Q2 2024 PennyMac Financial Services Inc Earnings Call
Good afternoon and welcome to PennyMac Financial Services Incorporated second quarter 2024 earnings call.
2nd quarter, 2024 earnings call.
Operator: Quarter 2024 Earnings Call Additional earnings materials, including presentation slides that will be referred to in this call, are available on PennyMac Financial's website at pfsi.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 earnings material. Now, I'd like to introduce David Spector, PennyMac Financial's Chairman and Chief Executive Officer, and Dan Perotti, PennyMac Financial's Chief Financial Officer.
Operator: Additional earning materials, including presentation slides that will be referred to in this call, are available on PennyMac Financial's website at pssi.penemac.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 2 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 Earnings materials.
Operator: Now, I'd like to introduce David Spector, PennyMac Financial Chairman and Chief Executive Officer, and Dan Perotti, PennyMac Financial Chief Financial Officer.
Speaker Change: Now I'd like to introduce David Spector, Pennymac, Financial's, Chairman and Chief Executive Officer, and Dan Karate, Pennymac Financial's Chief Financial Officer.
David Spector: Thank you, Operator. Good afternoon, and thank you to everyone for participating in our 2nd quarter earnings call. PFSI reported net income of $98 million or an annualized return on equity of 11%. Excluding the impact of fair value changes and non-lookering items, PFSI produced an annualized operating ROE of 16% with strong performance from both the production and servicing segments. Given our continued strong financial results and confidence in ROE, I am pleased to note that PFSI's Board of Directors approved a quarterly common stock dividend of 30 cents per share.
David A. Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our second quarter earnings. PFSI reported net income of $98 million for an annualized return on equity of 11%. Excluding the impact of fair value changes and non-recurring items, PFSI produced an annualized operating ROE of 16%, with strong performance from both the production and servicing sectors. Given our continued strong financial results and confidence in our outlook, I am pleased to note that PFSI's Board of Directors approved a quarterly common stock dividend of $0.30 per share, up from $0.20 in the prior quarter, representing an increase of 50%.
David A. Spector: Thank you operator, good afternoon, and thank you to everyone for participating in our second quarter earnings call.
Speaker Change: <unk> reported net income of $98 million annually.
Speaker Change: Annualized return on equity of 11%.
Speaker Change: Excluding the impact of fair value changes and non recurring items. He emphasized produced an annualized operating Roe of 16%.
Speaker Change: Strong performance from both the production and servicing segments.
Speaker Change: Given our continued strong financial results and confidence in our outlook.
Speaker Change: I'm pleased to note that <unk> board of directors.
Speaker Change: The quarterly common stock dividend of <unk> 30 per share.
David Spector: Up from 20 cents in the prior quarter, representing an increase of 15% of 50%. Turning to the origination market, current third-party estimates for total origination averaged $1.7 trillion in 2024 and $2.1 trillion in 2025, reflecting projections for lower rates from current levels and increased refinance lines. Given PFSI's balance and diversified business model, we believe we are extraordinarily well positioned whether rates remain high or decline from current levels. With higher total industry volumes in the 2nd quarter, and given what we have seen thus far in the 3rd quarter, we believe the origination market is resetting. In the last couple of years, we estimate approximately $2.5 trillion of mortgages have been originated with a note rate of 6% or higher.
Speaker Change: From 20 in the prior quarter, representing an increase of 15% or 50%.
David A. Spector: 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 losses. Given PSSI's balanced and diversified business model, we believe we are extraordinarily well positioned whether rates remain high or decline from current levels. With higher total industry volumes in the second quarter and given what we have seen thus far in the third quarter, we believe the origination market is resetting.
Speaker Change: Turning to the origination market current third party estimates for total originations average one seven trillion dollars in 2024 and $2 one trillion in 2025.
Speaker Change: The projections for lower rates from current levels and increased refinance volume.
Speaker Change: Given PFS is balanced and diversified business model. We believe we are extraordinarily well positioned whether it remains whether rates remain high will decline from current levels.
Speaker Change: With higher total industry volumes in the second quarter.
Speaker Change: Given what we've seen thus far in the third quarter, we believe the origination market has reset.
David A. Spector: In the last couple of years, we estimate approximately $2.5 trillion of mortgages have been originated with a note rate of 6% or higher. As long as rates remain elevated, this group of borrowers is expected to continue growing, supported by a purchase market with strong pent-up demand from key home-buying demographics. It is our belief that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels.
Speaker Change: In the last couple of years, we estimate approximately $2 five trillion dollars of mortgages have been originated with the note rate of 6% or higher.
David Spector: As long as rates remain elevated, this group of borrowers is expected to continue growing, supported by a purchase market with strong benefit demand from key home buying demographics. It is our belief that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels.
Speaker Change: As long as rates remain elevated this group of borrowers is expected to continue growing.
Speaker Change: Supported by a purchase market with strong pent up demand from key home buying demographic.
Speaker Change: It is our belief that when interest rates do decline. Many of these borrowers will undoubtedly look to lower their mortgage rates driving refinance volumes higher and total originations up to more normalized levels.
David Spector: In loan production, our multi-fascinated approach to mortgage production and our position as one of the largest producers in the country provides us with unique access to originating the choir newly originated mortgages in the current market, driving the continued growth of our we have. We have gained a meaningful amount of market share, and I'll purchase focus, correspondant and burger direct lending channels, and all of our channels have additional upset potential.
David A. Spector: In loan production, our multifaceted approach to mortgage production and our position as one of the largest producers in the country provide us with unique access to originate and acquire new mortgages in the current market, driving the continued growth of our servicing portfolio. We have gained a meaningful amount of market share in our Purchase Focus, Correspondent, and Broker Direct lending channels, and all of our channels have additional upside potential when refinance volumes return to more normalized levels.
Speaker Change: And loan production, our multifaceted approach to mortgage production and our position as one of the largest producers in the country provides us with unique access to originating require newly originated mortgages in the current market.
Speaker Change: Driving the continued growth of our servicing portfolio.
Speaker Change: We have gained a meaningful amount of market share in our purchase focused correspondent and broker direct lending channels and all of our channels have additional upside potential.
David Spector: When recent ants volumes return to more normalized levels. In the second quarter, we acquired or originated over 27 billion dollars of recently originated mortgage loans, and in recent periods, we have added a meaningful volume of mortgages with higher note rates to our portfolio. As of June 30th, $53 billion of mortgage loans in our servicing portfolio had a note rate of 5 to 6 percent, and $113 billion had a note rate of 6 percent or higher. This population of loans consists primarily of recently originated purchase mortgages, with the underlying borrowers will undoubtedly look to refinance when rates decline from their current levels.
Speaker Change: When refinance volumes returned to more normalized levels.
David A. Spector: In the second quarter, we acquired or originated over $27 billion of recently originated mortgage loans, and in recent periods, we have added a meaningful volume of mortgages with higher note rates to our portfolio. As of June 30th, $63 billion of mortgage loans in our servicing portfolio had a note rate of 5 to 6%, and $113 billion had a note rate of 6% or higher. This population of loans consists primarily of recently originated purchase mortgages where the underlying borrowers will undoubtedly look to refinance when rates decline from their current level.
Speaker Change: In the second quarter, we acquired or originated over $27 billion of recently originated mortgage loans and in recent periods. We've added we've added a meaningful volume of mortgages with higher note rates to our portfolio.
Speaker Change: As of June 30, $63 billion of mortgage loans in our servicing portfolio had a note rate of 5% to 6% and $113 billion had a noteworthy hit 6% or higher.
Speaker Change: This population of loans consist primarily of recently originated purchased mortgages with the underlying borrowers that we look to refinance when rates decline from their current levels.
David Spector: We have also been very successful providing second lean mortgage to our customers that have secured a low coupon first lean mortgage and wanted to access the equity in their home in a more economic transaction than a cash out refinance. As rates decline, this population of borrowers may also seek to reduce their costs with a refinance to consolidate their loans, presenting an additional opportunity for our consumer directly.
David A. Spector: We have also been very successful providing second lien mortgages to our customers that have secured a low coupon first lien mortgage and wanted to access the equity in their home in a more economical transaction than a cash-out refinance. As rates decline, this population of borrowers may also seek to reduce their costs with a refinance to consolidate their loans, presenting an additional opportunity for our customers directly.
Speaker Change: We have also been very successful at providing second lien mortgages to our customers that has secured a low coupon first lien mortgage and wanted to access the equity in their home in a more economic transaction that a cash out refinance.
Speaker Change: As rates decline. This population of borrowers may also seek to reduce their costs with a refinance to consolidate their loans presenting an additional opportunity for our consumer directly.
David Spector: So while volumes in our consumer direct channel are low today, I believe we are uniquely positioned for future success given this large population of borrowers that we maintain active ongoing relationships with at a higher mortgage rate. In the current market environment, however, our large and growing servicing portfolio continues to drive earnings with meaningful cash flow and revenue generation given loads of latency rates and the significant contribution from placement fees on custodial balances due to higher short term rates. Additionally, this management team has done a tremendous job developing our proprietary servicing system, which has the flexibility to rapidly adjust for regulatory changes and incorporate new and emerging technologies, including artificial intelligence, to drive operating efficiencies.
David A. Spector: So while volumes in our Consumer Direct channel are low today, I believe we are uniquely positioned for future success given this large population of borrowers that we maintain active, ongoing relationships with at a higher mortgage rate. In the current market environment, however, our large and growing servicing portfolio continues to drive earnings with meaningful cash flow and revenue generation given low delinquency rates and the significant contribution from placement fees on custodial balances due to higher short-term rates.
So while volumes in our consumer direct channel are low today I believe we are uniquely positioned for future success. Given this large population of borrowers that we maintain active ongoing relationships with higher mortgage rates.
Speaker Change: In the current market environment, However, our large and growing servicing portfolio continues to drive earnings with meaningful cash flow and revenue generation, given low delinquency rates and the significant contribution from placement fees custodial balances due to higher short term rates.
David A. Spector: Additionally, this management team has done a tremendous job developing our proprietary servicing, which has the flexibility to rapidly adjust for regulatory changes and incorporate new and emerging technologies, including artificial intelligence, to drive operating efficiency. I am pleased to announce that PennyMac expects to be the first servicer in the industry to successfully incorporate requirements for the Veteran Affairs Service Purchase, or VASP, program directly into its technology. This highlights our speed to change and the flexibility built into our SSE platform to adapt to new regulations and emerging government programs.
Speaker Change: Additionally, this management team has done a tremendous job developing our proprietary servicing system.
Speaker Change: Which has the flexibility to rapidly adjust for regulatory changes and incorporate new and emerging technologies, including artificial intelligence to drive operating efficiencies.
David Spector: I am pleased to announce that Penny Mac expects to be the first of the first service during the industry to successfully incorporate requirements for the Veteran Affairs Service Purchase or VAST program directly into its technology. This highlights our speed to change and the flexibility built into our SSE platform to adapt to new regulations and emerging government programs. Our strength and technology development, combined with the operational scale we have achieved, has driven our cost to service to among the lowest in the industry. And I am pleased to note that in the second quarter, operating expenses as a percentage of average servicing portfolio UPB were at their lowest levels in our history at under six basis points.
Speaker Change: I am pleased to announce that <unk> expects to be the first.
Speaker Change: The first servicer in the industry to successfully incorporating requirements with the veteran affairs service her.
Speaker Change: <unk>, our vast program directly into its technology.
Speaker Change: This highlights our speed to change and the flexibility built into our <unk> platform to adapt to new regulations and emerging government program.
David A. Spector: Our strength in technology development, combined with the operational scale we have achieved, has driven our cost of service to among the lowest in the industry. And I am pleased to note that in the second quarter, operating expenses as a percentage of average servicing portfolio UPB were at their lowest levels in our history, at under six basis points. Barring any meaningful increase in delinquencies, we expect to gain additional operating leverage as the portfolio grows and as we continue to look for opportunities to drive down expenses, providing us with a strong base level of profitability in future periods. I will now turn it over to Dan, who will review the drivers of PFSI's second quarter financial performance. Thank you, David.
Speaker Change: Our strength in technology development combined with the operational scale. We have achieved has driven our cost to service to among the lowest in the industry.
Speaker Change: And I am pleased to note that that in the second quarter operating expenses as a percentage of the average servicing portfolio <unk> were at their lowest levels in our history.
Speaker Change: Under six basis points.
David Spector: Barring any meaningful increase in the length of these, we expect to gain additional operating leverage as the portfolio grows and as we continue to look for opportunities to drive down expense. Providing us with a strong, base-level profitability in future periods.
Speaker Change: Barring any meaningful increase in delinquencies, we expect to gain additional operating leverages as the portfolio grows and as we continue to look for opportunities to drive down expenses, providing us with a strong base level of profitability in future periods.
Daniel Perotti: I will now turn it over to Dan, who will review the drivers of PFSI's second quarter financial performance. Thank you, David. Thank you for joining us on MSRs and hedges, and $12 million of a non-recurring non-cash gain related to a transaction within our closing services joint venture, which is included in our servicing segment. We believe this transaction is reflective of the additional opportunities and earnings potential that is achievable by providing additional services to our customers, including leveraging our large servicing portfolio with 2.5 million customers. The impact of these items on diluted earnings per share was negative 82 cents.
Daniel Stanley Perotti: PFSI reported net income of $98 million in the second quarter, or $1.85 in earnings per share for an annualized ROE of 11%. These results included $72 million of net fair value declines on MSRs and hedges, and $12 million of a non-recurring, non-cash gain related to a transaction within our closing services joint venture, which is included in our servicing sector. We believe this transaction is reflective of the additional opportunities and earnings potential it is achievable by providing additional services to our customers, including leveraging our large servicing portfolio with 2.5 million customers. Book value per share was $71.76, up from $70.13 at the end of the prior quarter due to PFSI's profitability.
Speaker Change: I'll now turn it over to Dan who will review the drivers of <unk> second quarter financial performance.
Thank you David.
Dan: <unk> reported net income of $98 million from the second quarter for $1 85 in earnings per share for an annualized Roe of 11%.
Dan: These results included $72 million of net fair value declines on Msr's in hedges from $12 million of nonrecurring of a nonrecurring noncash gain related to a transaction within our closing services joint venture, which is included in our servicing segment.
Dan: We believe this transaction is reflective of the additional opportunities and earnings potential that is achievable by providing additional services to our customers, including leveraging our large servicing portfolio with $2 5 million customers.
Dan: The impact of these items on diluted earnings per share was negative 82.
Daniel Perotti: Book value per share was $71.76, up from $70.13 at the end of the prior quarter due to PFSI's profitability. Turning to our production segment, pre-tax income was $41 million, up from $36 million in the prior quarter. Total acquisition and origination volumes were $27 billion in unpaid principal balance, up 25% from the prior quarter. $25 billion was for PFSI's own account, and $2 billion was fee-based fulfillment activity for PMT. PennyMac maintained its dominant position in correspondent lending in the second quarter, with total acquisitions of $23 billion, up from $18 billion in the first quarter. Correspondent channel margins in the second quarter were 30 basis points, down from 35 basis points in the prior quarter, due to highly competitive pricing from some channel participants.
Dan: Book value per share was $71 76.
Dan: From $70 13 at the end of the prior quarter due to <unk> profitability.
Daniel Stanley Perotti: Turning to our production segment, pre-tax income was $41 million, up from $36 million in the prior quarter. Total acquisition and origination volumes were $27 billion in unpaid principal balance, up 25% from the prior quarter. $25 billion was for PSSI's own account, and $2 billion was fee-based fulfillment activity for PMT.
Dan: Turning to our production segment pretax income was $41 million up from $36 million in the prior quarter.
Total acquisition and origination volumes were $27 billion in unpaid principal balance of 25% from the prior quarter.
Dan: $25 billion was for <unk> account and $2 billion.
Dan: Fee based fulfillment activity for PMT.
Daniel Stanley Perotti: PennyMac maintained its dominant position in correspondent lending in the second quarter, with total acquisitions of $23 billion, up from $18 billion in the first quarter. Correspondent channel margins in the second quarter were 30 basis points, down from 35 basis points in the prior quarter due to highly competitive pricing from some channel participants. Given PMT's recent capital raises, in the third quarter, PMT expects to retain approximately 30% to 50% of total conventional correspondent production, an increase from 18% in the second quarter. Acquisitions in July are expected to total approximately $8.1 billion, and locks are expected to total $9.5 billion. In BrokerDirect, we continue to see strong trends and continued growth in market shares.
Dan: Pennymac maintained its dominant position in correspondent lending in the second quarter with total acquisitions of $23 billion.
Dan: Up from $18 billion in the first quarter.
Dan: Our correspondent channel margins in the second quarter were 30 basis points down from 35 basis points in the prior quarter due to highly competitive pricing from some channel participants.
Daniel Perotti: Given PMT's recent capital raises, in the third quarter PMT expects to retain approximately 30 to 50% of total conventional correspondent production, an increase from 18% in the second quarter. Acquisitions in July are expected to total approximately $8.1 billion, and locks are expected to total $9.5 billion. In broker direct, we continue to see strong trends and continued growth in market shares. We position PennyMac as a strong alternative to channel leaders. Locks in the channel were up 28% from last quarter, and originations were up 45%. The number of brokers approved to do business with us at quarter end was over 4,200, up more than 30% from the same time last year, and we expect this number to continue growing as top brokers increasingly look for strength and diversification in their business partners.
Dan: Given the <unk> recent capital raises in the third quarter PMT expects to retain approximately 30% to 50% of total conventional correspondent production and increased from 18% in the second quarter.
Dan: Acquisitions in July are expected to total approximately $8 1 billion.
Dan: And locks are expected to total $9 5 billion.
Dan: And broker direct we continue to see strong trends and continued growth in market share as we position <unk> as a strong alternative to channel leaders.
Daniel Stanley Perotti: We position PennyMac as a strong alternative to Channel B. Locks in the channel were up 28% from last quarter, and originations were up 45%. The number of brokers approved to do business with us at quarter end was over 4,200, up more than 30% from the same time last year, and we expect this number to continue growing as top brokers increasingly look for strength and diversification in their business partners. Broker channel margins were essentially unchanged from the prior quarter and remain near normal.
Dan: Locks in the channel were up 28% from last quarter and originations were up 45%.
Dan: The number of brokers approved to do business with us at quarter end was over 4200 up more than 30% from the same time last year and we expect this number to continue growing its top brokers increasingly look for strength and diversification and their business partners.
Daniel Perotti: Broker channel margins were essentially unchanged from the prior quarter, and remain near normal heart levels. In consumer direct, lock volumes were up 25% from the prior quarter, and originations were up 3%. Higher lock volumes in the channel were driven primarily by an increase in refinance volumes as mortgage rates declined from their recent highs, providing us with an opportunity to lower mortgage payments for borrowers who previously locked in higher rates. The rate lock activity we have seen thus far in the third quarter has exceeded our run rates from the second quarter. Production expenses net of loan origination expense increased slightly from the prior quarter, primarily due to increased volumes in the direct lending.
Dan: Brokaw broker channel margins were essentially unchanged from the prior quarter and remained near normal levels.
Daniel Stanley Perotti: In Consumer Direct, lock volumes were up 25% from the prior quarter, and originations were up 3%. Higher lock volumes in the channel were driven primarily by an increase in refinance volumes as mortgage rates declined from their recent highs, providing us with an opportunity to lower mortgage payments for borrowers who previously locked in higher rates. The rate lock activity we have seen thus far in the third quarter has exceeded our run rates from the second quarter.
Dan: And consumer direct lock volumes were up 25% from the prior quarter and originations were up 3%.
Dan: Higher loss volumes in the channel were driven primarily by an increase in refinance volumes as mortgage rates declined from their recent highs, providing us with an opportunity to lower mortgage payments for borrowers who previously locked in higher rates.
Dan: The rate lock activity, we have seen thus far in the third quarter has exceeded our run rates from the second quarter.
Daniel Stanley Perotti: Production expenses net of loan origination expense increased slightly from the prior quarter primarily due to increased volumes in the direct lending business. Turning to servicing, the servicing segment recorded pre-tax income of $89 million. Excluding valuation-related changes and non-recurring items, pre-tax income was $149 million, or 9.5 basis points of average servicing portfolio UDP. Loan servicing fees were up from the prior quarter primarily due to growth in PFSI's owned portfolio as PFSI has been acquiring a larger portion of the conventional correspondent production from PMT in recent periods.
Dan: Production expenses net of loan origination expense increased slightly from the prior quarter, primarily due to increased volumes in the direct lending channels.
Daniel Perotti: channels. Turning to servicing, the servicing segment recorded pre-tax income of $89 million. Excluding valuation-related changes in non-recurring items, pre-tax income was $149 million, or 9.5 basis points of average servicing portfolio UPB. Loan servicing fees were up from the Priya quarter primarily due to growth in PFSI's own portfolio as PFSI has been acquiring a larger portion of the conventional correspondent production from PMT in recent periods. Earnings on custodial balances and deposits and other income increase primarily due to higher average balances. Custodial funds managed for PFSI's own portfolio averaged $5.7 billion in the second quarter, but from $4.6 billion in the first quarter.
Dan: Turning to servicing the servicing segment recorded pretax income of $89 million.
Dan: Excluding valuation related changes and nonrecurring items pretax income was $149 million or nine five basis points of average servicing portfolio UTV.
Dan: Loan servicing fees were up from the prior quarter, primarily due to growth in <unk> owned portfolio as PFS has been acquiring a larger portion of the conventional correspondent production for PMT in recent periods.
Daniel Stanley Perotti: Earnings on custodial balances and deposits and other income increased primarily due to higher average balances. Custodial funds managed for PFSI's own portfolio averaged $5.7 billion in the second quarter, up from $4.6 billion in the first. Realization of MSR cash flows was essentially, As David mentioned, operating expenses decreased from the prior quarter and were at their lowest levels in our history at 5.9 basis points of average servicing portfolio. EBO income was essentially unchanged, and we expect its contribution to remain low for the next several years.
Dan: Earnings on custodial balances in deposits and other income increased primarily due to higher average balances custodial funds managed for <unk> own portfolio averaged $5 7 billion in the second quarter.
Dan: From $4 6 billion in the first quarter.
Daniel Perotti: Realization of MSR cash flows was essentially unchanged. As David mentioned, operating expenses decreased from the Priya quarter and were at their lowest levels in our history at 5.9 basis points of average servicing portfolio UPB. EVO income was essentially unchanged, and we expected contributions to remain low for the next several quarters. The fair value of PFSI's MSR increased by $99 million, driven by higher market interest rates at the end of the quarter. Hedge costs came in at the higher end of our 1 to 2% expected range at $35 million. Other fair value declines on hedges during the quarter were $137 million, exceeding MSR fair value increases due to significant interest rate volatility.
Dan: Realization of MSR cash flows was essentially unchanged.
Dan: As David mentioned operating expenses decreased from the prior quarter in rest of our lowest level in our history at five nine basis points of average servicing portfolio UBB.
David: <unk> income was essentially unchanged and we expect its contribution remained low for the next several quarters.
Daniel Stanley Perotti: The fair value of PFSI's MSR increased by $99 million, driven by higher market interest rates at the end of the quarter. However, hedge costs came in at the higher end of our 1 to 2% expected range at $35 million. Other fair value declines on hedges during the quarter were $137 million, exceeding MSR fair value increases due to significant interest rate volatility. Combining these two components, total hedge declines were $172 million. The investment management segment contributed $4 million to pre-tax income during the quarter, and assets under management were essentially unchanged from the end of the prior quarter. Provision for income tax expense was $35.6 million, resulting in an effective tax rate of 26.6%.
David: The fair value of <unk>, MSR increased by $99 million driven by higher market interest rates at the end of the quarter.
David: Hedge cost came in at the higher end of our 1% to 2% expected range at $35 billion.
David: Other fair value declines on hedges during the quarter were $137 million exceed.
David: Exceeding MSR fair value increases due to the significant interest rate volatility.
Daniel Perotti: Combining these two components, total hedge declines were $172 million. The investment management segment contributed $4 million to pre-tax income during the quarter, and assets under management were essentially unchanged from the end of the prior quarter. Provisioned for income tax expense was $35.6 million, resulting in an effective tax rate of 26.6%. Finally, in May, we issued $650 million of a new six and a half year unsecured of new six and a half year unsecured term notes at attractive terms and subsequently paid down other revolving secure borrowings. This transaction reflects our continued focus on the strength and flexibility of our liquidity and capital structure, as the new notes have extended the duration of our liabilities and enhanced our overall liquidity position.
David: Combining these two components total hedge declines were $172 million.
David: The investment management segment contributed $4 million to pre tax income during the quarter and assets under management were essentially unchanged from the end of the prior quarter.
David: Provision for income tax expense was $35 6 million, resulting in an effective tax rate of 26, 6%.
Daniel Stanley Perotti: Finally, in May, we issued $650 million of new six and a half year unsecured term notes at attractive terms and subsequently paid down other revolving secured borrowers. This transaction reflects our continued focus on the strength and flexibility of our liquidity and capital structure as the new notes have extended the duration of our liabilities and enhanced our overall liquidity. We ended the quarter with $3.4 billion of total liquidity, which includes cash and amounts available to draw on facilities where we have collateral flex. We'll now open it up for questions.
David: Finally in May we issued $650 million of a new $6 five year unsecured of new six and a half year unsecured term notes at attractive terms and subsequently paid down other revolving secured borrowings. This transaction reflects our continued focus on the strength and flexibility of our liquidity and capital structure as the new notes have extend.
David: The duration of our liabilities and enhanced our overall liquidity position.
Daniel Perotti: We ended the quarter with $3.4 billion of total liquidity, which includes cash and amounts available to draw on facilities where we have collateral pledged.
David: We ended the quarter with $3 $4 billion of total liquidity, which includes cash and amounts available to drawn facilities, where we have collateral pledged.
Operator: We'll now open it up for questions.
Speaker Change: We will now open it up for questions.
Operator: Operator? I would like to remind everyone we will only take questions related to PennyMac Financial Services Inc or PFSI. 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 questions during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to draw that question again, press star one.
David: Operator.
Operator: I would like to remind everyone that we will only take questions related to PennyMac Financial Services Inc. or PFSI. 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 during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Your first question comes from Terry Ma with Barclays. Please go ahead.
Speaker Change: I would like to remind everyone. We will only take questions related related to Pennymac financial services, Inc, or key F. Assai. We also ask that you. Please keep your questions limited to one preliminary question and one follow up question as well.
Speaker Change: To ensure we can answer as many questions as possible.
Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to withdraw that question again press star one.
Terry MA: Your first question comes from Terry Ma with Barclays. Please go ahead. Hi, thank you. Good afternoon.
Speaker Change: Your first question comes from Terry MA with Barclays. Please go ahead.
Terry MA: Hi, thank you. Good afternoon.
Terry MA: Alright. Thank you good afternoon.
Daniel Perotti: Any more color you can provide on what you're seeing in corresponding quarter to date. July looked pretty strong, but you mentioned and you prepared remarks that there was some competitive pricing from participants last quarter. So has that kind of continued into this quarter?
Terry MA: Any more color you can provide on what you're seeing in correspondent.
Speaker Change: To date July looks pretty strong, but you mentioned in your prepared remarks that.
There were some competitive pricing from participants last quarter. So is that kind of continued into this quarter.
Daniel Perotti: Yeah, so look, it has continued to be a little bit more of that more on the government side than the court than the conventional side. And that's a function of a market participant who's been very aggressive in raising capital this year and using that high cost debt to move aggressively to purchase some vincorrespondent specifically on the government side. But look, having said that, I think the quarter vincorrespondent was a really great quarter for us. And you know, I think that you look at the July locks, which we're projecting to come at 9.5 billion, and that's going to be estimating to get the 28.5, 29 billion of production for the quarter.
Speaker Change: Yes.
Speaker Change: Look it's it's it has continued its continued.
Speaker Change: To be a little bit more exact more on the government side and the court then the conventional side and Thats a function of our market participants who has been very aggressive in raising capital.
This year in using that high cost debt to move aggressively to.
Speaker Change: Purchase loans and correspondent.
Speaker Change: Specifically on the government side.
Unknown Attendee: Any more color you can provide on what you're seeing in the correspondent quarter to date? July looked pretty strong, but you mentioned in your prepared remarks that there was some competitive pricing from participants last quarter. So has that kind of continued into this quarter?
Speaker Change: But look having said that I think I think the quarter and correspondent was it really was a really great was a really great quarter for us.
Speaker Change: And I think that you look at you look at the July locks, which we're projecting that to come at 995 billion and that's going to be estimating to get the 28 $529 billion of production for the quarter and while margins.
Daniel Perotti: And while margins are under pressure, we continue to believe that the flywheel continues to operate as it has been operating for many, many years here. And these are loans that are going to be very valuable; rates decline, and give us the opportunity to go and refinance those loans. And just to play in perspective, I think, you look at the share growth year over year of, you know, 1%.
Speaker Change: Are under pressure, we continue to believe that the flywheel continues to operate as it has been operating for many many years here and neither loans are going to be very valuable as rates decline and gives us the opportunity to go in and refinance those loans.
Speaker Change: Just to put it in perspective, I think you look at the share growth year over year of 1%.
Daniel Perotti: And it's really, it continues to just reinforce our belief that with a dominant forcing correspondent, and these little blips to look, we've seen from time to time, people come in and on a quarter by quarter basis, you know, after rationally, or do things that we don't necessarily but I think that, you know, speaks to the strength of the brand and it speaks to the strength of the flywheel.
Speaker Change: And it's really it continues to just reinforce our belief that we are the dominant force in correspondent and and these little blips to what we've seen from time to time people come in and on a quarter by quarter basis.
Speaker Change: After rationally are or do things that we don't necessarily agree with but I think that.
Speaker Change: Thanks to the strength of the brand and its speaks to the strength of the flywheel.
Terry MA: Got it. That's helpful.
Got it that's helpful.
Daniel Perotti: And then on the hedge, any more color you can give, kind of what happened in the quarter. Think on the call last quarter, you guys mentioned you're pretty closer to 100% on the mark quarter to date for the hedge. So maybe just any more color you can provide. I'm kind of what happened into a quarter and maybe what you're doing to kind of kind of stick going forward. Thank you.
Speaker Change: And then on the hedge any more color you can give kind of what happened intra quarter.
Speaker Change: On the call last quarter, you guys mentioned you pretty.
Closer to 100% on the March quarter.
Speaker Change: Quarter to date for the hedge so maybe just any more color you can provide.
Speaker Change: What happened intra quarter, and maybe what youre doing to kind of <unk>.
Speaker Change: Fix it going forward. Thank you.
Daniel Perotti: Sure. So, I mean, I think the first thing to note is that, obviously, the differential there between last quarter and this quarter is pretty, pretty substantial. And so, you know, we did bring in that, you know, excluding the hedge cost, the performance of the hedge versus the asset, much closer to what, you know, to what we target around 100%. You know, during the quarter was a fairly volatile quarter for interest rates. You know, interest rates went up around 50 basis points, came back down, and then we ended up, you know, up I think around 20 basis points.
David A. Spector: And, you know, I think that you look at the July loss, which we're projecting to come in at $9.5 billion, and that's going to be, you know, estimating to get to, you know, $28.5, $29 billion of production for the quarter. And while margins are under pressure, we continue to believe that the flywheel continues to operate as it has been operating for many, many years here. And these are loans that are going to be very valuable as rates decline and give us the opportunity to go in and refinance those loans.
David A. Spector: Yeah, so look, it's it has continued. It's continued to be a little bit more exact, more on the government side than the court than the conventional. And that's a function of a market participant who's been very aggressive in raising capital this year and using that high-cost debt to move aggressively to purchase on VIN Correspondent and specifically on the government side. But look, having said that, I think the quarter in Correspondent was a really great quarter for us.
Speaker Change: Sure. So I mean, I think the first thing to note.
David A. Spector: And just, you know, just to put it in perspective, I think, you know, you look at the share growth year over year of, you know, 1%, and it's really – it continues to just reinforce our belief that we're the dominant force in Correspondent. And in these little blips, look, we've seen from time to time people come in and act irrationally or do things that we don't necessarily agree with. But I think that, you know, it speaks to the strength of the brand, and it speaks to the strength of the flywheel.
Is that.
Speaker Change: Obviously, the differential there between last quarter and this quarter is pretty a pretty substantial and so.
Speaker Change: Now we did bring in that.
Speaker Change: Excluding the hedge cost.
Speaker Change: Performance of the hedge versus the asset much closer to what.
Speaker Change: To what we targeted around 100%.
Daniel Stanley Perotti: Got it. That's helpful. And then on the hedge, any more color you can give on what happened intra-quarter? I think on the call last quarter, you guys mentioned you were pretty closer to 100% on the mark quarter to date for the hedge. So maybe just any more color you can provide on kind of what happened during the quarter and maybe what you're doing to kind of fix it going forward. Sure. So, I mean, I think the first one.
Speaker Change: During the quarter was a fairly volatile quarter for interest rates interest creates went up around 50 basis points came back down and then we ended up.
Speaker Change: I think around 20 basis points, so but round trips.
Daniel Perotti: So, but round for it, you know, around 50 basis points up and down before going back up toward the end of the quarter. As we move through the quarter, given the significant, you know, overall moves in interest rates, we did reposition our hedges somewhat, and that did lead to a little bit of that, you know, that miss during the quarter in terms of the differential between the change in the asset value and the change in in the hedges, excluding the hedge cost. In terms of the hedge cost, it did run on the higher end of our sort of expected range during the quarter, up toward 2%.
Around 50 basis points up and down before before going back up towards the end of the quarter.
As we move through the quarter given the significant overall moves in interest rates, we did reposition our hedges somewhat.
Daniel Stanley Perotti: Sure. So, I think the first thing to note is that obviously the differential there between last quarter and this quarter is pretty, pretty substantial. And so, you know, we did bring in that, you know, excluding the hedge costs, the performance of the hedge versus the asset much closer to what, you know, we targeted around 100%. During the quarter, it was a fairly volatile quarter for interest rates.
Daniel Stanley Perotti: You know, interest rates went up around 50 basis points, came back down, and then we ended up, you know, up I think around 20 basis points. So, these were round trips, around 50 basis points up and down before going back up toward the end of the quarter. As we move through the quarter, given the significant, you know, overall moves in interest rates, we did reposition our hedges somewhat. And so, you know, we did bring in that, you know, excluding the hedge versus the asset, and then we ended up up around 50 basis points, came back down, and then we ended up around 50 basis points.
Daniel Stanley Perotti: So, but round trips, you know, around 50 basis points up and down before going back up toward the end of the quarter. As we move through the quarter, given the significant overall moves in interest rates, we did reposition our hedges somewhat. And that did lead to a little bit of that miss during the quarter in terms of the differential between the change in the asset value and the change in the hedges excluding the hedge cost.
Speaker Change: And that did lead to a little bit of that that Miss.
Speaker Change: Of that missed during the quarter in terms of the differential between the change in the asset value and the change in in the hedges, excluding the hedge costs in terms of the hedge cost.
Daniel Stanley Perotti: In terms of the hedge cost, it did run on the higher end of our sort of expected range during the quarter, up toward 2%. I believe when we had the call last quarter, we had said we expected it to be in the range of 1% to 2%. And that is what we saw during the quarter, given some of the higher volatility and the yield curve shape of the yield curve during the quarter.
Speaker Change: Ron on the higher end of our expected range during the quarter up toward 2% I believe when we had the call last quarter. We had said we expect it to be in the range of 1% to 2%.
Daniel Perotti: I believe when we had the call last quarter, we had said we expected to be in a range of 1 to 2%. And that, you know, that is what we saw during the quarter, given some of the higher volatility and yield curve, shape of the yield curve during the quarter. As we've moved into, you know, into the third quarter, we have to date seen volatility come off a little bit. And so that, you know, may reduce the hedge cost as we go through the third quarter.
Speaker Change: That is what we saw during the quarter given.
Speaker Change: Some of the higher volatility.
Speaker Change: And the yield curve shape of the yield curve during the quarter as we've moved into.
Daniel Stanley Perotti: As we've moved into the 3rd quarter, we have so far seen volatility come off a little bit. And so that may reduce the hedge cost as we go through the 3rd quarter. The other piece that I'd say is to the point David was making, given the accumulation of loans and the fact that we've now moved a little bit lower in interest rates, we are currently targeting a hedge ratio closer to 80 to 90% rather than 90 to 100% given the accumulation of loans and the amount of loans that are closer to being in the money at this point. Thank you.
Speaker Change: Hi.
Speaker Change: For the third quarter, we have to date seen volatility come off a little bit and so that may reduce the hedge cost hedge costs as we go through the third quarter.
Daniel Perotti: The other piece that I'd say is that, to the point David was making, given the accumulation of loans and the fact that we've now moved a little bit lower in interest rates, you know, we are currently targeting a, you know, a hedge ratio closer to 80 to 90% rather than 90 to 100%.
Speaker Change: The other piece that I would say is that too.
Speaker Change: To the point that David was making given the accumulation of loans and the fact that we've now moved a little bit lower in interest rates.
Speaker Change: We are currently targeting.
Speaker Change: A.
Speaker Change: Our hedge ratio closer to 80% to 90% rather than 90% to 100%.
Terry MA: You know, given the accumulation of loans and the amount of loans that are closer to being in the money at this point, got it. Thank you.
Speaker Change: Given the accumulation of loans.
The amount of loans that are closer to being in the money at this point.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Bose George: Your next question comes from Bose George with KBW. Please go ahead. I think I was good afternoon.
Bose Thomas George: Your next question comes from Bose George with KBW. Please go ahead. Hey guys, good afternoon. Could you provide some color on that JV transaction? You said it was non-recurring, but yeah, just curious what it was.
Speaker Change: Your next question comes from Bose, George with <unk>. Please go ahead.
Daniel Stanley Perotti: Sure, yeah, it's not something that in this form and with this particular situation that we would expect to recur exactly like this, but, you know, basically has to do with we have a joint, a closing services joint venture. We've had for a period of time, and we mentioned some of these services, the ancillary services that we provide through the joint venture in our earnings materials previously. Uh, you know, that joint venture had an appraisal management company subsidiary.
Speaker Change: Hey, guys good afternoon.
Daniel Perotti: Could you provide some color on that J.V. transaction? You said it's not recurring, but yeah, just curious what it was and if there's something we could see periodically?
Speaker Change: Could you provide some color on that JV transaction, you said it is nonrecurring, but just curious what it was.
Speaker Change: This is something we could see periodically.
Daniel Perotti: Sure. Yeah, it's not something that in this form and with, you know, that we would expect to recur exactly like this, but, you know, basically has to do with, we have a joint, a closing services joint venture we have for a period of time. We've mentioned some of these services, the employer services that we provide through the joint venture in our earnings materials previously. You know, that joint venture had an appraisal management company subsidiary, and during the quarter, we entered into a transaction to sell that appraisal management company subsidiary to a larger appraisal management company for, you know, for a small ownership share in that company.
Speaker Change: Sure, Yes, it's not something that in this forum in width.
Speaker Change: That we would expect to recur exactly like this but.
Speaker Change: Basically has to do with <unk>.
Speaker Change: Closing services joint venture we've had for a period of time, we've mentioned some of these services. These ancillary services that we provide through the joint venture and our earnings materials previously.
Speaker Change: That joint venture had a.
Speaker Change: The appraisal management company subsidiary.
Daniel Stanley Perotti: And during the quarter, we entered into a transaction to sell that appraisal management company subsidiary to a larger appraisal management company for, you know, for a small ownership share in that company. And so, uh, the accounting rules basically dictate that we have to value those, the, you know, the shares at their, their fair value, which we estimated to be, you know, twelve point five million dollars.
Speaker Change: And during the quarter, we entered into a transaction to sell that that appraisal management company subsidiary.
Speaker Change: To a larger appraisal management company for.
Speaker Change: And therefore in ownership small ownership share in that company.
Daniel Perotti: And so the, the accounting rules, you know, basically dictate that we have to value those the, you know, the shares at their fair value, which we estimated to be, you know, $12.5 million. That's the income that you see flow through. It's obviously a one-time transaction, but to the extent that there eventually is a, you know, growth in business and a, and so forth, for that, that other appraisal management company, you know, we could see upside to that ownership share in the future.
Speaker Change: So.
Speaker Change: The accounting rules.
Basically dictate that we have to value those.
Speaker Change: The shares at their fair value, which we estimated to be $12 $5 million Thats. The income that you see flow through so obviously, a one time transaction.
Daniel Stanley Perotti: That's the income that you see flow through. It's obviously a one-time transaction, but to the extent that there eventually is growth in business and a, and so forth for that other appraisal management company, we could see upside to that ownership share in the future. And really, this transaction sort of speaks to the power of the overall platform that we've built and the potential to have, further, you know, further economic benefit from the relationships that we have with our, you know, our 2.5 million customers in our servicing portfolio, as well as the additional customers that we have through that we have through our origination. So, okay, great. Thank you.
Speaker Change: But to the extent that there eventually as a.
Speaker Change: Growth in business and a.
Speaker Change: And so forth for for that that other appraisal management company.
Speaker Change: Did see.
Speaker Change: Upside to that to that ownership share in the future and really that.
Daniel Perotti: And really that transaction sort of speaks to, you know, the power of the overall platform that we've built and, you know, the potential to have further, you know, further economic benefits from the relationships that we have with our, you know, with our 2.5 million customers in our servicing portfolio as well as the additional customers, you know, that we have through, that we have through our originations. So okay, great, thank you.
Speaker Change: Transaction, so it speaks to.
Speaker Change: The power of the overall platform that we built and.
Speaker Change: And the potential to have.
Speaker Change: Further.
Speaker Change: The economic benefit from the relationships that we have with our with our $2 5 million customers in our servicing portfolio as well as the additional customers that we have through.
That we have through our originations.
Daniel Stanley Perotti: And then can you remind us how the increase in the conventional loan percentage that's going to be retained by PMT in 3Q versus, you know, the current run rate, is that, is that going to have an earnings impact, or just, yeah, can you remind me how that works? Sure, so it will likely have a, you know, a small earnings impact in that the, you know, the margin at which we purchase the loans. So, to the extent that PFSI is retaining, or the loans are being sold through to PFSI, and they're selling and securitizing them, then PFSI would earn the gain on sale and origination fees for those loans.
Speaker Change: Okay, great. Thank you and then can you remind us how the increase in the conventional loan percentage, that's going to be retained by PMT and <unk> versus the current run rate is that is there.
Daniel Perotti: And then can you remind us how the increase in the conventional loan percentage that's going to be, you know, retained by PMT in 3Q versus, you know, the current run rate? Is that, is that going to have an earnings impact, or just yet can you remind us how that works? Sure, so it will likely have a, you know, a small earnings impact in that the, you know, the margin at which we purchased the loans. So the, to the extent that PFSI is retaining, or the loans are being sold through to PFSI and they're selling and securitizing them, then PFSI would earn the, you know, the gain on sale and origination fees for those loans. You know, typically those loans have in aggregate a total gain on sale that's going to be a little bit higher than what the fulfillment fee is that we would otherwise charge to do that same activity for PMT.
Speaker Change: That going to have an earnings impact or just can you remind us how that works.
Speaker Change: Sure so.
Speaker Change: It will likely have a small earnings impact in that.
Speaker Change: The margin at which we purchased the loans so the to.
Speaker Change: To the extent that tsi is retaining.
Speaker Change: The loans are being sold through to <unk>. They are selling and securitizing them, then tsi would earn the gain on sale and origination fees for those loans.
Daniel Stanley Perotti: You know, typically, those loans have, in aggregate, a total gain on sale that's going to be a little bit higher than what the fulfillment fee is that we would otherwise charge to do that same activity for PMT. So there could be a bit of an earnings impact given the same amount of volume, but for that, along those lines, that activity that we would be doing for PMT as opposed to PFSI is a fee-for-service business.
Speaker Change: Typically those loans have.
Speaker Change: In aggregate.
Speaker Change: A total of.
Speaker Change: The total gain on sale, that's going to be a little bit higher than what the fulfillment fee is that we would otherwise charge to do that same activity for PMT.
Daniel Perotti: So there could be a bit of an earnings, you know, an earnings impact given the same amounts of volume, but for that, you know, along those lines that activity that we would be doing for PMT as opposed to PFSI is a, you know, fee for service business.
Speaker Change: There could be a bit of an earnings an earnings impact given the same amount of volume but.
Speaker Change: For that along those lines that activity that we would be doing for PMT as opposed to <unk>.
Speaker Change: Fee for service business. So is capital light. It means we're not deploying necessarily as much capital allows PMT to deploy capital and earn earn higher returns, which can benefit over time in terms of the incentive fee and so forth that we earn as PMT.
Daniel Stanley Perotti: So capital light means we're not necessarily deploying as much capital, but it allows PMT to deploy capital and earn higher returns, which can benefit over time in terms of the incentive fee and so forth that we earn at PMT. And so it really, again, if you go back a few years, really shows the benefit of the synergy between these 2 companies in terms of being able, PFSI being able to provide investments, organic investment for PMT, and really we see this as the best deployment of capital for PMT at the current point in time, at this point in time, and, you know, continues to show the benefit between the two entities.
Daniel Perotti: So as capital lights, means we're not deploying, you know, necessarily as much capital allows PMT to deploy capital and, you know, earn higher returns, which, you know, can benefit over time in terms of the incentive fee and so forth that we earn at PMT. And so it really, you know, again, to go back a few years, really shows the benefit of the synergy between these two companies in terms of being able, PFSI being able to provide investments, organic investment for PMT. And really, we see this as best deployment of capital for PMT at the current point of time.
Speaker Change: And so it really is.
Speaker Change: If you go back a few years really shows the benefit of the synergy between these two.
Speaker Change: These two companies in terms of being able to <unk> being able to provide investments for organic investment for PMT.
Speaker Change: And really we see this as the best deployment of capital for PMT at the current point in time.
Daniel Perotti: are at this point in time and you know, continue to show the benefit between the two entities.
Speaker Change: Or at this point in time.
Speaker Change: And continues to show the benefit between the two entities.
Bose George: Okay, great, thank you.
Speaker Change: Okay, great. Thank you.
Michael Kaye: Your next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead. Hi, the industry, including PennyMac, has had a lot of headcount reduction since the cycle turns.
Michael Robert Kaye: Your next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead.
Speaker Change: Your next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead.
David A. Spector: Hi, the industry, including PennyMac, has had a lot of headcount reductions since the cycle turned. So I'm wondering, are you going to have to hire them back at the same pace as you did in prior cycles when the origination market finally comes back, especially in light of some of the advancements in technology? I'm just wondering if this could lead to better than expected normalized ROEs if you don't have to hire it back so aggressively?
Michael Robert Kaye: Hi, Dennis screening, including Pennymac has had a lot of head count reductions since the cycle turn from wanting argued that the higher it back at the same pace that you did in prior cycles when the origination market finally comes back north, especially in light of some of the advancements in technology I'm just wondering could this lead to.
David Spector: Finally, comes back, no, especially in light of some of the advancements and technology, just wondering, could this lead to better-than-expected normalize our weeds. You don't have to hire back so aggressively.
Speaker Change: Other than expected normalized ROE, we used to pay off the higher back so aggressively.
David Spector: Look, I think, I think Michael, to your point, we have worked the last three years to continue to become more and more efficient. And we did, you know, in our consumer direct channel, you know, one of the main reasons we came out with our closed and second product was to keep capacity in place for our consumer direct channel. Is great sort of pivot down. And I think that that's something that we're already seeing taking place. Similarly, we've been very, very active in modeling out on what we would need in certain interest rate environments while maintaining excess capacity, so we don't, but we don't take 30 to 60 days to seize on an opportunity.
David A. Spector: Look, I think Michael, to your point, we have worked the last three years to continue to become more and more efficient. And we did, you know, in our consumer direct channel. One of the main reasons we came out with our closed-end second product was to keep capacity in place for our consumer direct channel if rates were to pivot down. And I think that that's something that we're already seeing taking place.
Speaker Change: Look I think I think Michael to your point, we have worked for the last three years to continue to become more and more efficient.
Speaker Change: And we did in our consumer direct channel.
Speaker Change: One of the one of the main reasons, we came out with our closed end second product was to keep capacity in place for our consumer direct channel if rates were to pay that down and I think that that's something that we're already seeing taking taking place. Similarly, we've been we've been very very active.
David A. Spector: Similarly, we've been very, very active in modeling out what we would need in certain interest rate environments while maintaining excess capacity so we don't take 30 to 60 days to seize an opportunity. We have three large classes of LOs already in the queue. They're going to be up and trained and ready to go. And I think that even if rates stay where they are, we believe there's value there given the high note rates servicing that we have and given the fact that you can't really start to refinance those loans until they're seasoned for six months.
Speaker Change: In modeling out what we would need in certain interest rate environments, while maintaining excess capacity. So we don't so we don't take 30 to 60 days to seize on an opportunity.
David Spector: We have three large classes of L.O. is already in the queue. They're going to be up and trained and ready to go. And I think that that's, you know, even if they stay where they are, we believe there's value there given the high note rates servicing that we have, and given the fact that you can't really start to refinance those loans until their season six months. So we're already increased in the L.O. capacity, but I think even more importantly, our modeling and our ability to add capacity and fulfillment is pretty, it's very tried and true.
Speaker Change: Have three large classes of LLS is already in the queue, they're going to be up and trained and ready to go.
Speaker Change: I think that that's even if rates stay where they are we believe there is value there given the high note rates servicing that we have and given the fact that you can't really start to refinance those loans until their seasons six months.
David A. Spector: So, we're already increasing the LO capacity, but I think even more importantly, our modeling and our ability to add capacity and fulfillment is pretty good. It's very tried and true. We've been at this now for a very long time, and through a combination of onshore resources but also, more importantly, offshore resources, especially for correspondent, but also for broker direct, and consumer direct, we can add or reduce capacity very, very quickly and very, very efficiently.
Speaker Change: So we're already increasing the low capacity, but I think even more importantly, our modeling and our ability to add capacity fulfillment is pretty is very tried and true. We've been at this now for a very long time and through a combination of onshore resources, but also more importantly offshore resources.
David Spector: We've been at this now for a very long time and through a combination of onshore resources, but also, more importantly, optional resources, especially for corresponded, but also for broker direct and consumer direct. We can add or reduce capacity very, very quickly and very, very efficiently. And so I think, you know, I'm very confident that we're not going to be in the position we were back in 2020 where we got to bring on more physical capacity in terms of space.
Speaker Change: Actually for correspondent, but also for broker direct and consumer direct we can add or reduce capacity very very quickly and very very efficiently and so I think.
David A. Spector: And so I think, you know, I'm I'm very confident that we won't be in the position we were back in 2020, where we have to bring on more, more physical capacity in terms of space. And we've got to go out and try to hire 100 LOs tomorrow. And, you know, we're, we're, we're ready to go. And we've been, we've started that process.
Speaker Change: I am very confident that we're not going to be in the position. We were back in 2020, where we got to bring on more more physical capacity in terms of space and we've got to go out and try to hire a 100 or lows tomorrow than we are.
David Spector: And we've got to go out and try to hire a hundred loads tomorrow, and you know, we're ready to go and we've started that process. That was great.
Speaker Change: We're ready to go and we've been we've started that process.
Speaker Change: Alright, great.
David A. Spector: I was hoping you could give an update on the subservicing opportunity that you talked about last quarter. I'm just curious if you had any conversations maybe with some of your correspondent partners about what kind of receptiveness you're taking on some of their retained servicing and then any more callers you could give on a potential financial impact, like how much the subservicing of servicing basis points this would be.
Michael Kaye: I was hoping you could give an update on the subservicing opportunity that you talked about last quarter of just curious, be at any conversations, they were some your corresponded partners about what kind of their receptiveness you're taking on some of their retain servicing and then any more color you could give on a potential financial impact, like how much the servicing you keep subservicing you, we're talking about and how much subservicing basis points this would be.
Speaker Change: I was hoping you could give an update on the sub servicing opportunity that you talked about last quarter.
Speaker Change: Curious if you had any.
Speaker Change: Conversations maybe with some of your correspondent partners about.
Speaker Change: And what kind of Receptiveness, you're taking on some of their.
Speaker Change: Retain servicing and then any more color you could give on the potential financial impact like how much the servicing and sub servicing <unk> were talking about and how much.
Speaker Change: Sub servicing basis points this would be.
David Spector: But we, I have, I have, I have great hopes and beliefs that we're going to be a tough subservicer in the industry. We are using to look at the results of our own servicing portfolio as well as P and T portfolio, and that is giving us tremendous entry and gravitas as we go speak to other customers who use subservicers. I believe that we are going to have one or two smaller customers onboarded by the end of the year. And there is seemingly potential for larger clients over time; we've got great relationships with eight under correspondents.
Speaker Change: Look we.
David A. Spector: As you know, I have great hopes and beliefs that we're going to be a top sub-servicer in the industry. We are... You just have to look at the results of our own servicing portfolio as well as PMT's portfolio, and that is giving us tremendous entrée and gravitas as we go speak to other customers who use sub-servicers. I believe that we are going to have 1 or 2 smaller customers onboarded by the end of the year, and there is seemingly potential for larger clients over time. We've got great relationships with 800 correspondents.
Speaker Change: As you know I have.
Speaker Change: I have great hopes and belief that we're going to be a tough sub servicer in the industry.
Speaker Change: We are you just have to look at the results of our own servicing portfolio as well as pmt's portfolio and that is giving us tremendous entre and gravitas as we go speak to other customers who use sub servicers.
Speaker Change: Hi.
Speaker Change: Believe that we are going to have one or two smaller customers on boarded.
Speaker Change: By the end of the year.
Speaker Change: And there is seemingly potential for larger clients over time, we've got great relationships with eight under correspondence. This management team has been in this industry for just about their entire careers and we know many in the industry, who have reached out to us to express interest in understanding what the sub servicing opportunities.
David Spector: This management team has been in this industry for just about their entire careers, and we know many in the industry who have reached out to us to express interest and understanding what the subservicing opportunity looks like. We want to get one or two on board. We want to be able to work that transition before, before we, you know, really go full board here. But devices to say we, you know, we're using our correspondents' sales force to help get us into their clients to be able to propose the thesis to be able to talk about what the system has to offer.
David A. Spector: This management team has been in this industry for just about their entire careers, and we know many in the industry who have reached out to us to express interest in understanding what the subservicing opportunity looks like. We want to get 1 or 2 on board. We want to be able to work that transition before. Before we really go full board here, but suffice it to say, we're using our correspondent sales force to help get us into their clients to be able to propose the thesis and be able to talk about what the system has to offer.
Speaker Change: <unk> looks like.
Speaker Change: We want to get one or two onboard we wanted to be able to work that transition before before we really go full bore here.
Speaker Change: But suffice it to say we were using our correspondent sales force to help get us into their clients to be able to propose that thesis to be able to talk about what the system has to offer.
David Spector: And, you know, between the co-branding, which is ready to go on the private label, which will be ways to go before the end of the year, we're going to be in really good shape to be able to really attack this in the way that, you know, investors and all of our stakeholders have come to expect of us. And so I think that that, to me, is the exciting part.
David A. Spector: And, you know, between the co branding, which is ready to go, and the private label, which will be ready to go before the end of the year, we're going to be in really good shape to be able to really attack this in the way that, you know, investors and all of our stakeholders have. have come to expect of us, and so I think that that, to me, is the exciting part as it pertains to size, and now, I think it's a little, it's a little early. Um, to begin to start throwing out numbers for me, what's exciting?
Speaker Change: And.
Speaker Change: Between the co branding, which is ready to go and the private label to be ready to go before the end of the year, we're going to be in really good shape to be able to really attack this and the way that investors in all of our stakeholders.
Speaker Change: Come to expect of us.
Speaker Change: And so I think that thats.
Speaker Change: To me is the exciting part as it pertains to <unk>.
David Spector: As it pertains to size and P&L, I think it's a little early to begin to start throwing out numbers. For me, what's exciting is, at a minimum, we're just going to continue that scale to the platform that's going to benefit the current investments and services. and as we, unlike many who are in this business, who are always concerned about replenishment, we have replenishment opportunities with course on it. And so the ability to front load the scale benefits and have the replenishment opportunity with course on it is what is unique in this industry in terms of what we're looking to maintain.
Speaker Change: <unk> and P&L I think it's a little it's a little early.
Speaker Change: To begin to start throwing out numbers for me whats exciting is at a minimum we're just going to continue to add scale to the platform that's going to benefit the current investments in servicing.
David A. Spector: At a minimum, we're just going to continue that scale to the platform. That's going to benefit. The current investments and services. And as we, unlike many who are in this business who are always concerned about replenishment, we have replenishment opportunities with correspondence. And so the ability to front load the scale benefits and have the replenishment opportunity with correspondence is what is unique in this industry in terms of what we're looking to maintain. You know, I think that SSE has provided tremendous benefit for our own service, and I think it's going to continue to provide benefit for others as we get into subsurface.
Speaker Change: And as we.
Speaker Change: Unlike many who are in this business, who are always concerned about replenishment, we have replenishment opportunities with correspondent and so the ability to frontload the scale benefits and have the replenishment opportunity with correspondent is what is unique in this industry.
Speaker Change: In terms of what we're looking to maintain.
David Spector: I think that SSE has provided tremendous benefits for our own service. I think it's going to continue to provide benefits for others as we get into subservicing.
Speaker Change: Think that SSE has provided tremendous benefit for our own servicing and I think it's going to continue to provide benefit for others as we get into sub servicing.
David A. Spector: All right. Thank you so much.
Michael Kaye: Okay, thank you so much.
Speaker Change: Alright, thank you so much.
Crispin Love: Your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead. Thanks. Good afternoon. I appreciate your question.
Crispin Love: Your next question comes from the line "Crispin Love" with Piper Sandler. Please go ahead.
Speaker Change: Your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.
Crispin Love: Thanks. Good afternoon. I appreciate you taking the time to answer my questions.
Crispin Love: Thanks. Good afternoon I. Appreciate you taking my questions first on kind of where do you think the mortgage rate level.
David Spector: First, you know, where do you think the mortgage rate level is where you think that we could see a significant pick up in retire activity? You mentioned the amount of mortgages at the 6% plus level a few times in your market. So do you think that is the magic level, and what kind of opportunity could that give you for a recapture if we do get to those levels as you look at your service in portfolio today? Well, I think that when I look at our portfolio, you know, it's really like about the 6.5% level where you really, the decline down to 6.5% of meaning for us.
Crispin Love: Where do you think that we could see a significant pickup in refi activity you mentioned the amount of mortgage impact of 6% plus level a few times in your remarks that you think that is the math.
Speaker Change: What level and what kind of opportunity.
Speaker Change: You for recapture.
Speaker Change: Do you get to those levels that you look at your servicing portfolio today.
David A. Spector: First, where do you think the mortgage rate level is where we could see a significant pick-up in refinance activity? You mentioned the amount of mortgages at the 6% plus level a few times in your remarks. Do you think that is the magic level? And what kind of opportunity could that give you for recapture if rates do get to those levels as you look at your servicing portfolio today?
Speaker Change: Look I think I think it's I think that when I look at our portfolio.
Speaker Change: We.
Speaker Change: It's really like about the six 5% level, where you really.
Speaker Change: The decline.
Speaker Change: The decline down to $6 five of meaningful so let me start there when you get to six five there is where I really see it really kind of kind of accelerating.
David Spector: So let me start there. When you get to 6.5%, there's where I really see it, you know, really kind of accelerating. When you get to 6, it's a meaningful number. It's a meaningful number because you have everyone that we've voted in the last year, which is, you know, in the hundreds of billions. And then, combined with the fact that many have taken out second liens and incurred other debt, which makes cash-out refinances or, you know, to consolidate the loans for people with 5% mortgages and 4% mortgages become meaningful. And so it's kind of, you know, piling on effect to some degree, you know, in terms of that it really begins to get going.
Speaker Change: When you get to six.
It's a meaningful number it's a meaningful number because you have everyone that we've been that we've ordered in the last year, which is in.
Hundreds of billions and then combined with the fact that many have taken out second liens and incurred other debt, which makes cash out refinances.
To consolidate the loans for people with 5% mortgages and 4% mortgages become meaningful and.
Speaker Change: So it's just kind of.
Hiring on effect to some degree.
Speaker Change: In terms of.
Speaker Change: That is it really begins to get going but I think I think it's.
David A. Spector: Look, I think, I think it's, I think that when I look at our portfolio, you know, we, it's, it's really about the six and a half percent level where you really, the decline down to six and a half is meaningful. So let me start there.
David Spector: But I think it's down to 6.5%. But I think also, you know, prior to, you know, I would say even 2008, historically, this market introduced, you know, as though it's been volatile. And well, we know it's in volatile after that, but the volatility historically has been kind of in the very near-term move. So you have people who would do multiple refinances. So they would refinance down a quarter, and down another quarter, and down another half. So I think that you have to look at it from the point of view that we're not going to have an event like we had in 2008 or during COVID where it just goes down, you know, 200 basis points.
David A. Spector: When you get to six and a half, there's where I really see it, you know, really kind of, kind of accelerating. When you get to six, it's a, it's a, it's a meaningful number. It's a meaningful number because you have everyone that we've ordered in the last year, which is, you know, in the hundreds of billions, and then combined with the fact that many have taken out second liens and incurred other debt, which makes cash out refinances, or, you know, to consolidate the loans for people with 5% mortgages and 4% mortgages become meaningful. And so it's this kind of, you know, But I think it's down to six and a half.
Speaker Change: It's down to six five but I think also.
David A. Spector: But I think also, you know, prior to, you know, I would say even 2008, historically, this market has always been volatile. And well, we know it's been volatile after that, but the volatility historically has been kind of in the very near-term. So you have people who would do multiple refinances, so they would refinance down a quarter, down another quarter, down another. So I think that you have to look at it from the point of view that we're not going to have an event like we had in 2008 or during COVID where it just goes down, you know, 200 bases.
Speaker Change: The prior prior to.
Speaker Change: I would say in 2008 historically this market.
Speaker Change: As always been volatile and we noticed in volatile after that but the volatility historically has been kind of in the very near term moves.
Speaker Change: People, who would do multiple refinance so they would refinance down a quarter than another quarter down another.
Speaker Change: So I think that that you have to look at it from the point of view that we're not going to have an event like we had in 2008 or during Covid, where it just goes down 200 basis points, it's going to be it's going to be a general decline down little bit ups, along the way and I think that that's what that's worth.
David Spector: It's going to be, it's going to be a general decline down with a little bit up so long the way. And I think that that's what, that's what I, you know, remind the team around here is more Back to the Future type of scenarios.
David A. Spector: It's going to be It's going to be a general decline with a little bit of ups along the way. And I think that that's what I should remind the team around here is more of a back to the future type of scenario.
Speaker Change: I remind the team around here is more back to the future type of scenarios.
Crispin Love: Thanks, David. And just one more for me.
David A. Spector: Thanks, David. And just one more question on the CFPB proposed rule from earlier this month on servicers needing to work more closely with homeowners prior to foreclosing. Can you just give us your initial thoughts on the rules, how they could impact you and servicing costs, and if there could be any unintended consequences here if the rules do in fact go through?
David: Thanks, David.
Speaker Change: Just one more from me just on the CFPB proposed rule from earlier this month on services named to work more closely with homeowners hired for closing can you just give us your initial thoughts on the rule how it could impact you in servicing costs and <unk>.
David Spector: Just on the CFTB proposed rule from earlier this month on services needing to work more closely with homeowners prior to foreclose. Can you just give us initial thoughts on the rules? How it could impact you in servicing costs? And if there could be any unintended consequences here, if the rules do impact those risks. Well, if I'm not, you know, the pertains to working with customers and on defaults it or troubled mortgages. This is something that is so ingrained in our culture in this company. This is how we started PennyMac. And, you know, we have, we've been validated by our audit results from the 50 states and the other regulatory audits that we've had.
Eric: Could be any unintended consequences, Eric the rules do impact a threat.
David A. Spector: Look, I'm not, you know, as it pertains to working with customers and on defaulted or troubled mortgages. This is something that is so ingrained in our culture at this company. This is how we started, Penny.
Eric: Look I'm not as.
Speaker Change: As it pertains to working with customers on defaulted or troubled mortgages. This is something that is so ingrained in our culture in this company and this is how we started payback.
David A. Spector: And, you know, we've been validated by our audit results from the 50 states and the other regulatory audits that we've had, and we've come through those very well. I am not at all concerned about, you know, doing what's right by the customer because we've been on the right side of that since we started the company. So there's nothing that I'm seeing or hearing that gives me any concern as it pertains to how we service loans, our cost structure, the effect it's going to have, and the profitability of it.
Speaker Change: And we have we've been we have been validated by our audit results from the 50 states and the C and the other.
Speaker Change: Other regulatory audits that we've had and.
David Spector: And, we've come through those very well. I am not at all concerned about, you know, doing what's right by the customer because we've been on the right side of that from when we started the company. So, there's nothing that I'm seeing or hearing that gives me any concern as it pertains to how we service loans to our cost structure, the effect it's going to have in the profitability of servicing.
Speaker Change: And we've come through those very well I am not at all concerned about.
Doing with Wi Fi the customer because we have been on the right side of that.
Speaker Change: From when we started the company. So there's nothing that I'm seeing or hearing that that gives me any concern as it pertains to how we service loans to our cost structure. The effect, it's going to have in the profitability of servicing.
David Spector: Great. Thank you, Dave.
David A. Spector: Great. Thank you, David. Appreciate you taking my question. Your next question comes from Doug Harder with UBS. Please go ahead. Thanks. Dan, you mentioned kind of the strong liquidity position with
Speaker Change: Great. Thank you David appreciate taking my questions.
Doug Harter: I appreciate my questions.
Speaker Change: Okay.
Daniel Perotti: Here, next question comes from Doug Harter with UBS. Please go ahead.
Douglas Michael Harter: Your next question comes from Doug Harder with UBS. Please go ahead. Thanks. Dan, you may...
Speaker Change: Your next question comes from Doug Harter with UBS. Please go ahead.
Yeah.
Daniel Perotti: Thanks. Dan, you mentioned, you know, kind of the strong liquidity position with the, with the unsecured offering plus, you know, the more capital light manner of PMT buying more loans.
Douglas Michael Harter: Thanks, Dan.
Dan you mentioned kind of the strong liquidity position.
Douglas Michael Harter: <unk>.
Speaker Change: The unsecured offering plus.
The more capital.
Speaker Change: Light manner of PMT buying more loans, how do you think about what <unk> is going to be doing kind of wished that that incremental liquidity.
Daniel Perotti: How do you think about what PFSI is going to be doing with that incremental liquidity and what type of investments are you looking to make? You know, I think we're continuing to make the same types of investments that we have been. And I think there's two, you know, pieces to look at. So, you do have a, you know, significant, you know, significant amount of liquidity available to us that we know that the 3.4 billion, including what's on balance sheet as well as what's available on our financing lines that is undrawn, but we have collateral pledged to be able to draw.
Speaker Change: And what type of investments.
Speaker Change: Or are you looking to make.
Daniel Stanley Perotti: Um, you know, I think we're continuing to make the same types of investments that, uh, you know, that we have been. And I think there are two pieces to look at.
Speaker Change: I think we're continuing to make the same types of investments that.
Speaker Change: We have been and I think theres two pieces to look at.
Speaker Change: So we do have a significant.
Daniel Stanley Perotti: Uh, so we do have a, you know, significant, uh, you know, significant amount of liquidity available to us that we noted the 3.4 billion, including what's on balance or the cash that's on the balance sheet as well as what's available on our financing lines that is undrawn, but we have a collateral pledge to be able to draw. We aren't necessarily looking at that as dry powder that we expect to utilize, and one of the things that we are very cognizant of is our leverage ratios as we move forward, where we expect, in terms of our non-funding debt to equity ratio, to stay near the range that we are today at or below that 1.5 times to 1 is really what we're targeting.
Speaker Change: A significant amount of liquidity available to us that we noted the $3 4 billion, including what's on balance or the cash that's on balance sheet as well as whats available on our financing lines that is undrawn, but we have collateral.
Speaker Change: Pledged to be able to draw.
Daniel Perotti: We aren't necessarily looking at that as, you know, dry powder that we expect to, you know, to utilize. And one of the things that we are very cognizant of is our, you know, our leverage ratios as we, as we move forward where we expect in terms of our non-funding debt to equity ratio to stay, you know, near the range that we are today. Below, at or below that one and a half times to one is really what we're, you know, what we're targeting.
Speaker Change: We arent necessarily looking at that as dry powder that we expect to too.
Speaker Change: To utilize and one of the things that we are very cognizant of is our our leverage ratios as we as we move forward, where we expect in terms of our non funding debt to equity ratio to.
Speaker Change: To stay near the range that we are today.
Speaker Change: Below at or below that one five times to one is really what we're what we're targeting.
Daniel Stanley Perotti: So, we're not expecting to go out on a spending spree here. But we do expect to continue to generate investment for PFSI or deploy capital for PFSI in the mortgage servicing rights. We still think that is a very significant opportunity and the best avenue for that is through our correspondent business, and given some of the volumes that you've seen that we've been doing in the 2nd quarter, believe that we can generate plenty of that investment, both for ourselves as well as.
Daniel Perotti: So, you know, we're not expecting to go out on a spending spree here. We do expect to continue to generate investments for PFSI, or, or, or deploy capital for PFSI in the mortgage servicing rights. We still think that is a very significant opportunity that the best avenue for that is through our corresponding business and given some of the volumes that you've been doing in the second quarter. Believe that we can generate, you know, plenty of that investment, both for ourselves as well as for PMT.
Speaker Change: So we're not expecting to go out on a on a spending spree here, we do expect to continue to.
Generate investment for <unk> R. R.
Speaker Change: Or deploy capital for PFS in the.
Speaker Change: In the mortgage servicing rights, we still think that is a very significant opportunity that the best Avenue for that is through our correspondent business and given some of the volumes that you've seen that we've been doing in the second quarter believe that we can generate plenty of that investment both for ourselves as well as for PMT.
Daniel Perotti: Great. Appreciate it.
Speaker Change: Great appreciate it thank you Dan.
Derek Summers: Thank you, Dan. Your next question comes from the line of Derek Summers with Jeffries. Please go ahead.
Derek Summers: Your next question comes from the line of Derek Summers with Jefferies. Please go ahead.
Your next question comes from the line of Derek <unk> with Jefferies. Please go ahead.
Derek Summers: Hey, good afternoon, everyone. Just want to talk a little bit more about servicing expenses. You know, not only has the servicing portfolio grown significantly over the past few quarters, but it seems like you've managed to take out a good chunk of operating expenses as well. Wondering if you could share any more color on that dynamic.
Daniel Perotti: Good afternoon, everyone. Just want to talk a little bit more about servicing expenses. You know, not only has the servicing portfolio grown a significant bit over the past few quarters, it seems like you've managed to take out a good chunk of operating expenses as well. Wondering if you could share any more color on that dynamic. Well, I think that it's just, there's just this, there's just this general decline in servicing expenses that we've seen over the last five years since we implemented our technology, and we've been able to use that technology to drive down those costs.
Derek: Hey, good afternoon, everyone. Just wanted to talk a little bit more about servicing expenses not only has the servicing portfolio growing as significant.
Derek: Over the past few quarters. It seems like you've managed to take out a good chunk of operating expenses as well wondering if you could share any more color on that dynamic.
Daniel Stanley Perotti: But I think that it's just this general decline in servicing expenses that we've seen over the last five years since we implemented our technology. And we've been able to use that technology to drive down those costs. And by the way, I expect those, you know, I expect those expenses to continue to decline. I think that, you know, look, some of it we can say is because of the increased scale of the portfolio, but you can't look at what's happened in the decline in servicing costs and not say it's because of what we've been able to do with implementing the technology and implementing what we, what, in fact, has taken place.
Derek: Well I think that.
Speaker Change: It's just if there is there is this general Theres just as general decline in servicing expenses that we've seen over the last five years since we implemented our two we implemented our technology and we've been able to use that technology to drive down those costs.
Daniel Perotti: And by the way, I expect those, you know, I expect those expenses to continue to decline. I think that, you know, look, some of it we can say is because of the increased scale on the portfolio, but you can't look at what's happened in the decline in servicing costs and not say it's, you know, it's because of what we've been able to do with implementing the technology and implementing the, you know, what we, what, what has in fact taken place. I think that, you know, as I said, I expect those costs to continue to decline, and let's, you know, look, if there's a meaningful increase in delinquencies, then yes, you're going to see some effect. But after some meaningful increase in delinquencies, I just, I expect the trend to continue.
Speaker Change: And by the way I expect those I expect those expenses to continue to decline.
Speaker Change: I think that look some of it we can say is because of the increased scale and the portfolio, but you can't look at what's happening in the and the decline in servicing costs and not and not say, it's because of what we've been able to do with implementing the technology and implementing the.
Daniel Stanley Perotti: I think that, as I said, I expect those costs to continue to decline. And let's, you know, look, if there's a meaningful increase in delinquencies, then, yes, you're going to see some effect. But in the absence of a meaningful increase in delinquencies. I just expect the trend to continue.
Speaker Change: What what would in fact has taken place I think that as I said I expect those costs to continue to decline unless there is a meaningful increase in delinquencies and yes, youre going to see some effect, but asking some meaningful increase in delinquencies.
I just I expect the trend to continue.
Daniel Perotti: Thanks, that color and, you know, to my, to my second question here in the investor president, it looks like there's a little bit of oscillation in the past two quarters, with, you know, in the delinquency buckets. Anything to point out there, or are we just going to kind of continue to trend where we are for the moment. Yes, I mean, the, in the second quarter, we did have a little bit of an interesting phenomenon, and there's some other sort of market research and color out there that I've seen. Where we had a bit of an uptaken in delinquencies, a quarter of a quarter, some of that is seasonal. The end of the first quarter tends to be the lowest delinquency point in the year; you can see that going back, you know, to the previous quarter that obviously.
Daniel Stanley Perotti: Thanks for that, Culler. And, you know, to my second question here, in the Investor Prezo, it looks like there's been a little bit of oscillation in the past two quarters with, you know, in the delinquency buckets. Anything to point out there? Or are we just going to kind of continue to trend where we are for the moment?
Speaker Change: Thanks for that color.
Speaker Change: My second question here in the Investor presentation. It looks like there's a little bit of oscillation in the past two quarters with in the delinquency buckets.
Anything to point out there or are we just going to kind of continue to trend where we are.
Speaker Change: For the moment.
Daniel Stanley Perotti: Yeah, I mean, in the second quarter, we did have a little bit of an interesting phenomenon, and there's some other sort of market research and color out there that I've seen where we had a bit of an uptick in delinquencies, quarter over quarter. Some of that is seasonal; the end of the first quarter tends to be the lowest delinquency point in the year. You can see that going back to the previous quarter, that obviously coven sort of obfuscated that type of trend a bit, but typically, you're going to see an uptick from the 1st quarter to the 2nd quarter. It was a little bit larger this year than it has been typically for 2 sort of reasons for that.
Speaker Change: Yes, I mean.
Speaker Change: In the second quarter, we did have a little bit of an interesting phenomenon and theres some other.
Speaker Change: The market research and color out there that I've seen.
Speaker Change: Where we had a bit of an uptick in delinquencies quarter over quarter. Some of that is seasonal the end of the first quarter tends to be the lowest delinquency point in the year, you can see that going back.
Speaker Change: To the previous quarter that obviously, COVID-19 sort of obfuscated that type of trend.
Daniel Perotti: COVID sort of obfuscated that type of trend, you know, trend a bit, but typically you're going to see an uptick from the first quarter to the second quarter. It was a little bit larger this year than it has been typically. Two reasons for that: one is that the number of business days in June was particularly small, so 19, you know, 19 business days, and then also that the June ended on a Sunday. And folks that pay on the last day of the month, their payments going to get processed the following, you know, the following months.
Speaker Change: Trend a bit, but typically youre going to see an uptick from the first quarter to the second quarter. There was a little bit larger this year than it has been typically.
Daniel Stanley Perotti: 1 is that the number of business days in June was particularly small. So, 1919 business days, and then also that the. The June ended on a Sunday, and folks that pay on the last day of the month, their payment is going to get processed the following the following month. And so we generally have seen the delinquencies thus far in the quarter trend very similarly to are on par with the prior month or with May.
Speaker Change: Two sort of reasons for that one is that the number of business days in June was particularly small so 1919 business days and then also that the.
Speaker Change: The.
Speaker Change: June ended on a Sunday and folks that pay on the last day of the month their payment is going to get process. The following the following months.
Daniel Perotti: And so we generally have seen the, you know, the delinquencies thus far in the quarter trend, you know, very similarly to, you know, are on par with, with the, you know, the prior months are with. With May, and so, you know, don't see any really significant changes or trends in the, in the link, when see it was really more of a, you know, calendar effect in June. And then really again, if you look at our delinquency level compared to a year prior, we're right in, you know, the same sort of range, so really haven't seen any meaningful changes in the link, when see year over year for looking at on a sort of seasonally adjusted basis.
So we generally have seen the delinquencies thus far in the quarter trend very similarly to our are on par with.
Speaker Change: With the.
Speaker Change: The prior month or with.
Daniel Stanley Perotti: And so, you know, I don't see any really significant changes or trends in delinquencies. I think it was really more of a, you know, calendar effect in June. And then really, again, if you look at our delinquency level compared to a year prior, we're right in the same sort of range. So we really haven't seen any meaningful changes in delinquency year over year. If we're looking at it on a sort of seasonally adjusted basis,
Speaker Change: With may and so don't see any really significant changes or trends in delinquencies I think it was really more of a.
Speaker Change: Calendar effect.
Speaker Change: In June.
Speaker Change: And then really again, if you look at our delinquency level compared to a year. Prior we're right in the same sort of range. So really haven't seen any meaningful changes in delinquency year over year. If we're looking at on a sort of seasonally adjusted basis.
Daniel Perotti: Got it, that's helpful, Governor.
Daniel Stanley Perotti: Got it. That's helpful, Kudler. Thank you.
Got it that's helpful color. Thank you.
Eric Hagen: Your next question comes from the line of Eric Hagen with BTIG. Please go ahead. Hey, thanks. Good afternoon.
Eric J. Hagen: Your next question comes from the line of Eric Hagen with BTIG. Please go ahead. Hey, thanks. Good afternoon.
Speaker Change: Your next question comes from the line of Eric Hagen with <unk>. Please go ahead.
Eric J. Hagen: Hey, thanks. Good afternoon, Maybe just following up a little bit more on the margin conversation, I mean, how stable do you expect the gain on sale margins to be in the correspondent channel if rates were to be either higher or lower from here? I mean, when we look at almost, you know, 30 percent of the portfolio with a note rate of 5 percent or higher, I mean, is there a sense for how much would potentially get replenished through the correspondent channel versus maybe the other two and how the cost to replenish those MSRs would be?
Eric J. Hagen: Hey, Thanks, good afternoon.
David Spector: Maybe just calling up a little bit more on the margin conversation. I mean, how stable do you expect, again, on sale margins to be in the correspondent channel? If rates were to be either higher or lower from here? I mean, when we look at almost, you know, 30% of the portfolio with a note rate of 5% or higher. I mean, is there a sense for how much would potentially get replenished through the correspondent channel versus maybe the other two, and have the cost to replenish those MSRs would, you know, compare. So, you know, I'll point you back to, if you look at our history in terms of replenishment, even through the pandemic, when pre-payment speeds were, you know, lightning fast at all-time highs, and our portfolio was running off very quickly, we're still able to replenish, you know, through, you know, through our production channels, you know, primarily correspondent.
Eric J. Hagen: Maybe just following up a little bit more on the margin conversation I mean, how how stable do you expect to gain on sale margins to be in the correspondent channel.
Speaker Change: It would be either higher or lower from here I mean, when we look at almost 30% of the portfolio as a note rate of 5% or higher I mean is there a sense for how much would potentially get replenished through the corresponding channel versus maybe the other two and how the cost to replenish those MSR is wood.
Eric J. Hagen: Comparable.
Daniel Stanley Perotti: So, you know, I'll point you back to if you look at our history in terms of replenishment, even through the pandemic, when prepayment speeds were, you know, lightning fast at all-time highs, and our, you know, portfolio was running off very quickly, we were still able to replenish, you know, through, you know, our production channels, you know, primarily correspondent. Since then, you know, broker direct has grown larger, and consumer direct to the extent that there is, you know, a significant amount of refinance volume would also contribute more to the replenishment through recapture, which is really, you know, it's sort of the bread and butter.
Eric J. Hagen: So.
Speaker Change: I'll point you back to if you look at our history in terms of replenishment even through the pandemic when prepayment speeds were lightning fast at all time highs in our portfolio was running off very quickly we are still able to replenish through.
Speaker Change: Through our <unk>.
Speaker Change: Production channels, primarily correspondent since then.
Daniel Perotti: Since then, you know, broker direct has grown larger consumer direct to the extent that there is, you know, a significant amount of refinance volume would also contribute more to the replenishment through recapture, which is really, you know, it's sort of bread and butter. And so, we really don't see a situation in which the, you know, the increase runoff from the higher note rate loans exceeds our ability to replenish, especially given that the, you know, that the overall market size would increase, and basically our correspondent volumes are very keyed into at this point given the scale that we have there into the overall market size.
Speaker Change: Broker direct has grown larger consumer direct to the extent that there is significant amount of refinance volume would also contribute more to the replenishment through recapture which is really sort of bread and butter.
Daniel Stanley Perotti: And so, yeah, we really don't see a situation in which the, you know, the increased runoff from the higher note rate loans exceeds our ability to replenish, especially given that the overall market size would increase and basically, our correspondent volumes are very keyed in at this point, given the scale that we have there and into the overall market size. So, you know, we don't we don't see an issue sort of replenishing there.
Speaker Change: And so we really don't see it.
Speaker Change: Situation in which the increased runoff from the higher note rate loans exceeds our ability to to replenish, especially given that the.
Speaker Change: You know that the overall market size would increase and basically our correspondent volumes are very keyed into at this point given the scale that we have there into the overall market size.
Daniel Perotti: So, you know, we don't, we don't see an issue sort of replenishing there. On the, on the margin side, especially in correspondent margins tend to be a little bit more driven, I would say, by the motivations of the participants in the, in the channel, than necessarily, whether rates are going up or going down. Clearly, if there's a really large, if there was in the pandemic, a really large market or really large swing in the market, you know, that will widen out margins, you know, meaningfully. But as we, you know, assuming that they're just sort of incremental moves up or down, don't necessarily expect that to significantly drive margins in the correspondent channel.
Speaker Change: So we don't we don't see an issue sort of replenishing there.
Speaker Change: Okay.
Daniel Stanley Perotti: On the margin side, especially in correspondent, margins tend to be a little bit more driven, I would say, by the motivations of the participants in the channel than necessarily whether rates are going up or going down. Clearly, if there's a really large, as there was in the pandemic, a really large market or really large swing in the market, that will widen margins, you know, meaningfully. But as we assume that they're just sort of incremental moves up or down, don't necessarily expect that to significantly drive margins in the correspondent channel. I think it's more driven by the motivations of the sort of market participants.
Speaker Change: On the on the margin side, especially in correspondent margins tend to be a little bit more driven I would say by the motivations of the participants in the channel than necessarily whether rates are going up or going down clearly if there's a really large as there was in the pandemic a really large market are really large swing in the March.
Speaker Change: That will widen out margins.
Speaker Change: Not meaningfully.
But as we assuming that they are just sort of incremental moves up or down don't necessarily expect that to significantly drive margins in the correspondent channel I think it's more driven by the motivations of the sort of the market participants one of the one of the great I.
Daniel Perotti: I think it's more driven by the motivations of the sort of the market participants.
David Spector: You know, one of the, one of the great, I would say, one of one of really one of the great things that's come out of the last two or three years has really been the rationale to maintaining a rational pricing on the production side. In absence, kind of these, these one offs of kind of irrational pricing of people have money to burn. I think that, you know, you have seen rational pricing and broker. You know, you were seeing rational pricing; that's, you know, that's been in place for well over a year. Consumer direct, you know, I think many of the consumer direct originators own servicing and they're not as desperate as we've seen in prior periods of rising rates.
David A. Spector: You know, one of the great things, I would say, really one of the great things that's come out of the last two or three years has really been the maintaining of rational pricing on the production side, in the absence of these one-offs of kind of irrational pricing by people who have money to burn. I think that, you know, you have seen rational pricing and brokering, you know, we're seeing rational pricing that's been in place for well over a year.
Speaker Change: I would say.
Speaker Change: Well not really one of the great things that come out of the last two or three years has really been the rash the maintaining of rational pricing on the production side and absence.
These these one offs or kind of irrational pricing of people who have money to burn.
Speaker Change: Debt.
Speaker Change: You have seen rational pricing and broker we're seeing rational pricing.
Speaker Change: That's that's been in place for well over a year consumer directed.
Daniel Stanley Perotti: Consumer direct, you know, I think many of the consumer direct originators own servicing, and they're not as desperate as we've seen in prior periods of rising rates. And I think, you know, to Dan's point, if rates decline, you're going to see people who want to, you know, get loans off their warehouse lines quickly, looking to correspondent aggregators to sell those, and there's typically less margin sensitivity combined with the fact that there's less capacity.
Speaker Change: I think many of the consumer direct originators owned servicing and Theyre not as desperate as we've seen in prior periods of rising rates.
David Spector: And I think, you know, I think to Dan's point, if rates decline, you're going to see people who want to, you know, get loans off their warehouse funds quickly, looking to correspond to aggregators to sell those. Loans. And there's typically less margin sensitivity, combined with the fact that there's less capacity. And those two things in a declining rate environment lend itself to increasing margins, correspondingly; and corresponding in a rising rate environment, I don't think you're going to see, you're going to see margins jumping around like we've seen quarter of a quarter and, you know, and where we've seen historically, but I don't expect anything anomalous in that sector.
Speaker Change: And I think I think to Dan's point, if rates decline youre going to see people who want to.
Dan: Get loans off their warehouse lines quickly looking to correspondent aggregators to sell those loans and there is typically less margin sensitivity combined with the fact that there's less capacity and those two things in a declining rate environment lend itself to increasing margins correspondingly and correspond.
Daniel Stanley Perotti: And those two things, in a declining rate environment, lend themselves to increasing margins. Correspondingly, and conversely, in a rising rate environment, I don't think you're going to see, you know, you're going to see margins jumping around like we've seen quarter over quarter and, you know, and what we've seen historically, but I don't, I don't expect anything anomalous in that in that
Dan: On it in a rising rate environment, I don't think youre going to see you're going to see margins jumping around like we've seen quarter over quarter.
Dan: And where we've seen historically, but I don't I don't expect anything anomalous.
Dan: And that in that sector.
Daniel Perotti: I appreciate that answer very much.
Eric J. Hagen: Appreciate that. That answer very much. Maybe just continuing with that. One last question.
Speaker Change: I appreciate that.
Speaker Change: And so very much.
Daniel Perotti: Maybe just continuing with that just one last question.
Speaker Change: Maybe just continuing with that.
Daniel Stanley Perotti: I mean, looking at the prepayment assumption of 8 CPR, which is, you know, definitely slow and pretty stable for the MSR, we also have this really sweet opportunity connected to lower rates. And so when you think about, you know, the mark to market impact on the MSR at the same time, like, what do you feel like is the ideal mortgage rate from that perspective?
Speaker Change: One last question here I mean looking at the prepayment assumption of eight CPR, which is definitely slow and pretty stable for the MSR. We also have just really sweet opportunity connected to lower rates and so when you think about the mark to market impact on the MSR at the same time like what do you feel like is the ideal mortgage rate from that perspective.
Daniel Perotti: I mean, looking at the pre-payment assumption of the ACPR, which is, you know, definitely slow and pretty stable for the MSR. We also have this really sweet opportunity connected to lower rates.
David Spector: And so when you think about, you know, the market impact on the MSR, at the same time, like what do you feel like is the ideal mortgage rate from that perspective? You know, I think we've talked about it before in some of the earnings calls, you know, potentially potentially for us higher, you know, higher in a looking at taking a long term view, higher mortgage rates for a longer period of time, despite the fact that it isn't necessarily in the specific period, you know, going to optimize our our our our. We, you know, could be better for us over the long term, continue to build up a higher proportion of mortgage loans in those higher note rates, especially in our servicing portfolio, where we, you know, are our efficient at recapturing them.
Speaker Change: Hmm.
Daniel Stanley Perotti: You know, I think we've talked about it before in some of the earnings calls, potentially, potentially for us, higher, you know, higher in a look at taking a long-term view, higher mortgage rates for a longer period of time, despite the fact that it isn't necessarily in the specific period going to optimize our ROE, but it could be better for us over the long term, continue to build up a higher proportion of mortgage loans And then that provides, you know, a greater benefit for us when rates eventually do decline.
Speaker Change: I think we've talked about it before in some of the earnings calls potentially.
Speaker Change: Potentially potentially for us higher higher looking at taking a long term view higher mortgage rates for a longer period of time. Despite the fact that it isn't necessarily in the specific period.
Speaker Change: We're going to optimize our.
Speaker Change: Our our our ROE.
Speaker Change: It could be better for us over the long term continue to build up a higher proportion of mortgage loans in those higher note rate on especially in our servicing portfolio, where we are efficient at at recapturing them and then that provides greater benefit for us when rates eventually do.
David Spector: And then that provides, you know, greater benefit for us when rates eventually do decline. At the same time, to the extent that rates. And we have the servicing portfolio, which continues to build, continues to grow in terms of profitability and provide a significant, you know, base in terms of the overall, you know, return on equity of the company. On the flip side, you know, to the extent that rates do decline over the next, you know, several, you know, several quarters or few quarters, you know, that we think that we've built up a meaningful opportunity already with the loans, as we, as we've talked about, to be able to, you know, to drive significant upside for the company in these periods.
Daniel Stanley Perotti: At the same time, to the extent that rates, and we have the servicing portfolio, which continues to build, continues to grow in terms of profitability, and provides a significant base in terms of the overall return on equity of the company. On the flip side, you know, to the extent that rates do decline over the next several, you know, several quarters or few quarters, you know, we think that we've built up a meaningful opportunity already with the loans, as we've talked about, to be able to, you know, drive significant upside for the company in these periods.
Speaker Change: Klein.
Speaker Change: At the same time to the extent that rates and we have the servicing portfolio, which continues to build continues to grow in terms of profitability and.
Speaker Change: And provide a significant base in terms of the.
Speaker Change: In terms of the overall.
Speaker Change: Return on equity of the company on the flip side to the extent that rates do decline over the next.
Speaker Change: Several several quarters or few quarters.
Speaker Change: We think that we've built up a meaningful opportunity already with the loans as we've as we've talked about to be able to.
Daniel Stanley Perotti: So I think either way, you know, we're positioned to perform really well. I think probably the best overall outcome is if rates stay a bit higher for longer and we continue to accumulate, but we have a sort of meaningful opportunity either way.
Speaker Change: To drive significant upside for the company in these periods so.
David Spector: So I think either way, you know, we're positioned to perform really well. I think probably the, the best overall outcome is if rates stay a bit higher for longer and we continue to accumulate, but we have sort of meaningful opportunity either way.
Speaker Change: Either way, we are positioned to perform really well I think probably the the.
Speaker Change: The best overall outcome is if rates stay a bit higher for longer and we continue to accumulate but we have sort of meaningful opportunity EBIT way.
David Spector: Yep, that's helpful. Thank you guys so much.
Daniel Stanley Perotti: Yep, that's helpful. Thank you guys so much.
Speaker Change: Yeah. That's helpful. Thank you guys so much.
Shanna Q.: Your next question comes from Shanna Q. from Barclays. Please go ahead.
At year end.
Ashana Q.: And your next question comes from Ashana Q. from Barclays; please go ahead. Hi, good afternoon, guys. Thanks for taking my question. I know you mentioned that you were targeting corporate debt to equity of less than one and a half times, and you ended this quarter at one point four times. How should we think about managing or leverage going forward? You know, would you guys consider pulling back on originations in the course on a channel given some of the competitive pressures you guys highlighted, or maybe change the hedging strategy. And I guess, you know, also, would you guys consider selling lower whack MSRs to kind of accelerate the originations in higher whack MSRs that you could fully beat the recapture going forward?
Speaker Change: Your next question comes from Shannon Q from Barclays. Please go ahead.
Shanna Q.: Hi, good afternoon, guys. Thanks for taking my question. I know you mentioned that you were targeting a corporate debt to equity ratio of less than one and a half times, and you ended this quarter at 1.4 times. How should we think about managing your leverage going forward? You know, would you guys consider pulling back on originations in the Correspondent Channel, given some of the competitive pressures you guys highlighted, or maybe changing the hedging strategy? And I guess, also, would you guys consider selling lower WAC MSRs to kind of accelerate the originations and higher WAC MSRs that you believe you could recapture going forward?
Shannon Q: Hey, good afternoon, guys. Thanks for taking my question I know you mentioned that you are targeting corporate debt to equity of less than one five times and you ended this quarter at one point in time.
Speaker Change: Should we think about managing our libraries going forward would you guys consider pulling back on originations in the correspondent channel again in terms of the competitive pressures you guys highlighted or may be change.
Speaker Change: The hedging strategy.
And I guess.
Speaker Change: Al.
Speaker Change: Would you guys consider selling lower WAC, MSR kind of accelerate that originations and higher WAC MSR.
Speaker Change: Ladies of recapturing biopharm.
David Spector: Well, look, I don't, I don't view us being capital constrained. We can continue to operate and grow the servicing portfolio at the pace that we've been growing at. We can continue, you know, to originate loans in a lower rate environment, which would mean more mortgage loans on the balance sheet, which would mean more usage of word house loans.
David A. Spector: Well, look, I don't. I don't view us as capital constrained. We can continue to operate and grow the servicing portfolio at the pace that we've been growing it. We can continue, you know, to originate loans in a lower rate environment, which would mean more mortgage loans on the balance sheet, which would mean more usage of warehouse loans. I think that, you know, we're in that sweet spot where I think we're really trying, quite successfully, might I add, to keep that leverage at a level that's viewed favorably by the rating agencies and by our high-yield investors while, at the same time, being able to operate and, you know, do so profitably and maintain returns in our production and servicing business.
al: Well look I don't I don't view us being capital constrained.
Speaker Change #100: We can continue to operate and grow the servicing portfolio.
Speaker Change #100: At the pace that we've been growing it.
Speaker Change #100: We can continue.
Speaker Change #100: To originate loans in a lower rate environment, which would mean more mortgage loans on the balance sheet, which would mean, which would mean more usage of warehouse lines.
Daniel Perotti: I think that, you know, we're in that sweet spot where I think, you know, we're really trying quite successfully, might I add, to keep that leverage at a level that's viewed favorably by the rating agencies and by our high yield investors all at the same time, be able to operate and do so profitably and maintain returns in our production servicing business. Corresponding even with the margin pressure, margin pressures is a highly profitable business. The our reason it are, are very acceptable and it allows us to grow the servicing portfolio where we increase the scale and when rates do decline, we have the ability to participate in the refinance of those of those mortgage loans.
Speaker Change #100: I think that we're we're in that sweet spot, where I think.
Speaker Change #100: We're really we're really trying.
Speaker Change #100: Quite successfully might I add to keep that leverage at a level. That's that's viewed favorably by the rating agencies and by our high yield investors while at the same time be able to operate and.
Speaker Change #100: Do so profitably at mid teens returns in our production and servicing business correspondent, even with the margin pressure margin pressures as a highly profitable business. The ROE reason at our.
David A. Spector: Correspondent, even with the margin pressures, is a highly profitable business, is very acceptable, and it allows us to grow the servicing portfolio where we increase the scale. And when rates do decline, we have the ability to participate in the refinance of those mortgage loans.
Speaker Change #100: Are very acceptable.
Speaker Change #100: It allows us to grow the servicing portfolio, where we increase the scale and when rates do decline, we have the ability to participate in the refinance.
Speaker Change #100: Of those of those mortgage loans.
David A. Spector: Similarly, I would say that given PMT's capital raise, we are, at PFSI, moving a little bit more of the correspondent business over to PMT, which is a more capital-light business. But both companies are in the best shape they've been in from a capital perspective in many years. And PMT has $3.4 billion of liquidity and a lot of available capital to invest. So I continue to believe and operate this company that we're going to continue down the road that we set out to do when we put goals out there for ourselves of 1.3, 5.3, 20 plus, that is, to be the largest correspondent aggregator, to be a top three broker direct lender, to be a top five consumer direct lender, and to be a top three servicer while delivering a 20% ROE.
David Spector: You know, similarly, you know, I would say that given, you know, given P and T's capital raise, you know, we are, we are, you know, PFI getting, you know, moving a little bit more of the correspondent business over to P and T, which is a more capital like this. But both companies are in the best shape they've been in from a capital perspective. And, you know, in many years and there's a, you know, P and T as, as you know, 3.4 billion of liquidity and a lot of available capital to invest.
Speaker Change #100: Similarly, I would say that given given pmt's capital raise.
Speaker Change #101: We are we are PFS si getting moving a little bit more.
Speaker Change #101: The correspondent business over to PMT, which is a more capital light business, but both companies are in the best shape. They have been in from a capital perspective.
Speaker Change #101: In many years and there is no <unk>.
Speaker Change #101: T.
Speaker Change #101: $3 4 billion of liquidity and a lot of a lot of available capital to invest so I.
David Spector: So, I continue to, you know, I continue to believe and operate this company that we're going to continue down the road that we set out to do when we put, you know, goals out there for ourselves of one, three, five, three, 20 plus us to be the largest correspondent aggregator. To be a top three broker, direct lender, to be a top five consumer direct lender, and to be a top three servicer while delivering a 20% ROE, and we're getting there. And, you know, we're, you know, we work very hard to build out the capital structure to do it in the most efficient way possible.
Speaker Change #101: I continue.
Speaker Change #101: I continue to believe and operate this company that we're going to continue down the road that we set out to do when we put.
Speaker Change #101: Goes out there for ourselves of 135 to $3 20, plus has to be the largest correspondent aggregator.
Speaker Change #101: To be a top three broker direct lender to be a top five consumer direct lender and to be a top three servicer, while delivering a 20% ROE and we're getting there and we're we're we've worked very hard to build up the capital structure to do it in the most efficient way possible.
David A. Spector: And we're getting there. And, and, you know, we're, we're, you know, we've worked very hard to build out the capital structure to do it in the most efficient way possible. And, you know, we've come through a period of tremendous, tremendous disruption in the industry, where we have continued to be the bright shining light in this industry and in our performance.
Daniel Perotti: And, you know, we've come through a period of tremendous, tremendous disruption in the industry where we have continued to be the bright shining light in this industry in our performance. Just to add a little bit on to what, you know, David Sank, the, you know, when we, when we look out in terms of our expectations for, you know, the market and our participation in the, in the production channels, you know, we don't. We believe that we're still able to manage our debt to equity or non funding debt to equity ratio at that, you know, out or below that 1.5 times that we've been talked about before.
Speaker Change #101: We've come through a period of tremendous tremendous disruption in the industry, where we have continued to be the bright shining light in this industry and our performance.
Daniel Stanley Perotti: Just to add a little bit to what David is saying, when we look at it in terms of our expectations for the market and our participation in the production channels, we believe that we are still able to manage our debt-to-equity or non-funding debt-to-equity ratio at or below that 1.5 times that I talked about before. So that is something that we monitor and that we look at, but we don't see it, given our plans and our forecast, as a constraint on our business currently, and we don't see a need to adjust our business plan in order to be able to adhere to that level of leverage.
Speaker Change #102: Just to add a little bit onto what.
David: David saying.
Speaker Change #102: The.
Speaker Change #102: When.
Speaker Change #102: When we look out in terms of our expectations for the market and our participation in.
In the production channels, we don't.
Speaker Change #102: We believe that we're still able to manage our debt to equity.
Speaker Change #102: Non funded debt to equity ratio at that at or below that one five times level that I talked about before so that is something that we.
Daniel Perotti: So that is something that we, you know, that we monitor and that we look at, but we don't see it, given our plans and our forecast, as a constraint to our business currently. And, you know, wouldn't don't see a need to adjust our sort of business plan in order to be able to adhere to that, you know, that level of leverage.
Speaker Change #102: We monitor that we look at but we don't see it given our our plans.
Speaker Change #102: Plans and our forecast is a constraint to our business currently.
Gordon: And Gordon.
Gordon: Don't see a need to adjust our sort of business plan in order to be able to adhere to that that level of leverage.
Daniel Stanley Perotti: Great, thanks for the caller.
Operator: Thank you for the caller. We have no further questions in our queue at this time.
Gordon: Great. Thanks for the color.
David A. Spector: We have no further questions in our queue at this time. I'll now turn it back to Mr. Spector for closing remarks.
Speaker Change #107: And we have no further questions in our queue. At this time I will now turn it back to Mr. Spector for closing remarks.
David Spector: I'll now turn it back to Mr. Spector for closing remarks. I want to thank you all for joining us this afternoon. I encourage investors with any additional questions to contact our investor relations team by email or phone, and again, thank you very much.
David A. Spector: I want to thank you all for joining us this afternoon. I encourage investors with any additional questions to contact our investor relations team by email or phone. And again, thank you very much.
David A. Spector: Well I want to thank you all for joining us this afternoon.
David A. Spector: I would encourage investors with any additional questions.
Speaker Change #104: Contact our Investor relations team by email or phone and again, thank you very much.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change #105: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change #106: Thank you.
Speaker Change #106:
Speaker Change #106: Yeah.