PennyMac Agrees To Sell $29 Billion Of Mortgage Servicing To Pay Down Debt
The sale should bring in about $490 million, while the CFO calls $3.5 billion of liquidity the lower end of the company's range.
PennyMac Financial Services, which originates and services US home mortgages, agreed after quarter end to sell $29 billion in unpaid balance of low-coupon mortgage servicing rights, Chairman and CEO David Spector said on the company's third-quarter earnings call Thursday. Net proceeds of about $490 million, expected to arrive when the deal closes in the fourth quarter, will mainly pay down debt.
No gain on the sale
Chief Financial Officer Dan Perotti said the company does not expect to book a gain, because the portfolio sold near its existing mark. The result will show up in the fourth quarter as ordinary fair value changes.
Perotti said the buyer is not leaving PennyMac with subservicing on these loans. He said that is possible in future sales, though PennyMac does not see sales as a consistent strategy, and nothing is currently in the pipeline. Spector called the loans low-rate servicing that does not fit the company's "flywheel" of recapture opportunity.
The company reported net income of $29 million, or 54 cents a share, and adjusted net income of $56 million, or $1.05 a share. Its production segment lost $7 million before taxes, against income of $38 million in the prior quarter. Servicing earned $132 million before taxes excluding MSR fair value changes net of hedging, up from $99 million.
Leverage and a thinner liquidity cushion
Non-funding debt stood at 1.9 times equity, up from 1.8 times in the prior quarter, which Perotti tied to rising rates drawing more on MSR credit lines. He said the company has targeted about one and a half times and expects to move toward it over the next few quarters, not all at once.
A Barclays analyst noted liquidity fell by $500 million to $3.5 billion. Perotti said that is "on the lower end of where we've been historically," but that stress tests combining a COVID-style delinquency shock and a rate shock still leave excess liquidity, and the company has collateral to expand its facilities.
Spector also said the company keeps an active buyback authorization and will use it opportunistically given where shares trade relative to book value.
Cenlar slips to early 2027
The company now expects to close its acquisition of Cenlar's subservicing business in the first quarter of 2027. Chief Strategy Officer Kevin Ryan said the company is comfortable with that timing, and that part of the delay was "self-imposed" because it took more time to study the bank.
Ryan, who becomes CFO on January 1, 2027, said the plan is to close excluding the bank charter and dispose of its deposits. Perotti stays CFO through year-end and advises through the first quarter of 2027. President Doug Jones plans to retire June 30, 2027.
Spector said fourth-quarter adjusted return on equity should stay near the current 5%, and he expects low double digits by the fourth quarter of 2027. Refinance recapture was 44%, up 9 percentage points from a year earlier.
PennyMac's market value was $3.3 billion as of Thursday's report, and the sale is expected to close in the fourth quarter.
Sources
- PennyMac Financial Non-GAAP EPS of $1.05 misses by $0.18, revenue of $469M misses by $62.8M (NYSE:PFSI) | Seeking Alpha — seekingalpha.com
- PennyMac: Q3 Earnings Snapshot – WTOP News — wtop.com
- PennyMac: Q3 Earnings Snapshot | wusa9.com — Associated Press
- PennyMac Financial Services (PFSI) Stock Looks Cheap After a 51% Slide — Yahoo Finance
- PennyMac Financial Services, Inc. Reports Third Quarter 2026 Results and Announces Changes to its Leadership Team — businesswire.com
