PennyMac Mortgage Investment Trust

Our net investment income is summarized below:

Net Loan Servicing Fees

Our net loan servicing fees have two primary components: fees earned for servicing loans and the effects of MSR valuation changes, net of hedging results, as summarized below:

Loan Servicing Fees

Following is a summary of our loan servicing fees:

Loan servicing fees are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the UPB of the loans serviced and we collect these fees from borrower payments. Other loan servicing fees are comprised primarily of borrower-contracted fees, such as late charges and reconveyance fees, as well as incentive fees we receive from the Agencies for loss mitigation activities and fees charged to correspondent lenders for loans repaid by the borrower shortly after purchase.

The reduction in contractually-specified fees is due primarily to the reduction in the size of our MSR servicing portfolio.

Effect of Mortgage Servicing Rights and Hedging Results

We have elected to carry our MSRs at fair value. Changes in fair value have two components: changes due to realization of the expected servicing cash flows and changes due to changes in the inputs used to estimate fair value. We endeavor to moderate the effects of changes in fair value attributable to changes in fair value inputs (market conditions) primarily by entering into derivative transactions.

Changes in fair value of MSRs and hedging results are summarized below:

Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates. During the quarter ended September 30, 2026, we recognized a favorable valuation adjustment of $209.9 million, compared to an unfavorable adjustment of $27.0 million for the quarter ended September 30, 2025 and a favorable valuation adjustment of $274.4 million during the nine months ended September 30, 2026, compared to unfavorable adjustments of $60.1 million in the same period in 2025, driven by rising interest rates that slowed expected prepayments and increased expected servicing cash flows.

We have an agreement with PFSI that requires that when PFSI refinances a loan for which we hold the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒Transactions with Related Parties –Operating Activities to the consolidated financial statements included in this Report. The decrease during the quarter ended September 30, 2026 and increase during the nine months ended September 30, 2026 in loan recapture income from PFSI reflect the timing of refinancing activity on the loans underlying our MSRs. The increase for the nine months ended September 30, 2026 was driven by elevated refinance volumes earlier in the year. The modest decrease for the quarter reflects the rising interest rate environment during the quarter ended September 30, 2026, which reduced the population of loans in our servicing portfolio with a refinance incentive, as well as a decrease in the average balance of our MSR portfolio.

Hedging results for the quarter and nine months ended September 30, 2026 were primarily driven by the impact of increasing interest rates, which reduced the fair value of our hedge positions and partially offset the favorable valuation adjustments recognized on our MSRs, as well as the embedded costs of maintaining those positions. Hedging losses increased by $3.5 million for the quarter ended September 30, 2026, compared to the quarter ended September 30, 2025, and decreased by $52.4 million for the nine months ended September 30, 2026, compared to the same periods in 2025. Our hedging activities are intended to manage our net exposure across all interest rate-sensitive strategies, including MSRs, MBS, and the effects of income taxes on our results.

Realization of expected cash flows is influenced by changes in the level of our servicing assets, changes in estimates of remaining cash flows to be realized, and realized prepayment performance. Realization of expected cash flows decreased by $4.9 million for the quarter ended September 30, 2026, compared to the quarter ended September 30, 2025, primarily reflecting the decrease in the average balance of our MSR portfolio and declining prepayment speeds during the period as interest rates increased. For the nine months ended September 30, 2026, realization of expected cash flows increased by $15.8 million compared to the same period in 2025, as faster prepayment activity early in the period more than offset the decrease in the average balance of our portfolio.

Following is a summary of our loan servicing portfolio:

Following is a summary of characteristics of our MSR servicing portfolio as of September 30, 2026:

(1)

Loan-to-value.

(2)

Represents MSRs on conventional loans sold to private investors.

Net (losses) gains on investments and financings

Net (losses) gains on investments and financings are summarized below:

The net losses on investments for the quarter and nine months ended September 30, 2026, as compared to the same periods in 2025, were primarily due to losses from our investments in MBS as interest rates increased as compared to the same periods in 2025.

During the quarter and nine months ended September 30, 2026, we recognized net valuation losses of $166.9 million and $199.9 million, respectively, as compared to valuation gains of $37.6 million and $117.0 million, respectively, for the same periods in 2025. These losses reflect increasing interest rates during the nine months ended September 30, 2026, which reduced the fair value of our MBS, as compared to decreasing interest rates during the same period in 2025.

Loans Held for Investment at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value

Loans held for investment held in VIEs and Asset-backed financings of variable interest entities at fair value recorded combined net valuation losses of $5.3 million and net gain of $3.3 million during the quarter and nine months ended September 30, 2026, respectively, as compared to net gains of $12.8 million and $10.9 million during the same periods in 2025, respectively.

Increases in longer-term interest rates during 2026 reduced the fair value of both the loans and the related asset-backed debt.

The activity in and balances relating to our CRT arrangements are summarized below:

(1)

Deposits securing credit risk transfer arrangements also secure $5.2 million and $6.0 million in CRT strip and CRT derivative liabilities at September 30, 2026 and December 31, 2025, respectively.

The performance of our investments in CRT arrangements for the quarter ended September 30, 2026 reflects lower realized income and lower interest income on the deposits securing the arrangements, driven by continued runoff of the underlying reference pools.

Net Gains on Loans Held for Sale

Our net gains on loans held for sale are summarized below:

(1)

Acquisition of loans for sale includes unpaid principal balances of loans to PFSI during the periods presented in 2025.

The changes in Net gains on loans held for sale at fair value during the quarter and nine months ended September 30, 2026, as compared to the same periods in 2025, were primarily driven by a decrease in our acquisition and interest rate lock commitment volumes and the effect of interest rate and spread volatility during the quarter and nine months ended September 30, 2026.

Non-cash elements of gain on sale of loans:

Interest Rate Lock Commitments

Our Net gains on loans held for sale include our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gains before we purchase the loans. These gains are reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair values of our IRLCs as the loan acquisition process progresses until we complete the acquisitions or the commitments are canceled. Such adjustments are included in our Net gains on loans held for sale at fair value. The fair values of our IRLCs become part of the carrying values of our loans when we complete the purchases of the loans. The methods and key inputs we use to measure the fair values of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

The MSRs and liabilities for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our consolidated statements of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our income.

The methods we use to initially measure and update the measurements of our MSRs as well as the effect of changes in valuation inputs on MSR fair value are detailed in Note 7 – Fair Value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

Liability for Losses Under Representations and Warranties

We recognize liabilities for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions. The representations and warranties we provide require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local laws.

In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects, reimburse the investor for its loss or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit losses on those loans. Our credit losses may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.

We recorded provisions for losses relating to representations and warranties relating to current period loan sales of $302,000 and $960,000 for the quarter and nine months ended September 30, 2026, respectively, and $222,000 and $753,000 for the quarter and nine months ended September 30, 2025, respectively.

Following is a summary of the indemnification, repurchase and loss activity and loans subject to representations and warranties:

The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers. As the loans outstanding season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase.

The method we use to estimate the liability for representations and warranties is a function of our estimates of future defaults, loan repurchase rates, severities of loss in the event of default and the probabilities of reimbursement by the correspondent loan sellers. We establish a liability at our estimate of its fair value at the time loans are sold and review the adequacy of our recorded liability on a periodic basis.

The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, investor and guarantor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans. We may be required to incur losses related to such representations and warranties for several periods after the loans are sold or liquidated.

We record adjustments to our liability for losses on representations and warranties as economic fundamentals change, as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent sellers’ ability or willingness to fulfill their recourse obligations to us. Such adjustments may be material to our financial position and results of operations in future periods.

Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans held for sale at fair value. We recorded a $323,000 and $1.0 million reduction in liability for the quarter and nine months ended September 30, 2026, respectively, and a $39,000 and $2.1 million reduction in liability for representations and warranties during the quarter and nine months ended September 30, 2025, respectively, due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.

Loan Origination Fees

Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan origination fees decreased during the quarter and nine months ended September 30, 2026, reflecting an overall decrease in our purchase volume of loans for sale. The reduction is related to activity-based expenses, including tax service fees and boarding fees associated with loans held for sale.

Net Interest (Expense) Income

Net interest (expense) income is summarized below:

The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below: