Pennymac sees more layoffs as originations plummet in 3Q

• Key Insight: Pennymac posted its lowest mortgage origination and acquisition volume since the first quarter of 2024. 
• Supporting Data: While the company posted a $7 million loss in production segment pretax income, its servicing pretax income rose to $99 million. 
  Overview bullets generated by AI with editorial review.   

PennyMac Financial Services is making deeper cost cuts after its originations fell 30% this summer.
The lender and servicer will slash $160 million in annualized operating expenses in the coming months as it anticipates higher-for-longer rates, it said Thursday. That expands on cuts that began this summer in response to some of the worst mortgage market conditions this decade. 

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While the company remained well in the black for the third quarter, its combined origination segment volume of $24.4 billion was its lowest mark since the first quarter of 2024. Chairman and CEO David Spector, in an earnings call Thursday evening, described the current landscape as “one of the most constrained origination environments our industry has seen since 2023.”

Pennymac didn’t provide additional details about staff reductions. 

For the third quarter, Pennymac posted a $29 million profit, surpassing the $22 million net income in the second quarter. That was still a fraction of the $181.5 million profit Pennymac posted at the same time last year. 

Although elevated rates and heightened competition battered origination performance, the company highlighted stronger income in servicing, and green shoots in artificial intelligence advancements.

Inside the numbers

The company posted a $7 million loss in production segment pretax income, after marks of $38 million and $122.9 million in the prior quarter and year-ago periods, respectively. Servicing pretax income meanwhile rose to $99 million, soaring from $22 million in the second quarter but falling from $157 million a year ago.

Pennymac also agreed to sell $29 billion in unpaid principal balance of low-rate conventional mortgage servicing rights, it said. It plans to redeploy the $490 million in proceeds to reduce higher-cost debt, and repurchase common shares. 

The servicing book ended the quarter slightly up around $737 billion. Revenues fell to end the period at $469 million, declines of 6% quarterly and 26% annually. 

Executive outlook

Company leaders expanded on origination trends, with Pennymac posting greater consumer direct margins with more closed-end second lien volume. Spector also suggested competitive pressures from the government-sponsored enterprises’ cash window for smaller brokerages, and the industry leaders’ aggressive pricing. 

“We’re picking and choosing our spots, and maintaining market share, and not really getting too caught up in market share at levels that are just not sustainable or that one can rationalize,” said Spector. 

Pennymac also touted its AI advancements, noting that its tech spending is coming down. The lender has 22 proprietary AI agents live in production and is developing 17 more, while its proprietary AI voice agent supported over 1,600 rate locks in the third quarter. 

“This will allow us to maintain lean operation in today’s constrained environment, while ensuring substantial operating leverage when origination volumes normalize,” Spector said of the company’s AI prowess. 

What’s ahead

The firm also announced some executive moves, as President and Chief Mortgage Banking Officer Doug Jones will retire next June. Chief Strategy Officer Kevin Ryan will be elevated to chief financial officer in January, while current CFO Daniel Perotti will remain in that role through the end of the year. 

Pennymac’s Cenlar deal, which will bring its servicing book past $1 trillion, is now expected to close early next year, as executives said they’re waiting on one remaining state approval.