In the third quarter, PennyMac Financial Services achieved record results and prepared to reduce reliance on refinancing should demand for this type of loan dry up in 2021.
The company, which posted net income of $ 535 million in the third quarter of 20, has prioritized purchasing volume and expense management to account for a potential decline in originations over the next year, stated President and CEO David Spector during the previously recorded earnings call of the Firm firm. PennyMac made nearly $ 122 million in the third quarter of 19 and nearly $ 353 million in the second quarter of 20.
According to Spector, purchase origins are expected to increase 5% year over year in 2021, while refinancing origins are expected to decrease. The result will likely be a net drop in originations, so he plans to control costs and prioritize purchases.
PennyMac's strategy is in line with a growing number of lenders who, as part of the refinancing boom, have used third-party originations to resolve capacity issues while potentially controlling costs later. However, Spector said the company's overall operations should enable scalability that exceeds traditional underwriting and processing models.
The cost of the company's credit channel ranges from around 15 basis points for correspondents to 150 basis points for consumer direct, according to Spector.
"Correspondence credit and our fast growing broker direct business position us well for growth in the more sustainable and growing retail market," he said.
According to Spector, PennyMac also uses access to tax-privileged capital through its affiliate real estate investment trust to compete.
Industry projections vary, but generally call for total home loan loans of $ 3.2 trillion to $ 4.1 trillion this year and $ 2.5 trillion to $ 2.7 trillion next year. PennyMac currently predicts 2020 will be a year for the industry of $ 3.6 trillion.
Refis made up more than half of all originations in 2020. They are forecast to account for only 36% to 46% of originations in 2021.