PennyMac, the top dog in correspondent, says its broker business is booming

PennyMac Financial Services Inc. (PFSI) on Tuesday reported net income of $136.5 million for Q2 2025 on revenue of $444.7 million, which executives attributed to big strides made in the broker channel and a servicing portfolio that has surpassed $700 billion UPB.

During the earnings call, CEO and Chairman David Spector commented that PennyMac was experiencing “remarkable growth” in the broker-direct channel and repeated the company’s aggressive goal to double its 5% broker market share by the end of 2026. He also boasted a refinancing recapture rate that is “twice the industry average.”

“We have clearly established ourselves as a trusted partner for brokers, and though we are already the third largest in the channel, we see tremendous momentum to continue our growth to more than 10% market share by the end of 2026,” Spector told investors.

Overall, PennyMac locked $7.2 billion in origination volume in the second quarter through the broker-direct channel, placing it third behind United Wholesale Mortgage and Rocket Pro. Its margin on broker business was 87 bps, and it represented 22% of production revenue.

Q2 financial performance

PennyMac’s second quarter represented a bounce-back from the first quarter’s net income of $76.3 million and revenue of $430.9 million.

The jump in net income was largely driven by a non-recurring $81.6 million tax benefit. Underlying profitability was weaker, with pretax income ($76.4 million) being down from $104.2 million in Q1 2025 and $133.9 million year over year.

“PennyMac Financial once again delivered solid financial performance, showcasing our enduring strength and strategic agility in today’s dynamic market landscape,” Spector said in a statement. “Our multi-channel approach to production has allowed us to maintain a leading market position in today’s lower-volume, higher note rate origination market. In the second quarter alone, we acquired or originated nearly $40 billion in UPB of mortgage loans. This robust production also fueled the continued organic growth of our servicing portfolio, as it reached $700 billion in UPB with 2.7 million customers at quarter-end.”

In total, PennyMac, the biggest player in the correspondent channel, originated or acquired $37.9 billion in loans, up 31% quarter over quarter and 39% year over year, showing strong top-line growth.

However, production segment pretax income dipped to $57.8 million from $61.9 million last quarter, indicating margin compression. Loan origination expenses also rose, ultimately contributing to total expenses, which jumped to $368.3 million from $326.7 million in Q1 2025.

The California-based lender reported correspondent acquisitions of conventional conforming and jumbo loans totaling $3.1 billion in UPB during Q2, an increase of 11% from Q1 2025 and 38% higher than the same period in 2024.

PennyMac retained 17% of total conventional conforming correspondent loans, down from 21% in the prior quarter, shared Daniel Perotti, PennyMac’s senior managing director and chief financial officer, during Tuesday afternoon’s earnings call.

Total lock volume, including loans for PennyMac Mortgage Trust, reached $43.1 billion in UPB, up 26% from the previous quarter and 41% year over year.

Lock volume specifically for PMT’s account totaled $3.5 billion, representing a 29% quarterly increase and a 31% gain compared to the second quarter of last year.

Perotti added that the number of brokers approved to do business with PMT at quarter end was about 5,100, up 19% from the same time last year.

Servicing performance continues to expand

The company’s servicing segment generated $54.2 million in pretax income, down from $76 million in the prior quarter and $90.7 million in the same quarter a year earlier. Perotti told investors during the call that PennyMac’s per-loan servicing expenses are “among the lowest in the industry.”

PennyMac’s servicing portfolio continued to expand, growing to nearly $700 billion ($699.7 billion) in UPB in Q2 2025. That’s up 3% from March 31 and 11% from June 30, 2024, driven by new production volumes that outweighed prepayment activity.

Excluding valuation-related changes, pretax income stood at $143.7 million — down 16% — as higher loan servicing fees and custodial earnings were offset by increased realization of mortgage servicing rights (MSR) cash flows and interest expenses.

Valuation-related items included $15.9 million in MSR fair value gains, which were more than offset by $109.1 million in hedging losses. The net impact of these valuation changes on pretax income was a loss of $93.2 million, translating to a $1.30 reduction in diluted earnings per share. The company also recorded $3.6 million in reversals of loss provisions on active loans.

The Corporate and Other segment reported a hefty pretax loss of $35.5 million, compared with $33.7 million in the prior quarter and $12 million in the same period last year. PennyMac ended the quarter with $4 billion of total liquidity, including cash and amounts available to draw on facilities where it has collateral, Perotti confirmed during the call.

During the quarter, PMT issued $850 million in 7-year unsecured senior notes due in May 2032. It also redeemed $650 million in unsecured senior notes due in October 2025 and $500 million in Ginnie Mae MSR term notes due in May 2027.