PennyMac will increase its share of the direct lending market

Direct lending fueled PennyMac Financial Services' activity in the third quarter and resulted in a quarterly profit.

Based in Westlake Village, Calif., The lender and service provider posted net income of $ 249.3 million for the three months ended September 30, a 22% increase over the second quarter's income of 204.2 million US dollar equals, but decreased 53.4% ​​compared to revenue for the same three months a year ago, a record of 535.2 million US dollars.

PennyMac revenue was $ 786.6 million for the third quarter, compared to $ 742.3 million three months earlier, an increase of 5.6%. Third quarter revenue for the same period last year was $ 1.112 billion, up 29.3%. The company reported diluted earnings per share of $ 3.80, beating analysts' estimate of $ 3.50 per share, according to Yahoo Finance.

"The blow was due to higher mortgage lending revenues and lower spending on both lending and servicing," said analyst Bose George, managing director at Keefe, Bruyette & Woods, in a research release. "This has helped make up for a service error caused by increased prepayment rates."

As in the second quarter, PennyMac executives said diversified businesses were responsible for the positive results, particularly growth in direct consumer lending.

"The channel's continued success is due to the increased use of data analytics and the investments we have made in our loan settlement and sales process," said Doug Jones, the company's president and chief mortgage banking officer, in a earnings presentation Thursday.

PennyMac's share of the direct consumer market rose to 1.4% at the end of the quarter from 0.9% at the end of 2020. The broker direct market share rose to 2.4% in the third quarter from 2.2% at the end of the year. The company estimated its current market share at 17.7%.

84% of pre-tax profit in the manufacturing segment was accounted for by consumer and broker direct credit channels. Credit production totaled $ 330.6 million before tax, 35.3% more than $ 244.4 million in the second quarter, but 46% less than $ 613.3 million year-over-year.

"Our direct lending channels are having an overwhelming impact on manufacturing revenues," said Andy Chang, chief operating officer. "As we continue to expand our leadership positions in the direct procurement channels, this growth will increase the profitability of our production segment."

Consumer direct sales for the quarter were $ 11.1 billion and direct brokers were $ 4 billion. Quarterly correspondent mailings totaled $ 44 billion in unpaid balances.

PennyMac also reported pre-tax income of $ 8 million, down 74.1 percent from $ 30.9 million in the previous quarter and 92.8 percent from $ 111.7 million in the third quarter last year. Its share of the credit services market rose to 4.1% of the market from 3.7% at the end of 2020.

Quarterly pre-tax income for the investment management segment was $ 1 million, down 75.7% from the $ 4.1 million at the end of the second quarter due to no incentive fees earned in the third quarter, and down 69 .7% down from $ 3.3 million last year.

According to Chang, Penny Mac's service unit will play a bigger role for the company over the next several months based on current trends.

"Our large and growing portfolio of services is becoming an increasingly important part of our earnings as interest rates rise, and we believe this will give other mortgage lenders a competitive advantage as the industry's issuance volume returns to more normalized levels," he said.

Investors welcomed the company's earnings as PennyMac Financial Services, Inc. (PFSI) shares rose 1.9% overnight. After closing at $ 64.60 the previous day, PFSI shares began trading at $ 65.80 on Friday and rose another 3.1% to $ 67.71 by 11 a.m.

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