QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
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
Common Shares of Beneficial Interest, $0.01 Par Value
PMT
New York Stock Exchange
8.125% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value
PMT/PRA
New York Stock Exchange
8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value
6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value
PMT/PRB
PMT/PRC
New York Stock Exchange
New York Stock Exchange
8.50% Senior Notes Due September 2028
PMTU
New York Stock Exchange
9.00% Senior Notes Due February 2030
PMTV
New York Stock Exchange
9.00% Senior Notes Due June 2030
PMTW
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 every Interactive Data File required to be submitted 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 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”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
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 May 1, 2026
Common Shares of Beneficial Interest, $0.01 par value
This Quarterly Report on Form 10-Q (this “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, results of operations, earnings per share, capital structure or other financial items;
•
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
•
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, 2025, filed with the Securities and Exchange Commission (“SEC”) on February 18, 2026.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
•
changes in interest rates;
•
changes in macroeconomic, consumer and real estate market conditions;
•
changes in real estate values, housing prices and housing sales;
our ability to comply with various federal, state and local laws and regulations that govern our business;
•
volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets;
•
events or circumstances which undermine confidence in the financial and housing markets or otherwise have a broad impact on financial and housing markets;
•
the degree and nature of our competition;
•
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;
•
the concentration of credit risks to which we are exposed;
•
our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities;
•
changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates;
•
our ability to mitigate cybersecurity risks, cybersecurity incidents and technology disruptions;
•
the availability, terms and deployment of short-term and long-term capital;
•
the adequacy of our cash reserves and working capital;
•
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;
•
our substantial amount of indebtedness;
1
•
the performance, financial condition and liquidity of borrowers;
•
our exposure to risks of loss and disruptions in operations resulting from severe weather events, man-made or other natural conditions, including climate change and pandemics;
•
the ability of our servicer 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 may purchase, sell or securitize;
•
the quality and enforceability of the collateral documentation evidencing our ownership rights in our investments;
•
increased rates of delinquency, defaults and forbearances and/or decreased recovery rates on our investments;
•
the performance of mortgage loans underlying mortgage-backed securities 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 mortgage-backed securities or relating to our mortgage servicing rights 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;
•
our ability to maintain appropriate internal control over financial reporting;
•
our ability to detect misconduct and fraud;
•
developments in the secondary markets for our mortgage loan products;
•
legislative and regulatory changes that impact the mortgage loan industry or housing market;
•
regulatory or other changes that impact government agencies or government-sponsored entities, or such changes that increase the cost of doing business with such agencies or entities;
•
the Consumer Financial Protection Bureau and its issued and future rules and the enforcement thereof;
•
changes in government support of home ownership and home affordability programs;
•
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;
•
limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries for U.S. federal income tax purposes;
•
changes in governmental regulations, accounting treatment, tax rates and similar matters;
•
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 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, income 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.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31,
December 31,
2026
2025
(in thousands, except share information)
ASSETS
Cash
$
213,958
$
271,970
Short-term investments at fair value
187,689
190,518
Mortgage-backed securities at fair value pledged to creditors
3,765,539
4,452,859
Loans held for sale at fair value ($2,328,824 and $2,676,700 pledged to creditors, respectively)
2,349,895
2,699,398
Loans held for investment at fair value ($10,866,292 and $8,530,939 pledged to creditors, respectively)
10,867,942
8,532,644
Derivative assets with nonaffiliates ($30,174 and $32,659 pledged to creditors, respectively)
50,766
49,696
Derivative assets with PennyMac Financial Services, Inc.
3,823
6,247
Deposits securing credit risk transfer arrangements pledged to creditors
969,725
1,009,334
Mortgage servicing rights at fair value ($3,560,828 and $3,582,211 pledged to creditors, respectively)
3,623,979
3,644,702
Servicing advances ($67,604 and $78,430 pledged to creditors, respectively)
79,200
96,830
Due from PennyMac Financial Services, Inc.
16,152
19,100
Other
374,024
373,584
Total assets
$
22,502,692
$
21,346,882
LIABILITIES
Assets sold under agreements to repurchase
$
7,300,692
$
8,018,601
Notes payable secured by credit risk transfer and mortgage servicing assets
2,396,545
2,258,128
Unsecured senior notes
684,506
1,028,300
Interest-only security payable at fair value
34,232
37,650
Asset-backed financings of variable interest entities at fair value
9,903,515
7,789,303
Derivative and credit risk transfer strip liabilities with nonaffiliates at fair value
21,329
6,932
Derivative liabilities with PennyMac Financial Services, Inc.
5,886
2,257
Accounts payable and accrued liabilities
137,102
168,498
Due to PennyMac Financial Services, Inc.
17,500
17,122
Income taxes payable
129,677
127,476
Liability for losses under representations and warranties
5,152
5,284
Total liabilities
20,636,136
19,459,551
Commitments and contingencies ─ Note 17
SHAREHOLDERS’ EQUITY
Preferred shares of beneficial interest, $0.01 par value per share—authorized 100,000,000 shares, issued and outstanding 22,400,000, liquidation preference $560,000,000
541,482
541,482
Common shares of beneficial interest, $0.01 par value—authorized, 500,000,000 issued and outstanding, 87,191,663 and 87,016,604 shares, respectively
872
870
Additional paid-in capital
1,927,759
1,927,804
Accumulated deficit
(603,557
)
(582,825
)
Total shareholders’ equity
1,866,556
1,887,331
Total liabilities and shareholders’ equity
$
22,502,692
$
21,346,882
The accompanying notes are an integral part of these consolidated financial statements.
3
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) are summarized below:
March 31,
December 31,
2026
2025
(in thousands)
ASSETS
Loans held for investment at fair value
$
10,866,292
$
8,530,939
Derivative assets
30,174
32,659
Deposits securing credit risk transfer arrangements
969,725
1,009,334
Other—interest receivable
39,444
35,675
$
11,905,635
$
9,608,607
LIABILITIES
Asset-backed financings of the variable interest entities at fair value
$
9,903,515
$
7,789,303
Interest-only security payable at fair value
34,232
37,650
Derivative and credit risk transfer strip liabilities at fair value
4,062
5,999
Accounts payable and accrued liabilities—interest payable
39,444
35,675
$
9,981,253
$
7,868,627
The accompanying notes are an integral part of these consolidated financial statements.
4
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter ended March 31,
2026
2025
(in thousands, except earnings per common share)
Net investment income
Net loan servicing fees:
From nonaffiliates
Contractually specified
$
147,592
$
152,199
Other
3,367
3,917
150,959
156,116
Change in fair value of mortgage servicing rights
(61,299
)
(144,590
)
Mortgage servicing rights hedging results
(11,881
)
(39,944
)
77,779
(28,418
)
From PennyMac Financial Services, Inc.
5,807
1,208
Net loan servicing fees
83,586
(27,210
)
Net gains on loans held for sale at fair value:
From nonaffiliates
22,910
10,329
From PennyMac Financial Services, Inc.
—
2,015
Net gains on loans held for sale at fair value
22,910
12,344
Loan origination fees
2,375
3,152
Net (losses) gains on investments and financings
(23,063
)
62,313
Net interest expense:
Interest income
276,091
176,091
Interest expense
279,750
182,137
Net interest expense
(3,659
)
(6,046
)
Results of real estate acquired in settlement of loans
(48
)
(141
)
Other
33
53
Net investment income
82,134
44,465
Expenses
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
19,723
21,729
Management fees
6,762
7,012
Loan fulfillment fees
5,737
5,290
Professional services
13,501
6,982
Compensation
2,976
2,970
Loan collection and liquidation
2,124
1,969
Safekeeping
855
1,110
Loan origination
213
686
Other
3,348
3,016
Total expenses
55,239
50,764
Income (loss) before provision for (benefit from) income taxes
26,895
(6,299
)
Provision for (benefit from) income taxes
2,279
(15,979
)
Net income
24,616
9,680
Dividends on preferred shares of beneficial interest
10,455
10,455
Net income (loss) attributable to common shareholders
$
14,161
$
(775
)
Earnings (loss) per common share
Basic
$
0.16
$
(0.01
)
Diluted
$
0.16
$
(0.01
)
Weighted average common shares outstanding
Basic
87,082
86,907
Diluted
87,082
86,907
The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Quarter ended March 31, 2026
Preferred shares
Common shares
Number of shares
Amount
Number of shares
Par value
Additional paid-in capital
Accumulated deficit
Total
(in thousands, except per share amounts)
Balance at December 31, 2025
22,400
$
541,482
87,017
$
870
$
1,927,804
$
(582,825
)
$
1,887,331
Net income
—
—
—
—
—
24,616
24,616
Share-based compensation
—
—
175
2
(45
)
—
(43
)
Dividends:
Preferred shares
—
—
—
—
—
(10,455
)
(10,455
)
Common shares ($0.40 per share)
—
—
—
—
—
(34,893
)
(34,893
)
Balance at March 31, 2026
22,400
$
541,482
87,192
$
872
$
1,927,759
$
(603,557
)
$
1,866,556
Quarter ended March 31, 2025
Preferred shares
Common shares
Number of shares
Amount
Number of shares
Par value
Additional paid-in capital
Accumulated deficit
Total
(in thousands, except per share amounts)
Balance at December 31, 2024
22,400
$
541,482
86,861
$
869
$
1,925,067
$
(528,918
)
$
1,938,500
Net income
—
—
—
—
—
9,680
9,680
Share-based compensation
—
—
150
1
(165
)
—
(164
)
Dividends:
Preferred shares
—
—
—
—
—
(10,455
)
(10,455
)
Common shares ($0.40 per share)
—
—
—
—
—
(34,843
)
(34,843
)
Balance at March 31, 2025
22,400
$
541,482
87,011
$
870
$
1,924,902
$
(564,536
)
$
1,902,718
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Quarter ended March 31,
2026
2025
(in thousands)
Cash flows from operating activities
Net income
$
24,616
$
9,680
Adjustments to reconcile net income to net cash used in operating activities:
Change in fair value of mortgage servicing rights
61,299
144,590
Mortgage servicing rights hedging results
11,881
39,944
Net gains on loans held for sale
(22,910
)
(12,344
)
Net losses (gains) on investments and financings
23,063
(62,313
)
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans held for investment, and asset-backed financings, net
(3,107
)
(10,751
)
Amortization of debt issuance costs
4,832
3,919
Results of real estate acquired in settlement of loans
48
141
Share-based compensation expense
1,099
963
Purchase of loans held for sale from nonaffiliates
(453,220
)
(23,337,077
)
Purchase of loans held for sale from PennyMac Financial Services, Inc.
(4,380,289
)
(654,808
)
Sale to nonaffiliates and repayment of loans held for sale
2,217,203
2,613,958
Sale of loans held for sale to PennyMac Financial Services, Inc.
—
20,437,666
Repurchase of loans subject to representations and warranties
(3,601
)
(4,845
)
Decrease in servicing advances
17,604
20,236
Decrease in due from PennyMac Financial Services, Inc.
2,948
860
(Increase) decrease in other assets
(1,965
)
266,688
Decrease in accounts payable and accrued liabilities
(31,446
)
(33,678
)
Increase (decrease) in due to PennyMac Financial Services, Inc.
378
(1,008
)
Increase (decrease) in income taxes payable
2,201
(16,088
)
Net cash used in operating activities
(2,529,366
)
(594,267
)
Cash flows from investing activities
Net decrease (increase) in short-term investments
2,829
(100,960
)
Purchase of mortgage-backed securities
(4,000
)
—
Sale and repayment of mortgage-backed securities
666,313
102,769
Repayment of loans held for investment
523,915
42,282
Net settlement of derivative financial instruments
(1,010
)
2,806
Distribution from credit risk transfer arrangements
50,581
35,339
Transfer of mortgage servicing rights relating to delinquent loans to Agency
(295
)
(221
)
Sale of real estate acquired in settlement of loans
117
46
Decrease (increase) in margin deposits
27,082
(41,833
)
Net cash provided by investing activities
1,265,532
40,228
Statements continued on the next page
7
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Continued)
Quarter ended March 31,
2026
2025
(in thousands)
Cash flows from financing activities
Sale of assets under agreements to repurchase
13,713,269
34,797,503
Repurchase of assets sold under agreements to repurchase
(14,432,214
)
(35,096,910
)
Issuance of mortgage loan participation purchase and sale agreements
—
295,892
Repayment of mortgage loan participation purchase and sale agreements
—
(302,940
)
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets
251,693
—
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets
(111,939
)
(247,977
)
Issuance of unsecured senior notes
—
172,500
Repayment of unsecured senior notes
(345,000
)
—
Issuance of asset-backed financings of variable interest entities
2,691,462
940,457
Repayment of asset-backed financings of variable interest entities
(511,082
)
(41,256
)
Payment of debt issuance costs
(3,927
)
(6,563
)
Payment of dividends to preferred shareholders
(10,455
)
(10,455
)
Payment of dividends to common shareholders
(34,843
)
(34,838
)
Payment of vested share-based compensation tax withholdings
(1,142
)
(1,127
)
Net cash provided by financing activities
1,205,822
464,286
Net decrease in cash
(58,012
)
(89,753
)
Cash at beginning of quarter
271,970
337,694
Cash at end of quarter
$
213,958
$
247,941
Supplemental cash flow information
Payments, net:
Income taxes
$
78
$
109
Interest
$
288,606
$
220,334
Non-cash investing activities:
Recognition of loans held for investment resulting from initial consolidation of variable interest entities
$
2,934,239
$
1,049,704
Receipt of mortgage servicing rights as proceeds from sales of loans
$
40,281
$
47,009
Non-cash financing activities:
Dividends declared, not paid
$
34,893
$
34,843
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) is a specialty finance company, which invests in residential mortgage-related assets. The Company operates in three reportable segments: credit sensitive strategies, interest rate sensitive strategies and aggregation and securitization (formerly referred to as correspondent production). All other activities are included in corporate:
•
The credit sensitive strategies segment represents the Company’s investments in credit risk transfer (“CRT”) arrangements referencing loans from its own aggregation and securitization (“CRT arrangements”) and subordinate, residential and credit-linked mortgage-backed securities (“MBS”).
•
The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), Agency and senior non-Agency MBS, and collateralized mortgage obligations ("CMOs") and the related interest rate hedging activities.
•
The aggregation and securitization segment represents the Company’s operations purchasing, pooling and reselling or financing newly originated prime credit quality loans either directly or in the form of MBS, using the services of Pennymac Capital Management, LLC (“PCM”) and PennyMac Loan Services, LLC (“PLS”), both wholly-owned subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.
The Company sells the loans it acquires through its aggregation and securitization activities primarily to government-sponsored enterprises ("GSEs") such as the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”). Freddie Mac and Fannie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.” The Company also finances certain of the loans it aggregates through its own securitizations and retains certain senior and subordinate MBS created in the securitizations.
•
Corporate activities include management fees, corporate expense amounts and certain interest income and expense. None of the corporate activities qualify as reportable segments.
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 (the “Internal Revenue Code”). 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
Basis of Presentation
The Company’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 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. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
These 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 Company to make estimates and judgments that affect the reported amounts of assets and liabilities, 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 no restricted cash during the periods presented. Therefore, the consolidated statements of cash flows do not include references to restricted cash.
9
Note 3—Concentration of Risks
As discussed in Note 1 – Organization above, PMT’s operating and investing activities are centered in residential mortgage-related assets, including CRT arrangements, subordinate MBS, Agency and senior Non-Agency MBS, CMOs, loans held for investment and MSRs.
The Company is exposed to fair value risk and credit risk. As a result of prevailing market conditions, including changes in market interest rates, the Company may be required to recognize losses associated with adverse changes to the fair value of its investments in MSRs, CRT arrangements, loans and MBS. The Company is exposed to credit losses arising from its investments in CRT arrangements and subordinate MBS.
Fair Value Risk
The Company carries its non-cash financial assets and MSRs at fair value with changes in fair value included in its results of operations:
•
The fair value of MSRs is sensitive to changes in prepayment speed expectation and experience, the returns demanded by market participants and estimates of cost to service the underlying loans;
•
The fair values of Agency and senior non-Agency MBS are sensitive to changes in market interest rates; and
•
The fair values of CRT arrangements and subordinate MBS are sensitive to market perceptions of future credit performance of the underlying loans as well as the actual credit performance of such loans and the returns required by market participants to hold such investments.
Credit Risk
Note 6 – Variable Interest Entities details the Company’s investments in CRT arrangements whereby the Company sold pools of loans into Fannie Mae guaranteed loan securitizations which became reference pools underlying the CRT arrangements. Fannie Mae transferred interest-only (“IO”) ownership interests and recourse obligations based upon the securitized reference pools of loans subject to the CRT arrangements into trust entities, and the Company acquired the IO ownership interests and assumed the recourse obligations in the CRT arrangements through the acquisition of beneficial interests in the trust entities.
The Company also invests in subordinate MBS, which are among the first beneficial interests in the issuing trusts to absorb credit losses on the underlying loans.
The Company’s retention of credit risk through its investment in CRT arrangements and subordinate MBS subjects it to risks associated with delinquency and foreclosure similar to the risks of loss associated with owning the underlying loans, which is greater than the risk of loss associated with selling loans to the Agencies without the retention of credit risk in the case of CRT arrangements and investing in senior mortgage-backed securities in the case of subordinate MBS.
Certain of the Company's investments in CRT arrangements are structured such that loans that reach a specific number of days delinquent trigger losses chargeable to the CRT arrangements based on the sizes of the delinquent loans and a contractual schedule of loss severity. Therefore, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the related loans because the structure of those CRT arrangements provides that the Company may be required to absorb losses in the event 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 other investments in CRT arrangements requires PMT to absorb losses only when the reference loans realize losses.
The Company maintains cash and short-term investment balances at financial institutions in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limits. Should one or more of the financial institutions at which the Company's deposits are maintained fail, there is no guarantee as to the extent that the Company would recover the funds deposited, whether through FDIC coverage or otherwise, or the timing of any recovery.
Note 4—Transactions with Related Parties
The Company enters into transactions with subsidiaries of PFSI in support of its operating, investing and financing activities as summarized below.
10
Operating Activities
Servicing Agreement
The Company has a loan servicing agreement with PLS (the “Servicing Agreement”) pursuant to which PLS provides subservicing for the Company's portfolio of MSRs, loans held for sale, loans held in VIEs (prime servicing), and its portfolio of residential loans purchased with credit deterioration (special servicing or distressed loans).
Under the Servicing Agreement, as amended, servicing fees for all subserviced MSRs and loans are established at a per-loan monthly amount based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or Real estate acquired in settlement of loans ("REO") as shown below:
•
Through September 30, 2025, the per-loan base servicing fees for loans subserviced by PLS on the Company’s behalf were $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans. Effective October 1, 2025, the per loan base servicing fees for mortgage loans are $7.00 per month for fixed-rate loans and $8.00 per month for adjustable-rate loans.
•
To the extent that loans become delinquent, PLS is entitled to an additional servicing fee per loan ranging from $18 to $80 per month based on the delinquency, bankruptcy and foreclosure status of the 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, pass through of Agency incentive fees to PLS for loss mitigation activities and a fee for processing insurance and guarantee claims on defaulted loans.
The Servicing Agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
MSR Recapture Agreement
The Company has an MSR recapture agreement with PLS. Pursuant to the terms of the MSR recapture agreement, if PLS refinances (recaptures) mortgage loans for which the Company previously held the MSRs, PLS is generally required to transfer and convey to the Company cash in an amount equal to:
•
70% of the fair market value of the MSRs relating to the recaptured loans subject to the first 30% of the “recapture rate”;
•
50% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30% and up to 50%;
•
40% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 50%; and
•
a recapture fee of $900 per loan if PLS originates a mortgage loan for the purpose of purchasing a property where the customer has or had a mortgage loan for which PMT holds or held the MSR.
The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance ("UPB") of all refinance mortgage loans originated in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second loans originated in such month, to (ii) the aggregate UPB of all mortgage loans from the portfolio that PLS has determined in good faith were refinanced in such month, plus the aggregate UPB of all "preserved mortgage loans" relating to closed end second lien loans originated in such month. For purposes of such calculation, “preserved mortgage loan” means a mortgage loan in PMT’s portfolio as to which PLS or its affiliates originated a new closed end second lien loan in a subordinate position to such mortgage loan. PFSI has further agreed to allocate sufficient resources to target a recapture rate of at least 30%.
The MSR recapture agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
11
Following is a summary of loan servicing and recapture fees earned by PLS:
Quarter ended March 31,
2026
2025
(in thousands)
Loan servicing fees:
Loans held for sale
$
155
$
223
Loans held for investment
516
168
Mortgage servicing rights
19,052
21,338
$
19,723
$
21,729
Average investment in loans:
Held for sale
$
2,615,661
$
1,997,488
Held for investment
$
9,695,900
$
2,626,335
Average MSR portfolio unpaid principal balance
$
214,185,523
$
225,515,018
Mortgage servicing rights recapture fees
$
5,807
$
1,208
Unpaid principal balance of loans recaptured
$
550,998
$
159,472
Aggregation and Securitization Activities
Mortgage Banking Services Agreement
The Company is provided fulfillment and other services for the operation of its aggregation and securitization activities under an amended and restated mortgage banking services agreement with PLS. These services include: provision of models and technology for the pricing of loans and MSRs; reviews of loan data; documentation and appraisals to assess loan quality and risk; hedging the fair value of the Company's mortgage loan inventory and commitments to purchase mortgage loans; correspondent seller performance and credit monitoring; and the sale of loans through secondary mortgage markets on behalf of the Company.
PLS assumed the role of initial correspondent loan purchaser instead of the Company effective July 1, 2025 and the Company has the right under a mortgage loan purchase agreement to purchase up to 100% of the non-government insured or guaranteed delegated correspondent loans purchased by PLS at its cost plus accrued interest, less any loan administrative fee paid to PLS by the correspondent seller, and subject to quarterly fulfillment fees as described below. PLS may hold or otherwise sell correspondent loans to other investors if the Company chooses not to purchase such loans. As a result of the revised agreement, the sourcing fee arrangement described below no longer has any effect for correspondent loan commitments entered into beginning on July 1, 2025.
Effective January 1, 2025, fulfillment fees in any quarter shall not exceed the following:
•
the product of (i) the sum of $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, and (ii) the number of loan commitments relating to loans intended to be purchased by PMT during the quarter and thereafter retained by PMT prior to sale or securitization, divided by the total number of non-Ginnie Mae loan commitments issued during the quarter (in each case as determined after applying the applicable pull-through factor) plus
•
the product of (i) the sum of $315 for each purchased loan up to and including 16,500 per quarter and $195 for each purchased loan in excess of 16,500 per quarter, and (ii) the number of loans purchased by PMT during the quarter and thereafter retained by PMT prior to sale or securitization, divided by the total number of non-Ginnie Mae loans purchased during the quarter, plus
•
$500 multiplied by the number of all purchased loans that are securitized or sold to parties other than Fannie Mae or Freddie Mac.
The Company does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and/or to act as a servicer for loans in Ginnie Mae MBS. Accordingly, under the mortgage banking services agreement, through June 30, 2025, PLS purchased mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at its cost less an administrative fee plus accrued interest and a sourcing fee ranging from one to two basis points of the UPB of the loan, generally based on the average number of calendar days the loans were held by the Company before purchase by PLS. PLS could also acquire conventional loans from the Company on the same terms upon mutual agreement between the Company and PLS.
While PLS purchased these mortgage loans “as is” and without recourse of any kind from the Company, where PLS has a claim for repurchase, indemnity or otherwise against a correspondent seller, it is entitled, at its sole expense, to pursue any such claim through or in the name of the Company.
The mortgage banking services agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
12
The Company may also purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under the mortgage loan purchase agreement.
Following is a summary of our aggregation and securitization activities between the Company and PLS:
Quarter ended March 31,
2026
2025
(in thousands)
Loan fulfillment fees earned by PLS
$
5,737
$
5,290
Unpaid principal balance of loans fulfilled by PLS
$
2,796,544
$
2,781,722
Sourcing fees received from PLS included in Net gains on loans held for sale
$
—
$
2,015
Unpaid principal balance of loans sold to PLS:
Government guaranteed or insured
$
—
$
11,191,880
Conventional conforming
—
8,960,796
$
—
$
20,152,676
Purchases of loans held for sale from PLS (1)
$
4,380,289
$
654,808
Tax service fees paid to PLS
$
—
$
477
(1)
Amount includes loans purchased from PLS subject to the fulfillment agreement as well as other loans purchased from PLS.
Management Agreement
PMT has a management agreement with PCM, pursuant to which PMT 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. “Shareholders’ equity” is defined as the sum of net proceeds from issuances and repurchases of equity securities since inception, plus retained earnings or reduced by accumulated deficit.
•
A performance incentive fee that is calculated annually at a defined annualized percentage of the amount by which “net income,” for a fiscal year and before deducting the incentive fee, exceeds certain levels of return on “common shareholders’ equity.”
The performance incentive fee is equal to the sum of:
•
10% of the amount by which “net income” for the year exceeds (i) an 8% return on the average “common shareholders’ equity” plus the “high watermark”, up to (ii) a 12% return on “common shareholders’ equity” during the fiscal year; plus
•
15% of the amount by which “net income” for the year exceeds (i) a 12% return on the average “common shareholders’ equity” plus the “high watermark”, up to (ii) a 16% return on “common shareholders’ equity” during the fiscal year; plus
•
20% of the amount by which “net income” for the year exceeds a 16% return on the average “common shareholders’ equity” during the fiscal year plus the “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 the Company’s common shares of beneficial interest (“Common Shares”) calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between PCM and the Company’s independent trustees and after approval by a majority of the Company’s independent trustees.
“Common shareholders’ equity” is defined as the average shareholder’s equity less the average GAAP carrying value of the Company’s preferred equity.
“High watermark” is the annual adjustment that reflects the amount by which the “net income” (stated as a percentage of return on “common shareholders' equity”) in that year exceeds or falls short of the lesser of 8% and the average Fannie Mae 30‑year MBS Yield (the “Target Yield”) for the year then ended. If the “net income” is lower than the Target Yield, the high watermark is increased by the difference. If the “net income” is higher than the Target Yield, the high watermark is reduced by the difference. Each time a
13
performance incentive fee is earned, the high watermark is reset to zero. As a result, the threshold amount required for the PCM to earn a performance incentive fee is adjusted cumulatively based on the performance of the Company’s net income over (or under) the Target Yield, until the net income in excess of the Target Yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned. The high watermark is calculated based on the two years preceding the fiscal year for which the incentive fee is calculated, and will never be less than zero after including all high watermark increases and high watermark decreases over any such rolling two fiscal year period.
The base management fee is paid quarterly in arrears and the performance incentive fee is paid annually 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), at the Company’s option.
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 of the management agreement.
Following is a summary of management fee expenses:
Quarter ended March 31,
2026
2025
(in thousands)
Base management fee
$
6,762
$
7,012
Performance incentive fee
—
—
$
6,762
$
7,012
Average shareholders' equity amounts used to calculate base management fee expense
$
1,828,237
$
1,895,785
The management agreement expires on December 31, 2029, subject to automatic renewal for an additional 18-month period unless terminated in accordance with the terms of the agreement.
Expense Reimbursement
Under the management agreement, the Company reimburses PCM for 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, accounting, internal audit and investor relations services for the direct benefit of the Company. The Company is also required to pay a pro rata portion of the rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses (common overhead) of PCM and its affiliates required for the Company’s and its subsidiaries’ operations. These expenses are based on the resources PCM and its affiliates dedicate to investment management activities for the Company, as determined by PCM in its reasonable and good faith discretion.
Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:
Quarter ended March 31,
2026
2025
(in thousands)
Reimbursement of:
Expenses incurred on the Company’s behalf, net
$
6,141
$
4,601
Compensation
1,599
1,629
Common overhead
949
981
$
8,689
$
7,211
Payments and settlements during the period (1)
$
18,330
$
28,048
(2)
Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PFSI for the operating, investing and financing activities itemized in this Note.
14
Financing Activities
PFSI Investment in the Company
PFSI held 75,000 of the Company’s Common Shares at both March 31, 2026 and December 31, 2025.
Amounts Receivable from and Payable to PFSI
Amounts receivable from and payable to PFSI are summarized below:
March 31, 2026
December 31, 2025
(in thousands)
Due from PFSI-Miscellaneous receivables
$
16,152
$
19,100
Due to PFSI:
Management fees
$
6,762
$
6,856
Loan servicing fees
6,622
6,669
Allocated expenses and costs
3,931
3,161
Aggregation and securitization costs
185
436
$
17,500
$
17,122
The Company has also transferred cash to PLS to fund loan servicing advances and REO property acquisition and preservation costs incurred on its behalf. Such amounts are included in various of the Company's balance sheet items as summarized below:
Balance sheet line including advance amount
March 31, 2026
December 31, 2025
(in thousands)
Servicing advances
$
79,200
$
96,830
Other assets-Real estate acquired in settlement of loans
681
655
$
79,881
$
97,485
Note 5—Loan Sales
The following table summarizes cash flows between the Company and transferees in transfers of loans that are accounted for as sales where the Company maintains continuing involvement with the loans:
Quarter ended March 31,
2026
2025
(in thousands)
Cash flows:
Proceeds from sales
$
2,217,203
$
2,613,958
Loan servicing fees received
$
139,903
$
152,199
The following table summarizes for the dates presented collection status information for loans that are accounted for as sales where the Company maintains continuing involvement:
March 31, 2026
December 31, 2025
(in thousands)
Unpaid principal balance of loans outstanding
$
209,060,378
$
212,581,934
Collection status (Unpaid principal balance)
Delinquency:
30-89 days delinquent
$
2,270,470
$
2,583,158
90 or more days delinquent:
Not in foreclosure
$
1,002,603
$
1,025,111
In foreclosure
$
139,000
$
118,503
Bankruptcy
$
358,030
$
351,890
Custodial funds managed by the Company (1)
$
3,125,553
$
2,758,142
15
(1)
Custodial funds represent borrower and investor custodial cash accounts relating to loans serviced under mortgage servicing agreements and are not included on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, and these fees are included in Interest income in the Company’s consolidated statements of operations.
Note 6—Variable Interest Entities
The Company is a variable interest holder in various VIEs that relate to its investing and financing activities as discussed below.
Credit Risk Transfer Arrangements
The Company has previously entered into certain loan sales arrangements pursuant to which it accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’s investments in CRT arrangements.
The Company, through PennyMac Corp. ("PMC"), entered into CRT arrangements with Fannie Mae, pursuant to which the Company sold pools of loans into Fannie Mae-guaranteed securitizations while retaining recourse obligations as part of the retention of IO ownership interests in such loans. CRT arrangements include:
•
securities that are structured such that loans that reach a specific number of days delinquent (including loans in forbearance) trigger losses chargeable to the CRT arrangement based on the sizes of the delinquent loans and a contractual schedule of loss severity; and
•
securities that require the Company to absorb losses only when the reference loans realize credit losses.
The Company placed Deposits securing credit risk transfer arrangements into subsidiary trust entities to secure its recourse obligations. The Deposits securing credit risk transfer arrangements represent the Company’s maximum contractual exposure to claims under its recourse obligations and are the sole source of settlement of losses under the CRT arrangements.
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 arrangement decreased through repayments, the percentage exposure to losses of each CRT arrangement increased to maximums ranging from 4.5% to 5.0% of outstanding UPB, although the total dollar amount of exposure to losses did not increase.
The Company has concluded that the subsidiary trust entities holding its CRT arrangements are VIEs and the Company is the primary beneficiary of the VIEs as it is the holder of the primary beneficial interests which absorb the variability of the trusts’ income.
•
For CRT arrangements where losses are triggered based on the loans’ delinquency status, the Company recognizes its IO ownership interests and recourse obligations on the consolidated balance sheets as CRT derivativesin Derivative assets and Derivative and credit risk transfer strip liabilities.
•
For CRT arrangements where losses are absorbed when the reference loans realize credit losses,the Company recognizes its IO ownership interests and recourse obligations as CRT strips which are included on the consolidated balance sheets in Derivative and credit risk transfer strip liabilities.
Gains and losses on the derivatives, strips and the IO ownership interest sold to a nonaffiliate included in the CRT arrangements are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
16
Following is a summary of the CRT arrangements:
Quarter ended March 31,
2026
2025
(in thousands)
Net investment income:
Net (losses) gains on investments and financings
Credit risk transfer derivatives and strips:
Credit risk transfer derivatives
Realized
$
2,548
$
2,803
Valuation changes
(2,416
)
(823
)
132
1,980
Credit risk transfer strips
Realized
8,555
9,777
Valuation changes
1,806
(11,825
)
10,361
(2,048
)
Interest-only security payable at fair value — valuation changes
3,418
(1,732
)
13,911
(1,800
)
Interest income — Deposits securing credit risk transfer arrangements
8,892
11,675
$
22,803
$
9,875
Net payments made to settle losses on credit risk transfer arrangements
$
1,368
$
1,243
March 31, 2026
December 31, 2025
(in thousands)
Carrying value of credit risk transfer arrangements:
Derivative assets - credit risk transfer derivatives
$
30,174
$
32,659
Derivative and credit risk transfer liabilities - credit risk transfer strips
(4,062
)
(5,999
)
Deposits securing credit risk transfer arrangements
969,725
1,009,334
Interest-only security payable at fair value
(34,232
)
(37,650
)
$
961,605
$
998,344
Credit risk transfer arrangement assets pledged to secure borrowings:
Derivative assets
$
30,174
$
32,659
Deposits securing credit risk transfer arrangements (1)
$
969,725
$
1,009,334
Unpaid principal balance of loans underlying credit risk transfer arrangements
$
18,715,937
$
19,517,530
Collection status (unpaid principal balance):
Delinquency
Current
$
18,166,705
$
18,908,261
30-89 days delinquent
$
363,958
$
413,295
90-179 days delinquent
$
96,209
$
110,486
180 or more days delinquent
$
62,748
$
57,798
Foreclosure
$
26,317
$
27,690
Bankruptcy
$
60,687
$
68,426
(1)
Deposits securing credit risk transfer arrangementsalso secure $4.1 million and $6.0 million in CRT strip liabilitiesat March 31, 2026 and December 31, 2025, respectively.
Subordinate and Senior Non-Agency Mortgage-Backed Securities
The Company retains or purchases subordinate and senior non-agency MBS in transactions sponsored by PMC or a nonaffiliate. Cash inflows from the loans underlying these securities are distributed to investors and service providers in accordance with the respective securities' contractual priorities of payments and, as such, most of these inflows must be directed first to service and repay the senior securities.
17
The rights of holders of subordinate securities to receive distributions of principal and/or interest, as applicable, are subordinate to the rights of holders of senior securities. After the senior securities are repaid, substantially all cash inflows will be directed to the subordinate securities, including those held by the Company, until they are fully repaid.
The Company’s retention or purchase of subordinate MBS exposes PMT to the credit risk in the underlying loans because the Company’s subordinate MBS investments are among the first beneficial interests to absorb credit losses on those assets. The Company’s exposure to losses from its investments in subordinate MBS is limited to its recorded investment in such securities.
The Company has concluded that the trusts holding the assets underlying these transactions are VIEs. The Company also has concluded that it is the primary beneficiary of certain of the VIEs as it has the power, through PLS, in its role as the servicer or sub-servicer of the underlying loans, to direct the activities of the trusts that most significantly impact the trusts’ economic performance and, as a holder of subordinate securities, that PMT is exposed to losses that could potentially be significant to the VIEs. Therefore, PMT consolidates those VIEs.
The Company recognizes the interest earned on the loans owned by the VIEs as Interest income and the interest attributable to the asset-backed securities issued to nonaffiliates by the VIEs as Interest expense on its consolidated statements of operations.
Following is a summary of the Company’s investment in senior and subordinate MBS backed by assets held in consolidated VIEs:
Quarter ended March 31,
2026
2025
(in thousands)
Net investment income:
Net (losses) gains on investments and financings
Loans held for investment at fair value
$
(65,803
)
$
28,712
Asset-backed financings of variable interest entities at fair value
62,236
(29,423
)
Interest income
133,754
33,673
Interest expense
120,540
28,715
$
9,647
$
4,247
March 31, 2026
December 31, 2025
(in thousands)
Loans held for investment at fair value
$
10,866,292
$
8,530,939
Asset-backed financings of variable interest entities at fair value
$
9,903,515
$
7,789,303
Retained interests at fair value pledged to secure Assets sold under agreements to repurchase
$
937,680
$
648,159
Financing of Mortgage Servicing Assets
The Company entered into financing transactions in which it pledged participation interests in its Fannie Mae MSRs to VIEs which issued variable funding notes, term notes and term loans backed by the participation interests. The Company holds the variable funding notes and acts as guarantor of the variable funding notes, term notes and term loans. The Company determined that it is the primary beneficiary of the VIEs because, as the holder of the variable funding notes and issuer of performance guarantees, it holds the variable interests in the VIEs. Therefore, the Company consolidates the VIEs.
For financial reporting purposes, the MSRs financed by the consolidated VIEs are included in Mortgage servicing rights at fairvalue, the variable funding notes sold under agreements to repurchase are included in Assets sold under agreements to repurchase and the term notes and term loans are included in Notes payable secured by credit risk transfer and mortgage servicing assets on the Company’s consolidated balance sheets. These financings are described in Note 15— Long-Term Debt.
Note 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 Company 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.
18
•
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 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 Company 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 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 significant 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 significant inputs required to establish fair value at a higher level of the hierarchy become available.
Fair Value Accounting Elections
The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets at fair value so such changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company’s performance.
The Company has also identified its Asset-backed financings of variable interest entities at fair value and Interest-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 the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under that 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.
19
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:
March 31, 2026
Level 1
Level 2
Level 3
Total
(in thousands)
Assets:
Short-term investments
$
187,689
$
—
$
—
$
187,689
Mortgage-backed securities
—
3,694,110
71,429
3,765,539
Loans held for sale
—
2,347,811
2,084
2,349,895
Loans held for investment
—
10,866,292
1,650
10,867,942
Derivative assets with nonaffiliates:
Call options on interest rate futures purchase contracts
2,141
—
—
2,141
Put options on interest rate futures purchase contracts
10,859
—
—
10,859
Forward purchase contracts
—
1,492
—
1,492
Forward sale contracts
—
31,957
—
31,957
Credit risk transfer derivatives
—
—
30,174
30,174
Total derivative assets with nonaffiliates before netting
13,000
33,449
30,174
76,623
Netting
—
—
—
(25,857
)
Total derivative assets with nonaffiliates after netting
13,000
33,449
30,174
50,766
Derivative assets with PennyMac Financial Services, Inc.:
Forward purchase contracts
—
1,225
—
1,225
Interest rate lock commitments
—
—
2,613
2,613
Total derivative assets with PennyMac Financial Services, Inc. before netting
—
1,225
2,613
3,838
Netting
—
—
—
(15
)
Total derivative assets with PennyMac Financial Services, Inc. after netting
—
1,225
2,613
3,823
Mortgage servicing rights
—
—
3,623,979
3,623,979
$
200,689
$
16,942,887
$
3,731,929
$
20,849,633
Liabilities:
Interest-only security payable
$
—
$
—
$
34,232
$
34,232
Asset-backed financings of variable interest entities
—
9,903,515
—
9,903,515
Derivative and credit risk transfer strip liabilities with nonaffiliates:
Forward purchase contracts
—
8,491
—
8,491
Forward sales contracts
—
11,922
—
11,922
Total derivative liabilities with nonaffiliates before netting
—
20,413
—
20,413
Netting
—
—
—
(3,146
)
Total derivative liabilities with nonaffiliates after netting
—
20,413
—
17,267
Credit risk transfer strips
—
—
4,062
4,062
Total derivative and credit risk transfer strip liabilities with nonaffiliates
—
20,413
4,062
21,329
Derivative liabilities with PennyMac Financial Services, Inc:
Forward purchase contracts
—
15
—
15
Interest rate lock commitments
—
—
5,886
5,886
Total derivative liabilities with PennyMac Financial Services, Inc before netting
—
15
5,886
5,901
Netting
—
—
—
(15
)
Total derivative liabilities with PennyMac Financial Services, Inc after netting:
—
15
5,886
5,886
$
—
$
9,923,943
$
44,180
$
9,964,962
20
December 31, 2025
Level 1
Level 2
Level 3
Total
(in thousands)
Assets:
Short-term investments
$
190,518
$
—
$
—
$
190,518
Mortgage-backed securities
—
4,380,357
72,502
4,452,859
Loans held for sale
—
2,695,817
3,581
2,699,398
Loans held for investment
—
8,530,939
1,705
8,532,644
Derivative assets with nonaffiliates:
Call options on interest rate futures purchase contracts
1,289
—
—
1,289
Put options on interest rate futures purchase contracts
4,109
—
—
4,109
Forward purchase contracts
—
4,113
—
4,113
Forward sale contracts
—
2,381
—
2,381
Credit risk transfer derivatives
—
—
32,659
32,659
Total derivative assets with nonaffiliates before netting
5,398
6,494
32,659
44,551
Netting
—
—
—
5,145
Total derivative assets with nonaffiliates after netting
5,398
6,494
32,659
49,696
Derivative assets with PennyMac Financial Services, Inc.:
Interest rate lock commitments
—
—
4,605
4,605
Forward purchase contracts
—
1,784
—
1,784
Total derivative assets with PennyMac Financial Services, Inc. before netting
—
1,784
4,605
6,389
Netting
—
—
—
(142
)
Total derivative assets with PennyMac Financial Services, Inc. after netting
—
1,784
4,605
6,247
Mortgage servicing rights
—
—
3,644,702
3,644,702
$
195,916
$
15,615,391
$
3,759,754
$
19,576,064
Liabilities:
Interest-only security payable
$
—
$
—
$
37,650
$
37,650
Asset-backed financings of variable interest entities
—
7,789,303
—
7,789,303
Derivative and credit risk transfer strip liabilities with nonaffiliates:
Forward purchase contracts
—
158
—
158
Forward sales contracts
—
17,340
—
17,340
Total derivative liabilities with nonaffiliates before netting
—
17,498
—
17,498
Netting
—
—
—
(16,565
)
Total derivative liabilities with nonaffiliates after netting
—
17,498
—
933
Credit risk transfer strips
—
—
5,999
5,999
Total derivative and credit risk transfer strip liabilities with nonaffiliates
—
17,498
5,999
6,932
Derivative liabilities with PennyMac Financial Services, Inc:
Interest rate lock commitments
—
—
2,257
2,257
Forward purchase contracts
—
142
—
142
Total derivative liabilities with PennyMac Financial Services, Inc before netting
—
142
2,257
2,399
Netting
—
—
—
(142
)
Total derivative liabilities with PennyMac Financial Services, Inc after netting:
—
142
2,257
2,257
$
—
$
7,806,943
$
45,906
$
7,836,142
21
The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the quarters presented:
Quarter ended March 31, 2026
Assets (1)
Interest-only stripped mortgage-backed securities
Loans held for sale
Loans held for investment
CRT derivatives
Interest rate lock commitments with PFSI
CRT strips
Mortgage servicing rights
Total
(in thousands)
Balance, December 31, 2025
$
72,502
$
3,581
$
1,705
$
32,659
$
2,348
$
(5,999
)
$
3,644,702
$
3,751,498
Purchases and issuances
—
3,601
—
—
5,270
—
—
8,871
Repayments and sales
(4,107
)
(4,950
)
(16
)
(2,617
)
—
(8,424
)
—
(20,114
)
Accrual of unearned discounts
1,965
—
—
—
—
—
—
1,965
Amounts received pursuant to sales of loans
—
—
—
—
—
—
40,281
40,281
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk
—
—
—
—
—
—
—
—
Other factors
1,069
(148
)
(39
)
132
(3,936
)
10,361
(61,299
)
(53,860
)
1,069
(148
)
(39
)
132
(3,936
)
10,361
(61,299
)
(53,860
)
Transfers of:
Interest rate lock commitments to loans held for sale (2)
—
—
—
—
(6,955
)
—
—
(6,955
)
Mortgage servicing rights relating to delinquent loans to Agency
—
—
—
—
—
—
295
295
Balance, March 31, 2026
$
71,429
$
2,084
$
1,650
$
30,174
$
(3,273
)
$
(4,062
)
$
3,623,979
$
3,721,981
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2026
$
1,069
$
(219
)
$
(39
)
$
(2,416
)
$
(3,273
)
$
1,806
$
(61,299
)
$
(64,371
)
(1)
For the purpose of this table, CRT derivative, interest rate lock commitment (“IRLC”), and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to Loans held for sale at fair value upon purchase of the respective loans.
Liabilities
Quarter ended March 31, 2026
(in thousands)
Interest-only security payable:
Balance, December 31, 2025
$
37,650
Change in fair value included in income arising from:
Change in instrument - specific credit risk
—
Other factors
(3,418
)
(3,418
)
Balance, March 31, 2026
$
34,232
Change in fair value recognized during the quarter relating to liability outstanding at March 31, 2026
$
(3,418
)
22
Quarter ended March 31, 2025
Assets (1)
Interest-only stripped mortgage-backed securities
Loans held for sale
Loans held for investment
CRT derivatives
Interest rate lock commitments
CRT strips
Mortgage servicing rights
Total
(in thousands)
Balance, December 31, 2024
$
86,260
$
7,971
$
1,866
$
29,377
$
444
$
(4,060
)
$
3,867,394
$
3,989,252
Purchases and issuances
—
28
—
—
4,599
—
—
4,627
Repayments and sales
(4,636
)
(2,678
)
(20
)
(2,883
)
—
(9,777
)
—
(19,994
)
Accrual of unearned discount
2,285
—
—
—
—
—
—
2,285
Amounts received pursuant to sales of loans
—
—
—
—
—
—
47,009
47,009
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk
—
—
—
—
—
—
—
—
Other factors
(2,866
)
130
(31
)
1,980
7,391
(2,048
)
(144,590
)
(140,034
)
(2,866
)
130
(31
)
1,980
7,391
(2,048
)
(144,590
)
(140,034
)
Transfers of:
Interest rate lock commitments to loans held for sale (2)
—
—
—
—
(7,815
)
—
—
(7,815
)
Mortgage servicing rights relating to delinquent loans to Agency
—
—
—
—
—
—
221
221
Balance, March 31, 2025
$
81,043
$
5,451
$
1,815
$
28,474
$
4,619
$
(15,885
)
$
3,770,034
$
3,875,551
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2025
$
(2,866
)
$
(14
)
$
(31
)
$
(823
)
$
4,619
$
(11,825
)
$
(144,590
)
$
(155,530
)
(1)
For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to Loans held for sale at fair value upon purchase of the respective loans.
Liabilities
Quarter ended March 31, 2025
(in thousands)
Interest-only security payable:
Balance, December 31, 2024
$
34,222
Change in fair value included in income arising from:
Change in instrument - specific credit risk
—
Other factors
1,732
1,732
Balance, March 31, 2025
$
35,954
Change in fair value recognized during the quarter relating to liability outstanding at March 31, 2025
$
1,732
23
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 loans accounted for under the fair value option:
March 31, 2026
December 31, 2025
Fair value
Principal amount due upon maturity
Difference
Fair value
Principal amount due upon maturity
Difference
(in thousands)
Loans held for sale:
Current through 89 days delinquent
$
2,347,431
$
2,303,642
$
43,789
$
2,696,128
$
2,627,441
$
68,687
90 or more days delinquent:
Not in foreclosure
1,177
1,234
(57
)
1,273
1,271
2
In foreclosure
1,287
1,699
(412
)
1,997
2,289
(292
)
2,464
2,933
(469
)
3,270
3,560
(290
)
$
2,349,895
$
2,306,575
$
43,320
$
2,699,398
$
2,631,001
$
68,397
Loans held for investment:
Held in consolidated VIEs:
Current through 89 days delinquent
$
10,863,057
$
10,578,933
$
284,124
$
8,529,906
$
8,353,814
$
176,092
90 or more days delinquent:
Not in foreclosure
3,087
3,499
(412
)
700
844
(144
)
In foreclosure
148
195
(47
)
333
428
(95
)
3,235
3,694
(459
)
1,033
1,272
(239
)
10,866,292
10,582,627
283,665
8,530,939
8,355,086
175,853
Distressed:
Current through 89 days delinquent
362
457
(95
)
371
476
(105
)
90 or more days delinquent:
Not in foreclosure
901
2,413
(1,512
)
942
2,553
(1,611
)
In foreclosure
387
1,264
(877
)
392
1,120
(728
)
1,288
3,677
(2,389
)
1,334
3,673
(2,339
)
1,650
4,134
(2,484
)
1,705
4,149
(2,444
)
$
10,867,942
$
10,586,761
$
281,181
$
8,532,644
$
8,359,235
$
173,409
Following are the changes in fair value included in current period results of operations by consolidated statements of operations line item, for financial statement items accounted for under the fair value option:
Quarter ended March 31, 2026
Net loan servicing fees
Net gains on loans held for sale
Net (losses) gains on investments and financings
Net interest expense
Total
(in thousands)
Assets:
Mortgage-backed securities
$
—
$
—
$
(33,407
)
$
8,400
$
(25,007
)
Loans held for sale
—
(419
)
—
—
(419
)
Loans held for investment
—
—
(65,803
)
(9,224
)
(75,027
)
Credit risk transfer strips
—
—
10,361
—
10,361
Mortgage servicing rights
(61,299
)
—
—
—
(61,299
)
$
(61,299
)
$
(419
)
$
(88,849
)
$
(824
)
$
(151,391
)
Liabilities:
Interest-only security payable
$
—
$
—
$
3,418
$
—
$
3,418
Asset-backed financings of VIEs
—
—
62,236
3,931
66,167
$
—
$
—
$
65,654
$
3,931
$
69,585
24
Quarter ended March 31, 2025
Net loan servicing fees
Net gains on loans held for sale
Net (losses) gains on investments and financings
Net interest expense
Total
(in thousands)
Assets:
Mortgage-backed securities
$
—
$
—
$
64,855
$
10,070
$
74,925
Loans held for sale
—
46,511
—
—
46,511
Loans held for investment
—
—
28,681
(687
)
27,994
Credit risk transfer strips
—
—
(2,048
)
—
(2,048
)
Mortgage servicing rights
(144,590
)
—
—
—
(144,590
)
$
(144,590
)
$
46,511
$
91,488
$
9,383
$
2,792
Liabilities:
Interest-only security payable
$
—
$
—
$
(1,732
)
$
—
$
(1,732
)
Asset-backed financings of VIEs
—
—
(29,423
)
1,368
(28,055
)
$
—
$
—
$
(31,155
)
$
1,368
$
(29,787
)
Financial Statement Item Measured at Fair Value on a Nonrecurring Basis
Following is a summary of the carrying value of assets that were remeasured during the quarter based on fair value on a nonrecurring basis:
Real estate acquired in settlement of loans
Level 1
Level 2
Level 3
Total
(in thousands)
March 31, 2026
$
—
$
—
$
25
$
25
December 31, 2025
$
—
$
—
$
30
$
30
The following table summarizes the fair value changes recognized during the quarter on assets held at quarter end that were remeasured at fair value on a nonrecurring basis:
Quarter ended March 31,
2026
2025
(in thousands)
Real estate acquired in settlement of loans
$
(5
)
$
(140
)
The Company remeasures its REO based on fair value when it evaluates the properties for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less costs to sell. REO may be 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 loans in the Company’s consolidated statements of operations.
Fair Value of Financial Instruments Carried at Amortized Cost
Most 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 and the exchangeable senior notes included in Unsecured senior notes are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values. The Company classifies its senior notes as “Level 2” fair value liabilities.
The Company has concluded that the fair values of these borrowings other than term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets and the Unsecured senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.
The Company estimates the fair values of the term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets using indications of fair value provided by nonaffiliate brokers for the term notes and internal estimates
25
of fair value for the term loans. The Company estimates the fair values of its Unsecured senior notes using pricing services.The fair values and carrying values of these liabilities are summarized below:
March 31, 2026
December 31, 2025
Instrument
Carrying value
Fair value
Carrying value
Fair value
(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets
$
2,396,545
$
2,405,192
$
2,258,128
$
2,268,438
Unsecured senior notes
$
684,506
$
712,515
$
1,028,300
$
1,073,341
Valuation Governance
Most of the Company’s assets, its Asset-backed financings of variable interest entities at fair value,Interest-only security payable at fair value and Derivative and credit risk transfer strip liabilitiesat fair value 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 delegated
responsibility for estimating the fair values of these assets and liabilities to specialized staff within PFSI's capital markets group and subjects the valuation process to significant senior management oversight.
With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff reports to PFSI’s senior management valuation subcommittee, which oversees the valuations. The capital markets valuation staff 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 subcommittee. PFSI’s senior management valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, risk management and capital markets staffs.
The capital markets valuation staff is responsible for reporting to PFSI’s senior management valuation subcommittee 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 capital markets valuation staff presents an analysis of the effect on the valuation of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value and key inputs to those procured from nonaffiliate brokers and published surveys.
The fair values of the Company’s IRLCs are developed by PFSI's capital markets risk management staff and are reviewed by its capital markets operations staff.
Valuation Techniques and Inputs
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’s categorization of its current holdings of MBS is based on whether the respective security is an IO stripped MBS:
•
The Company categorizes its current holdings of MBS other than IO stripped MBS as “Level 2” fair value assets. Fair value of these securities is established based on quoted market prices for the Company’s MBS holdings or similar securities.
•
The Company categorizes its current holdings of IO stripped MBS as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of its IO stripped MBS.
The key inputs used in the estimation of the fair value of IO stripped MBS include option-adjusted spread ("OAS") (OAS is a component of discount rate) and prepayment speed. Significant changes to those inputs in isolation may result in significant changes in the IO stripped MBS' fair value measurements. Changes in these key inputs are not directly related.
26
Following are the key inputs used in determining the fair value of IO stripped MBS:
March 31, 2026
December 31, 2025
Fair value (in thousands)
$
71,429
$
72,502
Key inputs (1)
Option-adjusted spread (2)
Range
3.8% – 4.2%
4.7% – 4.7%
Weighted average
3.8%
4.7%
Annual total prepayment speed (3)
Range
10.8% – 13.3%
11.0% – 13.6%
Weighted average
10.8%
11.0%
Equivalent life (in years)
Range
4.0 – 7.4
4.0 – 7.7
Weighted average
7.4
7.6
(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
The Company applies an OAS to multiple simulated paths of a derived United States Treasury securities (“Treasury") yield curve for purposes of discounting cash flows relating to IO stripped MBS.
(3)
Prepayment speed is measured using life total Conditional Prepayment Rate (“CPR”). Equivalent life is provided as supplementary information.
Changes in the fair value of MBS are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
Loans
Fair value of loans is estimated based on whether the loans are saleable into active markets:
•
Loans that are saleable into active markets, comprised of most of the Company’s loans held for sale and all of the loans held for investment in VIEs, are categorized as “Level 2” fair value assets:
•
Fair values of loans held for sale are established using the loans’ contracted selling prices, quoted market prices or market price equivalents.
•
Fair values of loans held for investment in VIEs are developed using the quoted indications of fair value of all of the individual securities issued by the securitization trusts holding the loans. The Company obtains indications of fair value from nonaffiliate brokers based on comparable securities and/or pricing services and validates the brokers’ or pricing services’ indications of fair value using pricing models and inputs the Company believes are similar to the pricing models and inputs used by other market participants. The Company adjusts the fair values received from brokers and/or pricing services to include the fair value of MSRs attributable to the loans included in the VIEs.
•
Loans that are not saleable into active markets, comprised of home equity lines of credit, 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:
•
Fair values of loans held for sale categorized as “Level 3” assets (home equity lines of credit and previously sold loans repurchased pursuant to representations and warranties) are estimated using a discounted cash flow approach or the loans' contracted selling prices when applicable. Inputs to the discounted cash flow model include current interest rates, payment statuses, property types, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds and loss severities.
•
Fair values of distressed loans are estimated based on the fair values of the real estate collateralizing the loans.
Changes in fair values of loans held for sale are included in Net gains on loans held for sale at fair value in the consolidated statements of operations. Changes in fair values of loans held for investment are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
Derivative and Credit Risk Transfer Strip Assets and Liabilities
CRT Derivatives
The Company categorizes CRT derivatives as “Level 3” fair value assets. The fair values of CRT derivatives are based on indications of fair value provided to the Company by nonaffiliate brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the recourse obligations and the IO
27
ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair values of the CRT derivatives are derived by deducting the balances of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates representing the beneficial interests in the trusts.
The Company establishes fair value of its investment in CRT Arrangements based on indications of fair value provided by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors the IO ownership interest and the recourse obligations. The Company assesses the fair values it receives from nonaffiliate 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 are the discount rates, 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 (losses) gains on investments and financings in the consolidated statements of operations.
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, 2026
December 31, 2025
(dollars in thousands)
Fair value
$
30,174
$
32,659
UPB of loans in reference pools
$
4,046,852
$
4,555,682
Key inputs (1)
Discount rate
Range
8.8% – 10.1%
8.6% – 14.1%
Weighted average
8.8%
8.8%
Voluntary prepayment speed (2)
Range
7.4% – 8.3%
6.3% – 7.6%
Weighted average
7.6%
7.3%
Involuntary prepayment speed (3)
Range
0.2% – 0.2%
0.1% – 0.3%
Weighted average
0.2%
0.1%
Remaining loss expectation
Range
0.0% – 0.1%
0.0% – 0.1%
Weighted average
0.1%
0.1%
(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is 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.
Interest Rate Lock Commitments
The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, the probability that the loans will be purchased under the commitments (the “pull-through rate”) and the Company’s estimate of the fair values of the MSRs it expects to receive upon sale of the loans.
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rates and the estimated MSRs attributed to the mortgage loans subject to the commitments. Significant changes in the pull-through rates or the MSR components of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair values. 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 an IRLC’s fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans held for sale at fair value in the consolidated statements of operations.
28
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
March 31, 2026
December 31, 2025
Fair value of net (liabilities) assets (in thousands) (1)
$
(3,273
)
$
2,348
Committed amount (in thousands)
$
1,338,161
$
1,207,859
Key inputs (2)
Pull-through rate
Range
60.1% – 100%
50.5% – 100%
Weighted average
87.9%
90.9%
MSR fair value expressed as
Servicing fee multiple
Range
1.6 – 8.4
1.7 – 8.4
Weighted average
5.2
5.4
Percentage of unpaid principal balance
Range
0.4% – 2.9%
0.4% – 3.2%
Weighted average
1.5%
1.9%
(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
Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or 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 loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results, Net gains on loans held for sale at fair value, or Net (losses) gains on investments and financings, as applicable, in the consolidated statements of operations.
Credit Risk Transfer Strips
The Company categorizes CRT strips as “Level 3” fair value liabilities. The fair values of CRT strips are based on indications of fair value provided to the Company by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interests and the recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.
Fair values of the CRT strips are derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the indications of fair value of the securities provided by the nonaffiliate brokers.
The Company assesses the indications of fair value it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net (losses) gains on investments and financings in the consolidated statements of operations.
29
Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the broker-provided fair values used to derive the fair value of the CRT strip liabilities:
March 31, 2026
December 31, 2025
(dollars in thousands)
Fair value
$
4,062
$
5,999
Unpaid principal balance of loans in the reference pools
$
14,669,085
$
14,961,848
Key inputs (1)
Discount rate
Range
4.9% – 8.7%
5.0% – 8.6%
Weighted average
8.2%
8.1%
Voluntary prepayment speed (2)
Range
7.1% – 7.5%
7.0% – 7.5%
Weighted average
7.2%
7.1%
Involuntary prepayment speed (3)
Range
0.1% – 0.3%
0.1% – 0.3%
Weighted average
0.2%
0.1%
Remaining loss expectation
Range
0.4% – 1.4%
0.4% – 1.4%
Weighted average
0.5%
0.5%
(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is 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.
Mortgage Servicing Rights
The Company categorizes MSRs as “Level 3” fair value assets. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements and generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and is generally entitled to retain any placement fees earned on certain custodial funds held pending remittance of mortgagor principal, interest, tax and insurance payments. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company uses a discounted cash flow approach to estimate the fair values of its MSRs.
Beginning in the third quarter of 2025, the Company enhanced its discounted cash flow approach to estimate the period-end fair value of its MSRs with the adoption of an OAS model. The OAS model allows the Company to account for the likelihood of interest rates moving along different paths as economic conditions change in its assessment of the fair value of MSRs as opposed to a single assumed rate path. Adoption of the OAS model did not have a significant effect on the fair value of MSRs.
The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), OAS or pricing spread (the OAS and pricing spread are components of the discount rate), and annual per-loan cost to service the underlying 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 directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of operations.
MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (expressed as OAS or pricing spread) increase, or when the annual per-loan cost of servicing increases. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.
30
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:
Quarter ended March 31,
2026
2025
MSRs recognized (in thousands)
$
40,281
$
47,009
Unpaid principal balance of underlying loans (in thousands)
$
2,197,665
$
2,594,638
Weighted average annual servicing fee rate (in basis points)
34
32
Key inputs (1)
Prepayment speed (2)
Range
8.6% – 14.9%
9.4% - 15.3%
Weighted average
9.4%
9.9%
Equivalent average life (in years)
Range
3.7 – 8.7
3.7– 8.2
Weighted average
8.2
7.9
Pricing spread (3)
Range
5.2% – 10.0%
5.2% - 7.3%
Weighted average
6.2%
5.5%
Annual per-loan cost of servicing
Range
$69 – $113
$68 – $87
Weighted average
$72
$69
(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Annual total prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to a derived Treasury yield curve for purposes of discounting cash flows in its initial recognition of MSRs.
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:
March 31, 2026
December 31, 2025
Fair value (in thousands)
$
3,623,979
$
3,644,702
Unpaid principal balance of underlying loans (in thousands)
$
212,198,589
$
215,781,639
Weighted average annual servicing fee rate (in basis points)
28
28
Weighted average note interest rate
3.9%
3.9%
Key inputs (1)
Prepayment speed (2)
Range
7.0% – 25.6%
7.0% – 21.5%
Weighted average
7.2%
8.4%
Equivalent average life (in years)
Range
2.0 – 8.9
2.1 – 7.9
Weighted average
8.5
7.7
Effect on fair value (in thousands) of (3):
5% adverse change
$(49,635)
$(61,563)
10% adverse change
$(97,738)
$(120,960)
20% adverse change
$(189,634)
$(233,683)
Option-adjusted spread (4)
Range
3.2% – 6.4%
3.6% – 6.2%
Weighted average
4.6%
3.6%
Effect on fair value (in thousands) of (3):
5% adverse change
$(39,505)
$(30,295)
10% adverse change
$(78,085)
$(60,089)
20% adverse change
$(152,590)
$(118,218)
Annual per-loan cost of servicing
Range
$69 – $94
$68 – $90
Weighted average
$69
$68
Effect on fair value (in thousands) of (3):
5% adverse change
$(15,791)
$(15,979)
10% adverse change
$(31,582)
$(31,959)
20% adverse change
$(63,164)
$(63,918)
31
(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
These sensitivity analyses are limited in that they were performed as of a particular date; only contemplate the movements in the indicated inputs; do not incorporate changes to other inputs; are subject to the accuracy of the 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 to account for changing circumstances. For these reasons, these analyses should not be viewed as projections of the effect of shock events or as earnings forecasts.
(4)
The OAS is a margin that is applied to a reference interest rate’s projected curve to develop periodic discount rates. The Company applies an OAS to multiple simulated paths of a derived Treasury yield curve for purposes of discounting cash flows relating to period-end MSRs.
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 the price given in a pending contract of sale, a full appraisal, or a broker’s price opinion.
REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS 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 obtain an additional appraisal to establish fair value. Recognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of operations.
Note 8—Mortgage-Backed Securities
Following is a summary of activity in the Company’s holdings of MBS:
Quarter ended March 31,
2026
2025
(in thousands)
Balance at beginning of quarter
$
4,452,859
$
4,063,706
Purchases
4,000
—
Sales
(477,360
)
—
Repayments
(188,953
)
(102,769
)
Changes in fair value included in income arising from:
Amortization and accrual of net purchase premiums and discounts, net
8,400
10,070
Valuation adjustments, net
(33,407
)
64,855
(25,007
)
74,925
Balance at end of quarter
$
3,765,539
$
4,035,862
March 31, 2026
December 31, 2025
(in thousands)
Fair value of mortgage-backed securities pledged to secure Assets sold under agreements to repurchase
$
3,765,539
$
4,452,859
32
Following is a summary of the Company’s investments in MBS:
March 31, 2026
Security type (1)
Principal balance or notional amount
Purchase premiums (discounts), net
Cumulative valuation changes
Fair value
(in thousands)
Agency fixed-rate pass-through
$
2,246,463
$
771
$
18,919
$
2,266,153
Floating rate collateralized mortgage obligations
822,780
(994
)
7,806
829,592
Principal-only stripped
549,048
(108,778
)
15,639
455,909
Senior non-Agency
142,612
(2,982
)
(1,174
)
138,456
Subordinate residential transition
4,000
—
—
4,000
$
3,764,903
$
(111,983
)
$
41,190
3,694,110
Interest-only stripped
$
333,848
71,429
$
3,765,539
(1) All MBS have maturities of more than ten years except the subordinate residential transition bond which matures between one year through five years. All MBS are pledged to secure Assets sold under agreements to repurchase.
December 31, 2025
Security type (1)
Principal balance or notional amount
Purchase premiums (discounts), net
Cumulative valuation changes
Fair value
(in thousands)
Agency fixed-rate pass-through
$
2,805,895
$
(2,125
)
$
46,677
$
2,850,447
Floating rate collateralized mortgage obligations
850,172
(1,249
)
7,074
855,997
Principal-only stripped
610,256
(115,385
)
26,258
521,129
Senior non-Agency
155,369
(3,039
)
454
152,784
$
4,421,692
$
(121,798
)
$
80,463
4,380,357
Interest-only stripped
$
344,592
72,502
$
4,452,859
(1) All MBS have maturities of more than ten years and are pledged to secure Assets sold under agreements to repurchase.
Note 9—Loans Held for Sale at Fair Value
Following is a summary of the distribution of the Company’s loans held for sale at fair value:
Loan type
March 31, 2026
December 31, 2025
(in thousands)
Held for sale to nonaffiliates—GSE eligible (1)
$
1,804,198
$
2,232,706
Jumbo
461,054
433,027
Non-qualified
82,559
30,084
Home equity lines of credit
778
942
Repurchased pursuant to representations and warranties
1,306
2,639
$
2,349,895
$
2,699,398
Loans pledged to secure
Assets sold under agreements to repurchase
$
2,328,824
$
2,676,700
(1)
GSE eligibility refers to the eligibility of loans for sale to Fannie Mae or Freddie Mac. The Company sells or finances a portion of its GSE eligible loan production to other investors.
33
Note 10—Loans Held for Investment at Fair Value
Loans held for investment at fair value are comprised primarily of loans held in VIEs securing asset-backed financings as described in Note 6 –Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities.
Following is a summary of the distribution of the Company’s loans held for investment at fair value:
Loan type
March 31, 2026
December 31, 2025
(in thousands)
Loans in variable interest entities:
Agency-conforming loans secured by:
Non-owner occupied properties
$
7,232,212
$
6,332,497
Owner occupied properties
1,496,337
588,788
Fixed interest rate jumbo loans
2,137,743
1,609,654
10,866,292
8,530,939
Distressed loans
1,650
1,705
$
10,867,942
$
8,532,644
Loans held for investment pledged to secure Asset-backed financings at fair value (1)
$
10,866,292
$
8,530,939
(1)
As discussed in Note 6 ‒ Variable Interest Entities ‒ Subordinate and Senior Non-Agency Mortgage-Backed Securities, the Company holds a portion of the interests in VIEs. At March 31, 2026 and December 31, 2025, $937.7 million and $648.2 million, respectively, of such retained interests were pledged to secure Assets sold under agreements to repurchase.
Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities
Derivative and credit risk transfer strip assets and liabilities are summarized below:
March 31, 2026
December 31, 2025
(in thousands)
Derivative assets with nonaffiliates
$
50,766
$
49,696
Derivative assets with PennyMac Financial Services, Inc.
$
3,823
$
6,247
Derivative liabilities with nonaffiliates
$
17,267
$
933
Credit risk transfer strip liabilities
4,062
5,999
$
21,329
$
6,932
Derivative liabilities with PennyMac Financial Services, Inc.
$
5,886
$
2,257
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 are IRLCs that are created when the Company commits to purchase loans held for sale.
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 values of certain of its assets and liabilities. The Company bears price risk related to its mortgage production, servicing assets and MBS financing activities due to changes in market interest rates as discussed below:
•
The Company is exposed to losses if market mortgage interest rates increase, because market interest rate increases generally cause the fair values of MBS, IRLCs and loans held for sale to decrease.
•
The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally encourage increased mortgage refinancing activities, which causes the fair values of MSRs to decrease.
To manage the price risk resulting from these interest rate 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 values of the Company’s MBS, inventory of loans held for sale, IRLCs and MSRs. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.
34
Cash flows from derivative financial instruments relating to hedging of IRLCs and loans held for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans held for sale at fair value. Cash flows from derivative financial instruments relating to hedging ofMSRs are included in Cash flows from investing activities.
Derivative Notional Amounts and Fair Value of Derivatives
The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative and credit risk transfer strip liabilities at fair value and related margin deposits on the consolidated balance sheets:
March 31, 2026
December 31, 2025
Fair value
Fair value
Notional
Derivative
Derivative
Notional
Derivative
Derivative
Instrument
amount (1)
assets
liabilities
amount (1)
assets
liabilities
(in thousands)
Nonaffiliates:
Hedging derivatives subject to master netting arrangements (2):
Call options on interest rate futures purchase contracts
1,712,500
$
2,141
$
—
3,250,000
$
1,289
$
—
Put options on interest rate futures purchase contracts
2,375,000
10,859
—
2,500,000
4,109
—
Forward purchase contracts
6,632,514
1,492
8,491
3,703,628
4,113
158
Forward sale contracts
9,957,359
31,957
11,922
7,933,760
2,381
17,340
Bond futures
1,571,100
—
—
1,896,100
—
—
Swap futures
790,200
—
—
751,200
—
—
Other derivatives not subject to master netting arrangements:
CRT derivatives
4,046,852
30,174
—
455,682
32,659
—
Total derivative instruments before netting
76,623
20,413
44,551
17,498
Netting
(25,857
)
(3,146
)
5,145
(16,565
)
$
50,766
$
17,267
$
49,696
$
933
PennyMac Financial Services, Inc.:
Interest rate lock commitments not subject to master netting arrangements
1,338,161
2,613
5,886
1,207,859
4,605
2,257
Forward purchase contract subject to master netting arrangement
92,618
1,225
15
250,638
1,784
142
Total derivatives before netting
3,838
5,901
6,389
2,399
Netting
(15
)
(15
)
(142
)
(142
)
$
3,823
$
5,886
$
6,247
$
2,257
Margin deposits (received from) placed with derivative counterparties included in derivative balances above, net
$
(22,711
)
$
21,710
Derivative assets pledged to secure:
Assets Sold Under Agreements to Repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets
$
30,174
$
32,659
(1) Notional amounts provide an indication of the volume of the Company’s derivative activity.
(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 placed with or received from its counterparties when such positions are subject to legally enforceable master netting arrangements and the Company intends to set off. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of March 31, 2026 and December 31, 2025, the Company was not a party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.
35
Derivative Assets, Financial Instruments and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amounts 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.
March 31, 2026
December 31, 2025
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
Counterparty
sheet
instruments
received
amount
sheet
instruments
received
amount
(in thousands)
Non-affiliates:
CRT derivatives
$
30,174
$
—
$
—
$
30,174
$
32,659
$
—
$
—
$
32,659
RJ O’Brien & Associates, LLC
13,000
—
—
13,000
5,398
—
—
5,398
Bank of America, N.A.
2,261
—
—
2,261
4,745
—
—
4,745
AB Carval
2,072
—
—
2,072
—
—
—
—
J.P. Morgan Securities LLC
1,348
—
—
1,348
102
—
—
102
National Life Group
579
—
—
579
—
—
—
—
Fannie Cap Markets
417
—
—
417
—
—
—
—
Morgan Stanley & Co. LLC
338
—
—
338
3,500
—
—
3,500
Wells Fargo Securities, LLC
111
—
—
111
603
—
—
603
Nomura
59
—
—
59
137
—
—
137
Goldman Sachs & Co. LLC
—
—
—
—
950
—
—
950
Mizuho Financial Group
—
—
—
—
442
—
—
442
BNP Paribas
—
—
—
—
236
—
—
236
Citigroup Global Markets Inc.
—
—
—
—
217
—
—
217
Ellington Management
—
—
—
—
198
—
—
198
Metro Life Ins Co
—
—
—
—
151
—
—
151
Barclays Capital Inc.
—
—
—
—
103
—
—
103
Other
407
—
—
407
255
—
—
255
$
50,766
$
—
$
—
$
50,766
$
49,696
$
—
$
—
$
49,696
PennyMac Financial Services, Inc.
$
3,823
$
—
$
—
$
3,823
$
6,247
$
—
$
—
$
6,247
36
Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty
The following table summarizes by significant counterparty the amounts 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 to qualify for setoff accounting. All assets sold under agreements to repurchase were backed by sufficient collateral with fair values that exceeded the liability amounts recorded on the consolidated balance sheets.
March 31, 2026
December 31, 2025
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
Financial
Cash
consolidated
Financial
Cash
balance
instruments
collateral
Net
balance
instruments
collateral
Net
Counterparty
sheet
(1)
pledged
amount
sheet
(1)
pledged
amount
(in thousands)
Non-affiliates:
J.P. Morgan Securities LLC
$
1,090,645
$
(1,090,645
)
$
—
$
—
$
1,536,038
$
(1,536,038
)
$
—
$
—
Bank of America, N.A.
1,012,219
(1,012,219
)
—
—
1,074,334
(1,074,334
)
—
—
Atlas Securitized Products, L.P.
984,628
(984,628
)
—
—
1,216,779
(1,216,779
)
—
—
Santander US Capital
973,270
(973,270
)
—
—
952,951
(952,933
)
—
18
Wells Fargo Securities, LLC
721,550
(721,550
)
—
—
782,547
(782,547
)
—
—
Goldman Sachs & Co. LLC
466,672
(458,388
)
—
8,284
151,274
(151,274
)
—
—
RBC Capital Markets, L.P.
381,942
(381,942
)
—
—
438,781
(438,781
)
—
—
Barclays Capital Inc.
332,396
(331,360
)
—
1,036
431,016
(431,016
)
—
—
Morgan Stanley & Co. LLC
300,073
(295,956
)
—
4,117
319,500
(319,500
)
—
—
Nomura Holdings America, Inc
272,553
(272,553
)
—
—
231,308
(231,308
)
—
—
Citigroup Global Markets Inc.
273,174
(272,324
)
—
850
397,162
(397,162
)
—
—
Daiwa Capital Markets
189,890
(189,699
)
—
191
195,268
(195,268
)
—
—
Bank of Montreal
145,344
(144,928
)
—
416
160,388
(160,324
)
—
64
BNP Paribas
99,518
(98,923
)
—
595
54,191
(54,191
)
—
—
Mizuho Financial Group
76,637
(75,826
)
—
811
81,701
(81,701
)
—
—
Other
967
—
—
967
851
—
—
851
$
7,321,478
$
(7,304,211
)
$
—
$
17,267
$
8,024,089
$
(8,023,156
)
$
—
$
933
PennyMac Financial Services, Inc.
$
5,886
$
—
$
—
$
5,886
$
2,257
$
—
$
—
$
2,257
(1)
Amounts represent the UPB of Assets sold under agreements to repurchase.
Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
Quarter ended March 31,
Derivative activity
Consolidated statements of operations line
2026
2025
(in thousands)
Interest rate lock commitments
Net gains on loans held for sale (1)
$
(5,621
)
$
4,174
CRT derivatives
Net (losses) gains on investments and financings
$
132
$
1,980
Hedged item:
Interest rate lock commitments and loans held for sale
Net gains on loans held for sale
$
15,071
$
(26,359
)
Mortgage servicing rights
Net loan servicing fees
$
(11,881
)
$
(39,944
)
(1)
Represents net change in fair value of IRLCs from the beginning to the end of the quarter. Amounts recognized at the date of commitment and fair value changes recognized during the quarter until purchase of the underlying loan or cancellation of the commitment are shown in the rollforwards of IRLCs for the quarter in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.
37
Note 12—Mortgage Servicing Rights
Following is a summary of MSRs:
Quarter ended March 31,
2026
2025
(in thousands)
Balance at beginning of quarter
$
3,644,702
$
3,867,394
MSRs resulting from loan sales
40,281
47,009
Transfers to Agency of mortgage servicing rights relating to delinquent loans
295
221
Changes in fair value:
Due to changes in inputs used in valuation model (1)
45,587
(55,831
)
Other changes in fair value (2)
(106,886
)
(88,759
)
(61,299
)
(144,590
)
Balance at end of quarter
$
3,623,979
$
3,770,034
(1)
Primarily reflects changes in prepayment speed, pricing spread or OAS, servicing cost, and UPB of underlying loan inputs.
(2)
Represents changes due to realization of expected cash flows.
March 31, 2026
December 31, 2025
(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
$
3,560,828
$
3,582,211
Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of operations and are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Contractually specified servicing fees
$
147,592
$
152,199
Ancillary and other fees:
Late charges
1,071
1,027
Other
2,296
2,890
3,367
3,917
$
150,959
$
156,116
Average UPB of underlying loans
$
214,185,523
$
225,515,018
Note 13—Other Assets
Other assets are summarized below:
March 31, 2026
December 31, 2025
(dollars in thousands)
Margin deposits
$
232,767
$
221,310
Interest receivable
75,238
72,684
Correspondent lending receivables
10,895
7,083
Servicing fees receivable
10,327
9,586
Other receivables
27,228
25,458
Real estate acquired in settlement of loans
1,365
1,421
Other
16,204
36,042
$
374,024
$
373,584
Note 14—Short-Term Debt
The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenants relating to the Company and its subsidiaries’ net worth, debt-to-equity ratio, and liquidity. The Company believes that it was in compliance with these covenants as of March 31, 2026.
38
Assets sold under agreements to repurchase
Following is a summary of financial information relating to assets sold under agreements to repurchase:
Quarter ended March 31,
2026
2025
(dollars in thousands)
Weighted average interest rate (1)
4.64
%
5.21
%
Average balance
$
7,812,433
$
6,180,911
Total interest expense
$
91,392
$
81,148
Maximum daily amount outstanding
$
8,673,233
$
7,068,600
(1)
Excludes the effect of amortization of debt issuance costs of $1.9 million and $1.8 million for the quarters ended
March 31, 2026 and 2025, respectively.
March 31, 2026
December 31, 2025
(dollars in thousands)
Carrying value:
Unpaid principal balance
$
7,304,211
$
8,023,156
Unamortized debt issuance costs
(3,519
)
(4,555
)
$
7,300,692
$
8,018,601
Weighted average interest rate
4.54
%
4.71
%
Available borrowing capacity (1):
Committed
$
553,463
$
595,085
Uncommitted
5,174,734
5,032,598
$
5,728,197
$
5,627,683
Margin deposits placed with counterparties included in Other assets, net
$
170,948
$
174,598
Assets securing agreements to repurchase:
Mortgage-backed securities at fair value
$
3,765,539
$
4,452,859
Loans held for sale at fair value
$
2,328,824
$
2,676,700
Loans held for investment at fair value
$
937,680
$
648,159
Credit risk transfer arrangements:
Derivative assets
$
9,169
$
12,622
Deposits securing credit risk transfer arrangements
$
153,742
$
176,694
Mortgage servicing rights at fair value (2)
$
1,745,231
$
1,765,572
Servicing advances (3)
$
38,930
$
44,653
(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 to secure both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.
(3)
Beneficial interests in Fannie Mae servicing advances are pledged to secure Assets sold under agreements to repurchase.
Maturities
Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
Remaining maturity at March 31, 2026 (1)
Unpaid principal balance
(in thousands)
Within 30 days
$
4,209,428
Over 30 to 90 days
2,387,866
Over 90 days to 180 days
153,151
Over 180 days to 1 year
55,000
Over 1 year to 2 years
498,766
$
7,304,211
Weighted average maturity (in months)
2.3
39
(1)
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 values (as determined by the applicable lender) of the assets securing those repurchase agreements decrease.
Amounts at Risk
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 March 31, 2026:
Loans and MSRs
Weighted-average maturity
Counterparty
Amountsat risk
Advances
Facility
(in thousands)
Atlas Securitized Products, L.P.
$
488,626
April 29, 2026
December 10, 2027
Santander US Capital
$
69,951
June 25, 2026
June 25, 2026
Bank of America, N.A.
$
66,920
April 7, 2026
March 3, 2027
Goldman Sachs & Co. LLC
$
63,918
April 12, 2026
March 13, 2028
Nomura Holdings America, Inc.
$
73,914
April 29, 2026
April 29, 2026
Citibank, N.A.
$
53,729
July 12, 2026
July 27, 2026
RBC Capital Markets, L.P.
$
21,268
June 13, 2026
January 19, 2027
JPMorgan Chase & Co.
$
2,948
May 23, 2026
June 28, 2026
Morgan Stanley & Co. LLC
$
23,971
June 2, 2026
August 18, 2027
Wells Fargo Securities, LLC
$
5,949
May 20, 2026
March 18, 2027
BNP Paribas
$
11,212
May 27, 2026
February 22, 2027
Securities
Counterparty
Amounts at risk
Weighted-average maturity
(in thousands)
Santander US Capital
$
36,286
May 1, 2026
Bank of America, N.A.
$
22,623
May 2, 2026
Goldman Sachs & Co. LLC
$
15,649
April 15, 2026
Nomura Holdings America, Inc.
$
1,200
June 30, 2026
Citibank, N.A.
$
7,181
May 12, 2026
JPMorgan Chase & Co.
$
39,757
April 28, 2026
Wells Fargo Securities, LLC
$
22,788
April 30, 2026
Barclays Capital Inc.
$
12,066
April 22, 2026
Bank of Montreal
$
8,485
May 7, 2026
Daiwa Capital Markets America Inc.
$
4,891
May 5, 2026
Mizuho Financial Group
$
2,079
April 23, 2026
CRT arrangements
Counterparty
Amounts at risk
Weighted-average maturity
(in thousands)
RBC Capital Markets, L.P.
$
22,080
April 24, 2026
Morgan Stanley & Co. LLC
$
17,349
April 30, 2026
Mortgage Loan Participation Purchase and Sale Agreement
One of the borrowing facilities secured by loans held for sale is in the form of a mortgage loan participation purchase and sale agreement. Participation certificates, each of which represents an undivided beneficial ownership interest in loans that have been pooled into a pending securitization with Freddie Mac or Fannie Mae, are sold to the lender pending the securitization of such loans and the sale of the resulting security. The 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.
40
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.
The mortgage loan participation purchase and sale agreement is summarized below:
Quarter ended March 31,
2026
2025
(dollars in thousands)
Average balance
$
—
$
8,653
Weighted average interest rate (1)
—
5.68
%
Total interest expense
$
31
$
152
Maximum daily amount outstanding
$
—
$
49,266
(1)
Excludes the effect of amortization of debt issuance costs of $31,000 for the quarters ended March 31, 2026 and 2025.
Note 15— Long-Term Debt
Notes Payable Secured By Credit Risk Transfer and Mortgage Servicing Assets
CRT Arrangement Financing
The Company, through various wholly-owned subsidiaries, issued secured term notes (the “CRT Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). All of the CRT Term Notes rank pari passu with each other.
Following is a summary of the CRT Term Notes outstanding:
CRT Term Notes
Issuance date
Issuance amount
Unpaid principal balance
Annual interest rate spread (1)
Maturity date
(in thousands)
2024 3R
August 28, 2024
$
158,500
$
133,723
3.10%
September 27, 2028
2024 2R
April 4, 2024
$
247,000
207,556
3.35%
March 29, 2027
2024 1R
March 6, 2024
$
306,000
255,686
3.50%
March 1, 2027
$
596,965
(1)
Interest rates are charged at a spread to the Secured Overnight Financing Rate ("SOFR").
Fannie Mae MSR Financing
The Company, through two subsidiaries, PMT ISSUER TRUST-FMSR and PMT CO-ISSUER TRUST-FMSR (together, the "Issuer Trusts"), finances MSRs relating to loans serviced for Fannie Mae guaranteed securities comprised of the base MSRs owned by PMC and the related excess servicing spread ("ESS") owned by PennyMac Holdings, LLC (“PMH”), another subsidiary of PMT, through a combination of repurchase agreements and term financing.
The repurchase agreement financings for Fannie Mae MSRs and ESS are effected through the issuance of variable funding notes (a Series 2017-VF1 Note, a Series 2024-VF1 Note, a Series 2024-VF2 Note, and a Series 2025-VF1 Note, together the "FMSR VFNs") by the Issuer Trusts to PMC and PMH in exchange for participation certificates for MSRs and ESS. The FMSR VFNs are then sold by PMC and PMH to qualified institutional buyers under agreements to repurchase. The amounts outstanding under the FMSR VFNs are included in Assets sold under agreements to repurchase in the Company’s consolidated balance sheets. The FMSR VFNs have a combined committed borrowing capacity of $1.1 billion under two-year repurchase agreement facilities.
The term financing for Fannie Mae MSRs is effected through the issuance of term notes (the “FT-1 Term Notes”) by the Issuer Trusts to qualified institutional buyers under Rule 144A of the Securities Act and a series of syndicated term loans with various lenders (the “FTL-1 Term Loans").
The FT-1 Term Notes, FTL-1 Term Loans and the FMSR VFNs are secured by participation certificates relating to Fannie Mae MSRs and ESS. Creditors to the assets sold under agreements to repurchase, the FT-1Term Notes and the FTL-1 Term Notes have equal priority in claims to the collateral held by the Issuer Trusts.
41
Following is a summary of the term financing of the Company’s Fannie Mae MSRs:
Maturity date
Issuance
Issuance date
Unpaid principal balance
Annual interest rate spread (1)
Stated
Optional extension (2)
(in thousands)
Term Loans
2023
May 25, 2023
$
370,000
3.00%
May 25, 2028
May 25, 2029
Term Notes
2024
June 27, 2024
355,000
2.75%
December 27, 2027
June 26, 2028
$
725,000
(1)
Interest rates are charged at a spread to SOFR.
(2)
The indentures relating to these issuances provide the Company with the option of extending the maturity dates of the FTL-1 Term Loans and FT-1 Term Notes under conditions specified in the respective agreements.
Freddie Mac MSR and Servicing Advance Receivables Financing
The Company, through PMC and PMH, finances certain MSRs (including any related ESS) relating to loans pooled into Freddie Mac securities through various credit agreements. The total loan amount available under the agreements is approximately $2.0 billion, bearing interest at an annual rate equal to SOFR plus a spread as defined in each agreement. The agreements have maturities on various dates through August 2026. The total loan amount available under the agreements may be reduced by other debt outstanding with the counterparties. Advances under the credit agreements are secured by MSRs relating to loans serviced for Freddie Mac guaranteed securities.
The Company, through its indirect, wholly owned subsidiaries, PMT ISSUER TRUST - FHLMC SAF, PMT SAF Funding, LLC, and PMC, entered into a structured finance transaction that PMC may use to finance Freddie Mac servicing advance receivables (the “Series 2023-VF1”). The maturity date of the related Series 2023-VF1, Class A-VF1 Variable Funding Note is March 5, 2027 and has a maximum principal amount of $175 million.
Following is a summary of financial information relating to notes payable secured by credit risk transfer and mortgage servicing assets:
Quarter ended March 31,
2026
2025
(dollars in thousands)
Average balance
$
2,316,141
$
2,830,048
Weighted average interest rate (1)
6.92
%
7.59
%
Total interest expense
$
41,260
$
55,255
(1)
Excludes the effect of amortization of debt issuance costs of $1.8 million and $2.3 million for the quarters ended March 31, 2026 and 2025, respectively.
March 31, 2026
December 31, 2025
(dollars in thousands)
Carrying value:
Unpaid principal balance:
Credit risk transfer arrangement financing
$
596,965
$
608,903
Fannie Mae mortgage servicing rights financing
725,000
725,000
Freddie Mac mortgage servicing rights and servicing advance receivable financing
1,079,635
927,943
2,401,600
2,261,846
Unamortized debt issuance costs
(5,055
)
(3,718
)
$
2,396,545
$
2,258,128
Weighted average interest rate
6.85
%
6.91
%
Assets securing notes payable:
Mortgage servicing rights at fair value (1)
$
3,560,828
$
3,582,211
Servicing advances (1)
$
28,675
$
33,777
Credit risk transfer arrangements:
Deposits securing credit risk transfer arrangements
$
815,983
$
832,640
Derivative assets
$
21,005
$
20,037
42
(1)
Beneficial interests in Freddie Mac MSRs and related servicing advances are pledged as collateral for the Notes payable secured by credit risk transfer and mortgage servicing assets. Beneficial interests in Fannie Mae MSRs are pledged for both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.
Unsecured Senior Notes
Exchangeable Senior Note
The exchangeable senior note is summarized below:
Initial issuance date
Unpaid principal balance
Annual interest rate
Exchange rates (1)
Maturity date (2)
(in thousands)
May 24, 2024 (3)
$
366,500
8.50%
63.3332
June 1, 2029
(1)
Common Shares per $1,000 principal amount.
(2)
Unless repurchased or exchanged in accordance with their terms before such date.
(3)
Balance includes $16.5 million issued on June 4, 2024, $75 million issued on December 15, 2025 and $75 million issued on December 22, 2025.
The exchangeable senior notes are exchangeable for: (1) cash for the principal amount of the notes to be exchanged; and (2) cash, Common Shares or a combination of cash and Common Shares, at the Company’s election, for the remainder, if any, of the exchange obligation in excess of the principal amount of the notes being exchanged, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The exchangeable senior notes are fully and unconditionally guaranteed by the Company.
Senior Notes
The senior notes are summarized below:
Issuance date
Unpaid principal balance
Annual interest rate spread
Maturity date
Redemption date (1)
(in thousands)
June 2025
$
105,000
9.00%
June 15, 2030
June 15, 2027
February 2025
172,500
9.00%
February 15, 2030
February 15, 2027
September 2023
53,500
8.50%
September 30, 2028
September 30, 2025
$
331,000
(1)
Redemptions may be made on or after the dates indicated.
Interest on the senior notes is payable quarterly. PMT may redeem for cash all or any portion of the senior notes, at its option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the applicable redemption date.
The senior notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal and interest, whether at stated maturity, upon acceleration, call for redemption or otherwise.
43
Following is financial information relating to the unsecured senior notes:
Quarter ended March 31,
2026
2025
(in thousands)
Average balance
$
977,333
$
708,917
Weighted average interest rate (1)
7.91
%
7.23
%
Interest expense
$
20,274
$
13,613
March 31, 2026
December 31, 2025
(in thousands)
Carrying value:
Unpaid principal balance
Exchangeable senior notes
$
366,500
$
711,500
Senior notes
331,000
331,000
697,500
1,042,500
Unamortized debt issuance costs
(12,994
)
(14,200
)
$
684,506
$
1,028,300
(1)
Excludes the effect of amortization of debt issuance costs of $1.2 million and $976,000 for the quarters ended March 31, 2026 and 2025, respectively.
Asset-Backed Financing of Variable Interest Entities at Fair Value
Following is a summary of financial information relating to the asset-backed financings of VIEs at fair value described in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities:
Quarter ended March 31,
2026
2025
(dollars in thousands)
Average balance
$
8,827,189
$
2,633,042
Weighted average interest rate (1)
5.72
%
4.63
%
Total interest expense
$
120,540
$
28,715
(1)
Excludes the effect of amortization of premiums of $3.9 million and $1.4 million for the quarters ended March 31, 2026 and 2025, respectively.
March 31, 2026
December 31, 2025
(dollars in thousands)
Fair value
$
9,903,515
$
7,789,303
Unpaid principal balance
$
9,882,623
$
7,763,364
Weighted average interest rate
6.03
%
6.03
%
The asset-backed financings are non-recourse liabilities and are secured solely by the assets of consolidated VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment of the securities.
Maturities of Long-Term Debt
Contractual maturities of long-term debt obligations (based on final maturity dates) are as follows:
Twelve months ending March 31,
Total
2027
2028
2029
2030
2031
Thereafter
(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets (1)
$
2,401,600
$
1,542,877
$
355,000
$
503,723
$
—
$
—
$
—
Unsecured senior notes
697,500
—
—
53,500
539,000
105,000
—
Interest-only security payable at fair value (2)
34,232
—
—
—
—
—
34,232
Asset-backed financings at fair value (2)
9,882,623
—
—
—
—
—
9,882,623
Total
$
13,015,955
$
1,542,877
$
355,000
$
557,223
$
539,000
$
105,000
$
9,916,855
(1)
Based on stated maturity. As discussed above, certain of the Notes payable secured by credit risk transfer and mortgage servicing assets allow the Company to exercise optional extensions.
(2)
Contractual maturity does not reflect expected repayment as borrowers of the underlying loans generally have the right to repay their loans at any time.
44
Note 16—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
Quarter ended March 31,
2026
2025
(in thousands)
Balance, beginning of quarter
$
5,284
$
6,886
Provision for losses:
Pursuant to loan sales
310
304
Reduction in liability due to change in estimate
(442
)
(1,168
)
Losses incurred
—
(67
)
Balance, end of quarter
$
5,152
$
5,955
UPB of loans subject to representations and warranties at end of quarter
$
211,156,467
$
220,977,898
Note 17—Commitments and Contingencies
Commitments
The following table summarizes the Company’s outstanding contractual commitments:
March 31, 2026
(in thousands)
Commitments to purchase loans held for sale from PLS
$
1,338,161
Legal Proceedings
From time to time, the Company may be involved in various legal and regulatory proceedings, lawsuits and claims arising in the ordinary course of business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, income, or cash flows of the Company.
Litigation
On June 14, 2024, a purported shareholder of the Company’s Series A Preferred Shares and Series B Preferred Shares (each, as defined hereafter) filed a complaint in a putative class action in the United States District Court for the Central District of California (the "District Court”), captioned Roberto Verthelyi v. PennyMac Mortgage Investment Trust and PNMAC Capital Management, LLC, Case No. 2:24-cv-05028 (the “Verthelyi Action”). The Verthelyi Action alleges, among other things, that the Company (and its external investment advisor, PCM), committed unlawful and unfair acts in violation of California’s Unfair Competition Law by replacing its floating three-month London Inter-bank Offered Rate ("LIBOR") dividend rate for the Series A and Series B Preferred Shares with a fixed rate, in violation of the LIBOR Act, 12 U.S.C. § 5801 et seq., and the LIBOR Rule, 12 C.F.R. § 253 et seq.
The Verthelyi Action seeks injunctive relief requiring the Company to implement SOFR as a replacement to the three-month LIBOR rate and damages for the putative class in the form of restitution, interest, disgorgement and other relief. The Company believes it has interpreted the Articles Supplementary to its Series A and Series B Preferred Shares consistent with their terms and, more specifically, the interest rate fallback provisions contained therein, as applied under the LIBOR Act and the LIBOR rules, and that the Verthelyi Action is without merit.
On August 20, 2024, the Company filed a Motion to Dismiss that was denied by the District Court in an order dated February 26, 2025. The Company responded by filing a motion to certify the order denying the motion for interlocutory appeal, and on May 5, 2025, the District Court issued an Order Granting Certification for Interlocutory Appeal and Staying Action. The Company subsequently petitioned the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) for permission to appeal, and that petition was granted by the Ninth Circuit in an order dated July 17, 2025. The appeal is fully briefed, arguments were heard and it remains pending.
At this time, the Company does not believe that a loss related to this matter is probable or reasonably estimable. The specific factors that limit the Company’s ability to reasonably estimate a loss or range of losses are the novelty of the legal theories under California’s Unfair Competition Law, the various claims for relief, including injunctive relief, and the early stage of the proceedings and uncertainty of the outcome. Accordingly, no accrual has been recorded in the Company’s consolidated financial statements for this matter. While no assurance can be provided as to the ultimate outcome of this claim, the Company and PCM plan to vigorously defend the matter.
Pursuant to the terms of the Third Amended and Restated Management Agreement, dated as of June 30, 2020, by and between the Company and PCM, the Company has assumed the defense of PCM in the Verthelyi Action.
45
Note 18—Shareholders’ Equity
Preferred Shares of Beneficial Interest
Preferred shares of beneficial interest are summarized below:
Dividends per share, Quarter ended March 31,
Series
Description (1)
Number of shares
Liquidation preference
Issuance discount
Carrying value
2026
2025
(in thousands, except dividends per share)
A
8.125% Issued March 2017
4,600
$
115,000
$
3,828
$
111,172
$
0.51
$
0.51
B
8.00% Issued July 2017
7,800
195,000
6,465
188,535
$
0.50
$
0.50
C
6.75% Issued August 2021
10,000
250,000
8,225
241,775
$
0.42
$
0.42
22,400
$
560,000
$
18,518
$
541,482
(1)
Par value is $0.01 per share.
In accordance with the Articles Supplementary for each of the Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) and the Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B Preferred Shares”), and disregarding the polling provisions contained in the Articles Supplementary for the Series A Preferred Shares and the Series B Preferred Shares that is deemed null and void in accordance with Federal Reserve rules, the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, are and will continue being calculated at the dividend rate in effect for the immediately preceding dividend period and will not transition to floating reference rates.
The Series A Preferred Shares became redeemable on March 15, 2024 and the Series B Preferred Shares became redeemable on June 15, 2024. The Series C Cumulative Redeemable Preferred Shares will not be redeemable before August 24, 2026, 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. On or after the date the preferred shares become redeemable, or 120 days after the first date on which such change of control occurs, the Company may, at its option, redeem any or all of the preferred shares at $25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date. No preferred shares were redeemed during the quarter ended March 31, 2026.
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
On June 14, 2024, the Company filed a shelf registration statement and a prospectus supplement, and 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 agents and/or principals, the Company’s Common Shares having an aggregate offering price of up to $200 million. As of March 31, 2026, the Company had not sold any Common Shares under the ATM equity offering program.
Common Share Repurchase Program
The Company has a Common Share repurchase program with a repurchase authorization of $500 million before transaction fees and $73.4 million available for further share repurchases.
The Company made no share repurchases during the quarter ended March 31, 2026 and has made cumulative repurchases under the Common Share repurchase program totaling $427.2 million, which includes $582,000 of transaction fees.
46
Note 19— Net Gains on Loans Held for Sale
Net gains on loans held for sale are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
From nonaffiliates:
Cash losses:
Sales of loans
$
(40,257
)
$
(1,915
)
Hedging activities
39,071
(58,062
)
(1,186
)
(59,977
)
Non-cash gains:
Receipt of MSRs in mortgage loan sale transactions
40,281
47,009
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loan sales
(310
)
(304
)
Reduction of liability due to change in estimate
442
1,168
132
864
Changes in fair value of loans and derivatives
Interest rate lock commitments
(5,621
)
4,174
Loans
13,304
(13,444
)
Hedging derivatives
(24,000
)
31,703
Total changes in fair value of loans and derivatives
(16,317
)
22,433
Total non-cash gains
24,096
70,306
Total from nonaffiliates
22,910
10,329
From PFSI ‒ cash gains
—
2,015
$
22,910
$
12,344
Note 20— Net (Losses) Gains on Investments and Financings
Net (losses) gains on investments and financings are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Mortgage-backed securities
$
(33,407
)
$
64,855
Loans held for investment
(65,803
)
28,681
CRT arrangements
13,911
(1,800
)
Asset-backed financings
62,236
(29,423
)
$
(23,063
)
$
62,313
47
Note 21—Net Interest Expense
Net interest expense is summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Interest income:
Cash and short-term investments
$
4,976
$
5,686
Mortgage-backed securities
56,249
58,234
Loans held for sale
39,563
33,235
Loans held for investment
133,759
33,679
Deposits securing CRT arrangements
8,892
11,675
Placement fees relating to custodial funds
31,448
32,029
Other
1,204
1,553
276,091
176,091
Interest expense:
Assets sold under agreements to repurchase
91,392
81,148
Mortgage loan participation purchase and sale agreements
31
152
Notes payable secured by credit risk transfer and mortgage servicing assets
41,260
55,255
Unsecured senior notes
20,274
13,613
Asset-backed financings
120,540
28,715
Interest shortfall on repayments of loans serviced for Agency securitizations
4,430
1,429
Interest on loan impound deposits
1,696
1,454
Other
127
371
279,750
182,137
$
(3,659
)
$
(6,046
)
Note 22—Share-Based Compensation
The Company’s equity incentive plan provides for the issuance of equity awards to the Company’s officers and trustees, as well as to employees and officers of PFSI and its affiliates and other entities or persons that provide services to the Company.
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 equity awards to the eligible participants referenced above, and to determine what form the equity awards will take, and the terms and conditions of the equity awards.
The Company’s equity incentive plan allows for the grant of time-based and performance-based restricted share unit equity awards.
The shares underlying equity award grants will again be available for award under the equity incentive plan if:
•
any shares subject to an equity award granted under the equity incentive plan are forfeited, canceled, exchanged or surrendered;
•
an equity award terminates or expires without a distribution of shares to the participant; or
•
shares are surrendered or withheld by PMT as payment of withholding taxes for an equity award.
Restricted share units and performance-based unit equity awards have been awarded to officers and trustees of the Company and to other employees and officers of PFSI and its affiliates at no cost to the grantees. Such awards generally vest over a one- to three-year period.
48
The following table summarizes the Company’s share-based compensation activity:
Quarter ended March 31,
2026
2025
(in thousands)
Grants:
Restricted share units
321
199
Performance share units
287
168
608
367
Grant date fair value:
Restricted share units
$
3,897
$
2,815
Performance share units
3,492
2,365
$
7,389
$
5,180
Vestings:
Restricted share units
178
138
Performance share units (1)
101
91
279
229
Forfeitures:
Restricted share units
1
—
Performance share units
1
—
2
—
Compensation expense relating to share-based grants
$
1,099
$
963
(1)
The actual number of performance-based restricted share units (“RSUs”) that vested during the quarter ended March 31, 2026 was approximately 79% of the 128,212 originally granted performance-based RSUs.
March 31, 2026
Restricted share units
Performance share units
Shares expected to vest:
Number of restricted shares units (in thousands)
432
437
Grant date average fair value per unit
$
12.72
$
12.84
Note 23—Income Taxes
The Company’s effective tax rate was 8.5% and 253.7% with consolidated pretax income of $26.9 million and pretax loss of $6.3 million for the quarters ended March 31, 2026 and March 31, 2025, respectively. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax expense of $2.9 million on pretax income of $964,000 for the quarter ended March 31, 2026. For the same period in 2025, the TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally 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, 2026, the valuation allowance remains zero. The TRS has a significant net deferred tax liability position, which indicates the TRS will utilize all of its deferred tax assets. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
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. The 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends which was made permanent under the One Big Beautiful Bill Act of 2025.
Note 24—Earnings (Loss) Per Common Share
The Company determines earnings per Common Share 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. The Company’s participating securities are certain grants of restricted share units that provide the recipients the nonforfeitable right to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of Common Shares.
49
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) by the weighted average Common Shares outstanding during the period.
Diluted earnings per share is determined by dividing net income by the weighted average number of Common Shares and dilutive securities. The Company’s potentially dilutive securities are share-based compensation awards and the exchangeable senior notes described in Note 15— Long-Term Debt. The number of dilutive securities included in diluted earnings per share is calculated using either the treasury stock or if-converted method (whichever is most dilutive) for share-based compensation awards and the if-converted method for the exchangeable senior notes. The number of potentially dilutive securities relating to the exchangeable senior notes is calculated based on the exchange obligation in excess of the principal amount of the exchangeable senior notes as described in Note 15— Long-Term Debt.
The following table summarizes the basic and diluted earnings per share calculations:
Quarter ended March 31,
2026
2025
(in thousands except per share amounts)
Net income
$
24,616
$
9,680
Dividends on preferred shares
(10,455
)
(10,455
)
Effect of participating securities—share-based compensation awards
(13
)
(39
)
Net income attributable to common shareholders
$
14,148
$
(814
)
Weighted average basic and diluted shares outstanding
87,082
86,907
Basic earnings (losses) per share
$
0.16
$
(0.01
)
Diluted earnings (losses) per share
$
0.16
$
(0.01
)
Calculation of diluted earnings per share requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the diluted earnings per share calculation:
Quarter ended March 31,
2026
2025
(in thousands)
Shares issuable under share-based compensation plan
461
312
Note 25—Segments
The Company operates in three segments as described in Note 1 ‒ Organization.
The Company’s reportable segments are identified based on PMT’s investment strategies. The following disclosures about the Company’s business segments are presented consistent with the way the Company’s chief operating decision maker organizes and evaluates financial information for making operating decisions and assessing performance. The reportable segments are evaluated based on income or loss before benefit from income taxes. The chief operating decision maker uses pre-tax segments results to assess segment performance and allocate operating and capital resources among the segments. The Company’s chief operating decision maker is its chief executive officer.
50
Financial highlights by segment are summarized below:
Quarter ended March 31, 2026
Credit sensitive strategies
Interest rate sensitive strategies
Aggregation and securitization
Reportable segment total
Corporate
Consolidated total
(in thousands)
Net investment income (1):
Net loan servicing fees
$
—
$
83,586
$
—
$
83,586
$
—
$
83,586
Net gains on loans held for sale
—
—
22,910
22,910
—
22,910
Net (losses) gains on investments and financings
Mortgage-backed securities
—
(33,407
)
—
(33,407
)
—
(33,407
)
Loans held for investment
2,191
(5,758
)
—
(3,567
)
—
(3,567
)
Credit risk transfer arrangements
13,911
—
—
13,911
—
13,911
16,102
(39,165
)
—
(23,063
)
—
(23,063
)
Net interest expense:
Interest income
19,229
214,630
39,531
273,390
2,701
276,091
Interest expense
18,727
227,557
31,554
277,838
1,912
279,750
502
(12,927
)
7,977
(4,448
)
789
(3,659
)
Other
(48
)
—
2,408
2,360
—
2,360
16,556
31,494
33,295
81,345
789
82,134
Expenses:
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
2
19,721
—
19,723
—
19,723
Management fees
—
—
—
—
6,762
6,762
Loan fulfillment fees
—
—
5,737
5,737
—
5,737
Professional services
—
—
10,844
10,844
2,657
13,501
Compensation
—
—
—
—
2,976
2,976
Loan collection and liquidation
17
2,107
—
2,124
—
2,124
Safekeeping
—
802
53
855
—
855
Loan origination
—
—
213
213
—
213
Other (2)
77
873
31
981
2,367
3,348
96
23,503
16,878
40,477
14,762
55,239
Pretax income (loss)
$
16,460
$
7,991
$
16,417
$
40,868
$
(13,973
)
$
26,895
Total assets at end of quarter
$
1,756,200
$
17,934,880
$
2,408,670
$
22,099,750
$
402,942
$
22,502,692
(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.
51
Quarter ended March 31, 2025
Credit sensitive strategies
Interest rate sensitive strategies
Aggregation and securitization
Reportable segment total
Corporate
Consolidated total
(in thousands)
Net investment income (1):
Net loan servicing fees
$
—
$
(27,210
)
$
—
$
(27,210
)
$
—
$
(27,210
)
Net gains on loans held for sale
—
—
12,344
12,344
—
12,344
Net (losses) gains on investments and financings
Mortgage-backed securities
(1,010
)
65,865
—
64,855
—
64,855
Loans held for investment
2,767
(3,509
)
—
(742
)
—
(742
)
Credit risk transfer arrangements
(1,800
)
—
—
(1,800
)
—
(1,800
)
(43
)
62,356
—
62,313
—
62,313
Net interest expense:
Interest income
19,549
119,896
33,198
172,643
3,448
176,091
Interest expense
18,117
135,332
27,522
180,971
1,166
182,137
1,432
(15,436
)
5,676
(8,328
)
2,282
(6,046
)
Other
(141
)
—
3,205
3,064
—
3,064
1,248
19,710
21,225
42,183
2,282
44,465
Expenses:
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
2
21,727
—
21,729
—
21,729
Management fees
—
—
—
—
7,012
7,012
Loan fulfillment fees
—
—
5,290
5,290
—
5,290
Professional services
—
—
4,880
4,880
2,102
6,982
Compensation
—
—
—
—
2,970
2,970
Loan collection and liquidation
42
1,927
—
1,969
—
1,969
Safekeeping
—
1,034
76
1,110
—
1,110
Loan origination
—
—
686
686
—
686
Other (2)
94
496
166
756
2,260
3,016
138
25,184
11,098
36,420
14,344
50,764
Pretax income (loss)
$
1,110
$
(5,474
)
$
10,127
$
5,763
$
(12,062
)
$
(6,299
)
Total assets at end of quarter
$
1,517,529
$
10,860,903
$
2,045,113
$
14,423,545
$
452,681
$
14,876,226
(1)
All investment income is from external customers. The segments do not recognize intersegment income.
(2)
Other expense includes smaller balance expense categories not separately provided to the chief operating decision maker such as insurance and technology.
Note 26—Regulatory Capital and Liquidity Requirements
The Company, through PMC, is subject to financial eligibility requirements established by the Federal Housing Finance Agency for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac.
The Agencies' capital and liquidity amounts and requirements are summarized below:
Net worth (1)
Tangible net worth / total assets ratio (1)
Liquidity (1)
Actual
Required
Actual
Required
Actual
Required
(dollars in thousands)
March 31, 2026
$
736,807
$
565,233
11
%
6
%
$
456,161
$
207,798
December 31, 2025
$
682,481
$
569,435
9
%
6
%
$
514,626
$
211,818
(1)
Calculated in accordance with the Agencies’ requirements.
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 27—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period, all agreements to repurchase assets that matured before the date of this Report were extended or renewed.
52
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 (this “Report”).
Statements contained in this Report 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 Report and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Report 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 Report to the words “we,” “us,” “our” and the “Company” refer to PMT and its consolidated subsidiaries.
Our Company
We are a specialty finance company that invests in 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. A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our aggregation and securitization activities, including mortgage servicing rights (“MSRs”), senior and subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate and credit-linked MBS, interest-only ("IO") and principal-only ("PO") stripped MBS, and Agency floating rate collateralized mortgage obligations ("CMOs").
We are externally managed by Pennymac Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loan acquisitions related to our acquisitions of correspondent loans for our aggregation and securitization activities are facilitated by PennyMac Loan Services, LLC (“PLS”) which also performs servicing activities for our loans and MSRs. PCM and PLS are both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.
A significant portion of our operations involves Government-Sponsored Enterprises ("GSEs"), specifically the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae"). Freddie Mac and Fannie Mae are each referred to as an “Agency” and, collectively as the "Agencies".
We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and aggregation and securitization (formerly referred to as correspondent production). Non-segment activities are included in our corporate operations.
Our segment and corporate activities are described below.
•
The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our aggregation and securitization activities, subordinate and credit-linked MBS.
•
The interest rate sensitive strategies segment represents our investments in MSRs, Agency pass through MBS and structured products (including IO and PO MBS and floating rate CMOs), senior non-Agency MBS and the related interest rate hedging activities.
•
The aggregation and securitization segment represents our operations in purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.
We sell the loans we acquire through our aggregation and securitization activities primarily to the Agencies and also sell loans to other non-affiliate entities. We also securitize certain of our loans directly and retain interests, such as senior and subordinate MBS, from these securitizations.
•
Our corporate operations include management fees, compensation, professional services, and other amounts attributable to the Company’s corporate operations and certain interest income and expense.
53
Our Investment Activities
Credit Sensitive Investments
CRT Arrangements
We have previously entered into loan sales arrangements with Fannie Mae pursuant to which we accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’s investments in CRT arrangements.
We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.0 billion at March 31, 2026.
Subordinate Mortgage-Backed Securities
Subordinate MBS provide us with a higher yield than senior MBS. However, we incur credit risk since subordinate MBS are the first securities to absorb credit losses relating to the underlying loans. We purchased $4.0 million of MBS backed by residential transition loans during the quarter ended March 31, 2026. We sold our holdings of the credit-linked securities that we account for as MBS that we purchased from nonaffiliates during the year ended 2025.
As the result of the Company’s consolidation of the variable interest entities ("VIEs") that issued certain of our holdings of subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities to the consolidated financial statements included in this Report, we reflect our investments in those securities as loans held for investment and reflect the related securities that we sell to nonaffiliates as asset-backed financings. We invested approximately $189.2 million in such non-Agency subordinate MBS during the quarter ended March 31, 2026 and we held approximately $844.1 million of such securities at March 31, 2026.
Interest Rate Sensitive Investments
Mortgage servicing rights
During the quarter ended March 31, 2026, we received approximately $40.3 million of MSRs as proceeds from sales of loans held for sale. At March 31, 2026, we held MSRs at fair value of approximately $3.6 billion.
Agency, non-Agency and structured MBS
Our investment portfolio includes REIT-eligible Agency MBS and structured products (IO and PO stripped MBS and floating rate CMOs) and senior non-Agency MBS. During the quarter ended March 31, 2026, we sold approximately $477.4 million of our fixed-rate pass-through Agency MBS. At March 31, 2026, the total fair value of these investments was approximately $3.8 billion.
During the quarter ended March 31, 2026, we invested approximately $12.1 million in senior non-Agency MBS from our securitizations of loans secured by investment properties. We account for these investments as loans and reflect the securities we sold to nonaffiliates as asset-backed financings as described above. At March 31, 2026, we held senior non-Agency securities totaling approximately $93.6 million from our securitizations of loans secured by investment properties.
Aggregation and Securitization
Our aggregation and securitization activities involve the acquisition and sale of newly originated prime credit quality residential loans. We acquire loans on a flow basis from correspondent loan sellers facilitated by PLS, as well as through direct bulk purchases of loans from PLS or other nonaffiliate parties. Mortgage aggregation and securitization serves as the source of our investments in MSRs, non-Agency securitizations and, previously, CRT arrangements. Our sales of loans from our aggregation and securitization and investment activities are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Sales of loans held for sale:
To nonaffiliates
$
2,217,203
$
2,613,958
To PennyMac Financial Services, Inc.
—
20,437,666
$
2,217,203
$
23,051,624
Net gains on loans held for sale
$
22,910
$
12,344
Investments resulting from aggregation and securitization:
Retention of interests in securitizations of loans, net of associated asset-backed financings (1)
$
201,301
$
94,021
Receipt of MSRs as proceeds from sales of loans
40,281
47,009
Total investments resulting from aggregation and securitization activities
$
241,582
$
141,030
54
(1)
The trusts issuing these securities are consolidated on our consolidated balance sheets. Therefore, our investments in these securities are shown as their underlying assets, Loans held for investment at fair value, with the securities held by nonaffiliates being shown as Asset-backed financings of variable interest entities at fair value.
Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we have the right to purchase up to 100% of PLS's non-government delegated correspondent production. During the quarter ended March 31, 2026, we purchased newly originated prime credit quality residential loans with fair values totaling $4.8 billion as compared to $24.0 billion for the quarter ended March 31, 2025, from our aggregation and securitization business.
Taxation
We believe that we qualify to be taxed as a REIT 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 applicable 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 aggregation and securitization business, is conducted in our taxable REIT subsidiary (“TRS”), which is subject to corporate federal and state income taxes. Accordingly, we make 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.
We evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of all 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.
Non-Cash Investment Income
A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions. Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”), to record certain of our financial assets (comprised of MBS, loans held for sale and loans held for investment), our derivatives and CRT strips, our MSRs, and our asset-backed financings and IO 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.
The amounts of net non-cash investment income items included in net investment income are as follows:
Quarter ended March 31,
2026
2025
(dollars in thousands)
Net (losses) gains on investments and financings
Mortgage-backed securities
$
(33,407
)
$
64,855
Loans held for investment
(65,803
)
28,681
CRT arrangements
(610
)
(12,648
)
Interest-only security payable
3,418
(1,732
)
Asset-backed financings
62,236
(29,423
)
(34,166
)
49,733
Net gains on loans held for sale (1)
24,096
70,306
Net loan servicing fees‒MSR valuation adjustments (2)
55,343
(81,079
)
$
45,273
$
38,960
Net investment income
$
82,134
$
44,465
Non-cash items as a percentage of net investment income
55
%
88
%
(1)
Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, interest rate lock commitments (“IRLCs") and hedging derivatives held at the end of the quarter.
(2)
Includes fair value changes due to changes in fair value inputs and fair value changes related to MSR derivative hedging instruments held at the end of the quarter.
55
We receive or pay cash relating to:
•
MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments;
•
Loan investments when the loans are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold;
•
CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangement in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid;
•
MSRs in the form of loan servicing fees (including both base servicing and excess servicing spread), ancillary fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service;
•
Hedging instruments when we receive or make margin deposits as the fair value of respective instruments change, when the instruments mature or when we effectively cancel the transactions through offsetting trades; and
•
Our liability for representations and warranties when we repurchase loans or settle loss claims from investors.
Business Trends
Recent macroeconomic and federal government actions related to trade, tariffs, government cost reduction initiatives, military action, inflation, and interest rates have contributed to volatility in financial markets and uncertainty regarding the economic outlook. Elevated interest rates in recent years have constrained growth in the mortgage origination market, which mortgage industry economists currently project will increase from $1.9 trillion in 2025 to $2.3 trillion in 2026.
The opportunity for refinancing has increased, driven by interest rate volatility and a greater proportion of outstanding mortgages with note rates near current market rates. If such volatility continues, it may lead to higher mortgage production activity and increased prepayment speeds compared to recent years.
The ongoing economic uncertainty and market volatility could result in reduced economic activity and slowing home price growth or depreciation, which may increase mortgage delinquencies or defaults and negatively affect the performance of our credit-sensitive assets, including CRT arrangements and subordinate MBS, as well as increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to moderate the negative effects of credit performance in an economic downturn.
We expect to purchase a portion of PLS's conventional conforming correspondent loans and all non-Agency correspondent loans in the second quarter of 2026. We also expect to continue investing in subordinate MBS generated from non-Agency securitizations, which is expected to increase our asset-back financing of VIEs.
56
Results of Operations
The following is a summary of our key performance measures:
Quarter ended March 31,
2026
2025
(dollar amounts in thousands, except per common share amounts)
Net loan servicing fees
$
83,586
$
(27,210
)
Loan production income (1)
25,285
15,496
Net (losses) gains on investments and financings
(23,063
)
62,313
Net interest expense
(3,659
)
(6,046
)
Other
(15
)
(88
)
Net investment income
82,134
44,465
Expenses
55,239
50,764
Pretax income (loss)
26,895
(6,299
)
Provision for (benefit from) income taxes
2,279
(15,979
)
Net income
24,616
9,680
Dividends on preferred shares
10,455
10,455
Net income (loss) attributable to common shareholders
$
14,161
$
(775
)
Pretax income by segment and corporate:
Credit sensitive strategies
$
16,460
$
1,110
Interest rate sensitive strategies
7,991
(5,474
)
Aggregation and securitization
16,417
10,127
Corporate operations
(13,973
)
(12,062
)
$
26,895
$
(6,299
)
Annualized return on average common shareholders' equity
4.2
%
(0.2
)%
Earnings (losses) per common share
Basic
$
0.16
$
(0.01
)
Diluted
$
0.16
$
(0.01
)
Dividends per common share
$
0.40
$
0.40
March 31, 2026
December 31, 2025
Total assets
$
22,502,692
$
21,346,882
Book value per common share
$
14.98
$
15.25
Closing price per common share
$
11.66
$
12.55
(1)
Includes net gains on sales of loans and loan origination fees.
Our results of operations increased by $14.9 million during the quarter ended March 31, 2026, as compared to the quarter ended March 31, 2025, reflecting the effect of increased gains on our CRT-related investments and MSRs partially offset by increased losses on MBS.
The increase in pretax results is summarized below:
•
Our credit sensitive strategies segment recognized a $15.7 million increase in net gains on our CRT arrangements as market credit spreads (which represent the interest rate premium demanded by investors for instruments over those that are considered “risk free”) tightened, which resulted in higher fair values during the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025.
•
Our interest rate sensitive strategies segment recognized a $110.8 million increase in net servicing fees primarily driven by a reduction in MSR valuation losses due to increases in interest rates during the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025. Net interest expense also decreased by $2.5 million, which further contributed to the overall increase in net results. These benefits were partially offset by a $99.3 million increase in valuation losses on MBS.
•
Our aggregation and securitization segment recognized a $10.6 million increase in gain on sale during the quarter ended March 31, 2026, primarily driven by higher correspondent lock volumes and margins, including higher volumes of jumbo loans, as well as favorable non-Agency execution.
57
Net Investment Income
Our net investment income is summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Net loan servicing fees
$
83,586
$
(27,210
)
Net gains on loans held for sale
22,910
12,344
Loan origination fees
2,375
3,152
Net (losses) gains on investments and financings
(23,063
)
62,313
Net interest expense
(3,659
)
(6,046
)
Other
(15
)
(88
)
$
82,134
$
44,465
Net Loan Servicing Fees
Our net loan servicing fees have two primary components: fees earned for servicing loans and the effects of MSR valuation changes, net of hedging results, as summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Loan servicing fees
$
150,959
$
156,116
Effect of mortgage servicing rights and hedging results
(67,373
)
(183,326
)
Net loan servicing fees
$
83,586
$
(27,210
)
Loan Servicing Fees
Following is a summary of our loan servicing fees:
Quarter ended March 31,
2026
2025
(in thousands)
Contractually specified servicing fees
$
147,592
$
152,199
Ancillary and other fees:
Late charges
1,071
1,027
Other
2,296
2,890
3,367
3,917
$
150,959
$
156,116
Average UPB of underlying loans
$
214,185,523
$
225,515,018
Loan servicing fees are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the unpaid principal balance (“UPB”) of the loans serviced and we collect these fees from borrower payments. Other loan servicing fees are comprised primarily of borrower-contracted fees, such as late charges and reconveyance fees, as well as incentive fees we receive from the Agencies for loss mitigation activities and fees charged to correspondent lenders for loans repaid by the borrower shortly after purchase.
The change in contractually-specified fees during the quarter ended March 31, 2026 is due primarily to the slight reduction in our MSR servicing portfolio, reflecting a reduction in the volume of loans we acquire for sale, as well as a decline in the weighted average servicing fee of the MSRs.
Mortgage Servicing Rights and Hedging
We have elected to carry our MSRs at fair value. Changes in fair value have two components: changes due to realization of the expected servicing cash flows and changes due to changes in the inputs used to estimate fair value. We endeavor to moderate the effects of changes in fair value attributable to changes in fair value inputs (market conditions) primarily by entering into derivative transactions.
58
Changes in fair value of MSRs and hedging results are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Change in fair value of MSRs
Changes in valuation inputs used in valuation model
$
45,587
$
(55,831
)
Recapture income from PFSI
5,807
1,208
Hedging results
(11,881
)
(39,944
)
39,513
(94,567
)
Realization of expected cash flows
(106,886
)
(88,759
)
$
(67,373
)
$
(183,326
)
Average balance of mortgage servicing rights
$
3,609,820
$
3,816,665
Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates. Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2026 reflect the effects of expectations for slower future prepayments of the underlying loans due to increases in interest rates which extended the expected life of the servicing cash flows during the quarter ended March 31, 2026 compared to the same period in 2025.
We have an agreement with PFSI that requires that when PFSI refinances a loan for which we held the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ Transactions with Related Parties – Operating Activities to the consolidated financial statements included in this Report. The increase in loan recapture income from PFSI reflects elevated refinancing activity within our MSR portfolio due to declines and volatility in interest rates before the end of the quarter ended March 31, 2026, when interest rates were lower.
Hedging results during the quarter ended March 31, 2026 were primarily attributable to the impact of increasing interest rates as well as the embedded costs of maintaining the hedge positions. Our hedging activities are intended to manage our net exposure across all interest rate sensitive strategies, which include MSRs, MBS and related tax effects.
Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of remaining cash flows to be realized as well as realized prepayment performance.
Following is a summary of our loan servicing portfolio:
March 31, 2026
December 31, 2025
(in thousands)
UPB of loans outstanding
$
212,198,589
$
215,781,639
Collection status (unpaid principal balance)
Delinquency:
30-89 days delinquent
$
2,295,456
$
2,605,536
90 or more days delinquent:
Not in foreclosure
$
1,009,465
$
1,032,221
In foreclosure
$
139,801
$
118,768
Bankruptcy
$
362,786
$
355,808
59
Following is a summary of characteristics of our MSR servicing portfolio as of March 31, 2026:
Average
Loan type
Unpaid principal balance
Loan count
Note rate
Seasoning (months)
Remaining maturity (months)
Loan size
FICO credit score at origination
Original LTV (1)
Current LTV (1)
60+ Delinquency (by UPB)
(Dollars and loan count in thousands)
Agency:
Freddie Mac
$
104,697,213
380
3.9
%
52
296
$
276
762
75
%
55
%
0.6
%
Fannie Mae
102,946,525
407
3.8
%
62
288
$
253
757
76
%
51
%
1.0
%
Other (2)
4,554,851
15
5.2
%
43
315
$
301
763
72
%
58
%
0.8
%
$
212,198,589
802
3.9
%
57
293
$
265
760
75
%
53
%
0.8
%
(1)
Loan-to-value.
(2)
Represents MSRs on conventional loans sold to private investors.
Net Gains on Loans Held for Sale
Our net gains on loans held for sale are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
From nonaffiliates:
Cash losses:
Sales of loans
$
(40,257
)
$
(1,915
)
Hedging activities
39,071
(58,062
)
(1,186
)
(59,977
)
Non-cash gains:
Receipt of MSRs in loan sale transactions
40,281
47,009
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loan sales
(310
)
(304
)
Reduction in liability due to change in estimate
442
1,168
132
864
Changes in fair value of financial instruments held at end of quarter:
Interest rate lock commitments
(5,621
)
4,174
Loans
13,304
(13,444
)
Hedging derivatives
(24,000
)
31,703
(16,317
)
22,433
24,096
70,306
Total from nonaffiliates
22,910
10,329
From PFSI—cash
—
2,015
$
22,910
$
12,344
Interest rate lock commitments issued on loans held for sale (unpaid principal balance):
To nonaffiliates
$
3,706,378
$
2,735,356
To PFSI
—
22,095,355
$
3,706,378
$
24,830,711
Acquisition of loans for sale (unpaid principal balance):
To nonaffiliates
$
445,426
$
2,781,722
To PFSI
4,296,778
20,223,633
$
4,742,204
$
23,005,355
The changes in Net gains on loans held for sale at fair value during the quarter ended March 31, 2026, as compared to the same period in 2025, were primarily driven by higher correspondent lock volumes and margins, including higher volumes of jumbo loans, as well as favorable non-Agency execution.
60
Non-cash elements of gain on sale of loans:
Interest Rate Lock Commitments
Our Net gains on loans held for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair values of our IRLCs as the loan acquisition process progresses until we complete the acquisitions or the commitments are canceled. Such adjustments are included in our Net gains on loans held for sale at fair value. The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans. The methods and key inputs we use to measure the fair values of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
The MSRs and liabilities for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our consolidated statements of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our income.
Mortgage Servicing Rights
The methods we use to measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.
Liability for Losses Under Representations and Warranties
We recognize liabilities for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions. The representations and warranties we provide require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local laws.
In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects, reimburse the investor for its loss or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit losses on the loans. Our credit losses may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.
We recorded a provision for losses relating to representations and warranties relating to current period loan sales of $310,000 and $304,000 for the quarters ended March 31, 2026 and 2025, respectively.
61
Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:
Quarter ended March 31,
2026
2025
(in thousands)
Indemnification activity (unpaid principal balance):
Loans indemnified at beginning of quarter
$
16,207
$
15,289
New indemnifications
675
493
Less: indemnified loans sold, repaid or refinanced
—
—
Loans indemnified at end of period
$
16,882
$
15,782
Indemnified loans indemnified by correspondent lenders at end of quarter
$
6,045
$
6,045
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter
$
6,108
$
5,488
Repurchase activity (unpaid principal balance):
Loans repurchased
$
3,601
$
4,846
Less:
Loans repurchased by correspondent sellers
3,611
4,783
Loans resold or repaid by borrowers
1,286
2,703
Net loans (resolved) repurchased with losses chargeable to liability to representations and warranties
$
(1,296
)
$
(2,640
)
Losses charged to liability for representations and warranties
$
—
$
67
At end of quarter:
Loans subject to representations and warranties
$
211,156,467
$
220,977,898
Liability for representations and warranties
$
5,152
$
5,955
The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers. As the outstanding balance of loans we purchase and sell subject to representations and warranties increases, as the loans outstanding 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, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers. We establish a liability at our estimate of its fair value at the time loans are sold and review the adequacy of our recorded liability on a periodic basis.
The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, investor and guarantor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans. We may be required to incur losses related to such representations and warranties for several periods after the loans are sold or liquidated.
We record adjustments to our liability for losses on representations and warranties as economic fundamentals change, 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. Such adjustments may be material to our financial position and results of operations in future periods.
Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans held for sale at fair value. We recorded a $0.4 million and $1.2 million reduction in liability for representations and warranties during the quarters ended March 31, 2026 and 2025, respectively, due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.
Loan Origination Fees
Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan origination fees decreased during the quarter ended March 31, 2026, reflecting an overall decrease in our purchase volume of loans for sale. The reduction is related to activity-based expenses, including tax service fees and boarding fees associated with loans held for sale.
62
Net (losses) gains on investments and financings
Net (losses) gains on investments and financings are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Mortgage-backed securities
$
(33,407
)
$
64,855
Loans held for investment
(65,803
)
28,681
CRT arrangements
13,911
(1,800
)
Asset-backed financings
62,236
(29,423
)
$
(23,063
)
$
62,313
The decrease in net gains on investments for the quarter ended March 31, 2026, as compared to the same period in 2025, was primarily due to losses from our investments in MBS as interest rates increased, partially offset by increased gains in our CRT arrangements as credit spreads tightened during the quarter ended March 31, 2026, as compared to the quarter ended March 31, 2025.
Mortgage-Backed Securities
During the quarter ended March 31, 2026, we recognized net valuation losses of $33.4 million, as compared to valuation gains of $64.9 million for the same period in 2025. The loss recognized reflects increasing interest rates during the quarter ended March 31, 2026, as compared to decreasing interest rates during the quarter ended March 31, 2025.
Loans Held for Investment at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value
Loans held for investment held in VIEs and Asset-backed financings of variable interest entities at fair value recorded combined net valuation losses of $3.6 million during the quarter ended March 31, 2026, as compared to a net loss of $0.7 million during the quarter ended March 31, 2025. The net loss during the quarter ended March 31, 2026 reflects the losses on the underlying assets exceeding the gains on the asset-backed financing as the result of increasing interest rates, which unfavorably affected the fair value of our net investments.
CRT Arrangements
The activity in and balances relating to our CRT arrangements are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Net investment income:
Net (losses) gains on investments and financings
Credit risk transfer derivatives and strips:
Credit risk transfer derivatives
Realized
$
2,548
$
2,803
Valuation changes
(2,416
)
(823
)
132
1,980
Credit risk transfer strips
Realized
8,555
9,777
Valuation changes
1,806
(11,825
)
10,361
(2,048
)
Interest-only security payable at fair value — valuation changes
3,418
(1,732
)
13,911
(1,800
)
Interest income — Deposits securing credit risk transfer arrangements
8,892
11,675
$
22,803
$
9,875
Net payments made to settle losses on credit risk transfer arrangements
$
1,368
$
1,243
63
March 31, 2026
December 31, 2025
(in thousands)
Carrying value of credit risk transfer arrangements:
Derivative assets - credit risk transfer derivatives
$
30,174
$
32,659
Derivative and credit risk transfer liabilities - credit risk transfer strips
(4,062
)
(5,999
)
Deposits securing credit risk transfer arrangements
969,725
1,009,334
Interest-only security payable at fair value
(34,232
)
(37,650
)
$
961,605
$
998,344
Credit risk transfer arrangement assets pledged to secure borrowings:
Derivative assets
$
30,174
$
32,659
Deposits securing credit risk transfer arrangements (1)
$
969,725
$
1,009,334
Unpaid principal balance of loans underlying credit risk transfer arrangements
$
18,715,937
$
19,517,530
Collection status (unpaid principal balance):
Delinquency
Current
$
18,166,705
$
18,908,261
30-89 days delinquent
$
363,958
$
413,295
90-179 days delinquent
$
96,209
$
110,486
180 or more days delinquent
$
62,748
$
57,798
Foreclosure
$
26,317
$
27,690
Bankruptcy
$
60,687
$
68,426
(1)
Deposits securing credit risk transfer strip liabilities arrangements also secure $4.1 million and $6.0 million in CRT strip and CRT derivative liabilitiesat March 31, 2026 and December 31, 2025, respectively.
The performance of our investments in CRT arrangements during the quarter ended March 31, 2026 reflects credit spread tightening during the quarter ended March 31, 2026 as compared to credit spreads widening during the quarter ended March 31, 2025.
Net Interest Expense
Net interest expense: is summarized below:
Quarter ended March 31, 2026
Quarter ended March 31, 2025
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
$
4,976
$
572,549
3.52
%
$
5,686
$
517,590
4.47
%
Mortgage-backed securities
56,249
4,268,685
5.34
%
58,234
4,059,457
5.83
%
Loans held for sale
39,563
2,615,661
6.13
%
33,235
1,997,488
6.77
%
Loans held for investment
133,759
9,695,900
5.59
%
33,679
2,626,335
5.21
%
Deposits securing CRT arrangements
8,892
999,630
3.61
%
11,675
1,101,503
4.31
%
243,439
18,152,425
5.44
%
142,509
10,302,373
5.63
%
Placement fees relating to custodial funds
31,448
32,029
Other
1,204
1,553
$
276,091
$
18,152,425
6.17
%
$
176,091
$
10,302,373
6.95
%
Liabilities:
Assets sold under agreements to repurchase
$
91,392
$
7,812,433
4.74
%
$
81,148
$
6,180,911
5.34
%
Mortgage loan participation purchase and sale agreements
31
—
—
152
8,653
7.14
%
Notes payable secured by credit risk transfer and mortgage servicing assets
41,260
2,316,141
7.22
%
55,255
2,830,048
7.94
%
Unsecured senior notes
20,274
977,333
8.41
%
13,613
708,917
7.81
%
Asset-backed financings
120,540
8,827,189
5.54
%
28,715
2,633,042
4.43
%
273,497
19,933,096
5.56
%
178,883
12,361,571
5.88
%
Interest shortfall on repayments of loans serviced for Agency securitizations
4,430
1,429
Interest on loan impound deposits
1,696
1,454
Other
127
371
279,750
$
19,933,096
5.69
%
182,137
$
12,361,571
5.99
%
$
(3,659
)
$
(6,046
)
64
The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:
Quarter ended March 31, 2026
vs.
Quarter ended March 31, 2025
Increase (decrease) due to changes in
Rate
Volume
Total
(in thousands)
Assets:
Cash and short-term investments
$
(1,276
)
$
566
$
(710
)
Mortgage-backed securities
(4,949
)
2,964
(1,985
)
Loans held for sale
(3,302
)
9,630
6,328
Loans held for investment
2,637
97,443
100,080
Deposits securing CRT arrangements
(1,776
)
(1,007
)
(2,783
)
(8,666
)
109,596
100,930
Placement fees relating to custodial funds
(581
)
Other
(349
)
$
(8,666
)
$
109,596
$
100,000
Liabilities:
Assets sold under agreements to repurchase
$
(9,674
)
$
19,918
$
10,244
Mortgage loan participation purchase and sale agreements
(61
)
(60
)
(121
)
Notes payable secured by credit risk transfer and mortgage servicing assets
(4,641
)
(9,354
)
(13,995
)
Unsecured senior notes
1,130
5,531
6,661
Asset-backed financings
8,781
83,044
91,825
(4,465
)
99,079
94,614
Interest shortfall on repayments of loans serviced for Agency securitizations
3,001
Interest on loan impound deposits
242
Other
(244
)
(4,465
)
99,079
97,613
$
(4,201
)
$
10,517
$
2,387
The decrease in net interest expense during the quarter ended March 31, 2026, as compared to the same period in 2025, is due to an increased volume of interest earning assets held for investment and decreased costs of repurchase agreement financing in relation to the long-lived assets they finance, along with reduced note payable financing of MSRs and CRT arrangements.
Expenses
Our expenses are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees
$
19,723
$
21,729
Management fees
6,762
7,012
Loan fulfillment fees
5,737
5,290
Professional services
13,501
6,982
Compensation
2,976
2,970
Loan collection and liquidation
2,124
1,969
Safekeeping
855
1,110
Loan origination
213
686
Other
3,348
3,016
$
55,239
$
50,764
Expenses increased $4.5 million, or 9%, during the quarter ended March 31, 2026, as compared to the same period in 2025, as discussed below.
65
Loan Servicing Fees
Loan servicing fees payable to PLS are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Loan servicing fees:
Loans held for sale
$
155
$
223
Loans held for investment
516
168
Mortgage servicing rights
19,052
21,338
$
19,723
$
21,729
Average investment in loans:
Held for sale
$
2,615,661
$
1,997,488
Held for investment
$
9,695,900
$
2,626,335
Average MSR portfolio unpaid principal balance
$
214,185,523
$
225,515,018
Mortgage servicing rights recapture fees
$
5,807
$
1,208
Unpaid principal balance of loans recaptured
$
550,998
$
159,472
Loan servicing fees decreased by $2.0 million during the quarter ended March 31, 2026, as compared to the same period in 2025, reflecting a decrease in the MSR portfolio as well as reduction in the subservicing fee rate implemented in October 2025, as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.
Management Fees
Management fees payable to PCM are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Base fee
$
6,762
$
7,012
Average shareholders' equity amounts used to calculate base management fee expense
$
1,828,237
$
1,895,785
Management fees decreased by $250,000 during the quarter ended March 31, 2026, as compared to the same period in 2025. This decrease reflects the effect of the decrease in our average shareholders’ equity on our base management fee.
Loan Fulfillment Fees
Loan 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 loans. Fulfillment fees increased by $0.4 million during the quarter ended March 31, 2026, as compared to the same period in 2025. The increase was due to the increase in the volume of loans purchased for sale to nonaffiliates and an increase in our non-Agency sales and securitizations. Our loan fulfillment fee structure is described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Professional services
Professional services expense increased by $6.5 million during the quarter ended March 31, 2026, as compared to the same period in 2025, due to increased legal and consulting fees in support of the increase in our securitization activities.
Loan collection and liquidation
Loan collection and liquidation expenses increased by $155,000 during the quarter ended March 31, 2026, as compared to the same period in 2025, due to increased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs.
66
Other Expenses
Other expenses are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Bank service charges
$
1,015
$
697
Common overhead allocation from PFSI
949
982
Technology
489
415
Insurance
486
450
Other
409
472
$
3,348
$
3,016
Income Taxes
We have elected to treat PennyMac Corp. (“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 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.
The Company’s effective tax rate was 8.5% and 253.7% with consolidated pretax income of $26.9 million and pretax loss of $6.3 million for the quarters ended March 31, 2026 and March 31, 2025, respectively. The Company’s TRS recognized a tax expense of $2.9 million on pretax income of $964,000 for the quarter ended March 31, 2026. For the same period in 2025, the TRS recognized a tax benefit of $17.2 million on a pretax loss of $75.3 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally 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, 2026, the valuation allowance remains zero. The TRS has a significant net deferred tax liability position, which indicates the TRS will utilize all of its deferred tax assets. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.
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. The 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends which was made permanent under the One Big Beautiful Bill Act of 2025.
67
Balance Sheet Analysis
Following is a summary of key balance sheet items as of the dates presented:
March 31,
December 31,
2026
2025
(in thousands)
Assets
Cash and short-term investments
$
401,647
$
462,488
Mortgage-backed securities at fair value
3,765,539
4,452,859
Loans held for sale
2,349,895
2,699,398
Loans held for investment
10,867,942
8,532,644
Derivative assets
54,589
55,943
Deposits securing credit risk transfer arrangements
969,725
1,009,334
Mortgage servicing rights and servicing advances
3,703,179
3,741,532
22,112,516
20,954,198
Other
390,176
392,684
Total assets
$
22,502,692
$
21,346,882
Liabilities
Debt:
Short-term
$
7,300,692
$
8,018,601
Long-term:
Recourse
3,081,051
3,286,428
Non-recourse
9,937,747
7,826,953
13,018,798
11,113,381
20,319,490
19,131,982
Other
316,646
327,569
Total liabilities
20,636,136
19,459,551
Shareholders’ equity
1,866,556
1,887,331
Total liabilities and shareholders’ equity
$
22,502,692
$
21,346,882
Total assets increased by approximately $1.2 billion, or 5%, from December 31, 2025 to March 31, 2026, primarily due to an increase of $2.3 billion in Loans held for investment at fair value, offset by a reduction of $687.3 million in Mortgage-backed securities at fair value and a decrease of $349.5 million in Loans held for sale at fair value. The increase in Loans held for investments at fair value reflect the Company’s ongoing securitizations of loans in non-Agency securitizations. As described in Note 6 – Variable Interest Entities to the consolidated financial statements included in this Report, such transactions are accounted for as on-balance sheet financings, with the loans included in Loans held for investment at fair value and the securities sold treated as Asset-backed financings of variable interest entities at fair value.
Asset Acquisitions
Our asset acquisitions are summarized below:
Aggregation and Securitization
Following is a summary of our acquisitions of mortgage loans for our aggregation and securitization activities at fair value:
Quarter ended March 31,
2026
2025
(in thousands)
Aggregation and securitization loan purchases:
GSE-eligible loans (1)
$
3,656,582
$
12,194,110
Jumbo
1,087,312
348,740
Non-qualified
89,615
—
Government insured or guaranteed (2)
—
11,449,035
$
4,833,509
$
23,991,885
(1)
GSE eligibility refers to the eligibility of loans for sale to Fannie Mae or Freddie Mac. The Company sells or finances a portion of its GSE eligible loan production to or with other investors, including PLS.
(2)
Through June 30, 2025, the Company sold all of its loans eligible for inclusion in Ginnie Mae securities to PLS. The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed loans.
68
The Company earned a sourcing fee for all loans that it purchased from correspondent sellers and subsequently sold to PLS as described in Note 4 – Transactions with Related Parties – Operating Activities – Aggregation and Securitization Activities.
During the quarter ended March 31, 2026, we purchased for sale $4.8 billion in fair value of loans related to our aggregation and securitization activities as compared to $24.0 billion during the quarter ended March 31, 2025. The decrease in loan purchases relates to PFSI's assumption of the role of initial purchaser of correspondent loans starting July 1, 2025 as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.
Other Investment Activities
Following is a summary of our net acquisitions (sales) of mortgage-related investments held in our credit sensitive strategies and interest rate sensitive strategies segments:
Quarter ended March 31,
2026
2025
(in thousands)
Credit sensitive assets:
Loans secured by owner-occupied properties and jumbo loans, net of associated asset-backed financing (subordinate MBS)
$
189,240
$
65,535
Subordinate bond secured by residential transition loans
4,000
—
193,240
65,535
Interest rate sensitive assets:
Mortgage servicing rights received in loan sales
40,281
47,009
Loans secured by owner occupied properties, net of associated asset-backed financing (senior MBS)
12,061
28,486
Agency fixed-rate pass-through securities
(477,360
)
—
(425,018
)
75,495
$
(231,778
)
$
141,030
Our acquisitions during the quarters ended March 31, 2026 and 2025 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. 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 portfolio growth will depend on our ability to raise additional equity capital.
Investment Portfolio Composition
Mortgage-Backed Securities
Following is a summary of our MBS holdings:
March 31, 2026
December 31, 2025
Average
Average
Fair value
Principal/ notional
Life (in years)
Coupon
Fair value
Principal/ notional
Life (in years)
Coupon
(dollars in thousands)
Agency pass-through
$
2,266,153
$
2,246,463
7.4
5.4
%
$
2,850,447
$
2,805,895
7.6
5.3
%
Floating rate collateralized mortgage obligations
829,592
822,780
7.1
4.8
%
855,997
850,172
6.8
5.0
%
Principal-only stripped
455,909
549,048
4.4
0.1
%
521,129
610,256
4.1
0.1
%
Senior non-Agency
138,456
142,612
6.0
5.3
%
152,784
155,369
5.4
5.4
%
Subordinate residential transition
4,000
4,000
3.9
9.1
%
—
—
—
—
3,694,110
$
3,764,903
4,380,357
$
4,421,692
Interest-only stripped securities
71,429
$
333,848
7.5
4.8
%
72,502
$
344,592
7.7
4.8
%
$
3,765,539
$
4,452,859
Our Mortgage-backed securities at fairvalue does not include any mortgage-backed securities held from variable interest entities that we consolidate.
69
Credit Risk Transfer Arrangements
Following is a summary of our investment in CRT arrangements:
March 31, 2026
December 31, 2025
(in thousands)
Carrying value of CRT arrangements:
Derivative assets - CRT derivatives
$
30,174
$
32,659
Derivative and credit risk transfer strip liabilities- CRT strips
(4,062
)
(5,999
)
Deposits securing CRT arrangements
969,725
1,009,334
Interest-only security payable at fair value
(34,232
)
(37,650
)
$
961,605
$
998,344
UPB of loans subject to credit guarantee obligations
$
18,715,937
$
19,517,530
Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2026:
Year of origination
2020
2019
2018
2017
2016
2015
Total
(in millions)
UPB:
Outstanding
$
3,949
$
8,896
$
2,303
$
2,011
$
1,555
$
2
$
18,716
Liquidations:
Balances
$
2.3
$
13.7
$
67.5
$
177.4
$
129.1
$
63.2
$
453.2
Losses
$
0.2
$
1.9
$
7.1
$
22.7
$
14.0
$
7.9
$
53.8
Modifications (1):
Balances
$
74.1
$
590.5
$
319.3
$
—
$
—
$
—
$
983.9
Losses
$
2.7
$
29.6
$
22.4
$
—
$
—
$
—
$
54.7
Weighted average:
Original debt-to income ratio
33.5
%
35.9
%
39.2
%
36.8
%
35.1
%
36.7
%
35.8
%
Origination:
FICO credit score
765
754
735
743
750
749
753
Loan-to value ratio
80.6
%
83.3
%
83.5
%
82.6
%
80.6
%
76.9
%
82.4
%
Current loan-to value ratio (2)
48.3
%
48.2
%
46.4
%
41.5
%
37.1
%
36.1
%
46.4
%
(1)
Includes only modifications that generate losses according to the terms of the CRT arrangements.
(2)
Based on current UPB compared to estimated fair value of the property securing the loan.
Year of origination
Distribution by state
2020
2019
2018
2017
2016
2015
Total
(in millions)
California
$
425
$
902
$
299
$
223
$
314
$
1
$
2,164
Florida
430
844
291
208
160
—
1,933
Texas
454
760
182
171
186
—
1,753
Virginia
214
398
85
90
107
—
894
Maryland
157
386
107
117
103
—
870
Other
2,269
5,606
1,339
1,202
685
1
11,102
$
3,949
$
8,896
$
2,303
$
2,011
$
1,555
$
2
$
18,716
Year of origination
Regional geographic distribution (1)
2020
2019
2018
2017
2016
2015
Total
(in millions)
Southeast
$
1,339
$
3,022
$
816
$
683
$
479
$
—
$
6,339
West
859
1,876
588
451
455
1
4,230
Southwest
1,009
1,939
430
395
280
—
4,053
Northeast
375
1,129
273
294
200
1
2,272
Midwest
367
930
196
188
141
—
1,822
$
3,949
$
8,896
$
2,303
$
2,011
$
1,555
$
2
$
18,716
70
(1)
Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV; West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY; Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX, UT; Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT, VI and Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD, WI.
Year of origination
Collection status
2020
2019
2018
2017
2016
2015
Total
(in millions)
Delinquency
Current - 89 Days
$
3,931
$
8,816
$
2,250
$
1,985
$
1,547
$
2
$
18,531
90 - 179 Days
8
44
26
12
6
—
96
180+ Days
6
27
19
9
2
—
63
Foreclosure
4
9
8
5
—
—
26
$
3,949
$
8,896
$
2,303
$
2,011
$
1,555
$
2
$
18,716
Bankruptcy
$
3
$
32
$
13
$
9
$
4
$
—
$
61
Cash Flows
Our cash flows for the quarters ended March 31, 2026 and 2025 are summarized below:
Quarter ended March 31,
2026
2025
(in thousands)
Operating activities
$
(2,529,366
)
$
(594,267
)
Investing activities
1,265,532
40,228
Financing activities
1,205,822
464,286
Net cash flows
$
(58,012
)
$
(89,753
)
Our cash flows resulted in a net decrease in cash of $58.0 million during the quarter ended March 31, 2026, as discussed below.
Operating activities
Cash used in operating activities totaled $2.5 billion during the quarter ended March 31, 2026, as compared to cash used in our operating activities of $594.3 million during the quarter ended March 31, 2025. Cash flows from operating activities are influenced by cash flows from loans held for sale as shown below:
Quarter ended March 31,
2026
2025
(in thousands)
Operating cash flows from:
Loans held for sale
$
(2,619,907
)
$
(945,106
)
Other
90,541
350,839
$
(2,529,366
)
$
(594,267
)
The primary source of negative operating cash flow from loans held for sale relates to the transfer of loans to held for investment pursuant to our securitization activities. The securitization of portions of our aggregation and securitization activities and cash received from such securitizations is accounted for as a financing activity. We may sell these loans based on market conditions before committing to securitize the loans.
Investing activities
Net cash provided by our investing activities was $1.3 billion for the quarter ended March 31, 2026, driven by significant sales of MBS, as compared to net cash provided by our investing activities of $40.2 million for the quarter ended March 31, 2025.
Financing activities
Net cash provided by our financing activities was $1.2 billion for the quarter ended March 31, 2026, as compared to net cash provided by our financing activities of $464.3 million for the quarter ended March 31, 2025. This change primarily reflects the increase in borrowings required to finance newly created investments from our ongoing securitization efforts during the quarter ended March 31, 2026.
71
As discussed below in Liquidity and Capital Resources, we continually evaluate 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 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 PLS, 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 cash flows from our investment portfolio, including 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.
We expect to continue investing in subordinate MBS generated from non-Agency securitizations which are also expected to increase our VIEs' asset-backed financings.
Debt Financing
Our current debt financing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements that have allowed us to match the term of our borrowings more closely to the expected lives of the assets securing those borrowings. We have also borrowed money by issuing unsecured senior notes.
72
A substantial portion of our balance sheet includes assets that are shown as their underlying assets as opposed to the securitized form in which they are held. These assets and the reason for their accounting treatment are discussed in Note 6—Variable Interest Entities to the consolidated financial statements included in this Report. The following table adjusts the presentation of our balance sheet to a more creditor-aligned view of the relationship of our debt to the assets in the securitized form those assets are financed. The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as presented in compliance with GAAP.
March 31, 2026
Assets (1)
Financing
Consolidated
Adjustments for VIE Financing (2)
Excluding VIE Financing
Assets sold under agreements to repurchase
Notes payable secured by CRT arrangements and MSRs
Total
(in thousands except for debt-to equity amounts)
Assets
Cash and short-term investments
$
401,647
$
—
$
401,647
$
—
$
—
$
—
Mortgage-backed securities at fair value
Agency-backed securities
3,623,083
—
3,623,083
3,589,576
—
3,589,576
Senior non-agency securities
138,456
—
138,456
134,415
—
134,415
Subordinate residential transition
4,000
—
4,000
2,800
—
2,800
Credit risk transfer securities relating to consolidated variable interest entities
—
961,605
961,605
115,606
595,633
711,239
Non-agency securities relating to consolidated variable interest entities
—
837,462
837,462
746,063
—
746,063
3,765,539
1,799,067
5,564,606
4,588,460
595,633
5,184,093
Loans held for sale at fair value
2,349,895
—
2,349,895
2,179,518
—
2,179,518
Loans held for investment at fair value
10,867,942
(10,866,292
)
1,650
—
—
—
Derivative assets
54,589
(30,174
)
24,415
—
—
—
Deposits securing credit risk transfer arrangements
969,725
(969,725
)
—
—
—
—
Mortgage servicing rights and servicing advances
3,703,179
125,315
3,828,494
532,714
1,800,912
2,333,626
22,112,516
(9,941,809
)
12,170,707
7,300,692
2,396,545
9,697,237
Other
390,176
—
390,176
—
—
—
Total assets and secured financing
$
22,502,692
$
(9,941,809
)
$
12,560,883
$
7,300,692
$
2,396,545
9,697,237
Unsecured debt
684,506
Debt excluding non-recourse
10,381,743
Debt in consolidated variable interest entities (2)
9,937,747
Total debt (3)
$
20,319,490
Equity
$
1,866,556
Debt-to equity ratio:
Excluding non-recourse debt (4)
5.6:1
Total (5)
10.9:1
(1)
The balance sheet information depicted under the column captioned “Consolidated” represents information prepared in compliance with GAAP. The subsequent columns reflect non-GAAP adjustments to deconsolidate the assets held in the trusts issuing beneficial interests in those assets and to provide investors with a more creditor-aligned view of how our debt relates to the assets we finance. After adjustment, the assets are shown in the securitized form in which they are financed which excludes non-recourse debt which we refer to as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheet. The adjusted balance sheet information should not be considered in isolation or as a substitute for an analysis of our results as presented in compliance with GAAP.
(2)
Does not include adjustments for credit risk transfer strip liabilities of $4.1 million.
(3)
Excludes non-debt liabilities of $316.6 million included in total liabilities on our consolidated balance sheet.
(4)
Total debt reduced by asset-backed financings and interest-only security payable, divided by shareholders’ equity.
(5)
Total debt divided by shareholders’ equity.
73
Sales of Assets Under Agreements to Repurchase
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 March 31,
Assets sold under agreements to repurchase
2026
2025
(in thousands)
Average balance outstanding
$
7,812,433
$
6,180,911
Maximum daily balance outstanding
$
8,673,233
$
7,068,600
Ending balance (UPB)
$
7,304,211
$
6,210,008
The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales related to our aggregation and securitization activities. The total facility size of our Assets sold under agreements to repurchase was approximately $13.0 billion at March 31, 2026.
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, and mortgage loan participation purchase and sale agreements have short-term maturities:
•
The transactions relating to loans and real estate acquired in settlement of loans under agreements to repurchase generally provide for terms of approximately one to two years;
•
The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year;
•
The transactions relating to assets under notes payable provide for terms ranging from two to five years; and
All repurchase agreements that matured between March 31, 2026 and the date of this Report have been renewed, extended or 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 March 31, 2026:
Counterparty
Amount at risk
(in thousands)
Atlas Securitized Products, L.P.
$
488,626
Santander US Capital
106,237
Bank of America, N.A.
89,543
Goldman Sachs & Co. LLC
79,567
Nomura Holdings America, Inc.
75,114
Citibank, N.A.
60,910
RBC Capital Markets, L.P.
43,348
JPMorgan Chase & Co.
42,705
Morgan Stanley & Co. LLC
41,320
Wells Fargo Securities, LLC
28,737
Barclays Capital Inc.
12,066
BNP Paribas
11,212
Bank of Montreal
8,485
Daiwa Capital Markets America Inc.
4,891
Mizuho Financial Group
2,079
$
1,094,840
74
Unsecured Senior Notes
Exchangeable Senior Notes
In May and June 2024, PMC issued $216.5 million aggregate principal amount of 8.5% Exchangeable Senior Notes due 2029 that mature on June 1, 2029 (the “exchangeable senior notes”). On December 15, 2025 and December 22, 2025, PMC separately issued $75 million principal amount (for a total of $150 million principal amount) of exchangeable senior notes. The exchangeable senior notes issued in the December 2025 offerings were issued as further reopenings of, and are part of the same series with, the exchangeable senior notes that PMC previously issued in May and June 2024. Upon completion of the December 2025 offerings, the aggregate principal amount of outstanding exchangeable senior notes was $366.5 million.
Senior Notes
In September 2023, the Company issued $53.5 million principal amount of unsecured 8.50% senior notes due September 30, 2028 (the “2028 Senior Notes”). In February 2025, the Company issued $172.5 million principal amount of unsecured 9.00% senior notes due February 15, 2030 and in June 2025, the Company issued $105 million principal amount of unsecured 9.00% senior notes due June 15, 2030 (collectively, the “2030 Senior Notes”). The 2028 Senior Notes may be redeemed on or after September 30, 2025, the 2030 Senior Notes issued in February 2025 may be redeemed on or after February 15, 2027 and the 2030 Senior Notes issued in June 2025 may be redeemed on or after June 15, 2027, in each case at 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date. The 2028 Senior Notes and the 2030 Senior Notes are referred to collectively as the “Senior Notes”. No “sinking fund” will be provided for the Senior Notes.
The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by PMC, including the due and punctual payment of principal of and interest on the Senior Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise (the “PMC Guarantee”). PMC’s operations and investing activities are centered in residential mortgage-related assets, including the creation of and investment in MSRs.
Under the terms of the PMC Guarantee, holders of the Senior Notes will not be required to exercise their remedies against us before they proceed directly against PMC. PMC’s obligations under the guarantee are limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of PMC, result in the guarantee constituting a fraudulent transfer or conveyance. The PMC Guarantee will:
•
rank equal in right of payment to any of PMC’s existing and future unsecured and unsubordinated indebtedness and guarantees of PMC;
•
be effectively subordinated in right of payment to any of PMC’s existing and future secured indebtedness and secured guarantees to the extent of the value of the assets securing such indebtedness or guarantees; and
•
be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) and (to the extent not held by PMC) preferred stock, if any, of PMC’s subsidiaries and of any entity PMC accounts for using the equity method of accounting.
The following summarized financial information for PMT and PMC is presented on a combined basis. Intercompany balances and transactions between PMT and PMC have been eliminated:
March 31, 2026
(in thousands)
Loans held for sale at fair value
$
2,349,895
Mortgage servicing rights at fair value
3,748,984
Other assets
From nonaffiliates
626,525
From PFSI
18,763
From non-issuer or non-guarantor subsidiaries (1)
445,350
Total assets
$
7,189,517
Total liabilities
Payable to nonaffiliates
$
2,043,537
Payable to PFSI
5,079,387
Payable to non-issuer or non-guarantor subsidiaries
14,858
$
7,137,782
75
Quarter ended March 31, 2026
(in thousands)
Net investment income
From nonaffiliates
$
130,330
From PFSI
5,807
From non-issuer or non-guarantor subsidiaries (1)
(106,541
)
29,596
Expenses
From nonaffiliates
16,862
From PFSI
28,700
45,562
Pre-tax income
(15,966
)
Provision for income taxes
(4,127
)
Net income
$
(11,839
)
(1)
Excludes equity in earnings of non-guarantor subsidiaries.
Debt Covenants
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:
•
a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 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 at 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 maximum ratio of total indebtedness to tangible net worth of less than 10:1 for PMC and PMH and 10:1 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.
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:
•
a minimum in unrestricted cash and cash equivalents of $100 million;
•
a minimum tangible net worth of $1.25 billion;
•
a maximum ratio of total indebtedness to tangible net worth of 10:1; and
•
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.
Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires us to maintain positive net income for at least one (1) of the previous two consecutive quarters, or other similar measures. For the most recent fiscal quarter, the Company is compliant with all such conditions. However, we may be required to obtain waivers from certain lenders in the future if this condition precedent is not met.
76
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.
Regulatory Capital and Liquidity Requirements
In addition to the financial covenants imposed upon us and PLS as our servicer under our debt financing agreements, we, through PMC and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for their approved single-family issuers, and Ginnie Mae has also issued risk-based capital requirements. We believe that we and our servicer, PLS, are in compliance with the applicable FHFA and Ginnie Mae requirements as of March 31, 2026.
We continue to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, repurchase agreements, term financing, securitization transactions and unsecured debt and 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 March 31, 2026, we have not entered into any off-balance sheet arrangements.
Our management, servicing, and loan fulfillment fee agreements are described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.
Critical Accounting Estimates
Preparation of financial statements in compliance with GAAP requires us to make estimates 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. Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.
Our Annual Report on Form 10-K for the year ended December 31, 2025 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.
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 loans held for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated loans. Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, CRT arrangements and MBS, including those consolidated on our balance sheet as loans held for investment and asset-backed financing. We believe that the fair values of MSRs and MBS also respond primarily to changes in the market interest rates for comparable 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 CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such 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.
77
Mortgage-backed securities at fair value
The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2026, 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
(in thousands)
Change in fair value
$
179,162
$
128,047
$
91,559
$
(107,215
)
$
(164,335
)
$
(471,301
)
Mortgage Servicing Rights
The following tables summarize the estimated change in fair value of MSRs as of March 31, 2026, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing:
Change in fair value attributable to shift in:
-20%
-10%
-5%
+5%
+10%
+20%
(in thousands)
Option-adjusted spread
$
167,914
$
81,911
$
40,461
$
(39,505
)
$
(78,085
)
$
(152,590
)
Prepayment speed
$
215,518
$
104,187
$
51,246
$
(49,635
)
$
(97,738
)
$
(189,634
)
Annual per-loan cost of servicing
$
63,164
$
31,582
$
15,791
$
(15,791
)
$
(31,582
)
$
(63,164
)
CRT Arrangements
Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread:
Pricing spread shift in basis points
-100
-50
-25
25
50
100
(in thousands)
Change in fair value
$
31,788
$
15,680
$
7,788
$
(7,689
)
$
(15,274
)
$
(30,154
)
Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts:
Property value shift in %
-15%
-10%
-5%
5%
10%
15%
(in thousands)
Change in fair value
$
(8,843
)
$
(5,340
)
$
(2,448
)
$
2,083
$
3,832
$
5,300
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 have been no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
78
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. See Note 17 — Commitments and Contingencies, to the consolidated financial statements included in this Report for a discussion of legal actions, claims and proceedings that are incorporated by reference into this Item 1.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 18, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended March 31, 2026.
The following table provides information about our repurchases of common shares of beneficial interest (“Common Shares”) during the quarter ended March 31, 2026:
Period
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs (1)
Amount available for future share repurchases under the plans or programs (1)
(in thousands, except average price paid per share)
January 1, 2026 – January 31, 2026
—
$
—
—
$
73,353
February 1, 2026 –February 28, 2026
—
$
—
—
$
73,353
March 1, 2026 – March 31, 2026
—
$
—
—
$
73,353
(1)
On October 24, 2022, the Company’s board of trustees approved an increase to the Company’s Common Share repurchase authorization from $400 million to $500 million (the “share repurchase program”). The share repurchase program does not require the Company to purchase a specific number of Common Shares, and the timing and amount of any Common Shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Common Share repurchases may be effected through privately negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Exchange Act. The share repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
(c) Trading Plans
As of March 31, 2026, the following trustees or Section 16 officers adopted, modified or terminated the following Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K):
On March 19, 2026, Greg Hendry, the Company’s Chief Accounting Officer, adopted a trading plan to sell up to 12,218 shares of the Company’s Common Shares. The trading plan will expire on December 31, 2026. Mr. Hendry’s trading plan was entered into during an open insider trading window and is intended to satisfy Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding insider transactions.
During the quarter ended March 31, 2026, none of our trustees or officers (as defined in Rule 16a-1(f)), informed us of the adoption, modification, or termination of any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case, as defined in Item 408(a) of Regulation S-K).
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 (ii) the Consolidated Statements of Operations for the quarter ended March 31, 2026 and March 31, 2025, (iii) the Consolidated Statements of Changes in Shareholders' Equity for the quarter ended March 31, 2026 and March 31, 2025, (iv) the Consolidated Statements of Cash Flows for the quarter ended March 31, 2026 and March 31, 2025 and (v) the Notes to the Consolidated Financial Statements.
*
101.INS
Inline 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
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement.
** 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, as amended, except as shall be expressly set forth by specific reference in such filing.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pennymac Mortgage Investment Trust
(Registrant)
Dated: May 5, 2026
By:
/s/ David A. Spector
David A. Spector
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 5, 2026
By:
/s/ Daniel S. Perotti
Daniel S. Perotti
Senior Managing Director and Chief Financial Officer