Quarterly Earnings Discussion Transcript for PennyMac (PMT) in 2025
PennyMac Mortgage Investment Trust Shifts Focus to High-Yield Securitizations
PennyMac Mortgage Investment Trust (PMT) has announced a strategic shift towards high-yield "Baby Bonds" involving $1.4 billion in securitizations. This move aims to target a return on equity (ROE) of 10-15% for retained investments from recent securitizations, specifically the subordinate tranches [1].
The change in strategy is part of PMT's broader adaptation to offset low returns on traditional agency mortgage-backed securities amid persistently high interest rates. The retained subordinate tranches with a yield between 10% and 15% are a key factor in the expected equity returns from these securitizations [2].
In the second quarter of 2025, PMT reported a net loss to common shareholders of $3 million, or a loss of 4¢ per share. Despite this, the company's Correspondent Loan Acquisition Volume increased by 30% sequentially to $30 billion, with PMT's own account volume up 11% sequentially from Q1 to $3 billion [3].
PMT has been actively managing its portfolio, deploying capital into subordinate tranches for long-term investment and other tranches for appropriate returns. As of June 30, 2025, approximately 47% of deployed equity is in mortgage servicing rights (MSRs), and 16% is in government-sponsored enterprise (GSE) credit risk transfer (CRT) investments [4].
The company has completed nine securitizations totaling $3.2 billion in Unpaid Principal Balance (UPB) since Q4 2024, with $300 million in new retained investments. Three securitizations of agency-eligible investor loans were completed, totaling $1.1 billion in UPB, with $71 million of new retained investment [4].
One jumbo loan securitization totaling $339 million UPB was also completed, with $82 million retained investment. Additionally, Unsecured Senior Notes of $105 million were issued in June, with plans to retire $345 million in exchangeable senior notes due 2026 at or near maturity using existing financing capacity [6].
The dividend was declared at $0.40 per share, with management reiterating comfort in maintaining this payout level. The fulfilment fee rate held at 19 basis points, unchanged from the prior quarter [7].
Delinquency and Advances: MSR delinquency rates remain low; servicing advances outstanding decreased to $70 million as of June 30, down from $84 million at March 31, with no principal and interest advances outstanding [8].
The company's leverage ratio (excluding nonrecourse debt) was 5.6 times as of June 30. PMT has been doing more securitizations to recycle capital, emphasizing the unique insight and loss-minimization achieved by both producing and servicing underlying loans in the portfolio [9].
The conference call took place on Tuesday, July 22, 2025, at 6 p.m. EDT. The call participants included Chief Executive Officer David Spector and Chief Financial Officer Daniel Perotti [10].
References:
- [5] PennyMac's Pivot Towards High-Yield "Baby Bonds"
- [5] PennyMac's Expected ROE from Retained Investments
- [3] PMT's Second Quarter 2025 Results
- [4] PMT's Securitization Activities
- [5] PennyMac's Risk Management Strategies
- [6] Unsecured Senior Notes Issuance and Retirement Plans
- [7] Fulfilment Fee Rate Stability
- [8] Delinquency and Advances Update
- [9] Securitization and Capital Recycling
- [10] Conference Call Participants
- PennyMac Mortgage Investment Trust (PMT) is focusing on high-yield "Baby Bonds" in securitizations, aiming to earn a return on equity (ROE) of 10-15% from investments in subordinate tranches.
- PMT's strategic shift towards high-yield securitizations is part of an effort to cope with the low returns on traditional agency mortgage-backed securities and persistently high interest rates by targeting equity returns.
- Investors may find opportunities in PMT since the company's focus is shifting towards high-yield securitizations, particularly as it deploys capital into subordinate tranches for long-term investment and other tranches for appropriate returns.
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