PennyMac Financial Services reported third-quarter net income of $29 million, down 84% year-over-year but up 32% from the prior quarter. The California-based mortgage lender and servicer faces pressure from origination volumes squeezed by high mortgage rates, offset by a thriving servicing business.
The company cut roughly $160 million in annualized expenses from Q2 2026 to Q1 2027, including layoffs in mortgage fulfillment operations. A spokesperson said Pennymac "made the difficult decision to eliminate select positions within its mortgage fulfillment operations" and committed to severance support.
CEO David Spector announced leadership changes effective January 1, 2027. Chief strategy officer Kevin Ryan will become CFO, replacing Dan Perotti, who joined the company in 2008 and held the CFO role since 2021. Perotti will serve in an advisory capacity through Q1 2027. President and chief mortgage banking officer Doug Jones will retire effective June 30, 2027, after joining in 2011.
Loan originations and acquisitions totaled $24.4 billion in unpaid principal balance, down 30% from Q2 and 33% year-over-year. Thirty-year fixed mortgage rates hit 7.4% at quarter-end, up roughly 90 basis points. Production revenue margins fell to 76 basis points from 77 in Q2 and 79 a year prior. The production segment posted a $7 million pretax loss versus $38 million income in Q2.
Pennymac's servicing portfolio reached $737 billion in UPB and will exceed $1 trillion after its proposed acquisition of Cenlar Capital Corp. closes. The $257.5 million Cenlar deal, announced in February, now targets Q1 2027 closure instead of year-end. Servicing pretax income hit $99 million in Q3, up from $22 million in Q2.
Pennymac agreed to sell $29 billion in unpaid principal balance of low-coupon mortgage servicing rights, expected to close in Q4 and generate $490 million in net proceeds to pay down debt. The company will not retain subservicing on this transaction. Spector said Pennymac plans to use cash to reduce higher-cost debt and repurchase shares while stock trades "at a sizable discount to book value."