PennyMac eyes high-coupon MSRs, broker channel growth

PennyMac Financial Services Inc. plans to grow organically and in a “capital-light” fashion amid a wave of consolidation in the mortgage industry. If the macroeconomic environment remains supportive, the company expects to deliver solid returns on equity to investors through 2026.

“While there can be some fluctuations in our results due to typical seasonality, if mortgage rates remain between 6% and 6.5% while delinquency rates remain stable, we expect annualized operating returns on equity to average in the high teens to low 20s through 2026, with potential for additional upside if origination market volumes grow further,” David Spector, PennyMac’s chairman and CEO, said during this week’s third-quarter 2025 earnings call. 

In a move to grow in a “capital-light” way, Pennymac completed the sale of $12 billion in mortgage servicing rights (MSRs) to Annaly Capital Management. The MSRs have a weighted average coupon of 3.1% and PennyMac will retain subservicing of the portfolio. 

Spector said the transaction allows Pennymac to monetize a mature asset, “freeing up capital to deploy into new, higher-coupon MSRs with greater recapture and return potential.” 

“Importantly, we retain the core elements that drive the growth of our mortgage flywheel — the subservicing, recapture and marketing rights for closed-end seconds and other products, preserving our customers’ ongoing relationship with PennyMac,” he added. 

At the end of September, PennyMac’s servicing portfolio value rose 2% on a quarterly basis and 11% year over year to $717 billion in unpaid principal balance. Roughly 41% of these loans carry note rates above 5%, while 28% have rates above 6%. The company said it’s seeking to add more high note-rate servicing to drive recapture opportunities. 

Mortgage production analysis

PennyMac continues to derive most of its volume from the correspondent channel, originating $27.8 billion in Q3 2025 — down 7% from the previous quarter but with margins that were 5 basis points higher.

The company estimates a 20% market share in that segment. Analysts believe PennyMac could see additional growth as community banks contend with balance-sheet pressures.

BTIG analyst Eric Hagen wrote that, amid renewed focus on credit risk at community banks, Pennymac “can potentially pick up origination market share in the correspondent channel if pressure in other areas are more systemic, which ultimately leads to deposit outflows, asset sales, and/or consolidation.” 

In the broker space — a channel PennyMac entered in 2018 — volume reached $5.6 billion in the third quarter, representing a 5.2% market share.

“Though we are already the third largest (company) in the channel, we see tremendous momentum to continue our growth to more than 10% market share by the end of 2026,” Spector said. 

The company also originated $3.1 billion through its consumer direct channel, with an estimated market share of 1.2%. Chief financial officer Dan Perotti said PennyMac has added capacity in its direct lending channels to “rapidly address opportunities presented by lower mortgage rates.”  

Impact of government shutdown

Regarding the impact of the federal government shutdown, Spector said PennyMac has “been through this drill a few times” and believes there is sufficient Ginnie Mae commitment authority to continue issuing securities. 

“On the delinquency side, you could see this start to show up. We have a couple thousand borrowers in forbearance as a result of the government shutdown. We’ve received two to two-and-a-half times that number of calls coming from the government shutdown. I’m not expecting anything substantive,” Spector said. 

Commenting on mergers and acquisitions activity, Spector reiterated PennyMac’s preference for organic growth. “While others may be focused on consolidation or other corporate activities, that allows us to continue to grow faster — and it allows us to do it profitably,” he said.

PennyMac posted net revenues of $632.9 million in Q3 2025, up 42% on a quarterly basis and 54% higher on a yearly basis.