PennyMac Mortgage Investment Trust

Results of Operations

Business Trends

Due to ongoing inflationary pressures, over the last few quarters, the U.S. Federal Reserve has maintained the federal funds rate at its highest level since 2007 and has continued to reduce the federal government’s overall holdings of Treasury and mortgage-backed securities. Elevated interest rates are expected to constrain growth in the size of the mortgage origination market from an estimated $1.4 trillion in 2023 to an estimated $1.8 trillion in 2024 according to mortgage lending industry economists.

The limited size of the mortgage origination market and sustained interest rates at higher levels continue to impact our mortgage production activities. Higher interest rates have also increased the costs of floating rate borrowings, increased interest income from placement fees we receive relating to custodial funds that we manage on deposits and loans held for sale and reduced prepayment speeds in our mortgage servicing portfolio as compared to the same time period in the prior year. We have also continued our sales of conventional loans to PLS during the three months ended March 31, 2024, and we intend to continue to sell a portion of our conventional loans to PLS throughout the remainder of 2024 to optimize our use and allocation of capital.

Elevated interest rates may also lead to a reduction in economic activity and slowing home price growth or depreciation, which could lead to increasing mortgage delinquencies or defaults and increased losses. If these effects are realized, they could negatively affect the performance of our credit-sensitive assets such as our CRT arrangements or subordinate credit-linked notes and increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.

The following is a summary of our key performance measures:

(1)

Includes net gains on sales of loans and loan origination fees.

Our consolidated net income decreased by $13.1 million during the quarter ended March 31, 2024, as compared to the quarter ended March 31, 2023, reflecting the effect of increased losses on MBS and a reduced benefit from income taxes, offset by the fair value performance of our MSRs:

The decrease in pretax results is summarized below:

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Our credit sensitive strategies segment recognized a $5.4 million increase in net gains on our CRT arrangements as market credit spreads continued to tighten.

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Our interest rate sensitive strategies segment recognized a $116.4 million increase in losses on MBS caused by an increase in market interest rates at the end of the quarter, offset by a $69.4 million increase in net servicing fees reflecting gains on MSRs driven by a higher interest rate and a $2.4 million decrease in net interest expense in our interest rate sensitive strategies segment compared to the quarter ended March 31, 2023.

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Our correspondent production segment recognized an $8.0 million increase in our gain on sale during the quarter ended March 31, 2024, reflecting a reduction of our liability for representations and warranties and improved gain on sale margins.