Q2 2024 PennyMac Mortgage Investment Trust Earnings Call

Good afternoon and welcome to PennyMac Mortgage Investment Trust second quarter earnings call.

Operator: Second Quarter Earnings Call.

Operator: Banking Quarter Earnings Call Additional materials, including the presentation slides that will be referred to in the call, are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified in the earnings presentation that could cause the company's actual results to differ materially, as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings material. Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer, and Dan Perotti, PennyMac Mortgage Trust, Chief Financial Officer.

Operator: Additional materials, including the presentation slides that will be referred to in the call, are available on PennyMac Mortgage Investment Trust website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on slide two of the earnings presentation that could cause the company's actual results to differ materially, as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earning material.

Additional materials including the presentation slides that will be referred to in the call are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com.

Speaker Change: Before we begin, let me remind you that this call may contain forward-looking statements that are subject

Speaker Change: to certain risks identified on slide two of the earnings presentation that could cause the company's actual results to differ materially, as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earning material.

Operator: Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust chairman and chief executive officer, and Dan Perotti, PennyMac Mortgage Trust chief financial officer.

Speaker Change: Now, I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer, and Dan Perotti, PennyMac Mortgage Trust Chief Financial Officer.

David Spector: Thank you, operator. P&T's second quarter financial results reflect increased levels of income, excluding market-driven value changes and contributions from all three investment strategies, partially offset by fair value changes in the interest rate sensitive strategies due to elevated volatility. Net income in the common shareholders was $15 million for diluted earnings per share of 17 cents.

David A. Spector: Thank you, operator. P&T's second quarter financial results reflect increased levels of income, excluding market-driven value changes and contributions from all three investment strategies, partially offset by fair value changes in the interest rate sensitive strategies due to elevated volatility. Net income to common shareholders was $15 million for diluted earnings per share of $0.17. PMT's annualized return on common equity was 4%, and book value per share was $15.89 at June 30th, down slightly from the end of the prior quarter.

David A. Spector: Thank you, operator.

Speaker Change: P&T's second quarter financial results reflect increased levels of income, excluding market-driven value changes.

Speaker Change: and contributions from all three investment strategies partially offset by fair value changes in the interest rate sensitive strategies due to elevated volatility.

Speaker Change: Net income to common shareholders was $15 million for diluted earnings per share of $0.17.

David Spector: P&T's annualized return on common equity was 4 percent, and both value per share was $15.89 of June 30th, down slightly from the end of the prior quarter. Turning to the origination market, current third-party estimates for total originations average $1.7 trillion in 2024 and $2.1 trillion in 2025, reflecting projections for lower rates from current levels and increased refinance volumes. P&T's financial performance in recent periods highlights the strength of the fundamental underlying its long-term mortgage assets and our expertise in managing mortgage-related investments in a challenging environment. I am pleased to note that in the second quarter, we successfully issued $217 million of exchangeable senior notes and $355 million of turn notes secured by Fannie Mae MSRs, both at attractive terms and both with consideration with similar notes for upcoming maturities.

PMT: PMT's annualized return on common equity was 4% and book value per share was $15.89 at June 30th, down slightly from the end of the prior quarter.

David A. Spector: Turning to the origination market, current third-party estimates for total origination average $1.7 trillion in 2024 and $2.1 trillion in 2025, reflecting projections for lower rates from current levels and increased refinance volume. P&T's financial performance in recent periods highlights the strength of the fundamentals underlying its long-term mortgage assets and our expertise in managing mortgage-related investments in a challenging environment. I am pleased to note that in the second quarter, we successfully issued $217 million of exchangeable senior notes and $355 million of term notes secured by Fannie Mae MSR, both at attractive terms and both with consideration to similar notes with upcoming maturity.

PMT: Turning to the origination market, current third-party estimates for total origination average $1.7 trillion in 2024 and $2.1 trillion in 2025.

PMT: Reflecting projections for lower rates from current levels and increased refinance volumes.

Speaker Change: P&T's financial performance in recent periods highlights the strength of the fundamentals underlying its long-term mortgage assets and our expertise in managing mortgage-related investments in a challenging environment.

Speaker Change: I am pleased to note that in the second quarter, we successfully issued $217 million of exchangeable senior notes and $355 million of term notes secured by Fannie Mae MSRs.

Speaker Change: Both at attractive terms and both with consideration to similar notes with upcoming maturities.

David Spector: Given its increased investible capital in the current market, P&T is expected to retain an increased percentage of total conventional core spinal production in the third quarter.

David A. Spector: Given its increased investable capital in the current market, PMT is expected to retain an increased percentage of total conventional course revenue by low production in the third quarter. Dan will provide additional detail later on in the discussion.

Speaker Change: Given this increased investable capital in the current market, PMT is expected to retain an increased percentage of total conventional corresponding loan production in the third quarter. Dan will provide additional detail later on in the discussion.

David Spector: Dan will provide additional detail later on in the discussion. More than two-thirds of P&T shareholders' equity is currently invested in the season portfolio of MSRs and the unique GSE lender risk share transactions that we invested in from 2015 to 2020. As the majority of mortgages underlying these assets were originated during periods of very low interest rates, we continue to believe these investments will perform well over the foreseeable future as low expected repayments extend the expected asset lives. Additionally, the linkages remain low due to the overall strength of the consumer, as well as a substantial accumulation of home equity in recent years due to continuing home price appreciation.

David A. Spector: More than two-thirds of PMT shareholders' equity is currently invested in the seasonal portfolio of MSRs and the unique GSC lender risk share transactions that we invested in from 2015 to 2020. As the majority of mortgages underlying these assets were originated during periods of very low interest rates, we continue to believe these investments will perform well over the foreseeable future as low expected repayments extend the expected asset life. Additionally, delinquencies remain low due to the overall strength of the consumer, as well as a substantial accumulation of home equity in recent years due to continued home price appreciation.

Dan: More than two-thirds of PMT shareholder's equity is currently invested in the season portfolio of MSRs and the unique GSE lender risk share transactions that we invested in from 2015 to 2020.

Dan: As the majority of mortgages underlying these assets were originated during periods of very low interest rates, we continue to believe these investments will perform well over the foreseeable future as low expected prepayments extend the expected asset lives.

Dan: Additionally, delinquencies remain low due to the overall strength of the consumer, as well as a substantial accumulation of home equity in recent years due to continued home price appreciation.

David Spector: MSR investments account for more than half of P and T's deployed equity. The majority of the underlying mortgages remain far out of the money, and we expect the MSR assets to continue to produce stable cash flows over an extended period of time. MSR values also benefit from the current interest rate environment, as the placement feat in P and T receives on custodial deposits is closely tied to short-term interest rates. Similarly, mortgages underlying P and T's large investment in GSE lender risk share have low delinquency and a low weighted average current loan-to-value ratio of 48.5%. These characteristics are expected to support the performance of these assets over the long term, and we continue to expect that realized losses will be limited.

David A. Spector: MSR investments account for more than half of PMT's deployed equity. The majority of the underlying mortgages remain far out of the money, and we expect the MSR asset to continue to produce stable cash flows over an extended period of time. MSR values also benefit from the current interest rate environment as the placement fee income P&T receives on custodial deposits is closely tied to short-term interest rates. Similarly, the mortgages underlying PMT's large investment in GSE lender risk share have low delinquencies and a low weighted average current loan-to-value ratio of 48.5%.

Dan: MSR investments account for more than half of PMT's deployed equity. The majority of the underlying mortgages remain far out of the money, and we expect the MSR asset to continue to produce stable cash flows over an extended period of time.

Dan: MSR values also benefit from the current interest rate environment as the placement fee income PMT receives on custodial deposits is closely tied to short-term interest rates.

Dan: Similarly, mortgages underlying PMT's large investment in GSE lender risk share have low delinquencies and a low weighted average current loan-to-value ratio of 48.5 percent.

David A. Spector: These characteristics are expected to support the performance of these assets over the long term, and we continue to expect that realized losses will be limited. Slide seven outlines the runway potential expected for P&T's investment strategies over the next four quarters. P&T's current run rate reflects a quarterly average of $0.33 per share, down slightly from $0.35 per share last quarter, driven primarily by lower expected asset yields in the interest rate-sensitive strategy. Now I'll turn it over to Dan, who will review the drivers of PMT's second quarter financial performance. Thank you, David.

Dan: These characteristics are expected to support the performance of these assets over the long term, and we continue to expect that realized losses will be limited.

David Spector: Slide seven outlines the run rate potential expected from P and T's investment strategies over the next four quarters. P and T's current run rate reflects a quarterly average of 33 cents per share, down slightly from 35 cents per share last quarter, driven primarily by lower expected asset yields in the interest rate sensitive strategies.

Dan: Slide 7 outlines the run rate potential expected from P&T's investment strategies over the next four quarters.

Dan: P&T's current run rate reflects a quarterly average of $0.33 per share, down slightly from $0.35 per share last quarter, driven primarily by lower expected asset yields in the interest rate-sensitive strategies.

David Spector: Now, I'll turn over to Dan, who will review the drivers of P and T's second quarter financial performance.

Dan: Now, I'll turn it over to Dan, who will review the drivers of PMT's second quarter financial performance.

Dan Perotti: Thank you, David. P and T earned $15 million in net income to common shareholders in the second quarter, or $0.17 per diluted common share. P and T's credit sensitive strategies contributed $16 million in pre-tax income, including $11 million from P and T's organically created CRT investments. Credit spreads were relatively unchanged during the quarter, with only minor impacts on the fair value of our investments. David mentioned the outlook for our current investments in organically created CRT remains favorable, with a low underlying current weighted average loan to value ratio of below 50% and a 60-day delinquency rate of 1.11%, both as of June 30th.

Daniel Stanley Perotti: PMT earned $15 million in net income to common shareholders in the second quarter, or $0.17 per diluted common share. PMT's credit-sensitive strategies contributed $16 million in pre-tax income, including $11 million from its organically-created CRT investment. Credit spreads were relatively unchanged during the quarter, with only minor impacts on the fair value of our investment.

Dan: Thank you, David. PMT earned $15 million in net income to common shareholders in the second quarter, or $0.17 per diluted common share.

Dan: PMT's credit-sensitive strategies contributed $16 million in pre-tax income, including $11 million from PMT's organically created CRT investments.

Dan: Credit spreads were relatively unchanged during the quarter, with only minor impacts on the fair value of our investments.

Daniel Stanley Perotti: As David mentioned, the outlook for our current investments in organically created CRT remains favorable with a low underlying current weighted average loan-to-value ratio of below 50% and a 60-day delinquency rate of 1.11%, both as of June 30th. Income from opportunistic investments in TAS and stacker bonds issued by the GSEs totaled $6 million in the quarter. As mortgage credit spreads tightened over the last several quarters, the go-forward returns on some of the investments that we had previously made fell below our thresholds.

Dan: As David mentioned, the outlook for our current investments in organically-created CRT remains favorable, with a low underlying current weighted average loan-to-value ratio of below 50 percent and a 60-day delinquency rate of 1.11 percent, both as of June 30th.

Dan Perotti: Income from opportunistic investments in calves and stacker bonds issued by the GSEs totaled $6 million in the quarter. As mortgage credit spreads tightened over the last several quarters, the go forward returns on some of the investments that we had previously made fell below our thresholds. In this quarter, we sold $8 million in subordinate tranches of investor loan securitizations we participated in during 2021. The interest rate sensitive strategies contributed $17 million of pre-tax income. The fair value of P and T's MSR investment increased by $46 million due to slightly higher mortgage rates at the quarter end.

David: Income from opportunistic investments in CAVs and stacker bonds issued by the GSEs totaled $6 million in the quarter.

Daniel Stanley Perotti: In this quarter, we sold $8 million in subordinate tranches of investor loan securitizations we participated in during 2021. The interest rate sensitive strategies contributed $17 million of pre-tax income. The fair value of PMT's MSR investment increased by $46 million due to slightly higher mortgage rates at quarter end. However, these fair value gains were more than offset by changes in the fair value of MBS, interest rate hedges, and related income tax effects during the quarter.

David: As mortgage credit spreads tightened over the last several quarters, the go-forward returns on some of the investments that we had previously made fell below our thresholds. In this quarter, we sold $8 million in subordinate tranches of investor loan securitizations we participated in during 2021.

David: The interest rate-sensitive strategies contributed $17 million of pre-tax income.

David: The fair value of PMT's MSR investment increased by $46 million due to slightly higher mortgage rates at quarter end.

Dan Perotti: These fair value gains were more than offset by changes in the fair value of MBS, interest rate hedges, and related income tax effects during the quarter. MBS fair value decreased by $39 million, and interest rate hedges decreased by $18 million. Income on assets held in P and T's taxable reach subsidiary drove a tax expense of $3 million. The fair value of P and T's MSR asset at the end of the quarter was $3.9 billion, essentially unchanged from March 31st. A link with the rates for borrowers underlying PMT's MSR portfolio remain low, while servicing advances outstanding decrease to $83 million from $110 million at March 31st.

David: These fair value gains were more than offset by changes in the fair value of MBS, interest rate hedges, and related income tax effects during the quarter.

Daniel Stanley Perotti: MBS fare value decreased by $39 million, and interest rate hedges decreased by $18 million. However, income on assets held in PMT's taxable REIT subsidiary drove a tax expense of $3 million. The fair value of PMT's MSR asset at the end of the quarter was $3.9 billion, essentially unchanged from March 31st. Elinquency rates for borrowers underlying PMT's MSR portfolio remain low, while servicing advances outstanding decreased to $83 million from $110 million at March 31. No principal and interest advances are currently outstanding.

David: MBS fare value decreased by $39 million, and interest rate hedges decreased by $18 million.

David: Income on assets held in PMT's taxable REIT subsidiary drove a tax expense of $3 million.

David: The fair value of PMT's MSR asset at the end of the quarter was $3.9 billion, essentially unchanged from March 31st.

David: Elinquency rates for borrowers underlying PMT's MSR portfolio remain low, while servicing advances outstanding decrease to $83 million from $110 million at March 31st. No principal and interest advances are currently outstanding.

Dan Perotti: No principal and interest advances are currently outstanding.

Dan Perotti: Turning to the corresponding production segment, prefect income was down slightly from last quarter as lower margins offset the impact of higher volumes. Profitability in the segment in recent periods has benefited from the release of reserves related to representations and warranties provided at the time of securitization, as the high volumes of loans produced from 2020 to 2022 passed a three-year window for violations with minimal repurchase-related losses. We expect the contribution from the release of these reserves to decline to more normalized levels over the next several quarters. Total correspondent loan acquisition volume was $23 billion in the second quarter, up 24% from the prior quarter driven by an increase in the size of the mortgage origination market.

Daniel Stanley Perotti: Turning to the correspondent production segment, pre-tax income was down slightly from last quarter as lower margins offset the impact of higher volume. However, profitability in the segment in recent periods has benefited from the release of reserves related to representations and warranties provided at the time of securitization, as the high volumes of loans produced from 2020 to 2022 passed the three-year window for violations with minimal repurchase-related loss. We expect the contribution from the release of these reserves to decline to more normalized levels over the next several quarters.

David: Turning to the correspondent production segment, pre-tax income was down slightly from last quarter as lower margins offset the impact of higher volumes.

David: Profitability in the segment in recent periods has benefited from the release of reserves related to representations and warranties provided at the time of securitization, as the high volumes of loans produced from 2020 to 2022 pass the three-year window for violations with minimal repurchase related losses.

David: We expect the contribution from the release of these reserves to decline to more normalized levels over the next several quarters.

Daniel Stanley Perotti: Total correspondent loan acquisition volume was $23 billion in the second quarter, up 24% from the prior quarter driven by an increase in the size of the mortgage origination market. Conventional loans acquired for PMT's account totaled $2.2 billion, up 26% from the prior quarter. As David noted, in the third quarter, we expect PMT to retain a higher percentage of total conventional correspondent production, from 30 to 50% versus 18% in the second quarter.

David: Total correspondent loan acquisition volume was $23 billion in the second quarter, up 24% from the prior quarter, driven by an increase in the size of the mortgage origination market.

Dan Perotti: Conventional loans acquired for PMT's account total $2.2 billion, or 26%, from the prior quarter. As David noted in the third quarter, we expect PMT to retain a higher percentage of total conventional correspondent production from 30 to 50% versus 18% in the second quarter. The weighted average fulfillment fee rate was 20 basis points, down from 23 basis points in the prior quarter. PMT reported $35 million of net income across its strategies, excluding market-driven value changes and the related tax impacts of from $28 million last quarter, primarily due to higher average yields on the interest-sensitive assets during the quarter.

David: Conventional loans acquired for PMT's account total $2.2 billion, up 26% from the prior quarter.

David: As David noted, in the third quarter, we expect TMT to retain a higher percentage of total conventional correspondent production from 30% to 50% versus 18% in the second quarter.

Daniel Stanley Perotti: The Weighted Average Fulfillment Fee rate was 20 basis points down from 23 basis points in the prior. PMT reported $35 million of net income across its strategies, excluding market-driven value changes and the related tax impacts, up from $28 million last quarter, primarily due to higher average yields on interest-sensitive assets during the quarter.

Speaker Change: The Weighted Average Fulfillment Fee rate was 20 basis points, down from 23 basis points in the prior quarter.

Speaker Change: PMT reported $35 million of net income across its strategies, excluding market-driven value changes and the related tax impacts, up from $28 million last quarter, primarily due to higher average yields on interest-sensitive assets during the quarter.

Dan Perotti: Turning to capital, we are fully reserved in our liquidity management for repayment in full of the $210 million in exchangeable senior notes due in October 2024. In May, we issued $217 million of new five-year exchangeable senior notes with a coupon of 8.5%. In June, we issued $355 million in five-and-a-half-year Fannie Mae MSR term notes that so far plus 275 basis points. In after quarter-end, we redeemed $305 million of similar term notes due in 2027 with a coupon of so far plus 419 basis points. These successful financing activities further solidify PMT's capital position, illustrating our deep access to capital and liquidity across various types of transactions and investors.

Daniel Stanley Perotti: Turning to capital, we are fully reserved in our liquidity management for repayment in full of two of the $210 million in exchangeable senior notes due in October 2024. In May, we issued $217 million of new five-year exchangeable senior notes with a coupon of 8.5%. In June, we issued $355 million in five and five and a half year Fannie Mae MSR term notes at SOFR plus 275 basis. And after quarter end, we redeemed $305 million of similar term notes due in 2027 with a coupon of SOFR Plus 419B. These successful financing activities further solidify PMT's capital position, illustrating our deep access to capital and liquidity across various types of transactions and investments. We'll now open it up to questions.

Speaker Change: Turning to capital, we are fully reserved in our liquidity management for repayment in full of the $210 million in exchangeable senior notes due in October 2024.

Speaker Change: In May, we issued $217 million of new 5-year exchangeable senior notes with a coupon of 8.5%.

Speaker Change: In June , we issued $355 million in five-and-a-half-year Fannie Mae MSR term notes at SOFR plus 275 basis points.

Speaker Change: And after quarter end, we redeemed $305 million of similar term notes due in 2027 with a coupon of SOFR plus 419 basis points.

Speaker Change: These successful financing activities further solidify PMT's capital position, illustrating our deep access to capital and liquidity across various types of transactions and investors.

Operator: We'll now open it up for questions.

Operator: Operator? I would like to remind everyone we will only take questions related to PennyMac Mortgage Investment Trust or PMT. We also ask that you please keep your questions limited to one preliminary question and one follow-up question. As we'd like to ensure we can answer as many questions as possible. If you would like to ask a question, please press star one on your telephone keypad. And if you'd like to withdraw that question, again, press star one.

Speaker Change: We'll now open it up for questions.

Operator: I would like to remind everyone that we will only take questions related to PennyMac Mortgage Investment Trust or PMT. We also ask that you please keep your questions limited to one preliminary question and one follow-up question. As we like to ensure, we can answer as many questions as possible. If you would like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw that question, again, press star 1. Your first question comes from Jason Weaver with Jones Trading. Please go ahead.

Speaker Change: Operator.

Speaker Change: I would like to remind everyone we will only take questions related to PennyMac Mortgage Investment Trust or PMT.

Speaker Change: We also ask that you please keep your questions limited to one preliminary question and one follow-up question. As we like to ensure, we can answer as many questions as possible.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw that question, again, press star 1. Your first question comes from Jason Weaver with Jones Trading. Please go ahead.

Jason Weaver: Your first question comes from Jason Weaver with Jones Trading. Please go ahead.

Jason Price Weaver: Hi, good afternoon, everyone. Thanks for taking my question. You know, I fully agree with you on where credit spreads are and your decision to retain more correspondent production. It makes a ton of sense. But ultimately, can you talk about what form that will take? Is this as simple as, you know, just keeping more whole loans on the balance sheet, or will you be looking to term fund that via securitization?

Jason Weaver: Hi.

Jason Weaver: Good afternoon, everyone. Thanks for taking my question. You know, I fully agree with you on where credit spreads are and your decision to retain more course upon production. It makes a ton of sense.

Jason Price Weaver: Hi, good afternoon, everyone. Thanks for taking my question.

Speaker Change: You know, I fully agree with you on where credit spreads are and your decision to retain more correspondent production. It makes a ton of sense. But ultimately, can you talk about what form that will take? Is this as simple as, you know, just keeping more whole loans on the balance sheet, or will you be looking to term fund that via securitization eventually? You know, I fully agree with you on what form that will take.

Dan Perotti: But ultimately, can you talk about what form that will take? Is this as simple as just keeping more hold on on the balance sheet? Or will you be looking to turn fund that via So, for those loans that we're keeping through the core or the PMT will be the additional loans that PMT will be retaining through the correspondence channel. You know, primarily those will consist of the, you know, Fannie Mae and Freddie eligible loans that PMT historically retain. And those, generally speaking, we sell or securitize to the agencies a few; we sell as whole loans to third parties. But generally, the investment that's generated from that is in mortgage servicing rights in addition to the game that we earn through the correspondence securitization.

Daniel Stanley Perotti: So for those loans that we're keeping through the core or that PMP will be, the additional loans that PMP will be retaining through the correspondent channel, you know, primarily those will consist of the Fannie Mae and Freddie eligible loans that we've, that PMP has historically retained. And those, generally speaking, we sell or securitize to the agencies; a few, we sell as whole loans to third parties. But generally, the investment that's generated from that is in mortgage servicing rights in addition to the gain that we earn through the correspondent, through the correspondent securitization.

Speaker Change: So for those loans that we're keeping through the core or that PMP will be the additional loans that PMP will be retaining through the correspondent channel, you know, primarily, those will consist of the, you know, Fannie Mae and Freddie eligible loans that we've

Speaker Change: that PNP has historically retained, and those...

Speaker Change: Generally speaking, we sell or securitize to the agencies a few, we sell as whole loans to third parties, but generally the investment that's generated from that is in mortgage servicing rights, in addition to the gain that we earn through the correspondent, through the correspondent securitization.

Dan Perotti: So don't have any plans currently to retain loans specifically on balance sheets other than potentially through securitization of some, you know, certain sets of loans, you know, that we may look to retain or that we may look to securitize and retain subordinate tranches on which we've done, you know, a certain period in the past and that looks to be, you know, a potential opportunity that could be arising again in the current environment.

Daniel Stanley Perotti: So, we don't have any plans currently to retain loans specifically on balance sheets other than potentially through securitization of certain sets of loans that we may look to retain. And then, or that we may look to securitize and retain subordinate tranches on, which we've done for certain periods in the past. And that looks to be a potential opportunity that could be around.

Speaker Change: So, don't have any plans currently to retain loans specifically on balance sheets other than potentially through securitization of some, you know, certain sets of loans.

Speaker Change: You know that we may look to retain and then, or that we may look to securitize and retain subordinate tranches on, which we've done certain periods in the past. And that looks to be a potential opportunity that could be arising again in the current environment.

David A. Spector: Okay, got it. That's clear. And just my follow-up is really on the macro level. Sort of at what level or range of benchmark 30 year mortgage rates do you see as really the inflection point for, you know, refinancing activity prepayment? And I really ask as it pertains.

Jason Weaver: Okay, got it, that's clear. And just my follow-up is really on the macro level, sort of at what level or range of benchmark 30 or mortgage rates do you see is really the inflection point for, you know, refinancing activity, prepayment and I really ask is it pertains to correspond to production levels? Look, I think it's, I think it's a gradual decline down.

Speaker Change: Okay, got it. That's clear. And just my follow-up is really on the macro level. Sort of at what level or range of benchmark 30-year mortgage rate do you see as really the inflection point for, you know, refinancing activity and prepayment? And I really ask as it pertains to correspond to production levels.

David A. Spector: Look, I think it's I think it's a gradual decline. I think, you know, if you look at originations post COVID, you know, we kind of jumped and kind of ran through loans with 5% handles. And I think, you know, it's really in the 6 to 7% range where you see a lot and even north of seven where you see a lot of opportunity. It's going to be the way I think about it; it's going to be this slow grind down.

Jason Weaver: I think, you know, if you look at, if you look at origination post-COVID, you know, we kind of jumped and kind of ran through loans with 5% handles, and I think, you know, it's really in the 6% to 7% range where you see a lot, and even, even north of 7 where you see a lot of opportunity. It's going to be; the way I think about it is, it's going to be this slow growing down. I think when, thing when race gets a six and a half, that's where, that's where it really picks up steam and I think at six, you're, you’re in what I would be, you know, a really robust, refined market because it's not just the existing first that are in the money.

Speaker Change: Look, I think it's, I think it's a gradual decline down. I think, you know, if you look at, if you look at originations post COVID, you know, we kind of jumped.

Speaker Change: and kind of ran through loans with 5% handles. And I think, you know, it's really in the six to 7% range, where you see a lot and even even north of seven where you see a lot of opportunity.

David A. Spector: I think when rates get to six and a half, that's where it really picks up steam. And I think at six, you're in what I would deem, you know, a really robust refi market, because it's not just the existing first that are in the money; you could have loans that are four and 5%, you know, taking out debt consolidation, cash out refinances to either pay off existing HELOCs or closed end seconds or other forms of debt.

Speaker Change: It's going to be, the way I think about it is, it's going to be this slow grind down. I think when rates get to six and a half.

Speaker Change: That's where that's where it really picks up steam. And I think at six, you're you're in what I would deem, you know, a really robust refi market, because it's not just the existing first

Jason Weaver: You could have loans that are four and five percent, you know, taking out debt consolidation cash-out refinances to either pay off existing HELOX or close them seconds or other forms of debt. And so it's really, it's really a function, you know, of what's behind the first, the first lean that helps drive the refinance ability.

Speaker Change: that are in the money. You could have loans that are four and 5%, you know, taking out debt consolidation, cash out refinances to either pay off existing HELOCs or closed-end seconds or other forms of debt.

David A. Spector: And so it's really a function, you know, of what's behind the first lien that helps drive the refinanceability. But I, you know, I continue to believe that, you know, it's, you know, 10-year around three and three quarters, mortgages down 50 basis points, that it really is, you know, to me, that's the signal of a true new market or new phase of, you know, the refinanceability. Great.

Speaker Change: And so it's really a function, you know, of what's behind the first lien.

Jason Weaver: But I, you know, I continue to believe that, you know, it's, it's, you know, 10 year around 3 and 3 quarters, more bridges down 50 basis points that it really is, you know, to me, that the signal of it of a true new market or new phase of, you know, the refinance ability.

Speaker Change: that helps drive the refinanceability, but I continue to believe that, you know, it's

Speaker Change: It's, you know, 10 year around three and three quarters mortgages down 50 basis points that it really is.

Speaker Change: You know, to me, that's the signal of a true new market or new phase of, you know, the refinanceability. Great. I really appreciate that, Caller. Thank you.

Jason Price Weaver: Great. I really appreciate that, Culler. Thank you.

Jason Weaver: Great. I really appreciate that color. Thank you.

Doug Harper: Your next question comes from the line of Doug Harper with UBS. Please go ahead.

Douglas Michael Harter: Your next question comes from the line of Doug Harper with UBS. Please go ahead.

Speaker Change: Your next question comes from the line of Doug Harper with UBS. Please go ahead.

Daniel Stanley Perotti: Thanks. I know you guys take a long-term approach to the dividend, but you know, I guess, how are you thinking about the dividend, you know, and given kind of the run rate earnings that you laid out and that that took a slight tick down this quarter?

Doug Harper: Thanks. I know you guys take a long-term approach to the dividend, but, you know, I guess how are you thinking about the dividend, you know, and given kind of the run rate earnings that you laid out and that that took us like to take down the quarter? So, to your point, we do take a long-term approach to the dividend and look to, obviously, over time we want the dividends to reflect the earnings capacity of the company, but at the same time, as the market generates, don't necessarily look to adjust it with every sort of gyration.

Douglas Michael Harter: Thanks, I know you guys take a long-term approach to the dividend, but you know, I guess how are you thinking about the dividend? You know and given kind of the run rate earnings that you laid out and that that took a slight tick down this quarter

Daniel Stanley Perotti: Yes, so to your point, we do take a long-term approach to the dividend and, obviously, over time, we want the dividend to reflect the earnings capacity of the company, but at the same time, as the market gyrates, we don't necessarily look to adjust it with every sort of gyration. We did see a little bit of a tick down in, you know, our run rates, as you mentioned, from $0.35 to $0.33 versus the dividend of $0.40.

Speaker Change: To your point, we do take a long-term approach to the dividend and look to

Speaker Change: Obviously, over time, we want the dividends to reflect the earnings.

Speaker Change: capacity of the company. But at the same time, you know, as the market gyrates don't necessarily look to adjust it with every sort of gyration.

Dan Perotti: We did see a little bit of a tick down in our run rate, as you mentioned, from 35 cents to 33 cents versus the dividend at 40 cents. That was primarily driven by some additional re-inversion of the yield curve over the past month or two. As we look out, really some of what that's reflective of is an expected decline in short-term rates, and that would drive down our financing rates. And really, as we look out a little bit past the horizon of our forecast here, into later next year, we do see in our forecast the potential for our EPS to move up back above the 40 cents level.

Speaker Change: We did see a little bit of a tick down in our run rate, as you mentioned, from $0.35 to $0.33 versus the dividend of $0.40.

Daniel Stanley Perotti: You know, that was primarily driven by some additional re-inversion of the yield curve over the past month or two. As we look ahead, you know, really what that's reflective of is an expected decline in short-term rates, and that would drive down our financing rates. And really, as we look out a little bit past the horizon of our forecast here into later next year, we do see, in our forecast, the potential for our EPS to move up back above the $0.40 level.

Speaker Change: You know, that was primarily driven by some additional re-inversion of the yield curve over the past

Speaker Change: in a month or two. As we look out, you know, really what some of what that's reflective of is an expected decline in short-term rates and that would drive down our financing rates. And really, as we look out a little bit past

Speaker Change: the horizon of, you know, of our forecast here into later next year, we do see the, you know, in our forecast, the

Speaker Change: potential for the, our, our EPS to move up back above the 40 cent level. And so given that we see that, you know, we see that potential, we're not looking to adjust the dividend, or we don't expect to adjust the dividend in the short term, I would really look to keep it, you know, stable.

Dan Perotti: And so, given that we see that potential, we're not looking to adjust the dividend, or we don't expect to adjust the dividend in the short term. I'm going to really look to keep it stable as the market sort of readjust as expected and we see short-rate come down over the next few periods.

Daniel Stanley Perotti: And so, given that we see that, you know, we see that potential, we're not looking to adjust the dividend, or we don't expect to adjust the dividend in the short term, and we would really look to keep it, you know, stable as the market sort of readjusts as, you know, as expected, and we see, you know, short rates come down over the next few periods.

Speaker Change: as the market sort of readjusts as expected and we see short rates come down over the next few periods.

Dan Perotti: It's just a follow-up to that in addition to kind of the direction of short rates of yield curve, what other factors could be a positive towards getting run rate earnings back to the dividend? The deployments of capital is important, and so that's part of why we are looking to adjust. You know, we're looking to adjust and deploy more capital and TNT through the correspondent channel, which we view as, at the current point of time, or at this point in time, the best option for PNT to deploy the capital that it raised in the second quarter through its convertible debt issuance.

Daniel Stanley Perotti: It's just a follow up to that. In addition to kind of the direction of the short rates of the yield curve, what other factors Bill could could be positive towards getting earnings back to the dividend.

Speaker Change: It's just a follow-up to that. In addition to kind of the direction of short rates and yield curve, what other factors could be a positive towards getting run rate earnings back to the dividend?

Daniel Stanley Perotti: The deployment of capital is important. And so that's part of why we are looking to adjust You know, we're looking to adjust and deploy more capital on PMT through the correspondent channel, which we view as at the current point in time, or at this point in time, the best option for PMT to deploy the capital that it raised in the second quarter through its convertible debt issuance. As I had talked about a little bit earlier, through, in addition to investments in MSRs, you know, we are looking also at potential securitizations of certain subsets of the loans, you know, notably investor and second home loans, where we do think that those securitizations have become viable again, and we do have sufficient amounts of those types of loans coming through the correspondent channel to be able to, you know, form a securitization, you know, further investment into into into those areas, I think could help drive the, you know, drive the earnings back toward the back toward the, The Dividend Level, but in addition to that, the other driver with the de-inversion of the yield curve, having our long-term assets, the yields on our long-term assets, which are marked to market according to where the current market is, and given that longer rates are currently lower than shorter rates, having short rates come down some and normalize that. And of course, for our interest rate-sensitive assets, we are hedged for those interest rate changes, but that will drive the earnings potential, the run rate earnings potential.

Speaker Change: The deployment of capital is important, and so that's part of why we are looking to adjust.

Speaker Change: We're looking to adjust and deploy more capital in PMT through the Correspondent Channel, which we view as, at the current point in time, or at this point in time, the best option for PMT to deploy the capital that it raised in the second quarter through its convertible debt issuance.

Dan Perotti: As I had talked about a little bit earlier through, in addition to investments in MSRs, you know, we are looking also at potential securitizations of certain subsets of the loans, you know, notably investor and second home loans, where we do think that those securitizations have become viable again. And we do have sufficient amounts of those types of loans coming through the correspondent channel to be able to form a securitization. Further investment into those areas, I think, could help drive the earnings back toward the fact, toward the dividend level. But in addition to that, the, you know, the other driver with the D, the D inversion of the yield curve, you know, having our long term assets, the yields on a long term assets, which are, you know, marked to market according to, you know, where the current market is, and given the longer that longer rates are currently lower than shorter rates, having short rates come down some and normalize that.

Speaker Change: As I had talked about a little bit earlier,

Speaker Change: Through

Speaker Change: In addition to investment in MSRs,

Speaker Change: We are looking also at potential securitizations of certain subsets of the loans.

Speaker Change: Notably, investor and...

Speaker Change: second home loans, where we do think that those securitizations have become viable again, and we do have sufficient amounts of those types of loans coming through the correspondent channel to be able to form a securitization

Speaker Change: You know, further investment into those areas, I think, could help drive the, you know, drive the earnings back toward the, back toward the

Speaker Change: the dividend level. But in addition to that, the, you know, the other driver with the the D inversion of the yield curve, you know, having our long term assets.

Speaker Change: The yields on our long-term assets, which are mark-to-market according to where the current market is, and given that longer rates are currently lower than shorter rates, having short rates come down some and normalize that.

Dan Perotti: And of course, for our interest rate sensitive assets, we are hedged in for those interest rate changes, but that will drive the sort of earnings potential, the run rate earnings potential, you know, given the balance of the longer term yields and the shorter term yields, and we think that's probably the biggest driver.

Speaker Change: And of course, for our interest rate sensitive assets, we are hedged in for those interest rate changes, but that will drive the sort of earnings potential, the run rate earnings potential.

Speaker Change: you know, given the balance of the longer term yields and the shorter term yields. And we think that's probably the biggest driver. You know, that PMT is a really uniquely

David Spector: You know, that PMT is a really unique from the point of view that it has this really unique synergistic relationship with PFSI. And when you look at what's going on in the marketplace with more and more loans being delivered outside of the GSEs and being securitized, we're really encouraged by what we're seeing in terms of the ability to aggregate in a short period of time. And be able to create credit-related investments for PMT in a sustainable way. One of the beauties of CRT was, in addition to having credit risk investments, we were able to create this sustainable asset creation mechanism where PMT could invest in credit-related assets.

David A. Spector: You know, PMT is a really unique lead from the point of view that it has this really unique synergistic relationship with PFSI. And when you look at what's going on in the marketplace with more and more loans being delivered outside of the GSEs and being securitized, we're really encouraged by what we're seeing in terms of the ability to aggregate in a short period of time and be able to create credit-related investments for PMT in a sustainable way.

Speaker Change: from the point of view that it has this really unique synergistic relationship with PFSI.

Speaker Change: And when you look at what's.

Speaker Change: and you look at what's going on in the marketplace with more and more.

Speaker Change: loans being delivered outside of the GSEs and being securitized.

Speaker Change: We're really encouraged by what we're seeing in terms of the ability to aggregate in a short period of time and be able to create credit-related investments.

David A. Spector: One of the beauties of CRT was, in addition to having credit risk investments, we were able to create this sustainable asset creation mechanism where PMT could invest in credit-related assets. And, you know, I'm seeing what's going on with subsectors of the market to the point Dan raised about investors in second homes in particular.

Speaker Change: for PMT in a sustainable way. One of the beauties of CRT was in addition to having credit risk investments, we were able to create this sustainable asset creation mechanism where PMT could invest in credit-related assets.

David Spector: And, you know, I'm seeing what's going on with sub sectors as a market to the point Dan raised on investors and second homes in particular. We're seeing opportunities to create investments that are, you know, either at our return target or maybe a little above or a little below. But I think what's perhaps underappreciated is the fact that if we can do this on a consistent basis and we continue to show investors that we have the ability to raise and deploy capital, that's really powerful for PMT. In addition, we're seeing, you know, in PFSI, we're seeing a really, really strong growth in our jumbo business in PFSI that it could use, you know, we could take that jumbo business and sell to PMT, and PMT can buy additional jumbo through the corresponding channel to do jumbo investments.

Speaker Change: And, you know, I'm seeing what's going on with subsectors of the market to the point Dan raised on investors and second homes in particular, we're seeing opportunities.

David A. Spector: We're seeing opportunities to create investments that are, you know, either at our return target or maybe a little above or a little below. But I think what's perhaps underappreciated is the fact that if we can do this on a consistent basis and we continue to show investors that we have the ability to raise and deploy capital, that's really powerful for PMT. In addition, we're seeing, you know, in PFSI, we're seeing a really, really strong growth in our jumbo business in PFSI that it could use. We could take that jumbo business and sell it to PMT, and PMT could buy additional jumbos through the correspondent channel to make jumbo investments.

Speaker Change: to create investments that are, you know, either at our return target or maybe a little above or a little below. But I think what's perhaps underappreciated is the fact that if we can do this on a consistent basis and we continue to show investors that we have the ability to raise and deploy capital, that's really powerful for PMT.

Speaker Change: In addition, we're seeing, you know, in PFSI, we're seeing a really, really strong

Speaker Change: Strong growth in our jumbo business in PFSI that it could use.

Speaker Change: You know, we could take that jumbo business and sell to PMT, and PMT could buy additional jumbos through the correspondent channel to do jumbo investments. And then finally, while closed in seconds, don't, at this point, return the, you know, anywhere near the targeted return that we'd like in PMT. That's another asset class.

David Spector: And then finally, we'll close in seconds. Don't you at this point return the, you know, anywhere near the target of return that we'd like in P&T? That's another asset class that we have access to. So if you go back to the creation of P&T, this is the investment thesis of P&T, and we believe that, you know, we're, you know, depending on what happens in the election and the regulatory environment. We're really positioned very, very well to seize on an opportunity that we haven't seen in quite some time in the capital markets.

David A. Spector: And then finally, while closed-end seconds don't at this point return anywhere near the targeted return that we'd like in PMT, that's another asset class that we have access to. So, if you go back to the creation of PMT, this was the investment thesis of PMT. And we believe that, you know, we're, you know, depending on what happens in the election and the regulatory environment.

Speaker Change: that we have access to. So if you go back to the creation of PMT, this was the investment thesis of PMT.

Speaker Change: And we believe that, you know, we're, you know, you know, depending on what happens in the election and the regulatory environment.

Speaker Change: We're really positioned very, very well to seize on an opportunity that we haven't seen in quite some time in the capital markets.

David Spector: Yes, just to that last point, do you foresee that opportunity being more durable than it's been since PMT was created, since that opportunity has kind of been fleeting in its life? I don't like predicting the future, but I can tell you it's the most traction I've seen in private label securitization since we started PMT. And I think the capital runs deep, but I think we have a real advantage in the fact that we have this wide wheel of sorts, where we can buy the loans and create the securitist sponsor of securitization, sell the senior bonds and retain the sub bonds, and I don't know who else has that ability?

Douglas Michael Harter: Yes, just to that last point, do you foresee that opportunity being more durable than it's been since PMT was created? Since that opportunity has kind of been pleading, you know, in its life.

Speaker Change: I guess just to that last point, do you foresee that opportunity being more durable than it's been since PMT was created, since that opportunity has kind of been fleeting in its life?

David A. Spector: I don't like predicting the future, but I can tell you it's the most traction I've seen in private label securitization since we started PMT, and I think, you know,

Speaker Change: I don't like predicting the future, but I can tell you it's the most traction I've seen in private label securitization since we started PMT.

Speaker Change: and I think, you know, the capital runs deep.

Speaker Change: But, you know, I think we, we have a real advantage in the fact that we have.

Speaker Change: We have this.

Speaker Change: flywheel of sorts where we can buy the loans and create the security, sponsor the securitization, sell the senior bonds, and retain the sub-bonds. And that's, I don't know who else has that, you know, who has that ability.

David Spector: Appreciate the answers.

Douglas Michael Harter: I appreciate the answers. Thank you.

David Spector: Thank you.

Crispin Love: Your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.

Crispin Love: Your next question comes from the line "Crispin Love" with Piper Sandler. Please go ahead.

Speaker Change: All right. Appreciate the answers. Thank you.

Speaker Change: Your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.

Crispin Love: In the interest rates for the strategy segment, can you speak to the investment opportunities you're seeing, and which you view as the best risk-adjusted returns, whether it's on the MSR or the agency and non-agency sides as you look forward and how those opportunities compare to the credit card? Sure. In the current environment, and this goes along with some of the commentary and some of the actions, activities that we've had in the portfolio recently, on the credit side, we've seen credit spreads tightened over the last several quarters. We had then opportunistically purchasing credit investments, primarily stacker and CAD securities.

Daniel Stanley Perotti: Thanks. In the interest rate sensitive strategy segment, can you speak to the investment opportunities you're seeing and which you view as the best risk-adjusted returns, whether it's on the MSR or the agency and non-agency sides as you look forward, and how those opportunities compare to the credit side?

Crispin Love: Thanks. In the interest rate-sensitive strategy segment, can you speak to the investment opportunities you're seeing and which you view as the best risk-adjusted returns, whether it's on the MSR or the agency and non-agency sides as you look forward, and how those opportunities compare to the credit side?

Daniel Stanley Perotti: Sure. In the current environment, and this goes along with some of the commentary and some of the actions, and activities that we've had in the portfolio recently, you know, on the credit side, we've seen credit spreads tighten over the last several quarters. You know, we have been opportunistically purchasing credit investments, primarily Stacker and CAS securities. We've generally been divesting of those, and certain other credit investments in recent quarters as spreads have tightened significantly and brought some of those investments below our return hurdles.

Speaker Change: Sure. In the current environment, and this goes along with some of the commentary and some of the actions or activities that we've had in the portfolio recently, you know, on the credit side, we've seen credit spreads tighten over the last several quarters.

Speaker Change: You know, we have been opportunistically purchasing credit investments, primarily Stacker and CAS securities.

Dan Perotti: We've generally been divesting of those, and certain other credit investments in the recent quarters. Of spreads have tightened significantly and brought some of those investments below our return hurdles.

Speaker Change: We've generally been divesting of those, and certain other credit investments in the recent quarters of spreads have tightened significantly and brought

Dan Perotti: Where we see the most attractive places to invest currently, as you mentioned, is in the interest rate sensitive strategies, primarily in mortgage servicing rights. And so we have access through the correspondent channel to those more used servicing rights. That's why we're shifting a portion of PMC's retaining in Q3, a greater portion of those conventional correspondent loans, given the capital that it raised through conventional or through its convertible issuance. That's what we see as the most attractive and most sort of present opportunity. We also are looking at MSR portfolios that come to market on the secondary market or bulk MSR portfolios.

Daniel Stanley Perotti: Where we see the most attractive places to invest currently, as you mentioned, is in interest rate sensitive strategies, primarily mortgage servicing rights. And so we have access through the correspondent channel to those mortgage servicing rights.

Speaker Change: Some of those investments below our return hurdles.

Speaker Change: Where we see the most attractive places to invest currently, as you mentioned, is in the interest rate sensitive strategies.

Crispin Love: That's why we're shifting a portion, or PMC is retaining in Q3, a greater portion of those conventional correspondent loans, given the capital that it raised through conventional or through its convertible issuance, that's what we see as the most attractive and most present opportunity. We also are looking at MSR portfolios that come to market on the secondary market or bulk MSR portfolios. I participated in a few of those purchases or bought a few of those portfolios over the past few quarters.

Speaker Change: primarily in mortgage servicing rights.

Speaker Change: And so we have access through the correspondent channel to those mortgage servicing rights. That's why we're shifting.

Speaker Change: a portion or PMCs retaining in Q3 a greater portion of those conventional correspondent loans given the capital that it raised through its convertible issuance.

Speaker Change: That's what we see as the most attractive and most sort of present opportunity. We also are looking at MSR portfolios that come to market on the secondary market or bulk MSR portfolios. We've

Dan Perotti: We've participated in a few of those purchases or bought a few of those portfolios over the past few quarters. In recent periods, we've seen those portfolios really be pretty bit up to a significant degree to where the acquisition of MSR through the correspondent channel appears more attractive at this point in time. But we still, from a collateral point of view and from a PMC positioning point of view, generally see the low coupon MSR portfolios as attractive. Pricing in the bulk market has not been what we're looking for most recently.

Speaker Change: Participated in a few of those purchases or bought a few of those portfolios over the past few quarters.

Crispin Love: In recent periods, we've seen those portfolios really be bid up to a significant degree to where the acquisition of MSRs through the correspondent channel appears more attractive at this point in time. But we still, from a collateral point of view and from a PMT positioning point of view, generally see the low coupon MSR portfolios as attractive. The pricing in the bulk market has not been what we're looking for most recently.

Speaker Change: In recent periods, we've seen those portfolios really be pretty bid up to a significant degree to where the acquisition of MSRs through the correspondent channel

Speaker Change: appears more attractive at this point in time, but we still, from a collateral point of view and from a PMT positioning point of view, generally see the low-coupon MSR portfolios as attractive pricing in the bulk market.

Speaker Change: has not been what we're looking for most recently.

Dan Perotti: As David mentioned, the other opportunities that we're looking at are really around the securitization of some of the production that comes through in the correspondent channel, potentially also in terms of loans that are originated from the direct channels at PFSI and potential generation of securitizations and retention of the subordinate bonds there. So that's another avenue that we view as attractive currently, and especially to the extent that we can create a program that allows us to consistently invest in those types of assets.

Crispin Love: As David mentioned, the other opportunities that we're looking at are really around the securitization of some of the production that comes through in the correspondent channel, potentially also in terms of loans that are originated from the direct channels at PFSI and potential generation of securitizations and retention of the subs, the subordinate bonds there. So that's another avenue that we view as attractive currently, and especially to the extent that we can create a program that allows us to consistently invest in those types of assets.

Speaker Change: As David mentioned, the other, you know, the other opportunities that we're looking at are really around the securitization of some of the production that comes through in the correspondent channel, potentially also in terms of loans that are originated from the direct channels at.

Speaker Change: PFSI and potential generation of securitizations and retention of the subs, the subordinate bonds there.

Speaker Change: So that's another, you know, another avenue that we view as attractive currently, and especially to the extent that we can create a program that allows us to consistently invest in those types of assets.

Crispin Love: Great. Thank you. That's helpful.

Daniel Stanley Perotti: Great, thank you. That's very helpful.

Crispin Love: And then just from the third-party estimates that you mentioned early on in the prepared for marks on mortgage origination, so that it was 1.7 trillion in 24 and 2.1 in 25. In the current environment, do you believe those estimates are about right with the forward curve in your rate expectations, or do you think we, or those, could be a little bit too aggressive with what you're seeing right now?

Speaker Change: Great, thank you. That's helpful. And then just on the third party estimates that you mentioned early on in the prepared remarks on mortgage originations, I think it was $1.7 trillion in 2014.

Speaker Change: 2.1 and 25. In the current environment, do you believe those estimates are about right with the forward curve and your rate expectations, or do you think we, or those could be a little bit too aggressive with what you're seeing right now?

David A. Spector: Look, I think they are, personally, I will tell you that they're backloaded to, you know, Q3 and Q4, and in that backloading, there is a perception that rates are going to decline. And so I think you have to ask yourself, if you just look at the current run rate and you analyze it, or you look at the first two quarters and you analyze it, you don't get to 1.7. And so the question is, what is going to be the general direction of rates as you go through these, as you go through those quarters?

Crispin Love: Well, I think, I think they are. Personally, I will tell you that they're backloaded to, you know, key three and Q4, and in that backloading, there is a perception that rates are going to decline. And so I think you have to ask yourself, if you just look at the current run rate and you analyze it, or you look at the first two quarters and you analyze it, you don't get to 1.7.

Crispin Love: And then just on the third-party estimates that you mentioned early on in the prepared remarks on mortgage originations, I think it was $1.7 trillion and $24 and $2.1 and $25. In the current environment, do you believe those estimates are about right with the forward curve and your rate expectations? Or do you think we or those could be a little bit too aggressive with what you're seeing right now? Okay.

Speaker Change: Look, I think, I think they are, personally, I will tell you that they're backloaded.

Speaker Change: to, you know, Q3 and Q4, and in that backloading, there is a perception that rates are going to decline. And so I think you have to ask yourself, if you just look at the current run rate and you analyze it, or you look at the first two quarters and you analyze it, you don't get to 1.7.

Crispin Love: And so the question is, what is going to be the general direction of rates as you go through those quarters? Thank you.

Speaker Change: And so the question is, what is going to be the general direction of rates as you go through those, as you go through those quarters?

Crispin Love: Thank you. I appreciate you taking my question.

Crispin Love: I appreciate you taking my questions. Thank you.

Speaker Change: Thank you. I appreciate you taking my questions.

Bose George: Here, next question comes from the line of Bose George with KBW. Please go ahead.

Bose Thomas George: Your next question comes from the line of Bose George with KBW. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Bose George with KBW. Please go ahead.

Bose Thomas George: Hey guys, good afternoon. I wanted to try and quantify just the benefit from retaining more of the conventional production at PMT. So this is looking at the difference between the gain on sale and the fulfillment fee. It's 35 versus 20, so can we just look at sort of 15 basis points on the incremental loans that are being retained at PMT?

Bose George: He has good afternoon. I wanted to try and quantify just the benefit from, you know, retaining more, more of the conventional production at PMT. So those are just looking at the difference between the gain on sale and the fulfillment fee. It's 35 versus 20. So can we just look at sort of 15 basis points on the incremental loans that are being retained at PMT? I think that the primary benefit is really around the capital deployment. So if we look at, you know, if we look at the gain on sale or the gain in PMT, a portion of that is driven by the, the portion of that is driven by the gain that the, of the loans that flow through to PFSI.

Bose Thomas George: Yeah, good afternoon. I wanted to try and quantify just the benefit from retaining more

Bose Thomas George: more of the conventional production at PMT. So this is looking at the difference between the gain on sale and the full filament fee. It's 35 versus 20. So.

Speaker Change: Can we just look at sort of 15 basis points on the incremental loans that are being retained at PMT?

Daniel Stanley Perotti: I think that the primary benefit is really around capital deployment. So if we look at, you know, if we look at the gain on sale or the gain in PMT, a portion of that is driven by the gains of the loans that flow through to PFSI. Part of it is also driven by what I've mentioned earlier in the call, some of the rep and warrant relief, which is really related to loans that we sold historically, not necessarily loans that are being sold and securitized in the current period.

Speaker Change: I think that the primary benefit is really around the capital deployment. So if we look at

Speaker Change: You know, if we look at the gain on sale or the gain in in PMT, a portion of that is driven by.

Speaker Change: The portion of that is driven by the gain of the loans that flow through to PFSI. A portion of it is also driven by what I mentioned earlier in the call, some of the rep and warrant relief, which is really related to loans that we sold.

Dan Perotti: The portion of it is also driven by what I've mentioned earlier in the call: the, some of the rep and warrant relief, which is really related to loans that we sold historically, not necessarily loans that are being sold and securitized in the current period. So really, the, you know, the additional correspondence benefit on those loans is, you know, is a smaller spread, is a few, you know, a few basis points. The, the really the benefit overall a few basis points net over the, the fulfillment fee, really the primary benefit overall is in terms of the retention of additional investment and additional MSR that, you know, will grow that MSR asset a bit and drive additional earnings from, you know, from a growing MSR portfolio or larger MSR portfolio.

Speaker Change: historically and not necessarily loans that are being sold and securitized.

Daniel Stanley Perotti: So, really, the, you know, the additional correspondent benefit on those loans is, you know, a smaller spread is a few, you know, a few basis points. Um, the, the real benefit overall. Uh, a few basis points net over the fulfillment fee, really, the primary benefit overall is in terms of the retention of additional investment and additional that, you know, we'll grow that asset a bit and drive additional earnings from it. You know, from a growing portfolio or a larger portfolio as opposed to the portfolio, which really has been pretty static over the past few quarters.

Speaker Change: in the current period.

Speaker Change: So really the, you know, the additional correspondent benefit on those loans is

Speaker Change: you know, is a smaller spread is a few

Speaker Change: You know, a few basis points.

Speaker Change: The benefit overall

Speaker Change: A few basis points net over the fulfillment fee. Really, the primary benefit overall is in terms of the retention of additional investment and additional MSR that will grow that MSR asset a bit and drive additional earnings from

Speaker Change: you know, from a growing MSR portfolio or a larger MSR portfolio, as opposed to the MSR portfolio, which really has been pretty static over the past few quarters.

Dan Perotti: As opposed to the MSR portfolio, which really has been pretty static over the past few quarters.

Bose Thomas George: Okay. Okay, great. That's helpful. Thanks. And then on slide seven, where you have the run rate earnings, does that just incorporate the forward curve or, like, if the curve steepens, is there any benefit, or how should we think about it? Unknown AttendeeYeah, it does. Yeah, it does.

Bose George: Okay. Great. That's helpful. Thanks.

Dan Perotti: And then on slide seven, where you have the run rate earnings, does that just incorporate the forward curve or like if the curves, if steepens, is there any benefit or how should we think about that? Yeah, it does, yeah, it incorporates the forward curve. So to the extent that the curve steepens and really the primary steepening would be either, yeah, you know, long race going up or really short term race going up like a Fed cut because, you know, to the extent that you think of a steepening as two tens or something along those lines, the two year declining at this point doesn't, you know, doesn't give us a lot of benefit.

Speaker Change: Okay. Okay, great. That's helpful. Thanks. And then on slide 7, where you have the run rate earnings, does that just incorporate the forward curve or, like, if the curve steepens, is there any benefit, or how should we think about that?

Daniel Stanley Perotti: Yeah, it does. Yeah, it incorporates the forward curve. So to the extent that the curve steepens, and really the primary steepening would be either, yeah, either long rates going up or really short-term rates going up like a Fed cut because, you know, the extent that you think of us evening out as twos, tens or something along those lines, the two-year declining at this point doesn't give us a lot of benefit. We don't really get the benefit until actual short rates decline, and we get some benefit in terms of the financing.

Speaker Change: Yeah, it does. Yeah, it incorporates the forward curve. So to the extent that the curve steepens and really the primary steepening would be either long rates going up or really short term rates going up like a Fed cut because, you know,

Speaker Change: To the extent that you think of us evening as twos, tens, or something along those lines, the two-year declining at this point doesn't give us a lot of benefit. We don't really get the benefit until actual short rates decline, and we get some benefit in terms of the financing. So either the yields on our longer-term assets go up, we mark those to market.

Dan Perotti: We don't really get the benefit until actual short rates decline, and we get some benefit in terms of the financing. So either the yields on our longer term assets go up. We mark those to market and, you know, are generally hedged against that. And that would be a benefit in terms of the ongoing returns of the assets versus the financing, or if we see short rates go down and the spread, you know, and long rates pay the same. And the spread between the short rates and the longer term yields, you know, would, would, would grow.

Daniel Stanley Perotti: So if the yields on our longer-term assets go up, we mark those to market and are generally hedged against that, and that would be a benefit in terms of the ongoing returns of the assets versus the financing. Or, if we see short rates go down and long rates stay the same, then the spread between the short rates and the longer-term yields would grow, and that would drive additional earnings on interest rate-sensitive strategies.

Speaker Change: and, you know, are generally hedged against that and that would be a benefit in terms of the ongoing returns of the assets versus the financing, or if we see short rates go down and the spread, you know, and long rates stay the same, then the spread between the short rates and the longer term yields, you know, would, would,

Dan Perotti: And that would drive additional earnings on the, on the interest rate sense of the strategy.

Speaker Change: would grow and that would drive additional earnings on the interest rate sensitive strategies.

Dan Perotti: Please. Okay, great. Thanks.

Speaker Change: Okay, great. Thanks

Matthew Howlett: Your next question comes from the line of Matthew Howlett with B. Riley Financial.

Matthew Philip Howlett: Your next question comes from the line of Matthew Howlett with B Reilly Financial. Please go ahead. Oh, hey, David. Hey, Dan. Thanks for taking my call.

Speaker Change: Your next question comes from the line of Matthew Howlett with B. Reilly Financial. Please go ahead. Oh, hey, David. Hey, Dan. Thanks for taking my question. Thank you. Thank you.

Matthew Howlett: Please go ahead. Oh, hey, David. Hey, Dan. Thanks for taking my question. Hey, Matt. How are you? Good, thanks.

Matthew Philip Howlett: Oh, hey David. Hey Dan. Thanks for taking my question. Hey Matt, how are you?

Daniel Stanley Perotti: Good, thanks. Hey, look, on the subject of the balance sheet and, you know, the capital constraints, I know you want to put more money to work out there. If rates start coming down, you know, in September, does that change your opinion and maybe try to refinance the 24-month maturity? I mean, what's the appetite? You know, I'm assuming the preferred markets probably aren't open quite yet, but you probably don't want to issue equity below book. So just thoughts on, if the environment starts going down, the rates are heading downward.

Matthew Howlett: Hey, look, on the subject of the balance sheet and you know, the capital constraints, I know you want to put more money to work out there. If rates start coming down, you know, September, does that change your opinion? And maybe trying to refinance the twenty form maturity? I mean, what's the appetite? You know, I'm assuming the preferred bar gets prey aren't open quite yet, but you probably don't want to do equity. But a book. So it just starts on. The environment starts going down. The rates are heading downward. So yeah, to the extent that we see saw on the financing side, to the extent that we see rates.

David: Hey Matt, how are you?

Matthew Philip Howlett: Good, thanks. Hey, look, on the subject of the balance sheet and, you know, the capital constraints, I know you want to put more money to work out there. If rates start coming down, you know, in September , does that change your opinion on maybe trying to refinance the 24 maturity? I mean, what's the appetite?

Speaker Change: You know, I'm assuming the preferred markets probably aren't open quite yet, but you probably don't want to issue equity below book. So, it just starts on, the environment starts going down, the rates are heading downward.

Daniel Stanley Perotti: So, yeah, to the extent that we see on the financing side, to the extent that we see rates decline, we could look at doing some additional issuance. But with respect to the 2024 maturity, really, the way that we have been looking at that and that we've sort of talked about in the past, that we've fully reserved for that in our liquidity forecasting. And so as we were looking out, we constrained investment because we wanted to make sure we had enough liquidity reserves to pay off the 2024 maturity that comes later in the year of our convertible debt.

Speaker Change: So, yeah, to the extent that we saw on the financing side, to the extent that we see rates

Dan Perotti: Decline we may, we could look at doing some additional issuance, but with respect to the twenty twenty four maturity, really the way that we have been looking at that and that we've sort of talked about in the past, that we've fully reserved for that in our liquidity forecasting. And so, as you know, as we were looking out, if we had constrained investment because we wanted to make sure we had enough liquidity reserved to pay off the twenty twenty four. And so that's why we're looking for maturity that comes later in the year of our convertible.

Speaker Change: decline.

Speaker Change: We may we could look at doing some additional issuance. But with respect to the 2024 maturity, really the way that we have been looking at that, and that we've sort of talked about in the past,

Speaker Change: that we fully reserved for that in our liquidity forecasting. And so as we were looking out, we had constrained investment because we wanted to make sure we had enough liquidity reserved to pay off the 2024 maturity that comes later in the year of our convertible debt.

Daniel Stanley Perotti: As you know, given that we raised additional convertible debt in the second quarter, that really freed up some investment capacity for us. And that's really what's leading us to drive toward additional investment through an increased participation in the conventional correspondent loans that come through the correspondent channel and drive investment in MSR, as well as additional correspondent activity and income. But to your point, to the extent that we see some opportunity, some additional opportunities as interest rates decline to issue additional financing, then we would, you know, we would potentially look to, you know, take advantage of those opportunities as well, which could drive additional, additional potential for

Dan Perotti: But, as you know, given that we raised additional convertible debt in the second quarter, that really freed up some investment capacity for us. And that's really what's leading us to drive toward additional investment through an increased participation in the conventional correspondent loans that come through the correspondent channel and drive investment in MSR. As well as additional correspondent activity and income. But to your point, to the extent that we see some opportunities, some additional opportunities, as interest rates decline, to issue additional financing. Then we would, you know, we would potentially look to look to take advantage of those opportunities as well, which could drive additional potential for investment.

Speaker Change: Given that we raised additional convertible debt in the second quarter, that really freed up some investment capacity for us. And that's really what's leading us to

Speaker Change: drive toward additional investment through an increased participation in the conventional correspondent loans that come through the correspondent channel and drive investment in MSR as well as additional correspondent activity and income.

Speaker Change: But to your point, to the extent that we see some opportunity, some additional opportunities as interest rates decline to issue additional financing, then we would, you know, we would potentially look to

Speaker Change: You know look to take advantage of those opportunities as well, which could drive additional additional potential for investment

Matthew Howlett: Well, I think your perception of the preferred and our opportunities on the preferred and the common equity side are correct currently, where we don't see those as available opportunities in the current market. Well, I say because David, I mean, you've been in the business a long time and here you talk about securitization market like you just like you just did is just, I mean, it's just really eye opening.

Daniel Stanley Perotti: Well, I think if you're Sorry, I think your perception of the preferred and our opportunities on the preferred and the common equity side are correct currently, where we don't see those as available opportunities in the current market.

Speaker Change: Well, I think your perception of the preferred and our opportunities on the preferred and the common equity side are correct currently, where we don't see those as available opportunities in the current market.

Matthew Philip Howlett: Well, I say because, David, I mean, you've been in the business a long time, and to hear you talk about the securitization market like you just did is just, I mean, it's really eye-opening. My question is, I mean, non-agency securitization: where is PFSI selling all that production today? That's one.

David: Well, I say it because, David, I mean, you've been in the business a long time, and to hear you talk about the securitization market like you just did is just, I mean, it's just really eye-opening. My question is...

Matthew Howlett: My question is, I mean, non-agency securitization, where is PFSI selling all that production today? That's one. And the two of PMT was to start acquiring investor seconds. I mean, what type of returns are we talking about here? I mean, I know it's going to depend on what you assume for losses and where the, you know, secretions, you know, spreads are in yields. But I mean, I remember when you guys were doing sort of 20% yields on the CRT. I mean, we're talking about that type of ROE. If you start doing a jumbo program or a second program.

Matthew Philip Howlett: And then, two, if PMT was to start acquiring investor seconds, I mean, what type of returns are we talking about here? I mean, I know it's going to depend on what you assume for losses and where the securitization spreads are and yields. But, I mean, I remember when you guys were doing sort of 20 percent yields on the CRT. We're talking about that type of...

Speaker Change: to be non-agency securitization. Where is PFSI selling all that production today? That's one. And then two, if PMT was to start acquiring investor.

Speaker Change: seconds

Speaker Change: I mean, what type of returns are we talking about here? I mean, I know it's going to depend on what you assume for losses and where the, you know, securitization, you know, spreads are and yields.

Speaker Change: But I mean, I remember when you guys were doing sort of 20% yields on the CRT, I mean, we're talking about that type of ROEs, if you start doing a jumbo program or a second program.

David Spector: Oh, I wish. Those are great days. Look, to that point, there's been this, there's been this migration of loans that have either. High-level price adjustments or higher cost to deliver the GSEs away from the GSEs to cheaper costs of capital. In particular, we've seen this with insurance companies and other organizations that are aggregating those loans and securitizing them. Now, they have a lower cost of capital than P&T, but at the same time, I am seeing that specifically on investors and second homes, there's an opportunity to do a securitization. And do it that gets, you know, our dividend yield is roughly 10%, and that's kind of how we view it net of our expenses, of the returns that we want to achieve.

David A. Spector: Oh, I wish. Those were great days.

Speaker Change: Oh, I wish. Those are great days. Look, to that point, there's been this, there's been this migration of loans that have either.

Speaker Change: high loan level price adjustments or higher, you know, and higher cost of delivery to the GSEs away from the GSEs to cheaper cost of capital. In particular, we've seen this with insurance companies and other organizations that are aggregating those loans and securitizing them.

David A. Spector: Look, to that point, there's been this migration of loans that have either [inaudible] Now, they have a lower cost of capital than P&T, but at the same time, I am seeing that, specifically for investors in second homes, there's an opportunity to do a securitization and do it that gets, you know, we, you know, our dividend yield is roughly 10%, and that's kind of how we view it And I think that it's achievable. Is it going to be 9.75 or 10 and a quarter?

Speaker Change: Now, they have a lower cost of capital than P&T, but at the same time, I am seeing that specifically on investors in second homes, there's an opportunity.

Speaker Change: to do a securitization and do it that gets, you know, we, you know, our dividend yield is roughly 10% and that's kind of how we view it net of our expenses of the returns that we want to achieve. And I think that, I think it's achievable. Is it going to be 9.75 or 10 and a quarter? But suffice it to say the way we look at the returns is in a very conservative fashion.

David A. Spector: But suffice it to say, the way we look at returns is in a very conservative fashion. We look at returns without burdening the investment with the margin call reserves that are required with the financing. We stress test it at, you know, two times losses or, you know, faster speeds.

David Spector: And I think that, I think if achievable, is this going to be 9.75 or 10 in a quarter, but suffice it to say the way we look at the returns is in a very conservative fashion. When we look at returns with burdening the investment with the margin call reserves that are required with the financing, we stress tested at two times losses or, you know, the faster speeds, you know, we look at it where does the investment completely break.

Speaker Change: We look at returns with

Speaker Change: burdening the investment with the margin call reserves that are required with the financing.

David A. Spector: You know, we look at it, where does the investment completely break? So, we're, you know, we have a long history of doing this with CRT in particular, but I do think it's, what's exciting about it is it's a meaningful opportunity for us, potentially, potentially a meaningful opportunity to add credit-sensitive investments to P&T. By leveraging the synergistic relationship that we have with PFSI, and that's what I'm enthusiastic about. Yeah, and look, we

Speaker Change: We stress test it at, you know, two times losses or, you know, faster speeds. You know, we look at it, where does the investment completely break? So we're, you know, we have a long history of doing this with.

David Spector: So we have a long history of doing this with CRT in particular, but I do think it's, I think it's with, with exciting about it, it's a meaningful opportunity for us potentially, potentially meaningful opportunity to add credit sensitive investments in the P&T by leveraging the synergistic relationship that we have with PFSI, and that's, and that's what I'm enthusiastic about.

Speaker Change: DRT in particular, but I do think it's I think it's what's what's exciting about it. It's a meaningful opportunity for us.

Speaker Change: potentially meaningful opportunity to add credit sensitive investments in the PMT by leveraging the synergistic relationship that we have with PFSI and that's and that's what I'm enthusiastic about.

Matthew Philip Howlett: Yeah, look, we'd love to see you grow the next part of the cycle, get more capital into the company. Best of luck. Best of luck. Thanks a lot.

Matthew Howlett: Yeah, and look, we'd love to see you grow the next part of the cycle, get more capital in the company. Best of luck, best of luck. Thanks a lot. Stay safe.

Speaker Change: Yeah, and look, we'd love to see you grow in the next part of this cycle, get more capital into the company. Best of luck. Best of luck. Thanks a lot.

Doug Harper: Your next question comes from the line of Doug Harper with UPS. Please go ahead. Thanks, just wanted to follow up, you know, how you're thinking about the different risk profile of the current coupon MSR from corresponding versus the lower coupon. That's, that's currently in the portfolio, and you could just remind us, you know, kind of the recapture agreement that PMG has with PFSI.

Douglas Michael Harter: Your next question comes from the line of Doug Harper with UPS. Please go ahead.

Speaker Change: Your next question comes from the line of Doug Harper with UPS. Please go ahead.

Douglas Michael Harter: Thanks, just wanted to follow up, you know, how you're thinking about the different risk profile of kind of the current coupon MSR from correspondent versus the lower coupon that's currently in the portfolio. And if you could just remind us, you know, about the recapture agreement that PMT has with PFSI.

Douglas Michael Harter: Thanks, just wanted to follow up, you know, how you're thinking about the different risk profile of kind of the current coupon.

Speaker Change: MSR from Correspondent versus the lower coupon that's currently in the portfolio. And if you could just remind us, you know, kind of the recapture agreement that PMT has with PFSI.

Daniel Stanley Perotti: Sure, so to your point there, the end to what I raised earlier. PMT is sort of a preferred investment in MSR in terms of collateral characteristics, the investment in MSR would be in the lower coupon that comprises the vast majority of its current investment in MSR. We expect that, you know, that investment in MSR to have lower prepayment speeds and also more stable prepayment speeds as interest rates fluctuate because, generally, those loans are at 3% to 4% interest rates, and we don't expect them to become refinanceable except in a very, very, very significant interest rate decline.

Dan Perotti: Sure. So the, to your point there, the, and what I raised earlier, P&T's sort of preferred investment in MSR, with in terms of collateral characteristics would be in the lower coupon that comprises the lower coupon comprises the vast majority of its current investment in MSR. We expect that, you know, that investment in MSR to have lower pre-payment speeds also more stable pre-payment speeds as interest rates fluctuate because generally those loans are at 3 to 4% note rates and we don't expect them to become refinanceable except in a very, very, very significant interest rate decline. The, however, those, those portfolios are priced in the current market when they come through, through both pretty, fairly aggressively, as far as we've seen recently.

Speaker Change: Sure, so the

Speaker Change: To your point there, and to what I raised earlier,

Speaker Change: P&T's sort of preferred

Speaker Change: Investment in MSR, in terms of collateral characteristics, would be in the lower coupon that comprises, the lower coupon comprises the vast majority of its current investment in MSR. We expect that

Speaker Change: that investment in MSR to have lower prepayment speeds, also more stable prepayment speeds as interest rates fluctuate because

Speaker Change: Generally, those loans are at 3% to 4% note rates, and we don't expect them to become refinanceable, except in a very, very, very significant interest rate decline. The.

Daniel Stanley Perotti: However, those portfolios are priced in the current market when they come through bulk pretty aggressively, as far as we've seen recently. Through the correspondent market, PMT is able to acquire more recently originated current note rate loans. So loans with note rates generally in the sixes today, those loans are obviously more sensitive to refinances, and given that PMT itself does not, you know, does not originate loans, it is, you know, less beneficial to the extent that there is an interest rate decline.

Speaker Change: However, those portfolios are priced in the current market when they come through bulk pretty fairly aggressively, as far as we've seen recently.

Dan Perotti: Through the correspondence market, PMT is able to acquire more recently originated current note rate loans. So, in loans with note rates generally in the sixes today, those loans are obviously more sensitive to refinances. And given that PMT itself does not, you know, less beneficial to the extent that there, you know, there's an interest rate decline. However, PMT does have a recapture arrangement with PFSI to the extent that PFSI recaptures loans that are part of PMT's MSR. It can recapture around generally 35 percent of the MSR, the value on the recapture rate that PFSI achieves. So, that's the protection that PMT has and benefit that PMT has as, you know, interest rates fluctuate and propane and speeds might pick up.

Speaker Change: Through the correspondent market, PMT is able to acquire more recently originated current note rate loans, so loans with note rates generally in the sixes today.

Speaker Change: Those loans are obviously more sensitive to refinances.

Speaker Change: and given that PMT itself does not, you know, does not originate loans is, you know, less beneficial to the extent that there, you know, there's an interest rate decline. However, PMT does have a recapture arrangement with PFSI to the extent that PFSI recaptures

Daniel Stanley Perotti: However, PMT does have a recapture arrangement with PFSI to the extent that PFSI recaptures loans that are part of PMT's MSR. It can generally recapture around 35% of the MSR, or the value of the new MSR, and that varies a little bit depending on the recapture rate that PFSI achieves. So, that's the protection that PMT has and a benefit that PMT has as, you know, interest rates fluctuate, and pre-payment speeds might pick up.

Speaker Change: loans that are part of PMT's MSR. It can it can recapture around generally 35% of the MSR or the value of the new MSR that and that varies a little bit depending on the recapture rate.

Speaker Change: that PFSI achieves. So that's the protection that PMT has and benefit that PMT has as interest rates fluctuate and pre-payment speeds might pick up.

Doug Harper: Great. Appreciate it. Thank you.

Douglas Michael Harter: Great. I appreciate it. Thank you.

Speaker Change: Great, appreciate it. Thank you.

Michael Kaye: Your next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead.

Michael Kay: Your next question comes from the line of Michael Kay with Wells Fargo. Please go ahead.

Speaker Change: Your next question comes from the line of Michael K. with Wells Fargo. Please go ahead.

Michael Kay: Hi, I know you just said you don't like predicting the future, but do you think there's potentially a better chance of reviving the lender CRT that you did in the past, given what could happen with the election?

Michael Kaye: I know you just said you don't like predicting the future, but do you think there's potentially a better chance of reviving the lender CRT that you did in the past, given what could happen potentially with the election? Well, they think that, you know, we've been in discussion with the GSEs about lender CRT. It's really doubtful for the foreseeable future. You know, the GSEs are creating CRT; they're not even selling all the CRT. I think that a few things need to happen. One is you need a much bigger origination market. But more importantly, you need a change in thought in terms of what do you do with the CRT and the GSEs were actually put in a position where they feel compelled to sell more of the bonds, and they need the additional liquidity from a P&T.

Michael K.: Hi, I know you just said you don't like predicting the future, but do you think there's potentially a better chance of reviving the lender CRT that you did in the past, given what could happen potentially with the election?

David A. Spector: Well, I think that you know, we've been in discussions with the GSEs about lender CRT. It's really doubtful for the foreseeable future. The GSEs are creating CRT. They're not even selling all the CRT.

Speaker Change: Well, I think that, you know, we've been in discussion with.

Speaker Change: with the GSEs of Outlander CRT. It's really doubtful for the foreseeable future.

Michael Kay: I think that a few things need to happen. One is that you need a much bigger origination market. But more importantly, you need a change in thought in terms of what you do with the CRT. And the GSEs would have to be put in a position where they feel compelled to sell more of the bonds, and they need the additional liquidity from a P&T. And so I think that there are a few things that need to take place, but I don't, at this point, believe that it's really in the cards.

Speaker Change: You know, the GSEs are creating CRT, they're not even selling.

Speaker Change: All the CRT.

Speaker Change: I think that a few things need to happen.

Speaker Change: One is you need a much bigger origination market.

Speaker Change: But more importantly.

Speaker Change: You need a change in.

Speaker Change: in thought in terms of what do you do with the CRT and you and the GSEs would have to be put in a position where they feel compelled to sell more of the bonds and and they need the additional liquidity from a PMT.

David Spector: And so I think that there's a few things that need to take place. But I don't, I don't, you know, at this point believe that it's really in the cards. You know, but to your point, Michael, you could have a change in your administration; you could have a change in leadership at FHFA. And so, you know, we try to remain very close to the people in FHFA. I've been spending time in DC once a quarter in meeting people in and out of government. And so we're just trying to, you know, really, you know, make ourselves available to leaders and to be able to make ourselves available to give our point of view.

Speaker Change: And so I think that there's a few things that need to take place, but I don't at this point believe that it's really in the cards.

Michael Kay: But to your point, Michael, you could have a change of administration; you could have a change in leadership at FHI. And so, you know, we try to remain very close to the people at FHFA. I've been spending time in DC once a quarter meeting people, you know, in and out of government. And so we're just trying to, you know, really make ourselves available to leaders and to be able to make ourselves available to give our point of view. But I think that, you know, it's not something that we're really planning on, which is what makes the opportunity to do private label securitization so exciting.

Michael K.: But to your point, Michael, you could have a change of administration, you could have a change of leadership at FHFA.

Speaker Change: And so, you know, we try to remain very close to the people in FHFA. I've been spending time in D.C. once a quarter in meeting people, you know, in and out of government. And so we're just trying to, you know, really

Speaker Change: make ourselves available to leaders and to be able to make ourselves available to give our point of view. But I think it's I think that, you know, it's it's not something that we're really planning on, which is what makes the opportunity to do private label securitization so exciting for me.

David Spector: But I think it's, I think that, you know, it's not something that we're really planning on, which is what makes the opportunity to do fiber-label securitization. So exciting. Trust me.

David Spector: Okay. And second question is, I mean, does PNT have any interest in issuing equity below book value? Like, so are that $200 million distribution agreement recently filed? Yes. So no, consistent with our previous, you know, how we've operated through our entire history, we're not looking to issue equity below book value. We did renew our equity shelf, you know, which we had not used since the last renewal of note as we've been below book value. But we did renew that, and with that, you know, renewed our at-the-money, at-the-money agreements with our underwriters. We would really only look to utilize that to the extent that we saw.

Michael Kay: And the second question is, does P&T have any interest in issuing equity below book value? I saw that $200 million distribution agreement recently filed.

Speaker Change: [inaudible]

Speaker Change: And second question is, I mean, does PMT have any interest in issuing equity below book value? I saw that $200 million distribution agreement recently filed.

Daniel Stanley Perotti: Yeah, so, no, consistent with our previous, you know, how we've operated through our entire history, we're not looking to issue equity below book value. We did renew our equity shelf, you know, which we had not, which we had not used since the last renewal of the note as we've been below book value. But we did renew that, and with that, we renewed our at-the-money, at-the-money agreements with our underwriters. We would really only look to utilize that to the extent that we saw, you know, PMT's price move above book value to potentially, and, and had, you know, opportunities to be able to deploy the capital, we would, then we would, you know, potentially look to issue through that, through that shelf.

Speaker Change: Yeah, so

Speaker Change: No, consistent with our previous, you know, how we've operated through our entire history. We're not looking to issue equity below book value. We did renew our equity shelf.

Speaker Change: which we had not used since the last renewal of note as we've been below book value, but we did renew that, and with that renewed our at-the-money agreements with our underwriters.

Speaker Change: We would really only look to utilize that to the extent that we saw, you know, PMT's price move above book value to potentially and had, you know, opportunities to be able to deploy the capital, you know, then we would, you know, potentially look to issue through that, through that shelf.

David Spector: PNT's price move above book value to potentially end and had, you know, opportunities to be able to deploy the capital.

David Spector: Then we would potentially look to issue through that, through that shelf, but we don't have any plans to issue equity below book value. Okay. Thank you.

Speaker Change: but we don't have any plans to issue equity below book value.

Operator: We have no further questions in our queue at this time.

David A. Spector: We have no further questions in our queue at this time. I will now turn the call back over to Mr. Spector for closing remarks.

Speaker Change: Okay, thank you.

David Spector: I will now turn the call back over to Mr. Specter for closing remarks. Well, I'd like to thank everyone for joining our call today, and thank you very much for your great questions. If you have any additional questions, please feel free to reach out to our Investor Relations department. And they will be responsive as always.

Speaker Change: We have no further questions in our queue at this time. I will now turn the call back over to Mr. Spector for closing remarks.

David A. Spector: Well, I'd like to thank everyone for joining our call today and thank you very much for your great questions. If you have any additional questions, please feel free to reach out to our investor relations department, and they will be responsive as always. So, thank you all very much and have a good day.

Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

David A. Spector: I'd like to thank everyone for joining our call today and thank you very much for your great questions. If you have any additional questions, please feel free to reach out to our Investor Relations Department and they will be responsive as always.

Operator: So thank you all very much, and have a good day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

David A. Spector: So thank you all very much and have a good day. This concludes today's conference call. Thank you for your participation and you may now disconnect.