006,388 |
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|
| 10,165,111 |
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|
| 9,195,152 |
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Commitments and contingencies — Note 19 |
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Commitments and contingencies ─ Note 16 |
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SHAREHOLDERS’ EQUITY |
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Preferred shares of beneficial interest, $0.01 par value per share, authorized 100,000,000 shares, issued and outstanding 12,400,000 shares at September 30, 2017, liquidation preference $310,000,000 |
|
| 299,707 |
|
|
| — |
| ||||||||
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 65,875,618 and 66,697,286 common shares, respectively |
|
| 659 |
|
|
| 667 |
| ||||||||
Preferred shares of beneficial interest, $0.01 par value per share, authorized 100,000,000 shares, issued and outstanding 12,400,000 shares, liquidation preference $310,000,000 |
|
| 299,707 |
|
|
| 299,707 |
| ||||||||
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 97,938,350 and 97,862,625 common shares, respectively |
|
| 979 |
|
|
| 979 |
| ||||||||
Additional paid-in capital |
|
| 1,362,319 |
|
|
| 1,377,171 |
|
|
| 2,137,933 |
|
|
| 2,096,907 |
|
Accumulated deficit |
|
| (52,120 | ) |
|
| (26,724 | ) |
|
| (81,476 | ) |
|
| (100,734 | ) |
Total shareholders’ equity |
|
| 1,610,565 |
|
|
| 1,351,114 |
|
|
| 2,357,143 |
|
|
| 2,296,859 |
|
Total liabilities and shareholders’ equity |
| $ | 5,785,043 |
|
| $ | 6,357,502 |
|
| $ | 12,522,254 |
|
| $ | 11,492,011 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and liabilities (the assets of each VIE can only be used to settle liabilities of that VIE):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
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| (in thousands) |
| ||||||||||
ASSETS |
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|
|
|
|
Mortgage loans at fair value |
| $ | 331,941 |
|
| $ | 367,169 |
| ||||||||
Derivative assets |
|
| 56,878 |
|
|
| 15,610 |
| ||||||||
Deposits securing credit risk transfer agreements |
|
| 545,694 |
|
|
| 450,059 |
| ||||||||
Loans at fair value |
| $ | 109,845 |
|
| $ | 143,707 |
| ||||||||
Derivative and credit risk transfer assets at fair value |
|
| 58,134 |
|
|
| 58,699 |
| ||||||||
Deposits securing credit risk transfer arrangements |
|
| 2,664,420 |
|
|
| 2,799,263 |
| ||||||||
Other—interest receivable |
|
| 931 |
|
|
| 1,058 |
|
|
| 298 |
|
|
| 392 |
|
|
| $ | 935,444 |
|
| $ | 833,896 |
|
| $ | 2,832,697 |
|
| $ | 3,002,061 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing at fair value |
| $ | 318,404 |
|
| $ | 353,898 |
|
| $ | 101,238 |
|
| $ | 134,726 |
|
Derivative and credit risk transfer liabilities at fair value |
|
| 123,028 |
|
|
| 229,696 |
| ||||||||
Interest-only security payable at fair value |
|
| 6,386 |
|
|
| 4,114 |
|
|
| 18,922 |
|
|
| 10,757 |
|
Accounts payable and accrued liabilities—interest payable |
|
| 931 |
|
|
| 1,058 |
|
|
| 298 |
|
|
| 392 |
|
|
| $ | 325,721 |
|
| $ | 359,070 |
|
| $ | 243,486 |
|
| $ | 375,571 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (UNAUDITED)
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands, except per share amounts) |
| (in thousands, except common share amounts) |
| ||||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net gain on mortgage loans acquired for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment income (loss) |
|
|
|
|
|
|
| ||||||||||||||||
Net gains on loans acquired for sale: |
|
|
|
|
|
|
| ||||||||||||||||
From nonaffiliates |
| $ | 14,692 |
|
| $ | 41,321 |
|
| $ | 44,944 |
|
| $ | 76,903 |
| $ | 51,274 |
|
| $ | 44,614 |
|
From PennyMac Financial Services, Inc. |
|
| 3,275 |
|
|
| 2,537 |
|
|
| 9,340 |
|
|
| 6,230 |
|
| 1,738 |
|
|
| 4,161 |
|
|
|
| 17,967 |
|
|
| 43,858 |
|
|
| 54,284 |
|
|
| 83,133 |
|
| 53,012 |
|
|
| 48,775 |
|
Mortgage loan origination fees |
|
| 11,744 |
|
|
| 12,684 |
|
|
| 30,501 |
|
|
| 28,104 |
| |||||||
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Loan origination fees |
| 52,902 |
|
|
| 23,928 |
| ||||||||||||||||
Net gains (losses) on investments: |
|
|
|
|
|
|
| ||||||||||||||||
From nonaffiliates |
|
| 17,499 |
|
|
| 17,103 |
|
|
| 69,067 |
|
|
| 31,169 |
|
| 81,540 |
|
|
| (800,990 | ) |
From PennyMac Financial Services, Inc. |
|
| (3,665 | ) |
|
| (2,824 | ) |
|
| (10,920 | ) |
|
| (36,275 | ) |
| 1,651 |
|
|
| (14,141 | ) |
|
|
| 13,834 |
|
|
| 14,279 |
|
|
| 58,147 |
|
|
| (5,106 | ) |
| 83,191 |
|
|
| (815,131 | ) |
Net mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loan servicing fees: |
|
|
|
|
|
|
| ||||||||||||||||
From nonaffiliates |
|
| 21,543 |
|
|
| 15,352 |
|
|
| 48,466 |
|
|
| 46,157 |
|
|
|
|
|
|
|
|
Contractually specified |
| 116,287 |
|
|
| 94,469 |
| ||||||||||||||||
Other |
| 16,245 |
|
|
| 7,191 |
| ||||||||||||||||
|
| 132,532 |
|
|
| 101,660 |
| ||||||||||||||||
Change in fair value of mortgage servicing rights |
| 278,282 |
|
|
| (627,201 | ) | ||||||||||||||||
Mortgage servicing rights hedging results |
| (374,403 | ) |
|
| 767,186 |
| ||||||||||||||||
|
| 36,411 |
|
|
| 241,645 |
| ||||||||||||||||
From PennyMac Financial Services, Inc. |
|
| 333 |
|
|
| 409 |
|
|
| 859 |
|
|
| 849 |
|
| 13,634 |
|
|
| 2,927 |
|
|
|
| 21,876 |
|
|
| 15,761 |
|
|
| 49,325 |
|
|
| 47,006 |
|
| 50,045 |
|
|
| 244,572 |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From nonaffiliates |
|
| 47,579 |
|
|
| 53,307 |
|
|
| 139,052 |
|
|
| 146,711 |
|
| 36,309 |
|
|
| 70,149 |
|
From PennyMac Financial Services, Inc. |
|
| 3,998 |
|
|
| 4,827 |
|
|
| 13,011 |
|
|
| 17,555 |
|
| 1,280 |
|
|
| 1,974 |
|
|
|
| 51,577 |
|
|
| 58,134 |
|
|
| 152,063 |
|
|
| 164,266 |
|
| 37,589 |
|
|
| 72,123 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To nonaffiliates |
|
| 38,161 |
|
|
| 38,356 |
|
|
| 109,936 |
|
|
| 103,129 |
|
| 75,921 |
|
|
| 79,850 |
|
To PennyMac Financial Services, Inc. |
|
| 2,116 |
|
|
| 1,974 |
|
|
| 5,946 |
|
|
| 5,798 |
|
| 387 |
|
|
| 1,218 |
|
|
|
| 40,277 |
|
|
| 40,330 |
|
|
| 115,882 |
|
|
| 108,927 |
|
| 76,308 |
|
|
| 81,068 |
|
Net interest income |
|
| 11,300 |
|
|
| 17,804 |
|
|
| 36,181 |
|
|
| 55,339 |
| |||||||
Net interest expense |
| (38,719 | ) |
|
| (8,945 | ) | ||||||||||||||||
Results of real estate acquired in settlement of loans |
|
| (3,143 | ) |
|
| (3,285 | ) |
|
| (10,854 | ) |
|
| (11,886 | ) |
| 837 |
|
|
| 32 |
|
Other |
|
| 2,226 |
|
|
| 2,225 |
|
|
| 6,653 |
|
|
| 6,570 |
|
| 129 |
|
|
| 252 |
|
Net investment income |
|
| 75,804 |
|
|
| 103,326 |
|
|
| 224,237 |
|
|
| 203,160 |
| |||||||
Net investment income (loss) |
| 201,397 |
|
|
| (506,517 | ) | ||||||||||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned by PennyMac Financial Services, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment fees |
|
| 23,507 |
|
|
| 27,255 |
|
|
| 61,184 |
|
|
| 59,301 |
| |||||||
Mortgage loan servicing fees |
|
| 11,402 |
|
|
| 11,039 |
|
|
| 31,987 |
|
|
| 38,919 |
| |||||||
Loan fulfillment fees |
| 60,835 |
|
|
| 41,940 |
| ||||||||||||||||
Loan servicing fees |
| 19,093 |
|
|
| 14,521 |
| ||||||||||||||||
Management fees |
|
| 6,038 |
|
|
| 5,025 |
|
|
| 16,684 |
|
|
| 15,576 |
|
| 8,449 |
|
|
| 9,055 |
|
Mortgage loan origination |
|
| 2,230 |
|
|
| 2,202 |
|
|
| 5,735 |
|
|
| 4,880 |
| |||||||
Loan origination |
| 9,308 |
|
|
| 4,249 |
| ||||||||||||||||
Loan collection and liquidation |
| 3,857 |
|
|
| 750 |
| ||||||||||||||||
Professional services |
|
| 1,331 |
|
|
| 1,134 |
|
|
| 5,531 |
|
|
| 5,438 |
|
| 2,224 |
|
|
| 1,496 |
|
Compensation |
|
| 1,067 |
|
|
| 1,508 |
|
|
| 4,918 |
|
|
| 5,021 |
|
| 2,185 |
|
|
| 519 |
|
Mortgage loan collection and liquidation |
|
| 864 |
|
|
| 6,205 |
|
|
| 4,556 |
|
|
| 12,709 |
| |||||||
Safekeeping |
| 1,941 |
|
|
| 1,658 |
| ||||||||||||||||
Other |
|
| 5,199 |
|
|
| 3,944 |
|
|
| 15,043 |
|
|
| 13,417 |
|
| 2,477 |
|
|
| 3,720 |
|
Total expenses |
|
| 51,638 |
|
|
| 58,312 |
|
|
| 145,638 |
|
|
| 155,261 |
|
| 110,369 |
|
|
| 77,908 |
|
Income before provision for income taxes |
|
| 24,166 |
|
|
| 45,014 |
|
|
| 78,599 |
|
|
| 47,899 |
| |||||||
Income (loss) before provision for income taxes |
| 91,028 |
|
|
| (584,425 | ) | ||||||||||||||||
Provision for income taxes |
|
| 4,771 |
|
|
| 9,606 |
|
|
| 1,688 |
|
|
| 3,262 |
|
| 19,425 |
|
|
| 10,248 |
|
Net income |
|
| 19,395 |
|
|
| 35,408 |
|
|
| 76,911 |
|
|
| 44,637 |
| |||||||
Dividends on preferred stock |
|
| 6,125 |
|
|
| — |
|
|
| 9,032 |
|
|
| — |
| |||||||
Net income attributable to common shareholders |
| $ | 13,270 |
|
| $ | 35,408 |
|
| $ | 67,879 |
|
| $ | 44,637 |
| |||||||
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
| 71,603 |
|
|
| (594,673 | ) | ||||||||||||||||
Dividends on preferred shares |
| 6,234 |
|
|
| 6,234 |
| ||||||||||||||||
Net income (loss) attributable to common shareholders | $ | 65,369 |
|
| $ | (600,907 | ) | ||||||||||||||||
Earnings (loss) per common share |
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.20 |
|
| $ | 0.52 |
|
| $ | 1.01 |
|
| $ | 0.63 |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Diluted |
| $ | 0.20 |
|
| $ | 0.49 |
|
| $ | 0.98 |
|
| $ | 0.63 |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Weighted average common shares outstanding |
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 66,636 |
|
|
| 67,554 |
|
|
| 66,702 |
|
|
| 69,289 |
|
| 97,892 |
|
|
| 100,245 |
|
Diluted |
|
| 66,636 |
|
|
| 76,329 |
|
|
| 75,169 |
|
|
| 69,289 |
|
| 98,103 |
|
|
| 100,245 |
|
Dividends declared per common share |
| $ | 0.47 |
|
| $ | 0.47 |
|
| $ | 1.41 |
|
| $ | 1.41 |
| $ | 0.47 |
|
| $ | 0.25 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
|
| Preferred shares |
| �� | Common shares |
|
| Retained |
|
|
|
|
| |||||||||||||||
|
| Number |
|
|
|
|
|
| Number |
|
|
|
|
|
| Additional |
|
| earnings |
|
|
|
|
| ||||
|
| of |
|
|
|
|
|
| of |
|
| Par |
|
| paid-in |
|
| (Accumulated |
|
|
|
|
| |||||
|
| shares |
|
| Amount |
|
| shares |
|
| value |
|
| capital |
|
| deficit) |
|
| Total |
| |||||||
|
| (in thousands, except per share amounts) |
|
|
| |||||||||||||||||||||||
Balance at December 31, 2015 |
|
| — |
|
| $ | — |
|
|
| 73,767 |
|
| $ | 738 |
|
| $ | 1,469,722 |
|
| $ | 25,653 |
|
| $ | 1,496,113 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,637 |
|
|
| 44,637 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 298 |
|
|
| 3 |
|
|
| 4,139 |
|
|
| — |
|
|
| 4,142 |
|
Common share dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (96,545 | ) |
|
| (96,545 | ) |
Repurchase of common shares |
|
| — |
|
|
| — |
|
|
| (7,029 | ) |
|
| (70 | ) |
|
| (93,359 | ) |
|
| — |
|
|
| (93,429 | ) |
Balance at September 30, 2016 |
|
| — |
|
| $ | — |
|
|
| 67,036 |
|
| $ | 671 |
|
| $ | 1,380,502 |
|
| $ | (26,255 | ) |
| $ | 1,354,918 |
|
Balance at December 31, 2016 |
|
| — |
|
| $ | — |
|
|
| 66,697 |
|
| $ | 667 |
|
| $ | 1,377,171 |
|
| $ | (26,724 | ) |
| $ | 1,351,114 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 76,911 |
|
|
| 76,911 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 284 |
|
|
| 3 |
|
|
| 3,861 |
|
|
| — |
|
|
| 3,864 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (94,477 | ) |
|
| (94,477 | ) |
Preferred shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,830 | ) |
|
| (7,830 | ) |
Issuance of preferred shares |
|
| 12,400 |
|
|
| 310,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 310,000 |
|
Issuance costs relating to preferred shares |
|
| — |
|
|
| (10,293 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,293 | ) |
Repurchase of common shares |
|
| — |
|
|
| — |
|
|
| (1,105 | ) |
|
| (11 | ) |
|
| (18,713 | ) |
|
| — |
|
|
| (18,724 | ) |
Balance at September 30, 2017 |
|
| 12,400 |
|
| $ | 299,707 |
|
|
| 65,876 |
|
| $ | 659 |
|
| $ | 1,362,319 |
|
| $ | (52,120 | ) |
| $ | 1,610,565 |
|
|
| Quarter ended March 31, 2021 |
| |||||||||||||||||||||||||
|
| Preferred shares |
|
| Common shares |
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Number |
|
|
|
|
|
| Number |
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
| |||
|
| of |
|
|
|
|
|
| of |
|
| Par |
|
| paid-in |
|
| Accumulated |
|
|
|
|
| |||||
|
| shares |
|
| Amount |
|
| shares |
|
| value |
|
| capital |
|
| deficit |
|
| Total |
| |||||||
|
| (in thousands, except per share amounts) |
| |||||||||||||||||||||||||
Balance at December 31, 2020 |
|
| 12,400 |
|
| $ | 299,707 |
|
|
| 97,863 |
|
| $ | 979 |
|
| $ | 2,096,907 |
|
| $ | (100,734 | ) |
| $ | 2,296,859 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 71,603 |
|
|
| 71,603 |
|
Share-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 75 |
|
|
| 0 |
|
|
| 1,040 |
|
|
| 0 |
|
|
| 1,040 |
|
Recognition of cash conversion option included in issuance of Exchangeable Notes |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 39,986 |
|
|
| 0 |
|
|
| 39,986 |
|
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6,236 | ) |
|
| (6,236 | ) |
Common shares ($0.47 per share) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (46,109 | ) |
|
| (46,109 | ) |
Balance at March 31, 2021 |
|
| 12,400 |
|
| $ | 299,707 |
|
|
| 97,938 |
|
| $ | 979 |
|
| $ | 2,137,933 |
|
| $ | (81,476 | ) |
| $ | 2,357,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2020 |
| |||||||||||||||||||||||||
|
| Preferred shares |
|
| Common shares |
|
| Retained |
|
|
|
|
| |||||||||||||||
|
| Number |
|
|
|
|
|
| Number |
|
|
|
|
|
| Additional |
|
| earnings |
|
|
|
|
| ||||
|
| of |
|
|
|
|
|
| of |
|
| Par |
|
| paid-in |
|
| (accumulated |
|
|
|
|
| |||||
|
| shares |
|
| Amount |
|
| shares |
|
| value |
|
| capital |
|
| deficit) |
|
| Total |
| |||||||
|
| (in thousands, except per share amounts) |
| |||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 12,400 |
|
| $ | 299,707 |
|
|
| 100,182 |
|
| $ | 1,002 |
|
| $ | 2,127,889 |
|
| $ | 22,317 |
|
| $ | 2,450,915 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (594,673 | ) |
|
| (594,673 | ) |
Share-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 201 |
|
|
| 2 |
|
|
| (1,445 | ) |
|
| 0 |
|
|
| (1,443 | ) |
Issuance of common shares |
|
| 0 |
|
|
| 0 |
|
|
| 241 |
|
|
| 2 |
|
|
| 5,652 |
|
|
| 0 |
|
|
| 5,654 |
|
Issuance costs relating to common shares |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (57 | ) |
|
| 0 |
|
|
| (57 | ) |
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6,236 | ) |
|
| (6,236 | ) |
Common shares ($0.25 per share) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (25,009 | ) |
|
| (25,009 | ) |
Repurchase of common shares |
|
| 0 |
|
|
| 0 |
|
|
| (783 | ) |
|
| (8 | ) |
|
| (5,775 | ) |
|
| 0 |
|
|
| (5,783 | ) |
Balance at March 31, 2020 |
|
| 12,400 |
|
| $ | 299,707 |
|
|
| 99,841 |
|
| $ | 998 |
|
| $ | 2,126,264 |
|
| $ | (603,601 | ) |
| $ | 1,823,368 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 71,603 |
|
| $ | (594,673 | ) |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Net gains on loans acquired for sale at fair value |
|
| (53,012 | ) |
|
| (48,775 | ) |
Net (gains) losses on investments |
|
| (83,191 | ) |
|
| 815,131 |
|
Change in fair value of mortgage servicing rights |
|
| (278,282 | ) |
|
| 627,201 |
|
Mortgage servicing rights hedging results |
|
| 374,403 |
|
|
| (767,186 | ) |
Accrual of interest on excess servicing spread purchased from PennyMac Financial Services, Inc. |
|
| (1,280 | ) |
|
| (1,974 | ) |
Capitalization of interest and fees on loans at fair value |
|
| (198 | ) |
|
| 0 |
|
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans at fair value, and asset-backed financing of a VIE |
|
| 909 |
|
|
| 14,200 |
|
Amortization of debt issuance costs |
|
| 7,384 |
|
|
| 3,127 |
|
Results of real estate acquired in settlement of loans |
|
| (837 | ) |
|
| (32 | ) |
Share-based compensation expense |
|
| 1,738 |
|
|
| 186 |
|
Purchase of loans acquired for sale at fair value from nonaffiliates |
|
| (53,234,735 | ) |
|
| (30,919,685 | ) |
Purchase of loans acquired for sale at fair value from PennyMac Financial Services, Inc. |
|
| 0 |
|
|
| (2,246,127 | ) |
Sale to nonaffiliates and repayment of loans acquired for sale at fair value |
|
| 33,318,157 |
|
|
| 19,718,151 |
|
Sale of loans acquired for sale to PennyMac Financial Services, Inc. |
|
| 18,420,614 |
|
|
| 14,509,209 |
|
Repurchase of loans subject to representation and warranties |
|
| (16,094 | ) |
|
| (9,919 | ) |
(Increase) decrease in servicing advances |
|
| (28,686 | ) |
|
| 9,661 |
|
Decrease (increase) in due from PennyMac Financial Services, Inc. |
|
| 688 |
|
|
| (750 | ) |
(Increase) decrease in other assets |
|
| (366,695 | ) |
|
| 607,581 |
|
Decrease in accounts payable and accrued liabilities |
|
| (1,988 | ) |
|
| (28,355 | ) |
(Decrease) increase in due to PennyMac Financial Services, Inc. |
|
| (18,683 | ) |
|
| 8,031 |
|
Increase in income taxes payable |
|
| 18,930 |
|
|
| 10,248 |
|
Net cash (used in) provided by operating activities |
|
| (1,869,255 | ) |
|
| 1,705,250 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Net decrease (increase) in short-term investments |
|
| 18,920 |
|
|
| (47,124 | ) |
Purchase of mortgage-backed securities at fair value |
|
| (1,259,189 | ) |
|
| (1,615,486 | ) |
Sale and repayment of mortgage-backed securities at fair value |
|
| 1,482,986 |
|
|
| 611,664 |
|
Repurchase of loans at fair value |
|
| 0 |
|
|
| (1,058 | ) |
Sale and repayment of loans at fair value |
|
| 32,926 |
|
|
| 15,824 |
|
Repayment of excess servicing spread receivable from PennyMac Financial Services, Inc. |
|
| 134,624 |
|
|
| 9,308 |
|
Net settlement of derivative financial instruments |
|
| 4,820 |
|
|
| (32,452 | ) |
Distribution from credit risk transfer agreements |
|
| 190,943 |
|
|
| 145,801 |
|
Sale of real estate acquired in settlement of loans |
|
| 12,111 |
|
|
| 15,943 |
|
Decrease in margin deposits |
|
| 312,741 |
|
|
| 293,620 |
|
Net cash provided by (used in) investing activities |
|
| 930,882 |
|
|
| (603,960 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
| 56,191,062 |
|
|
| 42,128,403 |
|
Repurchase of assets sold under agreements to repurchase |
|
| (56,410,371 | ) |
|
| (42,429,163 | ) |
Issuance of mortgage loan participation purchase and sale agreements |
|
| 1,305,282 |
|
|
| 1,222,959 |
|
Repayment of mortgage loan participation purchase and sale agreements |
|
| (1,253,957 | ) |
|
| (1,222,959 | ) |
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets |
|
| 659,156 |
|
|
| 350,000 |
|
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets |
|
| (130,387 | ) |
|
| (79,011 | ) |
Advances under notes payable secured by mortgage servicing assets |
|
| 887,971 |
|
|
| 0 |
|
Repayment under secured notes payable secured by mortgage servicing assets |
|
| (437,970 | ) |
|
| 0 |
|
Issuance of Exchangeable Notes |
|
| 345,000 |
|
|
| 0 |
|
Repayment of asset-backed financing of a variable interest entity at fair value |
|
| (31,798 | ) |
|
| (11,358 | ) |
Repurchase of assets sold to PennyMac Financial Services, Inc. under agreement to repurchase |
|
| (80,862 | ) |
|
| (7,746 | ) |
Payment of debt issuance costs |
|
| (16,588 | ) |
|
| (1,771 | ) |
Payment of contingent underwriting fees |
|
| 0 |
|
|
| (76 | ) |
Payment of dividends to preferred shareholders |
|
| (6,236 | ) |
|
| (6,236 | ) |
Payment of dividends to common shareholders |
|
| (46,093 | ) |
|
| (47,193 | ) |
Issuance of common shares |
|
| 0 |
|
|
| 5,654 |
|
Payment of issuance costs related to common shares |
|
| 0 |
|
|
| (57 | ) |
Payment of vested share-based compensation withholdings |
|
| (698 | ) |
|
| (1,629 | ) |
Repurchase of common shares |
|
| 0 |
|
|
| (5,783 | ) |
Net cash provided by (used in) financing activities |
|
| 973,511 |
|
|
| (105,966 | ) |
Net increase in cash |
|
| 35,138 |
|
|
| 995,324 |
|
Cash at beginning of quarter |
|
| 57,704 |
|
|
| 104,056 |
|
Cash at end of quarter |
| $ | 92,842 |
|
| $ | 1,099,380 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| Nine months ended September 30, 2017 |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 76,911 |
|
| $ | 44,637 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale |
|
| (54,284 | ) |
|
| (83,133 | ) |
Net (gain) loss on investments |
|
| (58,147 | ) |
|
| 5,106 |
|
Change in fair value, amortization and impairment of mortgage servicing rights |
|
| 75,403 |
|
|
| 48,608 |
|
Accrual of unearned discounts and amortization of premiums on mortgage-backed securities, mortgage loans at fair value, and asset-backed financing of a variable interest entity |
|
| 4,625 |
|
|
| 1,628 |
|
Capitalization of interest on mortgage loans at fair value |
|
| (27,737 | ) |
|
| (62,783 | ) |
Capitalization of interest on excess servicing spread |
|
| (13,011 | ) |
|
| (17,555 | ) |
Amortization of debt issuance costs |
|
| 10,243 |
|
|
| 9,798 |
|
Results of real estate acquired in settlement of loans |
|
| 10,854 |
|
|
| 11,886 |
|
Share-based compensation expense |
|
| 3,864 |
|
|
| 4,142 |
|
Purchase of mortgage loans acquired for sale at fair value from nonaffiliates |
|
| (49,769,392 | ) |
|
| (45,300,447 | ) |
Purchase of mortgage loans acquired for sale at fair value from PennyMac Financial Services, Inc. |
|
| (373,108 | ) |
|
| (13,146 | ) |
Repurchase of mortgage loans subject to representation and warranties |
|
| (8,706 | ) |
|
| (9,922 | ) |
Sale and repayment of mortgage loans acquired for sale at fair value to nonaffiliates |
|
| 17,683,444 |
|
|
| 15,323,444 |
|
Sale of mortgage loans acquired for sale to PennyMac Financial Services, Inc. |
|
| 32,724,487 |
|
|
| 29,154,270 |
|
Decrease in servicing advances |
|
| 8,275 |
|
|
| 4,719 |
|
Decrease in due from PennyMac Financial Services, Inc. |
|
| 2,043 |
|
|
| 2,699 |
|
Decrease in other assets |
|
| 16,936 |
|
|
| 58,246 |
|
(Decrease) increase in accounts payable and accrued liabilities |
|
| (31,155 | ) |
|
| 27,442 |
|
Decrease in due to PennyMac Financial Services, Inc. |
|
| (454 | ) |
|
| (4,218 | ) |
Increase in income taxes payable |
|
| 1,982 |
|
|
| 2,875 |
|
Net cash provided by (used in) operating activities |
|
| 283,073 |
|
|
| (791,704 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Net decrease in short-term investments |
|
| 116,442 |
|
|
| 8,512 |
|
Purchase of mortgage-backed securities at fair value |
|
| (251,872 | ) |
|
| (551,654 | ) |
Sale and repayment of mortgage-backed securities at fair value |
|
| 85,144 |
|
|
| 172,470 |
|
Sale and repayment of mortgage loans at fair value to nonaffiliates |
|
| 345,824 |
|
|
| 516,507 |
|
Sale of mortgage loans at fair value to PennyMac Financial Services, Inc. |
|
| — |
|
|
| 891 |
|
Repayment of excess servicing spread by PennyMac Financial Services, Inc. |
|
| 42,320 |
|
|
| 54,623 |
|
Sale of excess servicing spread to PennyMac Financial Services, Inc. |
|
| — |
|
|
| 59,045 |
|
Net settlement of derivative financial instruments |
|
| (423 | ) |
|
| (6,077 | ) |
Sale of real estate acquired in settlement of loans |
|
| 140,862 |
|
|
| 180,416 |
|
Purchase of mortgage servicing rights |
|
| (79 | ) |
|
| (2,602 | ) |
Sale of mortgage servicing rights |
|
| — |
|
|
| 106 |
|
Deposit of cash securing credit risk transfer agreements |
|
| (102,146 | ) |
|
| (282,434 | ) |
Distribution from credit risk transfer agreements |
|
| 41,823 |
|
|
| 14,358 |
|
Increase in margin deposits and restricted cash |
|
| (2,350 | ) |
|
| (3,017 | ) |
Purchase of Federal Home Loan Bank capital stock |
|
| — |
|
|
| (225 | ) |
Redemption of Federal Home Loan Bank capital stock |
|
| — |
|
|
| 7,320 |
|
Net cash provided by investing activities |
|
| 415,545 |
|
|
| 168,239 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| Nine months ended September 30, 2017 |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
| 58,275,935 |
|
|
| 48,753,454 |
|
Repurchase of assets sold under agreements to repurchase |
|
| (58,856,728 | ) |
|
| (47,841,632 | ) |
Issuance of mortgage loan participation certificates |
|
| 5,473,935 |
|
|
| 4,955,742 |
|
Repayment of mortgage loan participation certificates |
|
| (5,455,770 | ) |
|
| (4,867,284 | ) |
Federal Home Loan Bank advances |
|
| — |
|
|
| 28,000 |
|
Repayment of Federal Home Loan Bank advances |
|
| — |
|
|
| (211,000 | ) |
Advance under notes payable |
|
| 135,000 |
|
|
| 103,554 |
|
Repayment of notes payable |
|
| (330,000 | ) |
|
| (143,518 | ) |
Issuance of asset-backed financing of a variable interest entity at fair value |
|
| — |
|
|
| 182,400 |
|
Repayment of asset-backed financing of a variable interest entity at fair value |
|
| (42,881 | ) |
|
| (53,641 | ) |
Repayments of notes payable to PennyMac Financial Services, Inc. |
|
| (1,928 | ) |
|
| — |
|
Payment of debt issuance costs |
|
| (9,342 | ) |
|
| (8,464 | ) |
Payment of dividends to preferred shareholders |
|
| (7,830 | ) |
|
| — |
|
Payment of dividends to common shareholders |
|
| (94,953 | ) |
|
| (99,757 | ) |
Issuance of preferred shares |
|
| 310,000 |
|
|
| — |
|
Payment of issuance costs related to preferred shares |
|
| (10,293 | ) |
|
| — |
|
Repurchase of common shares |
|
| (18,724 | ) |
|
| (93,429 | ) |
Net cash (used in) provided by financing activities |
|
| (633,579 | ) |
|
| 704,425 |
|
Net increase in cash |
|
| 65,039 |
|
|
| 80,960 |
|
Cash at beginning of period |
|
| 34,476 |
|
|
| 58,108 |
|
Cash at end of period |
| $ | 99,515 |
|
| $ | 139,068 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) was organized in Maryland on May 18, 2009, and commenced operations on August 4, 2009, when it completed its initial offerings of common shares of beneficial interest (“common shares”). The Company is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests primarily in residential mortgage-related assets.
The Company operates in four4 segments: correspondent production, credit sensitive strategies, interest rate sensitive strategies, correspondent production, and corporate:
• | The credit sensitive strategies segment represents the Company’s investments in credit risk transfer (“CRT”) arrangements, including CRT agreements (“CRT Agreements”) and CRT securities (together, “CRT arrangements”), distressed loans, real estate, and non-Agency subordinated bonds. |
• | The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) purchased from PennyMac Financial Services, Inc. (“PFSI”), Agency and senior non-Agency mortgage-backed securities (“MBS”) and the related interest rate hedging activities. |
• | The correspondent production segment represents the Company’s 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 PNMAC Capital Management, LLC (“PCM” or the “Manager”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PFSI. |
The correspondent production segment representsCompany primarily sells the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of mortgage-backed securities (“MBS”), using the services of PNMAC Capital Management, LLC (“PCM” or the “Manager”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”).
Most of the mortgage loans the Company has acquired init acquires through its correspondent production activities have been eligible for sale to government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or through government agencies such asto PLS for sale into securitizations guaranteed by the Government National Mortgage Association (“Ginnie Mae”). Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”
The credit sensitive strategies segment represents the Company’s investments in distressed mortgage loans, real estate acquired in settlement of mortgage loans (“REO”), credit risk transfer agreements (“CRT Agreements”), non-Agency subordinated bonds and small balance commercial real estate mortgage loans.
• | The corporate segment includes management fees, corporate expense amounts and certain interest income. |
The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”), Agency and senior non-Agency MBS and the related interest rate hedging activities.
The corporate segment includes certain interest income, management fee and corporate expense amounts.
The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with its taxable period ended on December 31, 2009. To maintain its tax status as a REIT, the Company has to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.
The Company conducts substantially all of its operations and makes substantially all of its investments through its subsidiary, PennyMac Operating Partnership, L.P. (the “Operating Partnership”), and the Operating Partnership’s subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner, and the Company is the sole limited partner, of the Operating Partnership.
The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. To maintain its tax status as a REIT, the Company is required to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.
Note 2—Basis of Presentation and Accounting Change
Basis of Presentation
The accompanyingCompany’s consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. TheThis interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020.
The accompanyingThese unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations that may be anticipated for the full year. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires the ManagerCompany to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
The Company held 0 restricted cash during the periods presented. Therefore, the consolidated statements of cash flows do not include references to restricted cash.
10
Pending Accounting Change
In August 2020, the FASB issued Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models for convertible instruments in subtopic 470-20, Debt – Debt with Conversion and Other Options. Under the amendments in this update:
• | the embedded conversion features in debt instruments no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will generally be accounted for as a single liability measured at its amortized cost; |
• | Diluted earnings per share guidance is changed to require that: |
• | an entity is required to include shares issuable pursuant to conversion of convertible debt instruments in the determination of diluted earnings per share; current guidance allows an entity to exclude such shares from the diluted earnings per share calculation if the company has a history and policy of cash settlement; |
• | an average market price should be used to calculate the diluted EPS denominator in cases in which the exercise prices may change on the basis of an entity’s share price or changes in the entity’s share price may affect the number of shares that may be used to settle a financial instrument; and |
• | an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted-average share count. |
ASU 2020-06 is effective for the Company beginning in the quarter ending March 31, 2022 with early adoption allowed beginning in the quarter ending March 31, 2021 using either the modified retrospective or full retrospective method. The Company intends to adopt ASU 2020-06 beginning in the quarter ending March 31, 2022.
As detailed in Note 14 – Long-Term Debt, the Company has issued $555 million in unpaid principal balance of exchangeable senior notes that are exchangeable for common shares of beneficial interest (“Common Shares”) (the “Exchangeable Notes”). The Exchangeable Notes will be subject to the guidance included in ASU 2020-06. Adoption of ASU 2020-06 will have the following effects on PMT:
• | The exchange feature included in the Exchangeable Notes can be settled either in cash or common shares at the option of PennyMac Corp. (“PMC”). As a result of this feature and PMT’s intent to cash settle the Exchangeable Notes, the Company presently excludes the effect of exchange of the Exchangeable Notes from diluted earnings per share as allowed under current accounting standards. Adoption of ASU 2020-06 will require the Company to include common shares issuable pursuant to exchange of the Exchangeable Notes in its determination of diluted earnings per share. |
• | The Company recognized the fair value of the exchange feature as a component of Additional paid-in capital as of the date of issuance of the Exchangeable Notes as required by current guidance. The issuance discount charged to the Exchangeable Notes resulting from the allocation of the issuance discount to Additional paid-in capital is presently accrued to interest expense using the interest method. Upon adoption of ASU 2020-06, the value originally attributed to Additional paid-in capital as of the date of issuance of the Exchangeable Notes will be added to the carrying value of the Exchangeable Notes and the accumulated accrual of the exchange value to interest expense through the date of adoption of ASU 2020-06 will be credited to retained earnings net of income taxes as the cumulative effect of the adoption of ASU 2020-06. |
Note 3—Concentration of Risks
As discussed in Note 1— Organization above, PMT’s operations and investing activities are centered in residential mortgage-related assets, a substantial portion of which were distressed at acquisition. The mortgageincluding CRT arrangements, MSRs and MBS. CRT arrangements are more sensitive to borrower credit performance than other mortgage-related investments such as traditional loans at fair value not acquired for sale or heldand MBS. MSRs are sensitive to changes in a variable interest entity (“VIE”) are generally purchased at discounts reflecting their distressed state or perceived higher risk of default, as well as a greater likelihood of collateral documentation deficiencies.prepayment activity and expectations.
Due to the nature of a substantial portion ofCredit Risk
Note 6 – Variable Interest Entities details the Company’s investments PMTin CRT arrangements whereby the Company sells pools of recently-originated loans into Fannie Mae-guaranteed securitizations while either:
• | through May 2018, entering into CRT Agreements, whereby it retains a portion of the credit risk underlying such loans as part of the retention of an interest-only (“IO”) ownership interest in such loans and an obligation to absorb scheduled credit losses arising from such loans reaching a specific number of days delinquent (“Recourse Obligations”); or |
11
• | from June 2018 through 2020, entering into firm commitments to purchase and purchasing CRT securities and, upon purchase of such securities, holding CRT strips representing an IO ownership interest that absorbs realized credit losses arising from such loans. |
The Company’s retention of credit risk through its investment in CRT arrangements subjects it to risks associated with delinquency and foreclosure similar to the risks of loss associated with owning the underlying loans, which is exposed,greater than the risk of loss associated with selling such loans to Fannie Mae without the retention of such credit risk.
CRT Agreements are structured such that loans that reach a greater extent than traditional mortgage investors,specific number of days delinquent (including loans in forbearance which also includes those subject to the forbearance provided in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)) trigger losses chargeable to the CRT Agreements based on the size of the loan and a contractual schedule of loss severity. Therefore, the risks associated with loan performancedelinquency and resolution, includingforeclosure may in some instances be greater than the risks associated with owning the related loans because the structure of the CRT Agreements provides that borrowersthe Company may be in economic distress and/or may have become unemployed, bankrupt or otherwise unable or unwillingrequired to make payments when due, and that fluctuationsabsorb losses in the residential real estateevent of delinquency or foreclosure even when there is ultimately no loss realized with respect to such loans (e.g., as a result of a borrower’s re-performance). In contrast, the structure of the Company’s investment in CRT strips requires PMT to absorb losses only when the reference loans realize actual losses.
Fair Value Risk
The Company is exposed to fair value risk in addition to the risks specific to credit and, as a result of prevailing market conditions or the economy generally, may affectbe required to recognize losses associated with adverse changes to the performancefair value of its investments. Factors influencing these risks include, but are not limited to:
changes in the overall economy, unemployment rates and residential real estate fair values in the markets where the properties securing the Company’s mortgage loans are located;
PCM’s ability to identify and PLS’ ability to execute optimal resolutions of certain mortgage loans;
the accuracy of valuation information obtained during the Company’s due diligence activities;
PCM’s ability to effectively model, and to develop appropriate model inputs that properly anticipate, future outcomes;
the level of government support for resolution of certain mortgage loans and the effect of current and future proposed and enacted legislative and regulatory changes on the Company’s ability to effect cures or resolutions to distressed mortgage loans; and
regulatory, judicial and legislative support of the foreclosure process, and the resulting effect on the Company’s ability to acquire and liquidate the real estate securing its portfolio of distressed mortgage loans in a timely manner or at all.
Due to these uncertainties, there can be no assurance that risk management activities identified and executed on PMT’s behalf will prevent significant losses arising from the Company’s investments in real estate-related assets.
A substantial portion of the distressed mortgage loansMSRs, CRT arrangements, and REO has been acquired by the Company in prior years from or through one or more subsidiaries of JPMorgan Chase & Co. and Citigroup Inc., as presented in the following summary:
MBS:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (in thousands) |
| |||||
JPMorgan Chase & Co. |
|
|
|
|
|
|
|
|
Mortgage loans at fair value |
| $ | 401,879 |
|
| $ | 505,167 |
|
REO |
|
| 84,620 |
|
|
| 118,737 |
|
|
|
| 486,499 |
|
|
| 623,904 |
|
Citigroup Inc. |
|
|
|
|
|
|
|
|
Mortgage loans at fair value |
|
| 417,664 |
|
|
| 519,698 |
|
REO |
|
| 31,579 |
|
|
| 49,048 |
|
|
|
| 449,243 |
|
|
| 568,746 |
|
|
| $ | 935,742 |
|
| $ | 1,192,650 |
|
Total carrying value of distressed mortgage loans at fair value and REO |
| $ | 1,201,036 |
|
| $ | 1,628,641 |
|
| • | MSRs are generally subject to loss in fair value when prepayment speeds increase as a result of decreasing mortgage interest rates, when estimates of cost to service the underlying loans increase or when the returns demanded by market participants increase. |
• | The fair value of CRT arrangements is sensitive to market perceptions of future credit performance of the underlying loans as well as the actual credit performance of such loans and to the returns required by market participants to hold such investments. |
• | The fair value of MBS is sensitive to changes in market interest rates. |
Note 4—Transactions with Related Parties
Operating Activities
Correspondent Production Activities
The Company is provided fulfillment and other services by PLS under a mortgage banking services agreement. The Company’s mortgage banking services agreement provides for a fulfillment fee paid to PLS based on the type of mortgage loan that the Company acquires. The fulfillment fee is equal to a percentage of the unpaid principal balance of mortgage loans purchased by the Company. PLS has also agreed to provide such services exclusively for the Company’s benefit, and PLS and its affiliates are prohibited from providing such services for any other party.
Before September 12, 2016, the applicable fulfillment fee percentages were (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans sold in accordance with the Ginnie Mae Mortgage-Backed Securities Guide, and (iii) 0.50% for all other mortgage loans not contemplated above; provided, however, that PLS was permitted, in its sole discretion, to reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to any reimbursement that would have otherwise been due based on volumes tied to the aggregate unpaid principal balance of the mortgage loans purchased by the Company in the related month. This reduction was only credited to the reimbursement applicable to the month in which the related mortgage was funded.
Effective as of September 12, 2016, pursuant to the terms of an amended and restated mortgage banking services agreement.
Through June 30, 2020, pursuant to the terms of the agreement, the applicable monthly fulfillment fee percentages arewas an amount equal to (a) no greater than the product of (i) 0.35% for mortgageand (ii) the aggregate initial unpaid principal balance (the “Initial UPB”) of all loans purchased in such month, plus (b) in the case of all loans other than loans sold to or delivered tosecuritized through Fannie Mae or Freddie Mac, no greater than the product of (i) 0.50% and (ii) 0.85% forthe aggregate Initial UPB of all other mortgage loans;such loans sold and securitized in such month; provided however, that no fulfillment fee shall be due or payable to PLS with respect to any mortgage loans underwritten toin accordance with the Ginnie Mae guidelines.MBS Guide.
12
The Company does not hold the Ginnie Mae approval required to issue securities guaranteed by Ginnie Mae MBS and act as a servicer. Accordingly, under the agreement, PLS currently purchases loans salablesaleable in accordance with the Ginnie Mae Mortgage-Backed SecuritiesMBS Guide “as is” and without recourse of any kind from the Company at cost less any administrative fees paid by the correspondent to the Company plus accrued interest and a sourcing fee, rangingwhich, through June 30, 2020, ranged from two2 to three and one-half basis points, generally based on the average number of calendar days loans are held by the Company prior to purchase by PLS. The discretionary reductions
Effective July 1, 2020, the fulfillment fees and volume reimbursements described above are no longer in effect.sourcing fees were revised as follows:
• | Fulfillment fees shall not exceed the following: |
(i) | the number of loan commitments multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus |
(ii) | $315 multiplied by the number of purchased loans up to and including 16,500 per quarter and $195 multiplied by the number of purchased loans in excess of 16,500 per quarter, plus |
(iii) | $750 multiplied by the number of all purchased loans that are sold or securitized to parties other than Fannie Mae and Freddie Mac; provided however, that 0 fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae loans. |
• | Sourcing fees charged to PLS range from 1 to 2 basis points, generally based on the average number of calendar days the loans are held by PMT before purchase by PLS. |
In consideration for the mortgage banking services provided by PLS with respect to the Company’s acquisition of mortgage loans under PLS’s early purchase program, PLS is entitled to fees accruing (i) at a rate equal to $1,500 per annumyear per early purchase facility administered by PLS, and (ii) in the amount of $35 for each mortgage loan that the Company acquires.
The mortgage banking services agreement expires, unless terminated earlier in accordance with its terms, on September 12, 2020,June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.its terms.
The Company purchasesmay purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under a mortgage loan purchase agreement and a flow commercial mortgage loan purchasesale agreement. Historically, the Company has used the mortgage loan purchase agreement for the purpose of purchasing from PLS prime jumbo residential mortgage loans originated through PLS’s consumer direct lending channel. Beginning in the quarter ended September 30, 2017, the Company also purchases non-government insured or guaranteed loans originated through PLS’s consumer direct lending channel from PLS under the mortgage loan purchase agreement. The Company uses the flow commercial mortgage loan purchase agreement for the purpose of purchasing from PLS small balance commercial mortgage loans, including multifamily mortgage loans, originated as part of PLS’s commercial lending activities.
Following is a summary of correspondent production activity between the Company and PLS:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Purchases of mortgage loans acquired for sale at fair value from PLS |
| $ | 332,886 |
|
| $ | 5,007 |
|
| $ | 373,108 |
|
| $ | 13,146 |
|
Mortgage loans fulfillment fees earned by PLS |
| $ | 23,507 |
|
| $ | 27,255 |
|
| $ | 61,184 |
|
| $ | 59,301 |
|
Unpaid principal balance (“UPB”) of mortgage loans fulfilled by PLS |
| $ | 6,530,036 |
|
| $ | 7,263,557 |
|
| $ | 17,079,969 |
|
| $ | 15,696,940 |
|
Sourcing fees received from PLS included in Net gain on mortgage loans acquired for sale |
| $ | 3,275 |
|
| $ | 3,509 |
|
| $ | 9,340 |
|
| $ | 8,282 |
|
UPB of mortgage loans sold to PLS |
| $ | 10,915,194 |
|
| $ | 11,694,065 |
|
| $ | 31,131,154 |
|
| $ | 27,599,186 |
|
Early purchase program fees paid to PLS included in Mortgage loan servicing fees |
| $ | 1 |
|
| $ | 5 |
|
| $ | 7 |
|
| $ | 7 |
|
Tax service fee paid to PLS included in Other expense |
| $ | 2,108 |
|
| $ | 2,066 |
|
| $ | 5,377 |
|
| $ | 4,537 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Loan fulfillment fees earned by PLS |
| $ | 60,835 |
|
| $ | 41,940 |
|
|
|
|
|
|
|
|
|
|
Sourcing fees received from PLS included in Net gain on loans acquired for sale |
| $ | 1,738 |
|
| $ | 4,161 |
|
UPB of loans sold to PLS |
| $ | 17,559,575 |
|
| $ | 13,870,280 |
|
|
|
|
|
|
|
|
|
|
Purchases of loans acquired for sale from PLS |
| $ | 0 |
|
| $ | 2,246,127 |
|
|
|
|
|
|
|
|
|
|
Tax service fees paid to PLS |
| $ | 8,192 |
|
| $ | 3,980 |
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
| |||||
Mortgage loans included in Mortgage loans acquired for sale at fair value pending sale to PLS |
| $ | 202,320 |
|
| $ | 804,616 |
|
|
|
|
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Loans included in Loans acquired for sale at fair value pending sale to PLS |
| $ | 327,881 |
|
| $ | 460,414 |
|
Mortgage Loan Servicing Activities
The Company, through its Operating Partnership, has a mortgage loan servicing agreement with PLS.PLS (the “Servicing Agreement”) pursuant to which PLS provides subservicing for the Company's portfolio of MSRs (prime servicing) and its portfolio of residential loans purchased with credit deterioration (distressed loans). The servicing agreementServicing Agreement provides for servicing fees earned by PLS that are based onestablished at a percentage of the mortgage loan’s unpaid principal balance or fixed per loan monthly amountsamount based on whether the delinquency, bankruptcy and/loans are acquired as prime servicing or foreclosure status of the serviced mortgage loan or the REO.distressed loans. PLS is also entitled to market-based fees and charges including boarding and deboarding fees, liquidation and disposition, assumption, modification and origination fees and a percentage of late charges relating to mortgage loans it services for the Company.Company, as well as certain fees for COVID-19 pandemic-related forbearance and modification activities provided for under the CARES Act. The servicing agreement was amended and restated as of September 12, 2016; however, the fee structure was not amendedServicing Agreement expires on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated earlier in any material respect.accordance with its terms.
Prime Servicing
The base servicing fees for non-distressed loans subserviced by PLS on the Company’s behalf are based on whether the loan is a fixed-rate or adjustable-rate loan. The base servicing fees are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans.
To the extent that these non-distressed loans become delinquent, PLS is entitled to an additional servicing fee per loan ranging from $10 to $55 per month and based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes real estate acquired in settlement of loans (“REO”).
PLS is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees.
Effective July 1, 2020, PLS also receives certain fees for COVID-19 pandemic-related forbearance and modification activities it provides as required by the CARES Act.
Special Servicing (Distressed Loans)
The base servicing fee rates for distressed whole mortgage loans are calculatedcharged based on a monthly per-loan dollar amount, with the actual dollar amount for each mortgage loan based on the delinquency, bankruptcy and/or foreclosure status of such mortgage loan or whether the related underlying real estate. Presently, themortgage property has become REO. The base servicing feesfee rates for distressed whole mortgage loans range from $30 per month for current mortgage loans up to $100$95 per month for mortgage loans where the borrower has declared bankruptcy. PLS is also entitled to certain activity-based fees for distressed mortgage loans that are charged based on the achievement of certain events. These fees range from 0.50% for a streamline modification to 1.50% for a liquidation and $500 for a deed-in-lieu of foreclosure. PLS is not entitled to earn more than one liquidation fee, reperformance fee or modification fee in any 18-month period.
foreclosure proceedings have commenced. The base servicing fee rate for REO is $75 per month. To the extent that the Company rents its REO under anits REO rental program, the Company pays PLS is entitled to an REO rental fee of $30 per month per REO, an REO property lease renewal fee of $100 per lease renewal, and a property management fee in an amount equal to PLS’its cost if property management services and/or any related software costs are outsourced to a third-party property management firm or 9%9 percent of gross rental income if PLS provides property management services directly. PLS is also entitled to retain any tenant paid application fees and late rent fees and seek reimbursement for certain third party vendor fees.
MSR Recapture Agreement
The base servicing fees for non-distressed mortgage loans subserviced by PLS on the Company’s behalf are also calculated through a monthly per-loan dollar amount, with the actual dollar amount for each loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fees for loans subserviced on the Company’s behalf are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate mortgage loans.
To the extent that these non-distressed mortgage loans become delinquent, PLS is entitled to an additional servicing fee per mortgage loan ranging from $10 to $55 per month and based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or $75 per month if the underlying mortgaged property becomes REO. PLS is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees.
PLS is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because the Company has limited employees and infrastructure. For these services, PLS received a supplemental fee of $25 per month for each distressed whole loan. PLS is entitled to reimbursement for all customary, good faith reasonable and necessary out-of-pocket expenses incurred in performance of its servicing obligations.
PLS, on behalf of the Company, is entitled to retain any incentive payments made to it and to which it is entitled under the U.S. Department of Treasury’s Home Affordable Modification Plan (“HAMP”); provided, however, thatan MSR recapture agreement with respect to any such incentive payments paid to PLS under HAMP in connection with a mortgage loan modification for which the Company previously paid PLS a modification fee, PLS shall reimburse the Company an amount equal to the incentive payments.
The term of the servicing agreement, as amended, expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the servicing agreement.
PFSI. Pursuant to the terms of anthe MSR recapture agreement, if PLSPFSI refinances mortgage loans for which the Company previously held the MSRs, PLS isthrough June 30, 2020, PFSI was generally required to transfer and convey to onethe Company cash in an amount equal to 30% of the Company’s wholly-owned subsidiaries without cost to the Company,fair market value of the MSRs with respectrelated to new mortgageall such loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have an aggregate unpaid principal balance that is not less than so originated.
Effective July 1, 2020, the 2020 MSR recapture agreement changed the recapture fee payable by PLS to a tiered amount equal to:
• | 40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”; |
• | 35% of the fair market value of the MSRs relating to the recaptured loans subject to the recapture rate in excess of 15% and up to 30%; and |
• | 30% of the fair market value of the MSRs relating to the recaptured loans subject to the recapture rate in excess of 30%. |
The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance of all therecaptured loans, so originated. Where the fair value ofto (ii) the aggregate MSRs to be transferredunpaid principal balance of all mortgage loans for the applicable month is less than $200,000, PLS may, at its option, pay cash towhich the Company held the MSRs and that were refinanced or otherwise paid off in an amount equalsuch month. PFSI has further agreed to such fair value insteadallocate sufficient resources to target a recapture rate of transferring such MSRs.15%.
The MSR recapture agreement was amended and restated as of September 12, 2016; however, the fee structure was not amended in any material respect. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement,its terms, on September 12, 2020,June 30, 2025, subject to automatic renewal for additional 18-month periods.periods, unless terminated in accordance with its terms.
Following is a summary of mortgage loan servicing fees earned by PLS and MSR recapture income earned from PLS:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Mortgage loans servicing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
| $ | 88 |
|
| $ | 90 |
|
| $ | 235 |
|
| $ | 225 |
|
Activity-based |
|
| 188 |
|
|
| 210 |
|
|
| 507 |
|
|
| 497 |
|
|
|
| 276 |
|
|
| 300 |
|
|
| 742 |
|
|
| 722 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 1,571 |
|
|
| 2,615 |
|
|
| 5,284 |
|
|
| 8,881 |
|
Activity-based |
|
| 2,702 |
|
|
| 3,014 |
|
|
| 6,859 |
|
|
| 14,981 |
|
|
|
| 4,273 |
|
|
| 5,629 |
|
|
| 12,143 |
|
|
| 23,862 |
|
Mortgage loans held in VIE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 54 |
|
|
| 65 |
|
|
| 96 |
|
|
| 157 |
|
Activity-based |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
|
| 54 |
|
|
| 66 |
|
|
| 96 |
|
|
| 158 |
|
MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 6,648 |
|
|
| 4,913 |
|
|
| 18,631 |
|
|
| 13,841 |
|
Activity-based |
|
| 151 |
|
|
| 131 |
|
|
| 375 |
|
|
| 336 |
|
|
|
| 6,799 |
|
|
| 5,044 |
|
|
| 19,006 |
|
|
| 14,177 |
|
|
| $ | 11,402 |
|
| $ | 11,039 |
|
| $ | 31,987 |
|
| $ | 38,919 |
|
MSR recapture income recognized included in Net mortgage loan servicing fees |
| $ | 333 |
|
| $ | 409 |
|
| $ | 859 |
|
| $ | 849 |
|
Average investment in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
| $ | 1,460,054 |
|
| $ | 1,607,564 |
|
| $ | 1,271,158 |
|
| $ | 1,317,230 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
| $ | 1,104,738 |
|
| $ | 1,579,246 |
|
| $ | 1,210,328 |
|
| $ | 1,810,779 |
|
Mortgage loans held in a VIE |
| $ | 339,464 |
|
| $ | 413,749 |
|
| $ | 350,607 |
|
| $ | 434,967 |
|
Average MSR portfolio |
| $ | 63,584,416 |
|
| $ | 48,997,875 |
|
| $ | 61,764,228 |
|
| $ | 46,125,926 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Loan servicing fees: |
|
|
|
|
|
|
|
|
Loans acquired for sale at fair value |
| $ | 543 |
|
| $ | 536 |
|
Loans at fair value |
|
| 137 |
|
|
| 300 |
|
MSRs |
|
| 18,413 |
|
|
| 13,685 |
|
|
| $ | 19,093 |
|
| $ | 14,521 |
|
Average investment in: |
|
|
|
|
|
|
|
|
Loans acquired for sale at fair value |
| $ | 3,618,980 |
|
| $ | 3,215,418 |
|
Loans at fair value: |
|
|
|
|
|
|
|
|
Distressed |
| $ | 7,805 |
|
| $ | 11,249 |
|
Held in a VIE |
| $ | 129,122 |
|
| $ | 253,759 |
|
Average MSR portfolio UPB |
| $ | 177,161,626 |
|
| $ | 136,687,324 |
|
Management Fees
UnderThe Company has a management agreement with PCM pursuant to which the Company pays PCM management fees as follows:
A base management fee that is calculated quarterly and is equal to the sum of (i) 1.5% per year of average shareholders’ equity up to $2 billion, (ii) 1.375% per year of average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of average shareholders’ equity in excess of $5 billion.
• | A base management fee that is calculated quarterly and is equal to the sum of (i) 1.5% per year of average shareholders’ equity up to $2 billion, (ii) 1.375% per year of average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of average shareholders’ equity in excess of $5 billion. |
A performance incentive fee that is calculated at a defined annualized percentage of the amount by which “net income,” on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.”
• | A performance incentive fee that is calculated quarterly at a defined annualized percentage of the amount by which “net income,” on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.” |
The performance incentive fee is calculated quarterly and is equal to:to the sum of: (a) 10% of the amount by which net income attributable to common shares of beneficial interest and“net income” for the quarter exceeds (i) an 8% return on equity“equity” plus the high watermark,“high watermark”, up to (ii) a 12% return on equity;“equity”; plus (b) 15% of the amount by which net income“net income” for the quarter exceeds (i) a 12% return on equity“equity” plus the high watermark, up to (ii) a 16% return on equity;“equity”; plus (c) 20% of the amount by which net income“net income” for the quarter exceeds a 16% return on equity“equity” plus the high watermark.“high watermark”.
For the purpose of determining the amount of the performance incentive fee:
“Net income” is defined as net income or loss attributable to common shares of beneficial interest computedCommon Shares calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges determined after discussionsdiscussion between PCMthe Company’s Manager and the Company’s independent trustees and after approval by a majority of the Company’s independent trustees.
“Equity” is the weighted average of the issue price per common shareCommon Share of all of the Company’s public offerings, multiplied by the weighted average number of common sharesCommon Shares outstanding (including restricted share units) in the rolling four-quarter period.
The “high“High watermark” is the quarterly adjustment that reflects the amount by which the net income“net income” (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30-year MBS yield (the target yield) for such quarter.the four quarters then ended. The “high watermark” starts at zero and is adjusted quarterly. If the net income“net income” is lower than the target yield, the high watermark is increased by the difference. If the net income“net income” is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for PCM to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s net income“net income” over (or under) the target yield, until the net income“net income” in excess of the target yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned.“high watermark” amount.
The base management fee and the performance incentive fee are both payable quarterly in arrears. The performance incentive fee may be paid in cash or a combination of cash and the Company’s common shares (subject to a limit of no more than 50% paid in common shares)Common Shares), at the Company’s option.
The management agreement was amended and restated as of September 12, 2016; however, the fee structure was not amended in any material respect. Following is a summary of the base management and performance incentive fees payable to PCM recorded by the Company:15
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Base management |
| $ | 6,038 |
|
| $ | 5,025 |
|
| $ | 16,380 |
|
| $ | 15,576 |
|
Performance incentive |
|
| — |
|
|
| — |
|
|
| 304 |
|
|
| — |
|
|
| $ | 6,038 |
|
| $ | 5,025 |
|
| $ | 16,684 |
|
| $ | 15,576 |
|
In the event of termination of the management agreement between the Company and PCM, PCM may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by PCM, in each case during the 24-month period before termination.
Following is a summary of management fee expenses:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Base management |
| $ | 8,449 |
|
| $ | 9,055 |
|
Performance incentive |
|
| 0 |
|
|
| 0 |
|
|
| $ | 8,449 |
|
| $ | 9,055 |
|
Average shareholders' equity amounts used to calculate base management fee expense |
| $ | 2,310,261 |
|
| $ | 2,466,740 |
|
Expense Reimbursement and Amounts Payable to and Receivable from PCM
Under the management agreement, PCM is entitled to reimbursement of its organizational and operating expenses, including third-party expenses, incurred on the Company’s behalf, it being understood that PCM and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of the Company. With respect to the allocationPCM was reimbursed $120,000 per fiscal quarter through June 30, 2020. Effective July 1, 2020, PMT’s reimbursement of PCM’s and its affiliates personnel,affiliates’ compensation expenses was increased from and after September 12, 2016, PCM shall be reimbursed $120,000 to $165,000 per fiscal quarter, such amount to be reviewed annually and to not preclude reimbursement for any other services performed by PCM or its affiliates.
The Company is required to pay PCM and its affiliates a pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of PCM and its affiliates required for the Company’s and its subsidiaries’ operations. These expenses will beare allocated based on the ratio of the Company’s and its subsidiaries’ proportion of gross assets compared to all remaining gross assets managed by PCM as calculated at each fiscal quarter end:end.
The Company reimbursed
Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Reimbursement of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common overhead incurred by PCM and its affiliates |
| $ | 1,193 |
|
| $ | 1,417 |
|
| $ | 4,220 |
|
| $ | 6,413 |
|
| $ | 571 |
|
| $ | 1,540 |
|
Compensation |
|
| 165 |
|
|
| 120 |
| ||||||||||||||||
Expenses incurred on the Company’s behalf, net |
|
| 196 |
|
|
| 13 |
|
|
| 849 |
|
|
| (102 | ) |
|
| 1,336 |
|
|
| 1,271 |
|
|
| $ | 1,389 |
|
| $ | 1,430 |
|
| $ | 5,069 |
|
| $ | 6,311 |
|
| $ | 2,072 |
|
| $ | 2,931 |
|
Payments and settlements during the year (1) |
| $ | 22,786 |
|
| $ | 45,988 |
|
| $ | 63,249 |
|
| $ | 102,600 |
| ||||||||
Payments and settlements during the quarter (1) |
| $ | 112,741 |
|
| $ | 33,683 |
| ||||||||||||||||
(1) | Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PFSI for the operating, |
Spread Acquisition and MSR Servicing Agreements
Effective February 1, 2013, the Company entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which it purchased from PLS the rights to receive certain ESS from MSRs acquired by PLS from banks and other third party financial institutions. PLS was generally required to service or subservice the related mortgage loans for the applicable Agency or investor.
To the extent PLS refinanced any of the mortgage loans relating to the ESS sold to the Company, the 2/1/13 Spread Acquisition Agreement contained recapture provisions requiring that PLS transfer to the Company, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month was less than $200,000, PFSI was, at its option, permitted to pay cash to the Company in an amount equal to such fair value instead of transferring such ESS. The Company, only used the 2/1/13 Spread Acquisition Agreement for the purpose of acquiring ESS relating to Fannie Mae MSRs.
Effective December 19, 2014, the Company entered intothrough a second master spread acquisition and MSR servicing agreement (the “12/19/14 Spread Acquisition Agreement”wholly-owned subsidiary, PennyMac Holdings, LLC (“PMH”) with PLS. The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that the Company only purchased ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.
On February 29, 2016, the Company and PLS terminated the 2/1/13 Spread Acquisition Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, PLS reacquired from the Company all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by PLS to the Company under the 2/1/13 Spread Acquisition Agreement. On February 29, 2016, PLS also reacquired from the Company all of its right, title and interest in and to all of the Freddie Mac ESS previously sold by PLS to the Company under the 12/19/14 Spread Acquisition Agreement. The amount of ESS sold by the Company to PLS under these reacquisitions was $59.0 million.
On December 19, 2016, the Company, has an amended and restated a third master spread acquisition and MSR servicing agreement with PLS (the “12/19/16 Spread“Spread Acquisition Agreement”). The terms of the 12/19/16 Spread Acquisition Agreement are substantially similar, pursuant to the terms of the 2/1/13 Spread Acquisition Agreement and the 12/19/14 Spread Acquisition Agreement, except that the Company has only purchased ESS relating to Ginnie Mae MSRs under the 12/19/16 Spread Acquisition Agreement. Pursuant to the 12/19/16 Spread Acquisition Agreement,which the Company may purchase from PLS, from time to time, the right to receive participation certificates representing beneficial ownership in ESS arising from Ginnie Mae MSRs acquired by PLS, in which case PLS generally would be required to service or subservice the related mortgage loans for Ginnie Mae. The primary purpose of the amendment and restatement was to facilitate the continued financing of the ESS owned by the Company in connection with the parties’its participation in the GNMA MSR Facility (as defined below).
To the extent PLS refinances any of the mortgage loans relating to the ESS the Company has acquired, the 12/19/16 Spread Acquisition Agreement also contains recapture provisions requiring that PLS transfer to the Company, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 12/19/16 Spread Acquisition Agreement, in any month where
16
the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalentequal to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, PLS is also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalentequal to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the 12/19/16 Spread Acquisition Agreement contains provisions that require PLS to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, PLS may, at its option, wire cashsettle its recapture liability to the Company in cash in an amount equal to such fair market value in lieu of transferring such ESS.The remaining balance of the ESS was repaid during the quarter ended March 31, 2021.
Following is a summary of investing activities between the Company and PFSI:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Sale of mortgage loans at fair value to PFSI |
| $ | — |
|
| $ | 891 |
|
| $ | — |
|
| $ | 891 |
| ||||||||
ESS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Received pursuant to a recapture agreement |
| $ | 1,207 |
|
| $ | 1,438 |
|
| $ | 4,160 |
|
| $ | 5,039 |
|
| $ | 557 |
|
| $ | 379 |
|
Repayments and sales |
| $ | 13,410 |
|
| $ | 16,342 |
|
| $ | 42,320 |
|
| $ | 113,668 |
| ||||||||
Repayments |
| $ | 134,624 |
|
| $ | 9,308 |
| ||||||||||||||||
Interest income |
| $ | 3,998 |
|
| $ | 4,827 |
|
| $ | 13,011 |
|
| $ | 17,555 |
|
| $ | 1,280 |
|
| $ | 1,974 |
|
Net (loss) gain included in Net (loss) gain on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net gain (loss) included in Net gains (losses) on investments: |
|
|
|
|
|
|
|
| ||||||||||||||||
Valuation changes |
| $ | (4,828 | ) |
| $ | (4,107 | ) |
| $ | (14,757 | ) |
| $ | (40,984 | ) |
| $ | 1,037 |
|
| $ | (14,522 | ) |
Recapture income |
|
| 1,163 |
|
|
| 1,283 |
|
|
| 3,837 |
|
|
| 4,709 |
|
|
| 614 |
|
|
| 381 |
|
|
| $ | (3,665 | ) |
| $ | (2,824 | ) |
| $ | (10,920 | ) |
| $ | (36,275 | ) |
| $ | 1,651 |
|
| $ | (14,141 | ) |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
| |||||||||||||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||
Excess servicing spread purchased from PennyMac Financial Services, Inc. at fair value |
| $ | — |
|
| $ | 131,750 |
| ||||||||||||||||
Financing Activities
PFSI held 75,000 of the Company’s common shares at both September 30, 2017March 31, 2021 and December 31, 2016.2020.
Repurchase Agreement with PLS
On December 19, 2016, the Company, through a wholly-owned subsidiary, PennyMac Holdings, LLC (“PMH”),PMH, entered into a master repurchase agreement with PLS (the “PMH Repurchase Agreement”), pursuant to which PMH may borrow from PLS for the purpose of financing PMH’s participation certificates representing beneficial ownership in ESS acquired from PLS under the 12/19/16 Spread Acquisition Agreement. PLS then re-pledges such participation certificates to PNMAC GMSR ISSUER TRUST (the “Issuer Trust”) under a master repurchase agreement by and among PLS, the Issuer Trust and Private National Mortgage Acceptance Company, LLC, as guarantor (the “PC Repurchase Agreement”). The Issuer Trust was formed for the purpose of allowing PLS to finance MSRs and ESS relating to such MSRs (the “GNMA MSR Facility”). In the first quarter of 2021, PLS repurchased the ESS from PMH at fair market value, effectively terminating the borrowing arrangements allowing PMH to finance its participation certificates representing beneficial ownership in ESS.
In connection with the GNMA MSR Facility, PLS pledges and/or sells to the Issuer Trust participation certificates representing beneficial interests in MSRs and ESS pursuant to the terms of the PC Repurchase Agreement. In return, the Issuer Trust (a) has issued to PLS, pursuant to the terms of an indenture, the Series 2016-MSRVF1 Variable Funding Note, dated December 19, 2016, known as the “PNMAC GMSR ISSUER TRUST MSR Collateralized Notes, Series 2016-MSRVF1” (the “VFN”), and (b) may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors additional term notes (“Term Notes”), in each case secured on a pari passu basis by the participation certificates relating to the MSRs and ESS. The maximum principal balance of the VFN is $1,000,000,000.
The principal amount paid by PLS for the participation certificates under the PMH Repurchase Agreement is based upon a percentage of the market value of the underlying ESS. Upon PMH’s repurchase of the participation certificates, PMH is required to repay PLS the principal amount relating thereto plus accrued interest (at a rate reflective of the current market and consistent with the weighted average note rate of the VFN and any outstanding Term Notes) to the date of such repurchase. PLS is then required to repay the Issuer Trust the corresponding amount under the PC Repurchase Agreement.
Note Payable to PLS
Before entering into the PMH Repurchase Agreement, PLS was a party to a repurchase agreement between it and Credit Suisse First Boston Mortgage Capital LLC (“CSFB”) (the “MSR Repo”), pursuant to which PLS financed Ginnie Mae MSRs and servicing advance receivables and pledged all of its rights and interests in any Ginnie Mae MSRs it owned to CSFB, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and PLS. In connection with the MSR Repo, the Company was party to an underlying loan and security agreement with PLS, pursuant to which the Company was able to borrow up to $150 million from PLS for the purpose of financing its investment in ESS (the “Underlying LSA”). The principal amount of the borrowings under the Underlying LSA was based upon a percentage of the market value of the ESS pledged to PLS, subject to the $150 million sublimit described above. Pursuant to the Underlying LSA, the Company granted to PLS a security interest in all of its right, title and interest in, to and under the ESS pledged to secure the borrowings, and PLS, in turn, re-pledged such ESS to CSFB under the MSR Repo. Interest accrued on the Company’s note relating to the Underlying LSA at a rate based on CSFB’s cost of funds under the MSR Repo. The underlying LSA was terminated in connection with the execution of the PMH Agreement.
Conditional Reimbursement of Initial Public Offering (“IPO”) Underwriting Fees
In connection with its IPO, the Company conditionally agreed to reimburse PCM up to $2.9 million for underwriting fees paid to the IPO underwriters by PCM on the Company’s behalf (the “Conditional Reimbursement”). Also in connection with its IPO, the Company agreed to pay the IPO underwriters up to $5.9 million in contingent underwriting fees.$1 billion.
Following is a summary of financing activities between the Company and PFSI:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Net repayments of assets sold under agreements to repurchase |
| $ | 80,862 |
|
| $ | 7,746 |
| ||||||||||||||||
Interest expense |
| $ | 2,116 |
|
| $ | 1,974 |
|
| $ | 5,946 |
|
| $ | 5,798 |
|
| $ | 387 |
|
| $ | 1,218 |
|
Conditional Reimbursements paid to PCM |
| $ | 30 |
|
| $ | — |
|
| $ | 30 |
|
| $ | — |
| ||||||||
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (in thousands) |
| |||||
Assets sold to PFSI under agreement to repurchase |
| $ | 148,072 |
|
| $ | 150,000 |
|
Conditional Reimbursement payable to PFSI included in Accounts payable and accrued liabilities |
| $ | 870 |
|
| $ | 900 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Assets sold to PFSI under agreement to repurchase |
| $ | 0 |
|
| $ | 80,862 |
|
Amounts Receivable from and Payable to PFSI
Amounts receivable from and payable to PFSI are summarized below:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Due from PFSI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR recapture receivable |
| $ | 384 |
|
| $ | 707 |
| ||||||||
MSR recapture |
| $ | 0 |
|
| $ | 296 |
| ||||||||
Other |
|
| 4,341 |
|
|
| 6,384 |
|
|
| 7,521 |
|
|
| 7,856 |
|
|
| $ | 4,725 |
|
| $ | 7,091 |
|
| $ | 7,521 |
|
| $ | 8,152 |
|
Due to PFSI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated expenses and expenses and costs paid by PFSI on PMT’s behalf |
| $ | 23,325 |
|
| $ | 38,142 |
| ||||||||
Fulfillment fees |
|
| 17,347 |
|
|
| 20,873 |
| ||||||||
Correspondent production fees |
|
| 12,937 |
|
|
| 13,065 |
| ||||||||
Management fees |
| $ | 6,038 |
|
| $ | 5,081 |
|
|
| 8,449 |
|
|
| 8,686 |
|
Mortgage loan servicing fees |
|
| 5,329 |
|
|
| 5,465 |
| ||||||||
Allocated expenses and expenses paid by PFSI on PMT’s behalf |
|
| 1,541 |
|
|
| 1,046 |
| ||||||||
Conditional Reimbursement |
|
| 870 |
|
|
| 900 |
| ||||||||
Fulfillment fees |
|
| 662 |
|
|
| 1,300 |
| ||||||||
Interest on Assets sold to PFSI under agreement to repurchase and Note payable to PFSI |
|
| 138 |
|
|
| 253 |
| ||||||||
Correspondent production fees |
|
| 1,430 |
|
|
| 2,371 |
| ||||||||
Loan servicing fees |
|
| 6,586 |
|
|
| 6,213 |
| ||||||||
Interest on Assets sold to PFSI under agreement to repurchase |
|
| 0 |
|
|
| 26 |
| ||||||||
|
| $ | 16,008 |
|
| $ | 16,416 |
|
| $ | 68,644 |
|
| $ | 87,005 |
|
The Company has also transferred cash to fund loan servicing advances and REO property acquisition and preservation costs advanced on its behalf by PLS. Such amounts are included in various balance sheet items as summarized below:
Balance sheet line including advance amount |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Loan servicing advances |
| $ | 150,160 |
|
| $ | 121,820 |
|
Real estate acquired in settlement of loans |
|
| 6,788 |
|
|
| 10,334 |
|
|
| $ | 156,948 |
|
| $ | 132,154 |
|
Note 5—Loan Sales and Variable Interest Entities
The Company is a variable interest holder in various special purpose entities that relate to its mortgage loan transfer and financing activities. These entities are classified as VIEs for accounting purposes. The Company has distinguished its involvement with VIEs between those VIEs which the Company does not consolidate and those VIEs which the Company consolidates.
Unconsolidated VIEs with Continuing Involvement
The following table summarizes cash flows between the Company and transferees in transfers of mortgage loans that are accounted for as sales where the Company maintains continuing involvement with the mortgage loans:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales |
| $ | 7,035,994 |
|
| $ | 6,857,691 |
|
| $ | 17,683,444 |
|
| $ | 15,323,444 |
|
| $ | 33,318,157 |
|
| $ | 19,718,151 |
|
Mortgage loan servicing fees received (1) |
| $ | 42,237 |
|
| $ | 31,514 |
|
| $ | 119,223 |
|
| $ | 88,269 |
| ||||||||
Loan servicing fees received net of guarantee fees |
| $ | 116,287 |
|
| $ | 94,469 |
| ||||||||||||||||
|
|
The following table summarizes, UPBfor the dates presented, collection status information for mortgage loans that are accounted for as sales forwhere the dates presented:Company maintains continuing involvement:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
UPB of mortgage loans outstanding |
| $ | 67,415,863 |
|
| $ | 56,303,664 |
| ||||||||
Delinquent mortgage loans: |
|
|
|
|
|
|
|
| ||||||||
UPB of loans outstanding |
| $ | 183,271,774 |
|
| $ | 170,502,361 |
| ||||||||
Collection Status (UPB) (1) |
|
|
|
|
|
|
|
| ||||||||
Delinquency : |
|
|
|
|
|
|
|
| ||||||||
30-89 days delinquent |
| $ | 462,199 |
|
| $ | 262,467 |
|
| $ | 920,655 |
|
| $ | 1,235,981 |
|
90 or more days delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
| $ | 96,587 |
|
| $ | 53,200 |
|
| $ | 3,788,000 |
|
| $ | 4,428,915 |
|
In foreclosure |
| $ | 20,814 |
|
| $ | 25,180 |
|
| $ | 24,647 |
|
| $ | 27,494 |
|
Bankruptcy |
| $ | 49,334 |
|
| $ | 36,357 |
|
| $ | 154,197 |
|
| $ | 148,866 |
|
Custodial funds managed by the Company (1) |
| $ | 1,055,517 |
|
| $ | 736,398 |
| ||||||||
Custodial funds managed by the Company (2) |
| $ | 6,571,084 |
|
| $ | 6,086,724 |
| ||||||||
Delinquent loans in COVID-19 pandemic-related forbearance: |
|
|
|
|
|
|
|
| ||||||||
30-89 days |
| $ | 511,015 |
|
| $ | 530,353 |
| ||||||||
90 days or more |
| $ | 3,364,821 |
|
| $ | 3,123,288 |
| ||||||||
| (1) | Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act. |
(2) | Custodial funds include borrower and investor custodial cash accounts relating to |
Consolidated VIEsNote 6—Variable Interest Entities
The Company is a variable interest holder in various Variable Interest Entities (“VIEs”) that relate to its investing and financing activities.
Credit Risk Transfer AgreementsArrangements
The Company has entered into certain loan sales arrangements pursuant to which it accepts credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb credit losses on such loans and include CRT Agreements, CRT strips and sales of loans that include firm commitments to purchase CRT securities.
The Company, through its wholly-owned subsidiary, PennyMac Corp. (“PMC”),PMC, entered into CRT Agreements with Fannie Mae, pursuant to which PMC, through subsidiary trust entities, sellssold pools of mortgage loans into Fannie Mae-guaranteed securitizations while retaining a portion of the credit risk underlying such mortgage loans (“Recourse Obligations”)Obligations as part of the retention of an interest-onlyIO ownership interestinterests in such mortgage loans. The mortgage loans subject to the CRT Agreements are transferred by PMC to subsidiary trust entities which sell the mortgage loans into Fannie Mae mortgage loan securitizations. Transferstransfers of mortgage loans subject to CRT Agreements receive sale accounting treatment upon fulfillment ofarrangements were accounted for as sales. The Company placed Deposits securing CRT arrangements into the criteria for sale recognition contained in the Transfers and Servicing topic of the ASC.subsidiary trust entities to secure its Recourse Obligations. The pledged cash representsDeposits securing CRT arrangements represent the Company’s maximum contractual exposure to claims under its Recourse Obligations and isare the sole source of settlement of losses under the CRT Agreements.
The Company’s exposure to losses under its Recourse Obligations was initially established at rates ranging from 3.5% to 4.0% of the UPB of the loans sold under the CRT arrangements. As the UPB of the underlying loans subject to each CRT arrangements is reduced through repayments, the percentage exposure of each CRT arrangement will increase to maximums ranging from 4.5% to 5.0% of outstanding UPB, although the total dollar amount of exposure to losses does not increase. The final sales of loans subject to the CRT Agreements were made during May 2018.
Effective in June 2018, the Company began entering into different types of CRT arrangements. Under the new arrangements, the Company sold loans subject to agreements that required the Company to purchase securities that absorb incurred credit losses on such loans. The Company recognized these purchase commitments initially as a component of Net gains on loans acquired for sale; subsequent changes in fair value were recognized in Net gains (losses) on investments. The final sales of loans subject to this CRT arrangement were made during September 2020.
The Company purchased the securities subject to the firm commitments. Similar to the CRT Agreements, the Company accounts for the deposits collateralizing these securities as Deposits securing CRT arrangements and recognizes its IO ownership interests and Recourse Obligations as CRT strips which are included on the consolidated balance sheet in Derivative and credit risk transfer strip assets and Derivative and credit risk transfer strip liabilities. Like CRT Agreements, the Deposits securing CRT
19
arrangements relating to these arrangements represent the Company’s maximum contractual exposure to losses. Gains and losses on the derivatives relatedand strips (including the IO ownership interest sold to nonaffiliates) included in the CRT Agreementsarrangements are included in Net gaingains (losses) on investments in the consolidated statements of income. operations.
Following is a summary of the CRT Agreements:arrangements:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
UPB of mortgage loans sold under CRT Agreements |
| $ | 4,126,946 |
|
| $ | 3,357,443 |
|
| $ | 9,722,067 |
|
| $ | 8,442,187 |
|
Deposits of cash securing CRT Agreements |
| $ | 44,998 |
|
| $ | 89,697 |
|
| $ | 102,146 |
|
| $ | 282,434 |
|
Increase in commitments to fund Deposits securing CRT Agreements resulting from sale of mortgage loans under CRT Agreements |
| $ | 108,051 |
|
| $ | — |
|
| $ | 264,165 |
|
| $ | — |
|
Interest earned on Deposits securing CRT Agreements |
| $ | 1,440 |
|
| $ | 285 |
|
| $ | 2,703 |
|
| $ | 661 |
|
Gains recognized on CRT Agreements included in Net gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized |
| $ | 10,798 |
|
| $ | 6,206 |
|
| $ | 27,595 |
|
| $ | 12,601 |
|
Resulting from valuation changes |
|
| 4,162 |
|
|
| 12,307 |
|
|
| 41,268 |
|
|
| 9,060 |
|
|
|
| 14,960 |
|
|
| 18,513 |
|
|
| 68,863 |
|
|
| 21,661 |
|
Change in fair value of interest-only security payable at fair value |
|
| 191 |
|
|
| (36 | ) |
|
| (2,272 | ) |
|
| 437 |
|
|
| $ | 15,151 |
|
| $ | 18,477 |
|
| $ | 66,591 |
|
| $ | 22,098 |
|
Payments made to settle losses |
| $ | 539 |
|
| $ | 28 |
|
| $ | 950 |
|
| $ | 28 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
UPB of loans sold |
|
|
|
|
| $ | 14,683,055 |
|
Investments — Change in expected face amount of firm commitment to purchase CRT securities |
|
|
|
|
| $ | 554,690 |
|
Investment income (loss): |
|
|
|
|
|
|
|
|
Net gains on loans acquired for sale — Fair value of firm commitment to purchase CRT securities recognized upon sale of loans |
| $ | — |
|
| $ | (26,649 | ) |
Net gains (losses) on investments: |
|
|
|
|
|
|
|
|
Derivative and CRT strips: |
|
|
|
|
|
|
|
|
CRT derivatives |
|
|
|
|
|
|
|
|
Realized |
|
| 23,496 |
|
|
| 17,201 |
|
Valuation changes |
|
| 12,874 |
|
|
| (300,943 | ) |
|
|
| 36,370 |
|
|
| (283,742 | ) |
CRT strips |
|
|
|
|
|
|
|
|
Realized |
|
| 32,604 |
|
|
| 14,750 |
|
Valuation changes |
|
| 93,222 |
|
|
| (229,875 | ) |
|
|
| 125,826 |
|
|
| (215,125 | ) |
Interest-only security payable at fair value |
|
| (8,165 | ) |
|
| 11,575 |
|
|
|
| 154,031 |
|
|
| (487,292 | ) |
Firm commitments to purchase CRT securities |
|
| — |
|
|
| (492,513 | ) |
|
|
| 154,031 |
|
|
| (979,805 | ) |
Interest income — Deposits securing CRT arrangements |
|
| 168 |
|
|
| 6,099 |
|
|
| $ | 154,199 |
|
| $ | (1,000,355 | ) |
|
|
|
|
|
|
|
|
|
Net (recoveries received) payments made to settle (recoveries) losses on CRT arrangements |
| $ | (13,343 | ) |
| $ | 1,517 |
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (in thousands) |
| |||||
UPB of mortgage loans subject to credit guarantee obligations |
| $ | 22,931,988 |
|
| $ | 14,379,850 |
|
Delinquency status (in UPB): |
|
|
|
|
|
|
|
|
Current—89 days delinquent |
| $ | 22,899,266 |
|
| $ | 14,372,247 |
|
90 or more days delinquent |
| $ | 20,540 |
|
| $ | 5,711 |
|
Foreclosure |
| $ | 2,481 |
|
| $ | 1,892 |
|
Bankruptcy |
| $ | 9,701 |
|
| $ | — |
|
Carrying value of CRT Agreements: |
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 56,878 |
|
| $ | 15,610 |
|
Deposits securing CRT Agreements |
| $ | 545,694 |
|
| $ | 450,059 |
|
Interest-only security payable at fair value |
| $ | 6,386 |
|
| $ | 4,114 |
|
CRT Agreement assets pledged to secure assets sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
Deposits securing credit risk CRT Agreements |
| $ | 408,100 |
|
| $ | 414,610 |
|
Derivative assets |
| $ | 15,742 |
|
| $ | 9,078 |
|
Commitments to fund Deposits securing credit risk transfer agreements |
| $ | 356,274 |
|
| $ | 92,109 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Carrying value of CRT arrangements: |
|
|
|
|
|
|
|
|
Derivative and credit risk transfer strip assets (liabilities), net |
|
|
|
|
|
|
|
|
CRT derivatives |
| $ | 44,676 |
|
| $ | 31,795 |
|
CRT strips |
|
| (109,570 | ) |
|
| (202,792 | ) |
|
| $ | (64,894 | ) |
| $ | (170,997 | ) |
|
|
|
|
|
|
|
|
|
Deposits securing CRT arrangements |
| $ | 2,664,420 |
|
| $ | 2,799,263 |
|
Interest-only security payable at fair value |
| $ | 18,922 |
|
| $ | 10,757 |
|
|
|
|
|
|
|
|
|
|
CRT arrangement assets pledged to secure borrowings: |
|
|
|
|
|
|
|
|
Derivative and credit risk transfer assets |
| $ | 58,134 |
|
| $ | 58,699 |
|
Deposits securing CRT arrangements (1) |
| $ | 2,664,420 |
|
| $ | 2,799,263 |
|
|
|
|
|
|
|
|
|
|
UPB of loans — funded CRT arrangements |
| $ | 48,403,684 |
|
| $ | 58,697,942 |
|
Collection status (UPB): |
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
Current |
| $ | 45,422,502 |
|
| $ | 54,990,381 |
|
30-89 days delinquent |
| $ | 489,284 |
|
| $ | 710,872 |
|
90-180 days delinquent |
| $ | 472,038 |
|
| $ | 693,315 |
|
180 or more days delinquent |
| $ | 2,014,310 |
|
| $ | 2,297,365 |
|
Foreclosure |
| $ | 5,550 |
|
| $ | 6,009 |
|
Bankruptcy |
| $ | 77,362 |
|
| $ | 75,700 |
|
Delinquent loans in COVID-19 pandemic-related forbearance: |
|
|
|
|
|
|
|
|
30-89 days delinquent |
| $ | 245,592 |
|
| $ | 383,028 |
|
90-180 days delinquent |
| $ | 353,422 |
|
| $ | 546,344 |
|
180 or more days delinquent |
| $ | 1,614,170 |
|
| $ | 1,944,663 |
|
(1) | Deposits securing credit risk transfer strip liabilities also secure $123.0 million and $229.7 million in CRT strip and CRT derivative liabilities at March 31, 2021 and December 31, 2020, respectively. |
Jumbo Mortgage Loan Financing
On September 30, 2013, the Company completed a securitization transaction in which PMT Loan Trust 2013-J1 a VIE, issued $537.0 million in UPB of certificates backed by fixed-rate prime jumbo mortgage loans, at a 3.9% weighted yield. The Company initially retained $366.8 million in fair value of such certificates. Duringincludes the year ended December 31, 2016, the Company sold $208.8 million in UPB of those certificates, which reduced the fair valuebalance of the loans held in the trust in Loans at fair value and the certificates retained by the Companyissued to $9.5 million as of September 30, 2017. The Company included the proceeds from the salesnonaffiliates in Asset backed financing of a variable interest entity at fair value in its consolidated balance sheets. The Company issued no certificates duringincludes the quarter ended September 30, 2017.interest earned on the loans held in the trust in Interest Income – from nonaffiliates and the interest paid to nonaffiliates in Interest Expense – to nonaffiliates in its consolidated statements of operations.
Following is a summary of the Company’s jumbo loan financing:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Interest income |
| $ | 1,899 |
|
| $ | 2,641 |
|
Interest expense |
| $ | 168 |
|
| $ | 4,527 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Loans at fair value |
| $ | 109,845 |
|
| $ | 143,707 |
|
Asset-backed financing at fair value |
| $ | 101,238 |
|
| $ | 134,726 |
|
Certificates retained at fair value |
| $ | 8,607 |
|
| $ | 8,981 |
|
Note 6—7— Fair Value
The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement at or based on fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the ManagerCompany has elected to carry the item at its fair value as discussed in the following paragraphs.
The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:
Level 1—Quoted prices in active markets for identical assets or liabilities.
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets or liabilities, interest rates, prepayment speeds, credit risk and other inputs.
• | Level 2—Prices determined or determinable using other significant observable 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. |
Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing assets and liabilities, and are based on the best information available in the circumstances.
• | Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances. |
As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the ManagerCompany is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and to their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.
The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the inputs required to establish fair value at a higher level of the hierarchy become available.
Fair Value Accounting Elections
The ManagerCompany identified all of the Company’sPMT’s non-cash financial assets, its Firm commitment to purchase CRT securitiesand MSRs relating to non-commercial real estate secured mortgage loans with initial interest rates of more than 4.5%, to be accounted for at fair value. The ManagerCompany has elected to account for these assets at fair value so such changes in fair value will be reflected in incomeits results of operations as they occur and more timely reflect the results of the Company’s performance.
The ManagerCompany has also identified the Company’s asset-backedits Asset-backed financing of a VIE at fair value and interest onlyInterest-only security payable at fair value to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of mortgage loansthe assets at fair value or other assets collateralizing these financings. For other borrowings, the ManagerCompany has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.
Financial Statement Items Measured at Fair Value on a Recurring Basis
Following is a summary of financial statement items that are measured at fair value on a recurring basis:
|
| September 30, 2017 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 5,646 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,646 |
|
Mortgage-backed securities at fair value |
|
| — |
|
|
| 1,036,669 |
|
|
| — |
|
|
| 1,036,669 |
|
Mortgage loans acquired for sale at fair value |
|
| — |
|
|
| 1,270,340 |
|
|
| — |
|
|
| 1,270,340 |
|
Mortgage loans at fair value |
|
| — |
|
|
| 331,941 |
|
|
| 1,016,002 |
|
|
| 1,347,943 |
|
Excess servicing spread purchased from PFSI |
|
| — |
|
|
| — |
|
|
| 248,763 |
|
|
| 248,763 |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 2,789 |
|
|
| 2,789 |
|
CRT Agreements |
|
| — |
|
|
| — |
|
|
| 56,878 |
|
|
| 56,878 |
|
Repurchase agreement derivatives |
|
| — |
|
|
| — |
|
|
| 181 |
|
|
| 181 |
|
Forward sales contracts |
|
| — |
|
|
| 8,861 |
|
|
| — |
|
|
| 8,861 |
|
MBS put options |
|
| — |
|
|
| 1,503 |
|
|
| — |
|
|
| 1,503 |
|
MBS call options |
|
| — |
|
|
| 171 |
|
|
| — |
|
|
| 171 |
|
Call options on interest rate futures |
|
| 438 |
|
|
| — |
|
|
| — |
|
|
| 438 |
|
Put options on interest rate futures |
|
| 1,258 |
|
|
| — |
|
|
| — |
|
|
| 1,258 |
|
Total derivative assets before netting |
|
| 1,696 |
|
|
| 10,535 |
|
|
| 59,848 |
|
|
| 72,079 |
|
Netting |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,791 | ) |
Total derivative assets after netting |
|
| 1,696 |
|
|
| 10,535 |
|
|
| 59,848 |
|
|
| 67,288 |
|
Mortgage servicing rights at fair value |
|
| — |
|
|
| — |
|
|
| 82,312 |
|
|
| 82,312 |
|
|
| $ | 7,342 |
|
| $ | 2,649,485 |
|
| $ | 1,406,925 |
|
| $ | 4,058,961 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
| $ | — |
|
| $ | 318,404 |
|
| $ | — |
|
| $ | 318,404 |
|
Interest-only security payable at fair value |
|
| — |
|
|
| — |
|
|
| 6,386 |
|
|
| 6,386 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 1,514 |
|
|
| 1,514 |
|
Forward purchase contracts |
|
| — |
|
|
| 6,616 |
|
|
| — |
|
|
| 6,616 |
|
Forward sales contracts |
|
| — |
|
|
| 165 |
|
|
| — |
|
|
| 165 |
|
Total derivative liabilities before netting |
|
| — |
|
|
| 6,781 |
|
|
| 1,514 |
|
|
| 8,295 |
|
Netting |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,395 | ) |
Total derivative liabilities after netting |
|
| — |
|
|
| 6,781 |
|
|
| 1,514 |
|
|
| 4,900 |
|
|
| $ | — |
|
| $ | 325,185 |
|
| $ | 7,900 |
|
| $ | 329,690 |
|
|
| December 31, 2016 |
|
| March 31, 2021 |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 122,088 |
|
| $ | — |
|
| $ | — |
|
| $ | 122,088 |
|
| $ | 108,375 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 108,375 |
|
Mortgage-backed securities at fair value |
|
| — |
|
|
| 865,061 |
|
|
| — |
|
|
| 865,061 |
|
|
| 0 |
|
|
| 1,916,485 |
|
|
| 0 |
|
|
| 1,916,485 |
|
Mortgage loans acquired for sale at fair value |
|
| — |
|
|
| 1,673,112 |
|
|
| — |
|
|
| 1,673,112 |
| ||||||||||||||||
Mortgage loans at fair value |
|
| — |
|
|
| 367,169 |
|
|
| 1,354,572 |
|
|
| 1,721,741 |
| ||||||||||||||||
Excess servicing spread purchased from PFSI |
|
| — |
|
|
| — |
|
|
| 288,669 |
|
|
| 288,669 |
| ||||||||||||||||
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Loans acquired for sale at fair value |
|
| 0 |
|
|
| 4,612,527 |
|
|
| 34,234 |
|
|
| 4,646,761 |
| ||||||||||||||||
Loans at fair value |
|
| 0 |
|
|
| 109,845 |
|
|
| 7,802 |
|
|
| 117,647 |
| ||||||||||||||||
Derivative and credit risk transfer strip assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Call options on interest rate futures purchase contracts |
|
| 992 |
|
|
| 0 |
|
|
| 0 |
|
|
| 992 |
| ||||||||||||||||
Put options on interest rate futures purchase contracts |
|
| 18,938 |
|
|
| 0 |
|
|
| 0 |
|
|
| 18,938 |
| ||||||||||||||||
Forward purchase contracts |
|
| 0 |
|
|
| 6,687 |
|
|
| 0 |
|
|
| 6,687 |
| ||||||||||||||||
Forward sale contracts |
|
| 0 |
|
|
| 182,192 |
|
|
| 0 |
|
|
| 182,192 |
| ||||||||||||||||
MBS put options |
|
| 0 |
|
|
| 51,165 |
|
|
| 0 |
|
|
| 51,165 |
| ||||||||||||||||
Swaption purchase contracts |
|
| 0 |
|
|
| 29,034 |
|
|
| 0 |
|
|
| 29,034 |
| ||||||||||||||||
CRT derivatives |
|
| 0 |
|
|
| 0 |
|
|
| 58,134 |
|
|
| 58,134 |
| ||||||||||||||||
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 7,069 |
|
|
| 7,069 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,552 |
|
|
| 7,552 |
|
CRT Agreements |
|
| — |
|
|
| — |
|
|
| 15,610 |
|
|
| 15,610 |
| ||||||||||||||||
Total derivative assets before netting |
|
| 19,930 |
|
|
| 269,078 |
|
|
| 65,686 |
|
|
| 354,694 |
| ||||||||||||||||
Netting |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (171,725 | ) | ||||||||||||||||
Total derivative and credit risk transfer strip assets after netting |
|
| 19,930 |
|
|
| 269,078 |
|
|
| 65,686 |
|
|
| 182,969 |
| ||||||||||||||||
Mortgage servicing rights at fair value |
|
| 0 |
|
|
| 0 |
|
|
| 2,441,214 |
|
|
| 2,441,214 |
| ||||||||||||||||
|
| $ | 128,305 |
|
| $ | 6,907,935 |
|
| $ | 2,548,936 |
|
| $ | 9,413,451 |
| ||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Asset-backed financing of a VIE at fair value |
| $ | 0 |
|
| $ | 101,238 |
|
| $ | 0 |
|
| $ | 101,238 |
| ||||||||||||||||
Interest-only security payable at fair value |
|
| 0 |
|
|
| 0 |
|
|
| 18,922 |
|
|
| 18,922 |
| ||||||||||||||||
Derivative and credit risk transfer strip liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Put options on interest rate futures sale contracts |
|
| 0 |
|
|
| 6,064 |
|
|
| 0 |
|
|
| 6,064 |
| ||||||||||||||||
Forward purchase contracts |
|
| — |
|
|
| 30,879 |
|
|
| — |
|
|
| 30,879 |
|
|
| 0 |
|
|
| 89,312 |
|
|
| 0 |
|
|
| 89,312 |
|
Forward sales contracts |
|
| — |
|
|
| 13,164 |
|
|
| — |
|
|
| 13,164 |
|
|
| 0 |
|
|
| 6,965 |
|
|
| 0 |
|
|
| 6,965 |
|
MBS put options |
|
| — |
|
|
| 1,697 |
|
|
| — |
|
|
| 1,697 |
|
|
| 0 |
|
|
| 9,657 |
|
|
| 0 |
|
|
| 9,657 |
|
MBS call options |
|
| — |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
| ||||||||||||||||
Call options on interest rate futures |
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 63 |
| ||||||||||||||||
Put options on interest rate futures |
|
| 2,469 |
|
|
| — |
|
|
| — |
|
|
| 2,469 |
| ||||||||||||||||
Total derivative assets |
|
| 2,532 |
|
|
| 45,882 |
|
|
| 22,679 |
|
|
| 71,093 |
| ||||||||||||||||
Netting |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37,384 | ) | ||||||||||||||||
Total derivative assets after netting |
|
| 2,532 |
|
|
| 45,882 |
|
|
| 22,679 |
|
|
| 33,709 |
| ||||||||||||||||
Mortgage servicing rights at fair value |
|
| — |
|
|
| — |
|
|
| 64,136 |
|
|
| 64,136 |
| ||||||||||||||||
|
| $ | 124,620 |
|
| $ | 2,951,224 |
|
| $ | 1,730,056 |
|
| $ | 4,768,516 |
| ||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Asset-backed financing of the VIE at fair value |
| $ | — |
|
| $ | 353,898 |
|
| $ | — |
|
| $ | 353,898 |
| ||||||||||||||||
Interest-only security payable at fair value |
|
| — |
|
|
| — |
|
|
| 4,114 |
|
|
| 4,114 |
| ||||||||||||||||
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CRT derivatives |
|
| 0 |
|
|
| 0 |
|
|
| 13,458 |
|
|
| 13,458 |
| ||||||||||||||||
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 3,292 |
|
|
| 3,292 |
|
|
| 0 |
|
|
| 0 |
|
|
| 72,410 |
|
|
| 72,410 |
|
Forward purchase contracts |
|
| — |
|
|
| 7,619 |
|
|
| — |
|
|
| 7,619 |
| ||||||||||||||||
Forward sales contracts |
|
| — |
|
|
| 17,974 |
|
|
| — |
|
|
| 17,974 |
| ||||||||||||||||
Total derivative liabilities |
|
| — |
|
|
| 25,593 |
|
|
| 3,292 |
|
|
| 28,885 |
| ||||||||||||||||
Total derivative liabilities before netting |
|
| 0 |
|
|
| 111,998 |
|
|
| 85,868 |
|
|
| 197,866 |
| ||||||||||||||||
Netting |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,312 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (77,466 | ) |
Total derivative liabilities after netting |
|
| — |
|
|
| 25,593 |
|
|
| 3,292 |
|
|
| 9,573 |
|
|
| 0 |
|
|
| 111,998 |
|
|
| 85,868 |
|
|
| 120,400 |
|
Credit risk transfer strips |
|
| 0 |
|
|
| 0 |
|
|
| 109,570 |
|
|
| 109,570 |
| ||||||||||||||||
Total derivative and credit risk transfer strips liabilities |
|
| 0 |
|
|
| 111,998 |
|
|
| 195,438 |
|
|
| 229,970 |
| ||||||||||||||||
|
| $ | — |
|
| $ | 379,491 |
|
| $ | 7,406 |
|
| $ | 367,585 |
|
| $ | 0 |
|
| $ | 213,236 |
|
| $ | 214,360 |
|
| $ | 350,130 |
|
|
| December 31, 2020 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 127,295 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 127,295 |
|
Mortgage-backed securities at fair value |
|
| 0 |
|
|
| 2,213,922 |
|
|
| 0 |
|
|
| 2,213,922 |
|
Loans acquired for sale at fair value |
|
| 0 |
|
|
| 3,518,015 |
|
|
| 33,875 |
|
|
| 3,551,890 |
|
Loans at fair value |
|
| 0 |
|
|
| 143,707 |
|
|
| 8,027 |
|
|
| 151,734 |
|
Excess servicing spread purchased from PFSI |
|
| 0 |
|
|
| 0 |
|
|
| 131,750 |
|
|
| 131,750 |
|
Derivative and credit risk transfer strip assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call options on interest rate futures |
|
| 3,070 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,070 |
|
Put options on interest rate futures |
|
| 4,742 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,742 |
|
Forward purchase contracts |
|
| 0 |
|
|
| 72,526 |
|
|
| 0 |
|
|
| 72,526 |
|
Forward sale contracts |
|
| 0 |
|
|
| 92 |
|
|
| 0 |
|
|
| 92 |
|
MBS put options |
|
| 0 |
|
|
| 3,220 |
|
|
| 0 |
|
|
| 3,220 |
|
Swaption purchase contracts |
|
| 0 |
|
|
| 8,505 |
|
|
| 0 |
|
|
| 8,505 |
|
CRT derivatives |
|
| 0 |
|
|
| 0 |
|
|
| 58,699 |
|
|
| 58,699 |
|
Interest rate lock commitments |
|
| 0 |
|
|
| 0 |
|
|
| 72,794 |
|
|
| 72,794 |
|
Total derivative assets before netting |
|
| 7,812 |
|
|
| 84,343 |
|
|
| 131,493 |
|
|
| 223,648 |
|
Netting |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (59,330 | ) |
Total derivative assets after netting |
|
| 7,812 |
|
|
| 84,343 |
|
|
| 131,493 |
|
|
| 164,318 |
|
Mortgage servicing rights at fair value |
|
| 0 |
|
|
| 0 |
|
|
| 1,755,236 |
|
|
| 1,755,236 |
|
|
| $ | 135,107 |
|
| $ | 5,959,987 |
|
| $ | 2,060,381 |
|
| $ | 8,096,145 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
| $ | 0 |
|
| $ | 134,726 |
|
| $ | 0 |
|
| $ | 134,726 |
|
Interest-only security payable at fair value |
|
| 0 |
|
|
| 0 |
|
|
| 10,757 |
|
|
| 10,757 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| 0 |
|
|
| 17 |
|
|
| 0 |
|
|
| 17 |
|
Forward sales contracts |
|
| 0 |
|
|
| 122,884 |
|
|
| 0 |
|
|
| 122,884 |
|
CRT derivatives |
|
| 0 |
|
|
| 0 |
|
|
| 26,904 |
|
|
| 26,904 |
|
Interest rate lock commitments |
|
| 0 |
|
|
| 0 |
|
|
| 408 |
|
|
| 408 |
|
Total derivative liabilities before netting |
|
| 0 |
|
|
| 122,901 |
|
|
| 27,312 |
|
|
| 150,213 |
|
Netting |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (89,532 | ) |
Total derivative liabilities after netting |
|
| 0 |
|
|
| 122,901 |
|
|
| 27,312 |
|
|
| 60,681 |
|
Credit risk transfer strips |
|
| 0 |
|
|
| 0 |
|
|
| 202,792 |
|
|
| 202,792 |
|
Total derivative and credit risk transfer strips liabilities |
|
| 0 |
|
|
| 122,901 |
|
|
| 230,104 |
|
|
| 263,473 |
|
|
| $ | 0 |
|
| $ | 257,627 |
|
| $ | 240,861 |
|
| $ | 408,956 |
|
The following is a summary of changes in items measured using Level 3 inputs on a recurring basis:
|
| Quarter ended September 30, 2017 |
| |||||||||||||||||||||||||
|
| Mortgage |
|
| Excess |
|
| Interest |
|
|
|
|
|
| Repurchase |
|
| Mortgage |
|
|
|
|
| |||||
|
| loans |
|
| servicing |
|
| rate lock |
|
| CRT |
|
| agreement |
|
| servicing |
|
|
|
|
| ||||||
|
| at fair value |
|
| spread |
|
| commitments (1) |
|
| Agreements |
|
| derivatives |
|
| rights |
|
| Total |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017 |
| $ | 1,184,620 |
|
| $ | 261,796 |
|
| $ | 395 |
|
| $ | 52,716 |
|
| $ | — |
|
| $ | 77,624 |
|
| $ | 1,577,151 |
|
Purchases and issuances |
|
| — |
|
|
| — |
|
|
| 9,264 |
|
|
| — |
|
| 181 |
|
|
| 10 |
|
|
| 9,455 |
| |
Repayments and sales |
|
| (156,821 | ) |
|
| (13,410 | ) |
|
| — |
|
|
| (10,798 | ) |
|
| — |
|
|
| — |
|
|
| (181,029 | ) |
Capitalization of interest |
|
| 7,020 |
|
|
| 3,998 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,018 |
|
Capitalization of advances |
|
| 4,611 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,611 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| — |
|
|
| 1,207 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,207 |
|
Servicing received as proceeds from sales of mortgage loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,655 |
|
|
| 8,655 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
| 6,035 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,035 |
|
Other factors |
|
| (2,758 | ) |
|
| (4,828 | ) |
|
| 15,430 |
|
|
| 14,960 |
|
|
| — |
|
|
| (3,977 | ) |
|
| 18,827 |
|
|
|
| 3,277 |
|
|
| (4,828 | ) |
|
| 15,430 |
|
|
| 14,960 |
|
|
| — |
|
|
| (3,977 | ) |
|
| 24,862 |
|
Transfers of mortgage loans to REO and real estate held for investment |
|
| (26,705 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,705 | ) |
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
| — |
|
|
| — |
|
|
| (23,814 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,814 | ) |
Balance, September 30, 2017 |
| $ | 1,016,002 |
|
| $ | 248,763 |
|
| $ | 1,275 |
|
| $ | 56,878 |
|
| $ | 181 |
|
| $ | 82,312 |
|
| $ | 1,405,411 |
|
Changes in fair value recognized during the period relating to assets still held at September 30, 2017 |
| $ | (7,302 | ) |
| $ | (4,828 | ) |
| $ | 1,275 |
|
| $ | 4,162 |
|
| $ | — |
|
| $ | (3,977 | ) |
| $ | (10,670 | ) |
|
|
|
| Quarter ended September 30, 2017 |
| |
|
| Interest-only |
| |
|
| security payable |
| |
|
| (in thousands) |
| |
Liabilities: |
|
|
|
|
Balance, June 30, 2017 |
| $ | 6,577 |
|
Changes in fair value included in income arising from: |
|
|
|
|
Changes in instrument- specific credit risk |
|
| — |
|
Other factors |
|
| (191 | ) |
|
|
| (191 | ) |
Balance, September 30, 2017 |
| $ | 6,386 |
|
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2017 |
| $ | (191 | ) |
|
| Quarter ended September 30, 2016 |
| |||||||||||||||||||||
|
| Mortgage |
|
| Excess |
|
| Interest |
|
|
|
|
|
| Mortgage |
|
|
|
|
| ||||
|
| loans |
|
| servicing |
|
| rate lock |
|
| CRT |
|
| servicing |
|
|
|
|
| |||||
|
| at fair value |
|
| spread |
|
| commitments (1) |
|
| Agreements |
|
| rights |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016 |
| $ | 1,608,906 |
|
| $ | 294,551 |
|
| $ | 16,757 |
|
| $ | (199 | ) |
| $ | 57,977 |
|
| $ | 1,977,992 |
|
Purchases and issuances |
|
| — |
|
|
| — |
|
|
| 30,429 |
|
|
| — |
|
|
| — |
|
|
| 30,429 |
|
Repayments and sales |
|
| (29,921 | ) |
|
| (16,342 | ) |
|
| — |
|
|
| (6,206 | ) |
|
| — |
|
|
| (52,469 | ) |
Capitalization of interest |
|
| 23,068 |
|
|
| 4,827 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,895 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| — |
|
|
| 1,438 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,438 |
|
Servicing received as proceeds from sales of mortgage loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,068 |
|
|
| 1,068 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
| 9,699 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,699 |
|
Other factors |
|
| (13,099 | ) |
|
| (4,107 | ) |
|
| 23,390 |
|
|
| 23,067 |
|
|
| (3,202 | ) |
|
| 26,049 |
|
|
|
| (3,400 | ) |
|
| (4,107 | ) |
|
| 23,390 |
|
|
| 23,067 |
|
|
| (3,202 | ) |
|
| 35,748 |
|
Transfers of mortgage loans to REO |
|
| (39,276 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (39,276 | ) |
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
| — |
|
|
| — |
|
|
| (55,248 | ) |
|
| — |
|
|
| — |
|
|
| (55,248 | ) |
Balance, September 30, 2016 |
| $ | 1,559,377 |
|
| $ | 280,367 |
|
| $ | 15,328 |
|
| $ | 16,662 |
|
| $ | 55,843 |
|
| $ | 1,927,577 |
|
Changes in fair value recognized during the period relating to assets still held at September 30, 2016 |
| $ | (820 | ) |
| $ | (4,107 | ) |
| $ | 15,328 |
|
| $ | 16,662 |
|
| $ | (3,202 | ) |
| $ | 23,861 |
|
|
|
|
| Quarter ended September 30, 2016 |
| |
|
| Interest-only |
| |
|
| security payable |
| |
|
| (in thousands) |
| |
Liabilities: |
|
|
|
|
Balance, June 30, 2016 |
| $ | 1,663 |
|
Changes in fair value included in income arising from: |
|
|
|
|
Changes in instrument- specific credit risk |
|
| — |
|
Other factors |
|
| 36 |
|
|
|
| 36 |
|
Balance, September 30, 2016 |
| $ | 1,699 |
|
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2016 |
| $ | 36 |
|
|
| Nine months ended September 30, 2017 |
| |||||||||||||||||||||||||
|
| Mortgage |
|
| Excess |
|
| Interest |
|
|
|
|
|
| Repurchase |
|
| Mortgage |
|
|
|
|
| |||||
|
| loans |
|
| servicing |
|
| rate lock |
|
| CRT |
|
| agreement |
|
| servicing |
|
|
|
|
| ||||||
|
| at fair value |
|
| spread |
|
| commitments (1) |
|
| Agreements (1) |
|
| derivatives |
|
| rights |
|
| Total |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016 |
| $ | 1,354,572 |
|
| $ | 288,669 |
|
| $ | 3,777 |
|
| $ | 15,610 |
|
| $ | — |
|
| $ | 64,136 |
|
| $ | 1,726,764 |
|
Purchases and issuances |
|
| — |
|
|
| — |
|
|
| 26,185 |
|
|
| — |
|
|
| 181 |
|
|
| 79 |
|
|
| 26,445 |
|
Repayments and sales |
|
| (302,829 | ) |
|
| (42,320 | ) |
|
| — |
|
|
| (27,595 | ) |
|
| — |
|
|
| — |
|
|
| (372,744 | ) |
Capitalization of interest |
|
| 27,737 |
|
|
| 13,011 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40,748 |
|
Capitalization of advances |
|
| 17,759 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,759 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| — |
|
|
| 4,160 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,160 |
|
Servicing received as proceeds from sales of mortgage loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,467 |
|
|
| 28,467 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
| 23,498 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,498 |
|
Other factors |
|
| (15,975 | ) |
|
| (14,757 | ) |
|
| 43,946 |
|
|
| 68,863 |
|
|
| — |
|
|
| (10,370 | ) |
|
| 71,707 |
|
|
|
| 7,523 |
|
|
| (14,757 | ) |
|
| 43,946 |
|
|
| 68,863 |
|
|
| — |
|
|
| (10,370 | ) |
|
| 95,205 |
|
Transfers of mortgage loans to REO and real estate held for investment |
|
| (88,760 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88,760 | ) |
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
| — |
|
|
| — |
|
|
| (72,633 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (72,633 | ) |
Balance, September 30, 2017 |
| $ | 1,016,002 |
|
| $ | 248,763 |
|
| $ | 1,275 |
|
| $ | 56,878 |
|
| $ | 181 |
|
| $ | 82,312 |
|
| $ | 1,405,411 |
|
Changes in fair value recognized during the period relating to assets still held at September 30, 2017 |
| $ | (6,650 | ) |
| $ | (14,757 | ) |
| $ | 1,275 |
|
| $ | 41,268 |
|
| $ | — |
|
| $ | (10,370 | ) |
| $ | 10,766 |
|
|
|
|
| Nine months ended September 30, 2017 |
| |
|
| Interest-only |
| |
|
| security payable |
| |
|
| (in thousands) |
| |
Liabilities: |
|
|
|
|
Balance, December 31, 2016 |
| $ | 4,114 |
|
Changes in fair value included in income arising from: |
|
|
|
|
Changes in instrument- specific credit risk |
|
| — |
|
Other factors |
|
| 2,272 |
|
|
|
| 2,272 |
|
Balance, September 30, 2017 |
| $ | 6,386 |
|
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2017 |
| $ | 2,272 |
|
|
| Nine months ended September 30, 2016 |
| |||||||||||||||||||||
|
| Mortgage |
|
| Excess |
|
| Interest |
|
|
|
|
|
| Mortgage |
|
|
|
|
| ||||
|
| loans |
|
| servicing |
|
| rate lock |
|
| CRT |
|
| servicing |
|
|
|
|
| |||||
|
| at fair value |
|
| spread |
|
| commitments (1) |
|
| Agreements |
|
| rights |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015 |
| $ | 2,100,394 |
|
| $ | 412,425 |
|
| $ | 4,646 |
|
| $ | 593 |
|
| $ | 66,584 |
|
| $ | 2,584,642 |
|
Purchases and issuances |
|
| — |
|
|
| — |
|
|
| 58,475 |
|
|
| — |
|
|
| 2,602 |
|
|
| 61,077 |
|
Repayments and sales |
|
| (449,647 | ) |
|
| (113,668 | ) |
|
| — |
|
|
| (12,601 | ) |
|
| — |
|
|
| (575,916 | ) |
Capitalization of interest |
|
| 62,783 |
|
|
| 17,555 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 80,338 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| — |
|
|
| 5,039 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,039 |
|
Servicing received as proceeds from sales of mortgage loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,215 |
|
|
| 6,215 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
| 29,480 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,480 |
|
Other factors |
|
| (31,948 | ) |
|
| (40,984 | ) |
|
| 71,286 |
|
|
| 28,670 |
|
|
| (19,558 | ) |
|
| 7,466 |
|
|
|
| (2,468 | ) |
|
| (40,984 | ) |
|
| 71,286 |
|
|
| 28,670 |
|
|
| (19,558 | ) |
|
| 36,946 |
|
Transfers of mortgage loans to REO |
|
| (151,685 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (151,685 | ) |
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
| — |
|
|
| — |
|
|
| (119,079 | ) |
|
| — |
|
|
| — |
|
|
| (119,079 | ) |
Balance, September 30, 2016 |
| $ | 1,559,377 |
|
| $ | 280,367 |
|
| $ | 15,328 |
|
| $ | 16,662 |
|
| $ | 55,843 |
|
| $ | 1,927,577 |
|
Changes in fair value recognized during the period relating to assets still held at September 30, 2016 |
| $ | (2,399 | ) |
| $ | (33,774 | ) |
| $ | 15,328 |
|
| $ | 16,662 |
|
| $ | (19,558 | ) |
| $ | (23,741 | ) |
|
|
|
| Nine months ended September 30, 2016 |
| |
|
| Interest-only |
| |
|
| security payable |
| |
|
| (in thousands) |
| |
Liabilities: |
|
|
|
|
Balance, December 31, 2015 |
| $ | — |
|
Issuances |
|
| 2,136 |
|
Changes in fair value included in income arising from: |
|
|
|
|
Changes in instrument- specific credit risk |
|
| — |
|
Other factors |
|
| (437 | ) |
|
|
| (437 | ) |
Balance, September 30, 2016 |
|
| 1,699 |
|
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2016 |
| $ | (437 | ) |
The information used in the preceding roll forwards represents activity for financial statement items measured at fair value on a recurring basis and identified as using “Level 3” fair valueLevel 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or the end of the periods presented. The Company had transfers among the fair value levels arising from transfers of IRLCs to mortgage loans heldquarters presented:
|
| Quarter ended March 31, 2021 |
| |||||||||||||||||||||||||||||
Assets (1) |
| Loans acquired for sale |
|
| Loans at fair value |
|
| Excess servicing spread |
|
| CRT derivatives |
|
| Interest rate lock commitments |
|
| CRT strips |
|
| Mortgage servicing rights |
|
| Total |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Balance, December 31, 2020 |
| $ | 33,875 |
|
| $ | 8,027 |
|
| $ | 131,750 |
|
| $ | 31,795 |
|
| $ | 72,386 |
|
| $ | (202,792 | ) |
| $ | 1,755,236 |
|
| $ | 1,830,277 |
|
Purchases and issuances |
|
| 15,898 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (9,704 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 6,194 |
|
Repayments and sales |
|
| (16,070 | ) |
|
| (584 | ) |
|
| (134,624 | ) |
|
| (23,489 | ) |
|
| 0 |
|
|
| (32,604 | ) |
|
| 0 |
|
|
| (207,371 | ) |
Capitalization of interest and fees |
|
| 0 |
|
|
| 198 |
|
|
| 1,280 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,478 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| 0 |
|
|
| 0 |
|
|
| 557 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 557 |
|
Amounts received pursuant to sales of loans |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 407,696 |
|
|
| 407,696 |
|
Changes in fair value included in results of operations arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument- specific credit risk |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Other factors |
|
| 531 |
|
|
| 95 |
|
|
| 1,037 |
|
|
| 36,370 |
|
|
| (275,515 | ) |
|
| 125,826 |
|
|
| 278,282 |
|
|
| 166,626 |
|
|
|
| 531 |
|
|
| 95 |
|
|
| 1,037 |
|
|
| 36,370 |
|
|
| (275,515 | ) |
|
| 125,826 |
|
|
| 278,282 |
|
|
| 166,626 |
|
Transfers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from REO |
|
| 0 |
|
|
| 66 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 66 |
|
Interest rate lock commitments to loans acquired for sale (2) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 147,975 |
|
|
| 0 |
|
|
| 0 |
|
|
| 147,975 |
|
Balance, March 31, 2021 |
| $ | 34,234 |
|
| $ | 7,802 |
|
| $ | 0 |
|
| $ | 44,676 |
|
| $ | (64,858 | ) |
| $ | (109,570 | ) |
| $ | 2,441,214 |
|
| $ | 2,353,498 |
|
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2021 |
| $ | 337 |
|
| $ | 81 |
|
| $ | 0 |
|
| $ | 12,874 |
|
| $ | (64,858 | ) |
| $ | 93,222 |
|
| $ | 278,282 |
|
| $ | 319,938 |
|
(1) | For the purpose of this table, CRT derivatives, IRLCs. and CRT strips asset and liability positions are shown net. |
(2) | The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective |
|
|
|
|
|
Liabilities |
| Quarter ended March 31, 2021 |
| |
|
| (in thousands) |
| |
Interest-only security payable: |
|
|
|
|
Balance, December 31, 2020 |
| $ | 10,757 |
|
Changes in fair value included in results of operations arising from: |
|
|
|
|
Changes in instrument-specific credit risk |
|
| 0 |
|
Other factors |
|
| 8,165 |
|
|
|
| 8,165 |
|
Balance, March 31, 2021 |
| $ | 18,922 |
|
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2021 |
| $ | 8,165 |
|
|
| Quarter ended March 31, 2020 |
| |||||||||||||||||||||||||||||||||||||
Assets (1) |
| Loans acquired for sale |
|
| Loans at fair value |
|
| Excess servicing spread |
|
| CRT derivatives |
|
| Interest rate lock commitments |
|
| Repurchase agreement derivatives |
|
| CRT strips |
|
| Firm commitment to purchase CRT securities |
|
| Mortgage servicing rights |
|
| Total |
| ||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 |
| $ | 18,567 |
|
| $ | 14,426 |
|
| $ | 178,586 |
|
| $ | 115,863 |
|
| $ | 11,154 |
|
| $ | 5,275 |
|
| $ | 54,930 |
|
| $ | 109,513 |
|
| $ | 1,535,705 |
|
| $ | 2,044,019 |
|
Purchases and issuances |
|
| 11,291 |
|
|
| 1,058 |
|
|
| 0 |
|
|
| 0 |
|
|
| 89,919 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 102,268 |
|
Repayments and sales |
|
| (7,557 | ) |
|
| (4,335 | ) |
|
| (9,308 | ) |
|
| (18,054 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (14,750 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (54,004 | ) |
Capitalization of interest |
|
| 0 |
|
|
| 0 |
|
|
| 1,974 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,974 |
|
ESS received pursuant to a recapture agreement with PFSI |
|
| 0 |
|
|
| 0 |
|
|
| 379 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 379 |
|
Amounts (incurred) received pursuant to sales of loans |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (26,649 | ) |
|
| 248,822 |
|
|
| 222,173 |
|
Changes in fair value included in results of operations arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument- specific credit risk |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Other factors |
|
| 240 |
|
|
| (1,142 | ) |
|
| (14,522 | ) |
|
| (283,742 | ) |
|
| 103,645 |
|
|
| 0 |
|
|
| (215,125 | ) |
|
| (492,513 | ) |
|
| (627,201 | ) |
|
| (1,530,360 | ) |
|
|
| 240 |
|
|
| (1,142 | ) |
|
| (14,522 | ) |
|
| (283,742 | ) |
|
| 103,645 |
|
|
| 0 |
|
|
| (215,125 | ) |
|
| (492,513 | ) |
|
| (627,201 | ) |
|
| (1,530,360 | ) |
Transfers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to REO |
|
| 0 |
|
|
| (885 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (885 | ) |
Interest rate lock commitments to loans acquired for sale (2) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (125,334 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (125,334 | ) |
Balance, March 31, 2020 |
| $ | 22,541 |
|
| $ | 9,122 |
|
| $ | 157,109 |
|
| $ | (185,933 | ) |
| $ | 79,384 |
|
| $ | 5,275 |
|
| $ | (174,945 | ) |
| $ | (409,649 | ) |
| $ | 1,157,326 |
|
| $ | 660,230 |
|
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2020 |
| $ | 160 |
|
| $ | (841 | ) |
| $ | (14,522 | ) |
| $ | (300,944 | ) |
| $ | 79,384 |
|
| $ | 0 |
|
| $ | (229,875 | ) |
| $ | (492,513 | ) |
| $ | (627,201 | ) |
| $ | (1,586,352 | ) |
(1) | For the purpose of this table, CRT derivatives, IRLCs. CRT strips, and Firm commitment to purchase CRT securities asset and liability positions are shown net. |
(2) | The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans. |
Liabilities |
| Quarter ended March 31, 2020 |
| |
|
| (in thousands) |
| |
Interest-only security payable: |
|
|
|
|
Balance, December 31, 2019 |
| $ | 25,709 |
|
Changes in fair value included in income arising from: |
|
|
|
|
Changes in instrument- specific credit risk |
|
| 0 |
|
Other factors |
|
| (11,575 | ) |
|
|
| (11,575 | ) |
Balance, March 31, 2020 |
| $ | 14,134 |
|
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2020 |
| $ | (11,575 | ) |
Financial Statement Items Measured at Fair Value under the Fair Value Option
Following are the fair values and related principal amounts due upon maturity of mortgage loans accounted for under the fair value option (including mortgage loans acquired for sale, mortgage loans held in a consolidated VIE, and distressed mortgage loans at fair value)loans):
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Fair value |
|
| Principal amount due upon maturity |
|
| Difference |
|
| Fair value |
|
| Principal amount due upon maturity |
|
| Difference |
|
| Fair value |
|
| Principal amount due upon maturity |
|
| Difference |
|
| Fair value |
|
| Principal amount due upon maturity |
|
| Difference |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent: |
| $ | 1,269,137 |
|
| $ | 1,220,098 |
|
| $ | 49,039 |
|
| $ | 1,672,181 |
|
| $ | 1,633,569 |
|
| $ | 38,612 |
| ||||||||||||||||||||||||
Loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent |
| $ | 4,639,977 |
|
| $ | 4,568,613 |
|
| $ | 71,364 |
|
| $ | 3,545,100 |
|
| $ | 3,377,970 |
|
| $ | 167,130 |
| ||||||||||||||||||||||||
90 or more days delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 759 |
|
|
| 954 |
|
|
| (195 | ) |
|
| 145 |
|
|
| 189 |
|
|
| (44 | ) |
|
| 6,589 |
|
|
| 7,306 |
|
|
| (717 | ) |
|
| 6,591 |
|
|
| 8,006 |
|
|
| (1,415 | ) |
In foreclosure |
|
| 444 |
|
|
| 497 |
|
|
| (53 | ) |
|
| 786 |
|
|
| 717 |
|
|
| 69 |
|
|
| 195 |
|
|
| 235 |
|
|
| (40 | ) |
|
| 199 |
|
|
| 235 |
|
|
| (36 | ) |
|
|
| 1,203 |
|
|
| 1,451 |
|
|
| (248 | ) |
|
| 931 |
|
|
| 906 |
|
|
| 25 |
|
|
| 6,784 |
|
|
| 7,541 |
|
|
| (757 | ) |
|
| 6,790 |
|
|
| 8,241 |
|
|
| (1,451 | ) |
|
| $ | 1,270,340 |
|
| $ | 1,221,549 |
|
| $ | 48,791 |
|
| $ | 1,673,112 |
|
| $ | 1,634,475 |
|
| $ | 38,637 |
|
| $ | 4,646,761 |
|
| $ | 4,576,154 |
|
| $ | 70,607 |
|
| $ | 3,551,890 |
|
| $ | 3,386,211 |
|
| $ | 165,679 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Mortgage loans held in a consolidated VIE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent: |
| $ | 331,941 |
|
| $ | 325,529 |
|
| $ | 6,412 |
|
| $ | 367,169 |
|
| $ | 368,524 |
|
| $ | (1,355 | ) | ||||||||||||||||||||||||
Loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Loans held in a consolidated VIE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent |
| $ | 107,468 |
|
| $ | 101,015 |
|
| $ | 6,453 |
|
| $ | 140,052 |
|
| $ | 128,787 |
|
| $ | 11,265 |
| ||||||||||||||||||||||||
90 or more days delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,377 |
|
|
| 2,885 |
|
|
| (508 | ) |
|
| 3,655 |
|
|
| 4,240 |
|
|
| (585 | ) |
In foreclosure |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,377 |
|
|
| 2,885 |
|
|
| (508 | ) |
|
| 3,655 |
|
|
| 4,240 |
|
|
| (585 | ) |
|
|
| 331,941 |
|
|
| 325,529 |
|
|
| 6,412 |
|
|
| 367,169 |
|
|
| 368,524 |
|
|
| (1,355 | ) |
|
| 109,845 |
|
|
| 103,900 |
|
|
| 5,945 |
|
|
| 143,707 |
|
|
| 133,027 |
|
|
| 10,680 |
|
Distressed mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent: |
|
| 527,874 |
|
|
| 667,649 |
|
|
| (139,775 | ) |
|
| 611,584 |
|
|
| 818,665 |
|
|
| (207,081 | ) | ||||||||||||||||||||||||
Distressed loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Current through 89 days delinquent |
|
| 2,460 |
|
|
| 4,336 |
|
|
| (1,876 | ) |
|
| 2,071 |
|
|
| 4,099 |
|
|
| (2,028 | ) | ||||||||||||||||||||||||
90 or more days delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 210,783 |
|
|
| 319,417 |
|
|
| (108,634 | ) |
|
| 305,431 |
|
|
| 425,460 |
|
|
| (120,029 | ) |
|
| 3,074 |
|
|
| 10,807 |
|
|
| (7,733 | ) |
|
| 3,714 |
|
|
| 12,357 |
|
|
| (8,643 | ) |
In foreclosure |
|
| 277,345 |
|
|
| 397,909 |
|
|
| (120,564 | ) |
|
| 437,557 |
|
|
| 595,534 |
|
|
| (157,977 | ) |
|
| 2,268 |
|
|
| 5,634 |
|
|
| (3,366 | ) |
|
| 2,242 |
|
|
| 4,641 |
|
|
| (2,399 | ) |
|
|
| 488,128 |
|
|
| 717,326 |
|
|
| (229,198 | ) |
|
| 742,988 |
|
|
| 1,020,994 |
|
|
| (278,006 | ) |
|
| 5,342 |
|
|
| 16,441 |
|
|
| (11,099 | ) |
|
| 5,956 |
|
|
| 16,998 |
|
|
| (11,042 | ) |
|
|
| 1,016,002 |
|
|
| 1,384,975 |
|
|
| (368,973 | ) |
|
| 1,354,572 |
|
|
| 1,839,659 |
|
|
| (485,087 | ) |
|
| 7,802 |
|
|
| 20,777 |
|
|
| (12,975 | ) |
|
| 8,027 |
|
|
| 21,097 |
|
|
| (13,070 | ) |
|
| $ | 1,347,943 |
|
| $ | 1,710,504 |
|
| $ | (362,561 | ) |
| $ | 1,721,741 |
|
| $ | 2,208,183 |
|
| $ | (486,442 | ) |
| $ | 117,647 |
|
| $ | 124,677 |
|
| $ | (7,030 | ) |
| $ | 151,734 |
|
| $ | 154,124 |
|
| $ | (2,390 | ) |
Following are the changes in fair value included in current period incomeresults of operations by consolidated statement of incomeoperations line item for financial statement items accounted for under the fair value option:
|
| Quarter ended September 30, 2017 |
| |||||||||||||||||||||||||||||||||||||
|
| Net gain on |
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| mortgage |
|
|
|
|
|
| mortgage |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| loans |
|
| Net |
|
| loan |
|
| Net gain |
|
|
|
|
| ||||||||||||||||||||||||
|
| acquired |
|
| interest |
|
| servicing |
|
| on |
|
|
|
|
| Quarter ended March 31, 2021 |
| ||||||||||||||||||||||
|
| for sale |
|
| income |
|
| fees |
|
| investments |
|
| Total |
|
| Net gains on loans acquired for sale |
|
| Net gains (losses) on investments |
|
| Net loan servicing fees |
|
| Net interest (expense) income |
|
| Total |
| ||||||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||||
Mortgage-backed securities at fair value |
|
| — |
|
|
| (1,481 | ) |
|
| — |
|
|
| 5,001 |
|
|
| 3,520 |
|
| $ | 0 |
|
| $ | (71,117 | ) |
| $ | 0 |
|
| $ | (2,523 | ) |
| $ | (73,640 | ) |
Mortgage loans acquired for sale at fair value |
|
| 32,935 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,935 |
| ||||||||||||||||||||
Mortgage loans at fair value |
|
| — |
|
|
| 7,617 |
|
|
| — |
|
|
| 5,415 |
|
|
| 13,032 |
| ||||||||||||||||||||
Credit risk transfer strips |
|
| 0 |
|
|
| 125,826 |
|
|
| 0 |
|
|
| 0 |
|
|
| 125,826 |
| ||||||||||||||||||||
Loans acquired for sale at fair value |
|
| (106,664 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (106,664 | ) | ||||||||||||||||||||
Loans at fair value |
|
| 0 |
|
|
| (2,250 | ) |
|
| 0 |
|
|
| 825 |
|
|
| (1,425 | ) | ||||||||||||||||||||
ESS at fair value |
|
| — |
|
|
| 3,998 |
|
|
| — |
|
|
| (4,828 | ) |
|
| (830 | ) |
|
| 0 |
|
|
| 1,037 |
|
|
| 0 |
|
|
| 1,280 |
|
|
| 2,317 |
|
MSRs at fair value |
|
| — |
|
|
| — |
|
|
| (3,977 | ) |
|
| — |
|
|
| (3,977 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 278,282 |
|
|
| 0 |
|
|
| 278,282 |
|
|
| $ | 32,935 |
|
| $ | 10,134 |
|
| $ | (3,977 | ) |
| $ | 5,588 |
|
| $ | 44,680 |
|
| $ | (106,664 | ) |
| $ | 53,496 |
|
| $ | 278,282 |
|
| $ | (418 | ) |
| $ | 224,696 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only security payable |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 191 |
|
| $ | 191 |
| ||||||||||||||||||||
Interest-only security payable at fair value |
| $ | 0 |
|
| $ | (8,165 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | (8,165 | ) | ||||||||||||||||||||
Asset-backed financing of a VIE at fair value |
|
| — |
|
|
| (735 | ) |
|
| — |
|
|
| (2,158 | ) |
|
| (2,893 | ) |
|
| 0 |
|
|
| 900 |
|
|
| 0 |
|
|
| 789 |
|
|
| 1,689 |
|
|
| $ | — |
|
| $ | (735 | ) |
| $ | — |
|
| $ | (1,967 | ) |
| $ | (2,702 | ) |
| $ | 0 |
|
| $ | (7,265 | ) |
| $ | 0 |
|
| $ | 789 |
|
| $ | (6,476 | ) |
|
| Quarter ended September 30, 2016 |
| |||||||||||||||||
|
| Net gain on |
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
| ||
|
| mortgage |
|
|
|
|
|
| mortgage |
|
|
|
|
|
|
|
|
| ||
|
| loans |
|
| Net |
|
| loan |
|
| Net gain |
|
|
|
|
| ||||
|
| acquired |
|
| interest |
|
| servicing |
|
| on |
|
|
|
|
| ||||
|
| for sale |
|
| income (1) |
|
| fees |
|
| investments |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Mortgage-backed securities at fair value |
|
| — |
|
|
| (1,193 | ) |
|
| — |
|
|
| 517 |
|
|
| (676 | ) |
Mortgage loans acquired for sale at fair value |
|
| 58,128 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 58,128 |
|
Mortgage loans at fair value |
|
| — |
|
|
| 23,261 |
|
|
| — |
|
|
| (3,936 | ) |
|
| 19,325 |
|
ESS at fair value |
|
| — |
|
|
| 4,827 |
|
|
| — |
|
|
| (4,107 | ) |
|
| 720 |
|
MSRs at fair value |
|
| — |
|
|
| — |
|
|
| (3,202 | ) |
|
| — |
|
|
| (3,202 | ) |
|
| $ | 58,128 |
|
| $ | 26,895 |
|
| $ | (3,202 | ) |
| $ | (7,526 | ) |
| $ | 74,295 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
| $ | — |
|
| $ | (2,520 | ) |
| $ | — |
|
| $ | 2,990 |
|
| $ | 470 |
|
|
| $ | — |
|
| $ | (2,520 | ) |
| $ | — |
|
| $ | 2,990 |
|
| $ | 470 |
|
|
|
|
| Nine months ended September 30, 2017 |
| |||||||||||||||||
|
| Net gain on |
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
| ||
|
| mortgage |
|
|
|
|
|
| mortgage |
|
|
|
|
|
|
|
|
| ||
|
| loans |
|
| Net |
|
| loan |
|
| Net gain |
|
|
|
|
| ||||
|
| acquired |
|
| interest |
|
| servicing |
|
| on |
|
|
|
|
| ||||
|
| for sale |
|
| income |
|
| fees |
|
| investments |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Mortgage-backed securities at fair value |
|
| — |
|
|
| (4,276 | ) |
|
| — |
|
|
| 9,168 |
|
|
| 4,892 |
|
Mortgage loans acquired for sale at fair value |
|
| 83,839 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83,839 |
|
Mortgage loans at fair value |
|
| — |
|
|
| 29,195 |
|
|
| — |
|
|
| 13,832 |
|
|
| 43,027 |
|
ESS at fair value |
|
| — |
|
|
| 13,011 |
|
|
| — |
|
|
| (14,757 | ) |
|
| (1,746 | ) |
MSRs at fair value |
|
| — |
|
|
| — |
|
|
| (10,370 | ) |
|
| — |
|
|
| (10,370 | ) |
|
| $ | 83,839 |
|
| $ | 37,930 |
|
| $ | (10,370 | ) |
| $ | 8,243 |
|
| $ | 119,642 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only security payable |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (2,272 | ) |
| $ | (2,272 | ) |
Asset-backed financing of a VIE at fair value |
|
| — |
|
|
| (1,807 | ) |
|
| — |
|
|
| (5,581 | ) |
|
| (7,388 | ) |
|
| $ | — |
|
| $ | (1,807 | ) |
| $ | — |
|
| $ | (7,853 | ) |
| $ | (9,660 | ) |
|
| Nine months ended September 30, 2016 |
| |||||||||||||||||
|
| Net gain on |
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
| ||
|
| mortgage |
|
|
|
|
|
| mortgage |
|
|
|
|
|
|
|
|
| ||
|
| loans |
|
| Net |
|
| loan |
|
| Net gain |
|
|
|
|
| ||||
|
| acquired |
|
| interest |
|
| servicing |
|
| on |
|
|
|
|
| ||||
|
| for sale |
|
| income (1) |
|
| fees |
|
| investments |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Mortgage-backed securities at fair value |
|
| — |
|
|
| (1,930 | ) |
|
| — |
|
|
| 9,948 |
|
|
| 8,018 |
|
Mortgage loans acquired for sale at fair value |
|
| 147,135 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 147,135 |
|
Mortgage loans at fair value |
|
| — |
|
|
| 65,070 |
|
|
| — |
|
|
| 5,342 |
|
|
| 70,412 |
|
ESS at fair value |
|
| — |
|
|
| 17,555 |
|
|
| — |
|
|
| (40,984 | ) |
|
| (23,429 | ) |
MSRs at fair value |
|
| — |
|
|
| — |
|
|
| (19,558 | ) |
|
| — |
|
|
| (19,558 | ) |
|
| $ | 147,135 |
|
| $ | 80,695 |
|
| $ | (19,558 | ) |
| $ | (25,694 | ) |
| $ | 182,578 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
| $ | — |
|
| $ | (1,985 | ) |
| $ | — |
|
| $ | (5,974 | ) |
| $ | (7,959 | ) |
|
| $ | — |
|
| $ | (1,985 | ) |
| $ | — |
|
| $ | (5,974 | ) |
| $ | (7,959 | ) |
|
|
| Quarter ended March 31, 2020 |
| ||||||||||||||||||
|
| Net gains on loans acquired for sale |
|
| Net gains (losses) on investments |
|
| Net loan servicing fees |
|
| Net interest (expense) income |
|
| Total |
| |||||
| (in thousands) |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities at fair value |
| $ | 0 |
|
| $ | 115,967 |
|
| $ | 0 |
|
| $ | (12,002 | ) |
| $ | 103,965 |
|
Loans acquired for sale at fair value |
|
| 147,558 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 147,558 |
|
Loans at fair value |
|
| 0 |
|
|
| (4,010 | ) |
|
| 0 |
|
|
| 293 |
|
|
| (3,717 | ) |
ESS at fair value |
|
| 0 |
|
|
| (14,522 | ) |
|
| 0 |
|
|
| 1,974 |
|
|
| (12,548 | ) |
Credit risk transfer strips |
|
| 0 |
|
|
| (215,125 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (215,125 | ) |
Firm commitment to purchase CRT securities at fair value |
|
| (26,649 | ) |
|
| (492,513 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (519,162 | ) |
MSRs at fair value |
|
| 0 |
|
|
| 0 |
|
|
| (627,201 | ) |
|
| 0 |
|
|
| (627,201 | ) |
|
| $ | 120,909 |
|
| $ | (610,203 | ) |
| $ | (627,201 | ) |
| $ | (9,735 | ) |
| $ | (1,126,230 | ) |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only security payable at fair value |
| $ | 0 |
|
| $ | 11,575 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,575 |
|
Asset-backed financing of a VIE at fair value |
|
| 0 |
|
|
| 1,928 |
|
|
| 0 |
|
|
| (2,491 | ) |
|
| (563 | ) |
|
| $ | 0 |
|
| $ | 13,503 |
|
| $ | 0 |
|
| $ | (2,491 | ) |
| $ | 11,012 |
|
Financial Statement ItemsItem Measured at Fair Value on a Nonrecurring Basis
Following is a summary of financial statement itemsthe carrying value of assets that were re-measured atduring the quarter based on fair value on a nonrecurring basis during the periods presented:basis:
|
| September 30, 2017 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
Real estate acquired in settlement of loans |
| $ | — |
|
| $ | — |
|
| $ | 60,805 |
|
| $ | 60,805 |
|
MSRs at lower of amortized cost or fair value |
|
| — |
|
|
| — |
|
|
| 277,260 |
|
|
| 277,260 |
|
|
| $ | — |
|
| $ | — |
|
| $ | 338,065 |
|
| $ | 338,065 |
|
|
| December 31, 2016 |
| |||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Real estate acquired in settlement of loans |
| $ | — |
|
| $ | — |
|
| $ | 125,683 |
|
| $ | 125,683 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
MSRs at lower of amortized cost or fair value |
|
| — |
|
|
| — |
|
|
| 173,765 |
|
|
| 173,765 |
| ||||||||||||||||
|
| $ | — |
|
| $ | — |
|
| $ | 299,448 |
|
| $ | 299,448 |
|
| (in thousands) |
| |||||||||||||
March 31, 2021 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,161 |
|
| $ | 11,161 |
| ||||||||||||||||
December 31, 2020 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 12,656 |
|
| $ | 12,656 |
| ||||||||||||||||
The following table summarizes the fair value changes recognized during the periodquarter on assets held at periodquarter end that were measuredremeasured at fair value on a nonrecurring basis:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Real estate asset acquired in settlement of loans |
| $ | (5,666 | ) |
| $ | (6,940 | ) |
| $ | (7,454 | ) |
| $ | (14,552 | ) |
MSRs at lower of amortized cost or fair value |
|
| (1,702 | ) |
|
| (3,460 | ) |
|
| (4,287 | ) |
|
| (44,336 | ) |
|
| $ | (7,368 | ) |
| $ | (10,400 | ) |
| $ | (11,741 | ) |
| $ | (58,888 | ) |
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Real estate asset acquired in settlement of loans |
| $ | (649 | ) |
| $ | (1,191 | ) |
Real Estate Acquired in Settlement of Loans
The Company remeasures its REO based on fair value when it evaluates the REO for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less cost to sell on a nonrecurring basis. The initial carrying value of the REO is measured at cost as indicated by the purchase price in the case of purchased REO or as measured by the fair value of the mortgage loan immediately before REO acquisition in the case of acquisition in settlement of a mortgage loan.sell. REO may be subsequently revalued after acquisition due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s fair value may not be supported by developing
market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loansin the Company’s consolidated statements of income.
Mortgage Servicing Rights at Lower of Amortized Cost or Fair Value
The Company evaluates its MSRs at lower of amortized cost or fair value for impairment with reference to the asset’s fair value. For purposes of performing its MSR impairment evaluation, the Company stratifies its MSRs at lower of amortized cost or fair value based on the interest rates borne by the mortgage loans underlying the MSRs. Mortgage loans are grouped into pools with 50 basis point interest rate ranges for fixed-rate mortgage loans with interest rates between 3.0% and 4.5% and a single pool for mortgage loans with interest rates below 3.0%. MSRs relating to adjustable rate mortgage loans with initial interest rates of 4.5% or less are evaluated in a single pool. If the fair value of MSRs in any of the interest rate pools is below the amortized cost of the MSRs, those MSRs are impaired.
When MSRs are impaired, the impairment is recognized in current-period income and the carrying value of the MSRs is adjusted using a valuation allowance. If the fair value of the MSRs subsequently increases, the increase in fair value is recognized in current period income only to the extent of the valuation allowance for the respective impairment stratum.
The Manager periodically reviews the various impairment strata to determine whether the fair value of the impaired MSRs in a given stratum is likely to recover. When the Manager deems recovery of fair value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.operations.
Fair Value of Financial Instruments Carried at Amortized Cost
CertainMost of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets, Exchangeable senior notes,and Assets sold to PennyMac Financial Services, Inc. under agreements to repurchase are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values.
The ManagerCompany has concluded that the fair values of Assets sold under agreements to repurchase, Mortgage loan participation purchasethese borrowings other than Notes payable secured by credit risk transfer and sale agreements, Notes payablemortgage servicing assets and Assets sold to PennyMac Financial Services, Inc. under agreements to repurchaseExchangeable senior notes approximate the agreements’ carrying values due to the borrowing agreements’ short terms and variable interest rates. rates and short maturities.
28
Following are the fair values of the Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||
Instrument |
| Carrying value |
| Fair value |
|
| Carrying value |
| Fair value |
| ||||
|
| (in thousands) |
| |||||||||||
Notes payable secured by credit risk transfer and mortgage servicing assets |
| $ | 2,897,794 |
| $ | 2,803,523 |
|
| $ | 1,924,999 |
| $ | 1,871,276 |
|
Exchangeable senior notes |
| $ | 494,097 |
| $ | 563,526 |
|
| $ | 196,796 |
| $ | 207,428 |
|
The fair value of the Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes are based on non-affiliate broker indications of fair value.
Valuation Governance
Most of the Company’s assets, its Asset-backed financing of a VIE at September 30, 2017fair value, Interest-only security payable at fair value and December 31, 2016 was $246.9 millionDerivative and $240.7 million, respectively.credit risk transfer strip liabilities are carried at fair value with changes in fair value recognized in current period results of operations. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair value of these assets and liabilities to specialized staff and subjects the valuation process to significant senior management oversight. PFSI’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs and maintaining its valuation policies and procedures. The fair value of the ExchangeableCompany’s IRLCs is developed by PFSI’s Capital Markets Risk Management staff and is reviewed by the PFSI’s Capital Markets Operations group.
With respect to the non-IRLC “Level 3” valuations, the FAV group reports to PFSI’s senior notesmanagement valuation committee, which oversees the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and reports those results to PFSI’s senior management valuation committee. PFSI’s senior management valuation committee includes the Company’s chief operating, financial, investment, and risk officers as well as other senior members of the Company’s finance, capital markets and risk management staffs.
The FAV group is estimated using a broker indicationresponsible for reporting to PFSI’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value.value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.
Valuation Techniques and Inputs
Most of the Company’s assets, its Asset-backed financing of a VIE, Interest-only security payable and Derivative liabilities are carried at fair value with changes in fair value recognized in current period income. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Manager’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Manager has assigned responsibility for estimating fair value of these assets and liabilities to specialized staff and subjects the valuation process to significant executive management oversight. The Manager’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs and maintaining its valuation policies and procedures.
With respect to the Company’s non-IRLC “Level 3” fair value assets and liabilities, the FAV group reports to PCM’s valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company’s non-IRLC “Level 3” fair value assets and liabilities, including the models’ performance versus actual results, and reports those results to PCM’s valuation committee. PCM’s valuation committee includes PFSI’s executive chairman, and chief executive, chief financial, chief enterprise operations, chief risk and deputy chief financial officers.
The FAV group is responsible for reporting to PCM’s valuation committee on a monthly basis on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.
The fair value of the Company’s IRLCs is developed by the Manager’s Capital Markets Risk Management staff and is reviewed by the Manager’s Capital Markets Operations group.
The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:
Mortgage-Backed Securities
The Company categorizes its current holdings of MBS as “Level 2” fair value assets. Fair value of these MBS is established based on quoted market prices for the Company’s MBS holdings or similar securities. Changes in the fair value of MBS are included in Net gain (loss)gains (losses) on investments in the consolidated statements of income.operations.
Mortgage
Loans
Fair value of mortgage loans is estimated based on whether the mortgage loans are saleable into active markets:
Mortgage loans that are saleable into active markets, comprised of the Company’s mortgage loans acquired for sale at fair value and mortgage loans at fair value held in a VIE, are categorized as “Level 2” fair value assets. The fair values of mortgage loans acquired for sale at fair value are established using their quoted market or contracted price or market price equivalent. For the mortgage loans at fair value held in a VIE, the quoted fair values of all of the individual securities issued by the securitization trust are used to derive a fair value for the mortgage loans. The Company obtains indications of fair value from nonaffiliated brokers based on comparable securities and validates the brokers’ indications of fair value using pricing models and inputs the Manager believes are similar to the models and inputs used by other market participants.
Mortgage loans that are not saleable into active markets, comprised of distressed mortgage loans are categorized as “Level 3” fair value assets and their fair values are estimated using a discounted cash flow approach. Inputs to the discounted cash flow model include current interest rates, loan amount, payment status, property type, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds, loss severities or contracted selling price when applicable.
The valuation process for “Level 3” fair value mortgage loans includes the computation by stratum of the mortgage loans’ fair values and a review for reasonableness of various measures such as weighted average life, projected prepayment and default speeds, and projected default and loss percentages. The FAV group computes the effect on the valuation of changes in inputs such as interest rates, home prices, and delinquency status to assess the reasonableness of changes in the mortgage loan valuation.
Changes in fair value attributable to changes in instrument-specific credit risk are measured by the effect on fair value of the change in the respective mortgage loan’s delinquency status and performance history at period-end from the later of the beginning of the period or acquisition date.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage loans at fair value are discount rate, home price projections, voluntary prepayment speeds and default speeds. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds. Changes in the fair value of mortgage loans at fair value are included in Net gain (loss) on investments in the consolidated statements of income.
Following is a quantitative summary of key inputs used in the valuation of mortgage loans at fair value:
Key inputs |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Discount rate |
|
|
|
|
|
|
|
|
Range |
| 2.9% – 15.0% |
|
| 2.6% – 15.0% |
| ||
Weighted average |
|
| 6.7% |
|
|
| 7.1% |
|
Twelve-month projected housing price index change |
|
|
|
|
|
|
|
|
Range |
| 3.4% – 4.9% |
|
| 2.5% – 4.8% |
| ||
Weighted average |
|
| 4.6% |
|
|
| 3.7% |
|
Prepayment speed (1) |
|
|
|
|
|
|
|
|
Range |
| 3.0% – 6.9% |
|
| 0.1% – 10.9% |
| ||
Weighted average |
|
| 4.1% |
|
|
| 4.0% |
|
Total prepayment speed (2) |
|
|
|
|
|
|
|
|
Range |
| 4.7% – 24.0% |
|
| 2.9% – 24.6% |
| ||
Weighted average |
|
| 16.7% |
|
|
| 17.7% |
|
|
| Loans that are saleable into active markets, comprised of most of the Company’s loans acquired for sale at fair value and all of the loans at fair value held in a VIE, are categorized as “Level 2” fair value assets: |
|
| For loans acquired for sale, the fair values are established using the loans’ contracted selling price or quoted market price or market price equivalent. |
• | For the loans at fair value held in a VIE, the quoted indications of fair value of all of the individual securities issued by the securitization trust are used to derive a fair value for the loans. The Company obtains indications of fair value from nonaffiliated brokers based on comparable securities and validates the brokers’ indications of fair value using pricing models and inputs the Company believes are similar to the models and inputs used by other market participants. |
• | Loans that are not saleable into active markets, comprised of previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets: |
• | For loans acquired for sale categorized as “Level 3” fair value assets, fair values are estimated using a discounted cash flow approach. Inputs to the discounted cash flow model include current interest rates, loan amount, payment status, property type, discount rates and forecasts of future interest rates, home prices, prepayment |
• | Distressed loan fair values are estimated based on the expected resolution to be realized from the individual asset’s disposition strategy. When a cash flow projection is |
Excess Servicing Spread Purchased from PFSI
The Company categorizes ESS as a “Level 3” fair value asset. The Company uses a discounted cash flow approach to estimate the fair value of ESS. The key inputs used in the estimation of the fair value of ESS include pricing spread (discount rate) and prepayment speed and discount rate.speed. Significant changes to those inputs in isolation may result in a significant change in the ESS fair value measurement. Changes in these key inputs are not necessarily directly related.
ESS is generally subject to loss in fair value when interest rates decrease. Decreasing mortgage rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the expected life of the mortgage loans underlying the ESS, thereby reducing the cash flows expected to accrue to ESS. Reductions in the fair value of ESS affect income primarily through change in fair value. Changes in the fair value of ESS are included in Net gain (loss) gains (losses) on investments in the consolidated statements of income.operations. The remaining balance of the ESS was repaid during the quarter ended March 31, 2021.
30
Following are the key inputs used in determining the fair value of ESS:
Key inputs |
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||
UPB of underlying mortgage loans (in thousands) |
| $ | 28,385,316 |
|
| $ | 32,376,359 |
| ||||||
|
|
|
| December 31, 2020 |
| |||||||||
Fair value (in thousands) |
|
|
| $ | 131,750 |
| ||||||||
UPB of underlying loans (in thousands) |
|
|
| $ | 15,833,050 |
| ||||||||
Average servicing fee rate (in basis points) |
|
| 34 |
|
|
| 34 |
|
|
|
|
| 34 |
|
Average ESS rate (in basis points) |
|
| 19 |
|
|
| 19 |
|
|
|
|
| 19 |
|
Pricing spread (1) |
|
|
|
|
|
|
|
| ||||||
Key inputs (1) |
|
|
|
|
|
| ||||||||
Pricing spread (2) |
|
|
|
|
|
| ||||||||
Range |
| 3.8% - 4.4% |
|
| 3.8% - 4.8% |
|
|
|
| 4.9% – 5.3% |
| |||
Weighted average |
|
| 4.2% |
|
|
| 4.4% |
|
|
|
| 5.1% |
| |
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
| ||||||
Annual total prepayment speed (3) |
|
|
|
|
|
| ||||||||
Range |
| 7.7% - 37.2% |
|
| 7.0% - 41.3% |
|
|
|
| 9.6% – 18.3% |
| |||
Weighted average |
|
| 10.7% |
|
|
| 10.5% |
|
|
|
| 11.7% |
| |
Life (in years) |
|
|
|
|
|
|
|
| ||||||
Equivalent life (in years) |
|
|
|
|
|
| ||||||||
Range |
| 1.5 - 8.1 |
|
| 1.4 - 8.6 |
|
|
|
| 2.3 - 6.6 |
| |||
Weighted average |
|
| 6.6 |
|
|
| 6.8 |
|
|
|
| 5.8 |
| |
(1) | Weighted-average inputs are based on UPB of the underlying loans. |
(2) | Pricing spread represents a margin that is applied to a reference |
| Prepayment speed is measured using Life Total Conditional Prepayment Rate (“CPR”). Equivalent life is provided for informational purposes. |
Derivative and Credit Risk Transfer Strip Assets and Liabilities
CRT Derivatives
The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair value of CRT derivatives is based on indications of fair value provided to the Company by nonaffiliated brokers for the certificates representing the beneficial interests in the trust holding the Deposits securing credit risk transfer arrangements pledged to creditors, the Recourse Obligations and the IO ownership interests. Together, the Recourse Obligation and the IO ownership interest comprise the CRT derivative. Fair value of the CRT derivative is derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair value of the certificates.
The Company assesses the fair values it receives from nonaffiliated brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives and CRT strips are the discount rate, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net gains (losses) on investments in the consolidated statements of operations.
31
Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (dollars in thousands) |
| |||||
Fair value |
|
|
|
|
|
|
|
|
CRT derivatives: |
|
|
|
|
|
|
|
|
Assets |
| $ | 58,134 |
|
| $ | 58,699 |
|
Liabilities |
| $ | 13,458 |
|
| $ | 26,904 |
|
UPB of loans in reference pools |
| $ | 11,539,702 |
|
| $ | 13,854,426 |
|
Key inputs (1) |
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|
|
|
|
|
Range |
| 6.0% – 7.3% |
|
| 6.7% – 9.0% |
| ||
Weighted average |
| 7.1% |
|
| 7.3% |
| ||
Voluntary prepayment speed (2) |
|
|
|
|
|
|
|
|
Range |
| 13.0% – 13.6% |
|
| 20.8% – 23.5% |
| ||
Weighted average |
| 13.1% |
|
| 21.9% |
| ||
Involuntary prepayment speed (3) |
|
|
|
|
|
|
|
|
Range |
| (0.5)% – 1.2% |
|
| (0.8)% – 1.1% |
| ||
Weighted average |
| (0.1)% |
|
| (0.2)% |
| ||
Remaining loss expectation (4) |
|
|
|
|
|
|
|
|
Range |
| (0.6)% – 0.6% |
|
| (0.6)% – 0.6% |
| ||
Weighted average |
| (0.2)% |
|
| (0.3)% |
| ||
(1) | Weighted average inputs are based on fair value amounts of the CRT Agreements. |
(2) | Voluntary prepayment speed is measured using Life Voluntary CPR. |
(3) | Involuntary prepayment speed is measured using Life Involuntary CPR. The negative involuntary prepayment speed reflects the expectation for reinstatement to the reference pool of a significant portion of the loans that previously triggered losses due to delinquency while under CARES Act forbearance upon their projected re-performance, as contractually provided for in certain CRT Agreements. |
Derivative Financial Instruments
(4) | Remaining loss expectation is measured as expected future contractual losses divided by the UPB of the reference loans. The negative remaining loss expectation reflects the expectation of contractual reversals of previously incurred contractual losses due to the projected re-performance of a significant portion of the reference loans in the future. |
Interest Rate Lock Commitments
The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair value of IRLCs based on quoted Agency MBS prices, itsthe probability that the loan will be purchased under the commitment (the “pull-through rate”) and the Company’s estimate of the fair value of the MSRs it expects to receive in theupon sale of the mortgage loan and the probability that the mortgage loan will be purchased under the commitment (the “pull-through rate”).loan.
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the fair value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair value. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value, but also increase the pull-through rate for the mortgage loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gaingains on mortgage loans acquired for sale in the consolidated statements of income.operations.
32
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
Key inputs |
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||
Fair value (in thousands) (1) |
| $ | (64,858 | ) |
| $ | 72,386 |
| ||||||||
Key inputs (2) |
|
|
|
|
|
|
|
| ||||||||
Pull-through rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 57.6% – 100.0% |
|
| 60.7% - 100.0% |
|
| 42.0% – 100% |
|
| 44.6% – 100% |
| ||||
Weighted average |
|
| 88.6% |
|
|
| 88.5% |
|
| 92.9% |
|
| 86.3% |
| ||
MSR value expressed as: |
|
|
|
|
|
|
|
| ||||||||
MSR fair value expressed as |
|
|
|
|
|
|
|
| ||||||||
Servicing fee multiple |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 2.4 - 6.0 |
|
| 2.6 - 6.0 |
|
| 1.2 – 6.5 |
|
| 2.0 – 5.3 |
| ||||
Weighted average |
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
| 4.4 |
| |
Percentage of UPB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 0.7% – 1.5% |
|
| 0.7% - 1.5% |
|
| 0.3% – 2.1% |
|
| 0.5% – 1.9% |
| ||||
Weighted average |
|
| 1.2% |
|
|
| 1.3% |
|
| 1.3% |
|
| 1.2% |
| ||
(1) | For purposes of this table, IRLC asset and liability positions are shown net. |
(2) | Weighted-average inputs are based on the committed amounts. |
Hedging Derivatives
The Company estimates the fair value of commitments to sell mortgage loans based on quoted MBS prices. Fair values of derivative financial instruments basedactively traded on exchange traded market pricesexchanges are categorized by the Company as “Level 1” fair value assets and liabilities; fair values of derivative financial instruments based on observable interest raterates, volatilities and prices in the MBS marketor other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net gaingains on mortgage loans acquired for sale,, Net gain (loss)gains (losses) on investments, or Net mortgage loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results, as applicable, in the consolidated statements of income.operations.
Repurchase Agreement Derivatives
Credit Risk Transfer Strips
The Company has a master repurchase agreement that includes incentives for financing mortgage loans approved for satisfying certain consumer relief characteristics. These incentives are classified as embedded derivatives in the master repurchase agreement and are accounted for separate from the master repurchase agreement. The Company classifies these derivativescategorizes CRT strips as “Level 3” fair value assets. assets or liabilities. The fair value of CRT strips is based on indications of fair value provided to the Company by nonaffiliated brokers for the certificates representing the beneficial interest in the trust holding the CRT strips and Deposits securing CRT arrangements, the IO ownership interest and Recourse Obligations. Together, the Recourse Obligation and the IO Ownership interest comprise the CRT strip. The Company applies adjustments to the fair value derived from these indications to account for contractual restrictions limiting PMT’s ability to sell certain of the certificates. Fair value of the CRT strips is derived by deducting the balance of the Deposits securing CRT arrangements from the fair value of the certificates derived from indications provided by the nonaffiliated brokers.
The significant unobservable inputinputs into the valuation of these derivative assets isCRT strips are the expected approvaldiscount rate, voluntary and involuntary prepayment speeds and the remaining loss expectations of the mortgage loans financed under the master repurchase agreement. The approval ratereference loans. Changes in fair value of CRT strips are included in Net gains (losses) on investments.
33
Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the adjusted broker-provided fair values used to derive the value estimate was 80% at September 30, 2017.of the CRT strips:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (dollars in thousands) |
| |||||
Carrying value CRT strip liabilities |
| $ | 109,570 |
|
| $ | 202,792 |
|
UPB of loans in the reference pools |
| $ | 36,863,982 |
|
| $ | 44,843,516 |
|
Key inputs (1) |
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|
|
|
|
|
Range |
| 6.4% – 8.0% |
|
| 6.0% – 8.4% |
| ||
Weighted average |
| 7.8% |
|
| 8.0% |
| ||
Voluntary prepayment speed (2) |
|
|
|
|
|
|
|
|
Range |
| 15.7% – 18.6% |
|
| 25.0% – 30.2% |
| ||
Weighted average |
| 16.2% |
|
| 26.2% |
| ||
Involuntary prepayment speed (3) |
|
|
|
|
|
|
|
|
Range |
| 0.5% – 1.1% |
|
| 0.8% – 1.7% |
| ||
Weighted average |
| 0.6% |
|
| 1.0% |
| ||
Remaining loss expectation (4) |
|
|
|
|
|
|
|
|
Range |
| 0.3% – 0.7% |
|
| 0.3% – 0.6% |
| ||
Weighted average |
| 0.4% |
|
| 0.4% |
| ||
(1) | Weighted average inputs are based on the UPB of the loans in the reference pools. |
(2) | Voluntary prepayment speed is measured using Life Voluntary CPR. |
(3) | Involuntary prepayment speed is measured using Life Involuntary CPR. |
(4) | Remaining loss expectation is measured as expected future losses divided by the UPB of the loans in the reference pools. |
Real Estate Acquired in Settlement of Loans
REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, or a full appraisal, or the price given in a currentpending contract of sale.
REO fair values are reviewed by the Manager’sPLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the fair values received. PCM’sPLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers will orderobtain an additional appraisal to determine fair value. ChangesRecognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of income.operations.
MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The fair value of MSRs is derived from the net positive cash flows associated with the servicing agreements. The Company receives a servicing fee based on the remaining outstanding principal balances of the loans subject to the servicing agreements. The Company generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and the Company is generally entitled to retain any placement fees earned on funds held pending remittance of mortgagor principal, interest, tax and insurance payments.
The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spread, the prepayment and default rates of the underlying mortgage loans (“prepayment speed”) and the annual per-loan cost to service mortgage loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not necessarily directly related. Recognized changesChanges in the fair value of MSRs are included in Net mortgage loan servicing fees – from nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of income.operations.
MSRs are generally subject to loss in fair value when mortgage interest rates decrease. Decreasing mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the expected lifedecrease, annual per-loan cost of the underlying mortgage loans, thereby reducing the cash flows expected to accrue to the MSRs.servicing increases, or when returns required by market participants increase. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value and change in impairment. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of the underlying mortgage loans.value.
34
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:
|
| Quarter ended September 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| Amortized cost |
|
| Fair value |
|
| Amortized cost |
|
| Fair value |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (MSR recognized and UPB of underlying mortgage loan amounts in thousands) |
| (MSR recognized and UPB of underlying loans amounts in thousands) |
| |||||||||||||||||||
MSR recognized |
| $ | 74,183 |
|
| $ | 8,655 |
|
| $ | 76,567 |
|
| $ | 1,068 |
|
| $ | 407,696 |
|
| $ | 248,822 |
|
Key inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
UPB of underlying mortgage loans |
| $ | 6,050,337 |
|
| $ | 794,770 |
|
| $ | 6,532,562 |
|
| $ | 120,457 |
| ||||||||
Weighted-average annual servicing fee rate (in basis points) |
| 25 |
|
| 25 |
|
| 25 |
|
| 25 |
| ||||||||||||
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
UPB of underlying loans |
| $ | 32,448,891 |
|
| $ | 19,341,270 |
| ||||||||||||||||
Weighted average annual servicing fee rate (in basis points) |
| 26 |
|
| 30 |
| ||||||||||||||||||
Key inputs (1) |
|
|
|
|
|
|
|
| ||||||||||||||||
Pricing spread (2) |
|
|
|
|
|
|
|
| ||||||||||||||||
Range |
| 7.6% – 12.6% |
|
| 7.6% – 7.6% |
|
| 7.6% – 12.6% |
|
| 7.6% – 7.6% |
|
| 8.0% – 8.0% |
|
| 6.7% – 9.9% |
| ||||||
Weighted average |
|
| 7.6% |
|
|
| 7.6% |
|
|
| 7.6% |
|
|
| 7.6% |
|
| 8.0% |
|
| 6.8% |
| ||
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Prepayment speed (3) |
|
|
|
|
|
|
|
| ||||||||||||||||
Range |
| 3.5% – 31.1% |
|
| 8.3% – 29.5% |
|
| 4.5% – 33.2% |
|
| 10.3% – 33.3% |
|
| 6.0% – 9.3% |
|
| 9.9% – 20.9% |
| ||||||
Weighted average |
|
| 8.1% |
|
|
| 10.5% |
|
|
| 8.6% |
|
|
| 14.9% |
|
| 7.5% |
|
| 12.2% |
| ||
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Equivalent average life (in years) |
|
|
|
|
|
|
|
| ||||||||||||||||
Range |
| 2.6 - 11.2 |
|
| 2.8 - 8.5 |
|
| 2.3 – 10.9 |
|
| 2.4 – 7.3 |
|
| 3.9 – 8.9 |
|
| 3.6 – 6.9 |
| ||||||
Weighted average |
|
| 8.4 |
|
| 7.4 |
|
|
| 7.8 |
|
|
| 5.7 |
|
| 8.5 |
|
| 6.5 |
| |||
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| $79 - $79 |
|
| $79 - $79 |
|
| $78 – $78 |
|
| $78 – $82 |
|
| $81 – $81 |
|
| $78 – $78 |
| ||||||
Weighted average |
| $79 |
|
| $79 |
|
| $78 |
|
| $80 |
|
| $81 |
|
| $78 |
| ||||||
(1) | Weighted average inputs are based on UPB of the underlying loans. |
(2) | The Company applies |
| Prepayment speed is measured using Life Total |
|
| Nine months ended September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Amortized cost |
|
| Fair value |
|
| Amortized cost |
|
| Fair value |
| ||||
|
| (MSR recognized and UPB of underlying mortgage loan amounts in thousands) |
| |||||||||||||
MSR recognized |
| $ | 178,894 |
|
| $ | 28,467 |
|
| $ | 167,691 |
|
| $ | 6,215 |
|
Key inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of underlying mortgage loans |
| $ | 14,624,151 |
|
| $ | 2,613,258 |
|
| $ | 14,139,102 |
|
| $ | 647,976 |
|
Weighted-average annual servicing fee rate (in basis points) |
| 25 |
|
| 25 |
|
| 25 |
|
| 26 |
| ||||
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 7.6% – 12.6% |
|
| 7.6% – 7.6% |
|
| 7.2% –12.6% |
|
| 7.2% – 7.6% |
| ||||
Weighted average |
|
| 7.6% |
|
|
| 7.6% |
|
|
| 7.4% |
|
|
| 7.3% |
|
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 3.2% – 31.1% |
|
| 7.9% – 29.5% |
|
| 3.4% – 49.2% |
|
| 7.2% – 38.0% |
| ||||
Weighted average |
|
| 8.1% |
|
|
| 10.7% |
|
|
| 9.2% |
|
|
| 15.1% |
|
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 2.6 - 11.9 |
|
| 2.8 - 8.5 |
|
| 1.4 – 12.3 |
|
| 2.0 – 9.4 |
| ||||
Weighted average |
|
| 8.3 |
|
| 7.3 |
|
|
| 7.6 |
|
|
| 5.7 |
| |
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| $79 - $79 |
|
| $79 - $79 |
|
| $68 – $79 |
|
| $68 – $82 |
| ||||
Weighted average |
| $79 |
|
| $79 |
|
| $75 |
|
| $73 |
| ||||
|
|
|
|
Following is a quantitative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||
|
| Amortized cost |
|
| Fair value |
|
| Amortized cost |
|
| Fair value |
|
| (Fair value, UPB of underlying loans and effect on fair value amounts in thousands) |
| |||||||||
|
| (Carrying value, UPB of underlying mortgage loans and effect on fair value amounts in thousands) |
| |||||||||||||||||||||
Carrying value |
| $ | 708,023 |
|
| $ | 82,312 |
|
| $ | 592,431 |
|
| $ | 64,136 |
| ||||||||
Key inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
UPB of underlying mortgage loans |
| $ | 60,399,531 |
|
| $ | 7,525,020 |
|
| $ | 50,539,707 |
|
| $ | 5,763,957 |
| ||||||||
Weighted-average annual servicing fee rate (in basis points) |
| 25 |
|
| 25 |
|
|
| 25 |
|
|
| 25 |
| ||||||||||
Weighted-average note interest rate |
|
| 3.9% |
|
|
| 4.7% |
|
|
| 3.8% |
|
|
| 4.7% |
| ||||||||
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fair value |
| $ | 2,441,214 |
|
| $ | 1,755,236 |
| ||||||||||||||||
UPB of underlying loans |
| $ | 183,463,662 |
|
| $ | 170,728,322 |
| ||||||||||||||||
Weighted average annual servicing fee rate (in basis points) |
| 27 |
|
| 28 |
| ||||||||||||||||||
Weighted average note interest rate |
| 3.4% |
|
| 3.6% |
| ||||||||||||||||||
Key inputs (1): |
|
|
|
|
|
|
|
| ||||||||||||||||
Pricing spread (2) |
|
|
|
|
|
|
|
| ||||||||||||||||
Range |
| 7.6% – 13.1% |
|
| 7.6% – 12.6% |
|
| 7.6% – 13.0% |
|
| 7.6% – 12.6% |
|
| 6.8% – 9.9% |
|
| 8.0% – 11.1% |
| ||||||
Weighted average |
|
| 7.6% |
|
|
| 7.6% |
|
|
| 7.6% |
|
|
| 7.6% |
|
| 6.8% |
|
| 8.0% |
| ||
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Effect on fair value of: |
|
|
|
|
|
|
|
| ||||||||||||||||
5% adverse change |
| $(11,401) |
|
| $(1,238) |
|
| $(10,018) |
|
| $(979) |
|
| $(38,465) |
|
| $(31,400) |
| ||||||
10% adverse change |
| $(22,466) |
|
| $(2,440) |
|
| $(19,738) |
|
| $(1,929) |
|
| $(75,820) |
|
| $(61,718) |
| ||||||
20% adverse change |
| $(43,641) |
|
| $(4,743) |
|
| $(38,330) |
|
| $(3,748) |
|
| $(147,372) |
|
| $(119,305) |
| ||||||
Prepayment speed (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| 7.3% – 26.8% |
|
| 7.4% – 20.7% |
|
| 6.7% – 25.7% |
|
| 6.8% – 24.2% |
|
| 8.5% – 24.2% |
|
| 12.4% – 28.8% |
| ||||||
Weighted average |
|
| 8.3% |
|
|
| 11.1% |
|
|
| 7.7% |
|
|
| 10.7% |
|
| 8.8% |
|
| 12.8% |
| ||
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Equivalent average life (in years) |
|
|
|
|
|
|
|
| ||||||||||||||||
Range |
| 2.9 - 8.1 |
|
| 3.0 - 6.9 |
|
| 3.1 - 8.5 |
|
| 3.2 - 7.0 |
|
| 3.1 – 8.1 |
|
| 2.9 – 6.8 |
| ||||||
Weighted average |
|
| 7.7 |
|
|
| 6.9 |
|
|
| 8.0 |
|
|
| 7.0 |
|
| 7.8 |
|
| 6.5 |
| ||
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Effect on fair value of: |
|
|
|
|
|
|
|
| ||||||||||||||||
5% adverse change |
| $(11,706) |
|
| $(1,801) |
|
| $(9,436) |
|
| $(1,379) |
|
| $(48,777) |
|
| $(48,136) |
| ||||||
10% adverse change |
| $(23,026) |
|
| $(3,529) |
|
| $(18,578) |
|
| $(2,704) |
|
| $(95,920) |
|
| $(94,244) |
| ||||||
20% adverse change |
| $(44,584) |
|
| $(6,782) |
|
| $(36,037) |
|
| $(5,202) |
|
| $(185,623) |
|
| $(180,820) |
| ||||||
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
| $78 - $79 |
|
| $77 - $79 |
|
| $78 – $79 |
|
| $77 – $79 |
|
| $78 – $149 |
|
| $78 – $121 |
| ||||||
Weighted average |
| $79 |
|
| $79 |
|
| $79 |
|
| $79 |
|
| $80 |
|
| $81 |
| ||||||
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Effect on fair value of: |
|
|
|
|
|
|
|
| ||||||||||||||||
5% adverse change |
| $(5,470) |
|
| $(693) |
|
| $(4,650) |
|
| $(555) |
|
| $(15,709) |
|
| $(11,846) |
| ||||||
10% adverse change |
| $(10,940) |
|
| $(1,385) |
|
| $(9,300) |
|
| $(1,110) |
|
| $(31,419) |
|
| $(23,692) |
| ||||||
20% adverse change |
| $(21,879) |
|
| $(2,770) |
|
| $(18,600) |
|
| $(2,220) |
|
| $(62,838) |
|
| $(47,385) |
| ||||||
(1) | Weighted-average inputs are based on the UPB of the underlying loans. |
(2) | The Company applies |
|
|
(3) | Prepayment speed is measured using Life Total |
The preceding sensitivity analyses are limited in that they were performed as of a particular point in time;date; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in thethose inputs in relation to other inputs; are subject to the accuracy of variousthe models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments made by the ManagerCompany to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts.
36
Note 8—Mortgage-Backed Securities Sold Under Agreements to Repurchase
Fair valueFollowing is a summary of securities sold under agreements to repurchaseactivity in the Company’s investment in MBS:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Balance at beginning of quarter |
| $ | 2,213,922 |
|
| $ | 2,839,633 |
|
Purchases |
|
| 1,259,189 |
|
|
| 1,615,486 |
|
Sales |
|
| (1,300,653 | ) |
|
| (488,729 | ) |
Repayments |
|
| (182,333 | ) |
|
| (122,935 | ) |
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
Amortization of net purchase premiums |
|
| (2,523 | ) |
|
| (12,002 | ) |
Valuation adjustments |
|
| (71,117 | ) |
|
| 115,967 |
|
|
|
| (73,640 | ) |
|
| 103,965 |
|
Balance at end of quarter |
| $ | 1,916,485 |
|
| $ | 3,947,420 |
|
Following is based on the accrued costa summary of the agreements, which approximates the fair values of the agreements, due to the short maturities of such agreements.Company’s investment in MBS:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||
Agency: (1) |
| Principal balance |
|
| Unamortized net purchase premiums |
|
| Accumulated valuation changes |
|
| Fair value |
|
| Principal balance |
|
| Unamortized net purchase premiums |
|
| Accumulated valuation changes |
|
| Fair value |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Freddie Mac |
| $ | 654,051 |
|
| $ | 20,729 |
|
| $ | (21,741 | ) |
| $ | 653,039 |
|
| $ | 1,253,755 |
|
| $ | 32,414 |
|
| $ | 24,867 |
|
| $ | 1,311,036 |
|
Fannie Mae |
|
| 1,263,614 |
|
|
| 40,262 |
|
|
| (40,430 | ) |
|
| 1,263,446 |
|
|
| 863,758 |
|
|
| 23,692 |
|
|
| 15,436 |
|
|
| 902,886 |
|
|
| $ | 1,917,665 |
|
| $ | 60,991 |
|
| $ | (62,171 | ) |
| $ | 1,916,485 |
|
| $ | 2,117,513 |
|
| $ | 56,106 |
|
| $ | 40,303 |
|
| $ | 2,213,922 |
|
(1) | All MBS are fixed-rate pass-through securities with maturities of more than ten years and are pledged to secure Assets sold under agreements to repurchase at March 31, 2021 and December 31, 2020. |
Note 7—Mortgage 9—Loans Acquired for Sale at Fair Value
Mortgage loansLoans acquired for sale at fair value is comprised of recently originated mortgage loans purchased by the Company for resale. Following is a summary of the distribution of the Company’s mortgage loans acquired for sale at fair value:
Loan type |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (in thousands) |
| |||||
Conventional: |
|
|
|
|
|
|
|
|
Agency-eligible |
| $ | 1,052,355 |
|
| $ | 847,810 |
|
Jumbo |
|
| — |
|
|
| 6,042 |
|
Held for sale to PLS — Government insured or guaranteed |
|
| 202,320 |
|
|
| 804,616 |
|
Commercial real estate |
|
| 8,870 |
|
|
| 8,961 |
|
Repurchased pursuant to representations and warranties |
|
| 6,795 |
|
|
| 5,683 |
|
|
| $ | 1,270,340 |
|
| $ | 1,673,112 |
|
Mortgage loans pledged to secure: |
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
| $ | 1,206,859 |
|
| $ | 1,627,010 |
|
Mortgage loan participation purchase and sale agreements |
|
| 45,057 |
|
|
| 26,738 |
|
|
| $ | 1,251,916 |
|
| $ | 1,653,748 |
|
The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed mortgage loans. The Company transferssells government-insured or guaranteed mortgage loans that it purchases from correspondent lenderssellers to PLS, which is a Ginnie Mae-approved issuer, and earns a sourcing fee ranging from two to three and one-half basis points, generally based onas described in Note 4 —Transactions with Related Parties.
Following is a summary of the average numberdistribution of calendar days that mortgagethe Company’s loans are held prior to purchase by PLS.acquired for sale at fair value:
Loan type |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Agency-eligible |
| $ | 4,284,646 |
|
| $ | 3,057,601 |
|
Held for sale to PLS — Government insured or guaranteed |
|
| 327,881 |
|
|
| 460,414 |
|
Home equity lines of credit |
|
| 4,864 |
|
|
| 5,566 |
|
Commercial real estate |
|
| 998 |
|
|
| 1,010 |
|
Repurchased pursuant to representations and warranties |
|
| 28,372 |
|
|
| 27,299 |
|
|
| $ | 4,646,761 |
|
| $ | 3,551,890 |
|
Loans pledged to secure: |
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
| $ | 4,519,274 |
|
| $ | 3,484,202 |
|
Mortgage loan participation purchase and sale agreements |
|
| 70,919 |
|
|
| 17,645 |
|
|
| $ | 4,590,193 |
|
| $ | 3,501,847 |
|
Note 8—Mortgage 10—Loans at Fair Value
Mortgage loansLoans at fair value are comprised primarily of mortgagefixed interest rate jumbo loans that are not acquired for sale and, to the extent they are not held in a VIE securing an asset-backed financing and distressed loans that were not acquired for sale but may be sold at a later date pursuant to a managementthe Company’s determination that such a sale represents the most advantageous liquidationdisposition strategy for the identified mortgage loan.
Following is a summary of the distribution of the Company’s mortgage loans at fair value:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
Loan type |
| Fair value |
|
| Unpaid principal balance |
|
| Fair value |
|
| Unpaid principal balance |
| ||||
|
| (in thousands) |
| |||||||||||||
Distressed mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming mortgage loans |
| $ | 488,128 |
|
| $ | 717,326 |
|
| $ | 742,988 |
|
| $ | 1,020,994 |
|
Performing mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate |
|
| 242,873 |
|
|
| 315,065 |
|
|
| 296,901 |
|
|
| 408,943 |
|
Interest rate step-up |
|
| 238,768 |
|
|
| 304,099 |
|
|
| 232,700 |
|
|
| 317,409 |
|
Adjustable-rate/hybrid |
|
| 46,233 |
|
|
| 48,486 |
|
|
| 81,983 |
|
|
| 92,313 |
|
|
|
| 527,874 |
|
|
| 667,649 |
|
|
| 611,584 |
|
|
| 818,665 |
|
|
|
| 1,016,002 |
|
|
| 1,384,975 |
|
|
| 1,354,572 |
|
|
| 1,839,659 |
|
Fixed interest rate jumbo mortgage loans held in a VIE |
|
| 331,941 |
|
|
| 325,529 |
|
|
| 367,169 |
|
|
| 368,524 |
|
|
| $ | 1,347,943 |
|
| $ | 1,710,504 |
|
| $ | 1,721,741 |
|
| $ | 2,208,183 |
|
Mortgage loans at fair value pledged to secure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
| $ | 1,009,730 |
|
|
|
|
|
| $ | 1,345,021 |
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
| 331,941 |
|
|
|
|
|
|
| 367,169 |
|
|
|
|
|
|
| $ | 1,341,671 |
|
|
|
|
|
| $ | 1,712,190 |
|
|
|
|
|
Loan type |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Fixed interest rate jumbo loans held in a VIE |
| $ | 109,845 |
|
| $ | 143,707 |
|
Distressed loans |
|
| 7,802 |
|
|
| 8,027 |
|
|
| $ | 117,647 |
|
| $ | 151,734 |
|
Loans at fair value pledged to secure: |
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
| $ | 109,845 |
|
| $ | 143,707 |
|
Assets sold under agreements to repurchase |
|
| 1,383 |
|
|
| 3,703 |
|
|
| $ | 111,228 |
|
| $ | 147,410 |
|
Following is a summary of certain concentrations of credit risk in the portfolio of distressed mortgage loans at fair value:
Concentration |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (percentages are of fair value) |
| |||||
Portion of mortgage loans originated between 2005 and 2007 |
|
| 72% |
|
|
| 72% |
|
Mortgage loans with unpaid-principal balance-to-current -property-value in excess of 100% |
|
| 40% |
|
|
| 41% |
|
States contributing 5% or more of mortgage loans |
| New York California New Jersey Florida Massachusetts |
|
| New York California New Jersey Florida Massachusetts |
| ||
Note 9—11—Derivative and Credit Risk Transfer Strip Assets and Liabilities
Derivative and credit risk transfer assets and liabilities are summarized below:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Derivative assets |
| $ | 182,969 |
|
| $ | 164,318 |
|
Credit risk transfer strip assets |
|
| 0 |
|
|
| 0 |
|
|
| $ | 182,969 |
|
| $ | 164,318 |
|
Derivative liabilities |
| $ | 120,400 |
|
| $ | 60,681 |
|
Credit risk transfer strip liabilities |
|
| 109,570 |
|
|
| 202,792 |
|
|
| $ | 229,970 |
|
| $ | 263,473 |
|
The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period results of operations.
Derivative Activities
The Company holds and issues derivative financial instruments in connection with its operating, investing and financing activities. Derivative financial instruments are created as a result of certain of the Company’s operations and the Company also enters into derivative transactions as part of its interest rate risk management activities.
Derivative financial instruments created as a result of the Company’s operations include:
IRLCs that are created when the Company commits to purchase mortgage loans acquired for sale;
• | IRLCs that are created when the Company commits to purchase loans acquired for sale; |
CRT Agreements whereby the Company retains a Recourse Obligation relating to certain mortgage loans it sells into Fannie Mae guaranteed securitizations and an interest-only ownership interest in such mortgage loans; and
• | CRT Agreements whereby the Company retained a Recourse Obligation relating to certain loans it sold into Fannie Mae guaranteed securitizations as part of the retention of an IO ownership interest in such loans; and |
Derivatives that are embedded in a master repurchase agreement that provides for the Company to receive interest expense offsets if it finances mortgage loans approved as satisfying certain consumer credit relief characteristics under the master repurchase agreement.
• | Derivatives that were embedded in a master repurchase agreement that provided for the Company to receive interest expense offsets if it financed loans approved as satisfying certain consumer credit relief characteristics under that master repurchase agreement. |
The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by the effects of changes in interest rates on the fair value of certain of its assets and liabilities. The Company is exposed to price risk relative to the IRLCs it issues to correspondent sellers and to the mortgage loans it purchases as a result of issuing the IRLCs. The Company bears price risk from the time an IRLC is issued to a correspondent seller until the time the purchased mortgage loan is sold. The Company is exposed to loss if market mortgage interest rates increase, because market interest rate increases generally cause the fair value of the IRLC or mortgage loan acquired for sale to decrease. The Company is exposed to losses related to its investmentmortgage production, servicing and MBS financing activities due to changes in MSRs if market mortgage interest rates decrease, because market interest rate decreases generally encourages mortgage refinancing activity, which reduces the expected life of the mortgage loans underlying the MSRs, causing the fair value of MSRs to decrease.as discussed below:
• | The Company is exposed to loss if market mortgage interest rates increase, because market interest rate increases generally cause the fair value of MBS, IRLCs and loans acquired for sale to decrease. |
38
• | The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally cause the fair value of MSRs and ESS to decrease. |
To manage the price risk resulting from these interest rate risk,risks, the Company uses derivative financial instruments with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s MBS, inventory of mortgage loans acquired for sale, mortgage loans held in a VIE, ESS, IRLCs, MSRs and MSRs.MBS financing.
The Company records all derivative financial instrumentsand CRT strip assets at fair value and records changes in fair value in current period income.results of operations. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.
Derivative Notional Amounts and Fair Value of Derivatives
The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative liabilities and related margin deposits recorded in Other assets on the consolidated balance sheets:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||
|
|
|
|
|
| Fair value |
|
|
|
|
|
| Fair value |
| ||||||||||
|
| Notional |
|
| Derivative |
|
| Derivative |
|
| Notional |
|
| Derivative |
|
| Derivative |
| ||||||
Instrument |
| amount |
|
| assets |
|
| liabilities |
|
| amount |
|
| assets |
|
| liabilities |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| 1,259,592 |
|
| $ | 2,789 |
|
| $ | 1,514 |
|
|
| 1,420,468 |
|
| $ | 7,069 |
|
| $ | 3,292 |
|
CRT Agreements |
|
| 22,931,988 |
|
|
| 56,878 |
|
|
| — |
|
|
| 14,379,850 |
|
|
| 15,610 |
|
|
| — |
|
Repurchase agreement derivatives |
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Subject to master netting agreements─used for hedging purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| 1,598,412 |
|
|
| — |
|
|
| 6,616 |
|
|
| 4,840,707 |
|
|
| 30,879 |
|
|
| 7,619 |
|
Forward sale contracts |
|
| 2,808,847 |
|
|
| 8,861 |
|
|
| 165 |
|
|
| 6,148,242 |
|
|
| 13,164 |
|
|
| 17,974 |
|
MBS put options |
|
| 1,125,000 |
|
|
| 1,503 |
|
|
| — |
|
|
| 925,000 |
|
|
| 1,697 |
|
|
| — |
|
MBS call options |
|
| 75,000 |
|
|
| 171 |
|
|
| — |
|
|
| 750,000 |
|
|
| 142 |
|
|
| — |
|
Call options on interest rate futures |
|
| 250,000 |
|
|
| 438 |
|
|
| — |
|
|
| 200,000 |
|
|
| 63 |
|
|
| — |
|
Put options on interest rate futures |
|
| 475,000 |
|
|
| 1,258 |
|
|
| — |
|
|
| 550,000 |
|
|
| 2,469 |
|
|
| — |
|
Swap futures |
|
| 275,000 |
|
|
| — |
|
|
| — |
|
|
| 150,000 |
|
|
| — |
|
|
| — |
|
Eurodollar future contracts |
|
| 1,038,000 |
|
|
| — |
|
|
| — |
|
|
| 1,351,000 |
|
|
| — |
|
|
| — |
|
Total derivative instruments before netting |
|
|
|
|
|
| 72,079 |
|
|
| 8,295 |
|
|
|
|
|
|
| 71,093 |
|
|
| 28,885 |
|
Netting |
|
|
|
|
|
| (4,791 | ) |
|
| (3,395 | ) |
|
|
|
|
|
| (37,384 | ) |
|
| (19,312 | ) |
|
|
|
|
|
| $ | 67,288 |
|
| $ | 4,900 |
|
|
|
|
|
| $ | 33,709 |
|
| $ | 9,573 |
|
Margin deposits placed with (received from) derivatives counterparties included in Other assets (Accounts payable and accrued liabilities) |
|
|
|
|
| $ | (1,395 | ) |
|
|
|
|
|
|
|
|
| $ | (18,071 | ) |
|
|
|
|
Derivative assets pledged to secure assets sold under agreements to repurchase |
|
|
|
|
| $ | 15,742 |
|
|
|
|
|
|
|
|
|
| $ | 9,078 |
|
|
|
|
|
The following tables summarize the notional amount activity for CRT Agreements and for derivative contracts used to hedge the Company’s MBS, inventory of mortgage loans acquired for sale, mortgage loans at fair value held in a VIE, IRLCs and MSRs.
|
| Quarter ended September 30, 2017 |
| |||||||||||||
|
| Balance, |
|
|
|
|
|
|
|
|
|
| Balance, |
| ||
|
| beginning |
|
|
|
|
|
| Dispositions/ |
|
| end |
| |||
Instrument |
| of period |
|
| Additions |
|
| expirations |
|
| of period |
| ||||
| (in thousands) |
| ||||||||||||||
CRT Agreements |
|
| 19,301,982 |
|
|
| 4,126,946 |
|
|
| (496,940 | ) |
|
| 22,931,988 |
|
Forward purchase contracts |
|
| 1,933,390 |
|
|
| 20,560,886 |
|
|
| (20,895,864 | ) |
|
| 1,598,412 |
|
Forward sales contracts |
|
| 3,644,636 |
|
|
| 27,214,513 |
|
|
| (28,050,302 | ) |
|
| 2,808,847 |
|
MBS put options |
|
| 1,475,000 |
|
|
| 3,200,000 |
|
|
| (3,550,000 | ) |
|
| 1,125,000 |
|
MBS call options |
|
| 200,000 |
|
|
| 275,000 |
|
|
| (400,000 | ) |
|
| 75,000 |
|
Call options on interest rate futures |
|
| 200,000 |
|
|
| 450,000 |
|
|
| (400,000 | ) |
|
| 250,000 |
|
Put options on interest rate futures |
|
| 925,000 |
|
|
| 2,500,000 |
|
|
| (2,950,000 | ) |
|
| 475,000 |
|
Swap futures |
|
| 175,000 |
|
|
| 100,000 |
|
|
| — |
|
|
| 275,000 |
|
Eurodollar future contracts |
|
| 1,139,000 |
|
|
| 202,000 |
|
|
| (303,000 | ) |
|
| 1,038,000 |
|
Treasury future buy contracts |
|
| — |
|
|
| 55,000 |
|
|
| (55,000 | ) |
|
| — |
|
Treasury future sale contracts |
|
| — |
|
|
| 55,000 |
|
|
| (55,000 | ) |
|
| — |
|
|
| Quarter ended September 30, 2016 |
| |||||||||||||
|
| Balance, |
|
|
|
|
|
|
|
|
|
| Balance, |
| ||
|
| beginning |
|
|
|
|
|
| Dispositions/ |
|
| end |
| |||
Instrument |
| of period |
|
| Additions |
|
| expirations |
|
| of period |
| ||||
|
| (in thousands) |
| |||||||||||||
CRT Agreements |
|
| 8,976,961 |
|
|
| 3,357,443 |
|
|
| (137,768 | ) |
|
| 12,196,636 |
|
Forward purchase contracts |
|
| 4,190,349 |
|
|
| 22,535,622 |
|
|
| (21,093,789 | ) |
|
| 5,632,182 |
|
Forward sales contracts |
|
| 4,347,526 |
|
|
| 29,853,649 |
|
|
| (27,749,731 | ) |
|
| 6,451,444 |
|
MBS call option |
|
| 1,525,000 |
|
|
| 3,875,000 |
|
|
| (2,375,000 | ) |
|
| 3,025,000 |
|
Swap futures |
|
| 12,500 |
|
|
| 12,500 |
|
|
| (12,500 | ) |
|
| 12,500 |
|
Eurodollar future contracts |
|
| 1,543,000 |
|
|
| 101,000 |
|
|
| (202,000 | ) |
|
| 1,442,000 |
|
Treasury future buy contracts |
|
| — |
|
|
| 276,200 |
|
|
| (126,200 | ) |
|
| 150,000 |
|
Treasury future sale contracts |
|
| — |
|
|
| 126,200 |
|
|
| (126,200 | ) |
|
| — |
|
Call options on interest rate futures |
|
| 525,000 |
|
|
| 1,825,000 |
|
|
| (1,525,000 | ) |
|
| 825,000 |
|
Put options on interest rate futures |
|
| 425,000 |
|
|
| 1,625,000 |
|
|
| (850,000 | ) |
|
| 1,200,000 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
|
|
|
|
| Fair value |
|
|
|
|
|
| Fair value |
| ||||||||||
|
| Notional |
|
| Derivative |
|
| Derivative |
|
| Notional |
|
| Derivative |
|
| Derivative |
| ||||||
Instrument |
| amount (1) |
|
| assets |
|
| liabilities |
|
| amount (1) |
|
| assets |
|
| liabilities |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Subject to master netting agreements─used for economic hedging purposes (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call options on interest rate futures purchase contracts |
|
| 2,550,000 |
|
| $ | 992 |
|
| $ | 0 |
|
|
| 1,450,000 |
|
| $ | 3,070 |
|
| $ | 0 |
|
Put options on interest rate futures purchase contracts |
|
| 3,750,000 |
|
|
| 18,938 |
|
|
| 0 |
|
|
| 2,800,000 |
|
|
| 4,742 |
|
|
| 0 |
|
Put options on interest rate futures sale contracts |
|
| 562,500 |
|
|
| 0 |
|
|
| 6,064 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Forward purchase contracts |
|
| 15,169,597 |
|
|
| 6,687 |
|
|
| 89,312 |
|
|
| 17,563,549 |
|
|
| 72,526 |
|
|
| 17 |
|
Forward sale contracts |
|
| 24,946,663 |
|
|
| 182,192 |
|
|
| 6,965 |
|
|
| 26,615,716 |
|
|
| 92 |
|
|
| 122,884 |
|
MBS put options |
|
| 3,600,000 |
|
|
| 51,165 |
|
|
| 9,657 |
|
|
| 3,625,000 |
|
|
| 3,220 |
|
|
| 0 |
|
Swaption purchase contracts |
|
| 3,136,300 |
|
|
| 29,034 |
|
|
| 0 |
|
|
| 3,655,000 |
|
|
| 8,505 |
|
|
| 0 |
|
Swap futures |
|
| 2,750,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,950,000 |
|
|
| 0 |
|
|
| 0 |
|
Bond futures |
|
| 401,500 |
|
|
| 0 |
|
|
| 0 |
|
|
| 66,500 |
|
|
| 0 |
|
|
| 0 |
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRT derivatives |
|
| 11,539,702 |
|
|
| 58,134 |
|
|
| 13,458 |
|
|
| 13,854,426 |
|
|
| 58,699 |
|
|
| 26,904 |
|
Interest rate lock commitments |
|
| 8,525,688 |
|
|
| 7,552 |
|
|
| 72,410 |
|
|
| 10,588,208 |
|
|
| 72,794 |
|
|
| 408 |
|
Total derivative instruments before netting |
|
|
|
|
|
| 354,694 |
|
|
| 197,866 |
|
|
|
|
|
|
| 223,648 |
|
|
| 150,213 |
|
Netting |
|
|
|
|
|
| (171,725 | ) |
|
| (77,466 | ) |
|
|
|
|
|
| (59,330 | ) |
|
| (89,532 | ) |
|
|
|
|
|
| $ | 182,969 |
|
| $ | 120,400 |
|
|
|
|
|
| $ | 164,318 |
|
| $ | 60,681 |
|
Margin deposits (received from) placed with derivatives counterparties, net |
|
|
|
|
| $ | (94,258 | ) |
|
|
|
|
|
|
|
|
| $ | 30,197 |
|
|
|
|
|
Derivative assets pledged to secure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable secured by credit risk transfer and mortgage servicing assets |
|
|
|
|
| $ | 58,134 |
|
|
|
|
|
|
|
|
|
| $ | 58,699 |
|
|
|
|
|
|
| Nine months ended September 30, 2017 |
| |||||||||||||
|
| Balance, |
|
|
|
|
|
|
|
|
|
| Balance, |
| ||
|
| beginning |
|
|
|
|
|
| Dispositions/ |
|
| end |
| |||
Instrument |
| of period |
|
| Additions |
|
| expirations |
|
| of period |
| ||||
| (in thousands) |
| ||||||||||||||
CRT Agreements |
|
| 14,379,850 |
|
|
| 9,722,067 |
|
|
| (1,169,929 | ) |
|
| 22,931,988 |
|
Forward purchase contracts |
|
| 4,840,707 |
|
|
| 54,953,063 |
|
|
| (58,195,358 | ) |
|
| 1,598,412 |
|
Forward sales contracts |
|
| 6,148,242 |
|
|
| 73,030,446 |
|
|
| (76,369,842 | ) |
|
| 2,808,847 |
|
MBS put options |
|
| 925,000 |
|
|
| 5,125,000 |
|
|
| (4,925,000 | ) |
|
| 1,125,000 |
|
MBS call options |
|
| 750,000 |
|
|
| 475,000 |
|
|
| (1,150,000 | ) |
|
| 75,000 |
|
Call options on interest rate futures |
|
| 200,000 |
|
|
| 575,000 |
|
|
| (525,000 | ) |
|
| 250,000 |
|
Put options on interest rate futures |
|
| 550,000 |
|
|
| 5,875,000 |
|
|
| (5,950,000 | ) |
|
| 475,000 |
|
Swap futures |
|
| 150,000 |
|
|
| 950,000 |
|
|
| (825,000 | ) |
|
| 275,000 |
|
Eurodollar future sale contracts |
|
| 1,351,000 |
|
|
| 303,000 |
|
|
| (616,000 | ) |
|
| 1,038,000 |
|
Treasury future buy contracts |
|
| — |
|
|
| 110,700 |
|
|
| (110,700 | ) |
|
| — |
|
Treasury future sale contracts |
|
| — |
|
|
| 110,700 |
|
|
| (110,700 | ) |
|
| — |
|
(1) | Notional amounts provide an indication of the volume of the Company’s derivative activity. |
|
| Nine months ended September 30, 2016 |
| |||||||||||||
|
| Balance, |
|
|
|
|
|
|
|
|
|
| Balance, |
| ||
|
| beginning |
|
|
|
|
|
| Dispositions/ |
|
| end |
| |||
Instrument |
| of period |
|
| Additions |
|
| expirations |
|
| of period |
| ||||
|
| (in thousands) |
| |||||||||||||
CRT Agreements |
|
| 4,546,265 |
|
|
| 8,442,187 |
|
|
| (791,816 | ) |
|
| 12,196,636 |
|
Forward purchase contracts |
|
| 2,469,550 |
|
|
| 47,965,764 |
|
|
| (44,803,132 | ) |
|
| 5,632,182 |
|
Forward sales contracts |
|
| 2,450,642 |
|
|
| 65,146,064 |
|
|
| (61,145,262 | ) |
|
| 6,451,444 |
|
MBS call option |
|
| 375,000 |
|
|
| 6,600,000 |
|
|
| (3,950,000 | ) |
|
| 3,025,000 |
|
Swap futures |
|
| — |
|
|
| 37,500 |
|
|
| (25,000 | ) |
|
| 12,500 |
|
Eurodollar future sale contracts |
|
| 1,755,000 |
|
|
| 181,000 |
|
|
| (494,000 | ) |
|
| 1,442,000 |
|
Treasury future buy contracts |
|
| — |
|
|
| 276,200 |
|
|
| (126,200 | ) |
|
| 150,000 |
|
Treasury future sale contracts |
|
| — |
|
|
| 126,200 |
|
|
| (126,200 | ) |
|
| — |
|
Call options on interest rate futures |
|
| 50,000 |
|
|
| 3,400,000 |
|
|
| (2,625,000 | ) |
|
| 825,000 |
|
Put options on interest rate futures |
|
| 1,600,000 |
|
|
| 4,225,000 |
|
|
| (4,625,000 | ) |
|
| 1,200,000 |
|
(2) | All hedging derivatives are interest rate derivatives that are used as economic hedges. |
Netting of Financial Instruments
The Company has elected to net derivative asset and liability positions, and cash collateral obtainedplaced with or received from (or posted to) its counterparties when subject to a legally enforceable master netting arrangement. The derivative financial instruments that are not subject to master netting arrangements are IRLCs, theCRT derivatives, related to CRT AgreementsIRLCs and repurchase agreement derivatives. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company didwas not enter intoa party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.
Offsetting of Derivative Assets
Following is a summary of net derivative assets.assets:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross amounts of recognized assets |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of assets presented in the consolidated balance sheet |
|
| Gross amounts of recognized assets |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of assets presented in the consolidated balance sheet |
|
| Gross amounts of recognized assets |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of assets presented in the consolidated balance sheet |
|
| Gross amounts of recognized assets |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of assets presented in the consolidated balance sheet |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Interest rate lock commitments |
| $ | 2,789 |
|
| $ | — |
|
| $ | 2,789 |
|
| $ | 7,069 |
|
| $ | — |
|
| $ | 7,069 |
| ||||||||||||||||||||||||
CRT Agreements |
|
| 56,878 |
|
|
| — |
|
|
| 56,878 |
|
|
| 15,610 |
|
|
| — |
|
|
| 15,610 |
| ||||||||||||||||||||||||
Repurchase agreement derivatives |
|
| 181 |
|
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
|
| 59,848 |
|
|
| — |
|
|
| 59,848 |
|
|
| 22,679 |
|
|
| — |
|
|
| 22,679 |
| ||||||||||||||||||||||||
Subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call options on interest rate futures purchase contracts |
| $ | 992 |
|
| $ | 0 |
|
| $ | 992 |
|
| $ | 3,070 |
|
| $ | 0 |
|
| $ | 3,070 |
| ||||||||||||||||||||||||
Put options on interest rate futures purchase contracts |
|
| 18,938 |
|
|
| 0 |
|
|
| 18,938 |
|
|
| 4,742 |
|
|
| 0 |
|
|
| 4,742 |
| ||||||||||||||||||||||||
Forward purchase contracts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,879 |
|
|
| — |
|
|
| 30,879 |
|
|
| 6,687 |
|
|
| 0 |
|
|
| 6,687 |
|
|
| 72,526 |
|
|
| 0 |
|
|
| 72,526 |
|
Forward sale contracts |
|
| 8,861 |
|
|
| — |
|
|
| 8,861 |
|
|
| 13,164 |
|
|
| — |
|
|
| 13,164 |
|
|
| 182,192 |
|
|
| 0 |
|
|
| 182,192 |
|
|
| 92 |
|
|
| 0 |
|
|
| 92 |
|
MBS put options |
|
| 1,503 |
|
|
| — |
|
|
| 1,503 |
|
|
| 1,697 |
|
|
| — |
|
|
| 1,697 |
|
|
| 51,165 |
|
|
| 0 |
|
|
| 51,165 |
|
|
| 3,220 |
|
|
| 0 |
|
|
| 3,220 |
|
MBS call options |
|
| 171 |
|
|
| — |
|
|
| 171 |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
| ||||||||||||||||||||||||
Call options on interest rate futures |
|
| 438 |
|
|
| — |
|
|
| 438 |
|
|
| 63 |
|
|
| — |
|
|
| 63 |
| ||||||||||||||||||||||||
Put options on interest rate futures |
|
| 1,258 |
|
|
| — |
|
|
| 1,258 |
|
|
| 2,469 |
|
|
| — |
|
|
| 2,469 |
| ||||||||||||||||||||||||
Swaption purchase contracts |
|
| 29,034 |
|
|
| 0 |
|
|
| 29,034 |
|
|
| 8,505 |
|
|
| 0 |
|
|
| 8,505 |
| ||||||||||||||||||||||||
Netting |
|
| — |
|
|
| (4,791 | ) |
|
| (4,791 | ) |
|
| — |
|
|
| (37,384 | ) |
|
| (37,384 | ) |
|
| 0 |
|
|
| (171,725 | ) |
|
| (171,725 | ) |
|
| 0 |
|
|
| (59,330 | ) |
|
| (59,330 | ) |
|
|
| 12,231 |
|
|
| (4,791 | ) |
|
| 7,440 |
|
|
| 48,414 |
|
|
| (37,384 | ) |
|
| 11,030 |
|
|
| 289,008 |
|
|
| (171,725 | ) |
|
| 117,283 |
|
|
| 92,155 |
|
|
| (59,330 | ) |
|
| 32,825 |
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
CRT derivatives |
|
| 58,134 |
|
|
| 0 |
|
|
| 58,134 |
|
|
| 58,699 |
|
|
| 0 |
|
|
| 58,699 |
| ||||||||||||||||||||||||
Interest rate lock commitments |
|
| 7,552 |
|
|
| 0 |
|
|
| 7,552 |
|
|
| 72,794 |
|
|
| 0 |
|
|
| 72,794 |
| ||||||||||||||||||||||||
|
| $ | 72,079 |
|
| $ | (4,791 | ) |
| $ | 67,288 |
|
| $ | 71,093 |
|
| $ | (37,384 | ) |
| $ | 33,709 |
|
|
| 65,686 |
|
|
| 0 |
|
|
| 65,686 |
|
|
| 131,493 |
|
|
| 0 |
|
|
| 131,493 |
|
|
| $ | 354,694 |
|
| $ | (171,725 | ) |
| $ | 182,969 |
|
| $ | 223,648 |
|
| $ | (59,330 | ) |
| $ | 164,318 |
| ||||||||||||||||||||||||
Derivative Assets, Financial Instruments and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||
|
| Net amount of assets presented in the |
|
| Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
| Net amount of assets presented in the |
|
| Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
| ||||||||||||
|
| consolidated balance sheet |
|
| Financial instruments |
|
| Cash collateral received |
|
| Net amount |
|
| consolidated balance sheet |
|
| Financial instruments |
|
| Cash collateral received |
|
| Net amount |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
CRT Agreements |
| $ | 56,878 |
|
| $ | — |
|
| $ | — |
|
| $ | 56,878 |
|
| $ | 15,610 |
|
| $ | — |
|
| $ | — |
|
| $ | 15,610 |
|
Interest rate lock commitments |
|
| 2,789 |
|
|
| — |
|
|
| — |
|
|
| 2,789 |
|
|
| 7,069 |
|
|
| — |
|
|
| — |
|
|
| 7,069 |
|
Repurchase agreement derivatives |
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Bank of America, N.A. |
|
| 1,819 |
|
|
| — |
|
|
| — |
|
|
| 1,819 |
|
|
| 1,881 |
|
|
| — |
|
|
| — |
|
|
| 1,881 |
|
RJ O’Brien & Associates, LLC |
|
| 1,695 |
|
|
| — |
|
|
| — |
|
|
| 1,695 |
|
|
| 1,531 |
|
|
| — |
|
|
| — |
|
|
| 1,531 |
|
JPMorgan Chase & Co. |
|
| 911 |
|
|
| — |
|
|
| — |
|
|
| 911 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
RBS Securities Inc. |
|
| 655 |
|
|
| — |
|
|
| — |
|
|
| 655 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Citibank |
|
| 565 |
|
|
| — |
|
|
| — |
|
|
| 565 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Goldman Sachs |
|
| 511 |
|
|
| — |
|
|
| — |
|
|
| 511 |
|
|
| 1,164 |
|
|
| — |
|
|
| — |
|
|
| 1,164 |
|
Federal Home Loan Mortgage Corporation |
|
| 464 |
|
|
| — |
|
|
| — |
|
|
| 464 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Barclays Capital |
|
| 394 |
|
|
| — |
|
|
| — |
|
|
| 394 |
|
|
| 855 |
|
|
| — |
|
|
| — |
|
|
| 855 |
|
Morgan Stanley Bank, N.A. |
|
| 296 |
|
|
| — |
|
|
| — |
|
|
| 296 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Jefferies Group, Inc |
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| 967 |
|
|
| — |
|
|
| — |
|
|
| 967 |
|
Royal Bank of Canada |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,194 |
|
|
| — |
|
|
| — |
|
|
| 1,194 |
|
Bank of Oklahoma |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 629 |
|
|
| — |
|
|
| — |
|
|
| 629 |
|
Other |
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
|
| 2,802 |
|
|
| — |
|
|
| — |
|
|
| 2,802 |
|
|
| $ | 67,288 |
|
| $ | — |
|
| $ | — |
|
| $ | 67,288 |
|
| $ | 33,709 |
|
| $ | — |
|
| $ | — |
|
| $ | 33,709 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||
|
| Net amount |
|
| Gross amounts |
|
|
|
|
|
| Net amount |
|
| Gross amounts |
|
|
|
|
| ||||||||||||
|
| of assets |
|
| not offset in the |
|
|
|
|
|
| of assets |
|
| not offset in the |
|
|
|
|
| ||||||||||||
|
| presented |
|
| consolidated |
|
|
|
|
|
| presented |
|
| consolidated |
|
|
|
|
| ||||||||||||
|
| in the |
|
| balance sheet |
|
|
|
|
|
| in the |
|
| balance sheet |
|
|
|
|
| ||||||||||||
|
| consolidated |
|
|
|
|
|
| Cash |
|
|
|
|
|
| consolidated |
|
|
|
|
|
| Cash |
|
|
|
|
| ||||
|
| balance |
|
| Financial |
|
| collateral |
|
| Net |
|
| balance |
|
| Financial |
|
| collateral |
|
| Net |
| ||||||||
|
| sheet |
|
| instruments |
|
| received |
|
| amount |
|
| sheet |
|
| instruments |
|
| received |
|
| amount |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
CRT derivatives |
| $ | 58,134 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 58,134 |
|
| $ | 58,699 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 58,699 |
|
Interest rate lock commitments |
|
| 7,552 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,552 |
|
|
| 72,794 |
|
|
| 0 |
|
|
| 0 |
|
|
| 72,794 |
|
Federal Home Loan Mortgage Corporation |
|
| 31,652 |
|
|
| 0 |
|
|
| 0 |
|
|
| 31,652 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
J.P. Morgan Securities LLC |
|
| 29,455 |
|
|
| 0 |
|
|
| 0 |
|
|
| 29,455 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Wells Fargo Securities, LLC |
|
| 16,087 |
|
|
| 0 |
|
|
| 0 |
|
|
| 16,087 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
RJ O’Brien & Associates, LLC |
|
| 13,865 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,865 |
|
|
| 7,813 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,813 |
|
Bank of America, N.A. |
|
| 13,191 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,191 |
|
|
| 15,406 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,406 |
|
Morgan Stanley & Co. LLC |
|
| 7,949 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,949 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Citigroup Global Markets Inc. |
|
| 3,431 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,431 |
|
|
| 2,416 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,416 |
|
PNC Capital Markets LLC |
|
| 13 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13 |
|
|
| 3,138 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,138 |
|
Deutsche Bank Securities LLC |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,602 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,602 |
|
Mitsubishi UFJ Sec |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,070 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,070 |
|
Other |
|
| 1,640 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,640 |
|
|
| 1,380 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,380 |
|
|
| $ | 182,969 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 182,969 |
|
| $ | 164,318 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 164,318 |
|
Offsetting of Derivative Liabilities and Financial Liabilities
Following is a summary of net derivative liabilities and assets sold under agreements to repurchase. Assets sold under agreements to repurchase do not qualify for setoff accounting.
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross amounts of recognized liabilities |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of liabilities presented in the consolidated balance sheet |
|
| Gross amounts of recognized liabilities |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of liabilities presented in the consolidated balance sheet |
|
| Gross amounts of recognized liabilities |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of liabilities presented in the consolidated balance sheet |
|
| Gross amounts of recognized liabilities |
|
| Gross amounts offset in the consolidated balance sheet |
|
| Net amounts of liabilities presented in the consolidated balance sheet |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Interest rate lock commitments |
| $ | 1,514 |
|
| $ | — |
|
| $ | 1,514 |
|
| $ | 3,292 |
|
| $ | — |
|
| $ | 3,292 |
| ||||||||||||||||||||||||
|
|
| 1,514 |
|
|
| — |
|
|
| 1,514 |
|
|
| 3,292 |
|
|
| — |
|
|
| 3,292 |
| ||||||||||||||||||||||||
Subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put options on interest rate futures sale contracts |
| $ | 6,064 |
|
| $ | 0 |
|
| $ | 6,064 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
| ||||||||||||||||||||||||
Forward purchase contracts |
|
| 6,616 |
|
|
| — |
|
|
| 6,616 |
|
|
| 7,619 |
|
|
| ��� |
|
|
| 7,619 |
|
|
| 89,312 |
|
|
| 0 |
|
|
| 89,312 |
|
|
| 17 |
|
|
| 0 |
|
|
| 17 |
|
Forward sales contracts |
|
| 165 |
|
|
| — |
|
|
| 165 |
|
|
| 17,974 |
|
|
| — |
|
|
| 17,974 |
|
|
| 6,965 |
|
|
| 0 |
|
|
| 6,965 |
|
|
| 122,884 |
|
|
| 0 |
|
|
| 122,884 |
|
MBS put options |
|
| 9,657 |
|
|
| 0 |
|
|
| 9,657 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||
Netting |
|
| — |
|
|
| (3,395 | ) |
|
| (3,395 | ) |
|
| — |
|
|
| (19,312 | ) |
|
| (19,312 | ) |
|
| 0 |
|
|
| (77,466 | ) |
|
| (77,466 | ) |
|
| 0 |
|
|
| (89,532 | ) |
|
| (89,532 | ) |
|
|
| 6,781 |
|
|
| (3,395 | ) |
|
| 3,386 |
|
|
| 25,593 |
|
|
| (19,312 | ) |
|
| 6,281 |
|
|
| 111,998 |
|
|
| (77,466 | ) |
|
| 34,532 |
|
|
| 122,901 |
|
|
| (89,532 | ) |
|
| 33,369 |
|
Not subject to master netting arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
CRT derivatives |
|
| 13,458 |
|
|
| 0 |
|
|
| 13,458 |
|
|
| 26,904 |
|
|
| 0 |
|
|
| 26,904 |
| ||||||||||||||||||||||||
Interest rate lock commitments |
|
| 72,410 |
|
|
| 0 |
|
|
| 72,410 |
|
|
| 408 |
|
|
| 0 |
|
|
| 408 |
| ||||||||||||||||||||||||
|
|
| 8,295 |
|
|
| (3,395 | ) |
|
| 4,900 |
|
|
| 28,885 |
|
|
| (19,312 | ) |
|
| 9,573 |
|
|
| 197,866 |
|
|
| (77,466 | ) |
|
| 120,400 |
|
|
| 150,213 |
|
|
| (89,532 | ) |
|
| 60,681 |
|
Assets sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB |
|
| 3,204,054 |
|
|
| — |
|
|
| 3,204,054 |
|
|
| 3,784,685 |
|
|
| — |
|
|
| 3,784,685 |
|
|
| 6,098,299 |
|
|
| 0 |
|
|
| 6,098,299 |
|
|
| 6,317,928 |
|
|
| 0 |
|
|
| 6,317,928 |
|
Unamortized debt issuance costs |
|
| (668 | ) |
|
| — |
|
|
| (668 | ) |
|
| (684 | ) |
|
| — |
|
|
| (684 | ) |
|
| (6,326 | ) |
|
| 0 |
|
|
| (6,326 | ) |
|
| (8,510 | ) |
|
| 0 |
|
|
| (8,510 | ) |
|
|
| 3,203,386 |
|
|
| — |
|
|
| 3,203,386 |
|
|
| 3,784,001 |
|
|
| — |
|
|
| 3,784,001 |
|
|
| 6,091,973 |
|
|
| 0 |
|
|
| 6,091,973 |
|
|
| 6,309,418 |
|
|
| 0 |
|
|
| 6,309,418 |
|
|
| $ | 3,211,681 |
|
| $ | (3,395 | ) |
| $ | 3,208,286 |
|
| $ | 3,812,886 |
|
| $ | (19,312 | ) |
| $ | 3,793,574 |
|
| $ | 6,289,839 |
|
| $ | (77,466 | ) |
| $ | 6,212,373 |
|
| $ | 6,459,631 |
|
| $ | (89,532 | ) |
| $ | 6,370,099 |
|
Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty
The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifyingqualify for setoff accounting. All assets sold under agreements to repurchase represent sufficient collateral or exceed the liability amount recorded on the consolidated balance sheet.
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||
|
| Net amount of liabilities presented in the |
|
| Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
| Net amount of liabilities presented in the |
|
| Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
| ||||||||||||
|
| consolidated balance sheet |
|
| Financial instruments |
|
| Cash collateral pledged |
|
| Net amount |
|
| consolidated balance sheet |
|
| Financial instruments |
|
| Cash collateral pledged |
|
| Net amount |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Interest rate lock commitments |
| $ | 1,514 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,514 |
|
| $ | 3,292 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,292 |
|
Bank of America, N.A. |
|
| 938,104 |
|
|
| (938,104 | ) |
|
| — |
|
|
| — |
|
|
| 847,683 |
|
|
| (847,683 | ) |
|
| — |
|
|
| — |
|
Credit Suisse First Boston Mortgage Capital LLC |
|
| 857,882 |
|
|
| (857,882 | ) |
|
| — |
|
|
| — |
|
|
| 1,181,441 |
|
|
| (1,181,235 | ) |
|
| — |
|
|
| 206 |
|
JPMorgan Chase & Co. |
|
| 445,746 |
|
|
| (445,746 | ) |
|
| — |
|
|
| — |
|
|
| 544,009 |
|
|
| (542,542 | ) |
|
| — |
|
|
| 1,467 |
|
Citibank |
|
| 280,127 |
|
|
| (279,905 | ) |
|
| — |
|
|
| 222 |
|
|
| 575,092 |
|
|
| (573,589 | ) |
|
| — |
|
|
| 1,503 |
|
Morgan Stanley Bank, N.A. |
|
| 168,184 |
|
|
| (168,184 | ) |
|
| — |
|
|
| — |
|
|
| 143,951 |
|
|
| (142,055 | ) |
|
| — |
|
|
| 1,896 |
|
Daiwa Capital Markets |
|
| 157,827 |
|
|
| (157,827 | ) |
|
| — |
|
|
| — |
|
|
| 177,316 |
|
|
| (177,077 | ) |
|
| — |
|
|
| 239 |
|
Deutsche Bank |
|
| 114,852 |
|
|
| (114,852 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Royal Bank of Canada |
|
| 94,424 |
|
|
| (93,494 | ) |
|
| — |
|
|
| 930 |
|
|
| 63,926 |
|
|
| (63,926 | ) |
|
| — |
|
|
| — |
|
Wells Fargo, N.A. |
|
| 51,780 |
|
|
| (51,377 | ) |
|
| — |
|
|
| 403 |
|
|
| 116,648 |
|
|
| (116,648 | ) |
|
| — |
|
|
| — |
|
Barclays Capital |
|
| 50,353 |
|
|
| (50,353 | ) |
|
| — |
|
|
| — |
|
|
| 92,796 |
|
|
| (92,796 | ) |
|
| — |
|
|
| — |
|
BNP Paribas |
|
| 46,330 |
|
|
| (46,330 | ) |
|
| — |
|
|
| — |
|
|
| 47,785 | �� |
|
| (47,134 | ) |
|
| — |
|
|
| 651 |
|
Federal National Mortgage Association |
|
| 1,353 |
|
|
| — |
|
|
| — |
|
|
| 1,353 |
|
|
| 312 |
|
|
| — |
|
|
| — |
|
|
| 312 |
|
Other |
|
| 478 |
|
|
| — |
|
|
| — |
|
|
| 478 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Unamortized debt issuance costs |
|
| (668 | ) |
|
| 668 |
|
|
| — |
|
|
| — |
|
|
| (684 | ) |
|
| 684 |
|
|
| — |
|
|
| — |
|
|
| $ | 3,208,286 |
|
| $ | (3,203,386 | ) |
| $ | — |
|
| $ | 4,900 |
|
| $ | 3,793,574 |
|
| $ | (3,784,001 | ) |
| $ | — |
|
| $ | 9,573 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||
|
| Net amount |
|
| Gross amounts |
|
|
|
|
|
| Net amount |
|
| Gross amounts |
|
|
|
|
| ||||||||||||
|
| of liabilities |
|
| not offset in the |
|
|
|
|
|
| of liabilities |
|
| not offset in the |
|
|
|
|
| ||||||||||||
|
| presented |
|
| consolidated |
|
|
|
|
|
| presented |
|
| consolidated |
|
|
|
|
| ||||||||||||
|
| in the |
|
| balance sheet |
|
|
|
|
|
| in the |
|
| balance sheet |
|
|
|
|
| ||||||||||||
|
| consolidated |
|
|
|
|
|
| Cash |
|
|
|
|
|
| consolidated |
|
|
|
|
|
| Cash |
|
|
|
|
| ||||
|
| balance |
|
| Financial |
|
| collateral |
|
| Net |
|
| balance |
|
| Financial |
|
| collateral |
|
| Net |
| ||||||||
|
| sheet |
|
| instruments |
|
| pledged |
|
| amount |
|
| sheet |
|
| instruments |
|
| pledged |
|
| amount |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Interest rate lock commitments |
| $ | 72,410 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 72,410 |
|
| $ | 408 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 408 |
|
CRT derivatives |
|
| 13,458 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,458 |
|
|
| 26,904 |
|
|
| 0 |
|
|
| 0 |
|
|
| 26,904 |
|
Credit Suisse Securities (USA) LLC |
|
| 1,230,324 |
|
|
| (1,209,194 | ) |
|
| 0 |
|
|
| 21,130 |
|
|
| 1,059,547 |
|
|
| (1,054,636 | ) |
|
| 0 |
|
|
| 4,911 |
|
Bank of America, N.A. |
|
| 1,031,487 |
|
|
| (1,031,487 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 414,044 |
|
|
| (414,044 | ) |
|
| 0 |
|
|
| 0 |
|
RBC Capital Markets, L.P. |
|
| 750,308 |
|
|
| (750,308 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 765,892 |
|
|
| (765,892 | ) |
|
| 0 |
|
|
| 0 |
|
J.P. Morgan Securities LLC |
|
| 642,606 |
|
|
| (642,606 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 359,573 |
|
|
| (357,211 | ) |
|
| 0 |
|
|
| 2,362 |
|
Daiwa Capital Markets |
|
| 534,521 |
|
|
| (534,032 | ) |
|
| 0 |
|
|
| 489 |
|
|
| 728,207 |
|
|
| (727,562 | ) |
|
| 0 |
|
|
| 645 |
|
Barclays Capital Inc. |
|
| 504,410 |
|
|
| (504,410 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 922,959 |
|
|
| (922,035 | ) |
|
| 0 |
|
|
| 924 |
|
Morgan Stanley & Co. LLC |
|
| 393,370 |
|
|
| (393,370 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 367,493 |
|
|
| (366,415 | ) |
|
| 0 |
|
|
| 1,078 |
|
Citigroup Global Markets Inc. |
|
| 261,628 |
|
|
| (261,628 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 830,161 |
|
|
| (830,161 | ) |
|
| 0 |
|
|
| 0 |
|
Goldman Sachs & Co. LLC |
|
| 264,058 |
|
|
| (261,528 | ) |
|
| 0 |
|
|
| 2,530 |
|
|
| 149,272 |
|
|
| (144,883 | ) |
|
| 0 |
|
|
| 4,389 |
|
BNP Paribas |
|
| 227,034 |
|
|
| (227,034 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 164,414 |
|
|
| (163,548 | ) |
|
| 0 |
|
|
| 866 |
|
Wells Fargo Securities, LLC |
|
| 143,150 |
|
|
| (143,150 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 148,854 |
|
|
| (140,796 | ) |
|
| 0 |
|
|
| 8,058 |
|
Amherst Pierpont Securities LLC |
|
| 139,552 |
|
|
| (139,552 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 153,224 |
|
|
| (153,224 | ) |
|
| 0 |
|
|
| 0 |
|
Mitsubishi UFJ Sec |
|
| 4,788 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,788 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Bank of Oklahoma |
|
| 3,304 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,304 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Mizuho Securities |
|
| 1,059 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,059 |
|
|
| 279,321 |
|
|
| (277,521 | ) |
|
| 0 |
|
|
| 1,800 |
|
Federal Home Loan Mortgage Corporation |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,883 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,883 |
|
Other |
|
| 1,232 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,232 |
|
|
| 2,453 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,453 |
|
|
| $ | 6,218,699 |
|
| $ | (6,098,299 | ) |
| $ | 0 |
|
| $ | 120,400 |
|
| $ | 6,378,609 |
|
| $ | (6,317,928 | ) |
| $ | 0 |
|
| $ | 60,681 |
|
Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of incomeoperations line items where such gains and losses are included:
|
|
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
|
|
| Quarter ended March 31, |
| |||||||||||||||
Derivative activity |
| Statement of income line |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Consolidated statement of operations line |
| 2021 |
|
| 2020 |
| ||||||
|
|
|
| (in thousands) |
|
|
| (in thousands) |
| |||||||||||||||||||
Interest rate lock commitments |
| Net gain on mortgage loans acquired for sale |
| $ | 24,694 |
|
| $ | 53,819 |
|
| $ | 70,131 |
|
| $ | 129,761 |
|
| Net gains on loans acquired for sale (1) |
| $ | (137,243 | ) |
| $ | 68,231 |
|
CRT derivatives |
| Net gains (losses) on investments |
| $ | 36,370 |
|
| $ | (215,125 | ) | ||||||||||||||||||
Hedged item: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments and mortgage loans acquired for sale |
| Net gain on mortgage loans acquired for sale |
| $ | (16,943 | ) |
| $ | (16,791 | ) |
| $ | (32,308 | ) |
| $ | (76,672 | ) | ||||||||||
Interest rate lock commitments and loans acquired for sale |
| Net gains on loans acquired for sale |
| $ | 297,476 |
|
| $ | (140,368 | ) | ||||||||||||||||||
Mortgage servicing rights |
| Net loan servicing fees |
| $ | 4,576 |
|
| $ | 5,612 |
|
| $ | (1,731 | ) |
| $ | 63,006 |
|
| Net loan servicing fees |
| $ | (374,403 | ) |
| $ | 767,186 |
|
Fixed-rate assets and LIBOR- indexed repurchase agreements |
| Net gain on investments |
| $ | (5,910 | ) |
| $ | (945 | ) |
| $ | (14,943 | ) |
| $ | (245 | ) | ||||||||||
CRT agreements |
| Net gain on investments |
| $ | 14,960 |
|
| $ | 18,477 |
|
| $ | 68,863 |
|
| $ | 22,098 |
| ||||||||||
Fixed-rate and prepayment sensitive assets and LIBOR-indexed repurchase agreements |
| Net gains (losses) on investments |
| $ | (24 | ) |
| $ | 64,931 |
| ||||||||||||||||||
(1) | Represents net increase in fair value of IRLCs from the beginning to the end of the reporting period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan are shown in the rollforward of IRLCs for the period in Note 7– Fair Value - Financial Statement Items Measured at Fair Value on a Recurring Basis. |
Note 10—Real Estate Acquired in Settlement of Loans42
Credit Risk Transfer Strips
Following is a summary of financial information relating to REO:the Company’s holdings of CRT strips
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance at beginning of period |
| $ | 207,034 |
|
| $ | 299,458 |
|
| $ | 274,069 |
|
| $ | 341,846 |
|
Transfers from mortgage loans at fair value and advances |
|
| 22,951 |
|
|
| 42,300 |
|
|
| 76,981 |
|
|
| 156,352 |
|
Transfer of real estate acquired in settlement of mortgage loans to real estate held for investment |
|
| (2,555 | ) |
|
| (5,282 | ) |
|
| (14,300 | ) |
|
| (17,548 | ) |
Results of REO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation adjustments, net |
|
| (6,423 | ) |
|
| (7,888 | ) |
|
| (21,749 | ) |
|
| (25,816 | ) |
Gain on sale, net |
|
| 3,280 |
|
|
| 4,603 |
|
|
| 10,895 |
|
|
| 13,930 |
|
|
|
| (3,143 | ) |
|
| (3,285 | ) |
|
| (10,854 | ) |
|
| (11,886 | ) |
Proceeds from sales |
|
| (39,253 | ) |
|
| (44,843 | ) |
|
| (140,862 | ) |
|
| (180,416 | ) |
Balance at end of period |
| $ | 185,034 |
|
| $ | 288,348 |
|
| $ | 185,034 |
|
| $ | 288,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
REO pledged to secure assets sold under agreements to repurchase |
| $ | 84,796 |
|
| $ | 167,430 |
|
|
|
|
|
|
|
|
|
REO held in a consolidated subsidiary whose stock is pledged to secure financings of such properties |
|
| 50,965 |
|
|
| 48,283 |
|
|
|
|
|
|
|
|
|
|
| $ | 135,761 |
|
| $ | 215,713 |
|
|
|
|
|
|
|
|
|
Credit risk transfer strips contractually restricted from sale (1) |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Liabilities |
|
|
|
|
|
|
|
|
Through December 4, 2021 |
| $ | 26,910 |
|
| $ | 168,539 |
|
To maturity |
|
| 82,660 |
|
|
| 34,253 |
|
|
| $ | 109,570 |
|
| $ | 202,792 |
|
(1) | The terms of the agreement underlying the CRT securities restricts sales of the securities, other than under agreements to repurchase, without the approval of Fannie Mae, for specified periods from the date of issuance. |
Note 11—12—Mortgage Servicing Rights
Carried at Lower of Amortized Cost or Fair Value:
Following is a summary of MSRs carried at lower of amortized cost or fair value:MSRs:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 673,433 |
|
| $ | 465,301 |
|
| $ | 606,103 |
|
| $ | 404,101 |
|
MSRs resulting from mortgage loan sales |
|
| 74,183 |
|
|
| 76,567 |
|
|
| 178,894 |
|
|
| 167,691 |
|
Amortization |
|
| (21,634 | ) |
|
| (17,902 | ) |
|
| (59,015 | ) |
|
| (47,720 | ) |
Sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (106 | ) |
Balance at end of period |
|
| 725,982 |
|
|
| 523,966 |
|
|
| 725,982 |
|
|
| 523,966 |
|
Valuation Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (16,257 | ) |
|
| (51,820 | ) |
|
| (13,672 | ) |
|
| (10,944 | ) |
Additions to impairment valuation allowance |
|
| (1,702 | ) |
|
| (3,460 | ) |
|
| (4,287 | ) |
|
| (44,336 | ) |
Balance at end of period |
|
| (17,959 | ) |
|
| (55,280 | ) |
|
| (17,959 | ) |
|
| (55,280 | ) |
MSRs, net |
| $ | 708,023 |
|
| $ | 468,686 |
|
| $ | 708,023 |
|
| $ | 468,686 |
|
Fair value at beginning of period |
| $ | 682,437 |
|
| $ | 417,094 |
|
| $ | 626,334 |
|
| $ | 424,154 |
|
Fair value at end of period |
| $ | 728,828 |
|
| $ | 472,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
MSRs carried at lower of cost or fair value pledged to secure notes payable |
| $ | 696,991 |
|
| $ | 592,431 |
|
|
|
|
|
|
|
|
|
The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost. This estimate was developed with the inputs used in the September 30, 2017 valuation of MSRs. The inputs underlying the following
estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.
|
| Estimated MSR |
| |
12 months ended September 30, |
| amortization |
| |
|
| (in thousands) |
| |
2018 |
| $ | 85,876 |
|
2019 |
|
| 78,404 |
|
2020 |
|
| 71,153 |
|
2021 |
|
| 64,092 |
|
2022 |
|
| 57,647 |
|
Thereafter |
|
| 368,810 |
|
Total |
| $ | 725,982 |
|
Carried at Fair Value:
Following is a summary of MSRs carried at fair value:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance at beginning of period |
| $ | 77,624 |
|
| $ | 57,977 |
|
| $ | 64,136 |
|
| $ | 66,584 |
|
Purchases |
|
| 10 |
|
|
| — |
|
|
| 79 |
|
|
| 2,602 |
|
MSRs resulting from mortgage loan sales |
|
| 8,655 |
|
|
| 1,068 |
|
|
| 28,467 |
|
|
| 6,215 |
|
Changes in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs used in valuation model (1) |
|
| (2,628 | ) |
|
| (883 | ) |
|
| (6,956 | ) |
|
| (12,343 | ) |
Other changes in fair value (2) |
|
| (1,349 | ) |
|
| (2,319 | ) |
|
| (3,414 | ) |
|
| (7,215 | ) |
|
|
| (3,977 | ) |
|
| (3,202 | ) |
|
| (10,370 | ) |
|
| (19,558 | ) |
Balance at end of period |
| $ | 82,312 |
|
| $ | 55,843 |
|
| $ | 82,312 |
|
| $ | 55,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
MSRs carried at fair value pledged to secure notes payable |
| $ | 81,279 |
|
| $ | 64,136 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| |||||
|
| 2021 |
|
| 2020 |
|
| ||
| (in thousands) | ||||||||
Balance at beginning of quarter |
| $ | 1,755,236 |
|
| $ | 1,535,705 |
|
|
MSRs resulting from loan sales |
|
| 407,696 |
|
|
| 248,822 |
|
|
Changes in fair value: |
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs used in valuation model (1) |
|
| 337,667 |
|
|
| (563,247 | ) |
|
Other changes in fair value (2) |
|
| (59,385 | ) |
|
| (63,954 | ) |
|
|
|
| 278,282 |
|
|
| (627,201 | ) |
|
Balance at end of quarter |
| $ | 2,441,214 |
|
| $ | 1,157,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2021 |
|
| December 31, 2020 |
|
| ||
|
| (in thousands) |
|
| |||||
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets |
| $ | 2,423,063 |
|
| $ | 1,742,905 |
|
|
(1) |
|
(2) | Represents changes due to realization of expected cash flows. |
Servicing fees relating to MSRs are recorded in Net mortgage loan servicing fees – from nonaffiliates on the Company’s consolidated statements of incomeoperations and are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
|
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
|
| ||||||
|
| (in thousands) |
| (in thousands) | |||||||||||||||||||||
Contractually-specified servicing fees |
| $ | 42,237 |
|
| $ | 32,724 |
|
| $ | 119,223 |
|
| $ | 90,494 |
|
| $ | 116,287 |
|
| $ | 94,469 |
|
|
Ancillary and other fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Late charges |
|
| 173 |
|
|
| 148 |
|
|
| 536 |
|
|
| 421 |
|
|
| 412 |
|
|
| 500 |
|
|
Other |
|
| 1,870 |
|
|
| 1,432 |
|
|
| 4,110 |
|
|
| 3,839 |
|
|
| 15,833 |
|
|
| 6,691 |
|
|
|
| $ | 44,280 |
|
| $ | 34,304 |
|
| $ | 123,869 |
|
| $ | 94,754 |
|
| $ | 132,532 |
|
| $ | 101,660 |
|
|
Note 12—13—Short-Term Borrowings
The borrowing facilities described throughout these Notes 13 and 14 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio, profitability and liquidity. Management believes that the Company was in compliance with these covenants as of March 31, 2021.
Assets Sold Under Agreements to Repurchase
Following is a summary of financial information relating to assets sold under agreements to repurchase:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (dollars in thousands) |
| (dollars in thousands) |
| |||||||||||||||||||
Weighted-average interest rate (1) |
|
| 2.72 | % |
|
| 2.26 | % |
|
| 2.57 | % |
|
| 2.19 | % | ||||||||
Weighted average interest rate (1) |
|
| 1.60 | % |
|
| 2.31 | % | ||||||||||||||||
Average balance |
| $ | 3,474,903 |
|
| $ | 3,538,720 |
|
| $ | 3,388,626 |
|
| $ | 3,202,829 |
|
| $ | 5,971,290 |
|
| $ | 6,302,900 |
|
Total interest expense |
| $ | 26,157 |
|
| $ | 23,751 |
|
| $ | 72,280 |
|
| $ | 66,217 |
|
| $ | 28,659 |
|
| $ | 37,750 |
|
Maximum daily amount outstanding |
| $ | 3,973,869 |
|
| $ | 4,824,044 |
|
| $ | 4,083,326 |
|
| $ | 5,221,997 |
|
| $ | 7,208,807 |
|
| $ | 8,664,587 |
|
(1) | Excludes the effect of amortization of debt issuance costs of |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Carrying value: |
|
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 3,204,054 |
|
| $ | 3,784,685 |
|
Unamortized debt issuance costs and premiums |
|
| (668 | ) |
|
| (684 | ) |
|
| $ | 3,203,386 |
|
| $ | 3,784,001 |
|
Weighted-average interest rate |
|
| 2.63 | % |
|
| 2.70 | % |
Available borrowing capacity: |
|
|
|
|
|
|
|
|
Committed |
| $ | 457,144 |
|
| $ | 518,932 |
|
Uncommitted |
|
| 2,233,034 |
|
|
| 1,092,253 |
|
|
| $ | 2,690,178 |
|
| $ | 1,611,185 |
|
Margin deposits placed with counterparties included in Other assets |
| $ | 15,037 |
|
| $ | 29,634 |
|
Fair value of assets securing agreements to repurchase: |
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 1,036,669 |
|
| $ | 863,802 |
|
Mortgage loans acquired for sale at fair value |
| $ | 1,206,859 |
|
| $ | 1,627,010 |
|
Mortgage loans at fair value |
| $ | 1,009,730 |
|
| $ | 1,345,021 |
|
CRT Agreements: |
|
|
|
|
|
|
|
|
Deposits securing CRT agreements |
| $ | 408,100 |
|
| $ | 414,610 |
|
Derivative assets |
| $ | 15,742 |
|
| $ | 9,078 |
|
Real estate acquired in settlement of loans |
| $ | 135,761 |
|
| $ | 215,713 |
|
Real estate held for investment |
| $ | 29,664 |
|
| $ | — |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (dollars in thousands) |
| |||||
Carrying value: |
|
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 6,098,299 |
|
| $ | 6,317,928 |
|
Unamortized debt issuance costs |
|
| (6,326 | ) |
|
| (8,510 | ) |
|
| $ | 6,091,973 |
|
| $ | 6,309,418 |
|
Weighted average interest rate |
|
| 1.65 | % |
|
| 1.36 | % |
Available borrowing capacity (1): |
|
|
|
|
|
|
|
|
Committed |
| $ | 240,290 |
|
| $ | 483,767 |
|
Uncommitted |
|
| 3,416,352 |
|
|
| 4,151,905 |
|
|
| $ | 3,656,642 |
|
| $ | 4,635,672 |
|
Margin deposits placed with counterparties included in Other assets |
| $ | 13,966 |
|
| $ | 141,808 |
|
Assets securing agreements to repurchase: |
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 1,916,485 |
|
| $ | 2,213,922 |
|
Loans acquired for sale at fair value |
| $ | 4,519,274 |
|
| $ | 3,484,202 |
|
Loans at fair value |
| $ | 1,383 |
|
| $ | 3,703 |
|
MSRs (2) |
| $ | 1,537,749 |
|
| $ | 1,166,090 |
|
Real estate acquired in settlement of loans |
| $ | 10,250 |
|
| $ | 15,365 |
|
Deposits securing CRT arrangements |
| $ | 0 |
|
| $ | 2,799,263 |
|
(1) | The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets financed. |
(2) | Beneficial interests in Fannie Mae MSRs are pledged as collateral under both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets. |
Following is a summary of maturities of outstanding assets soldadvances under repurchase agreements to repurchase by facility maturity date:
Remaining Maturity at September 30, 2017 |
| Contractual balance |
| |||||
Remaining maturity at March 31, 2021 |
| Unpaid principal balance |
| |||||
|
| (in thousands) |
|
| (in thousands) |
| ||
Within 30 days |
| $ | 1,473,873 |
|
| $ | 1,879,732 |
|
Over 30 to 90 days |
|
| 50,353 |
|
|
| 3,468,259 |
|
Over 90 days to 180 days |
|
| 470,753 |
|
|
| 750,308 |
|
Over 180 days to 1 year |
|
| 1,209,075 |
| ||||
Over one year to two years |
|
| — |
| ||||
|
| $ | 3,204,054 |
|
| $ | 6,098,299 |
|
Weighted average maturity (in months) |
|
| 3.9 |
|
|
| 1.9 |
|
The Company is 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.
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) and maturity information relating to the Company’s assets sold under agreements to repurchase is summarized by pledged asset and counterparty below as of September 30, 2017:March 31, 2021:
Mortgage loans acquired for sale, Mortgage loansLoans, REO and REO sold under agreements to repurchaseMSRs
|
|
|
|
|
| Weighted-average |
|
| ||||||||
Counterparty |
| Amount at risk |
|
| repurchase agreement maturity |
| Facility maturity |
| Amount at risk |
|
| Weighted average maturity |
| Facility maturity | ||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||
Bank of America, N.A. |
| $ | 119,373 |
|
| May 3, 2021 |
| June 9, 2021 | ||||||||
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 75,611 |
|
| April 23, 2021 |
| April 23, 2021 | ||||||||
RBC Capital Markets, L.P. |
| $ | 32,331 |
|
| July 15, 2021 |
| November 10, 2021 | ||||||||
JPMorgan Chase & Co. |
| $ | 13,559 |
|
| April 7, 2021 |
| April 7, 2021 | ||||||||
Barclays Capital Inc. |
| $ | 18,223 |
|
| June 3, 2021 |
| November 3, 2022 | ||||||||
Morgan Stanley & Co. LLC |
| $ | 18,714 |
|
| June 21, 2021 |
| November 2, 2022 | ||||||||
Citibank, N.A. |
| $ | 253,993 |
|
| October 29, 2017 |
| March 2, 2018 |
| $ | 10,807 |
|
| May 22, 2021 |
| August 3, 2021 |
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 93,099 |
|
| December 17, 2017 |
| April 27, 2018 | ||||||||
JPMorgan Chase & Co. |
| $ | 11,729 |
|
| October 13, 2017 |
| October 13, 2017 | ||||||||
JPMorgan Chase & Co. |
| $ | 83,685 |
|
| — |
| March 14, 2018 | ||||||||
Bank of America, N.A. |
| $ | 21,671 |
|
| December 20, 2017 |
| May 25, 2018 | ||||||||
Morgan Stanley |
| $ | 10,051 |
|
| December 16, 2017 |
| August 24, 2018 | ||||||||
Deutsche Bank |
| $ | 7,272 |
|
| December 25, 2017 |
| March 30, 2018 | ||||||||
Barclays Bank PLC |
| $ | 3,691 |
|
| December 1, 2017 |
| December 1, 2017 | ||||||||
Goldman Sachs & Co. LLC |
| $ | 9,460 |
|
| June 21, 2021 |
| December 23, 2022 | ||||||||
BNP Paribas |
| $ | 7,646 |
|
| June 13, 2021 |
| July 30, 2021 | ||||||||
Wells Fargo Securities, LLC |
| $ | 5,141 |
|
| June 21, 2021 |
| October 6, 2022 | ||||||||
Securities sold under agreements to repurchase
Counterparty |
| Amount at risk |
|
| Weighted average maturity |
| Amount at risk |
|
| Weighted average maturity | ||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
| ||
Bank of America, N.A. |
| $ | 10,793 |
|
| April 14, 2021 | ||||||
JPMorgan Chase & Co. |
| $ | 4,092 |
|
| October 16, 2017 |
| $ | 17,117 |
|
| April 8, 2021 |
Bank of America, N.A. |
| $ | 19,037 |
|
| October 18, 2017 | ||||||
Barclays Capital Inc. |
| $ | 8,732 |
|
| April 15, 2021 | ||||||
Daiwa Capital Markets America Inc. |
| $ | 7,006 |
|
| October 19, 2017 |
| $ | 14,961 |
|
| April 16, 2021 |
Royal Bank of Canada |
| $ | 4,061 |
|
| October 16, 2017 | ||||||
Wells Fargo, N.A. |
| $ | 2,381 |
|
| October 12, 2017 | ||||||
Amherst Pierpont Securities LLC |
| $ | 4,488 |
|
| April 16, 2021 | ||||||
CRT Agreements
Counterparty |
| Amount at risk |
|
| Weighted average maturity | |
|
| (in thousands) |
|
|
| |
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 55,008 |
|
| October 11, 2017 |
Bank of America, N.A. |
| $ | 35,283 |
|
| October 13, 2017 |
BNP Paribas Corporate & Institutional Banking |
| $ | 19,150 |
|
| October 6, 2017 |
Note 13—Mortgage Loan Participation Purchase and Sale Agreements
Certain borrowing facilities secured by mortgage loans acquired for sale are in the form of mortgage loan participation purchase and sale agreements. Participation certificates, each of which represents an undivided beneficial ownership interest in a pool of mortgage loans that have been pooled with Fannie Mae or Freddie Mac, are sold to a lender pending the securitization of such mortgage loans and the sale of the resulting security. AThe commitment between the Company and a nonaffiliate to sell such security is also assigned to the lender at the time a participation certificate is sold.
The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount. The holdback amount is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender.
Mortgage loan participation purchase and sale agreements are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (dollars in thousands) |
| (dollars in thousands) |
| |||||||||||||||||||
Weighted-average interest rate (1) |
|
| 2.48 | % |
|
| 1.76 | % |
|
| 2.28 | % |
|
| 1.71 | % | ||||||||
Weighted average interest rate (1) |
|
| 1.38 | % |
|
| 2.73 | % | ||||||||||||||||
Average balance |
| $ | 59,701 |
|
| $ | 73,537 |
|
| $ | 65,290 |
|
| $ | 70,955 |
|
| $ | 39,162 |
|
| $ | 41,301 |
|
Total interest expense |
| $ | 409 |
|
| $ | 361 |
|
| $ | 1,225 |
|
| $ | 1,023 |
|
| $ | 164 |
|
| $ | 338 |
|
Maximum daily amount outstanding |
| $ | 99,441 |
|
| $ | 99,469 |
|
| $ | 99,441 |
|
| $ | 99,469 |
|
| $ | 82,571 |
|
| $ | 94,387 |
|
(1) | Excludes the effect of amortization of debt issuance costs of $31,000 and |
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||
Carrying value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding |
| $ | 44,082 |
|
| $ | 25,917 |
|
| $ | 68,176 |
|
| $ | 16,851 |
|
Unamortized debt issuance costs |
|
| (94 | ) |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| $ | 43,988 |
|
| $ | 25,917 |
|
| $ | 68,176 |
|
| $ | 16,851 |
|
Weighted-average interest rate |
|
| 2.48 | % |
|
| 2.02 | % | ||||||||
Mortgage loans acquired for sale pledged to secure mortgage loan participation purchase and sale agreements |
| $ | 45,057 |
|
| $ | 26,738 |
| ||||||||
Weighted average interest rate |
|
| 1.36 | % |
|
| 1.39 | % | ||||||||
Loans acquired for sale pledged to secure mortgage loan participation purchase and sale agreements |
| $ | 70,919 |
|
| $ | 17,645 |
| ||||||||
Note 14—Federal Home Loan Bank Advances Long-Term Debt
On January 12, 2016,
Notes Payable Secured By Credit Risk Transfer and Mortgage Servicing Assets
The Company, through its indirect subsidiary, PMT CREDIT RISK TRANSFER TRUST, issued Term Notes to qualified institutional buyers under Rule 144A of the Federal Housing Finance Agency (“FHFA”Securities Act of 1933, as amended (the “Securities Act”). All of the Term Notes rank pari passu with each other with the Series 2017-VF1 Note dated December 20, 2017 (the "FMSR VFN") issued a final rule establishing new requirements for membership in the Federal Home Loan Banks. The final rule excludes captive insurance companies such asby another of the Company’s insurance subsidiary, Copper Insurance, LLC, from membership.indirect subsidiaries.
For captive insurance companies that became members since the rule was proposed in 2014, including Copper Insurance, LLC, membership must be terminated within one year, and no additional advances may be made. Accordingly, the Company has repaid allFollowing is a summary of the advances outstanding as of June 30, 2016.
The FHLB advances are summarized below:secured CRT Term Notes issued:
| Nine months ended September 30, |
| |
| 2016 |
| |
| (dollars in thousands) |
| |
Weighted-average interest rate |
| 0.49 | % |
Average balance | $ | 32,560 |
|
Total interest expense | $ | 122 |
|
Maximum daily amount outstanding | $ | 201,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Maturity date (2) |
| |||
Term Notes |
| Issuance date |
| Issuance amount |
|
| Unpaid principal balance |
|
| Annual interest rate spread (1) |
|
| Stated |
| Optional extension |
| ||||
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
| |||||
2021 1R |
| March 04, 2021 |
| $ | 659,156 |
|
| $ | 657,070 |
|
|
| 2.90 | % |
| February 28, 2024 |
| February 27, 2026 |
| |
2020 2R |
| December 22, 2020 |
| $ | 500,000 |
|
|
| 496,909 |
|
|
| 3.81 | % |
| December 28, 2022 |
|
| — |
|
2020 1R |
| February 14, 2020 |
| $ | 350,000 |
|
|
| 156,016 |
|
|
| 2.35 | % |
| March 1, 2023 |
| February 27, 2025 |
| |
2019 3R |
| October 16, 2019 |
| $ | 375,000 |
|
|
| 151,523 |
|
|
| 2.70 | % |
| October 27, 2022 |
| October 29, 2024 |
| |
2019 2R |
| June 11, 2019 |
| $ | 638,000 |
|
|
| 408,000 |
|
|
| 2.75 | % |
| May 29, 2023 |
| May 29, 2025 |
| |
2019 1R |
| March 29, 2019 |
| $ | 295,700 |
|
|
| 139,269 |
|
|
| 2.00 | % |
| March 29, 2022 |
| March 27, 2024 |
| |
|
|
|
|
|
|
|
| $ | 2,008,787 |
|
|
|
|
|
|
|
|
|
|
|
(1) | Spread over 1-month LIBOR. |
(2) | The indentures relating to these issuances provide the Company with the option of extending the maturity dates of the Term Notes under the conditions specified in respective agreements. |
Note 15—Notes PayablePMC finances mortgage servicing rights through the issuance of the FMSR VFN sold to institutional buyers under an agreement to repurchase. On August 4, 2020, PMC increased the committed borrowing capacity to $700 million and extended the VFN termination date to August 3, 2021.
On March 24, 2017,30, 2021, the Company, through PennyMac Corp (“PMC”its indirect subsidiary, PMT ISSUER TRUST—FMSR, issued an aggregate principal amount of $350 million in secured term notes (the “2021-FT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2021-FT1 Notes are secured by certain participation certificates relating to Fannie Mae MSRs and excess servicing spread relating to such MSRs that are financed pursuant to a structured finance transaction. The 2021-FT1 Notes bear interest at a rate equal to one-month LIBOR plus 3.00% per annum and will mature on March 25, 2026 or, if extended pursuant to the
46
terms of the 2021-FT1 Notes indenture supplement on March 27, 2028. The 2021-FT1 Notes rank pari passu with the Series 2018-FT1 Notes described below and the FMSR VFN.
During March 2021, the Company, through PMC and PMH, terminated a loan and security agreement entered into a Loan and Security Agreement with Barclays Bank PLC (“Barclays”),on Feburary 1, 2018, pursuant to which PMC and PMH may finance certain mortgage servicing rights (inclusive of any related excess servicing spread arising therefrom and that maybe transferred from PMC to PMH from time to time) relating to mortgage loans pooled into Freddie Mac securities (collectively, the “Freddie MSRs”), in an aggregate loan amount not to exceed $170 million, all of which is committed. The note matures on December 1, 2017, subject to a wind down period of up to one year following such maturity date.
On March 24, 2017, the Company, through PMC and PMH, entered into a second Amended and Restated Loan and Security Agreement with Citibank, N.A., pursuant to which PMC and PMH finance certain MSRs (inclusive of any related excess servicing spread and/or junior excess strips arising therefrom and that may be transferred from PMC to PMH from time to time) relating to mortgage loans pooled into Fannie MaeFreddie Mac securities, (collectively, the “Fannie MSRs”) in anand entered into a similar borrowing arrangement with Citibank, N.A. The aggregate loan amount notavailable under the loan and security agreement with Citibank, N.A. increased to exceed $400$700 million allfrom $175 million, bears interest at a rate indexed to LIBOR plus a margin, with index replacement provisions related to the transition from LIBOR, and will mature on August 3, 2021. Advances under the loan and security agreement are secured by MSRs relating to loans serviced for Freddie Mac guaranteed securities.
On April 25, 2018, the Company, through its indirect subsidiary, PMT ISSUER TRUST-FMSR, issued an aggregate principal amount of which is committed.$450 million in secured term notes (the “2018-FT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The note matures2018-FT1 Notes bear interest at a rate equal to one-month LIBOR plus 2.35% per annum. The 2018-FT1 Notes will mature on March 2, 2018.April 25, 2023 or, if extended pursuant to the terms of the 2018-FT1 Notes indenture supplement, April 25, 2025 (unless earlier redeemed in accordance with their terms). The 2018-FT1 Notes rank pari passu with the FMSR VFN pledged to Credit Suisse under an agreement to repurchase. The 2018-FT1 Notes and the FMSR VFN are secured by certain participation certificates relating to Fannie Mae MSRs and ESS relating to such MSRs.
Following is a summary of financial information relating to the notes payable:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (dollars in thousands) |
| (dollars in thousands) |
| |||||||||||||||||||
Weighted-average interest rate (1) |
|
| 6.30 | % |
|
| 4.76 | % |
|
| 5.57 | % |
|
| 4.68 | % | ||||||||
Weighted average interest rate (1) |
|
| 3.14 | % |
|
| 4.10 | % | ||||||||||||||||
Average balance |
| $ | 79,345 |
|
| $ | 170,907 |
|
| $ | 152,395 |
|
| $ | 190,878 |
|
| $ | 2,260,721 |
|
| $ | 1,860,213 |
|
Total interest expense |
| $ | 2,320 |
|
| $ | 2,883 |
|
| $ | 9,719 |
|
| $ | 9,217 |
|
| $ | 18,599 |
|
| $ | 19,618 |
|
Maximum daily amount outstanding |
| $ | 160,106 |
|
| $ | 196,317 |
|
| $ | 275,106 |
|
| $ | 234,476 |
|
| $ | 3,180,115 |
|
| $ | 2,032,665 |
|
(1) | Excludes the effect of amortization of debt issuance costs of |
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||
Carrying value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding |
| $ | 80,106 |
|
| $ | 275,106 |
|
| $ | 2,908,788 |
|
| $ | 1,930,018 |
|
Unamortized debt issuance costs |
|
| — |
|
|
| — |
|
|
| (10,994 | ) |
|
| (5,019 | ) |
|
| $ | 80,106 |
|
| $ | 275,106 |
|
| $ | 2,897,794 |
|
| $ | 1,924,999 |
|
Weighted-average interest rate |
|
| 5.57 | % |
|
| 4.73 | % | ||||||||
MSRs pledged to secure notes payable |
| $ | 778,270 |
|
| $ | 656,567 |
| ||||||||
Weighted average interest rate |
|
| 2.93 | % |
|
| 2.99 | % | ||||||||
Assets securing notes payable: |
|
|
|
|
|
|
|
| ||||||||
MSRs (1) |
| $ | 2,423,063 |
|
| $ | 1,742,905 |
| ||||||||
CRT Agreements: |
|
|
|
|
|
|
|
| ||||||||
Deposits securing CRT arrangements |
| $ | 2,664,420 |
|
| $ | 2,799,263 |
| ||||||||
Derivative assets |
| $ | 58,134 |
|
| $ | 58,699 |
| ||||||||
(1) | Beneficial interests in Freddie Mac and Fannie Mae MSRs are pledged as collateral for both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets. |
Exchangeable Notes
On March 5 and March 9, 2021, PMC issued in a private offering $345 million aggregate principal amount of exchangeable senior notes (the “2026 Exchangeable Notes”). The 2026 Exchangeable Notes will mature on March 15, 2026 unless repurchased or exchanged in accordance with their terms before such date. The 2026 Exchangeable Notes bear interest at a rate of 5.50% per year, payable semiannually. The 2026 Exchangeable Notes are fully and unconditionally guaranteed by the Company and are exchangeable for PMT common shares, cash, or a combination thereof, at PMC’s election, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, subject to the satisfaction of certain conditions if the exchange occurs before December 15, 2025. The exchange rate initially equals 46.1063 common shares per $1,000 principal amount of the 2026 Exchangeable Notes and is subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest.
On November 7 and November 19, 2019, PMC issued $210 million in principal amount of 5.50% exchangeable senior notes due 2024 (the “2024 Exchangeable Notes”) in a private offering. The 2024 Exchangeable Notes will mature on November 1, 2024 unless repurchased or exchanged in accordance with their terms before such date. The 2024 Exchangeable Notes are fully and unconditionally guaranteed by the Company and are exchangeable for PMT common shares, cash, or a combination thereof, at PMC’s election, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, subject to the satisfaction of certain conditions if the exchange occurs before August 1, 2024. The exchange rate equals 40.101 common shares per $1,000 principal amount of the 2024 Exchangeable Notes and is subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest.
Following is financial information relating to the Exchangeable Notes:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Average balance |
| $ | 298,554 |
|
| $ | 460,000 |
|
Total interest expense |
| $ | 5,542 |
|
| $ | 7,266 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Carrying value: |
|
|
|
|
|
|
|
|
UPB |
| $ | 555,000 |
|
| $ | 210,000 |
|
Unamortized debt issuance costs and conversion option |
|
| (60,903 | ) |
|
| (13,204 | ) |
|
| $ | 494,097 |
|
| $ | 196,796 |
|
Note 16—Asset-Backed Financing of a Variable Interest Entity at Fair Value
Following is a summary of financial information relating to the asset-backed financing of a VIE:VIE at fair value described in Note 6— Variable Interest Entities-Jumbo Loan Financing:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Weighted-average fair value |
| $ | 325,763 |
|
| $ | 330,622 |
|
| $ | 337,073 |
|
| $ | 326,962 |
|
Interest expense |
| $ | 3,515 |
|
| $ | 5,253 |
|
| $ | 10,520 |
|
| $ | 10,212 |
|
Weighted-average effective interest rate |
|
| 3.34 | % |
|
| 3.23 | % |
|
| 3.41 | % |
|
| 3.31 | % |
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (dollars in thousands) |
| ||||||
Average balance |
| $ | 120,415 |
|
| $ | 240,765 |
|
Total interest expense |
| $ | 168 |
|
| $ | 4,527 |
|
Weighted average interest rate |
|
| 3.22 | % |
|
| 3.39 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Carrying value |
| $ | 318,404 |
|
| $ | 353,898 |
|
UPB |
| $ | 325,529 |
|
| $ | 355,494 |
|
Weighted-average interest rate |
|
| 3.51 | % |
|
| 3.50 | % |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (dollars in thousands) |
| |||||
Fair value |
| $ | 101,238 |
|
| $ | 134,726 |
|
UPB |
| $ | 100,036 |
|
| $ | 131,835 |
|
Weighted average interest rate |
|
| 3.57 | % |
|
| 3.56 | % |
The asset-backed financing of a VIE is a non-recourse liability and is secured solely by the assets of a consolidated VIE and not by any other assets of the Company. The assets of the VIE are the only source of funds for repayment of the certificates.
Maturity of Long-Term Debt
Note 17—Exchangeable Senior Notes
PMC issued in a private offering $250 million aggregate principal amountAnnual maturities of exchangeable senior notes (“Exchangeable Notes”) due May 1, 2020. The Exchangeable Notes bear interest at a rate of 5.375% per year, payable semiannually. The Exchangeable Noteslong-term debt obligations (based on final maturity dates) are exchangeable into common shares of the Company at a rate of 33.8667 common shares per $1,000 principal amount of the Exchangeable Notes as of September 30, 2017, which is an increase over the initial exchange rate of 33.5149. The increase in the calculated exchange rate was the result of quarterly cash dividends exceeding the quarterly dividend threshold amount of $0.57 per share in prior reporting periods, as provided in the related indenture.
Following is financial information relating to the Exchangeable Notes:follows:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Weighted-average UPB |
| $ | 250,000 |
|
| $ | 250,000 |
|
| $ | 250,000 |
|
| $ | 250,000 |
|
Interest expense |
| $ | 3,636 |
|
| $ | 3,620 |
|
| $ | 10,895 |
|
| $ | 10,848 |
|
|
|
|
|
|
| Twelve months ended March 31, |
| |||||||||||||||||||||
|
| Total |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Notes payable secured by credit risk transfer and mortgage servicing assets (1) |
| $ | 2,808,788 |
|
| $ | 139,269 |
|
| $ | 804,448 |
|
| $ | 1,515,071 |
|
| $ | 0 |
|
| $ | 350,000 |
|
| $ | 0 |
|
Exchangeable senior notes |
|
| 555,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 210,000 |
|
|
| 345,000 |
|
|
| 0 |
|
Asset-backed financing of a variable interest entity at fair value (2) |
|
| 100,036 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100,036 |
|
Interest-only security payable at fair value (2) |
|
| 18,922 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 18,922 |
|
Total |
| $ | 3,482,746 |
|
| $ | 139,269 |
|
| $ | 804,448 |
|
| $ | 1,515,071 |
|
| $ | 210,000 |
|
| $ | 695,000 |
|
| $ | 118,958 |
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (in thousands) |
| |||||
Carrying value: |
|
|
|
|
|
|
|
|
UPB |
| $ | 250,000 |
|
| $ | 250,000 |
|
Unamortized debt issuance costs |
|
| (3,094 | ) |
|
| (3,911 | ) |
|
| $ | 246,906 |
|
| $ | 246,089 |
|
(1) | Based on stated maturity. Certain of the notes payable allow the Company to exercise an optional extension as discussed above. |
(2) | Contractual maturities do not reflect expected repayments as borrowers of the underlying loans generally have the right to repay their loans at any time. |
Note 18—15—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Balance, beginning of period |
| $ | 10,697 |
|
| $ | 19,258 |
|
| $ | 15,350 |
|
| $ | 20,171 |
|
Provision for losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
| 1,075 |
|
|
| 781 |
|
|
| 2,355 |
|
|
| 2,002 |
|
Reduction in liability due to change in estimate |
|
| (1,642 | ) |
|
| (5,098 | ) |
|
| (7,523 | ) |
|
| (6,822 | ) |
Losses incurred |
|
| (83 | ) |
|
| (14 | ) |
|
| (135 | ) |
|
| (424 | ) |
Balance, end of period |
| $ | 10,047 |
|
| $ | 14,927 |
|
| $ | 10,047 |
|
| $ | 14,927 |
|
UPB of mortgage loans subject to representations and warranties at end of period |
| $ | 67,196,537 |
|
| $ | 50,167,783 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Balance, beginning of quarter |
| $ | 21,893 |
|
| $ | 7,614 |
|
Provision for losses: |
|
|
|
|
|
|
|
|
Pursuant to loan sales |
|
| 8,513 |
|
|
| 1,030 |
|
Reduction in liability due to change in estimate |
|
| (1,424 | ) |
|
| (1,344 | ) |
Losses incurred, net |
|
| (15 | ) |
|
| 0 |
|
Balance, end of quarter |
| $ | 28,967 |
|
| $ | 7,300 |
|
UPB of loans subject to representations and warranties at end of quarter |
| $ | 177,595,762 |
|
| $ | 131,049,135 |
|
Note 19—16—Commitments and Contingencies
Litigation
From time to time, the Company may be involved in various proceedings, claims and legal actions arising in the ordinary course of business. AsThe amount, if any, of September 30, 2017,ultimate liability with respect to such matters cannot be determined, but despite the Company was not involved ininherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings claimsand exposure will not have, individually or legal actions that in management’s view would reasonably be likely to havetaken together, a material adverse effect on the financial condition, results of operations, or cash flows of the Company.
Commitments
The following table summarizes the Company’s outstanding contractual commitments:
|
| September 30, 2017 |
| |
|
| (in thousands) |
| |
Commitments to purchase mortgage loans acquired for sale |
| $ | 1,259,592 |
|
Commitments to fund Deposits securing CRT agreements (1) |
| $ | 356,274 |
|
|
|
|
| March 31, 2021 |
| |
|
| (in thousands) |
| |
Commitments to purchase loans acquired for sale |
| $ | 8,525,688 |
|
Note 20—17—Shareholders’ Equity
Preferred Shares of Beneficial Interest
Preferred shares of beneficial interest are summarized below:
|
|
|
| September 30, 2017 |
|
| |||||||||||||||||||||||||||||||||||||||
Series |
| Description (1) |
| Number of shares |
|
| Liquidation preference |
|
| Issuance discount |
|
| Carrying value |
|
| ||||||||||||||||||||||||||||||
|
|
|
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends per share quarter ended March 31, |
| ||||||||||||||||||||||||
Shared Series |
| Description (1) |
| Number of shares |
|
| Liquidation preference |
|
| Issuance discount |
|
| Carrying value |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||||||||||
Fixed-to-floating rate cumulative redeemable preferred | Fixed-to-floating rate cumulative redeemable preferred |
| (in thousands, except dividends per share) |
| |||||||||||||||||||||||||||||||||||||||||
A |
| 8.125% fixed-to-floating rate cumulative redeemable preferred, Issuance March 2017 |
|
| 4,600 |
|
| $ | 115,000 |
|
| $ | 3,828 |
|
| $ | 111,172 |
|
|
| 8.125% Issued March 2017 |
|
| 4,600 |
|
| $ | 115,000 |
|
| $ | 3,828 |
|
| $ | 111,172 |
|
| $ | 0.51 |
|
| $ | 0.51 |
|
B |
| 8.00% fixed-to-floating rate cumulative redeemable preferred, Issuance July 2017 |
|
| 7,800 |
|
|
| 195,000 |
|
|
| 6,465 |
|
|
| 188,535 |
|
|
| 8.00% Issued July 2017 |
|
| 7,800 |
|
|
| 195,000 |
|
|
| 6,465 |
|
|
| 188,535 |
|
| $ | 0.50 |
|
| $ | 0.50 |
|
|
|
|
|
| 12,400 |
|
| $ | 310,000 |
|
| $ | 10,293 |
|
| $ | 299,707 |
|
|
|
|
|
| 12,400 |
|
| $ | 310,000 |
|
| $ | 10,293 |
|
| $ | 299,707 |
|
|
|
|
|
|
|
|
|
(1) | Par value is $0.01 per |
During July 2017,The Company’s Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) pay cumulative dividends at a fixed rate of 8.125% per annum based on the $25.00 per share liquidation preference to, but not including, March 15, 2024. From, and including, March 15, 2024 and thereafter, the Company issued 7,800,000will pay cumulative dividends on the Series A Preferred Shares at a floating rate equal to three-month LIBOR as calculated on each applicable dividend determination date plus a spread of its 8.00%5.831% per annum based on the $25.00 per share liquidation preference.
The Company’s Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest $0.01 par value per share (the “Series B Preferred Shares”). From, and including, the date of original issuance to, but not including, June 15, 2024, the Company pays cumulative dividends on (together with the Series BA Preferred Shares, the “Preferred Shares”) pay cumulative dividends at a fixed rate of 8.00% per annum based on the $25.00 per share liquidation preference or $2.00 per share.to, but not including, June 15, 2024. From, and including, June 15, 2024 and thereafter, the Company will pay cumulative dividends on the Series B Preferred Shares at a floating rate equal to three-month LIBOR as calculated on each applicable dividend determination date plus a spread of 5.99% per annum based on the $25.00 per share liquidation preference. The Company paid dividends of $0.39 per Series B Preferred Share for the nine months ended September 30, 2017.
The Series A and Series B Preferred Shares will not be redeemable before March 15, 2024 and June 15, 2024, respectively, except in connection with the Company’s qualification as a REIT for U.S. federal income tax purposes and except as described belowor upon the occurrence of a change of control. On or after June 15, 2024,the date the Preferred Shares become redeemable, or 120 days after the first date on which such change of control occurred, the Company may, at its option, redeem any or all of the Series B Preferred Shares at $25.00 per share plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.
During March 2017, the Company issued 4,600,000 of its 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (“Series A Preferred Shares” and, together with the Series B Preferred Shares, the “Preferred Shares”). From, and including, the date of original issuance to, but not including, March 15, 2024, the Company pays cumulative dividends on the Series A Preferred Shares at a fixed rate of 8.125% per annum based on the $25.00 per share liquidation preference. From, and including, March 15, 2024 and thereafter, the Company will pay cumulative dividends on the Series A Preferred Shares at a floating rate equal to three-month LIBOR as calculated on each applicable dividend determination date plus a spread of 5.831% per annum based on the $25.00 per share liquidation preference. The Company paid dividends of $1.05 per Series A Preferred Share during the nine months ended September 30, 2017.
The Series A Preferred Shares will not be redeemable before March 15, 2024, except in connection with the Company’s qualification as a REIT for U.S. federal income tax purposes or upon the occurrence of a change of control of the Company as described in the prospectus supplement filed with the SEC on March 6, 2017. On or after March 15, 2024 or within 120 days of the occurrence of a change in control, the Company may, at its option, redeem any or all of the Series A Preferred Shares at $25.00 per share plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.
The Company will pay quarterly cumulative dividends on its Preferred Shares on the 15th day of each March, June, September and December, provided that if any dividend payment date is not a business day, then the dividend that would otherwise be payable on that dividend payment date may be paid on the following business day. The Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless redeemed or repurchased by the Company or converted into common shares in connection with a change of control by the holders of the Preferred Shares.
Common Shares of Beneficial Interest
“At-The-Market” (ATM) Equity Offering Program
During March 2019, the Company entered into separate equity distribution agreements to sell from time to time, through an ATM equity offering program under which the counterparties will act as sales agent and/or principal, the Company’s common shares having an aggregate offering price of up to $200 million. Following is a summary of the activities under the ATM equity offering program:
|
|
|
| Quarter ended March 31, 2020 |
| |
|
|
|
| (in thousands) |
| |
Number of common shares issued |
|
|
|
| 241 |
|
Gross proceeds |
|
|
| $ | 5,654 |
|
Net proceeds |
|
|
| $ | 5,597 |
|
At March 31, 2021, the Company had approximately $74.4 million of common shares of beneficial interest available for issuance under its ATM equity offering program.
50
Common Share RepurchasesRepurchase Program
During August 2015, the Company’s board of trustees authorized a common share repurchase program. Under the program, under whichas amended, the Company may repurchase up to $150$300 million of its outstanding common shares. During February 2016, the Company’s boardshares of
trustees approved an increase to its share repurchase program pursuant to which the Company is now authorized to repurchase up to $200 million of its common shares. beneficial interest.
The following table summarizes the Company’s share repurchase activity:
|
|
|
| Quarter ended |
|
| Cumulative |
| ||
|
|
|
| March 31, 2020 |
|
| total (1) |
| ||
| (in thousands) |
| ||||||||
Common shares repurchased |
|
|
|
| 783 |
|
|
| 17,498 |
|
Cost of common shares repurchased |
|
|
| $ | 5,783 |
|
| $ | 253,892 |
|
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
|
|
|
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Cumulative total (1) |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Common shares repurchased |
|
| 966 |
|
|
| 687 |
|
|
| 1,105 |
|
|
| 7,029 |
|
|
| 9,518 |
|
Cost of common shares repurchased |
| $ | 16,417 |
|
| $ | 10,595 |
|
| $ | 18,724 |
|
| $ | 93,429 |
|
| $ | 133,431 |
|
(1) | Amounts represent the share repurchase program total from its inception in August 2015 through |
The repurchased common shares were canceled upon settlement of the repurchase transactions and returned to the authorized but unissued common share pool.
Conditional Reimbursement of IPO Underwriting Costs
As more fully described in Note 4—Transactions with Related Parties,18— Net Gains on February 1, 2013, the Company entered into a Reimbursement Agreement, by and among the Company, the Operating Partnership and PCM. The Reimbursement Agreement provides that, to the extent the Company is required to pay PCM performance incentive fees under the management agreement, the Company will reimburse PCM for underwriting costs it paid on the IPO offering date at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement is subject to a maximum reimbursement in any particular 12-month period of $1.0 million, and the maximum amount that may be reimbursed under the agreement is $2.9 million. The Company paid reimbursements totaling $30,000 during the quarter and nine months ended September 30, 2017, and made no reimbursements during the quarter and nine months ended September 30, 2016.
The Reimbursement Agreement also provides for the payment to the IPO underwriters of the amount that the Company agreed to pay to them at the time of the IPO if the Company satisfied certain performance measures over a specified period of time. As PCM earns performance incentive fees under the management agreement, the IPO underwriters will be paid at a rate of $20 of payments for every $100 of performance incentive fees earned by PCM. The payment to the underwriters is subject to a maximum reimbursement in any particular 12-month period of $2.0 million and the maximum amount that may be paid under the agreement is $5.9 million. The Company made payments under the Reimbursement Agreement totaling $61,000 during the quarter and nine months ended September 30, 2017. No payments were made during the quarter and nine months ended September 30, 2016. The Reimbursement Agreement expires on February 1, 2019.
Note 21—Net Gain on Mortgage Loans Acquired for Sale
Net gaingains on mortgage loans acquired for sale is summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
| $ | (51,485 | ) |
| $ | (27,639 | ) |
| $ | (135,666 | ) |
| $ | (52,812 | ) |
Hedging activities |
|
| (13,468 | ) |
|
| (17,378 | ) |
|
| (16,931 | ) |
|
| (79,072 | ) |
|
|
| (64,953 | ) |
|
| (45,017 | ) |
|
| (152,597 | ) |
|
| (131,884 | ) |
Non cash gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
|
| 82,838 |
|
|
| 77,635 |
|
|
| 207,361 |
|
|
| 173,906 |
|
Provision for losses relating to representations and warranties provided in mortgage loan sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loans sales |
|
| (1,075 | ) |
|
| (781 | ) |
|
| (2,355 | ) |
|
| (2,002 | ) |
Reduction in liability due to change in estimate |
|
| 1,642 |
|
|
| 5,098 |
|
|
| 7,523 |
|
|
| 6,822 |
|
Change in fair value of financial instruments held at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
| 880 |
|
|
| (1,429 | ) |
|
| (2,502 | ) |
|
| 10,681 |
|
Mortgage loans |
|
| (1,165 | ) |
|
| 5,228 |
|
|
| 2,891 |
|
|
| 16,980 |
|
Hedging derivatives |
|
| (3,475 | ) |
|
| 587 |
|
|
| (15,377 | ) |
|
| 2,400 |
|
|
|
| (3,760 | ) |
|
| 4,386 |
|
|
| (14,988 | ) |
|
| 30,061 |
|
Total from non-affiliates |
|
| 14,692 |
|
|
| 41,321 |
|
|
| 44,944 |
|
|
| 76,903 |
|
From PFSI—cash gain |
|
| 3,275 |
|
|
| 2,537 |
|
|
| 9,340 |
|
|
| 6,230 |
|
|
| $ | 17,967 |
|
| $ | 43,858 |
|
| $ | 54,284 |
|
| $ | 83,133 |
|
Note 22—Net Gain (Loss) on Investments
Net gain (loss) on investments is summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 5,001 |
|
| $ | 517 |
|
| $ | 9,168 |
|
| $ | 9,948 |
|
Distressed mortgage loans at fair value |
|
| 3,277 |
|
|
| (3,400 | ) |
|
| 7,523 |
|
|
| (2,468 | ) |
Mortgage loans held in a VIE at fair value |
|
| 2,138 |
|
|
| (536 | ) |
|
| 6,309 |
|
|
| 7,810 |
|
CRT Agreements |
|
| 15,151 |
|
|
| 18,477 |
|
|
| 66,591 |
|
|
| 22,098 |
|
Asset-backed financing of a VIE at fair value |
|
| (2,158 | ) |
|
| 2,990 |
|
|
| (5,581 | ) |
|
| (5,974 | ) |
Hedging derivatives |
|
| (5,910 | ) |
|
| (945 | ) |
|
| (14,943 | ) |
|
| (245 | ) |
|
|
| 17,499 |
|
|
| 17,103 |
|
|
| 69,067 |
|
|
| 31,169 |
|
From PFSI—ESS |
|
| (3,665 | ) |
|
| (2,824 | ) |
|
| (10,920 | ) |
|
| (36,275 | ) |
|
| $ | 13,834 |
|
| $ | 14,279 |
|
| $ | 58,147 |
|
| $ | (5,106 | ) |
Note 23—Net Mortgage Loan Servicing Fees
Net mortgage loan servicing fees are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees (1) |
| $ | 44,280 |
|
| $ | 34,304 |
|
| $ | 123,869 |
|
| $ | 94,754 |
|
Effect of MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
| (21,634 | ) |
|
| (17,902 | ) |
|
| (59,015 | ) |
|
| (47,720 | ) |
Additions to impairment valuation allowance |
|
| (1,702 | ) |
|
| (3,460 | ) |
|
| (4,287 | ) |
|
| (44,336 | ) |
Gain on sale |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Carried at fair value—change in fair value |
|
| (3,977 | ) |
|
| (3,202 | ) |
|
| (10,370 | ) |
|
| (19,558 | ) |
Gains (losses) on hedging derivatives |
|
| 4,576 |
|
|
| 5,612 |
|
|
| (1,731 | ) |
|
| 63,006 |
|
|
|
| (22,737 | ) |
|
| (18,952 | ) |
|
| (75,403 | ) |
|
| (48,597 | ) |
|
|
| 21,543 |
|
|
| 15,352 |
|
|
| 48,466 |
|
|
| 46,157 |
|
From PFSI—MSR recapture income |
|
| 333 |
|
|
| 409 |
|
|
| 859 |
|
|
| 849 |
|
Net mortgage loan servicing fees |
| $ | 21,876 |
|
| $ | 15,761 |
|
| $ | 49,325 |
|
| $ | 47,006 |
|
Average servicing portfolio |
| $ | 63,584,416 |
|
| $ | 48,997,875 |
|
| $ | 61,764,228 |
|
| $ | 46,125,926 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
From nonaffiliates: |
|
|
|
|
|
|
|
|
Cash loss: |
|
|
|
|
|
|
|
|
Loans |
| $ | (592,789 | ) |
| $ | (68,954 | ) |
Hedging activities |
|
| 463,276 |
|
|
| (23,378 | ) |
|
|
| (129,513 | ) |
|
| (92,332 | ) |
Non-cash gain: |
|
|
|
|
|
|
|
|
Recognition of fair value of firm commitment to purchase CRT securities |
|
| 0 |
|
|
| (26,649 | ) |
Receipt of MSRs in mortgage loan sale transactions |
|
| 407,696 |
|
|
| 248,822 |
|
Provision for losses relating to representations and warranties provided in mortgage loan sales: |
|
|
|
|
|
|
|
|
Pursuant to loans sales |
|
| (8,513 | ) |
|
| (1,030 | ) |
Reduction of liability due to change in estimate |
|
| 1,424 |
|
|
| 1,344 |
|
|
|
| (7,089 | ) |
|
| 314 |
|
Change in fair value of loans and derivatives held at end of quarter: |
|
|
|
|
|
|
|
|
IRLCs |
|
| (137,243 | ) |
|
| 68,231 |
|
Loans |
|
| 83,223 |
|
|
| (36,782 | ) |
Hedging derivatives |
|
| (165,800 | ) |
|
| (116,990 | ) |
|
|
| (219,820 | ) |
|
| (85,541 | ) |
|
|
| 180,787 |
|
|
| 136,946 |
|
Total from nonaffiliates |
|
| 51,274 |
|
|
| 44,614 |
|
From PFSI—cash gain |
|
| 1,738 |
|
|
| 4,161 |
|
|
| $ | 53,012 |
|
| $ | 48,775 |
|
|
|
Note 24—19—Net Gains (Losses) on Investments
Net gains (losses) on investments are summarized below:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
From nonaffiliates: |
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | (71,117 | ) |
| $ | 115,967 |
|
Loans at fair value: |
|
| �� |
|
|
|
|
|
Held in a VIE |
|
| (2,345 | ) |
|
| (2,869 | ) |
Distressed |
|
| 95 |
|
|
| (1,142 | ) |
CRT arrangements |
|
| 154,031 |
|
|
| (487,292 | ) |
Firm commitment to purchase CRT securities |
|
| 0 |
|
|
| (492,513 | ) |
Asset-backed financing of a VIE at fair value |
|
| 900 |
|
|
| 1,928 |
|
Hedging derivatives |
|
| (24 | ) |
|
| 64,931 |
|
|
|
| 81,540 |
|
|
| (800,990 | ) |
From PFSI—ESS |
|
| 1,651 |
|
|
| (14,141 | ) |
|
| $ | 83,191 |
|
| $ | (815,131 | ) |
Note 20—Net Interest IncomeExpense
Net interest income is summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From nonaffiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 132 |
|
| $ | 165 |
|
| $ | 516 |
|
| $ | 747 |
| ||||||||
Cash and short-term investments |
| $ | 225 |
|
| $ | 1,627 |
| ||||||||||||||||
Mortgage-backed securities |
|
| 7,447 |
|
|
| 3,394 |
|
|
| 21,954 |
|
|
| 8,863 |
|
|
| 8,286 |
|
|
| 15,568 |
|
Mortgage loans acquired for sale at fair value |
|
| 16,202 |
|
|
| 15,008 |
|
|
| 40,699 |
|
|
| 37,868 |
| ||||||||
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Loans acquired for sale at fair value |
|
| 22,908 |
|
|
| 31,523 |
| ||||||||||||||||
Loans at fair value: |
|
|
|
|
|
|
|
| ||||||||||||||||
Held in a VIE |
|
| 1,899 |
|
|
| 2,641 |
| ||||||||||||||||
Distressed |
|
| 14,213 |
|
|
| 28,952 |
|
|
| 53,456 |
|
|
| 81,180 |
|
|
| 253 |
|
|
| 59 |
|
Held in a VIE |
|
| 3,766 |
|
|
| 4,040 |
|
|
| 11,370 |
|
|
| 14,520 |
| ||||||||
Deposits securing CRT Agreements |
|
| 1,440 |
|
|
| 285 |
|
|
| 2,703 |
|
|
| 661 |
| ||||||||
Deposits securing CRT arrangements |
|
| 168 |
|
|
| 6,099 |
| ||||||||||||||||
Placement fees relating to custodial funds |
|
| 4,330 |
|
|
| 1,445 |
|
|
| 8,212 |
|
|
| 2,786 |
|
|
| 2,532 |
|
|
| 12,398 |
|
Other |
|
| 49 |
|
|
| 18 |
|
|
| 142 |
|
|
| 86 |
|
|
| 38 |
|
|
| 234 |
|
|
|
| 47,579 |
|
|
| 53,307 |
|
|
| 139,052 |
|
|
| 146,711 |
|
|
| 36,309 |
|
|
| 70,149 |
|
From PFSI—ESS |
|
| 3,998 |
|
|
| 4,827 |
|
|
| 13,011 |
|
|
| 17,555 |
|
|
| 1,280 |
|
|
| 1,974 |
|
|
|
| 51,577 |
|
|
| 58,134 |
|
|
| 152,063 |
|
|
| 164,266 |
|
|
| 37,589 |
|
|
| 72,123 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To nonaffiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 26,157 |
|
|
| 23,751 |
|
|
| 72,280 |
|
|
| 66,217 |
|
|
| 28,659 |
|
|
| 37,750 |
|
Mortgage loan participation purchase and sale agreements |
|
| 409 |
|
|
| 361 |
|
|
| 1,225 |
|
|
| 1,023 |
|
|
| 164 |
|
|
| 338 |
|
FHLB advances |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122 |
| ||||||||
Notes payable |
|
| 2,320 |
|
|
| 2,883 |
|
|
| 9,719 |
|
|
| 9,217 |
| ||||||||
Asset-backed financings of VIEs at fair value |
|
| 3,515 |
|
|
| 5,253 |
|
|
| 10,520 |
|
|
| 10,212 |
| ||||||||
Notes payable secured by credit risk transfer and mortgage servicing assets |
|
| 18,599 |
|
|
| 19,618 |
| ||||||||||||||||
Exchangeable Notes |
|
| 3,636 |
|
|
| 3,620 |
|
|
| 10,895 |
|
|
| 10,848 |
|
|
| 5,542 |
|
|
| 7,266 |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 1,638 |
|
|
| 2,142 |
|
|
| 4,068 |
|
|
| 4,703 |
| ||||||||
Interest on mortgage loan impound deposits |
|
| 486 |
|
|
| 346 |
|
|
| 1,229 |
|
|
| 787 |
| ||||||||
Asset-backed financings of a VIE at fair value |
|
| 168 |
|
|
| 4,527 |
| ||||||||||||||||
Interest shortfall on repayments of loans serviced for Agency securitizations |
|
| 22,040 |
|
|
| 9,439 |
| ||||||||||||||||
Interest on loan impound deposits |
|
| 749 |
|
|
| 912 |
| ||||||||||||||||
|
|
| 38,161 |
|
|
| 38,356 |
|
|
| 109,936 |
|
|
| 103,129 |
|
|
| 75,921 |
|
|
| 79,850 |
|
To PFSI—Assets sold under agreement to repurchase |
|
| 2,116 |
|
|
| 1,974 |
|
|
| 5,946 |
|
|
| 5,798 |
|
|
| 387 |
|
|
| 1,218 |
|
|
|
| 40,277 |
|
|
| 40,330 |
|
|
| 115,882 |
|
|
| 108,927 |
|
|
| 76,308 |
|
|
| 81,068 |
|
Net interest income |
| $ | 11,300 |
|
| $ | 17,804 |
|
| $ | 36,181 |
|
| $ | 55,339 |
| ||||||||
Net interest expense |
| $ | (38,719 | ) |
| $ | (8,945 | ) | ||||||||||||||||
Note 25—21—Share-Based Compensation Plans
AsThe Company has adopted an equity incentive plan which provides for the issuance of September 30, 2017 and December 31, 2016,equity based awards based on PMT’s common shares that may be made by the Company had oneto its officers and trustees, and the members, officers, trustees, directors and employees of PCM, PFSI, or their affiliates and to PCM, PFSI and other entities that provide services to PMT and the employees of such other entities.
The equity incentive plan is administered by the Company’s compensation committee, pursuant to authority delegated by PMT’s board of trustees, which has the authority to make awards to the eligible participants referenced above, and to determine what form the awards will take, and the terms and conditions of the awards.
The Company’s equity incentive plan allows for grants of share-based compensation plan. awards up to an aggregate of 8% of PMT’s issued and outstanding shares on a diluted basis at the time of the award.
The shares underlying award grants will again be available for award under the equity incentive plan if:
• | any shares subject to an award granted under the equity incentive plan are forfeited, canceled, exchanged or surrendered; |
• | an award terminates or expires without a distribution of shares to the participant; or |
• | shares are surrendered or withheld by PMT as payment of either the exercise price of an award and/or withholding taxes for an award. |
Restricted share units have been awarded to trustees and officers of the Company and to other employees of PFSI and its subsidiaries at no cost to the grantees. Such awards generally vest over a one-to three-year period.
The following table summarizes the Company’s share-based compensation activity:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Restricted share units granted |
|
| 2 |
|
|
| — |
|
|
| 136 |
|
|
| 218 |
|
Performance share units granted |
|
| — |
|
|
| — |
|
|
| 126 |
|
|
| 112 |
|
Total share units granted |
|
| 2 |
|
|
| — |
|
|
| 262 |
|
|
| 330 |
|
Grant date fair value of restricted share units granted |
| $ | 36 |
|
| $ | — |
|
| $ | 2,317 |
|
| $ | 2,690 |
|
Grant date fair value of performance share units granted |
|
| — |
|
|
| — |
|
|
| 1,675 |
|
|
| 1,351 |
|
Total fair value of share units granted |
| $ | 36 |
|
| $ | — |
|
| $ | 3,992 |
|
| $ | 4,041 |
|
Restricted share units vested |
|
| — |
|
|
| — |
|
|
| 284 |
|
|
| 299 |
|
Performance share units vested |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total share units vested |
|
| — |
|
|
| — |
|
|
| 284 |
|
|
| 299 |
|
Restricted share units forfeited |
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 299 |
|
Performance share units forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total share units forfeited |
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 299 |
|
Compensation expense relating to share-based grants |
| $ | 737 |
|
| $ | 1,129 |
|
| $ | 3,864 |
|
| $ | 4,142 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Grants: |
|
|
|
|
|
|
|
|
Restricted share units |
|
| 101 |
|
|
| 92 |
|
Performance share units |
|
| 84 |
|
|
| 112 |
|
Total share units granted |
|
| 185 |
|
|
| 204 |
|
Grant date fair value: |
|
|
|
|
|
|
|
|
Restricted share units |
| $ | 1,917 |
|
| $ | 1,978 |
|
Performance share units |
|
| 1,602 |
|
|
| 2,428 |
|
Total grant date value of share units |
| $ | 3,519 |
|
| $ | 4,406 |
|
Vestings: |
|
|
|
|
|
|
|
|
Restricted share units |
|
| 100 |
|
|
| 123 |
|
Performance share units (1) |
|
| 37 |
|
|
| 143 |
|
Total share units vested |
|
| 137 |
|
|
| 266 |
|
Forfeitures: |
|
|
|
|
|
|
|
|
Restricted share units |
|
| 0 |
|
|
| 0 |
|
Performance share units |
|
| 0 |
|
|
| 0 |
|
Total share units forfeited |
|
| 0 |
|
|
| 0 |
|
Compensation expense relating to share-based grants |
| $ | 1,738 |
|
| $ | 186 |
|
Note 26—Other Expenses
Other expenses are summarized below:
(1) | The actual number of performance-based RSUs that vested during the quarter ended March 31, 2021 was 37,000 common shares, which is 100% of the originally granted performance-based RSUs. |
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Common overhead allocation from PFSI |
| $ | 1,193 |
|
| $ | 1,417 |
|
| $ | 4,220 |
|
| $ | 6,413 |
|
Real estate held for investment |
|
| 1,898 |
|
|
| 821 |
|
|
| 4,339 |
|
|
| 2,308 |
|
Technology |
|
| 374 |
|
|
| 279 |
|
|
| 1,088 |
|
|
| 1,045 |
|
Insurance |
|
| 300 |
|
|
| 304 |
|
|
| 968 |
|
|
| 938 |
|
Other |
|
| 1,434 |
|
|
| 1,123 |
|
|
| 4,428 |
|
|
| 2,713 |
|
|
| $ | 5,199 |
|
| $ | 3,944 |
|
| $ | 15,043 |
|
| $ | 13,417 |
|
|
| March 31, 2021 |
| |||||
|
| Restricted share units |
|
| Performance share units |
| ||
Shares expected to vest: |
|
| ||||||
Number of units (in thousands) |
|
| 190 |
|
|
| 251 |
|
Grant date average fair value per unit |
| $ | 20.07 |
|
| $ | 19.26 |
|
Note 27—22—Income Taxes
The Company’s effective tax rate was 19.7% and 2.1%21.3% with consolidated pretax income of $91.0 million for the quarter and nine months ended September 30, 2017 and 21.3% and 6.8% for the quarter and nine months ended September 30, 2016, respectively.March 31, 2021. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax expense of $4.8$19.4 million on pretax income of $12.0$88.1 million andfor the quarter ended March 31, 2020. For the same period in 2020, the TRS recognized tax expense of $0.9$10.1 million on incomepretax loss of $4.5$21.8 million, while the Company’s reported consolidated pretax income was $24.2 million and $78.6 millionloss for the quarter and nine months ended September 30, 2017. For the same periods in 2016, the Company’s taxable REIT subsidiary recognized tax expense of $9.7 million and $3.6 million on income of $24.2 million and $9.0 million, respectively, while the Company’s reported consolidated pretax incomeMarch 31, 2020 was $45.0 million and $47.9 million during such periods. The relative values between the tax benefit or expense at the taxable REIT subsidiary and the Company’s consolidated pretax income drive the fluctuation in the effective tax rate.$584.4 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is duegenerally attributable to nontaxable REIT income resulting from the dividends paid deduction.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2021, the valuation allowance was reduced to $0 from the $110,000 valuation allowance recorded at December 31, 2020 as the result of positive GAAP income at the TRS for the quarter ended March 31, 2021. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
The CARES Act, passed in March 2020, introduced a number of tax law changes which are generally taxpayer favorable and, in December 2020, the Taxpayer Certainty and Disaster Tax Relief Act was signed into law. No material changes in our effective income tax rates resulted from either Act. The CARES Act does provide for carry back of losses from 2018, 2019 and 2020. However, the TRS does not have taxable income from prior years to which the losses could be carried back.
In general, cash dividends declared by the Company will be considered ordinary income to the shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or a return of capital. 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.
The Company grants restricted share units which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.
Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Basic earnings per share is determined by dividing net income available to common shareholders (net income reduced by preferred dividends and income attributable to the participating securities,securities) by the weighted-averageweighted average common shares outstanding during the period.
Diluted earnings per share is determined by dividing net income attributable to diluted shareholders, which adds back to net income the interest expense, net of applicable income taxes, on the Company’s Exchangeable2020 Notes, by the weighted-averageweighted average common shares outstanding, assuming all dilutive securities were issued. In periods in whichThe Company issued the Exchangeable Notes. The Exchangeable Notes include cash conversion options. The Company records a loss, potentially dilutive securities areintends to cash settle the Exchangeable Notes. Therefore, the effect of conversion of the Exchangeable Notes is excluded from the diluted lossearnings (loss) per share calculation, as their effect on loss per share is anti-dilutive.share.
The following table summarizes the basic and diluted earnings per share calculations:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands except per share amounts) |
| |||||||||||||
Net income |
| $ | 19,395 |
|
| $ | 35,408 |
|
| $ | 76,911 |
|
| $ | 44,637 |
|
Preferred share dividends |
|
| (6,125 | ) |
|
| — |
|
|
| (9,032 | ) |
|
| — |
|
Effect of participating securities—share-based compensation awards |
|
| (231 | ) |
|
| (341 | ) |
|
| (760 | ) |
|
| (1,026 | ) |
Net income available to common shareholders |
| $ | 13,039 |
|
| $ | 35,067 |
|
| $ | 67,119 |
|
| $ | 43,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
| $ | 13,039 |
|
| $ | 35,067 |
|
| $ | 67,119 |
|
| $ | 43,611 |
|
Interest on Exchangeable Notes, net of income taxes |
|
| — |
|
|
| 2,181 |
|
|
| 6,564 |
|
|
| — |
|
Diluted net income attributable to common shareholders |
| $ | 13,039 |
|
| $ | 37,248 |
|
| $ | 73,683 |
|
| $ | 43,611 |
|
Weighted-average basic shares outstanding |
|
| 66,636 |
|
|
| 67,554 |
|
|
| 66,702 |
|
|
| 69,289 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable under share-based compensation plan |
|
| — |
|
|
| 308 |
|
|
| — |
|
|
| — |
|
Shares issuable pursuant to exchange of the Exchangeable Notes |
|
| — |
|
|
| 8,467 |
|
|
| 8,467 |
|
|
| — |
|
Diluted weighted-average number of shares outstanding |
|
| 66,636 |
|
|
| 76,329 |
|
|
| 75,169 |
|
|
| 69,289 |
|
Basic earnings per share |
| $ | 0.20 |
|
| $ | 0.52 |
|
| $ | 1.01 |
|
| $ | 0.63 |
|
Diluted earnings per share |
| $ | 0.20 |
|
| $ | 0.49 |
|
| $ | 0.98 |
|
| $ | 0.63 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands except per share amounts) |
| ||||||
Net income (loss) |
| $ | 71,603 |
|
| $ | (594,673 | ) |
Dividends on preferred shares |
|
| (6,234 | ) |
|
| (6,234 | ) |
Effect of participating securities—share-based compensation awards |
|
| (120 | ) |
|
| (50 | ) |
Net income (loss) attributable to common shareholders |
| $ | 65,249 |
|
| $ | (600,957 | ) |
Weighted average basic shares outstanding |
|
| 97,892 |
|
|
| 100,245 |
|
Dilutive securities-shares issuable under share-based compensation plan |
|
| 211 |
|
|
| 0 |
|
Diluted weighted average number of shares outstanding |
|
| 98,103 |
|
|
| 100,245 |
|
Basic earnings (loss) per share |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Diluted earnings (loss) per share |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Calculation of diluted earnings per share requires certain potentially dilutive shares to be excluded based on whetherwhen the inclusion of such shares in the diluted earnings per share calculation would be antidilutive.anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the diluted earnings per share calculation for the periods as inclusion of such shares would have been antidilutive:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Shares issuable under share-based compensation awards |
|
| 643 |
|
|
| — |
|
|
| 699 |
|
|
| 717 |
|
Shares issuable pursuant to exchange of the Exchangeable Notes |
|
| 8,467 |
|
|
| — |
|
|
| — |
|
|
| 8,467 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Shares issuable under share-based compensation plan |
|
| 11 |
|
|
| 135 |
|
Shares issuable pursuant to exchange of the 2020 Notes |
|
| 0 |
|
|
| 8,467 |
|
Note 29—24—Segments and Related Information
During the nine months ended September 30, 2017, the Company changed the composition of its operating segments. The reporting used by the Company’s chief operating decision maker has changed as the Company’s investment activities have become more diversified. The Manager has focused this broadened investment base on two classes of investments: credit sensitive and interest rate sensitive mortgage related assets. As this focus has developed, the Manager’s reporting on and management of the Company’s investments has also developed along these lines. Accordingly, during the nine months ended September 30, 2017, the Manager re-evaluated this new information in relation to its definition of its operating segments.
The Company has redefined its segment reporting to separately distinguish its investment activities between credit sensitive and interest rate sensitive investments and certain corporate activities.
Credit sensitive investment strategies include investmentsoperates in distressed mortgage loans, REO, CRT Agreements, non-Agency subordinated bonds and small balance commercial real estate mortgage loans. Interest rate sensitive strategies include investments4 segments as described in MSRs, ESS, Agency and senior non-Agency MBS and the related interest rate hedging activities. The corporate segment includes certain interest income, management fee and corporate expense amounts.
Segment results for the quarter and nine months ended September 30, 2016 have been restated to conform prior year presentation to the new segment composition.Note 1—Organization.
Financial highlights by operating segment are summarized below:
Quarter ended September 30, 2017 |
| Correspondent production |
|
| Credit sensitive strategies |
|
| Interest rate sensitive strategies |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale |
| $ | 17,963 |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 17,967 |
|
Net gain (loss) on investments |
|
| — |
|
|
| 18,562 |
|
|
| (4,728 | ) |
|
| — |
|
|
| 13,834 |
|
Net mortgage loan servicing fees |
|
| — |
|
|
| 47 |
|
|
| 21,829 |
|
|
| — |
|
|
| 21,876 |
|
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 16,018 |
|
|
| 15,951 |
|
|
| 19,426 |
|
|
| 182 |
|
|
| 51,577 |
|
Interest expense |
|
| (11,351 | ) |
|
| (13,096 | ) |
|
| (15,830 | ) |
|
| — |
|
|
| (40,277 | ) |
|
|
| 4,667 |
|
|
| 2,855 |
|
|
| 3,596 |
|
|
| 182 |
|
|
| 11,300 |
|
Other income (loss) |
|
| 11,762 |
|
|
| (935 | ) |
|
| — |
|
|
| — |
|
|
| 10,827 |
|
|
|
| 34,392 |
|
|
| 20,533 |
|
|
| 20,697 |
|
|
| 182 |
|
|
| 75,804 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
| 23,508 |
|
|
| 4,273 |
|
|
| 7,128 |
|
|
| — |
|
|
| 34,909 |
|
Management fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,038 |
|
|
| 6,038 |
|
Other |
|
| 2,574 |
|
|
| 3,194 |
|
|
| 265 |
|
|
| 4,658 |
|
|
| 10,691 |
|
|
|
| 26,082 |
|
|
| 7,467 |
|
|
| 7,393 |
|
|
| 10,696 |
|
|
| 51,638 |
|
Pre-tax income (loss) |
| $ | 8,310 |
|
| $ | 13,066 |
|
| $ | 13,304 |
|
| $ | (10,514 | ) |
| $ | 24,166 |
|
Total assets at end of period |
| $ | 1,304,647 |
|
| $ | 1,959,792 |
|
| $ | 2,414,477 |
|
| $ | 106,127 |
|
| $ | 5,785,043 |
|
Quarter ended September 30, 2016 |
| Correspondent production |
|
| Credit sensitive strategies |
|
| Interest rate sensitive strategies |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale |
| $ | 43,946 |
|
| $ | (88 | ) |
| $ | — |
|
| $ | — |
|
| $ | 43,858 |
|
Net gain (loss) on investments |
|
| — |
|
|
| 16,145 |
|
|
| (1,866 | ) |
|
| — |
|
|
| 14,279 |
|
Net mortgage loan servicing fees |
|
| — |
|
|
| — |
|
|
| 15,761 |
|
|
| — |
|
|
| 15,761 |
|
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 14,835 |
|
|
| 29,771 |
|
|
| 13,346 |
|
|
| 182 |
|
|
| 58,134 |
|
Interest expense |
|
| (9,613 | ) |
|
| (14,944 | ) |
|
| (15,773 | ) |
|
| — |
|
|
| (40,330 | ) |
|
|
| 5,222 |
|
|
| 14,827 |
|
|
| (2,427 | ) |
|
| 182 |
|
|
| 17,804 |
|
Other income |
|
| 12,724 |
|
|
| (1,100 | ) |
|
| — |
|
|
| — |
|
|
| 11,624 |
|
|
|
| 61,892 |
|
|
| 29,784 |
|
|
| 11,468 |
|
|
| 182 |
|
|
| 103,326 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment and servicing fees payable to PFSI |
|
| 27,255 |
|
|
| 5,629 |
|
|
| 5,410 |
|
|
| — |
|
|
| 38,294 |
|
Management fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,025 |
|
|
| 5,025 |
|
Other |
|
| 2,539 |
|
|
| 7,542 |
|
|
| 424 |
|
|
| 4,488 |
|
|
| 14,993 |
|
|
|
| 29,794 |
|
|
| 13,171 |
|
|
| 5,834 |
|
|
| 9,513 |
|
|
| 58,312 |
|
Pre-tax income (loss) |
| $ | 32,098 |
|
| $ | 16,613 |
|
| $ | 5,634 |
|
| $ | (9,331 | ) |
| $ | 45,014 |
|
Total assets at end of period |
| $ | 2,088,515 |
|
| $ | 2,446,785 |
|
| $ | 1,910,121 |
|
| $ | 173,480 |
|
| $ | 6,618,901 |
|
|
| Credit |
|
| Interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| sensitive |
|
| sensitive |
|
| Correspondent |
|
|
|
|
|
|
|
|
| |||
March 31, 2021 |
| strategies |
|
| strategies |
|
| production |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain on loans acquired for sale |
| $ | (1 | ) |
| $ | 0 |
|
| $ | 53,013 |
|
| $ | 0 |
|
| $ | 53,012 |
|
Net gain (loss) on investments |
|
| 154,271 |
|
|
| (71,080 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 83,191 |
|
Net loan servicing fees |
|
| 0 |
|
|
| 50,045 |
|
|
| 0 |
|
|
| 0 |
|
|
| 50,045 |
|
Net interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 650 |
|
|
| 13,516 |
|
|
| 22,797 |
|
|
| 626 |
|
|
| 37,589 |
|
Interest expense |
|
| 17,261 |
|
|
| 37,316 |
|
|
| 21,731 |
|
|
| 0 |
|
|
| 76,308 |
|
|
|
| (16,611 | ) |
|
| (23,800 | ) |
|
| 1,066 |
|
|
| 626 |
|
|
| (38,719 | ) |
Other |
|
| 888 |
|
|
| 0 |
|
|
| 52,980 |
|
|
| 0 |
|
|
| 53,868 |
|
|
|
| 138,547 |
|
|
| (44,835 | ) |
|
| 107,059 |
|
|
| 626 |
|
|
| 201,397 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan fulfillment and servicing fees payable to PFSI |
|
| 137 |
|
|
| 18,955 |
|
|
| 60,836 |
|
|
| 0 |
|
|
| 79,928 |
|
Management fees |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,449 |
|
|
| 8,449 |
|
Other |
|
| 4,150 |
|
|
| 812 |
|
|
| 10,646 |
|
|
| 6,384 |
|
|
| 21,992 |
|
|
|
| 4,287 |
|
|
| 19,767 |
|
|
| 71,482 |
|
|
| 14,833 |
|
|
| 110,369 |
|
Pretax (loss) income |
| $ | 134,260 |
|
| $ | (64,602 | ) |
| $ | 35,577 |
|
| $ | (14,207 | ) |
| $ | 91,028 |
|
Total assets at quarter end |
| $ | 2,772,111 |
|
| $ | 4,739,849 |
|
| $ | 4,796,564 |
|
| $ | 213,730 |
|
| $ | 12,522,254 |
|
Nine months ended September 30, 2017 |
| Correspondent production |
|
| Credit sensitive strategies |
|
| Interest rate sensitive strategies |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale |
| $ | 54,117 |
|
| $ | 167 |
|
| $ | — |
|
| $ | — |
|
| $ | 54,284 |
|
Net gain (loss) on investments |
|
| — |
|
|
| 74,695 |
|
|
| (16,548 | ) |
|
| — |
|
|
| 58,147 |
|
Net mortgage loan servicing fees |
|
| — |
|
|
| 91 |
|
|
| 49,234 |
|
|
| — |
|
|
| 49,325 |
|
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 40,194 |
|
|
| 57,011 |
|
|
| 54,200 |
|
|
| 658 |
|
|
| 152,063 |
|
Interest expense |
|
| (28,214 | ) |
|
| (41,178 | ) |
|
| (46,490 | ) |
|
| — |
|
|
| (115,882 | ) |
|
|
| 11,980 |
|
|
| 15,833 |
|
|
| 7,710 |
|
|
| 658 |
|
|
| 36,181 |
|
Other income (loss) |
|
| 30,576 |
|
|
| (4,281 | ) |
|
| — |
|
|
| 5 |
|
|
| 26,300 |
|
|
|
| 96,673 |
|
|
| 86,505 |
|
|
| 40,396 |
|
|
| 663 |
|
|
| 224,237 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
| 61,191 |
|
|
| 12,143 |
|
|
| 19,837 |
|
|
| — |
|
|
| 93,171 |
|
Management fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,684 |
|
|
| 16,684 |
|
Other |
|
| 6,614 |
|
|
| 11,419 |
|
|
| 1,094 |
|
|
| 16,656 |
|
|
| 35,783 |
|
|
|
| 67,805 |
|
|
| 23,562 |
|
|
| 20,931 |
|
|
| 33,340 |
|
|
| 145,638 |
|
Pre-tax income (loss) |
| $ | 28,868 |
|
| $ | 62,943 |
|
| $ | 19,465 |
|
| $ | (32,677 | ) |
| $ | 78,599 |
|
Total assets at period end |
| $ | 1,304,647 |
|
| $ | 1,959,792 |
|
| $ | 2,414,477 |
|
| $ | 106,127 |
|
| $ | 5,785,043 |
|
Nine months ended September 30, 2016 |
| Correspondent production |
|
| Credit sensitive strategies |
|
| Interest rate sensitive strategies |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on mortgage loans acquired for sale |
| $ | 83,565 |
|
| $ | (432 | ) |
| $ | — |
|
| $ | — |
|
| $ | 83,133 |
|
Net gain (loss) on investments |
|
| — |
|
|
| 21,389 |
|
|
| (26,495 | ) |
|
| — |
|
|
| (5,106 | ) |
Net mortgage loan servicing fees |
|
| — |
|
|
| — |
|
|
| 47,006 |
|
|
| — |
|
|
| 47,006 |
|
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 37,248 |
|
|
| 83,550 |
|
|
| 43,017 |
|
|
| 451 |
|
|
| 164,266 |
|
Interest expense |
|
| (23,144 | ) |
|
| (47,039 | ) |
|
| (38,744 | ) |
|
| — |
|
|
| (108,927 | ) |
|
|
| 14,104 |
|
|
| 36,511 |
|
|
| 4,273 |
|
|
| 451 |
|
|
| 55,339 |
|
Other income (loss) |
|
| 28,186 |
|
|
| (5,398 | ) |
|
| — |
|
|
| — |
|
|
| 22,788 |
|
|
|
| 125,855 |
|
|
| 52,070 |
|
|
| 24,784 |
|
|
| 451 |
|
|
| 203,160 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
| 59,301 |
|
|
| 23,863 |
|
|
| 15,056 |
|
|
| — |
|
|
| 98,220 |
|
Management fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,576 |
|
|
| 15,576 |
|
Other |
|
| 5,620 |
|
|
| 17,209 |
|
|
| 1,018 |
|
|
| 17,618 |
|
|
| 41,465 |
|
|
|
| 64,921 |
|
|
| 41,072 |
|
|
| 16,074 |
|
|
| 33,194 |
|
|
| 155,261 |
|
Pre-tax income |
| $ | 60,934 |
|
| $ | 10,998 |
|
| $ | 8,710 |
|
| $ | (32,743 | ) |
| $ | 47,899 |
|
Total assets at period end |
| $ | 2,088,515 |
|
| $ | 2,446,785 |
|
| $ | 1,910,121 |
|
| $ | 173,480 |
|
| $ | 6,618,901 |
|
|
| Credit |
|
| Interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| sensitive |
|
| sensitive |
|
| Correspondent |
|
|
|
|
|
|
|
|
| |||
Quarter ended March 31, 2020 |
| strategies |
|
| strategies |
|
| production |
|
| Corporate |
|
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain on loans acquired for sale |
| $ | (32,306 | ) |
| $ | 0 |
|
| $ | 81,081 |
|
| $ | 0 |
|
| $ | 48,775 |
|
Net (loss) gain on investments |
|
| (919,109 | ) |
|
| 103,978 |
|
|
| 0 |
|
|
| 0 |
|
|
| (815,131 | ) |
Net loan servicing fees |
|
| 0 |
|
|
| 244,572 |
|
|
| 0 |
|
|
| 0 |
|
|
| 244,572 |
|
Net interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 6,556 |
|
|
| 33,241 |
|
|
| 31,407 |
|
|
| 919 |
|
|
| 72,123 |
|
Interest expense |
|
| 14,566 |
|
|
| 41,608 |
|
|
| 24,309 |
|
|
| 585 |
|
|
| 81,068 |
|
|
|
| (8,010 | ) |
|
| (8,367 | ) |
|
| 7,098 |
|
|
| 334 |
|
|
| (8,945 | ) |
Other |
|
| 166 |
|
|
| 0 |
|
|
| 23,988 |
|
|
| 58 |
|
|
| 24,212 |
|
|
|
| (959,259 | ) |
|
| 340,183 |
|
|
| 112,167 |
|
|
| 392 |
|
|
| (506,517 | ) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan fulfillment and servicing fees payable to PFSI |
|
| 301 |
|
|
| 14,220 |
|
|
| 41,940 |
|
|
| 0 |
|
|
| 56,461 |
|
Management fees |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,055 |
|
|
| 9,055 |
|
Other |
|
| 911 |
|
|
| 1,182 |
|
|
| 4,918 |
|
|
| 5,381 |
|
|
| 12,392 |
|
|
|
| 1,212 |
|
|
| 15,402 |
|
|
| 46,858 |
|
|
| 14,436 |
|
|
| 77,908 |
|
Pretax (loss) income |
| $ | (960,471 | ) |
| $ | 324,781 |
|
| $ | 65,309 |
|
| $ | (14,044 | ) |
| $ | (584,425 | ) |
Total assets at quarter end |
| $ | 1,947,153 |
|
| $ | 5,664,991 |
|
| $ | 3,068,163 |
|
| $ | 1,238,181 |
|
| $ | 11,918,488 |
|
Note 30—25—Supplemental Cash Flow Information
|
| Nine months ended September 30, 2017 |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Cash paid for interest |
| $ | 115,108 |
|
| $ | 111,008 |
|
Income taxes (refunded) paid, net |
| $ | (294 | ) |
| $ | 388 |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
Receipt of MSRs as proceeds from sales of mortgage loans |
| $ | 207,361 |
|
| $ | 173,906 |
|
Transfer of mortgage loans and advances to real estate acquired in settlement of loans |
| $ | 76,981 |
|
| $ | 156,352 |
|
Transfer of real estate acquired in settlement of mortgage loans to real estate held for investment |
| $ | 14,300 |
|
| $ | 17,548 |
|
Receipt of ESS pursuant to recapture agreement with PFSI |
| $ | 4,160 |
|
| $ | 5,039 |
|
Capitalization of servicing advances pursuant to mortgage loan modifications |
| $ | 17,759 |
|
| $ | — |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Dividends payable |
| $ | 31,655 |
|
| $ | 31,804 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Payments: |
|
|
|
|
|
|
|
|
Income taxes, net |
| $ | 494 |
|
| $ | 0 |
|
Interest |
| $ | 91,611 |
|
| $ | 104,757 |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
Transfer of loans and advances to real estate acquired in settlement of loans |
| $ | 280 |
|
| $ | 1,166 |
|
Receipt of mortgage servicing rights as proceeds from sales of loans at fair value |
| $ | 407,696 |
|
| $ | 248,822 |
|
Receipt of excess servicing spread pursuant to recapture agreement with PennyMac Financial Services, Inc. |
| $ | 557 |
|
| $ | 379 |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Dividends declared, not paid |
| $ | 46,109 |
|
| $ | 25,009 |
|
Note 31—26—Regulatory Capital and Liquidity Requirements
PMCThe Company is a seller/servicersubject to financial eligibility requirements established by the Federal Housing Finance Agency (“FHFA”) for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac. The Company is required to comply with the following minimum capital and liquidity eligibility requirements to remain in good standing with each Agency:include:
A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential mortgage loans serviced;
• | A tangible net worth of $2.5 million plus 25 basis points of the UPB of the Company’s total 1-4 unit servicing portfolio, excluding mortgage loans subserviced for others; |
A tangible net worth/total assets ratio greater than or equal to 6%; and
• | A tangible net worth/total assets ratio greater than or equal to 6%; and |
Liquidity equal to or exceeding 3.5 basis points multiplied by the aggregate UPB of all mortgages secured by 1-4 unit residential properties serviced for Freddie Mac and Fannie Mae (“Agency Mortgage Servicing”) plus 200 basis points multiplied by the sum of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that exceeds 6% of Agency Mortgage Servicing.
• | A liquidity requirement effective June 30, 2020 equal to 3.5 basis points of the aggregate UPB serviced for the Agencies plus 200 basis points of total nonperforming Agency servicing UPB less 70% of such nonperforming Agency servicing UPB in excess of 600 basis points where the underlying loans are in forbearance but were current at the time they entered forbearance. |
SuchThe Agencies’ capital and liquidity amounts and requirements, the calculations of which are defined by each entity, are summarized below:
|
| September 30, 2017 |
| |||||||||||||||||||||
|
| Net Worth (1) |
|
| Tangible Net Worth / Total Assets Ratio (1) |
|
| Liquidity (1) |
| |||||||||||||||
Fannie Mae and Freddie Mac |
| Actual |
|
| Required |
|
| Actual |
|
| Required |
|
| Actual |
|
| Required |
| ||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
| |||||||||||||||
September 30, 2017 |
| $ | 466,530 |
|
| $ | 172,311 |
|
|
| 12 | % |
|
| 6 | % |
| $ | 86,919 |
|
| $ | 23,774 |
|
December 31, 2016 |
| $ | 392,056 |
|
| $ | 143,259 |
|
|
| 12 | % |
|
| 6 | % |
| $ | 26,670 |
|
| $ | 19,706 |
|
|
| Net Worth (1) |
|
| Tangible Net Worth / Total Assets Ratio (1) |
|
| Liquidity (1) |
| |||||||||||||||
Fannie Mae and Freddie Mac |
| Actual |
|
| Required |
|
| Actual |
|
| Required |
|
| Actual |
|
| Required |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
March 31, 2021 |
| $ | 1,170,013 |
|
| $ | 473,294 |
|
|
| 14 | % |
|
| 6 | % |
| $ | 155,419 |
|
| $ | 63,664 |
|
December 31, 2020 |
| $ | 1,101,318 |
|
| $ | 438,530 |
|
|
| 16 | % |
|
| 6 | % |
| $ | 101,116 |
|
| $ | 59,158 |
|
(1) | Calculated in accordance with the Agencies’ |
Noncompliance with the Agencies’ capital and liquidity requirements can result in the Agencies taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the Agencies.
Note 32—Recently Issued Accounting Pronouncements
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Subtopic 606) (“ASU 2014-09”), which supersedes the guidance in the Revenue Recognition topic of the ASC. ASU 2014-09 clarifies the principles for recognizing revenue in order to improve comparability of revenue recognition practices across entities and industries with certain scope exceptions including financial instruments, leases, and guarantees. ASU 2014-09 provides guidance intended to assist in the identification of contracts with customers and separate performance obligations within those contracts, the determination and allocation of the transaction price to those identified performance obligations and the recognition of revenue when a performance obligation has been satisfied. ASU 2014-09 also requires disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers.
Upon adoption, ASU 2014-09 provides for transition through either a full retrospective approach requiring the restatement of all presented prior periods or a modified retrospective approach, which allows the new recognition standard to be applied to only those contracts that are not completed at the date of transition. If the modified retrospective approach is adopted, a cumulative-effect adjustment to retained earnings is performed with additional disclosures required including the amount by which each line item is affected by the transition as compared to the guidance in effect before adoption and an explanation of the reasons for significant changes in these amounts.
The FASB has issued several amendments to ASU 2014-09, including:
In August 2015, ASU 2015-14, Revenue From Contracts With Customers (“ASU 2015-14”). This update deferred the initial effective date of ASU 2014-09. As a result of the issuance of ASU 2015-14, ASU 2014-09 is effective for annual reporting periods beginning on or after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
In March 2016, ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments to this update are intended to improve the implementation guidance on principal versus agent considerations in ASU 2014-09 by clarifying how an entity should identify the unit of accounting (i.e. the specified good or service) and how an entity should apply the control principle to certain types of arrangements.
In May 2016, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The amendments to this update clarify certain core recognition principles and provide practical expedients available at transition. The improvements address collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.
In December 2016, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments to this update:
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In February 2017, ASU 2017-05, Other Income—Gains and Losses from the Derecognition ofNonfinancial Assets (Subtopic 610-20) (“ASU 2017-05”). The amendments to this update clarify the scope of the Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets subtopic of the ASC, and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 clarifies that:
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The Manager has evaluated the effect of adoption of ASU 2014-09 and its amendments and their effect on the Company’s consolidated financial statements, and has concluded that ASU 2014-09 will not have a significant effect on such financial statements.
Fair Value of Financial Instruments
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option, the presentation and disclosure requirements for financial instruments, and the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.
All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings.
When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The accumulated gains and losses due to these changes will be reclassified from accumulated other comprehensive income to earnings if the financial liability is settled before maturity.
For financial instruments measured at amortized cost, public business entities will be required to use the exit price when measuring the fair value of financial instruments for disclosure purposes.
Financial assets and financial liabilities shall be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or fair value) and form of financial asset (e.g., loans, securities).
Public business entities will no longer be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost.
Entities will have to assess the realizability of a deferred tax asset related to a debt security classified as available for sale in combination with the entity’s other deferred tax assets.
The classification and measurement guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income is permitted and can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. The Manager does not believe that the adoption of ASU 2016-01 will have a significant effect on its consolidated financial statements.
Share-Based Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including:
Modifies the accounting for income taxes relating to share-based payments. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) will be recognized as income tax expense or benefit in the consolidated statement of income. The tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. An entity will recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Under current GAAP, excess tax benefits are recognized in additional paid-in capital; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the consolidated statement of income in the period they reduce income taxes payable.
Changes the classification of excess tax benefits on the consolidated statement of cash flows. In the consolidated statement of cash flows, excess tax benefits will be classified along with other income tax cash flows as an operating activity. Under current GAAP, excess tax benefits are separated from other income tax cash flows and classified as a financing activity.
Changes the requirement to estimate the number of awards that are expected to vest. Under ASC 2016-09, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest as presently required or account for forfeitures when they occur. Under current GAAP, accruals of compensation cost are based on the number of awards that are expected to vest.
Changes the tax withholding requirements for share-based payment awards to qualify for equity accounting. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Under current GAAP, for an award to qualify for equity classification is that an entity cannot partially settle the award in cash in excess of the employer’s minimum statutory withholding requirements.
Establishes GAAP for the classification of employee taxes paid when an employer withholds shares for tax withholding purposes. Cash paid by an employer when directly withholding shares for tax- withholding purposes should be classified as a financing activity. This guidance establishes GAAP related to the classification of withholding taxes in the statement of cash flows as there is no such guidance under current GAAP.
ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. The adoption ASU 2016-09 did not have a significant effect on the Company’s consolidated financial statements.
Note 33—27—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period:
On October 27, 2017,period. All agreements to repurchase assets that matured before the Company, through PMC and PMH, committed to sell to a third party nonperforming and performing loans from the distressed portfolio with an unpaid principal balancedate of approximately $324 million. The sale is subject to the negotiation and execution of definitive documentation, continuing due diligence and customary closing conditions and approvals. There can be no assurance that the committed amount will ultimately be soldthis Report were extended or that the transaction will be completed at all.renewed.
57
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and the related notes of PennyMac Mortgage Investment Trust (“PMT”) included within this Quarterly Report on Form 10-Q.
Statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to the words “we,” “us,” “our” and the “Company” refer to PMT.
We are a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. Our investment focus is on the mortgage-related assets that we create through our correspondent production activities, including mortgage servicing rights (“MSRs”) and credit risk transfer agreements (“CRT Agreements”). We have pursued this objective largely by acquiring, pooling and selling newly originated prime credit quality residential mortgage loans (“correspondent production”CRT”) and retaining the MSRs relating to such mortgage loans and investing inarrangements, which include CRT Agreements relating to mortgage loan sales.and CRT strips that absorb credit losses on certain of the loans we sold. We also invest in mortgage-backed securities (“MBS”), excess servicing spread (“ESS”) on MSRs acquired by PennyMac Loan Services, LLC (“PLS”), and commercial real estate loans that finance multifamily and other commercial real estate.. We have also historically invested in distressed mortgage assets (mortgage loans(loans and real estate acquired in settlement of mortgage loans)loans (“REO”)), which are no longer our primary focus for new investments.we have substantially liquidated.
We are externally managed by PNMAC Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S residentialU.S. mortgage loans. Most of our mortgage loan portfolio isassets. Our loans and MSRs are serviced by PLS.
Correspondent Production
Our correspondent production activities serve as the source of our investments in MSRs and CRT Agreements, and are summarized below:
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| Quarter ended September 30, |
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| Nine months ended September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| (in thousands) |
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Sales of mortgage loans acquired for sale: |
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To nonaffiliates |
| $ | 7,035,994 |
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| $ | 6,857,691 |
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| $ | 17,683,444 |
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| $ | 15,323,444 |
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To PennyMac Financial Services, Inc. |
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| 11,480,293 |
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| 12,364,081 |
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| 32,724,487 |
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| 29,154,270 |
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| $ | 18,516,287 |
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| $ | 19,221,772 |
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| $ | 50,407,931 |
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| $ | 44,477,714 |
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Net gain on mortgage loans acquired for sale |
| $ | 17,967 |
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| $ | 43,858 |
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| $ | 54,284 |
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| $ | 83,133 |
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Sourcing fees received from PLS included in Net gain on mortgage loans acquired for sale |
| $ | 3,275 |
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| $ | 3,509 |
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| $ | 9,340 |
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| $ | 8,282 |
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Investment activities driven by correspondent production: |
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Receipt of MSRs as proceeds from sales of mortgage loans |
| $ | 82,838 |
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| $ | 77,635 |
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| $ | 207,361 |
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| $ | 173,906 |
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Deposits of cash securing CRT Agreements |
| $ | 44,998 |
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| $ | 89,697 |
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| $ | 102,146 |
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| $ | 282,434 |
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Increase in commitments to fund Deposits securing CRT Agreements resulting from sale of mortgage loans under CRT Agreements |
| $ | 108,051 |
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| $ | — |
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| $ | 264,165 |
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| $ | — |
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To the extent that we purchase mortgage loans that are insured by the U.S. Department of Housing and Urban Development (“HUD”) through the Federal Housing Administration (the “FHA”), or insured or guaranteed by the Veterans Administration (the “VA”) or U.S. Department of Agriculture (“USDA”), we and PLS have agreed that PLS will fulfill and purchase such mortgage loans, as PLS is a Ginnie Mae-approved issuer and we are not. This arrangement has enabled us to compete with other correspondent lenders that purchase both government and conventional mortgage loans. We receive a sourcing fee from PLS ranging from two to three and one-half basis points, generally based on the average number of calendar days that mortgage loans are held by us prior to purchase by PLS, on the unpaid principal balance (“UPB”) of each mortgage loan.
Credit Sensitive Investments
CRT AgreementsArrangements
At present, we are no longer creating new CRT investments as the Federal Housing Finance Agency (“FHFA”) instructed the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to gradually wind down new front-end lender risk share transactions such as CRT investments as of the end of 2020. During the quarter ended March 31, 2021, we recognized investment gain of $154.2 million relating to our holdings of CRT securities. We believe that CRT Agreements are a long-term investment that can produce attractive risk-adjusted returns through our own mortgage production while aligning with Fannie Mae’s strategic goal to attract private capital investment in GSE credit risk. As of September 30, 2017, ourheld net CRT-related investments in CRT Agreements totaled $602.6 million, comprised(comprised of deposits securing CRT Agreementsarrangements, CRT derivatives, CRT strips and CRT derivatives. During the quarter and nine months ended September 30, 2017, we made deposits securing CRT Agreementsinterest-only security payable) totaling $45.0 million and $102.1 million, respectively, and committed to fund an additional $108.1 million and $264.2 million, respectively.
Distressed Mortgage Assets
We have invested in distressed mortgage assets through direct acquisitions of mortgage loans and real estate acquired in settlement of loans (“REO”) from institutions such as banks and mortgage companies. A substantial portion of the distressed mortgage assets we have purchased has been acquired from or through one or more subsidiaries of JPMorgan Chase & Co. and Citigroup Inc.
We seek to maximize the fair value of the distressed mortgage loans that we acquire using means that are appropriate for the particular loan, including both proprietary and nonproprietary loan modification programs, special servicing and other initiatives focused on avoiding foreclosure, when possible. When we are unable to effect a cure for a mortgage loan delinquency, our objective is timely acquisition and/or liquidation of the property securing the mortgage loan through the use, in part, of short sales and deed-in-lieu of foreclosure programs. We held distressed mortgage loans and REO with carrying values totaling $1.2 billion and $1.6$2.6 billion at September 30, 2017, and DecemberMarch 31, 2016, respectively.2021.
During the quarter and nine months ended September 30, 2017 and the quarter and nine months ended September 30, 2016, we continued to reduce our investment in distressed mortgage assets. During these periods we received proceeds from liquidation, payoffs, paydowns and sales from our portfolio of mortgage loans and REO as shown below:
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| Quarter ended September 30, |
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| Nine months ended September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
| ||||
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| (in thousands) |
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Mortgage loans at fair value |
| $ | 157,255 |
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| $ | 29,921 |
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| $ | 288,916 |
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| $ | 449,138 |
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Real estate acquired in settlement |
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| 39,276 |
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| 44,814 |
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|
| 140,863 |
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|
| 180,387 |
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| $ | 196,531 |
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| $ | 74,735 |
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| $ | 429,779 |
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| $ | 629,525 |
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We supplement our investments in distressed mortgage assets through our participation in other credit-sensitive mortgage-related activities, including:
Acquisition of small balance (typically under $10 million) commercial real estate loans. During the quarter and nine months ended September 30, 2017, we acquired $25.4 million and $65.2 million, respectively, in fair value of small balance commercial real estate loans as compared to $3.7 million and $9.7 million, respectively, for the same periods in 2016. We held commercial real estate secured mortgage loans for sale with fair values totaling $8.9 million and $9.0 million at September 30, 2017, and December 31, 2016, respectively.
To the extent that we transfer correspondent production loans into a private label securitization, retention of a portion of the securities created in the securitization transaction. Our private label securitization is accounted for as a financing arrangement. Sales of securities included in the securitization are treated as issuances of debt. During the quarter and nine months ended September 30, 2017, we did not issue any of such securities. Our equity in the mortgage loans subject to a private label securitization, net of asset-backed financings of $318.4 million and $353.9 million, totaled $13.5 million and $13.3 million at September 30, 2017, and December 31, 2016, respectively.
Interest Rate Sensitive Investments
Our interest rate sensitive investments include:
• | Mortgage servicing rights. During the quarter ended March 31, 2021, we received $407.7 million of MSRs as proceeds from sales of loans acquired for sale. We held $2.4 billion of MSRs at fair value at March 31, 2021. |
• | REIT-eligible mortgage-backed or mortgage-related securities. We purchased and sold $1.3 billion of MBS during the quarter ended March 31, 2021. The purchases and sales during the period reflect a restructuring of our investment in MBS aimed at reducing prepayment and price risk relating to these assets. We held MBS with fair values totaling $1.9 billion at March 31, 2021. |
Mortgage servicing rights. 58
Correspondent Production
Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production serves as the source of our investments in MSRs are primarily created in ourand, through 2020, CRT arrangements. Our correspondent production activities, where we receive MSRs as a portion of the proceeds from our sale of mortgage loans. We received MSRs totaling $82.8 million and $207.4 million during the quarter and nine month period ended September 30, 2017, as compared to $77.6 million and $173.9 million during the quarter and nine month period ended September 30, 2016. Ourresulting investment in MSRs totaled $790.3 million and $656.6 million at September 30, 2017, and December 31, 2016, respectively.activity are summarized below:
REIT-eligible mortgage-backed or mortgage-related securities. We purchased MBS with fair values totaling $251.9 million during the nine months ended September 30, 2017, none of which were purchased during the quarter ended September 30, 2017, as compared to $301.7 million and $551.7 million, respectively, during the quarter and nine months ended September 30, 2016. Our investment in MBS totaled $1.0 billion and $865.1 million at September 30, 2017, and December 31, 2016, respectively.
ESS relating to MSRs held by PFSI. We did not purchase any ESS from PFSI during 2016 or 2017. However, during the quarter and nine months ended September 30, 2017, we received $1.2 million and $4.2 million, respectively, of ESS pursuant to a recapture agreement with PFSI, compared to receipt of $1.4 million and $5.0 million, respectively, of ESS pursuant to such recapture agreement for the same periods in 2016. Our investment in ESS totaled $248.8 million and $288.7 million at September 30, 2017, and December 31, 2016, respectively.
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| Quarter ended March 31, |
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| 2021 |
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| 2020 |
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| (in thousands) |
| ||||||
Sales of loans acquired for sale: |
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|
|
|
To nonaffiliates |
| $ | 33,318,157 |
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| $ | 19,718,151 |
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To PennyMac Financial Services, Inc. |
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| 18,420,614 |
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|
| 14,509,209 |
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|
| $ | 51,738,771 |
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| $ | 34,227,360 |
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Net gain on loans acquired for sale |
| $ | 53,012 |
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| $ | 48,775 |
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Investment activities resulting from correspondent production: |
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|
|
|
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|
|
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Receipt of MSRs as proceeds from sales of loans |
| $ | 407,696 |
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| $ | 248,822 |
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Investments in CRT arrangements: |
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|
|
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|
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Recognition of firm commitment to purchase CRT securities (1) |
|
| — |
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|
| (26,649 | ) |
Change in face amount of firm commitment to purchase CRT securities and commitment to fund Deposits securing CRT arrangements |
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| — |
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|
| 554,690 |
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Total investments in CRT arrangements |
|
| — |
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|
| 528,041 |
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Total investments resulting from correspondent activities |
| $ | 407,696 |
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| $ | 776,863 |
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Capital Structure
(1) | Initial recognition of firm commitment upon sale of loans. |
During the nine months ended September 30, 2017, we issued $310.0 million of cumulative redeemable preferred shares with initial dividend rates of 8.000-8.125%. These shares are redeemable at our option beginning at various dates in 2024, at which dates, the dividend rates will also convert to floating rates indexed to three-month LIBOR or its replacement.
Our board of trustees has authorized a repurchase program under which we may repurchase up to $200 million of our outstanding common shares. We repurchased and retired approximately 1.0 million and 1.1 million common shares at a cost of $16.4 million and $18.7 million for the quarter and nine months ended September 30, 2017, respectively, and approximately 0.7 million and 7.0 million common shares at a cost of $10.6 million and $93.4 million for the quarter and nine months ended September 30, 2016, respectively. A cumulative total of approximately 9.5 million common shares have been repurchased at a cost of $133.4 million under the program since its inception.Taxation
We believe that we qualify to be taxed as a real estate investment trust (“REIT”). We believe that weREIT and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet certainapplicable REIT asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification. A portion of our activities, including our correspondent production business, is conducted in our taxable REIT subsidiary (“TRS”), which is subject to corporate federal and state income taxes. Accordingly, we have mademake a provision for income taxes with respect to the operations of our TRS. We expect that the effective rate for the provision for income taxes may be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to us as a REIT.
ResultsWe evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of Operationsall available positive and negative evidence using a “more-likely-than-not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. 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.
During the quarter ended September 30, 2017, certain states were impacted by hurricanes, primarily in Texas, Florida and Georgia. Non-Cash Income
A substantial portion of our investments are secured by or otherwise tied to real estate in government-declared disaster areas affected by these events. We have evaluated the effect of these events on our assets, including the valuation of our MSRs and CRT Agreements, based on the information that is currently available to us. With respect to our MSRs, we have concluded that most of our loss exposure is addressed by borrower hazard insurance and the Agency guarantees relating to the affected loans. With respect to our CRT Agreements we believe their fair value was affected during the quarter ended September 30, 2017, by market reaction to prospective credit losses as a result of these events. Prospectively, we expect to incur increased delinquency-based servicing fee expense to address temporary increases in delinquencies in the affected areas, and we expect our CRT Agreements to absorb greater losses as a result of delinquencies. However, we do not expect significant negative effects on our future earnings as a result of these events.
The following is a summary of our key performance measures:
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| Quarter ended September 30, |
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| Nine months ended September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
| ||||
|
| (in thousands, except per share amounts) |
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Net investment income |
| $ | 75,804 |
|
| $ | 103,326 |
|
| $ | 224,237 |
|
| $ | 203,160 |
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Expenses |
|
| 51,638 |
|
|
| 58,312 |
|
|
| 145,638 |
|
|
| 155,261 |
|
Provision for income taxes |
|
| 4,771 |
|
|
| 9,606 |
|
|
| 1,688 |
|
|
| 3,262 |
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Net income |
| $ | 19,395 |
|
| $ | 35,408 |
|
| $ | 76,911 |
|
| $ | 44,637 |
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Pre-tax income (loss) by segment: |
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|
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|
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|
|
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|
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Correspondent production |
| $ | 8,310 |
|
| $ | 32,098 |
|
| $ | 28,868 |
|
| $ | 60,934 |
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Credit sensitive strategies |
|
| 13,066 |
|
|
| 16,613 |
|
|
| 62,943 |
|
|
| 10,998 |
|
Interest rate sensitive strategies |
|
| 13,304 |
|
|
| 5,634 |
|
|
| 19,465 |
|
|
| 8,710 |
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Corporate |
|
| (10,514 | ) |
|
| (9,331 | ) |
|
| (32,677 | ) |
|
| (32,743 | ) |
|
| $ | 24,166 |
|
| $ | 45,014 |
|
| $ | 78,599 |
|
| $ | 47,899 |
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Annualized return on average common shareholder’s equity |
|
| 4.0 | % |
|
| 10.4 | % |
|
| 6.9 | % |
|
| 4.2 | % |
Earnings per share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.20 |
|
| $ | 0.52 |
|
| $ | 1.01 |
|
| $ | 0.63 |
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Diluted |
| $ | 0.20 |
|
| $ | 0.49 |
|
| $ | 0.98 |
|
| $ | 0.63 |
|
Dividends declared and paid per share |
| $ | 0.47 |
|
| $ | 0.47 |
|
| $ | 1.41 |
|
| $ | 1.41 |
|
Per share closing prices: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
| $ | 18.45 |
|
| $ | 16.88 |
|
| $ | 18.45 |
|
| $ | 16.88 |
|
Low |
| $ | 16.54 |
|
| $ | 14.80 |
|
| $ | 16.37 |
|
| $ | 11.21 |
|
At end of period |
| $ | 17.39 |
|
| $ | 15.58 |
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Total assets (in thousands) |
| $ | 5,785,043 |
|
| $ | 6,357,502 |
|
Book value per common share |
| $ | 19.74 |
|
| $ | 20.26 |
|
During the quarter and nine months ended September 30, 2017, we recorded net income of $19.4 million, or $0.20 per diluted share, and net income of $76.9 million, or $0.98 per diluted share, respectively. Our net income for the quarter and nine months ended September 30, 2017 reflects net gain on mortgage loans acquired for sale of $18.0 million and $54.3 million, respectively, supplemented by net mortgage loan servicing fees of $21.9 million and $49.3 million, respectively, net gain on investments of $13.8 million and $58.1 million, respectively, and net interest income of $11.3 million and $36.2 million, respectively. During the quarter and nine months ended September 30, 2017, we issued interest rate lock commitments (“IRLCs”) totaling $17.4 billion and $50.1 billion, respectively. Net gains on such mortgage loans included $82.8 million and $207.4 million of MSRs retained upon sale of such loans. At September 30, 2017, we held mortgage loans acquired for sale with fair values totaling $1.3 billion, $202.3 million of which were pending sale to PLS.
During the quarter and nine months ended September 30, 2016, we recorded net income of $35.4 million, or $0.49 per diluted share, and net income of $44.6 million, or $0.63 per diluted share, respectively. Our net income for the quarter and nine months ended September 30, 2016 reflects net interest income of $17.8 million and $55.3 million, and net mortgage loan servicing fees of $15.8 million and $47.0 million, respectively, net gain on investments totaling $14.3 million and net loss on investments totaling $5.1 million, respectively. During the quarter and nine months ended September 30, 2016, we issued IRLCs totaling $21.6 billion and $47.9 billion, respectively. We recognized net gains on such IRLCs and mortgage loans totaling approximately $43.9 million and $83.1 million, respectively, including $77.6 million and $173.9 million of MSRs retained upon sale of such loans. At September 30, 2016, we held mortgage loans acquired for sale with fair values totaling $2.0 billion, $575.5 million of which were pending sale to PLS.
Our net income decreased during the quarter ended September 30, 2017, as compared to the same period in 2016, primarily due to decreased net gain on mortgage loans acquired for sale. Our net income increased during the nine months ended September 30, 2017 as compared to the same period in 2016, primarily due to increased gains from our investments in CRT Agreements and reduced loss from our investments in ESS. Net gains on investments were $13.8 million and $58.1 million, respectively, for the quarter and nine months ended September 30, 2017, representing a decrease of $0.4 million and an increase of $63.3 million from the same periods in 2016.
Net investment income includesis comprised of non-cash items, including fair value adjustments, andrecognition of the fair value of assets created and liabilities incurred in mortgage loan sale transactions and the capitalization and amortization of certain assets and liabilities. Because we have elected, or are required by generally accepted accounting principles, to record certain of our financial assets (comprised of MBS, mortgage loans acquired for sale at fair value, mortgage loans at fair value ESS, and derivatives)ESS), a portion ofour firm commitment to purchase CRT securities, our derivatives, our MSRs, and our asset-backed financing 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. Net investment income also includes non-cash interest income arising from capitalization of delinquent interest on mortgage loans upon completion of the modification of such loans and accrual of unearned discounts relating to MBS, mortgage loans held in a VIE, and asset-backed financing.
59
The amounts of non-cash income (loss) items included in net investment income are as follows:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Net gain on mortgage loans acquired for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
| $ | 82,838 |
|
| $ | 77,635 |
|
| $ | 207,361 |
|
| $ | 173,906 |
|
Provision for losses relating to representations and warranties provided in mortgage loan sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loans sales |
|
| (1,075 | ) |
|
| (781 | ) |
|
| (2,355 | ) |
|
| (2,002 | ) |
Reduction in liability due to change in estimate |
|
| 1,642 |
|
|
| 5,098 |
|
|
| 7,523 |
|
|
| 6,822 |
|
Change in fair value during the period of financial instruments held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
| 880 |
|
|
| (1,429 | ) |
|
| (2,502 | ) |
|
| 10,681 |
|
Mortgage loans acquired for sale |
|
| (1,165 | ) |
|
| 5,228 |
|
|
| 2,891 |
|
|
| 16,980 |
|
Hedging derivatives |
|
| (3,475 | ) |
|
| 587 |
|
|
| (15,377 | ) |
|
| 2,400 |
|
|
|
| 79,645 |
|
|
| 86,338 |
|
|
| 197,541 |
|
|
| 208,787 |
|
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| 5,001 |
|
|
| 517 |
|
|
| 9,168 |
|
|
| 9,948 |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
| 2,797 |
|
|
| (4,844 | ) |
|
| 5,314 |
|
|
| (6,272 | ) |
at fair value held in a variable interest entity |
|
| 2,138 |
|
|
| (536 | ) |
|
| 6,309 |
|
|
| 7,810 |
|
ESS |
|
| (3,665 | ) |
|
| (2,824 | ) |
|
| (10,920 | ) |
|
| (36,275 | ) |
CRT Agreements |
|
| 4,162 |
|
|
| 12,307 |
|
|
| 41,268 |
|
|
| 9,060 |
|
Interest-only security payable at fair value |
|
| 191 |
|
|
| (36 | ) |
|
| (2,272 | ) |
|
| 437 |
|
Asset-backed financing of a VIE |
|
| (2,158 | ) |
|
| 2,990 |
|
|
| (5,581 | ) |
|
| (5,974 | ) |
|
|
| 8,466 |
|
|
| 7,574 |
|
|
| 43,286 |
|
|
| (21,266 | ) |
Net mortgage loan servicing fees—MSR valuation adjustments |
|
| (4,330 | ) |
|
| (4,343 | ) |
|
| (11,243 | ) |
|
| (56,679 | ) |
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of interest pursuant to mortgage loan modifications |
|
| 7,020 |
|
|
| 23,068 |
|
|
| 27,737 |
|
|
| 62,783 |
|
Accrual of unearned discounts and amortization of premiums on MBS, mortgage loans and asset-backed financing |
|
| (1,618 | ) |
|
| (2,714 | ) |
|
| (4,625 | ) |
|
| (1,628 | ) |
|
|
| 5,402 |
|
|
| 20,354 |
|
|
| 23,112 |
|
|
| 61,155 |
|
|
| $ | 89,183 |
|
| $ | 109,923 |
|
| $ | 252,696 |
|
| $ | 191,997 |
|
Net investment income |
| $ | 75,804 |
|
| $ | 103,326 |
|
| $ | 224,237 |
|
| $ | 203,160 |
|
Non-cash items as a percentage of net investment income |
|
| 118 | % |
|
| 106 | % |
|
| 113 | % |
|
| 95 | % |
Cash is generated when mortgage loan investments are paid down, paid off or sold, when payments of principal and interest occur on such mortgage loans, generally after they are modified, or when the property securing a mortgage loan that has been settled through acquisition of the property securing the mortgage loan has been sold. We receive proceeds on the sale of mortgage loans acquired for sale that include both cash and our estimate of the fair value of MSRs and we recognize a liability for potential losses relating to representations and warranties created in the mortgage loan sales transactions. We receive cash related to MSRs in the form of mortgage loan servicing fees and we pay cash relating to our provision for representations and warranties when we repurchase mortgage loans or settle loss claims from investors. Cash flows relating to hedging instruments are generally produced when the instruments mature or when we effectively cancel the transactions through an offsetting trade.
The following table illustrates the proceeds received during the period from dispositions and paydowns of distressed mortgage loan and REO investments, net gain in fair value that we accumulated over the period during which we owned such investments liquidated during the period, and additional net gain realized upon liquidation of such assets:
|
| Quarter ended September 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||
|
| Proceeds |
|
| Accumulated gains (losses) (1) |
|
| Net gain on liquidation (2) |
|
| Proceeds |
|
| Accumulated gains (losses) (1) |
|
| Net gain on liquidation (2) |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Mortgage loans |
| $ | 25,748 |
|
| $ | 3,520 |
|
| $ | 255 |
|
| $ | 29,921 |
|
| $ | 4,811 |
|
| $ | 1,444 |
|
REO |
|
| 39,276 |
|
|
| (3,807 | ) |
|
| 3,280 |
|
|
| 44,814 |
|
|
| (5,085 | ) |
|
| 4,603 |
|
|
|
| 65,024 |
|
|
| (287 | ) |
|
| 3,535 |
|
|
| 74,735 |
|
|
| (274 | ) |
|
| 6,047 |
|
Distressed mortgage loan sales |
|
| 131,507 |
|
|
| 22,995 |
|
|
| 229 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 196,531 |
|
| $ | 22,708 |
|
| $ | 3,764 |
|
| $ | 74,735 |
|
| $ | (274 | ) |
| $ | 6,047 |
|
|
| Nine months ended September 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||
|
| Proceeds |
|
| Accumulated gains (losses) (1) |
|
| Net gain on liquidation (2) |
|
| Proceeds |
|
| Accumulated gains (losses) (1) |
|
| Net gain (loss) on liquidation (2) |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Mortgage loans |
| $ | 83,381 |
|
| $ | 10,332 |
|
| $ | 2,027 |
|
| $ | 104,836 |
|
| $ | 12,911 |
|
| $ | 4,200 |
|
REO |
|
| 140,863 |
|
|
| (12,211 | ) |
|
| 10,895 |
|
|
| 180,387 |
|
|
| (3,846 | ) |
|
| 13,930 |
|
|
|
| 224,244 |
|
|
| (1,879 | ) |
|
| 12,922 |
|
|
| 285,223 |
|
|
| 9,065 |
|
|
| 18,130 |
|
Distressed mortgage loan sales (3) |
|
| 205,535 |
|
|
| 32,571 |
|
|
| 202 |
|
|
| 344,302 |
|
|
| 59,812 |
|
|
| (396 | ) |
|
| $ | 429,779 |
|
| $ | 30,692 |
|
| $ | 13,124 |
|
| $ | 629,525 |
|
| $ | 68,877 |
|
| $ | 17,734 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (dollars in thousands) |
| ||||||
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | (71,117 | ) |
| $ | 115,967 |
|
Loans: |
|
|
|
|
|
|
|
|
Held in a variable interest entity |
|
| (2,345 | ) |
|
| (2,869 | ) |
Distressed |
|
| 84 |
|
|
| (1,142 | ) |
ESS |
|
| 1,651 |
|
|
| (14,141 | ) |
CRT arrangements |
|
| 106,096 |
|
|
| (530,818 | ) |
Firm commitment to purchase CRT securities |
|
| — |
|
|
| (492,513 | ) |
Interest-only security payable at fair value |
|
| (8,165 | ) |
|
| 11,575 |
|
Asset-backed financing of a VIE |
|
| 900 |
|
|
| 1,928 |
|
|
|
| 27,104 |
|
|
| (912,013 | ) |
Net gain on loans acquired for sale (1) |
|
| 180,787 |
|
|
| 136,946 |
|
Net loan servicing fees—MSR valuation adjustments |
|
| 278,282 |
|
|
| (627,201 | ) |
|
| $ | 486,173 |
|
| $ | (1,402,268 | ) |
Net investment income (loss) |
| $ | 201,397 |
|
| $ | (506,517 | ) |
Non-cash items as a percentage of net investment income |
|
| 241 | % |
|
| 277 | % |
(1) |
|
We receive or pay cash relating to:
• | Our investments in mortgage-backed securities through monthly principal and interest payments from the |
|
| Loan investments when the |
|
| ESS investments through a portion of the monthly interest payments collected on the loans in |
• | CRT arrangements through a portion of both the interest payments collected on loans |
• | Hedging instruments when we receive or make margin deposits as the fair value of respective instrument changes, 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
The following is a summary of our key performance measures:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (dollar amounts in thousands, except per common share amounts) |
| ||||||
Net investment income (loss) |
| $ | 201,397 |
|
| $ | (506,517 | ) |
Expenses |
|
| 110,369 |
|
|
| 77,908 |
|
Pretax income (loss) |
|
| 91,028 |
|
|
| (584,425 | ) |
Provision for income taxes |
|
| 19,425 |
|
|
| 10,248 |
|
Net income (loss) |
|
| 71,603 |
|
|
| (594,673 | ) |
Dividends on preferred shares |
|
| 6,234 |
|
|
| 6,234 |
|
Net income (loss) attributable to common shareholders |
| $ | 65,369 |
|
| $ | (600,907 | ) |
Pretax income (loss) by segment: |
|
|
|
|
|
|
|
|
Credit sensitive strategies |
| $ | 134,260 |
|
| $ | (960,471 | ) |
Interest rate sensitive strategies |
|
| (64,602 | ) |
|
| 324,781 |
|
Correspondent production |
|
| 35,577 |
|
|
| 65,309 |
|
Corporate |
|
| (14,207 | ) |
|
| (14,044 | ) |
|
| $ | 91,028 |
|
| $ | (584,425 | ) |
Annualized return on average common shareholder's equity |
|
| 12.8 | % |
|
| (118.9 | )% |
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Diluted |
| $ | 0.67 |
|
| $ | (5.99 | ) |
Dividends per common share |
| $ | 0.47 |
|
| $ | 0.25 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Total assets |
| $ | 12,522,254 |
|
| $ | 11,492,011 |
|
Book value per common share |
| $ | 20.90 |
|
| $ | 20.30 |
|
Closing price per common share |
| $ | 19.60 |
|
| $ | 17.59 |
|
During 2020, the United States was significantly impacted by the effects of the COVID-19 coronavirus pandemic (the “Pandemic” or “COVID-19”) and the effects of market and government responses to the Pandemic. These developments have resulted in continued economic uncertainty, financial hardships and unemployment for many existing borrowers.
As part of its response to the Pandemic, the federal government included requirements in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) that we provide borrowers with loans we service subject to Agency securitizations with substantial payment forbearance. As a result of this requirement, we have seen a large increase in delinquencies in our servicing portfolio which has increased our cost to service those loans and may require us to finance substantial amounts of advances of principal and interest payments to the holders of the securities holding those loans, as well as property tax and insurance costs to protect investor’s interest in the properties collateralizing the loans. As of December 31, 2020, 2.3% of the loans in our MSR portfolio were in COVID-19 pandemic related forbearance provided for under the CARES Act.
The emergence of the COVID-19 pandemic created significant disruption in the financial markets as well as changing market perceptions of future credit losses to be incurred on investments in mortgage loans. The primary effect of this disruption on the Company has been on our credit sensitive strategies. Since the first quarter of 2020, the credit markets have recovered somewhat, as reflected most recently in the $154.0 million in fair value gains we recognized during the quarter ended March 31, 2021.
The mortgage origination market for 2020 was estimated at $4.0 trillion. Current forecasts estimate the origination market to approximate $3.6 trillion for 2021. The uncertainties and strains on many mortgage lenders induced by the COVID-19 pandemic and resulting disruptions in the financial markets caused some market participants to scale back or exit mortgage loan production activities early in the course of the COVID-19 pandemic, which, combined with constraints on mortgage industry origination capacity that existed before the COVID-19 pandemic, allowed us to realize higher gain-on sale margins in our correspondent production activities during most of 2020. With the return of other market participants, our gain-on-sale margins in our correspondent production activities have moderated from 2020 levels.
The current environment caused by the COVID-19 pandemic in the United States is historically unprecedented and the source of much uncertainty surrounding future economic and market prospects and the ongoing effects of this continuing situation on our future
61
prospects are difficult to anticipate. For further discussion of this and other risks described in our Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Risk Factors.”
Our results of operations increased by $666.3 million during the quarter ended March 31, 2021, as compared to the quarter ended March 31, 2020, reflecting the effect of the improved the fair value performance of our CRT-related investments partially offset by declines in both MSR valuation performance net of hedging results and MBS fair values during the quarter ended March 31, 2021 as compared to the quarter ended March 31, 2020. The decrease in pretax results is summarized below:
• | Our credit sensitive strategies segment reflects the severe impact of the market conditions during the quarter ended March 31, 2020 on our investments in CRT arrangements; during the quarter ended March 31, 2021, we recognized a $1.1 billion increase in net gains on our CRT arrangements as compared to the quarter ended March 31, 2020. |
• | Our interest rate sensitive strategies segment was negatively affected by a decrease in net servicing fees of $194.5 million caused by fair value adjustments net of hedging results to our investment in MSRs, a $187.1 million decrease in gains on MBS and a $15.4 million decrease in net interest income. |
• | Growth in production volume in our correspondent production |
The amounts included in accumulated gains and gains on liquidation do not include the cost of managing the liquidated assets which may be substantial depending on the collection status of the mortgage loan at acquisition and on our success in working with the borrower to resolve the distress in the mortgage loan. Accumulated gains include the amount of accumulated valuation gains and losses recognized throughout the holding period and, in the case of REO, include estimated direct transaction costs to be incurred in the sale of the property. Accordingly, the preceding amounts do not represent periodic earnings on a cash basis and the amount of gain will have accumulated over varying periods depending on the holding periods for individual assets.
The primary expenses incurred at a loan level in managing our portfolio of distressed assets are servicing and activity fees. From the time of acquisition of the distressed assets through their deboarding dates, we incurred servicing and activity fees of $8.6 million and $18.0 million for assets liquidated during the quarter and nine months ended September 30, 2017, respectively, as compared to $3.3 million and $28.0 million during the same periods in 2016.
During the quarter and nine months ended September 30, 2017, we recordedOur net investment income of $75.8 million and $224.2 million, respectively, comprised primarily of $18.0 million and $54.3 million, respectively, of net gain on mortgage loans acquired for sale, $13.8 million and $58.1 million, respectively, of net gain on investments, $21.9 million and $49.3 million, respectively, of net loan servicing fees, $11.3 million and $36.2 million, respectively, of net interest income, and $11.7 million and $30.5 million of mortgage loan origination fees, partially offset by $3.1 million and $10.9 million of losses from results of REO.is summarized below:
During the quarter and nine months ended September 30, 2016, we recorded net investment income of $103.3 million and $203.2 million, respectively, comprised primarily of $43.9 million and $83.1 million of net gain on mortgage loans acquired for sale, $15.8 million and $47.0 million of net loan servicing fees, $17.8 million and $55.3 million of net interest income and $12.7 million and $28.1 million of loan origination fees, partially offset by $3.3 million and $11.9 million of losses from results of REO and $14.3 million and $(5.1) million of net gain (loss) on investments.
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Net gains on loans acquired for sale |
| $ | 53,012 |
|
| $ | 48,775 |
|
Net loan origination fees |
|
| 52,902 |
|
|
| 23,928 |
|
Net gains (losses) on investments |
|
| 83,191 |
|
|
| (815,131 | ) |
Net loan servicing fees |
|
| 50,045 |
|
|
| 244,572 |
|
Net interest (expense) income |
|
| (38,719 | ) |
|
| (8,945 | ) |
Other |
|
| 966 |
|
|
| 284 |
|
|
| $ | 201,397 |
|
| $ | (506,517 | ) |
Net GainGains on Mortgage Loans Acquired for Sale
Our net gaingains on mortgage loans acquired for sale is summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
| $ | (51,485 | ) |
| $ | (27,639 | ) |
| $ | (135,666 | ) |
| $ | (52,812 | ) |
Hedging activities |
|
| (13,468 | ) |
|
| (17,378 | ) |
|
| (16,931 | ) |
|
| (79,072 | ) |
|
|
| (64,953 | ) |
|
| (45,017 | ) |
|
| (152,597 | ) |
|
| (131,884 | ) |
Non-cash gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
|
| 82,838 |
|
|
| 77,635 |
|
|
| 207,361 |
|
|
| 173,906 |
|
Provision for losses relating to representations and warranties provided in mortgage loan sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
| (1,075 | ) |
|
| (781 | ) |
|
| (2,355 | ) |
|
| (2,002 | ) |
Reduction in liability due to change in estimate |
|
| 1,642 |
|
|
| 5,098 |
|
|
| 7,523 |
|
|
| 6,822 |
|
Change in fair value during the period of financial instruments held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
| 880 |
|
|
| (1,429 | ) |
|
| (2,502 | ) |
|
| 10,681 |
|
Mortgage loans |
|
| (1,165 | ) |
|
| 5,228 |
|
|
| 2,891 |
|
|
| 16,980 |
|
Hedging derivatives |
|
| (3,475 | ) |
|
| 587 |
|
|
| (15,377 | ) |
|
| 2,400 |
|
|
|
| (3,760 | ) |
|
| 4,386 |
|
|
| (14,988 | ) |
|
| 30,061 |
|
Total from non-affiliates |
|
| 14,692 |
|
|
| 41,321 |
|
|
| 44,944 |
|
|
| 76,903 |
|
From PFSI─cash gain |
|
| 3,275 |
|
|
| 2,537 |
|
|
| 9,340 |
|
|
| 6,230 |
|
|
| $ | 17,967 |
|
| $ | 43,858 |
|
| $ | 54,284 |
|
| $ | 83,133 |
|
Interest rate lock commitments issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired for sale to nonaffiliates |
| $ | 6,356,344 |
|
| $ | 8,689,130 |
|
| $ | 18,562,276 |
|
| $ | 18,521,825 |
|
Mortgage loans sold to PFSI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-insured or guaranteed mortgage loans |
|
| 10,999,301 |
|
|
| 12,868,481 |
|
|
| 31,500,559 |
|
|
| 29,402,614 |
|
|
| $ | 17,355,645 |
|
| $ | 21,557,611 |
|
| $ | 50,062,835 |
|
| $ | 47,924,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
Fair value of mortgage loans acquired for sale held : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional mortgage loans |
| $ | 1,052,355 |
|
| $ | 847,810 |
|
|
|
|
|
|
|
|
|
Jumbo mortgage loans |
|
| — |
|
|
| 6,042 |
|
|
|
|
|
|
|
|
|
Government-insured or guaranteed mortgage loans acquired for sale to PFSI |
|
| 202,320 |
|
|
| 804,616 |
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
|
| 8,870 |
|
|
| 8,961 |
|
|
|
|
|
|
|
|
|
Mortgage loans repurchased pursuant to representations and warranties |
|
| 6,795 |
|
|
| 5,683 |
|
|
|
|
|
|
|
|
|
|
| $ | 1,270,340 |
|
| $ | 1,673,112 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
Cash loss: |
|
|
|
|
|
|
|
|
Loans |
| $ | (592,789 | ) |
| $ | (68,954 | ) |
Hedging activities |
|
| 463,276 |
|
|
| (23,378 | ) |
|
|
| (129,513 | ) |
|
| (92,332 | ) |
Non-cash gain: |
|
|
|
|
|
|
|
|
Receipt of MSRs in loan sale transactions |
|
| 407,696 |
|
|
| 248,822 |
|
Provision for losses relating to representations and warranties provided in loan sales: |
|
|
|
|
|
|
|
|
Pursuant to loan sales |
|
| (8,513 | ) |
|
| (1,030 | ) |
Reduction in liability due to change in estimate |
|
| 1,424 |
|
|
| 1,344 |
|
|
|
| (7,089 | ) |
|
| 314 |
|
Recognition of fair value of commitment to purchase credit risk transfer securities relating to loans sold |
|
| — |
|
|
| (26,649 | ) |
Change in fair value during the quarter of financial instruments held at quarter end: |
|
|
|
|
|
|
|
|
IRLCs |
|
| (137,243 | ) |
|
| 68,231 |
|
Loans |
|
| 83,223 |
|
|
| (36,782 | ) |
Hedging derivatives |
|
| (165,800 | ) |
|
| (116,990 | ) |
|
|
| (219,820 | ) |
|
| (85,541 | ) |
|
|
| 180,787 |
|
|
| 136,946 |
|
Total from nonaffiliates |
|
| 51,274 |
|
|
| 44,614 |
|
From PFSI—cash |
|
| 1,738 |
|
|
| 4,161 |
|
|
| $ | 53,012 |
|
| $ | 48,775 |
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments issued on loans acquired for sale to nonaffiliates |
| $ | 33,997,819 |
|
| $ | 19,109,084 |
|
Acquisition of loans for sale: |
|
|
|
|
|
|
|
|
To nonaffiliates |
| $ | 36,486,241 |
|
| $ | 16,839,835 |
|
To PFSI |
|
| 18,412,062 |
|
|
| 13,886,914 |
|
|
| $ | 54,898,303 |
|
| $ | 30,726,749 |
|
The changes in gain on loans acquired for sale during the quarter ended March 31, 2021, as compared to the same period in 2020, reflect both the effects of increasing demand in the mortgage market on our loan sales volume and of industry capacity catching up with demand on our gain on sale margins.
Non-cash elements of gain on sale of loans
Our net gain on sale of loans includes our estimates of gains or losses we expect to realize upon the sale of mortgage loans acquired for sale includes both cash and non-cash elements. We receive proceedswe have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gain on sale that include both cashbefore we purchase the loans. This gain is 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. Such adjustments are included in our gain on sale of loans. The fair value of our IRLCs become part of the carrying value of our loans when we complete the purchase of the loans.
63
The MSRs and liability for representations and warranties we recognize represent our estimate of the fair value of MSRs. future benefits and costs we will realize for years in the future. These estimates represented approximately 756% of our gain on sale of loans at fair value for the quarter ended March 31, 2021 as compared to 511% for the quarter ended March 31, 2020. These estimates change as circumstances change, and changes in these estimates are recognized in our results of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our results of operations. During the time we were selling loans into CRT arrangements we recognized the fair value of our commitment to purchase CRT securities when we sold loans subject to CRT arrangements. This fair value represents the difference between the expected fair value of the CRT securities we committed to purchase and their contractual purchase price. How we measure and update our measurements of our firm commitment to purchase CRT securities and MSRs is detailed in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Quarterly Report.
We also recognize a liability for potential losses we expect to incur relating to the representations and warranties createdwe provide to purchasers in the mortgageour loan sales transactions.
The decrease in gain on mortgage loans acquired for sale during the quarter and nine months ended September 30, 2017, as compared to the same periods in 2016, was primarily due to the effect of decreased production profit margins during 2017 as compared to 2016. The decrease in interest rate lock volume during the quarter ended September 30, 2017, reflects the generally rising interest rates in the mortgage market, which has a negative influence on demand for mortgage lending. Reduced demand negatively influences profit margins by causing increased price competition in the mortgage marketplace.
Provision for Losses on Representations and Warranties
We provide for our estimate of the future losses that we may be required to incur as a result of our breach of representations and warranties to the purchasers. Our agreements with the purchasers include representations and warranties related to the mortgage loans we sell. The representations and warranties require adherence to purchaser and issuerinsurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the mortgage loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.
We recorded a provision for losses relating to representations and warranties relating to current loan sales of $8.5 million and $1.0 million for the quarters ended March 31, 2021 and 2020, respectively. The increase in the provision relating to current loan sales reflects the increase on our loan sales volume as well as fewer loans being subject to credit risk transfer arrangements.
In the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or insurer.insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit loss on the mortgage loans. Our credit loss may be reduced by any recourse we have to correspondent lenderssellers that, in turn, had sold such mortgage loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of relatedthose repurchase losses from that correspondent lender.
The method we use to estimate the liability for representations and warranties is a function of estimated future defaults, mortgage loan repurchase rates, the potential severity of loss in the event of default and the probability of reimbursement by the correspondent mortgage loan seller. We establish a liability at the time mortgage loans are sold and review our liability estimate on a periodic basis.
Following is a summary of the indemnification and repurchase activity and UPB of mortgagethe loans subject to representations and warranties:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (UPB-in thousands) |
| |||||||||||||
Indemnification activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans indemnified by PMT at beginning of period |
| $ | 6,672 |
|
| $ | 5,239 |
| �� | $ | 4,856 |
|
| $ | 5,566 |
|
New indemnifications |
|
| — |
|
|
| 615 |
|
|
| 2,069 |
|
|
| 615 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnified mortgage loans repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Indemnified mortgage loans repaid or refinanced |
|
| 504 |
|
|
| — |
|
|
| 757 |
|
|
| 327 |
|
Mortgage loans indemnified by PMT at end of period |
| $ | 6,168 |
|
| $ | 5,854 |
|
| $ | 6,168 |
|
| $ | 5,854 |
|
Mortgage loans with deposits received from correspondent lenders collateralizing prospective indemnification losses at end of period |
| $ | 781 |
|
| $ | 645 |
|
| $ | 781 |
|
| $ | 645 |
|
Repurchase activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans repurchased by PMT |
| $ | 2,627 |
|
| $ | 3,268 |
|
| $ | 8,706 |
|
| $ | 9,922 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans repurchased by correspondent lenders |
|
| 1,607 |
|
|
| 2,834 |
|
|
| 5,852 |
|
|
| 7,120 |
|
Mortgage loans repaid by borrowers |
|
| 1,238 |
|
|
| 353 |
|
|
| 3,664 |
|
|
| 1,933 |
|
Net mortgage loans repurchased by PMT with losses chargeable to liability for representations and warranties |
| $ | (218 | ) |
| $ | 81 |
|
| $ | (810 | ) |
| $ | 869 |
|
Net losses charged to liability for representations and warranties |
| $ | 83 |
|
| $ | 14 |
|
| $ | 135 |
|
| $ | 424 |
|
At end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans subject to representations and warranties |
| $ | 67,196,537 |
|
| $ | 50,167,783 |
|
|
|
|
|
|
|
|
|
Liability for representations and warranties |
| $ | 10,047 |
|
| $ | 14,927 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Indemnification activity (UPB): |
|
|
|
|
|
|
|
|
Loans indemnified at beginning of quarter |
| $ | 4,583 |
|
| $ | 5,697 |
|
New indemnifications |
|
| — |
|
|
| 450 |
|
Less: Indemnified loans repaid or refinanced |
|
| 887 |
|
|
| 210 |
|
Loans indemnified at end of quarter |
| $ | 3,696 |
|
| $ | 5,937 |
|
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter |
| $ | 213 |
|
| $ | 603 |
|
Repurchase activity (UPB): |
|
|
|
|
|
|
|
|
Loans repurchased |
| $ | 16,094 |
|
| $ | 16,282 |
|
Less: |
|
|
|
|
|
|
|
|
Loans repurchased by correspondent sellers |
|
| 8,047 |
|
|
| 6,153 |
|
Loans resold or repaid by borrowers |
|
| 6,264 |
|
|
| 1,237 |
|
Net loans repurchased |
| $ | 1,783 |
|
| $ | 8,892 |
|
Net losses charged to liability for representations and warranties |
| $ | 15 |
|
| $ | — |
|
At end of quarter: |
|
|
|
|
|
|
|
|
Loans subject to representations and warranties |
| $ | 177,595,762 |
|
| $ | 131,049,135 |
|
Liability for representations and warranties |
| $ | 28,967 |
|
| $ | 7,300 |
|
During the quarter and nine months ended September 30, 2017, we repurchased mortgage loans with UPBs totaling $2.6 million and $8.7 million and charged netThe losses to the liability foron representations and warranties totaling $83,000 and $135,000, respectively, as compared to repurchases of $3.3 million and $9.9 million and recorded net losses of $14,000 and $424,000, respectively, during the same periods in 2016. The losses we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased mortgage loans from the correspondent sellers. As the outstanding balance of mortgage loans we purchase and sell subject to representations and warranties increases, andas the mortgage loans sold 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.
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. We establish a liability at the time loans are sold and review our liability estimate on a periodic basis.
The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any losses inherent in the repurchased mortgage loan from the selling correspondent originatorseller and other external conditions that may change over the lives of the underlying mortgage loans. We may be required to incur losses related to such representations and warranties for several periods after the mortgage loans are sold or liquidated.
AsWe record adjustments to our liability for losses on representations and warranties as economic fundamentals change, and as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent sellers’ ability or willingness to fulfill their recourse obligations to us, the level of repurchase activity and ensuing losses will change, and we may be required to recordus. Such adjustments to our recorded liability for losses on representations and warranties which may be material to our financial conditionposition and income. Such adjustmentsincome in future periods.
Adjustments to our liability for representations and warranties are included as a component of our Net gains on mortgage loans acquired for sale at fair value. We recorded a $1.6 million and $7.5$1.4 million reduction in liabilitiesliability for representations and warranties during the quarter and nine months ended September 30, 2017March 31, 2021 due to our revised expectation of lower than originally anticipated losses along withthe effects of certain mortgage loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such mortgage loans.
Loan Origination Fees
Loan origination fees represent fees we charge correspondent sellers relating to our purchase of mortgage loans from those sellers. The changesincrease in fees during the quarter and nine months ended September 30, 2017,March 31, 2021, as compared to the same periodsperiod in 2016 is reflective2020, reflects an increase in our purchases of the changes in the volume of mortgage loans we purchased during the 2017 periods.with delivery fees.
Net Gain (Loss)Gains (Losses) on Investments
Net gain (loss)gains (losses) on investments is summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Net gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
From nonaffiliates: |
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage-backed securities |
| $ | 5,001 |
|
| $ | 517 |
|
| $ | 9,168 |
|
| $ | 9,948 |
|
| $ | (71,117 | ) |
| $ | 115,967 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Loans at fair value: |
|
|
|
|
|
|
|
| ||||||||||||||||
Held in a VIE |
|
| (2,345 | ) |
|
| (2,869 | ) | ||||||||||||||||
Distressed |
|
| 3,277 |
|
|
| (3,400 | ) |
|
| 7,523 |
|
|
| (2,468 | ) |
|
| 95 |
|
|
| (1,142 | ) |
Held in a VIE |
|
| 2,138 |
|
|
| (536 | ) |
|
| 6,309 |
|
|
| 7,810 |
| ||||||||
CRT Agreements |
|
| 15,151 |
|
|
| 18,477 |
|
|
| 66,591 |
|
|
| 22,098 |
| ||||||||
CRT arrangements |
|
| 154,031 |
|
|
| (487,292 | ) | ||||||||||||||||
Firm commitment to purchase CRT securities |
|
| — |
|
|
| (492,513 | ) | ||||||||||||||||
Asset-backed financings of a VIE at fair value |
|
| (2,158 | ) |
|
| 2,990 |
|
|
| (5,581 | ) |
|
| (5,974 | ) |
|
| 900 |
|
|
| 1,928 |
|
Hedging derivatives |
|
| (5,910 | ) |
|
| (945 | ) |
|
| (14,943 | ) |
|
| (245 | ) |
|
| (24 | ) |
|
| 64,931 |
|
|
|
| 17,499 |
|
|
| 17,103 |
|
|
| 69,067 |
|
|
| 31,169 |
|
|
| 81,540 |
|
|
| (800,990 | ) |
From PFSI—ESS |
|
| (3,665 | ) |
|
| (2,824 | ) |
|
| (10,920 | ) |
|
| (36,275 | ) |
|
| 1,651 |
|
|
| (14,141 | ) |
|
| $ | 13,834 |
|
| $ | 14,279 |
|
| $ | 58,147 |
|
| $ | (5,106 | ) |
| $ | 83,191 |
|
| $ | (815,131 | ) |
The increaseshift in net gain (loss) on investments duringfrom a net loss for the nine monthsquarter ended September 30, 2017,March 31, 2020, as compared to 2016, was caused by gainsa gain for the quarter ended March 31, 2021, reflects the effect of the disruption in the credit markets during 2020 on our CRT Agreementsinvestments, which has partially reversed as reflected in the valuation gains recognized during the periodsquarter ended September 30, 2017 as compared to the periods ended September 30, 2016 as a result of both tightening of credit spreads during the first half of 2017 as compared to 2016 and growth in our investments in CRT Agreements. This improvement was supplemented by a significantly reduced loss on the Company’s investment in ESS during the nine months ended September 30, 2017. The reduced loss reflects interest rates which did not decrease as sharply during the nine months ended September 30, 2017, and thus did not have as negative an impact on the expected life and fair value of ESS, along with a smaller average investment in ESS as compared to 2016.March 31, 2021.
Mortgage-Backed Securities
During the quarter and nine months ended September 30, 2017,March 31, 2021, we recognized net valuation gains on MBSloss of $5.0$71.1 million and $9.2 million, respectively, as compared to net valuation gains of $0.5 million and $9.9$116.0 million for the quarter and nine months ended September 30, 2016.same period in 2020. The increase in gains we recorded forloss recognized during the quarter ended September 30, 2017 reflects tightening MBS spreadsMarch 31, 2021 and 2020 reflect the substantial increase in interest rates during the quarter combined with a larger investment in MBS during 2017,ended March 31, 2021 as compared to 2016.decreasing interest rates at the end of the quarter ended March 31, 2020.
Mortgage Loans at fair value – Held in a VIE
Loans at fair value held in a VIE incurred a loss of $2.3 million during the quarter ended March 31, 2021, as compared to a loss of $2.9 million during the quarter ended March 31, 2020. The losses during the quarter ended March 31, 2021 reflect increasing interest rates during the quarter whereas the losses recognized during the quarter ended March 31, 2020 related to the uncertainty surrounding borrower performance at the onset of the COVID-19 pandemic.
Loans at Fair Value – Distressed Mortgage Loans
Net gainsThe results on our investment in distressed mortgage loans at fair value are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Valuation changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans |
| $ | 8,638 |
|
| $ | (16,350 | ) |
| $ | 30,074 |
|
| $ | (19,824 | ) |
Nonperforming loans |
|
| (5,841 | ) |
|
| 11,506 |
|
|
| (24,760 | ) |
|
| 13,552 |
|
|
|
| 2,797 |
|
|
| (4,844 | ) |
|
| 5,314 |
|
|
| (6,272 | ) |
Gain on payoffs |
|
| 224 |
|
|
| 1,298 |
|
|
| 1,987 |
|
|
| 4,055 |
|
Gain (loss) on sale |
|
| 256 |
|
|
| 146 |
|
|
| 222 |
|
|
| (251 | ) |
|
| $ | 3,277 |
|
| $ | (3,400 | ) |
| $ | 7,523 |
|
| $ | (2,468 | ) |
Average portfolio balance |
| $ | 1,104,738 |
|
| $ | 1,579,246 |
|
| $ | 1,210,328 |
|
| $ | 1,810,779 |
|
Interest and fees capitalized |
| $ | 7,020 |
|
| $ | 23,068 |
|
| $ | 27,737 |
|
| $ | 62,783 |
|
Number of mortgage loans relating to gain recognized on payoffs |
|
| 91 |
|
|
| 100 |
|
|
| 259 |
|
|
| 344 |
|
UPB of mortgage loans relating to gain recognized on payoffs |
| $ | 27,684 |
|
| $ | 32,186 |
|
| $ | 83,611 |
|
| $ | 102,104 |
|
Number of mortgage loans relating to gain/(loss) recognized on sales |
|
| 175 |
|
|
| 2 |
|
|
| 515 |
|
|
| 1,553 |
|
UPB of mortgage loans relating to gain/(loss) recognized on sales |
| $ | 43,940 |
|
| $ | 46 |
|
| $ | 148,495 |
|
| $ | 418,981 |
|
Because we have elected to record our mortgage loans at fair value, a substantial portion of the income we record with respect to such mortgage loans results from changes in fair value. Valuation changes amounted to gains of $2.8 million and $5.3 million in the quarter and nine months ended September 30, 2017, respectively, as compared to losses of $4.8 million and $6.3 million for the same periods in 2016. We recognize gain (loss) relating to mortgage loans subject to pending sales contracts in the valuation changes. Gains and losses on sales represent settlement adjustments realized at the date of sale.
Implementing long-term, sustainable loan modification is one means by which we endeavor to increase the fair value of the distressed mortgage loans which we have typically purchased at discounts to their UPB. Loan modifications typically include capitalization of delinquent interest on such mortgage loans.
The valuation changes on performing mortgage loans reflect the effects of capitalization of delinquent interest on loans we modify. When we capitalize interest in a loan modification, we increase the carrying value of the mortgage loan. However, the fair value of the mortgage loan does not immediately increase significantly. Therefore, the interest income we recognize is offset by a valuation loss of corresponding magnitude. Changes in other inputs may result in further valuation changes to the mortgage loan, and subsequent performance of a modified mortgage loan will be reflected in its future fair value. During the quarter and nine months ended September 30, 2017, we capitalized interest totaling $7.0 million and $27.7 million, respectively, as compared to $23.1 million and $62.8 million for the quarter and nine months ended September 30, 2016.
Valuation gains on performing mortgage loans increased by $1.2 million during the quarter and nine months ended September 30, 2017, as compared to the comparable periods in 2016, due to strong observed market activity in the periods for portfolios with similar performance characteristics. Valuation losses on the nonperforming mortgage loans increased during the quarter and nine months ended September 30, 2017,March 31, 2021, as compared to the same periodsperiod in 2016, as home price indications were below prior forecasts,2020. The increase in addition to increased uncertainty regardingresults reflects the realization of cash flows on the remaining population of loans.
Our disposition strategy includes identification of the most financially beneficial resolution. Such resolutions may include modification, acquisition of the property securing the distressed mortgage loan or sale of the loan. Absent sale or securitization of reperforming and modified mortgage loans, and unlikesubstantial liquidation of a defaulted mortgage loan, we expect that recovery of our remaining investment in a performing modified mortgage loan will take place generally over a perioddistressed loans. Our investment in distressed loans was $7.8 million as of several years, during which we earn and collect interest income on such mortgage loan. Our current expectation is that we will receive cash on modified mortgage loans through monthly borrower payments, payoffs or acquisition of the property securing the mortgage loans and liquidation of the property in the event the borrower subsequently defaults.
Large-scale refinancing of modified distressed mortgage loans is not expected to occur for an extended period. Borrowers who have recently modified their mortgage loans typically have credit profiles that do not qualify them for refinancing or have mortgage loans on properties whose loan-to-value ratios exceed current underwriting guidelines for new mortgage loans. Further, modified mortgage loans generally require a period of acceptable borrower performance for consideration in most Agency refinance programs.
The following tables present a summary of mortgage loan modifications completed:March 31, 2021.
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||
Modification type (1) |
| Number of loans |
|
| Balance of loans (2) |
|
| Number of loans |
|
| Balance of loans (2) |
|
| Number of loans |
|
| Balance of loans (2) |
|
| Number of loans |
|
| Balance of loans (2) |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Rate reduction |
|
| 204 |
|
| $ | 59,854 |
|
|
| 228 |
|
| $ | 59,466 |
|
|
| 604 |
|
| $ | 170,217 |
|
|
| 621 |
|
| $ | 163,265 |
|
Term extension |
|
| 222 |
|
| $ | 70,837 |
|
|
| 356 |
|
| $ | 99,017 |
|
|
| 760 |
|
| $ | 230,848 |
|
|
| 962 |
|
| $ | 265,291 |
|
Capitalization of interest and fees |
|
| 273 |
|
| $ | 80,521 |
|
|
| 371 |
|
| $ | 102,888 |
|
|
| 861 |
|
| $ | 252,229 |
|
|
| 1,018 |
|
| $ | 280,855 |
|
Principal forbearance |
|
| 176 |
|
| $ | 56,076 |
|
|
| 156 |
|
| $ | 46,969 |
|
|
| 449 |
|
| $ | 148,187 |
|
|
| 348 |
|
| $ | 103,964 |
|
Principal reduction |
|
| 82 |
|
| $ | 27,201 |
|
|
| 223 |
|
| $ | 64,615 |
|
|
| 282 |
|
| $ | 85,182 |
|
|
| 609 |
|
| $ | 177,445 |
|
Total (1) |
|
| 273 |
|
| $ | 80,521 |
|
|
| 371 |
|
| $ | 102,888 |
|
|
| 861 |
|
| $ | 252,229 |
|
|
| 1,018 |
|
| $ | 280,855 |
|
Defaults of mortgage loans modified in the prior year period |
|
|
|
|
| $ | 5,941 |
|
|
|
|
|
| $ | 3,413 |
|
|
|
|
|
| $ | 32,563 |
|
|
|
|
|
| $ | 17,115 |
|
As a percentage of relevant balance of loans before modification |
|
|
|
|
|
| 7 | % |
|
|
|
|
|
| 6 | % |
|
|
|
|
|
| 16 | % |
|
|
|
|
|
| 15 | % |
Defaults during the period of mortgage loans modified since acquisitions (3) |
|
|
|
|
| $ | 29,343 |
|
|
|
|
|
| $ | 16,853 |
|
|
|
|
|
| $ | 79,696 |
|
|
|
|
|
| $ | 64,941 |
|
As a percentage of relevant balance of loans before modification |
|
|
|
|
|
| 7 | % |
|
|
|
|
|
| 5 | % |
|
|
|
|
|
| 19 | % |
|
|
|
|
|
| 19 | % |
Repayments and sales of mortgage loans modified in the prior year period |
|
|
|
|
| $ | 10,311 |
|
|
|
|
|
| $ | 1,491 |
|
|
|
|
|
| $ | 98,731 |
|
|
|
|
|
| $ | 27,551 |
|
As a percentage of relevant balance of loans before modification |
|
|
|
|
|
| 10 | % |
|
|
|
|
|
| 2 | % |
|
|
|
|
|
| 36 | % |
|
|
|
|
|
| 17 | % |
|
|
|
|
|
|
The following table summarizes the average effect of the modifications noted above to the terms of the loans modified:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||
|
| Before |
|
| After |
|
| Before |
|
| After |
|
| Before |
|
| After |
|
| Before |
|
| After |
| ||||||||
Category |
| modification |
|
| modification |
|
| modification |
|
| modification |
|
| modification |
|
| modification |
|
| modification |
|
| modification |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Loan balance |
| $ | 295 |
|
| $ | 324 |
|
| $ | 277 |
|
| $ | 295 |
|
| $ | 293 |
|
| $ | 324 |
|
| $ | 276 |
|
| $ | 294 |
|
Remaining term (months) |
|
| 390 |
|
|
| 459 |
|
|
| 348 |
|
|
| 459 |
|
|
| 369 |
|
|
| 463 |
|
|
| 339 |
|
|
| 453 |
|
Interest rate |
|
| 3.97 | % |
|
| 2.95 | % |
|
| 4.57 | % |
|
| 3.34 | % |
|
| 4.12 | % |
|
| 2.97 | % |
|
| 4.71 | % |
|
| 3.48 | % |
Forbeared principal |
| $ | 27 |
|
| $ | 42 |
|
| $ | 20 |
|
| $ | 28 |
|
| $ | 26 |
|
| $ | 37 |
|
| $ | 18 |
|
| $ | 22 |
|
The activity in and balances relating to our CRT Agreements isarrangements are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
UPB of mortgage loans sold under CRT Agreements |
| $ | 4,126,946 |
|
| $ | 3,357,443 |
|
| $ | 9,722,067 |
|
| $ | 8,442,187 |
|
Deposits of cash securing CRT Agreements |
| $ | 44,998 |
|
| $ | 89,697 |
|
| $ | 102,146 |
|
| $ | 282,434 |
|
Increase in commitments to fund Deposits securing credit risk transfer agreements resulting from sale of mortgage loans |
| $ | 108,051 |
|
| $ | — |
|
| $ | 264,165 |
|
| $ | — |
|
Interest earned on Deposits securing CRT Agreements |
| $ | 1,440 |
|
| $ | 285 |
|
| $ | 2,703 |
|
| $ | 661 |
|
Gains recognized on CRT Agreements included in: Net gain (loss) on investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized |
| $ | 10,798 |
|
| $ | 6,206 |
|
| $ | 27,595 |
|
| $ | 12,601 |
|
Resulting from valuation changes |
|
| 4,162 |
|
|
| 12,307 |
|
|
| 41,268 |
|
|
| 9,060 |
|
|
|
| 14,960 |
|
|
| 18,513 |
|
|
| 68,863 |
|
|
| 21,661 |
|
Change in fair value of interest-only security payable at fair value |
|
| 191 |
|
|
| (36 | ) |
|
| (2,272 | ) |
|
| 437 |
|
|
| $ | 15,151 |
|
| $ | 18,477 |
|
| $ | 66,591 |
|
| $ | 22,098 |
|
Payments made to settle losses |
| $ | 539 |
|
| $ | 28 |
|
| $ | 950 |
|
| $ | 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
UPB of mortgage loans subject to credit guarantee obligations |
| $ | 22,931,988 |
|
| $ | 14,379,850 |
|
|
|
|
|
|
|
|
|
Commitments to fund Deposits securing CRT agreements |
| $ | 356,274 |
|
| $ | 92,109 |
|
|
|
|
|
|
|
|
|
Carrying value of investments in CRT Agreements (1) |
| $ | 602,572 |
|
| $ | 465,669 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
UPB of loans sold |
|
|
|
|
| $ | 14,683,055 |
|
Investments — Change in expected face amount of firm commitment to purchase CRT securities |
|
|
|
|
| $ | 554,690 |
|
Investment income (loss): |
|
|
|
|
|
|
|
|
Net gains on loans acquired for sale — Fair value of firm commitment to purchase CRT securities recognized upon sale of loans |
| $ | — |
|
| $ | (26,649 | ) |
Net gains (losses) on investments: |
|
|
|
|
|
|
|
|
Derivative and CRT strips: |
|
|
|
|
|
|
|
|
CRT derivatives |
|
|
|
|
|
|
|
|
Realized |
|
| 23,496 |
|
|
| 17,201 |
|
Valuation changes |
|
| 12,874 |
|
|
| (300,943 | ) |
|
|
| 36,370 |
|
|
| (283,742 | ) |
CRT strips |
|
|
|
|
|
|
|
|
Realized |
|
| 32,604 |
|
|
| 14,750 |
|
Valuation changes |
|
| 93,222 |
|
|
| (229,875 | ) |
|
|
| 125,826 |
|
|
| (215,125 | ) |
Interest-only security payable at fair value |
|
| (8,165 | ) |
|
| 11,575 |
|
|
|
| 154,031 |
|
|
| (487,292 | ) |
Firm commitments to purchase CRT securities |
|
| — |
|
|
| (492,513 | ) |
|
|
| 154,031 |
|
|
| (979,805 | ) |
Interest income — Deposits securing CRT arrangements |
|
| 168 |
|
|
| 6,099 |
|
|
| $ | 154,199 |
|
| $ | (1,000,355 | ) |
|
|
|
|
|
|
|
|
|
Net (recoveries received) payments made to settle (recoveries) losses on CRT arrangements |
| $ | (13,343 | ) |
| $ | 1,517 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Carrying value of CRT arrangements: |
|
|
|
|
|
|
|
|
Derivative and credit risk transfer strip assets (liabilities), net |
|
|
|
|
|
|
|
|
CRT derivatives |
| $ | 44,676 |
|
| $ | 31,795 |
|
CRT strips |
|
| (109,570 | ) |
|
| (202,792 | ) |
|
| $ | (64,894 | ) |
| $ | (170,997 | ) |
|
|
|
|
|
|
|
|
|
Deposits securing CRT arrangements |
| $ | 2,664,420 |
|
| $ | 2,799,263 |
|
Interest-only security payable at fair value |
| $ | 18,922 |
|
| $ | 10,757 |
|
|
|
|
|
|
|
|
|
|
CRT arrangement assets pledged to secure borrowings: |
|
|
|
|
|
|
|
|
Derivative and credit risk transfer assets |
| $ | 58,134 |
|
| $ | 58,699 |
|
Deposits securing CRT arrangements (1) |
| $ | 2,664,420 |
|
| $ | 2,799,263 |
|
|
|
|
|
|
|
|
|
|
UPB of loans — funded CRT arrangements |
| $ | 48,403,684 |
|
| $ | 58,697,942 |
|
Collection status (UPB): |
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
Current |
| $ | 45,422,502 |
|
| $ | 54,990,381 |
|
30-89 days delinquent |
| $ | 489,284 |
|
| $ | 710,872 |
|
90-180 days delinquent |
| $ | 472,038 |
|
| $ | 693,315 |
|
180 or more days delinquent |
| $ | 2,014,310 |
|
| $ | 2,297,365 |
|
Foreclosure |
| $ | 5,550 |
|
| $ | 6,009 |
|
Bankruptcy |
| $ | 77,362 |
|
| $ | 75,700 |
|
Delinquent loans in COVID-19 pandemic-related forbearance: |
|
|
|
|
|
|
|
|
30-89 days delinquent |
| $ | 245,592 |
|
| $ | 383,028 |
|
90-180 days delinquent |
| $ | 353,422 |
|
| $ | 546,344 |
|
180 or more days delinquent |
| $ | 1,614,170 |
|
| $ | 1,944,663 |
|
(1) |
|
The increaseperformance of our investments in gains recognized on CRT Agreements is due to growtharrangements during the quarter ended March 31, 2021 reflects a decrease in market discount rates as uncertainty regarding the portfoliopotential future impacts of mortgage loans subject to CRT Agreements during 2017the COVID-19 pandemic decreased as compared to 2016 and the effectquarter ended March 31, 2020 during which significant uncertainty about losses resulting from the COVID-19 pandemic affected the valuation of credit spread decreases (credit spreads represent the yield premium demanded by investors for securities similar to CRT Agreements as compared to a U.S. Treasury security) during the first half of 2017 on the fair value of the derivative assets included in the CRT Agreements.this investment.
ESS Purchased from PFSI
We recognized fair value lossesgains relating to our investment in ESS totaling $3.7 million and $10.9$1.7 million for the quarter and nine months ended September 30, 2017,March 31, 2021, as compared to fair value losses of $2.8 million and $36.3$14.1 million for the quarter and nine months ended September 30, 2016, respectively.March 31, 2020. The reduction in lossesgain was driven by the more favorablepositive influence on expected future cash flows of the generally rising interest rate environment in 2017rates during the quarter ended March 31, 2021, as compared to the same periods in 2016 along with a decrease in our average investment in ESS. Our average investment inquarter ended March 31, 2020. The remaining balance of the ESS decreased from $288.3 million and $328.4 million forwas repaid during the quarter and nine months ended September 30, 2016 to $257.2 million and $271.0 million for the quarter and nine months ended September 30, 2017.March 31, 2021.
Net Mortgage Loan Servicing Fees
Our correspondent production activity is the primary source of our mortgage loan servicing portfolio. When we sell mortgage loans, we generally enter into a contract to service the mortgagethose loans and we recognize the fair value of such contracts as MSRs. Under these contracts, we are required to perform mortgage loan servicing functions in exchange for fees and the right to other compensation.
The servicing functions, which are performed on our behalf by PLS, typically include, among other responsibilities, collecting and remitting mortgage loan payments; responding to borrower inquiries; accounting for principal and interest,the loan; holding and remitting custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions.
Net mortgage loan servicing fees are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees (1) |
| $ | 44,280 |
|
| $ | 34,304 |
|
| $ | 123,869 |
|
| $ | 94,754 |
|
Effect of MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
| (21,634 | ) |
|
| (17,902 | ) |
|
| (59,015 | ) |
|
| (47,720 | ) |
Additions to impairment valuation allowance |
|
| (1,702 | ) |
|
| (3,460 | ) |
|
| (4,287 | ) |
|
| (44,336 | ) |
Gain on sale |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Carried at fair value—change in fair value |
|
| (3,977 | ) |
|
| (3,202 | ) |
|
| (10,370 | ) |
|
| (19,558 | ) |
Gains (losses) on hedging derivatives |
|
| 4,576 |
|
|
| 5,612 |
|
|
| (1,731 | ) |
|
| 63,006 |
|
|
|
| (22,737 | ) |
|
| (18,952 | ) |
|
| (75,403 | ) |
|
| (48,597 | ) |
From PFSI—MSR recapture income |
|
| 333 |
|
|
| 409 |
|
|
| 859 |
|
|
| 849 |
|
Net mortgage loan servicing fees |
| $ | 21,876 |
|
| $ | 15,761 |
|
| $ | 49,325 |
|
| $ | 47,006 |
|
Average servicing portfolio |
| $ | 63,584,416 |
|
| $ | 48,997,875 |
|
| $ | 61,764,228 |
|
| $ | 46,125,926 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
From nonaffiliates: |
|
|
|
|
|
|
|
|
Contractually specified (1) |
| $ | 116,287 |
|
| $ | 94,469 |
|
Other |
|
| 16,245 |
|
|
| 7,191 |
|
Effect of changes of fair value of MSRs: |
|
|
|
|
|
|
|
|
Realization of cashflows |
|
| (59,385 | ) |
|
| (63,955 | ) |
Market changes |
|
| 337,667 |
|
|
| (563,246 | ) |
|
|
| 278,282 |
|
|
| (627,201 | ) |
Hedging results |
|
| (374,403 | ) |
|
| 767,186 |
|
|
|
| (96,121 | ) |
|
| 139,985 |
|
Net servicing fees from non-affiliates |
|
| 36,411 |
|
|
| 241,645 |
|
From PFSI—MSR recapture income |
|
| 13,634 |
|
|
| 2,927 |
|
Net loan servicing fees |
| $ | 50,045 |
|
| $ | 244,572 |
|
Average servicing portfolio |
| $ | 177,161,626 |
|
| $ | 136,687,324 |
|
(1) | Includes contractually specified servicing |
Net mortgage loan servicing fees increased during the quarter and nine months ended September 30, 2017 as compared to the comparable periods in 2016 by $6.1decreased $194.5 million and $2.3 million, respectively. The increase in net mortgage servicing fees during the quarter ended September 30, 2017, asMarch 31, 2021, compared to the quarter ended September 30, 2016, wasMarch 31, 2020, due primarily attributable to growththe change in valuation results, net of hedging results. We recognized appreciation in fair value of our mortgage loan servicing portfolio. The increase in net servicing feesasset during the nine monthsquarter ended September 30, 2017,March 31, 2021 as compared to 2016 was due to growth in our mortgage loan servicing portfolio that was partially offset by decreased MSR hedging gains.
We have entered into an MSR recapture agreement that requires PLS to transfer to us the MSRs with respect to new mortgage loans originated in refinancing transactions where PLS refinances a mortgage loan for which we previously held the MSRs. PLS is generally required to transfer MSRs relating to such mortgage loans (or, under certain circumstances, other mortgage loans) that have an aggregate unpaid principal balance that is not less than 30% of the aggregate unpaid principal balance of all the loans so originated. Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, PLS may, at its option, settle in cash with us in an amount equal to such fair market value in place of transferring such MSRs. We recognized MSR recapture incomeloss during the quarter and nine months ended September 30, 2017 of $333,000 and $859,000, respectively, as compared to $409,000 and $849,000, respectively, for the quarter and nine months ended September 30, 2016.March 31, 2020. This improvement was more-than offset by an increase in hedging losses.
We have identified two classes of MSRs: originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% and MSRs backed by mortgage loans with initial interest rates of more than 4.5%. Our accounting for MSRs is based on the class of MSRs. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method. Originated MSRs backed by mortgage loans with initial interest rates of more than 4.5% are accounted for at fair value with changes in fair value recorded in current period income.68
Our MSRs are summarized by the basis on which we account for the assets as presented below:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (dollars in thousands) |
| |||||
MSRs carried at fair value |
| $ | 82,312 |
|
| $ | 64,136 |
|
UPB of mortgage loans underlying MSRs carried at fair value |
| $ | 7,525,020 |
|
| $ | 5,763,957 |
|
MSR carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
Amortized cost |
| $ | 725,982 |
|
| $ | 606,103 |
|
Valuation allowance |
|
| (17,959 | ) |
|
| (13,672 | ) |
Carrying value |
| $ | 708,023 |
|
| $ | 592,431 |
|
Fair value |
| $ | 728,828 |
|
| $ | 626,334 |
|
UPB of mortgage loans underlying MSRs carried at lower of amortized cost or fair value: |
| $ | 60,399,531 |
|
| $ | 50,539,707 |
|
Total MSR: |
|
|
|
|
|
|
|
|
Carrying value |
| $ | 790,335 |
|
| $ | 656,567 |
|
Fair value |
| $ | 811,140 |
|
| $ | 690,470 |
|
UPB of mortgage loans underlying MSRs |
| $ | 67,924,551 |
|
| $ | 56,303,664 |
|
Average servicing fee rate (in basis points) |
|
|
|
|
|
|
|
|
MSRs carried at lower of amortized cost or fair value |
| 25 |
|
|
| 25 |
| |
MSRs carried at fair value |
| 25 |
|
|
| 25 |
| |
Average note interest rate: |
|
|
|
|
|
|
|
|
MSRs carried at lower of amortized cost or fair value |
|
| 3.9 | % |
|
| 3.8 | % |
MSRs carried at fair value |
|
| 4.7 | % |
|
| 4.7 | % |
Net interest incomeexpense is summarized below:
|
| Quarter ended September 30, 2017 |
| |||||||||||||||||
|
| Interest income/expense |
|
|
|
|
|
| Annualized |
| ||||||||||
|
|
|
|
|
| Discount/ |
|
|
|
|
|
| Average |
|
| interest |
| |||
|
| Coupon |
|
| fees (1) |
|
| Total |
|
| balance |
|
| yield/cost % |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 132 |
|
| $ | — |
|
| $ | 132 |
|
| $ | 19,558 |
|
|
| 2.64 | % |
Mortgage-backed securities |
|
| 8,928 |
|
|
| (1,481 | ) |
|
| 7,447 |
|
|
| 1,056,815 |
|
|
| 2.76 | % |
Mortgage loans acquired for sale at fair value |
|
| 16,202 |
|
|
| — |
|
|
| 16,202 |
|
|
| 1,460,054 |
|
|
| 4.34 | % |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed |
|
| 7,191 |
|
|
| 7,022 |
|
|
| 14,213 |
|
|
| 1,104,738 |
|
|
| 5.03 | % |
Held by variable interest entity |
|
| 3,169 |
|
|
| 597 |
|
|
| 3,766 |
|
|
| 339,464 |
|
|
| 4.34 | % |
|
|
| 10,360 |
|
|
| 7,619 |
|
|
| 17,979 |
|
|
| 1,444,202 |
|
|
| 4.87 | % |
ESS from PFSI |
|
| 3,998 |
|
|
| — |
|
|
| 3,998 |
|
|
| 257,243 |
|
|
| 6.08 | % |
Interest earned on deposits securing CRT Agreements |
|
| 1,440 |
|
|
| — |
|
|
| 1,440 |
|
|
| 517,772 |
|
|
| 1.09 | % |
Placement fees relating to custodial funds |
|
| 4,330 |
|
|
| — |
|
|
| 4,330 |
|
|
| — |
|
|
| — |
|
Other |
|
| 49 |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
|
| 45,439 |
|
|
| 6,138 |
|
|
| 51,577 |
|
|
| 4,755,644 |
|
|
| 4.24 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 24,137 |
|
|
| 2,020 |
|
|
| 26,157 |
|
|
| 3,474,903 |
|
|
| 2.95 | % |
Mortgage loan participation purchase and sale agreements |
|
| 378 |
|
|
| 31 |
|
|
| 409 |
|
|
| 59,701 |
|
|
| 2.68 | % |
Notes payable |
|
| 1,277 |
|
|
| 1,043 |
|
|
| 2,320 |
|
|
| 79,345 |
|
|
| 11.44 | % |
Asset-backed financings of a VIE at fair value |
|
| 2,780 |
|
|
| 735 |
|
|
| 3,515 |
|
|
| 325,763 |
|
|
| 4.22 | % |
Exchangeable Notes |
|
| 3,360 |
|
|
| 276 |
|
|
| 3,636 |
|
|
| 250,000 |
|
|
| 5.69 | % |
Borrowing from PFSI |
|
| 2,116 |
|
|
| — |
|
|
| 2,116 |
|
|
| 149,874 |
|
|
| 5.52 | % |
|
|
| 34,048 |
|
|
| 4,105 |
|
|
| 38,153 |
|
|
| 4,339,586 |
|
|
| 3.44 | % |
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 1,638 |
|
|
| — |
|
|
| 1,638 |
|
|
| — |
|
|
| — |
|
Interest on mortgage loan impound deposits |
|
| 486 |
|
|
| — |
|
|
| 486 |
|
|
| — |
|
|
| — |
|
|
|
| 36,172 |
|
|
| 4,105 |
|
|
| 40,277 |
|
|
| 4,339,586 |
|
|
| 3.63 | % |
Net interest income |
| $ | 9,267 |
|
| $ | 2,033 |
|
| $ | 11,300 |
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.93 | % |
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.61 | % |
|
|
|
| Quarter ended March 31, 2021 |
|
| Quarter ended March 31, 2020 |
| ||||||||||||||||||
|
| Interest |
|
|
|
|
|
| Interest |
|
| Interest |
|
|
|
|
|
| Interest |
| ||||
|
| income/ |
|
| Average |
|
| yield/ |
|
| income/ |
|
| Average |
|
| yield/ |
| ||||||
|
| expense |
|
| balance |
|
| cost % |
|
| expense |
|
| balance |
|
| cost % |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments |
| $ | 225 |
|
| $ | 274,857 |
|
|
| 0.33 | % |
| $ | 1,627 |
|
| $ | 417,663 |
|
|
| 1.54 | % |
Mortgage-backed securities |
|
| 8,286 |
|
|
| 2,006,195 |
|
|
| 1.65 | % |
|
| 15,568 |
|
|
| 3,544,827 |
|
|
| 1.74 | % |
Loans acquired for sale at fair value |
|
| 22,908 |
|
|
| 3,618,980 |
|
|
| 2.53 | % |
|
| 31,523 |
|
|
| 3,215,418 |
|
|
| 3.88 | % |
Loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by variable interest entity |
|
| 1,899 |
|
|
| 129,122 |
|
|
| 5.88 | % |
|
| 2,641 |
|
|
| 253,759 |
|
|
| 4.12 | % |
Distressed |
|
| 253 |
|
|
| 7,805 |
|
|
| 12.97 | % |
|
| 59 |
|
|
| 11,249 |
|
|
| 2.07 | % |
|
|
| 2,152 |
|
|
| 136,927 |
|
|
| 6.29 | % |
|
| 2,700 |
|
|
| 265,008 |
|
|
| 4.03 | % |
ESS from PFSI |
|
| 1,280 |
|
|
| 87,451 |
|
|
| 5.85 | % |
|
| 1,974 |
|
|
| 173,484 |
|
|
| 4.50 | % |
Deposits securing CRT arrangements |
|
| 168 |
|
|
| 2,743,862 |
|
|
| 0.02 | % |
|
| 6,099 |
|
|
| 1,922,190 |
|
|
| 1.26 | % |
|
|
| 35,019 |
|
|
| 8,868,272 |
|
|
| 1.58 | % |
|
| 59,491 |
|
|
| 9,538,590 |
|
|
| 2.47 | % |
Placement fees relating to custodial funds |
|
| 2,532 |
|
|
|
|
|
|
|
|
|
|
| 12,398 |
|
|
|
|
|
|
|
|
|
Other |
|
| 38 |
|
|
|
|
|
|
|
|
|
|
| 234 |
|
|
|
|
|
|
|
|
|
|
|
| 37,589 |
|
| $ | 8,868,272 |
|
|
| 1.70 | % |
|
| 72,123 |
|
| $ | 9,538,590 |
|
|
| 2.99 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
| $ | 28,659 |
|
| $ | 5,971,290 |
|
|
| 1.92 | % |
|
| 37,750 |
|
| $ | 6,302,900 |
|
|
| 2.37 | % |
Mortgage loan participation purchase and sale agreements |
|
| 164 |
|
|
| 39,162 |
|
|
| 1.68 | % |
|
| 338 |
|
|
| 41,301 |
|
|
| 3.24 | % |
Notes payable secured by credit risk transfer and mortgage servicing assets |
|
| 18,599 |
|
|
| 2,260,721 |
|
|
| 3.29 | % |
|
| 19,618 |
|
|
| 1,860,213 |
|
|
| 4.17 | % |
Exchangeable senior notes |
|
| 5,542 |
|
|
| 298,554 |
|
|
| 7.43 | % |
|
| 7,266 |
|
|
| 460,000 |
|
|
| 6.25 | % |
Asset-backed financings of a variable interest entity at fair value |
|
| 168 |
|
|
| 120,415 |
|
|
| 0.56 | % |
|
| 4,527 |
|
|
| 240,765 |
|
|
| 7.44 | % |
Assets sold to PFSI under agreement to repurchase |
|
| 387 |
|
|
| 52,803 |
|
|
| 2.93 | % |
|
| 1,218 |
|
|
| 105,064 |
|
|
| 4.65 | % |
|
|
| 53,519 |
|
|
| 8,742,945 |
|
|
| 2.45 | % |
|
| 70,717 |
|
|
| 9,010,243 |
|
|
| 3.10 | % |
Interest shortfall on repayments of loans serviced for Agency securitizations |
|
| 22,040 |
|
|
|
|
|
|
|
|
|
|
| 9,439 |
|
|
|
|
|
|
|
|
|
Interest on loan impound deposits |
|
| 749 |
|
|
|
|
|
|
|
|
|
|
| 912 |
|
|
|
|
|
|
|
|
|
|
|
| 76,308 |
|
| $ | 8,742,945 |
|
|
| 3.49 | % |
|
| 81,068 |
|
| $ | 9,010,243 |
|
|
| 3.56 | % |
Net interest expense |
| $ | (38,719 | ) |
|
|
|
|
|
|
|
|
| $ | (8,945 | ) |
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| -1.75 | % |
|
|
|
|
|
|
|
|
|
| -0.37 | % |
Net interest spread |
|
|
|
|
|
|
|
|
|
| -1.80 | % |
|
|
|
|
|
|
|
|
|
| -0.57 | % |
|
| Quarter ended September 30, 2016 |
| |||||||||||||||||
|
| Interest income/expense |
|
|
|
|
|
| Annualized |
| ||||||||||
|
|
|
|
|
| Discount/ |
|
|
|
|
|
| Average |
|
| interest |
| |||
|
| Coupon |
|
| fees (1) |
|
| Total |
|
| balance |
|
| yield/cost % |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 165 |
|
| $ | — |
|
| $ | 165 |
|
| $ | 33,337 |
|
|
| 1.94 | % |
Mortgage-backed securities |
|
| 4,587 |
|
|
| (1,193 | ) |
|
| 3,394 |
|
|
| 551,339 |
|
|
| 2.41 | % |
Mortgage loans acquired for sale at fair value |
|
| 15,008 |
|
|
| — |
|
|
| 15,008 |
|
|
| 1,607,564 |
|
|
| 3.65 | % |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed |
|
| 13,315 |
|
|
| 15,637 |
|
|
| 28,952 |
|
|
| 1,579,246 |
|
|
| 7.17 | % |
Held by variable interest entity |
|
| 3,847 |
|
|
| 193 |
|
|
| 4,040 |
|
|
| 413,749 |
|
|
| 3.82 | % |
|
|
| 17,162 |
|
|
| 15,830 |
|
|
| 32,992 |
|
|
| 1,992,995 |
|
|
| 6.48 | % |
ESS from PFSI |
|
| 4,827 |
|
|
| — |
|
|
| 4,827 |
|
|
| 288,340 |
|
|
| 6.55 | % |
Interest earned on Deposits securing CRT Agreements |
|
| 285 |
|
|
| — |
|
|
| 285 |
|
|
| 381,445 |
|
|
| 0.29 | % |
Placement fees relating to custodial funds |
|
| 1,445 |
|
|
| — |
|
|
| 1,445 |
|
|
| — |
|
|
| — |
|
Other |
|
| 18 |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
|
| 43,497 |
|
|
| 14,637 |
|
|
| 58,134 |
|
|
| 4,855,020 |
|
|
| 4.69 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 21,521 |
|
|
| 2,230 |
|
|
| 23,751 |
|
|
| 3,538,720 |
|
|
| 2.63 | % |
Mortgage loan participation purchase and sale agreements |
|
| 330 |
|
|
| 31 |
|
|
| 361 |
|
|
| 73,537 |
|
|
| 1.92 | % |
Notes payable |
|
| 2,078 |
|
|
| 805 |
|
|
| 2,883 |
|
|
| 170,907 |
|
|
| 6.60 | % |
Asset-backed financings of VIEs at fair value |
|
| 2,733 |
|
|
| 2,520 |
|
|
| 5,253 |
|
|
| 330,622 |
|
|
| 6.22 | % |
Exchangeable Notes |
|
| 3,359 |
|
|
| 261 |
|
|
| 3,620 |
|
|
| 250,000 |
|
|
| 5.67 | % |
Borrowing from PFSI |
|
| 1,646 |
|
|
| 328 |
|
|
| 1,974 |
|
|
| 150,000 |
|
|
| 5.15 | % |
|
|
| 31,667 |
|
|
| 6,175 |
|
|
| 37,842 |
|
|
| 4,513,786 |
|
|
| 3.28 | % |
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 2,142 |
|
|
| — |
|
|
| 2,142 |
|
|
| — |
|
|
| — |
|
Interest on mortgage loan impound deposits |
|
| 346 |
|
|
| — |
|
|
| 346 |
|
|
| — |
|
|
| — |
|
|
|
| 34,155 |
|
|
| 6,175 |
|
|
| 40,330 |
|
|
| 4,513,786 |
|
|
| 3.50 | % |
Net interest income |
| $ | 9,342 |
|
| $ | 8,462 |
|
| $ | 17,804 |
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.48 | % |
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.19 | % |
|
|
|
| Nine months ended September 30, 2017 |
| |||||||||||||||||
|
| Interest income/expense |
|
|
|
|
|
| Annualized |
| ||||||||||
|
|
|
|
|
| Discount/ |
|
|
|
|
|
| Average |
|
| interest |
| |||
|
| Coupon |
|
| fees (1) |
|
| Total |
|
| balance |
|
| yield/cost % |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 516 |
|
| $ | — |
|
| $ | 516 |
|
| $ | 39,724 |
|
|
| 1.71 | % |
Mortgage-backed securities |
|
| 26,230 |
|
|
| (4,276 | ) |
|
| 21,954 |
|
|
| 1,032,683 |
|
|
| 2.80 | % |
Mortgage loans acquired for sale at fair value |
|
| 40,699 |
|
|
| — |
|
|
| 40,699 |
|
|
| 1,271,158 |
|
|
| 4.22 | % |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed |
|
| 26,096 |
|
|
| 27,360 |
|
|
| 53,456 |
|
|
| 1,210,328 |
|
|
| 5.82 | % |
Held by variable interest entity |
|
| 9,912 |
|
|
| 1,458 |
|
|
| 11,370 |
|
|
| 350,607 |
|
|
| 4.28 | % |
|
|
| 36,008 |
|
|
| 28,818 |
|
|
| 64,826 |
|
|
| 1,560,935 |
|
|
| 5.48 | % |
ESS from PFSI |
|
| 13,011 |
|
|
| — |
|
|
| 13,011 |
|
|
| 271,024 |
|
|
| 6.33 | % |
Interest earned on Deposits securing CRT Agreements |
|
| 2,703 |
|
|
| — |
|
|
| 2,703 |
|
|
| 482,790 |
|
|
| 0.74 | % |
Placement fees relating to custodial funds |
|
| 8,212 |
|
|
| — |
|
|
| 8,212 |
|
|
| — |
|
|
| — |
|
Other |
|
| 142 |
|
|
| — |
|
|
| 142 |
|
|
| — |
|
|
|
|
|
|
|
| 127,521 |
|
|
| 24,542 |
|
|
| 152,063 |
|
|
| 4,658,314 |
|
|
| 4.30 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 66,080 |
|
|
| 6,200 |
|
|
| 72,280 |
|
|
| 3,388,626 |
|
|
| 2.81 | % |
Mortgage loan participation purchase and sale agreements |
|
| 1,131 |
|
|
| 94 |
|
|
| 1,225 |
|
|
| 65,290 |
|
|
| 2.47 | % |
Notes payable |
|
| 6,441 |
|
|
| 3,278 |
|
|
| 9,719 |
|
|
| 152,395 |
|
|
| 8.41 | % |
Asset-backed financings of a VIE at fair value |
|
| 8,713 |
|
|
| 1,807 |
|
|
| 10,520 |
|
|
| 337,073 |
|
|
| 4.12 | % |
Exchangeable Notes |
|
| 10,078 |
|
|
| 817 |
|
|
| 10,895 |
|
|
| 250,000 |
|
|
| 5.75 | % |
Borrowing from PFSI |
|
| 5,992 |
|
|
| (46 | ) |
|
| 5,946 |
|
|
| 149,958 |
|
|
| 5.23 | % |
|
|
| 98,435 |
|
|
| 12,150 |
|
|
| 110,585 |
|
|
| 4,343,342 |
|
|
| 3.36 | % |
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 4,068 |
|
|
| — |
|
|
| 4,068 |
|
|
| — |
|
|
|
|
|
Interest on mortgage loan impound deposits |
|
| 1,229 |
|
|
| — |
|
|
| 1,229 |
|
|
| — |
|
|
|
|
|
|
|
| 103,732 |
|
|
| 12,150 |
|
|
| 115,882 |
|
|
| 4,343,342 |
|
|
| 3.52 | % |
Net interest income |
| $ | 23,789 |
|
| $ | 12,392 |
|
| $ | 36,181 |
|
| $ | 314,972 |
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.02 | % |
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.79 | % |
|
|
|
| Nine months ended September 30, 2016 |
| |||||||||||||||||
|
|
|
|
|
| Discount/ |
|
|
|
|
|
| Average |
|
| interest |
| |||
|
| Coupon |
|
| fees (1) |
|
| Total |
|
| balance |
|
| yield/cost % |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 747 |
|
| $ | — |
|
| $ | 747 |
|
| $ | 35,468 |
|
|
| 2.77 | % |
Mortgage-backed securities |
|
| 10,793 |
|
|
| (1,930 | ) |
|
| 8,863 |
|
|
| 435,068 |
|
|
| 2.68 | % |
Mortgage loans acquired for sale at fair value |
|
| 37,868 |
|
|
| - |
|
|
| 37,868 |
|
|
| 1,317,230 |
|
|
| 3.78 | % |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed |
|
| 43,587 |
|
|
| 37,593 |
|
|
| 81,180 |
|
|
| 1,810,779 |
|
|
| 5.89 | % |
Held by variable interest entity |
|
| 12,233 |
|
|
| 2,287 |
|
|
| 14,520 |
|
|
| 434,967 |
|
|
| 4.39 | % |
|
|
| 55,820 |
|
|
| 39,880 |
|
|
| 95,700 |
|
|
| 2,245,746 |
|
|
| 5.60 | % |
ESS from PFSI |
|
| 17,555 |
|
|
| — |
|
|
| 17,555 |
|
|
| 328,413 |
|
|
| 7.02 | % |
Interest earned on Deposits securing CRT Agreements |
|
| 661 |
|
|
| — |
|
|
| 661 |
|
|
| 269,810 |
|
|
| 0.32 | % |
Placement fees relating to custodial funds |
|
| 2,786 |
|
|
| — |
|
|
| 2,786 |
|
|
| — |
|
|
| — |
|
Other |
|
| 86 |
|
|
| — |
|
|
| 86 |
|
|
| — |
|
|
| — |
|
|
|
| 126,316 |
|
|
| 37,950 |
|
|
| 164,266 |
|
|
| 4,631,735 |
|
|
| 4.66 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 59,705 |
|
|
| 6,512 |
|
|
| 66,217 |
|
|
| 3,202,829 |
|
|
| 2.72 | % |
Mortgage loan participation purchase and sale agreements |
|
| 924 |
|
|
| 99 |
|
|
| 1,023 |
|
|
| 70,955 |
|
|
| 1.89 | % |
Federal Home Loan Bank advances |
|
| 122 |
|
|
| — |
|
|
| 122 |
|
|
| 32,560 |
|
|
| 0.49 | % |
Notes payable |
|
| 6,800 |
|
|
| 2,417 |
|
|
| 9,217 |
|
|
| 190,878 |
|
|
| 6.34 | % |
Asset-backed financings of VIEs at fair value |
|
| 8,227 |
|
|
| 1,985 |
|
|
| 10,212 |
|
|
| 326,962 |
|
|
| 4.10 | % |
Exchangeable Notes |
|
| 10,078 |
|
|
| 770 |
|
|
| 10,848 |
|
|
| 250,000 |
|
|
| 5.70 | % |
Borrowing from PFSI |
|
| 4,806 |
|
|
| 992 |
|
|
| 5,798 |
|
|
| 150,000 |
|
|
| 5.08 | % |
|
|
| 90,662 |
|
|
| 12,775 |
|
|
| 103,437 |
|
|
| 4,224,184 |
|
|
| 3.22 | % |
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 4,703 |
|
|
| — |
|
|
| 4,703 |
|
|
| — |
|
|
| — |
|
Interest on mortgage loan impound deposits |
|
| 787 |
|
|
| — |
|
|
| 787 |
|
|
| — |
|
|
| — |
|
|
|
| 96,152 |
|
|
| 12,775 |
|
|
| 108,927 |
|
|
| 4,224,184 |
|
|
| 3.39 | % |
Net interest income |
| $ | 30,164 |
|
| $ | 25,175 |
|
| $ | 55,339 |
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.58 | % |
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.27 | % |
|
|
The effects of changes in the yields and costs and composition of our investments on our interest income are summarized below:
|
| Quarter ended September 30, 2017 |
|
| Nine months ended September 30, 2017 |
| ||||||||||||||||||
|
| vs. |
|
| vs. |
| ||||||||||||||||||
|
| Quarter ended September 30, 2016 |
|
| Nine months ended September 30, 2016 |
| ||||||||||||||||||
|
| Increase (decrease) due to changes in |
|
| Increase (decrease) due to changes in |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Rate |
|
| Volume |
|
| change |
|
| Rate |
|
| Volume |
|
| change |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 48 |
|
| $ | (81 | ) |
| $ | (33 | ) |
| $ | (312 | ) |
| $ | 81 |
|
| $ | (231 | ) |
Mortgage -backed securities |
|
| 552 |
|
|
| 3,501 |
|
|
| 4,053 |
|
|
| 437 |
|
|
| 12,654 |
|
|
| 13,091 |
|
Mortgage loans acquired for sale at fair value |
|
| 2,656 |
|
|
| (1,462 | ) |
|
| 1,194 |
|
|
| 4,218 |
|
|
| (1,387 | ) |
|
| 2,831 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed |
|
| (7,342 | ) |
|
| (7,397 | ) |
|
| (14,739 | ) |
|
| (908 | ) |
|
| (26,816 | ) |
|
| (27,724 | ) |
Held by variable interest entity |
|
| 508 |
|
|
| (782 | ) |
|
| (274 | ) |
|
| (359 | ) |
|
| (2,791 | ) |
|
| (3,150 | ) |
Total mortgage loans |
|
| (6,834 | ) |
|
| (8,179 | ) |
|
| (15,013 | ) |
|
| (1,267 | ) |
|
| (29,607 | ) |
|
| (30,874 | ) |
ESS from PFSI |
|
| (331 | ) |
|
| (498 | ) |
|
| (829 | ) |
|
| (1,639 | ) |
|
| (2,905 | ) |
|
| (4,544 | ) |
Interest earned on Deposits securing CRT Agreements |
|
| 1,021 |
|
|
| 134 |
|
|
| 1,155 |
|
|
| 1,268 |
|
|
| 774 |
|
|
| 2,042 |
|
Placement fees relating to custodial funds |
|
| — |
|
|
| 2,885 |
|
|
| 2,885 |
|
|
| — |
|
|
| 5,426 |
|
|
| 5,426 |
|
Other |
|
| — |
|
|
| 31 |
|
|
| 31 |
|
|
| — |
|
|
| 56 |
|
|
| 56 |
|
|
| $ | (2,888 | ) |
| $ | (3,669 | ) |
| $ | (6,557 | ) |
| $ | 2,705 |
|
| $ | (14,908 | ) |
| $ | (12,203 | ) |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 2,841 |
|
|
| (435 | ) |
|
| 2,406 |
|
|
| 2,301 |
|
|
| 3,762 |
|
|
| 6,063 |
|
Mortgage loan participation purchase and sale agreement |
|
| 125 |
|
|
| (77 | ) |
|
| 48 |
|
|
| 289 |
|
|
| (87 | ) |
|
| 202 |
|
FHLB advances |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (122 | ) |
|
| (122 | ) |
Asset backed secured financing of VIEs at fair value |
|
| (1,662 | ) |
|
| (76 | ) |
|
| (1,738 | ) |
|
| 27 |
|
|
| 281 |
|
|
| 308 |
|
Exchangeable Notes |
|
| 16 |
|
|
| — |
|
|
| 16 |
|
|
| 47 |
|
|
| — |
|
|
| 47 |
|
Notes payable |
|
| 1,460 |
|
|
| (2,023 | ) |
|
| (563 | ) |
|
| 2,597 |
|
|
| (2,095 | ) |
|
| 502 |
|
Borrowing from PFSI |
|
| 144 |
|
|
| (2 | ) |
|
| 142 |
|
|
| 150 |
|
|
| (2 | ) |
|
| 148 |
|
|
|
| 2,924 |
|
|
| (2,613 | ) |
|
| 311 |
|
|
| 5,411 |
|
|
| 1,737 |
|
|
| 7,148 |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| — |
|
|
| (504 | ) |
|
| (504 | ) |
|
| — |
|
|
| (635 | ) |
|
| (635 | ) |
Interest on mortgage loan impound deposits |
|
| — |
|
|
| 140 |
|
|
| 140 |
|
|
| — |
|
|
| 442 |
|
|
| 442 |
|
|
|
| 2,924 |
|
|
| (2,977 | ) |
|
| (53 | ) |
|
| 5,411 |
|
|
| 1,544 |
|
|
| 6,955 |
|
Net interest income |
| $ | (5,812 | ) |
| $ | (692 | ) |
| $ | (6,504 | ) |
| $ | (2,706 | ) |
| $ | (16,452 | ) |
| $ | (19,158 | ) |
|
| Quarter ended March 31, 2021 |
| |||||||||
|
| vs. |
| |||||||||
|
| Quarter ended March 31, 2020 |
| |||||||||
|
| Increase (decrease) due to changes in |
| |||||||||
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Rate |
|
| Volume |
|
| change |
| |||
| (in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments |
| $ | (978 | ) |
| $ | (424 | ) |
| $ | (1,402 | ) |
Mortgage-backed securities |
|
| (740 | ) |
|
| (6,542 | ) |
|
| (7,282 | ) |
Loans acquired for sale at fair value |
|
| (12,075 | ) |
|
| 3,460 |
|
|
| (8,615 | ) |
Loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Held by variable interest entity |
|
| 850 |
|
|
| (1,592 | ) |
|
| (742 | ) |
Distressed |
|
| 217 |
|
|
| (23 | ) |
|
| 194 |
|
|
|
| 1,067 |
|
|
| (1,615 | ) |
|
| (548 | ) |
ESS from PFSI |
|
| 469 |
|
|
| (1,163 | ) |
|
| (694 | ) |
Deposits securing CRT arrangements |
|
| (7,722 | ) |
|
| 1,791 |
|
|
| (5,931 | ) |
|
|
| (19,979 | ) |
|
| (4,493 | ) |
|
| (24,472 | ) |
Placement fees relating to custodial funds |
|
| — |
|
|
| (9,866 | ) |
|
| (9,866 | ) |
Other |
|
| — |
|
|
| (196 | ) |
|
| (196 | ) |
|
|
| (19,979 | ) |
|
| (14,555 | ) |
|
| (34,534 | ) |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| (7,118 | ) |
|
| (1,973 | ) |
|
| (9,091 | ) |
Mortgage loan participation purchase and sale agreement |
|
| (157 | ) |
|
| (17 | ) |
|
| (174 | ) |
Notes payable secured by credit risk transfer and mortgage servicing assets |
|
| (4,642 | ) |
|
| 3,623 |
|
|
| (1,019 | ) |
Exchangeable senior notes |
|
| 1,159 |
|
|
| (2,883 | ) |
|
| (1,724 | ) |
Asset-backed financings of a variable interest entity at fair value |
|
| (2,830 | ) |
|
| (1,529 | ) |
|
| (4,359 | ) |
Assets sold to PFSI under agreement to repurchase |
|
| (349 | ) |
|
| (482 | ) |
|
| (831 | ) |
|
|
| (13,937 | ) |
|
| (3,261 | ) |
|
| (17,198 | ) |
Interest shortfall on repayments of loans serviced for Agency securitizations |
|
| — |
|
|
| 12,601 |
|
|
| 12,601 |
|
Interest on loan impound deposits |
|
| — |
|
|
| (163 | ) |
|
| (163 | ) |
|
|
| (13,937 | ) |
|
| 9,177 |
|
|
| (4,760 | ) |
Net interest expense |
| $ | (6,042 | ) |
| $ | (23,732 | ) |
| $ | (29,774 | ) |
During the quarter and nine months ended September 30, 2017, we earned net interest income of $11.3 million and $36.2 million, respectively, as compared to $17.8 million and $55.3 million for the quarter and nine months ended September 30, 2016, respectively. The decrease in net interest income between quarters was due primarily to a decrease in average investment in distressed mortgage loans, which are our highest yielding assets, compounded by the growth in our borrowings to finance non-interest earning MSRs and CRT. This reduction was partially offset by growth in our average investment in MBS.
During the quarter and nine months ended September 30, 2017, we recognized interest income on distressed mortgage loans and mortgage loans held by VIEs totaling $18.0 million and $64.8 million, respectively, including $7.0 million and $27.7 million of interest capitalized pursuant to loan modifications, which compares to $33.0 million and $95.7 million, including $23.1 million and $62.8 million of interest capitalized pursuant to loan modifications in the quarter and nine months ended September 30, 2016, respectively. The decrease in interest income was due to both the result of continuing sales and liquidations of our distressed mortgage loans and a reduction in yield on our portfolio caused by reduced capitalization of delinquent interest pursuant to mortgage loan modifications.
At September 30, 2017, approximately 48% of the fair value of our distressed mortgage loan portfolio was nonperforming, as compared to 55% at December 31, 2016. We do not accrue interest on nonperforming mortgage loans and generally do not recognize revenues during the period we hold REO. We calculate the yield on our mortgage loan portfolio based on the portfolio’s average fair value, which most closely reflects our investment in the mortgage loans. Accordingly, the yield we realize is substantially higher than would be recorded based on the mortgage loans’ UPBs and performance status as we generally have purchased our distressed mortgage loans at substantial discounts to their UPB.
Nonperforming mortgage loans and REO generally take longer than performing mortgage loans to generate cash flow due to the time required to work with borrowers to resolve payment issues through our modification programs, and to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to assist borrowers in curing defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. At September 30, 2017, we held $488.1 million in fair value of nonperforming mortgage loans and $185.0 million in carrying value of REO, as compared to $743.0 million in fair value of nonperforming mortgage loans and $274.1 million in carrying value of REO at December 31, 2016.
During the quarter and nine months ended September 30, 2017, we incurred interest expense totaling $40.3 million and $115.9 million, respectively, as compared to $40.3 million and $108.9 million during the quarter and nine months ended September 30, 2016. Our interest cost on interest bearing liabilities was 3.44% and 3.36% for the quarter and nine months ended September 30, 2017 and 3.28% and 3.22% for the quarter and nine months ended September 30, 2016, respectively. The change in interest expense reflects higher interest rates.
Results of Real Estate Acquired in Settlement of Loans
Results of REO includes the gains or losses we record upon sale of the properties as well as valuation adjustments we record during the period we hold those properties. During the quarter and nine months ended September 30, 2017, we recorded net losses of $3.1 million and $10.9 million, respectively, as compared to $3.3 million and $11.9 million for the same periods in 2016, respectively, in Results of real estate acquired in settlement of loans.
Results of REO are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of REO |
| $ | 39,253 |
|
| $ | 44,843 |
|
| $ | 140,862 |
|
| $ | 180,416 |
|
Results of real estate acquired in settlement of loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation adjustments, net |
|
| (6,423 | ) |
|
| (7,888 | ) |
|
| (21,749 | ) |
|
| (25,816 | ) |
Gain on sale, net |
|
| 3,280 |
|
|
| 4,603 |
|
|
| 10,895 |
|
|
| 13,930 |
|
|
| $ | (3,143 | ) |
| $ | (3,285 | ) |
| $ | (10,854 | ) |
| $ | (11,886 | ) |
Number of properties sold |
|
| 70 |
|
|
| 295 |
|
|
| 590 |
|
|
| 1,087 |
|
Average carrying value of REO |
| $ | 195,412 |
|
| $ | 294,447 |
|
| $ | 224,223 |
|
| $ | 314,173 |
|
End of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
| $ | 185,034 |
|
| $ | 288,348 |
|
|
|
|
|
|
|
|
|
Number of properties |
|
| 752 |
|
|
| 1,277 |
|
|
|
|
|
|
|
|
|
Losses from REOs during the quarter ended September 30, 2017 decreased fromMarch 31, 2021, as compared to the same period in 2016. The decrease in losses from REOs during the quarter and nine months ended September 30, 2017, as compared to 2016, was2020, is due to the smaller overall REO portfolio during 2017 as compared to 2016.to:
• | An increase in interest shortfall on repayments of loans serviced for Agency securitizations resulting from the increased levels of prepayment activity in our MSR portfolio. In many cases, when a borrower repays a loan, we are responsible for paying the full month’s interest to the holders of the Agency securities that are backed by the loan regardless of when in the month the borrower repays the loan. |
• | A decrease in earnings from placement fees relating to custodial funds managed for borrowers and investors and deposits securing CRT arrangements which reflect the effect of decreasing interest rates we earn on these assets. |
Expenses
Our expenses are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Expenses payable to PFSI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment fees |
| $ | 23,507 |
|
| $ | 27,255 |
|
| $ | 61,184 |
|
| $ | 59,301 |
|
Mortgage loan servicing fees |
|
| 11,402 |
|
|
| 11,039 |
|
|
| 31,987 |
|
|
| 38,919 |
|
Management fees |
|
| 6,038 |
|
|
| 5,025 |
|
|
| 16,684 |
|
|
| 15,576 |
|
Mortgage loan origination |
|
| 2,230 |
|
|
| 2,202 |
|
|
| 5,735 |
|
|
| 4,880 |
|
Professional services |
|
| 1,331 |
|
|
| 1,134 |
|
|
| 5,531 |
|
|
| 5,438 |
|
Compensation |
|
| 1,067 |
|
|
| 1,508 |
|
|
| 4,918 |
|
|
| 5,021 |
|
Mortgage loan collection and liquidation |
|
| 864 |
|
|
| 6,205 |
|
|
| 4,556 |
|
|
| 12,709 |
|
Other |
|
| 5,199 |
|
|
| 3,944 |
|
|
| 15,043 |
|
|
| 13,417 |
|
|
| $ | 51,638 |
|
| $ | 58,312 |
|
| $ | 145,638 |
|
| $ | 155,261 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Earned by PennyMac Financial Services, Inc.: |
|
|
|
|
|
|
|
|
Loan fulfillment fees |
| $ | 60,835 |
|
| $ | 41,940 |
|
Loan servicing fees |
|
| 19,093 |
|
|
| 14,521 |
|
Management fees |
|
| 8,449 |
|
|
| 9,055 |
|
Loan origination |
|
| 9,308 |
|
|
| 4,249 |
|
Loan collection and liquidation |
|
| 3,857 |
|
|
| 750 |
|
Safekeeping |
|
| 1,941 |
|
|
| 1,658 |
|
Professional services |
|
| 2,224 |
|
|
| 1,496 |
|
Compensation |
|
| 2,185 |
|
|
| 519 |
|
Other |
|
| 2,477 |
|
|
| 3,720 |
|
|
| $ | 110,369 |
|
| $ | 77,908 |
|
Expenses decreased $6.7increased $32.5 million, or 11%, and $9.6 million, or 6%42%, during the quarter and nine months ended September 30, 2017, respectively,March 31, 2021, as compared to the same periodsperiod in 2016,2020. This increase is primarily due to decreasedincreased loan fulfillment fees and loan origination costs attributable to increases in our production volumes during the quarter ended September 30, 2017,March 31, 2021, as compared to the quarter ended September 30, 2016, reflecting reduced mortgage loan production2020, and a lower average fee charged. Expenses decreased during the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due to decreased mortgageincreased loan servicing fees, resulting from activity-basedreflecting both the growth of our loan servicing portfolio and the fees we incurred in 2016incur relating to a larger volume of loan sales than in 2017CARES Act forbearance and to continuing liquidation of our distressed mortgage loan portfolio.modification activities.
Mortgage Loan Fulfillment Fees
Mortgage loanLoan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of mortgage loans. The fee is calculated as a percentage of the UPB of the mortgage loans purchased. Mortgageincrease in loan fulfillment fees and relatedof $18.9 million during the quarter ended March 31, 2021 as compared to 2020, is primarily due to an increase in the volume of loans fulfilled for us by PFSI, partially offset by a change in the fulfillment volumefee structure described in Note 4 – Transactions with Related Parties.
Loan Servicing Fees
Loan servicing fees payable to PLS are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Fulfillment fee expense |
| $ | 23,507 |
|
| $ | 27,255 |
|
| $ | 61,184 |
|
| $ | 59,301 |
|
UPB of mortgage loans fulfilled by PLS |
| $ | 6,530,036 |
|
| $ | 7,263,557 |
|
| $ | 17,079,969 |
|
| $ | 15,696,940 |
|
Average fulfillment fee rate (in basis points) |
|
| 36 |
|
|
| 38 |
|
|
| 36 |
|
|
| 38 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Loan servicing fees: |
|
|
|
|
|
|
|
|
Loans acquired for sale at fair value |
| $ | 543 |
|
| $ | 536 |
|
Loans at fair value |
|
| 137 |
|
|
| 300 |
|
MSRs |
|
| 18,413 |
|
|
| 13,685 |
|
|
| $ | 19,093 |
|
| $ | 14,521 |
|
Average investment in: |
|
|
|
|
|
|
|
|
Loans acquired for sale at fair value |
| $ | 3,618,980 |
|
| $ | 3,215,418 |
|
Loans at fair value: |
|
|
|
|
|
|
|
|
Distressed |
| $ | 7,805 |
|
| $ | 11,249 |
|
Held in a VIE |
| $ | 129,122 |
|
| $ | 253,759 |
|
Average MSR portfolio UPB |
| $ | 177,161,626 |
|
| $ | 136,687,324 |
|
The decrease in loan fulfillmentLoan servicing fees of $3.7increased by $4.6 million during the quarter ended September 30, 2017, as compared to the quarter ended September 30, 2016, is primarily due to a decrease in the volume of Agency-eligible mortgage loans we purchased in our correspondent production activities, partially offset by a decrease in the average fulfillment fee rate charged by PFSI due to contractual reductions in the fulfillment fee following a change in the mortgage banking services agreement with PFSI in September 2016.
Mortgage Loan Servicing Fees
Mortgage loan servicing fees decreased by $6.9 million during the nine months ended September 30, 2017,March 31, 2021, as compared to the same periodsperiod in 2016.2020. We incur mortgage loan servicing fees primarily in support of our investment in mortgage loans at fair value and our mortgage loan servicingMSR portfolio. The decreaseincrease in mortgage loan servicing fees was primarily due to a reductiongrowth in our portfolio of MSRs and the fees largely driven by activity-based fees assessed in the quarter ended June 30, 2016 for a large sale of reperforming loans, which did not recur in 2017 along with a decrease from continuing liquidations of our distressed mortgage loan portfolio. This decrease was offset by an increase in servicing fees resulting from the ongoing growth of our MSR portfolio. Servicing feeswe incur relating to distressed mortgage loans are significantly higher than those relating to MSRs due to the increased cost of servicing such loans. Therefore, reductions in the balance of distressed mortgage loans have a much more significant effect on mortgageCARES Act loan servicing fees than the additions of new MSRs.
Mortgage loan servicing fees payable to PLS are summarized below:forbearance and modification activities.
71
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Mortgage loan servicing fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
| $ | 88 |
|
| $ | 90 |
|
| $ | 235 |
|
| $ | 225 |
|
Activity-based |
|
| 188 |
|
|
| 210 |
|
|
| 507 |
|
|
| 497 |
|
|
|
| 276 |
|
|
| 300 |
|
|
| 742 |
|
|
| 722 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 1,571 |
|
|
| 2,615 |
|
|
| 5,284 |
|
|
| 8,881 |
|
Activity-based |
|
| 2,702 |
|
|
| 3,014 |
|
|
| 6,859 |
|
|
| 14,981 |
|
|
|
| 4,273 |
|
|
| 5,629 |
|
|
| 12,143 |
|
|
| 23,862 |
|
Mortgage loans held in VIE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 54 |
|
|
| 65 |
|
|
| 96 |
|
|
| 157 |
|
Activity-based |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
|
| 54 |
|
|
| 66 |
|
|
| 96 |
|
|
| 158 |
|
MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
| 6,648 |
|
|
| 4,913 |
|
|
| 18,631 |
|
|
| 13,841 |
|
Activity-based |
|
| 151 |
|
|
| 131 |
|
|
| 375 |
|
|
| 336 |
|
|
|
| 6,799 |
|
|
| 5,044 |
|
|
| 19,006 |
|
|
| 14,177 |
|
|
| $ | 11,402 |
|
| $ | 11,039 |
|
| $ | 31,987 |
|
| $ | 38,919 |
|
MSR recapture income recognized included in Net mortgage loan servicing fees |
| $ | 333 |
|
| $ | 409 |
|
| $ | 859 |
|
| $ | 849 |
|
Average investment in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
| $ | 1,460,054 |
|
| $ | 1,607,564 |
|
| $ | 1,271,158 |
|
| $ | 1,317,230 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
| $ | 1,104,738 |
|
| $ | 1,579,246 |
|
| $ | 1,210,328 |
|
| $ | 1,810,779 |
|
Mortgage loans held in a VIE |
| $ | 339,464 |
|
| $ | 413,749 |
|
| $ | 350,607 |
|
| $ | 434,967 |
|
Average mortgage loan servicing portfolio |
| $ | 63,584,416 |
|
| $ | 48,997,875 |
|
| $ | 61,764,228 |
|
| $ | 46,125,926 |
|
Management Fees
Management Fees
The components of our management feefees payable to PCM are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Base |
| $ | 6,038 |
|
| $ | 5,025 |
|
| $ | 16,380 |
|
| $ | 15,576 |
|
| $ | 8,449 |
|
| $ | 9,055 |
|
Performance incentive |
|
| — |
|
|
| — |
|
|
| 304 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 6,038 |
|
| $ | 5,025 |
|
| $ | 16,684 |
|
| $ | 15,576 |
|
| $ | 8,449 |
|
| $ | 9,055 |
|
Average shareholders' equity amounts used to calculate base management fee expense |
| $ | 2,310,261 |
|
| $ | 2,466,740 |
| ||||||||||||||||
Management fees increaseddecreased by $1.0 million and $1.1 million$606,000 during the quarter and nine months ended September 30, 2017, respectively,March 31, 2021 as compared to the same periodsperiod in 2016, primarily due to increases in our shareholders’ equity arising from our issuances of preferred shares of beneficial interest during 2017. Our base management fees are based on the level of our total shareholders’ equity.2020. The level of our performance incentive fee is based on our profitability in relation to our common shareholders’ equity.
We expect our management fees to fluctuate in the future based on: (1) changes in our shareholders’ equity with respect to our base management fee; and (2) the level of our profitability in excess of the return thresholds specified in our management agreement with respect to the performance incentive fee.
Compensation expense decreased $441,000 and increased $103,000, duringdecrease for the quarter and nine months ended September 30, 2017, respectively,March 31, 2021, as compared to the same periodsperiod in 2016,2020, is due to the decrease in base management fees. The decrease in base management fees reflects the decrease during 2021, as compared to 2020, in the adjusted average shareholders’ equity on which our base management fees are based. We did not recognize performance incentive fees for the quarter ended March 31, 2021 due to the effect of the losses we incurred during the quarter ended March 31, 2020 on our performance compared to the high watermark, which is required to be exceeded to earn quarterly performance incentive fees.
Loan origination
Loan origination expenses increased $5.1 million, or 119%, during the quarter ended March 31, 2021, as compared to the same period in 2020, primarily reflecting the increases in our loan originations produced through our correspondent production activities.
Loan collection and liquidation
Loan collection and liquidation expenses increased $3.1 million during the quarter ended March 31, 2021, as compared to the same period in 2020, due to borrower assistance expenses we incurred relating to loans in our CRT reference pools. We incurred this expense to assist certain borrowers in mitigating loan delinquencies they incurred as a result of dislocations arising from the COVID-19 pandemic as an alternative to incurring losses in the CRT arrangements.
Compensation
Compensation expense increased $1.7 million during the quarter ended March 31, 2021, as compared to 2020, primarily due to fluctuations inincreased share-based compensation expense, reflecting the fluctuationincrease in expected future vestings of equity awards as a result of our common share price, which affectsprojected earnings performance achieving the expense relating to our grants accounted for using variable accounting.
Mortgage Loan Collection and Liquidation
Mortgage loan collection and liquidation expenses decreased $5.3 million and $8.2 million during the quarter and nine month period ended September 30, 2017, as compared to the same periods in 2016, due to non-recurrencetargets included in the 2017 period of certain forbearance costs incurred in the quarter ended September 30, 2016. During the nine months ended September 30, 2017, we also realized increased recoveries of previously incurred costs, as compared to 2016.outstanding performance-based awards.
Other Expenses
Other expenses are summarized below:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Common overhead allocation from PFSI |
| $ | 1,193 |
|
| $ | 1,417 |
|
| $ | 4,220 |
|
| $ | 6,413 |
|
| $ | 571 |
|
| $ | 1,540 |
|
Real estate held for investment |
|
| 1,898 |
|
|
| 821 |
|
|
| 4,339 |
|
|
| 2,308 |
| ||||||||
Bank service charges |
|
| 460 |
|
|
| 541 |
| ||||||||||||||||
Technology |
|
| 409 |
|
|
| 429 |
| ||||||||||||||||
Insurance |
|
| 300 |
|
|
| 304 |
|
|
| 968 |
|
|
| 938 |
|
|
| 435 |
|
|
| 339 |
|
Technology |
|
| 374 |
|
|
| 279 |
|
|
| 1,088 |
|
|
| 1,045 |
| ||||||||
Other |
|
| 1,434 |
|
|
| 1,123 |
|
|
| 4,428 |
|
|
| 2,713 |
|
|
| 602 |
|
|
| 871 |
|
|
| $ | 5,199 |
|
| $ | 3,944 |
|
| $ | 15,043 |
|
| $ | 13,417 |
|
| $ | 2,477 |
|
| $ | 3,720 |
|
Other expenses increased during the quarter and nine months ended September 30, 2017, as compared to the same periods in 2016, by $1.3 million and $1.6 million, respectively, primarily due to higher expenses incurred in the management of our real estate held for investment and to increased bank service charges.
Income Taxes
We have elected to treat PMC as a taxable REIT subsidiary (“TRS”). Income from a TRS is only included as a component of REIT taxable income to the extent that the TRS makes dividend distributions of income to the REIT. No such dividend distributions have been made to date.us. A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of operations.
OurThe Company’s effective tax rate was 19.7% and 2.1% for the quarter and nine months ended September 30, 2017 and 21.3% and 6.8% for the quarter and nine months ended September 30, 2016, respectively. Our taxable REIT subsidiary recognized a tax expense of $4.8 million on income of $12.0 million and tax expense of $0.9 million on income of $4.5 million while our reportedwith consolidated pretax income was $24.2 million and $78.6of $91 million for the quarter and nine months ended September 30, 2017. For the same periods in 2016, theMarch 31, 2021. The Company’s taxable REIT subsidiary (“TRS”) recognized tax expense of $9.7 million and $3.6$19.4 million on pretax income of $24.2$88.1 million and $9.0for the quarter ended March 31, 2020. For the same period in 2020, the TRS recognized tax expense of $10.1 million respectively,on pretax loss of $21.8 million, while ourthe Company’s reported consolidated pretax incomeloss for the quarter ended March 31, 2020 was $45.0 million and $47.9 million during such periods. The relative values between the tax benefit or expense at the taxable REIT subsidiary and our consolidated pretax income drive the fluctuation in the effective tax rate.$584.4 million. The primary difference between ourthe Company’s effective tax rate and the statutory tax rate is duegenerally attributable to nontaxable REIT income resulting from the dividends paid deduction.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2021, the valuation allowance was reduced to $0 from the $110,000 valuation allowance recorded at December 31, 2020 as the result of positive GAAP income at the TRS for the quarter ended March 31, 2021. The amount of the deferred tax asset considered realizable could be adjusted in future periods based on future income.
The CARES Act, passed in March 2020, introduced a number of tax law changes which are generally taxpayer favorable and in December 2020, the Taxpayer Certainty and Disaster Tax Relief Act was signed into law. No material changes in our effective income tax rates resulted from either Act. While the CARES Act provides for carry back of losses from 2018, 2019 and 2020, the TRS does not have taxable income from prior years to which the losses could be carried back.
In general, cash dividends declared by usthe Company will be considered ordinary income to the shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or asa return of capital.
For tax years beginning after December 31, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.
Following is a summary of key balance sheet items as of the dates presented:
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Assets |
|
|
|
|
|
|
|
|
Cash |
| $ | 99,515 |
|
| $ | 34,476 |
|
Investments: |
|
|
|
|
|
|
|
|
Short-term investments |
|
| 5,646 |
|
|
| 122,088 |
|
Mortgage-backed securities |
|
| 1,036,669 |
|
|
| 865,061 |
|
Mortgage loans acquired for sale at fair value |
|
| 1,270,340 |
|
|
| 1,673,112 |
|
Mortgage loans at fair value |
|
| 1,347,943 |
|
|
| 1,721,741 |
|
ESS |
|
| 248,763 |
|
|
| 288,669 |
|
Derivative assets |
|
| 67,288 |
|
|
| 33,709 |
|
Real estate acquired in settlement of loans |
|
| 185,034 |
|
|
| 274,069 |
|
Real estate held for investment |
|
| 42,546 |
|
|
| 29,324 |
|
MSRs |
|
| 790,335 |
|
|
| 656,567 |
|
Deposits securing CRT Agreements |
|
| 545,694 |
|
|
| 450,059 |
|
|
|
| 5,540,258 |
|
|
| 6,114,399 |
|
Other |
|
| 145,270 |
|
|
| 208,627 |
|
Total assets |
| $ | 5,785,043 |
|
| $ | 6,357,502 |
|
Liabilities |
|
|
|
|
|
|
|
|
Borrowings: |
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase and mortgage loan participation purchase and sale agreements |
| $ | 3,247,374 |
|
| $ | 3,809,918 |
|
Notes payable |
|
| 80,106 |
|
|
| 275,106 |
|
Asset-backed financing of a VIE at fair value |
|
| 318,404 |
|
|
| 353,898 |
|
Exchangeable Notes |
|
| 246,906 |
|
|
| 246,089 |
|
Assets sold to PennyMac Financial Services, Inc. under agreement to repurchase |
|
| 148,072 |
|
|
| 150,000 |
|
Interest-only security payable at fair value |
|
| 6,386 |
|
|
| 4,114 |
|
|
|
| 4,047,248 |
|
|
| 4,839,125 |
|
Other |
|
| 127,230 |
|
|
| 167,263 |
|
Total liabilities |
|
| 4,174,478 |
|
|
| 5,006,388 |
|
Shareholders’ equity |
|
| 1,610,565 |
|
|
| 1,351,114 |
|
Total liabilities and shareholders’ equity |
| $ | 5,785,043 |
|
| $ | 6,357,502 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Assets |
|
|
|
|
|
|
|
|
Cash |
| $ | 92,842 |
|
| $ | 57,704 |
|
Investments: |
|
|
|
|
|
|
|
|
Short-term |
|
| 108,375 |
|
|
| 127,295 |
|
Mortgage-backed securities at fair value |
|
| 1,916,485 |
|
|
| 2,213,922 |
|
Loans acquired for sale at fair value |
|
| 4,646,761 |
|
|
| 3,551,890 |
|
Loans at fair value |
|
| 117,647 |
|
|
| 151,734 |
|
ESS |
|
| — |
|
|
| 131,750 |
|
Derivative and credit risk transfer strip assets |
|
| 182,969 |
|
|
| 164,318 |
|
Deposits securing credit risk transfer arrangements |
|
| 2,664,420 |
|
|
| 2,799,263 |
|
MSRs |
|
| 2,441,214 |
|
|
| 1,755,236 |
|
REO |
|
| 17,715 |
|
|
| 28,709 |
|
|
|
| 12,095,586 |
|
|
| 10,924,117 |
|
Other |
|
| 333,826 |
|
|
| 510,190 |
|
Total assets |
| $ | 12,522,254 |
|
| $ | 11,492,011 |
|
Liabilities |
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
|
|
|
|
Short-term |
| $ | 6,160,149 |
|
| $ | 6,326,269 |
|
Long-term |
|
| 3,512,051 |
|
|
| 2,348,140 |
|
|
|
| 9,672,200 |
|
|
| 8,674,409 |
|
Other |
|
| 492,911 |
|
|
| 520,743 |
|
Total liabilities |
|
| 10,165,111 |
|
|
| 9,195,152 |
|
Shareholders’ equity |
|
| 2,357,143 |
|
|
| 2,296,859 |
|
Total liabilities and shareholders’ equity |
| $ | 12,522,254 |
|
| $ | 11,492,011 |
|
Total assets decreasedincreased by approximately $572.5 million,$1.0 billion, or 9%, during the period from December 31, 20162020 through September 30, 2017,March 31, 2021, primarily due to a $402.8 million decrease$1.1 billion increase in mortgage loans acquired for sale at fair value a $373.8 million decrease in mortgage loans at fair value, a $89.0 million reduction in REO, a $51.4 million decrease in cash and short-term investments and a $39.9$686.0 million decreaseincrease in ESS. These reductions wereMSRs, partially offset by a $171.6$ 297.4 million increasedecrease in MBS, a $133.8 million increase in MSRs and a $95.6 million increase in deposits securing CRT Agreements.MBS.
Our asset acquisitions are summarized below.
Correspondent Production
Following is a summary of our correspondent production acquisitions at fair value:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Correspondent mortgage loan purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-insured or guaranteed |
| $ | 11,433,092 |
|
| $ | 12,316,741 |
|
| $ | 32,113,071 |
|
| $ | 29,048,816 |
|
Agency-eligible |
|
| 6,762,941 |
|
|
| 7,521,364 |
|
|
| 17,656,318 |
|
|
| 16,241,415 |
|
Jumbo |
|
| — |
|
|
| 533 |
|
|
| — |
|
|
| 10,226 |
|
Commercial mortgage loans |
|
| 25,385 |
|
|
| 3,657 |
|
|
| 65,182 |
|
|
| 9,718 |
|
|
| $ | 18,221,418 |
|
| $ | 19,842,295 |
|
| $ | 49,834,571 |
|
| $ | 45,310,175 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Correspondent loan purchases: |
|
|
|
|
|
|
|
|
Agency-eligible |
| $ | 34,953,955 |
|
| $ | 18,926,679 |
|
Government-insured or guaranteed-for sale to PLS |
|
| 18,288,791 |
|
|
| 14,237,403 |
|
Home equity lines of credit |
|
| 36 |
|
|
| 1,003 |
|
|
| $ | 53,242,782 |
|
| $ | 33,165,085 |
|
During the quarter and nine months ended September 30, 2017,March 31, 2021, we purchased for sale $18.2$53.2 billion and $49.8 billion, respectively, in fair value of correspondent production loans as compared to $19.8$33.2 billion and $45.3 billion, respectively, in fair valueduring the quarter ended March 31, 2020. Our ability to increase the level of correspondent production loans duringreflects the quarter and nine months ended September 30, 2016. The increase in correspondent purchases during the nine months ended September 30, 2017, as compared to the same period in 2016, is primarily due to continued growth in our correspondent production seller network.
Our ability to continue thefavorable interest rate environment along with continuing expansion of our correspondent production business is subject to, among other factors, our ability to source additional mortgage loan volume, our ability to obtain additional inventory financingseller network and our abilityefforts aimed at maximizing the share of our correspondent sellers’ production that is sold to fund the portion of the mortgage loans not financed, either through cash flows from business activities or the raising of additional equity capital. There can be no assurance that we will be successful in increasing our borrowing capacity or in obtaining the additional equity capital necessary or that we will be able to identify additional sources of mortgage loans.us.
Other Investment Activities
Following is a summary of our acquisitions of mortgage-related investments held in our credit rate sensitive strategies and interest rate sensitive strategies and credit-sensitive strategies segments:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
MBS |
| $ | — |
|
| $ | 301,729 |
|
|
| 251,872 |
|
|
| 551,654 |
|
MSRs received in mortgage loan sales and purchases of MSRs |
|
| 82,838 |
|
|
| 77,635 |
|
|
| 207,361 |
|
|
| 173,906 |
|
Deposits of restricted cash relating to CRT Agreements |
|
| 44,998 |
|
|
| 89,697 |
|
|
| 102,146 |
|
|
| 282,434 |
|
Additional commitments to fund deposits securing CRT Agreements |
|
| 108,051 |
|
|
| — |
|
|
| 264,165 |
|
|
| — |
|
|
| $ | 235,887 |
|
| $ | 469,061 |
|
| $ | 825,544 |
|
| $ | 1,007,994 |
|
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| ||||||
Credit sensitive assets: |
|
|
|
|
|
|
|
|
Change in firm commitment to purchase CRT securities |
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
| $ | (519,162 | ) |
Expected face amount |
|
|
|
|
|
| 554,690 |
|
|
|
|
|
|
|
| 35,528 |
|
Interest rate sensitive assets: |
|
|
|
|
|
|
|
|
MSRs received in loan sales and purchased |
| $ | 407,696 |
|
|
| 248,822 |
|
MBS (net of sales) |
|
| (41,464 | ) |
|
| 1,126,757 |
|
ESS received pursuant to a recapture agreement |
|
| 557 |
|
|
| 379 |
|
|
|
| 366,789 |
|
|
| 1,375,958 |
|
|
| $ | 366,789 |
|
| $ | 1,411,486 |
|
Our acquisitions during the quarter ended March 31, 2021 and nine months ended September 30, 2017 and 20162020 were financed through the use of a combination of proceeds from borrowings, liquidations of existing investments and proceeds from equity issuances and borrowings.issuances. 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, we expect that, over time, our ability to continue our investment activities portfolio growth will depend on our ability to raise additional equity capital.
InvestmentInvestment Portfolio Composition
Mortgage-Backed Securities
Following is a summary of our MBS holdings:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||||||||||||||||||||||||||
|
| Fair |
|
|
|
|
|
| Life |
|
|
|
|
|
| Market |
|
| Fair |
|
|
|
|
|
| Life |
|
|
|
|
|
| Market |
|
| Fair |
|
|
|
|
|
| Life |
|
|
|
|
|
| Fair |
|
|
|
|
|
| Life |
|
|
|
|
| ||||||||||
|
| value |
|
| Principal |
|
| (in years) |
|
| Coupon |
|
| yield |
|
| value |
|
| Principal |
|
| (in years) |
|
| Coupon |
|
| yield |
|
| value |
|
| Principal |
|
| (in years) |
|
| Coupon |
|
| value |
|
| Principal |
|
| (in years) |
|
| Coupon |
| ||||||||||||||||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
| $ | 653,039 |
|
| $ | 654,051 |
|
|
| 9.9 |
|
|
| 2.0 | % |
| $ | 1,311,036 |
|
| $ | 1,253,755 |
|
|
| 4.4 |
|
|
| 2.7 | % | ||||||||||||||||||||||||||||||||||||||||
Fannie Mae |
| $ | 834,642 |
|
| $ | 808,414 |
|
|
| 6.9 |
|
|
| 3.5 | % |
|
| 2.9 | % |
| $ | 691,803 |
|
| $ | 674,375 |
|
|
| 7.3 |
|
|
| 3.5 | % |
|
| 3.1 | % |
| $ | 1,263,446 |
|
| $ | 1,263,614 |
|
|
| 10.0 |
|
|
| 2.0 | % |
|
| 902,886 |
|
|
| 863,758 |
|
|
| 5.3 |
|
|
| 2.5 | % |
Freddie Mac |
|
| 202,027 |
|
|
| 195,631 |
|
|
| 7.5 |
|
|
| 3.5 | % |
|
| 3.0 | % |
|
| 173,258 |
|
|
| 169,025 |
|
|
| 7.7 |
|
|
| 3.5 | % |
|
| 3.1 | % | ||||||||||||||||||||||||||||||||
|
| $ | 1,036,669 |
|
| $ | 1,004,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 865,061 |
|
| $ | 843,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,916,485 |
|
| $ | 1,917,665 |
|
|
|
|
|
|
|
|
|
| $ | 2,213,922 |
|
| $ | 2,117,513 |
|
|
|
|
|
|
|
|
|
Mortgage Loans at Fair Value – Distressed
The relationship of the fair value of our distressed mortgage loans at fair value to the fair value of the underlying real estate collateral is summarized below:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
| Loan |
|
| Collateral |
|
| Loan |
|
| Collateral |
| ||||
|
| (in thousands) |
| |||||||||||||
Fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans |
| $ | 527,874 |
|
| $ | 772,212 |
|
| $ | 611,584 |
|
| $ | 957,313 |
|
Nonperforming loans |
|
| 488,128 |
|
|
| 809,747 |
|
|
| 742,988 |
|
|
| 1,123,277 |
|
|
| $ | 1,016,002 |
|
| $ | 1,581,959 |
|
| $ | 1,354,572 |
|
| $ | 2,080,590 |
|
The collateral values presented above do not represent our assessment of the amount of future cash flows to be realized from the mortgage loans and/or underlying collateral. Future cash flows will be influenced by, among other considerations, our asset disposition strategies with respect to individual loans and the timing of such dispositions, the costs and expenses we incur in the disposition process, changes in borrower performance and the underlying collateral values. Ultimate realization in a disposition of these assets will be net of any servicing advances held on the balance sheet in relation to these investments.
The collateral values summarized above are estimated and may change over time due to various factors including our level of access to the properties securing the loans, changes in the real estate market or the condition of individual properties. The collateral values presented do not include any costs that would typically be incurred in obtaining the property in settlement of the mortgage loan, readying the property for sale, holding the property while it is being marketed or in the sale of a property.
We believe that our current fair value estimates are representative of fair value at the reporting date. However, the market for distressed mortgage assets is illiquid with a limited number of participants. Furthermore, our business strategy is to enhance value during the period in which the loans are held. Therefore, any resulting appreciation or depreciation in the fair value of the loans is recorded during such holding period and ultimately realized at the end of the holding period.Credit Risk Transfer Transactions
Following is a summary of the distribution of our portfolio of mortgage loans at fair value (excluding mortgage loans acquired for sale at fair value and mortgage loans at fair value held by a VIE):
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
Loan type |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Fixed |
| $ | 242,873 |
|
|
| 46 | % |
|
| 3.54 | % |
| $ | 183,969 |
|
|
| 38 | % |
|
| 5.01 | % |
| $ | 296,901 |
|
|
| 49 | % |
|
| 3.84 | % |
| $ | 267,348 |
|
|
| 36 | % |
|
| 5.38 | % |
Interest rate step-up |
|
| 238,768 |
|
|
| 45 | % |
|
| 2.37 | % |
|
| 60,627 |
|
|
| 12 | % |
|
| 2.38 | % |
|
| 232,700 |
|
|
| 38 | % |
|
| 2.56 | % |
|
| 63,816 |
|
|
| 9 | % |
|
| 2.35 | % |
ARM/Hybrid |
|
| 46,233 |
|
|
| 9 | % |
|
| 4.01 | % |
|
| 243,532 |
|
|
| 50 | % |
|
| 5.17 | % |
|
| 81,983 |
|
|
| 13 | % |
|
| 3.71 | % |
|
| 411,824 |
|
|
| 55 | % |
|
| 4.91 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
Lien position |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
1st lien |
| $ | 526,709 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,103 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 610,926 |
|
|
| 100 | % |
|
| 3.32 | % |
| $ | 742,785 |
|
|
| 100 | % |
|
| 4.82 | % |
2nd lien |
|
| 1,165 |
|
|
| 0 | % |
|
| 3.90 | % |
|
| 25 |
|
|
| 0 | % |
|
| 7.54 | % |
|
| 658 |
|
|
| 0 | % |
|
| 4.00 | % |
|
| 203 |
|
|
| 0 | % |
|
| 8.38 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
Occupancy |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Owner occupied |
| $ | 380,735 |
|
|
| 72 | % |
|
| 3.15 | % |
| $ | 273,543 |
|
|
| 56 | % |
|
| 4.52 | % |
| $ | 469,761 |
|
|
| 77 | % |
|
| 3.42 | % |
| $ | 398,137 |
|
|
| 54 | % |
|
| 4.74 | % |
Investment property |
|
| 145,986 |
|
|
| 28 | % |
|
| 2.77 | % |
|
| 214,434 |
|
|
| 44 | % |
|
| 4.94 | % |
|
| 140,672 |
|
|
| 23 | % |
|
| 3.05 | % |
|
| 344,523 |
|
|
| 46 | % |
|
| 4.92 | % |
Other |
|
| 1,153 |
|
|
| 0 | % |
|
| 3.28 | % |
|
| 151 |
|
|
| 0 | % |
|
| 2.00 | % |
|
| 1,151 |
|
|
| 0 | % |
|
| 3.52 | % |
|
| 328 |
|
|
| 0 | % |
|
| 5.26 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
Loan age |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Less than 12 months |
| $ | 4 |
|
|
| 0 | % |
|
| 0.50 | % |
| $ | — |
|
|
| 0 | % |
|
| — |
|
| $ | 10 |
|
|
| 0 | % |
|
| 0.60 | % |
| $ | — |
|
|
| 0 | % |
|
| — |
|
12 - 35 months |
|
| 320 |
|
|
| 0 | % |
|
| 3.01 | % |
|
| — |
|
|
| 0 | % |
|
| 4.00 | % |
|
| 15,519 |
|
|
| 3 | % |
|
| 4.29 | % |
|
| 33 |
|
|
| 0 | % |
|
| 4.60 | % |
36 - 59 months |
|
| 541 |
|
|
| 0 | % |
|
| 5.03 | % |
|
| 6 |
|
|
| 0 | % |
|
| 1.43 | % |
|
| 319 |
|
|
| 0 | % |
|
| 4.95 | % |
|
| 45 |
|
|
| 0 | % |
|
| 1.56 | % |
60 months or more |
|
| 527,009 |
|
|
| 100 | % |
|
| 3.04 | % |
|
| 488,122 |
|
|
| 100 | % |
|
| 4.71 | % |
|
| 595,736 |
|
|
| 97 | % |
|
| 3.31 | % |
|
| 742,910 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
Origination |
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
FICO score |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Less than 600 |
| $ | 135,504 |
|
|
| 26 | % |
|
| 3.24 | % |
| $ | 91,757 |
|
|
| 19 | % |
|
| 4.39 | % |
| $ | 147,968 |
|
|
| 24 | % |
|
| 3.52 | % |
| $ | 131,629 |
|
|
| 18 | % |
|
| 4.67 | % |
600-649 |
|
| 120,058 |
|
|
| 23 | % |
|
| 3.04 | % |
|
| 84,598 |
|
|
| 17 | % |
|
| 4.24 | % |
|
| 128,843 |
|
|
| 21 | % |
|
| 3.36 | % |
|
| 141,404 |
|
|
| 19 | % |
|
| 4.54 | % |
650-699 |
|
| 139,453 |
|
|
| 26 | % |
|
| 2.98 | % |
|
| 157,270 |
|
|
| 32 | % |
|
| 4.79 | % |
|
| 159,423 |
|
|
| 26 | % |
|
| 3.18 | % |
|
| 223,325 |
|
|
| 30 | % |
|
| 4.89 | % |
700-749 |
|
| 103,091 |
|
|
| 20 | % |
|
| 2.86 | % |
|
| 117,534 |
|
|
| 24 | % |
|
| 5.12 | % |
|
| 125,092 |
|
|
| 20 | % |
|
| 3.19 | % |
|
| 182,767 |
|
|
| 25 | % |
|
| 5.10 | % |
750 or greater |
|
| 29,768 |
|
|
| 6 | % |
|
| 3.00 | % |
|
| 36,969 |
|
|
| 8 | % |
|
| 5.07 | % |
|
| 50,258 |
|
|
| 9 | % |
|
| 3.45 | % |
|
| 63,863 |
|
|
| 8 | % |
|
| 4.81 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
Current loan-to |
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
-value (1) |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Less than 80% |
| $ | 166,590 |
|
|
| 32 | % |
|
| 3.83 | % |
| $ | 181,072 |
|
|
| 37 | % |
|
| 5.04 | % |
| $ | 211,195 |
|
|
| 35 | % |
|
| 4.01 | % |
| $ | 236,515 |
|
|
| 32 | % |
|
| 5.14 | % |
80% - 99.99% |
|
| 132,233 |
|
|
| 25 | % |
|
| 3.25 | % |
|
| 127,608 |
|
|
| 26 | % |
|
| 4.95 | % |
|
| 144,446 |
|
|
| 24 | % |
|
| 3.52 | % |
|
| 209,148 |
|
|
| 28 | % |
|
| 4.82 | % |
100% - 119.99% |
|
| 107,809 |
|
|
| 20 | % |
|
| 2.86 | % |
|
| 84,848 |
|
|
| 17 | % |
|
| 4.39 | % |
|
| 112,903 |
|
|
| 18 | % |
|
| 3.17 | % |
|
| 155,154 |
|
|
| 21 | % |
|
| 4.68 | % |
120% or greater |
|
| 121,242 |
|
|
| 23 | % |
|
| 2.33 | % |
|
| 94,600 |
|
|
| 19 | % |
|
| 4.39 | % |
|
| 143,040 |
|
|
| 23 | % |
|
| 2.66 | % |
|
| 142,171 |
|
|
| 19 | % |
|
| 4.66 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
Geographic |
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
distribution |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
California |
| $ | 121,556 |
|
|
| 23 | % |
|
| 3.11 | % |
| $ | 60,518 |
|
|
| 12 | % |
|
| 3.99 | % |
| $ | 156,636 |
|
|
| 26 | % |
|
| 3.36 | % |
| $ | 104,793 |
|
|
| 14 | % |
|
| 3.79 | % |
New York |
|
| 87,884 |
|
|
| 17 | % |
|
| 2.54 | % |
|
| 146,662 |
|
|
| 30 | % |
|
| 5.25 | % |
|
| 89,079 |
|
|
| 15 | % |
|
| 2.86 | % |
|
| 207,589 |
|
|
| 28 | % |
|
| 5.44 | % |
New Jersey |
|
| 48,085 |
|
|
| 9 | % |
|
| 2.46 | % |
|
| 50,840 |
|
|
| 10 | % |
|
| 4.50 | % |
|
| 43,635 |
|
|
| 7 | % |
|
| 2.69 | % |
|
| 100,257 |
|
|
| 13 | % |
|
| 4.85 | % |
Florida |
|
| 34,500 |
|
|
| 7 | % |
|
| 2.71 | % |
|
| 49,061 |
|
|
| 10 | % |
|
| 5.28 | % |
|
| 43,132 |
|
|
| 7 | % |
|
| 2.96 | % |
|
| 79,528 |
|
|
| 11 | % |
|
| 5.29 | % |
Other |
|
| 235,849 |
|
|
| 45 | % |
|
| 3.62 | % |
|
| 181,047 |
|
|
| 37 | % |
|
| 4.45 | % |
|
| 279,102 |
|
|
| 45 | % |
|
| 3.61 | % |
|
| 250,821 |
|
|
| 34 | % |
|
| 4.58 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Performing loans |
|
| Nonperforming loans |
|
| Performing loans |
|
| Nonperforming loans |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| ||||
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
|
| Fair |
|
| % |
|
| note |
| ||||||||||||
Payment status |
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
|
| value |
|
| total |
|
| rate |
| ||||||||||||
|
| (dollars in thousands) |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Current |
| $ | 366,900 |
|
|
| 70 | % |
|
| 2.97 | % |
| $ | — |
|
|
| 0 | % |
|
| — |
|
| $ | 444,254 |
|
|
| 73 | % |
|
| 3.26 | % |
| $ | — |
|
|
| 0 | % |
|
| — |
|
30 days delinquent |
|
| 122,864 |
|
|
| 23 | % |
|
| 3.21 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 115,514 |
|
|
| 19 | % |
|
| 3.53 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
60 days delinquent |
|
| 38,110 |
|
|
| 7 | % |
|
| 3.16 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 51,816 |
|
|
| 8 | % |
|
| 3.46 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
90 days or more delinquent |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 210,784 |
|
|
| 43 | % |
|
| 4.09 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 305,431 |
|
|
| 41 | % |
|
| 4.26 | % |
In foreclosure |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 277,344 |
|
|
| 57 | % |
|
| 5.20 | % |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 437,557 |
|
|
| 59 | % |
|
| 5.22 | % |
|
| $ | 527,874 |
|
|
| 100 | % |
|
| 3.04 | % |
| $ | 488,128 |
|
|
| 100 | % |
|
| 4.70 | % |
| $ | 611,584 |
|
|
| 100 | % |
|
| 3.33 | % |
| $ | 742,988 |
|
|
| 100 | % |
|
| 4.82 | % |
Following is a comparisoncomposition of the key inputs we useloans underlying our investment in the valuation offunded CRT arrangements and our mortgage loans at fair value using “Level 3” fair value inputs:firm commitment to purchase CRT securities.
75
Key inputs |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Discount rate |
|
|
|
|
|
|
|
|
Range |
| 2.9% – 15.0% |
|
| 2.6% – 15.0% |
| ||
Weighted average |
|
| 6.7% |
|
|
| 7.1% |
|
Twelve-month projected housing price index change |
|
|
|
|
|
|
|
|
Range |
| 3.4% – 4.9% |
|
| 2.5% – 4.8% |
| ||
Weighted average |
|
| 4.6% |
|
|
| 3.7% |
|
Prepayment speed (1) |
|
|
|
|
|
|
|
|
Range |
| 3.0% – 6.9% |
|
| 0.1% – 10.9% |
| ||
Weighted average |
|
| 4.1% |
|
|
| 4.0% |
|
Total prepayment speed (2) |
|
|
|
|
|
|
|
|
Range |
| 4.7% – 24.0% |
|
| 2.9% – 24.6% |
| ||
Weighted average |
|
| 16.7% |
|
|
| 17.7% |
|
|
|
|
|
We monitor and value our investments in pools of distressed mortgage loans by payment status of the loans. Most of the measures we use to value and monitor the loan portfolio, such as projected prepayment and default speeds and discount rates, are applied or output at the pool level. The characteristics of the individual loans, such as loan size, loan-to-value ratio and current delinquency status, can vary widely within a pool.
The weighted average discount rate used in the valuation of mortgage loans at fair value decreased slightly from 7.1% at December 31, 2016 to 6.7% at September 30, 2017 due to shifting characteristics of the portfolio given liquidations and loans sales in the period and increased projections of costs relating to liquidation and loan-related foreclosure litigation on the remaining population of non-performing loans.
The weighted average twelve-month projected housing price index change used in the valuation of our portfolio of mortgage loans at fair value increased from 3.7% at December 31, 2016 to 4.6% at September 30, 2017, due to slightly higher near-term forecasts for real estate price appreciation in the geographic areas in which our portfolio of mortgage loans is concentrated.
The weighted average total prepayment speed used in the valuation of our portfolio of mortgage loans at fair value decreased slightly from 17.7% at December 31, 2016 to 16.7% at September 30, 2017 due to our projections of longer liquidation periods for certain of our mortgage loans.
Real Estate Acquired in Settlement of LoansCRT Arrangements
Following is a summary of our REO by property type:holding of CRT arrangements:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
Property type |
| Carrying value |
|
| % total |
|
| Carrying value |
|
| % total |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
1 - 4 dwelling units |
| $ | 144,390 |
|
|
| 78 | % |
| $ | 215,576 |
|
|
| 79 | % |
Planned unit development |
|
| 22,573 |
|
|
| 12 | % |
|
| 34,217 |
|
|
| 12 | % |
Condominium/Townhome/Co-op |
|
| 17,864 |
|
|
| 10 | % |
|
| 24,074 |
|
|
| 9 | % |
5+ dwelling units |
|
| 207 |
|
|
| 0 | % |
|
| 202 |
|
|
| 0 | % |
|
| $ | 185,034 |
|
|
| 100 | % |
| $ | 274,069 |
|
|
| 100 | % |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
Geographic distribution |
| Carrying value |
|
| % total |
|
| Carrying value |
|
| % total |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
New Jersey |
| $ | 48,034 |
|
|
| 26 | % |
| $ | 51,472 |
|
|
| 19 | % |
New York |
|
| 34,861 |
|
|
| 19 | % |
|
| 44,252 |
|
|
| 16 | % |
Florida |
|
| 23,002 |
|
|
| 12 | % |
|
| 31,715 |
|
|
| 12 | % |
California |
|
| 21,460 |
|
|
| 12 | % |
|
| 53,308 |
|
|
| 19 | % |
Illinois |
|
| 7,948 |
|
|
| 4 | % |
|
| 13,831 |
|
|
| 5 | % |
Maryland |
|
| 8,777 |
|
|
| 5 | % |
|
| 14,488 |
|
|
| 5 | % |
Other |
|
| 40,952 |
|
|
| 22 | % |
|
| 65,003 |
|
|
| 24 | % |
|
| $ | 185,034 |
|
|
| 100 | % |
| $ | 274,069 |
|
|
| 100 | % |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
| (in thousands) |
| |||||
Carrying value of CRT arrangements: |
|
|
|
|
|
|
|
|
Derivative and credit risk transfer strip assets (liabilities), net |
|
|
|
|
|
|
|
|
CRT strips |
| $ | (109,570 | ) |
| $ | (202,792 | ) |
CRT derivatives |
|
| 44,676 |
|
|
| 31,795 |
|
|
|
| (64,894 | ) |
|
| (170,997 | ) |
Deposits securing CRT arrangements |
|
| 2,664,420 |
|
|
| 2,799,263 |
|
Interest-only security payable at fair value |
|
| (18,922 | ) |
|
| (10,757 | ) |
|
| $ | 2,580,604 |
|
| $ | 2,617,509 |
|
UPB of loans subject to credit guarantee obligations |
| $ | 48,403,684 |
|
| $ | 58,697,942 |
|
Following is a summary of the statuscomposition of the loans underlying our portfolioinvestment in CRT arrangements as of acquisitions by quarter acquired for the periods in which we made acquisitions:March 31, 2021:
|
| Acquisitions for the quarter ended |
| |||||||||||||||||||||||||||||
|
| March 31, 2015 |
|
| December 31, 2014 |
|
| June 30, 2014 |
|
| March 31, 2014 |
| ||||||||||||||||||||
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
| ||||||||
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
| ||||||||
|
| (dollars in millions) |
| |||||||||||||||||||||||||||||
UPB |
| $ | 310.2 |
|
| $ | 165.0 |
|
| $ | 330.8 |
|
| $ | 147.0 |
|
| $ | 37.9 |
|
| $ | 14.7 |
|
| $ | 439.0 |
|
| $ | 200.2 |
|
Pool factor (1) |
|
| 1.00 |
|
|
| 0.53 |
|
|
| 1.00 |
|
|
| 0.44 |
|
|
| 1.00 |
|
|
| 0.39 |
|
|
| 1.00 |
|
|
| 0.46 |
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 1.8 | % |
|
| 25.6 | % |
|
| 1.6 | % |
|
| 31.7 | % |
|
| 0.7 | % |
|
| 38.1 | % |
|
| 6.2 | % |
|
| 18.6 | % |
30 days |
|
| 0.3 | % |
|
| 8.9 | % |
|
| 1.6 | % |
|
| 7.4 | % |
|
| 0.6 | % |
|
| 13.9 | % |
|
| 0.7 | % |
|
| 4.6 | % |
60 days |
|
| 0.1 | % |
|
| 1.5 | % |
|
| 7.1 | % |
|
| 1.0 | % |
|
| 1.4 | % |
|
| 9.5 | % |
|
| 0.7 | % |
|
| 3.0 | % |
over 90 days |
|
| 66.7 | % |
|
| 20.0 | % |
|
| 52.7 | % |
|
| 21.5 | % |
|
| 59.0 | % |
|
| 13.3 | % |
|
| 37.5 | % |
|
| 21.8 | % |
In foreclosure |
|
| 31.1 | % |
|
| 26.7 | % |
|
| 36.9 | % |
|
| 23.0 | % |
|
| 38.2 | % |
|
| 13.6 | % |
|
| 53.8 | % |
|
| 29.0 | % |
REO |
|
| — |
|
|
| 17.2 | % |
|
| — |
|
|
| 15.4 | % |
|
| — |
|
|
| 11.6 | % |
|
| 1.1 | % |
|
| 23.0 | % |
|
| Year of origination |
| |||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
UPB: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Cumulative defaults |
| $ | 1 |
|
| $ | 15 |
|
| $ | 201 |
|
| $ | 449 |
|
| $ | 154 |
|
| $ | 35 |
|
| $ | 853 |
|
Cumulative losses |
| $ | — |
|
| $ | 0 |
|
| $ | 23 |
|
| $ | 65 |
|
| $ | 20 |
|
| $ | 4 |
|
| $ | 111 |
|
|
| Year of origination |
| |||||||||||||||||||||||||
Original debt-to income ratio |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
<25% |
| $ | 1,615 |
|
| $ | 3,234 |
|
| $ | 602 |
|
| $ | 629 |
|
| $ | 559 |
|
| $ | 150 |
|
| $ | 6,789 |
|
25 - 30% |
|
| 1,343 |
|
|
| 2,939 |
|
|
| 564 |
|
|
| 574 |
|
|
| 529 |
|
|
| 158 |
|
|
| 6,107 |
|
30 - 35% |
|
| 1,518 |
|
|
| 3,611 |
|
|
| 801 |
|
|
| 794 |
|
|
| 660 |
|
|
| 211 |
|
|
| 7,595 |
|
35 - 40% |
|
| 1,524 |
|
|
| 4,206 |
|
|
| 1,086 |
|
|
| 955 |
|
|
| 764 |
|
|
| 264 |
|
|
| 8,799 |
|
40 - 45% |
|
| 1,503 |
|
|
| 5,057 |
|
|
| 1,512 |
|
|
| 1,314 |
|
|
| 1,050 |
|
|
| 373 |
|
|
| 10,809 |
|
>45% |
|
| 969 |
|
|
| 4,074 |
|
|
| 1,988 |
|
|
| 843 |
|
|
| 350 |
|
|
| 81 |
|
|
| 8,305 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Weighted average |
|
| 33.8 | % |
|
| 36.0 | % |
|
| 38.8 | % |
|
| 36.5 | % |
|
| 35.2 | % |
|
| 35.6 | % |
|
| 36.0 | % |
|
| Year of origination |
| |||||||||||||||||||||||||
Origination FICO credit score |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
600 - 649 |
| $ | 68 |
|
| $ | 330 |
|
| $ | 135 |
|
| $ | 52 |
|
| $ | 36 |
|
| $ | 22 |
|
| $ | 643 |
|
650 - 699 |
|
| 471 |
|
|
| 2,285 |
|
|
| 1,292 |
|
|
| 785 |
|
|
| 497 |
|
|
| 239 |
|
|
| 5,569 |
|
700 - 749 |
|
| 2,171 |
|
|
| 7,079 |
|
|
| 2,369 |
|
|
| 1,786 |
|
|
| 1,287 |
|
|
| 409 |
|
|
| 15,101 |
|
750 or greater |
|
| 5,751 |
|
|
| 13,364 |
|
|
| 2,743 |
|
|
| 2,479 |
|
|
| 2,092 |
|
|
| 567 |
|
|
| 26,996 |
|
Not available |
|
| 11 |
|
|
| 63 |
|
|
| 14 |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
|
| 95 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Weighted average |
|
| 761 |
|
|
| 751 |
|
|
| 736 |
|
|
| 744 |
|
|
| 749 |
|
|
| 741 |
|
|
| 749 |
|
|
| Year of origination |
| |||||||||||||||||||||||||
Origination loan-to value ratio |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
<80% |
| $ | 3,877 |
|
| $ | 7,845 |
|
| $ | 2,073 |
|
| $ | 1,591 |
|
| $ | 1,533 |
|
| $ | 478 |
|
| $ | 17,397 |
|
80-85% |
|
| 1,394 |
|
|
| 4,334 |
|
|
| 1,559 |
|
|
| 1,421 |
|
|
| 1,033 |
|
|
| 320 |
|
|
| 10,061 |
|
85-90% |
|
| 567 |
|
|
| 1,387 |
|
|
| 313 |
|
|
| 265 |
|
|
| 215 |
|
|
| 67 |
|
|
| 2,814 |
|
90-95% |
|
| 799 |
|
|
| 2,488 |
|
|
| 761 |
|
|
| 633 |
|
|
| 449 |
|
|
| 147 |
|
|
| 5,277 |
|
95-100% |
|
| 1,835 |
|
|
| 7,067 |
|
|
| 1,847 |
|
|
| 1,199 |
|
|
| 682 |
|
|
| 225 |
|
|
| 12,855 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Weighted average |
|
| 81.1 | % |
|
| 83.7 | % |
|
| 83.6 | % |
|
| 82.9 | % |
|
| 81.1 | % |
|
| 81.4 | % |
|
| 82.9 | % |
|
| Year of origination |
| |||||||||||||||||||||||||
Current loan-to value ratio (1) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
<80% |
| $ | 6,047 |
|
| $ | 16,685 |
|
| $ | 5,744 |
|
| $ | 4,961 |
|
| $ | 3,887 |
|
| $ | 1,232 |
|
| $ | 38,556 |
|
80-85% |
|
| 1,224 |
|
|
| 4,096 |
|
|
| 595 |
|
|
| 112 |
|
|
| 19 |
|
|
| 4 |
|
|
| 6,050 |
|
85-90% |
|
| 948 |
|
|
| 1,959 |
|
|
| 168 |
|
|
| 29 |
|
|
| 5 |
|
|
| - |
|
|
| 3,109 |
|
90-95% |
|
| 234 |
|
|
| 339 |
|
|
| 41 |
|
|
| 7 |
|
|
| 1 |
|
|
| - |
|
|
| 622 |
|
95-100% |
|
| 18 |
|
|
| 37 |
|
|
| 4 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59 |
|
>100% |
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| 8 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Weighted average |
|
| 72.8 | % |
|
| 72.2 | % |
|
| 68.0 | % |
|
| 62.7 | % |
|
| 57.3 | % |
|
| 54.1 | % |
|
| 69.1 | % |
(1) |
|
|
| Acquisitions for the quarter ended |
| |||||||||||||||||||||||||||||
|
| December 31, 2013 |
|
| September 30, 2013 |
|
| June 30, 2013 |
|
| March 31, 2013 |
| ||||||||||||||||||||
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
| ||||||||
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
| ||||||||
|
| (dollars in millions) |
| |||||||||||||||||||||||||||||
UPB |
| $ | 507.3 |
|
| $ | 224.5 |
|
| $ | 929.5 |
|
| $ | 286.9 |
|
| $ | 397.3 |
|
| $ | 121.6 |
|
| $ | 366.2 |
|
| $ | 78.5 |
|
Pool factor (1) |
|
| 1.00 |
|
|
| 0.44 |
|
|
| 1.00 |
|
|
| 0.31 |
|
|
| 1.00 |
|
|
| 0.31 |
|
|
| 1.00 |
|
|
| 0.21 |
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 1.4 | % |
|
| 22.4 | % |
|
| 0.8 | % |
|
| 24.9 | % |
|
| 4.8 | % |
|
| 32.0 | % |
|
| 1.6 | % |
|
| 41.6 | % |
30 days |
|
| 0.2 | % |
|
| 6.6 | % |
|
| 0.3 | % |
|
| 6.4 | % |
|
| 7.4 | % |
|
| 13.8 | % |
|
| 1.5 | % |
|
| 13.2 | % |
60 days |
|
| — |
|
|
| 2.0 | % |
|
| 0.7 | % |
|
| 3.0 | % |
|
| 7.6 | % |
|
| 4.2 | % |
|
| 3.5 | % |
|
| 8.4 | % |
over 90 days |
|
| 38.3 | % |
|
| 15.5 | % |
|
| 58.6 | % |
|
| 19.4 | % |
|
| 45.3 | % |
|
| 18.4 | % |
|
| 82.2 | % |
|
| 15.7 | % |
In foreclosure |
|
| 60.0 | % |
|
| 28.4 | % |
|
| 39.6 | % |
|
| 24.1 | % |
|
| 34.9 | % |
|
| 15.6 | % |
|
| 11.2 | % |
|
| 9.3 | % |
REO |
|
| — |
|
|
| 25.1 | % |
|
| — |
|
|
| 22.2 | % |
|
| — |
|
|
| 15.9 | % |
|
| — |
|
|
| 11.8 | % |
|
| Year of origination |
| |||||||||||||||||||||||||
Geographic distribution |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
CA |
| $ | 999 |
|
| $ | 2,438 |
|
| $ | 810 |
|
| $ | 571 |
|
| $ | 763 |
|
| $ | 220 |
|
| $ | 5,801 |
|
FL |
|
| 881 |
|
|
| 2,198 |
|
|
| 802 |
|
|
| 532 |
|
|
| 399 |
|
|
| 107 |
|
|
| 4,919 |
|
TX |
|
| 1,009 |
|
|
| 1,923 |
|
|
| 496 |
|
|
| 417 |
|
|
| 492 |
|
|
| 204 |
|
|
| 4,541 |
|
VA |
|
| 421 |
|
|
| 1,017 |
|
|
| 242 |
|
|
| 256 |
|
|
| 295 |
|
|
| 110 |
|
|
| 2,341 |
|
MD |
|
| 306 |
|
|
| 896 |
|
|
| 268 |
|
|
| 291 |
|
|
| 256 |
|
|
| 74 |
|
|
| 2,091 |
|
Other |
|
| 4,856 |
|
|
| 14,649 |
|
|
| 3,935 |
|
|
| 3,042 |
|
|
| 1,707 |
|
|
| 522 |
|
|
| 28,711 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
|
|
|
| Year of origination |
| |||||||||||||||||||||||||
Regional geographic distribution (1) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
Northeast |
| $ | 707 |
|
| $ | 2,416 |
|
| $ | 681 |
|
| $ | 664 |
|
| $ | 469 |
|
| $ | 177 |
|
| $ | 5,114 |
|
Southeast |
|
| 2,758 |
|
|
| 7,867 |
|
|
| 2,358 |
|
|
| 1,785 |
|
|
| 1,234 |
|
|
| 379 |
|
|
| 16,381 |
|
Midwest |
|
| 705 |
|
|
| 2,195 |
|
|
| 537 |
|
|
| 478 |
|
|
| 343 |
|
|
| 93 |
|
|
| 4,351 |
|
Southwest |
|
| 2,310 |
|
|
| 5,359 |
|
|
| 1,275 |
|
|
| 997 |
|
|
| 742 |
|
|
| 272 |
|
|
| 10,955 |
|
West |
|
| 1,992 |
|
|
| 5,284 |
|
|
| 1,702 |
|
|
| 1,185 |
|
|
| 1,124 |
|
|
| 316 |
|
|
| 11,603 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
|
| Acquisitions for the quarter ended |
| |||||||||||||||||||||||||||||
|
| December 31, 2012 |
|
| September 30, 2012 |
|
| June 30, 2012 |
|
| December 31, 2011 |
| ||||||||||||||||||||
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
| ||||||||
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
| ||||||||
|
| (dollars in millions) |
| |||||||||||||||||||||||||||||
Unpaid principal balance |
| $ | 290.3 |
|
| $ | 64.5 |
|
| $ | 357.2 |
|
| $ | 67.1 |
|
| $ | 402.5 |
|
| $ | 68.4 |
|
| $ | 49.0 |
|
| $ | 11.3 |
|
Pool factor (1) |
|
| 1.00 |
|
|
| 0.22 |
|
|
| 1.00 |
|
|
| 0.19 |
|
|
| 1.00 |
|
|
| 0.17 |
|
|
| 1.00 |
|
|
| 0.23 |
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 3.1 | % |
|
| 33.4 | % |
|
| — |
|
|
| 22.1 | % |
|
| 45.0 | % |
|
| 28.6 | % |
|
| 0.2 | % |
|
| 17.2 | % |
30 days |
|
| 1.3 | % |
|
| 15.6 | % |
|
| — |
|
|
| 5.6 | % |
|
| 4.0 | % |
|
| 14.9 | % |
|
| 0.1 | % |
|
| 19.5 | % |
60 days |
|
| 5.4 | % |
|
| 6.5 | % |
|
| 0.1 | % |
|
| 4.8 | % |
|
| 4.3 | % |
|
| 4.0 | % |
|
| 0.2 | % |
|
| 3.8 | % |
over 90 days |
|
| 57.8 | % |
|
| 15.4 | % |
|
| 49.1 | % |
|
| 19.2 | % |
|
| 31.3 | % |
|
| 23.0 | % |
|
| 70.4 | % |
|
| 23.1 | % |
In foreclosure |
|
| 32.4 | % |
|
| 16.6 | % |
|
| 50.8 | % |
|
| 26.4 | % |
|
| 15.3 | % |
|
| 21.3 | % |
|
| 29.0 | % |
|
| 16.6 | % |
REO |
|
| — |
|
|
| 12.5 | % |
|
| — |
|
|
| 22.0 | % |
|
| 0.1 | % |
|
| 8.2 | % |
|
| — |
|
|
| 19.8 | % |
(1) |
|
|
| Acquisitions for the quarter ended |
| |||||||||||||||||||||||||||||
|
| September 30, 2011 |
|
| June 30, 2011 |
|
| March 31, 2011 |
|
| December 31, 2010 |
| ||||||||||||||||||||
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
| ||||||||
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
| ||||||||
|
| (dollars in millions) |
| |||||||||||||||||||||||||||||
Unpaid principal balance |
| $ | 542.6 |
|
| $ | 64.4 |
|
| $ | 259.8 |
|
| $ | 39.7 |
|
| $ | 515.1 |
|
| $ | 68.4 |
|
| $ | 277.8 |
|
| $ | 22.4 |
|
Pool factor (1) |
|
| 1.00 |
|
|
| 0.12 |
|
|
| 1.00 |
|
|
| 0.15 |
|
|
| 1.00 |
|
|
| 0.13 |
|
|
| 1.00 |
|
|
| 0.08 |
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 0.6 | % |
|
| 28.0 | % |
|
| 11.5 | % |
|
| 34.0 | % |
|
| 2.0 | % |
|
| 29.9 | % |
|
| 5.0 | % |
|
| 29.1 | % |
30 days |
|
| 1.3 | % |
|
| 11.5 | % |
|
| 6.5 | % |
|
| 11.4 | % |
|
| 1.9 | % |
|
| 6.3 | % |
|
| 4.0 | % |
|
| 13.7 | % |
60 days |
|
| 2.0 | % |
|
| 7.0 | % |
|
| 5.2 | % |
|
| 5.9 | % |
|
| 3.9 | % |
|
| 4.2 | % |
|
| 5.1 | % |
|
| 5.9 | % |
over 90 days |
|
| 22.6 | % |
|
| 14.6 | % |
|
| 31.2 | % |
|
| 21.6 | % |
|
| 25.9 | % |
|
| 20.3 | % |
|
| 26.8 | % |
|
| 18.1 | % |
In foreclosure |
|
| 73.0 | % |
|
| 22.3 | % |
|
| 43.9 | % |
|
| 19.3 | % |
|
| 66.3 | % |
|
| 24.8 | % |
|
| 59.1 | % |
|
| 16.8 | % |
REO |
|
| 0.4 | % |
|
| 16.6 | % |
|
| 1.7 | % |
|
| 7.7 | % |
|
| — |
|
|
| 14.5 | % |
|
| — |
|
|
| 16.4 | % |
|
| Year of origination |
| |||||||||||||||||||||||||
Collection status |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Total |
| |||||||
| (in millions) |
| ||||||||||||||||||||||||||
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current - 89 Days |
| $ | 8,282 |
|
| $ | 21,898 |
|
| $ | 5,972 |
|
| $ | 4,811 |
|
| $ | 3,756 |
|
| $ | 1,192 |
|
| $ | 45,911 |
|
90 - 179 Days |
|
| 30 |
|
|
| 174 |
|
|
| 81 |
|
|
| 50 |
|
|
| 95 |
|
|
| 43 |
|
|
| 473 |
|
180+ Days |
|
| 160 |
|
|
| 1,046 |
|
|
| 498 |
|
|
| 248 |
|
|
| 60 |
|
|
| 2 |
|
|
| 2,014 |
|
Foreclosure |
|
| — |
|
|
| 3 |
|
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 6 |
|
|
| $ | 8,472 |
|
| $ | 23,121 |
|
| $ | 6,553 |
|
| $ | 5,109 |
|
| $ | 3,912 |
|
| $ | 1,237 |
|
| $ | 48,404 |
|
Bankruptcy |
| $ | 2 |
|
| $ | 20 |
|
| $ | 24 |
|
| $ | 15 |
|
| $ | 13 |
|
| $ | 3 |
|
| $ | 77 |
|
|
|
|
| Acquisitions for the quarter ended |
| |||||||||||||||||||||
|
| September 30, 2010 |
|
| June 30, 2010 |
|
| March 31, 2010 |
| |||||||||||||||
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
|
| At |
|
| September 30, |
| ||||||
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
|
| purchase |
|
| 2017 |
| ||||||
|
| (dollars in millions) |
| |||||||||||||||||||||
Unpaid principal balance |
| $ | 146.2 |
|
| $ | 10.2 |
|
| $ | 195.5 |
|
| $ | 17.8 |
|
| $ | 182.7 |
|
| $ | 18.6 |
|
Pool factor (1) |
|
| 1.00 |
|
|
| 0.07 |
|
|
| 1.00 |
|
|
| 0.09 |
|
|
| 1.00 |
|
|
| 0.10 |
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 1.2 | % |
|
| 22.7 | % |
|
| 5.1 | % |
|
| 40.1 | % |
|
| 6.2 | % |
|
| 38.1 | % |
30 days |
|
| 0.4 | % |
|
| 12.4 | % |
|
| 2.0 | % |
|
| 9.1 | % |
|
| 1.6 | % |
|
| 11.7 | % |
60 days |
|
| 1.3 | % |
|
| 10.1 | % |
|
| 4.1 | % |
|
| 2.4 | % |
|
| 5.8 | % |
|
| 5.3 | % |
over 90 days |
|
| 38.2 | % |
|
| 15.1 | % |
|
| 42.8 | % |
|
| 15.0 | % |
|
| 37.8 | % |
|
| 14.9 | % |
In foreclosure |
|
| 58.9 | % |
|
| 38.0 | % |
|
| 45.9 | % |
|
| 23.7 | % |
|
| 46.4 | % |
|
| 22.7 | % |
REO |
|
| — |
|
|
| 1.8 | % |
|
| — |
|
|
| 9.7 | % |
|
| 2.3 | % |
|
| 7.3 | % |
|
|
Our cash flows for the nine monthsquarter ended September 30, 2017March 31, 2021 and 20162020 are summarized below:
|
| Nine months ended September 30, 2017 |
|
|
|
|
|
| Quarter ended March 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2021 |
|
| 2020 |
| |||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Operating activities |
| $ | 283,073 |
|
| $ | (791,704 | ) |
| $ | 1,074,777 |
|
| $ | (1,869,255 | ) |
| $ | 1,705,250 |
|
Investing activities |
|
| 415,545 |
|
|
| 168,239 |
|
|
| 247,306 |
|
|
| 930,882 |
|
|
| (603,960 | ) |
Financing activities |
|
| (633,579 | ) |
|
| 704,425 |
|
|
| (1,338,004 | ) |
|
| 973,511 |
|
|
| (105,966 | ) |
Net cash flows |
| $ | 65,039 |
|
| $ | 80,960 |
|
| $ | (15,921 | ) |
| $ | 35,138 |
|
| $ | 995,324 |
|
Our cash flows resulted in a net increase in cash of $65.0$35.1 million during the nine monthsquarter ended September 30, 2017,March 31, 2021, as discussed below.
Operating activities
Cash provided byused in operating activities totaled $283.1 million$1.9 billion during the nine monthsquarter ended September 30, 2017,March 31, 2021, as compared to cash used byprovided in operating activities of $791.7 million$1.7 billion during the nine monthsquarter ended September 30, 2016. The increase inMarch 31, 2020. Cash flows from operating activities primarily reflect cash flows provided by operating activities is primarily due to the reduction of our inventory of mortgagefrom loans acquired for sale duringas shown below:
|
| Quarter ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (in thousands) |
| |||||
Operating cash flows from: |
|
|
|
|
|
|
|
|
Loans acquired for sale |
| $ | (1,512,058 | ) |
| $ | 1,051,629 |
|
Other |
|
| (357,197 | ) |
|
| 653,621 |
|
|
| $ | (1,869,255 | ) |
| $ | 1,705,250 |
|
Cash flows from loans acquired for sale primarily reflect changes in the nine months ended September 30, 2017level of production inventory from the beginning to end of the quarters presented as comparedwell as cash flows relating to growth in our inventory during the same period in 2016.related hedging activities.
Investing activities
Net cash provided by our investing activities was $415.5$930.9 million for the nine monthsquarter ended September 30, 2017March 31, 2021, as compared to $168.2net cash used in our investing activities of $604.0 million for the nine monthsquarter ended September 30, 2016. The increaseMarch 31, 2020, due primarily to a shift in investment cash flows from investing activities reflects a reductionrelating to our investment in MBS. During the level ofquarter ended March 31, 2020, we made net purchases of MBS totaling $1.0 billion; during 2017 as compared to 2016.
Our investing activities have included the purchasequarter ended March 31, 2021, we recorded net sales and repayments of long-term assets which are not presently cash flowing or are at riskMBS totaling $223.8 million. This shift was compounded by settlement of interruptionexcess servicing spread payable from PFSI of cash flows in the near future. Furthermore, much of the investment income we recognize is in the form of valuation adjustments we record recognizing our estimates of the net appreciation in value of the assets as we work with borrowers to either modify their loans or acquire the property securing their loans in settlement thereof. Accordingly, the cash associated with a substantial portion of our revenues is often realized as part of the proceeds of the liquidation of the assets, either through payoff or sale of the mortgage loan or through acquisition and subsequent sale of the property securing the mortgage loans, many months after we record the revenues.$134.6 million.
Financing activities
Net cash used inprovided by our financing activities was $633.6$973.5 million for the nine monthsquarter ended September 30, 2017,March 31, 2021, as compared to net cash providedused by our financing activities of $704.4$106.0 million for the nine monthsquarter ended September 30, 2016.March 31, 2020. This change reflects repayment ofthe increased borrowings caused byto finance the shrinkage of our balance sheet during 2017 which is heavily financed by borrowings, as compared to growth in both our balance sheet during 2016.inventory of loans acquired for sale and MSRs.
As discussed below in Liquidity and Capital Resources, our Manager continually evaluates and pursues additional sources of financing to provide us with future investing capacity. We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends. We believe that ourthe cash flows from the liquidation of our investments, which include accumulated gains
78
recorded during the periods we hold those investments, along with our cash earnings, are adequate to fund our operating expenses and dividend payment requirements. However, we manage our liquidity in the aggregate and are reinvesting our cash flows in new investments as well as using such cash to fund our dividend requirements.
Liquidity and Capital Resources
Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent lenders,sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and make distributions to our shareholders. We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.
We expect our primary sources of liquidity to be proceeds from liquidationscash flows from our investment portfolio, including distressed assets, cash earnings on our investments, cash flows from business activities, liquidation of existing investments and proceeds from borrowings and/or additional equity offerings. When we finance a particular asset, the amount borrowed is less than the asset’s fair value and we must provide the cash in the amount of such difference. Our ability to continue making investments is dependent on our ability to invest the cash representing such difference. Further, certain of our CRT Agreements may allow us, at the time we sell a mortgage loan, to deposit less than the full amount of cash we would otherwise be required to deposit with respect to such loan until the end
The impact of the aggregation period relating to the applicable CRT Agreement. At the end of such aggregation period, we will be required to deposit all remaining cash necessary to fully secure the related CRT Agreement, and our ability to fully invest in such CRT Agreement is dependentPandemic on our abilityoperations, liquidity and capital resources remains uncertain and difficult to depositpredict. For further discussion of this and other risks described in our Annual Report on Form 10-K for the required cash. We believe that our liquidity is sufficient to meet our current liquidity needs.
We do not expect repayments from contractual cash flows from our investments in mortgage loans to be a primary source of liquidity as a substantial portion of such investments are distressed assets that are nonperforming. Our portfolio of distressed mortgage loans was acquired withyear ended December 31, 2020 under the expectation that the majority of the cash flows associated with these investments would result from liquidation of the mortgage loan or the property securing the loan, rather than from scheduled principal and interest payments. Our mortgage loans acquired for sale are generally held for fifteen days or less and, therefore, are not expected to generate significant cash flows from principal repayments.heading “Risk Factors.”
Our current leveragedebt financing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We have mademake collateralized borrowings in the form of sales of assets under agreements to repurchase, mortgage loan participation purchase and sale agreements and notes payable. We also previously made collateralized borrowings in the form of borrowings under forward purchase agreements and advances from the Federal Home Loan Bank of Des Moines. To the extent available to us, we expect in the future to obtain long-termpayable, including secured term financing for assets with estimated future lives ofour MSRs and our CRT arrangements which has allowed us to more than one year; this may includeclosely match the term financing and securitization of performing, nonperforming and/or reperforming mortgage loans.
We will continue to finance most of our assets on a short-term basis until long-term financing becomes more available. Our short-term financings will be primarily inborrowings to the form of agreements to repurchase and other secured lending and structured finance facilities, pending the ultimate dispositionexpected lives of the assets whether through sale, securitization or liquidation. Because a significant portion of our current debt facilities consists of short-termsecuring those borrowings. Our leverage ratio, defined as all borrowings we expect to renew these facilities in advance of maturity in order to ensure our ongoing liquiditydivided by shareholders’ equity at the date presented, was 4.10 and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.
As of September 30, 20173.78 at March 31, 2021 and December 31, 2016, we financed our investments in MBS, mortgage loans acquired for sale at fair value, mortgage loans at fair value, mortgage loans at fair value held by a VIE, MSRs, ESS, REO and deposits securing CRT Agreements and related CRT derivatives with sales under agreement to repurchase, mortgage loan participation purchase and sale agreements, notes payable, asset sold to PFSI under agreement to repurchase and asset-backed financing. Following is a summary of our borrowings as of the dates presented:2020, respectively.
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Assets financed |
| $ | 5,246,556 |
|
| $ | 5,814,378 |
|
Total assets in classes of assets financed |
| $ | 5,492,066 |
|
| $ | 5,962,987 |
|
Secured borrowings (1) |
| $ | 3,801,843 |
|
| $ | 4,589,606 |
|
Percentage of invested assets pledged |
|
| 96 | % |
|
| 98 | % |
Advance rate against pledged assets |
|
| 72 | % |
|
| 79 | % |
Leverage ratio (2) |
| 2.52x |
|
| 3.58x |
| ||
|
|
|
|
Our repurchase agreements represent the sales of assets together with agreements for us to buy back the assets at a later date. Following is a summary of the activities in our repurchase agreements financing:
|
| Quarter ended September 30, |
|
| Nine months ended September 30, |
|
| Quarter ended March 31, |
| |||||||||||||||
Assets sold under agreements to repurchase |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| 2021 |
|
|
| 2020 |
| ||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||
Average balance outstanding |
| $ | 3,474,903 |
|
| $ | 3,538,720 |
|
| $ | 3,388,626 |
|
| $ | 3,202,829 |
|
| $ | 5,971,290 |
|
| $ | 6,302,900 |
|
Maximum daily balance outstanding |
| $ | 3,973,869 |
|
| $ | 4,824,044 |
|
| $ | 4,083,326 |
|
| $ | 5,221,997 |
|
| $ | 7,208,807 |
|
| $ | 8,664,587 |
|
Ending balance |
| $ | 3,204,054 |
|
| $ | 4,041,085 |
|
|
|
|
|
|
|
|
|
| $ | 6,091,973 |
|
| $ | 6,348,192 |
|
The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent acquisitionproduction business. The total facility size of our assets sold under agreements to repurchase was approximately $6.2$9.8 billion at September 30, 2017.March 31, 2021.
Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to either renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.
As discussed above, all of our repurchase agreements, notes payable, and mortgage loan participation purchase and sale agreements have short-term maturities:
The transactions relating to mortgage loans and REO under agreements to repurchase generally provide for terms of approximately one year.
• | 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 mortgage loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year.
• | The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year; and |
• | The transactions relating to assets under notes payable provide for terms ranging from two to five years. |
The transactions relating to assets under notes payable provide for terms of approximately one year.
As of September 30, 2017, leverage on MSRs and ESS continues to be limited in availability due to the requirement of each Agency that its rights and interest in the MSRs remain senior to those of any lender extending credit. As we continue to aggregate MSRs and ESS, the limited availability of financing could place stress on our capital and liquidity positions or require us to forego attractive investment opportunities.
Our debt financing agreements require us and certain of our subsidiaries to comply with various financial covenants. As of the filing of this Report, these financial covenants include the following:
profitability at the Company for at least one (1) of the previous two consecutive fiscal quarters, as of the end of each fiscal quarter, and at the Company and our Operating Partnership over the prior three (3) calendar quarters;
• | a minimum of $40 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $40 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; |
a minimum of $40 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $40 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; and a minimum of $10 million in unrestricted cash and cash equivalents at each of PMC and 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 minimum tangible net worth for the Company of $860 million; a minimum tangible net worth for our Operating Partnership of $700 million; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $150 million;
• | a maximum ratio of total liabilities to tangible net worth of less than 10:1 for PMC and PMH and 7:1 for the Company and our Operating Partnership; and |
a maximum ratio of total liabilities to tangible net worth of less than 10:1 for PMC and PMH and 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.
• | at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing 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.
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 most significant of these financial covenants currently include the following:
positive net income for at least one (1) of the previous 2 consecutive fiscal quarters, measured quarterly;
• | positive net income for at least one (1) of the previous two consecutive fiscal quarters; |
a minimum in unrestricted cash and cash equivalents of $40 million;
• | a minimum in unrestricted cash and cash equivalents of $40 million; |
a minimum tangible net worth of $500 million; and
• | a minimum tangible net worth of $1.25 billion; |
• | a maximum ratio of total liabilities to tangible net worth of 10:1; and |
a maximum ratio of total liabilities to tangible net worth of 10:1.
• | at least one other warehouse or repurchase facility that finances amounts and assets that are similar to those being financed under certain of our existing secured financing agreements. |
In addition to the financial covenants imposed upon us and PLS under our debt financing agreements, we and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by FHFA for Agency seller/sellers/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and their net worth requirements for approved non-depository single-family sellers/servicers in the case of FHFA, and for approved single-family issuers in the case of Ginnie Mae, as summarized below:
A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential mortgage loans serviced.
A tangible net worth/total assets ratio greater than or equal to 6%.
• | A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential loans serviced; |
• | Effective June 30, 2020, FHFA liquidity requirement is equal to 0.035% (3.5 basis points) of total Agency servicing UPB plus an incremental 200 basis points of the amount by which total nonperforming Agency servicing UPB (reduced by 70% of the UPB of nonperforming Agency loans that are in COVID-19 payment forbearance and were current when they entered such forbearance) exceeds 6% of the applicable Agency servicing UPB; allowable assets to satisfy liquidity requirement include cash and cash equivalents (unrestricted), certain investment-grade securities that are available for sale or held for trading including Agency mortgage-backed securities, obligations of Fannie Mae or Freddie Mac, and U.S. Treasury obligations, and unused and available portions of committed servicing advance lines; |
• | In the case of PLS, liquidity equal to the greater of $1.0 million or 0.10% (10 basis points) of its outstanding Ginnie Mae single-family securities, which must be met with cash and cash equivalents; and |
• | In the case of PLS, net worth equal to $2.5 million plus 0.35% (35 basis points) of its outstanding Ginnie Mae single-family obligations. |
On January 31, 2020, FHFA proposed changes to the eligibility requirements:
• | A tangible net worth requirement of a base of $2.5 million plus 35 basis points of the UPB of loans serviced for Ginnie Mae and 25 basis points of the UPB of all other 1-4 unit loans serviced; |
80
• | Liquidity equal to or exceeding |
In the case of PLS, liquidity equal to the greater of $1.0 million or 0.10% (10 basis points) of its outstanding Ginnie Mae single-family securities, which must be met with cash and cash equivalents.
In the case of PLS, net worth equal to $2.5 million plus 0.35% (35 basis points) of its outstanding Ginnie Mae single-family obligations.
• | On June 15, 2020, FHFA announced that it will be re-proposing changes to these requirements. |
Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement, although in some instances we may agree with the lender upon certain thresholds (in dollar amounts or percentages based on the market value of the assets) that must be exceeded before a margin deficit will arise. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.
On August 7, 2020, PMC entered into a master repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC, and Credit Suisse AG, Cayman Islands Branch providing PMC with the ability to finance servicing advances made to support monthly principal and interest to mortgage-backed securities holders as well as other corporate and escrow advances related to servicing delinquent loans. The committed amount available to PMC under the master repurchase agreement is $300 million.
Our Manager continues to explore a variety of additional means of financing our growth, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and additional equity offerings. 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 September 30, 2017,March 31, 2021, we have not entered into any off-balance sheet arrangements of off-balance sheet obligations.
Contractual Obligations
As of September 30, 2017, we had contractual obligations aggregating to $5.9 billion comprised of borrowings, interest expense on long term debt from our Exchangeable Notes and asset-backed financing of a VIE, and commitments to purchase mortgage loans from correspondent lenders. Payment obligations under these agreements, including expected interest payments on financing agreements, are summarized below:
|
| Payments due by period |
| |||||||||||||||||
Contractual obligations |
| Total |
|
| Less than 1 year |
|
| 1 - 3 years |
|
| 3 - 5 years |
|
| More than 5 years |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Commitments to purchase mortgage loans from correspondent lenders |
| $ | 1,259,592 |
|
| $ | 1,259,592 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Commitments to fund Deposits securing credit risk transfer agreements |
|
| 356,274 |
|
|
| 356,274 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Assets sold under agreements to repurchase |
|
| 3,204,054 |
|
|
| 3,204,054 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Mortgage loan participation purchase and sale agreements |
|
| 44,082 |
|
|
| 44,082 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Notes payable |
|
| 80,106 |
|
|
| 80,106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Assets sold to PennyMac Financial Services, Inc. under agreement to repurchase |
|
| 148,072 |
|
|
| 148,072 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Asset-backed financing of a VIE |
|
| 318,404 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 318,404 |
|
Exchangeable Notes |
|
| 250,000 |
|
|
| — |
|
|
| — |
|
|
| 250,000 |
|
|
| — |
|
Interest-only security payable at fair value |
|
| 6,386 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,386 |
|
Interest expense on long term debt |
|
| 215,075 |
|
|
| 25,038 |
|
|
| 49,228 |
|
|
| 21,148 |
|
|
| 119,661 |
|
Total |
| $ | 5,882,045 |
|
| $ | 5,117,218 |
|
| $ | 49,228 |
|
| $ | 271,148 |
|
| $ | 444,451 |
|
arrangements.
All debt financing arrangements that matured between September 30, 2017March 31, 2021 and the date of this Report have been renewed, extended or extended.replaced.
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 September 30, 2017:March 31, 2021:
Counterparty |
| Amount at risk |
|
| Amount at risk |
| ||
|
| (in thousands) |
|
| (in thousands) |
| ||
Bank of America, N.A. |
| $ | 130,166 |
| ||||
Credit Suisse First Boston Mortgage Capital LLC |
|
| 75,611 |
| ||||
Royal Bank of Canada |
|
| 32,331 |
| ||||
JPMorgan Chase & Co. |
|
| 30,676 |
| ||||
Barclays Capital Inc. |
|
| 26,955 |
| ||||
Morgan Stanley Bank, N.A. |
|
| 18,714 |
| ||||
Daiwa Capital Markets America Inc. |
|
| 14,961 |
| ||||
Citibank, N.A. |
| $ | 253,993 |
|
|
| 10,807 |
|
Credit Suisse First Boston Mortgage Capital LLC |
|
| 148,107 |
| ||||
JPMorgan Chase & Co. |
|
| 99,506 |
| ||||
Bank of America, N.A. |
|
| 75,991 |
| ||||
Goldman Sachs & Co. LLC |
|
| 9,460 |
| ||||
BNP Paribas Corporate & Institutional Banking |
|
| 19,150 |
|
|
| 7,646 |
|
Morgan Stanley Bank, N.A. |
|
| 10,051 |
| ||||
Deutsche Bank |
|
| 7,272 |
| ||||
Daiwa Capital Markets America Inc. |
|
| 7,006 |
| ||||
Royal Bank of Canada |
|
| 4,061 |
| ||||
Barclays Bank PLC |
|
| 3,691 |
| ||||
Wells Fargo, N.A. |
|
| 2,381 |
| ||||
Wells Fargo Securities, LLC |
|
| 5,141 |
| ||||
Amherst Pierpont Securities LLC |
|
| 4,488 |
| ||||
|
| $ | 631,209 |
|
| $ | 366,956 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market-based risks. The primary market risks that we are exposed to are real estate risk, credit risk, interest rate risk, prepayment risk, inflation risk and market value risk. Our primary trading asset is our inventory of mortgage loans acquired for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated mortgage loans. Our other market-risk assets are a substantial portion of our investments and are primarily comprised of distressed mortgage nonperforming loansMSRs, ESS, CRT arrangements and MSRs.MBS. We believe that the fair values of MSRs, ESS and MBS also respond primarily to changes in the market interest rates for comparable mortgage loans.loans or yields on MBS. Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation. We believe that the primary market risks to the fair values of our investment in distressed mortgage loans respond primarily toCRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such loans.arrangements.
The following sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes to other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as earnings forecasts.
Mortgage-backed securities at fair value
The following table summarizes the estimated change in fair value of our mortgage-backed securities as of September 30, 2017,March 31, 2021, 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 |
| ||||||
|
| (dollar in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 1,070,785 |
|
| $ | 1,062,435 |
|
| $ | 1,055,990 |
|
| $ | 1,013,497 |
|
| $ | 1,000,824 |
|
| $ | 933,835 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 33,687 |
|
| $ | 25,337 |
|
| $ | 18,892 |
|
| $ | (23,601 | ) |
| $ | (36,274 | ) |
| $ | (103,263 | ) |
% |
|
| 3.2 | % |
|
| 2.4 | % |
|
| 1.8 | % |
|
| (2.3 | )% |
|
| (3.5 | )% |
|
| (10.0 | )% |
Interest rate shift in basis points |
| -200 |
|
| -75 |
|
| -50 |
|
| 50 |
|
| 75 |
|
| 200 |
| ||||||
|
| (dollar in thousands) |
| |||||||||||||||||||||
Change in fair value |
| $ | 94,475 |
|
| $ | 72,615 |
|
| $ | 52,209 |
|
| $ | (59,419 | ) |
| $ | (89,852 | ) |
| $ | (236,629 | ) |
Mortgage Loans at Fair ValueServicing Rights
The following table summarizestables summarize the estimated change in fair value of our portfolioMSRs as of distressed mortgage loans (comprisedMarch 31, 2021, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of mortgage loans atservicing:
Change in fair value attributable to shift in: |
| -20% |
|
| -10% |
|
| -5% |
|
| +5% |
|
| +10% |
|
| +20% |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
Pricing spread |
| $ | 165,887 |
|
| $ | 80,440 |
|
| $ | 39,619 |
|
| $ | (38,465 | ) |
| $ | (75,820 | ) |
| $ | (147,372 | ) |
Prepayment speed |
| $ | 213,267 |
|
| $ | 102,804 |
|
| $ | 50,496 |
|
| $ | (48,777 | ) |
| $ | (95,920 | ) |
| $ | (185,623 | ) |
Annual per-loan cost of servicing |
| $ | 62,838 |
|
| $ | 31,419 |
|
| $ | 15,709 |
|
| $ | (15,709 | ) |
| $ | (31,419 | ) |
| $ | (62,838 | ) |
CRT arrangements
Following is a summary of the effect on fair value excluding mortgage loans atof various changes to the pricing spread input used to estimate the fair value held by VIE) as of September 30, 2017,our CRT arrangements given several hypothetical (instantaneous)shifts in pricing spread:
Pricing spread shift in basis points |
| -100 |
|
| -50 |
|
| -25 |
|
| 25 |
|
| 50 |
|
| 100 |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
Change in fair value |
| $ | 86,597 |
|
| $ | 42,559 |
|
| $ | 21,098 |
|
| $ | (20,744 | ) |
| $ | (41,143 | ) |
| $ | (80,934 | ) |
Following is a summary of the effect on fair value of various instantaneous changes in home values from those used in estimatingto estimate the fair value:value of our CRT arrangements given several shifts:
Property value shift in % |
|
| -15% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +15% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 928,885 |
|
| $ | 961,400 |
|
| $ | 990,510 |
|
| $ | 1,039,850 |
|
| $ | 1,060,526 |
|
| $ | 1,078,650 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | (87,721 | ) |
| $ | (55,206 | ) |
| $ | (26,096 | ) |
| $ | 23,244 |
|
| $ | 43,920 |
|
| $ | 62,044 |
|
% |
|
| (8.6 | )% |
|
| (5.4 | )% |
|
| (2.6 | )% |
|
| 2.3 | % |
|
| 4.3 | % |
|
| 6.1 | % |
Property value shift in % |
| -15% |
|
| -10% |
|
| -5% |
|
| 5% |
|
| 10% |
|
| 15% |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
Change in fair value |
| $ | (89,513 | ) |
| $ | (51,991 | ) |
| $ | (22,776 | ) |
| $ | 18,525 |
|
| $ | 33,747 |
|
| $ | 46,209 |
|
Loans at Fair Value
The following table summarizes the estimated change in fair value of our mortgage loans at fair value held by VIE as of September 30, 2017,March 31, 2021, net of the effect of changes in fair value of the related asset-backed financing of the VIE at fair value, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:curve:
Interest rate shift in basis points |
| -200 |
|
| -75 |
|
| -50 |
|
| 50 |
|
| 75 |
|
| 200 |
| ||||||
|
| (dollar in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 332,289 |
|
| $ | 332,219 |
|
| $ | 332,198 |
|
| $ | 331,621 |
|
| $ | 331,438 |
|
| $ | 330,447 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 348 |
|
| $ | 278 |
|
| $ | 257 |
|
| $ | (320 | ) |
| $ | (503 | ) |
| $ | (1,494 | ) |
% |
|
| 0.1 | % |
|
| 0.1 | % |
|
| 0.1 | % |
|
| (0.1 | )% |
|
| (0.2 | )% |
|
| (0.5 | )% |
Interest rate shift in basis points |
| -200 |
|
| -75 |
|
| -50 |
|
| 50 |
|
| 75 |
|
| 200 |
| ||||||
|
| (dollar in thousands) |
| |||||||||||||||||||||
Change in fair value |
| $ | 150 |
|
| $ | 152 |
|
| $ | 120 |
|
| $ | (195 | ) |
| $ | (323 | ) |
| $ | (1,105 | ) |
Mortgage Servicing Rights
The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of September 30, 2017, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
Pricing spread shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 778,086 |
|
| $ | 752,695 |
|
| $ | 740,579 |
|
| $ | 717,427 |
|
| $ | 706,362 |
|
| $ | 685,187 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 49,258 |
|
| $ | 23,867 |
|
| $ | 11,751 |
|
| $ | (11,401 | ) |
| $ | (22,466 | ) |
| $ | (43,641 | ) |
% |
|
| 6.8 | % |
|
| 3.3 | % |
|
| 1.6 | % |
|
| (1.6 | )% |
|
| (3.1 | )% |
|
| (6.0 | )% |
Prepayment speed shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 779,959 |
|
| $ | 753,484 |
|
| $ | 740,941 |
|
| $ | 717,122 |
|
| $ | 705,802 |
|
| $ | 684,243 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 51,131 |
|
| $ | 24,656 |
|
| $ | 12,113 |
|
| $ | (11,706 | ) |
| $ | (23,026 | ) |
| $ | (44,584 | ) |
% |
|
| 7.0 | % |
|
| 3.4 | % |
|
| 1.7 | % |
|
| (1.6 | )% |
|
| (3.2 | )% |
|
| (6.1 | )% |
Per-loan servicing cost shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 750,707 |
|
| $ | 739,767 |
|
| $ | 734,298 |
|
| $ | 723,358 |
|
| $ | 717,888 |
|
| $ | 706,949 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 21,879 |
|
| $ | 10,940 |
|
| $ | 5,470 |
|
| $ | (5,470 | ) |
| $ | (10,940 | ) |
| $ | (21,879 | ) |
% |
|
| 3.0 | % |
|
| 1.5 | % |
|
| 0.8 | % |
|
| (0.8 | )% |
|
| (1.5 | )% |
|
| (3.0 | )% |
The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value option method as of September 30, 2017, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
Pricing spread shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 87,655 |
|
| $ | 84,902 |
|
| $ | 83,587 |
|
| $ | 81,074 |
|
| $ | 79,871 |
|
| $ | 77,569 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 5,344 |
|
| $ | 2,590 |
|
| $ | 1,276 |
|
| $ | (1,238 | ) |
| $ | (2,440 | ) |
| $ | (4,743 | ) |
% |
|
| 6.5 | % |
|
| 3.1 | % |
|
| 1.6 | % |
|
| (1.5 | )% |
|
| (3.0 | )% |
|
| (5.8 | )% |
Prepayment speed shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 90,348 |
|
| $ | 86,153 |
|
| $ | 84,191 |
|
| $ | 80,511 |
|
| $ | 78,783 |
|
| $ | 75,530 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 8,036 |
|
| $ | 3,841 |
|
| $ | 1,879 |
|
| $ | (1,801 | ) |
| $ | (3,529 | ) |
| $ | (6,782 | ) |
% |
|
| 9.8 | % |
|
| 4.7 | % |
|
| 2.3 | % |
|
| (2.2 | )% |
|
| (4.3 | )% |
|
| (8.2 | )% |
Per-loan servicing cost shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 85,082 |
|
| $ | 83,697 |
|
| $ | 83,004 |
|
| $ | 81,619 |
|
| $ | 80,927 |
|
| $ | 79,541 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 2,770 |
|
| $ | 1,385 |
|
| $ | 693 |
|
| $ | (693 | ) |
| $ | (1,385 | ) |
| $ | (2,770 | ) |
% |
|
| 3.4 | % |
|
| 1.7 | % |
|
| 0.8 | % |
|
| (0.8 | )% |
|
| (1.7 | )% |
|
| (3.4 | )% |
Excess servicing spread
The following tables summarize the estimated change in fair value of our ESS as of September 30, 2017, given several shifts in pricing spreads and prepayment speed:
Pricing spread shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 258,147 |
|
| $ | 253,371 |
|
| $ | 251,046 |
|
| $ | 246,520 |
|
| $ | 244,315 |
|
| $ | 240,021 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 9,384 |
|
| $ | 4,608 |
|
| $ | 2,283 |
|
| $ | (2,243 | ) |
| $ | (4,447 | ) |
| $ | (8,742 | ) |
% |
|
| 3.8 | % |
|
| 1.9 | % |
|
| 0.9 | % |
|
| (0.9 | )% |
|
| (1.8 | )% |
|
| (3.5 | )% |
Prepayment speed shift in % |
|
| -20% |
|
|
| -10% |
|
|
| -5% |
|
|
| +5% |
|
|
| +10% |
|
|
| +20% |
|
|
| (dollars in thousands) |
| |||||||||||||||||||||
Fair value |
| $ | 273,787 |
|
| $ | 260,733 |
|
| $ | 254,621 |
|
| $ | 243,145 |
|
| $ | 237,752 |
|
| $ | 227,595 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 25,024 |
|
| $ | 11,970 |
|
| $ | 5,858 |
|
| $ | (5,618 | ) |
| $ | (11,011 | ) |
| $ | (21,168 | ) |
% |
|
| 10.1 | % |
|
| 4.8 | % |
|
| 2.4 | % |
|
| (2.3 | )% |
|
| (4.4 | )% |
|
| (8.5 | )% |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In response to this Item 3, the information set forth on pages 102 through 104 is incorporated herein by reference.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There hashave been no changechanges in our internal control over financial reporting during the quarter and nine months ended September 30, 2017March 31, 2021 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
83
From time to time, we may be involved in various legal proceedings,actions, claims and actionsproceedings arising in the ordinary course of business. As of September 30, 2017,March 31, 2021, we were not involved in any suchmaterial legal proceedings,actions, claims or actions that management believes would be reasonably likely to have a material adverse effect on us.proceedings.
There are no material changes from the risk factors set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the nine monthsquarter ended September 30, 2017.March 31, 2021.
The following table provides information about our common share repurchases during the nine months ended September 30, 2017:
Period |
| Total number of shares purchased |
|
| Average price paid per Share |
|
| Total number of shares purchased as part of publicly announced plans or programs (a) |
|
| Amount available for future share repurchases under the plans or programs (a) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| |
January 1, 2017 – January 31, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 85,292 |
|
February 1, 2017 – February 28, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 85,292 |
|
March 1, 2017 – March 31, 2017 |
|
| 138,935 |
|
| $ | 16.60 |
|
|
| 138,935 |
|
| $ | 82,987 |
|
April 1, 2017 – April 30, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 82,987 |
|
May 1, 2017 – May 31, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 82,987 |
|
June 1, 2017 – June 30, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 82,987 |
|
July 1, 2017 – July 31, 2017 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 82,987 |
|
August 1, 2017 – August 31, 2017 |
|
| 97,658 |
|
| $ | 17.28 |
|
|
| 97,658 |
|
| $ | 81,299 |
|
September 1, 2017 – September 30, 2017 |
|
| 869,219 |
|
| $ | 16.95 |
|
|
| 869,219 |
|
| $ | 66,569 |
|
|
|
| 1,105,812 |
|
| $ | 16.93 |
|
|
| 1,105,812 |
|
| $ | 66,569 |
|
|
|
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
None
84
| Incorporated by Reference from the Below-Listed Form (Each Filed under SEC File Number 14-64423) | |||||
Exhibit No. |
| Exhibit Description | Form | Filing Date | ||
|
|
| ||||
3.1 |
| 10-Q | November 6, 2009 | |||
|
|
| ||||
3.2 |
| 8-K | March 16, 2018 | |||
|
|
| ||||
3.3 |
| 8-A | March 7, | |||
|
|
| ||||
3.4 |
| 8-A | June 30, | |||
|
|
| ||||
4.1 |
| 8-K | March 5, 2021 | |||
|
|
| ||||
4.2 |
| 8-K | March | |||
|
|
| ||||
4.3 |
| 8-K | March 31, 2021 | |||
|
|
| ||||
4.4 |
| 8-K | March 31, 2021 | |||
|
|
| ||||
|
| |||||
|
| |||||
|
|
| ||||
10.1† 10.2† 10.3† 10.4† |
| * * * * | ||||
|
|
| ||||
|
| |||||
|
|
| ||||
| ||||||
| ||||||
| ||||||
| ||||||
|
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
31.1 |
| * | ||||
|
|
| ||||
31.2 |
| * | ||||
|
|
| ||||
85
32.1** |
| ** | ||||
|
|
| ||||
32.2** |
| ** | ||||
|
|
| ||||
101 |
| Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of | * | |||
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||
* | Filed herewith. |
** | The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
† Indicates management contract or compensatory plan or arrangement. |
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| Pennymac Mortgage Investment Trust (Registrant) | ||
|
|
|
|
|
Dated: |
| By: |
| /s/ David A. Spector |
|
|
|
| David A. Spector |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Dated: |
| By: |
| /s/ |
|
|
|
|
|
|
|
|
| Senior Managing Director and Chief Financial Officer (Principal Financial Officer) |
10987