Higher pretax income from its originations business in the first quarter versus comparative period was offset by lower earnings related to servicing for PennyMac Financial Services.
The company reported net income of $82.3 million for the first quarter. This compared with $106.8 million for the fourth quarter and $76.3 million for the first quarter of 2025.
Production segment pretax income of $133.6 million, up from $127.3 million for the prior quarter and
While Pennymac had $183 million of mortgage servicing rights fair value gains during the period, this was more than offset by $221.1 million in hedging losses. The net impact was a loss of $44.1 million. Those included $13.8 million in principal-only stripped mortgage-backed security valuation-related accretion changes, and $6 million in provisions for losses on active loans.
During the first quarter, loan originations and acquisitions, including fulfillment for PennyMac Mortgage Investment Trust, was $37 billion. This was down 12% from the fourth quarter but 28% over the first quarter of last year. The quarter-to-quarter change is in line with a revised estimate on production volume put out by Keefe, Bruyette & Woods on May 4.
The revised KBW forecast expected $2 earnings per share versus $2.14 previously. Pennymac missed both numbers, coming in at $1.58 per share.
By channel, correspondent production of $24.4 billion was 20% lower than the fourth quarter. Broker direct volume of $6.7 billion was 3% higher, while consumer direct origination of $6 billion was 15% higher.
Production revenue margins, which also includes fulfillment fees from PMT, were 86 basis points, up from 73 basis points in the fourth quarter and 68 basis points in the first quarter of 2025.
During the quarter, the company announced it was acquiring
Pennymac lowered its return on equity guidance because it "decided to meaningfully accelerate our technology investment to drive significant operational efficiency in both production and servicing," said David Spector, chairman and CEO on the earnings call. Pennymac also expects less origination demand with mortgage rates at current levels.
Spector was encouraged about Pennymac's margins during the quarter. Correspondent production margins were up quarter-over-quarter and this is continuing into the current period. In the broker channel, margins right now are holding near to what the company saw in the first quarter and are up from the end of last year.
"Our consumer direct channel, we're seeing a consistent margin story there," Spector said. "The mix in the second quarter will probably warrant the higher margin reports."
The mortgage industry historically has "under-executed" with its cost of capital, Spector pointed out.
"We have to do what we need to do to increase margins, increase our return, and to do so without being concerned about market share or being concerned about what the GSEs are doing," he continued. "Obviously, market share leads to scale."
