Citing prepayment speeds at multi-year lows, Spector noted those volumes continued to drive the organic growth of the company’s servicing portfolio, which ended the quarter at more than $576 billion in unpaid principal balance.
Inflationary market blamed for quarterly performance
Spector blamed the various inflation-induced dynamics for the lowered gains from last year: “With mortgage rates currently near 7%, the most recent third-party forecasts for 2023 originations range from $1.6 [trillion] to $1.8 trillion, still well below normalized levels. While industry origination volume in the second quarter was meaningfully higher than the first quarter, higher mortgage rates are driving borrowers to remain in their homes, leading to low inventory levels and continued home price appreciation.”
Adding to the woes, unit originations in 2023 are projected to total just five million – the lowest level since 1990, he added, “indicating the potential for industry consolidation if market conditions persist.”
“While 2024 originations are expected to approach $2 trillion, we expect the competitive environment to continue given unit origination volume will likely remain constrained. As you can see from our recent financial performance, mortgage banking companies with large servicing portfolios and diversified business models are better positioned to offset the decline in profitability that has resulted from low origination volumes,” Spector said.
Company’s growing portfolio was a hedge against losses
He credited the company’s growing portfolio with buoying financial performance in the most recent quarter: “The primary contributor to PFSI’s strong financial performance in recent periods has been its large and growing servicing portfolio. We have demonstrated that even in a challenging origination environment, our large servicing portfolio, multi-channel production capabilities and balanced business model have positioned the company well to continue making progress towards achieving its long term goals. Pennymac Financial’s servicing portfolio is a critically important asset and has driven much of the success that we have enjoyed.”
Source: mpamag.com