Mortgage REIT PennyMac Mortgage Investment Trust (NYSE: PMT) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 1.4% year on year to $70.2 million. Its non-GAAP loss of $0.04 per share was significantly below analysts’ consensus estimates.

Is now the time to buy PMT? Find out in our full research report (it’s free).

StockStory’s Take

PennyMac Mortgage Investment Trust (PMT) delivered second quarter results that fell short of Wall Street’s expectations, which was met with a negative market reaction. Management attributed the underperformance to heightened interest rate volatility, which led to fair value declines on certain investments and a nonrecurring tax adjustment. CEO David Spector described the operating environment as “challenging,” highlighting that the company’s diversified investment portfolio and disciplined risk management helped offset some of the adverse impacts. Spector also referenced the benefit of PMT’s close partnership with PennyMac Financial Services, which provides access to a steady pipeline of mortgage assets even amid market disruptions.

Looking forward, management’s guidance is built on executing a consistent cadence of private label securitizations and leveraging organic loan production to generate attractive, risk-adjusted returns. CFO Daniel Perotti stated that the company expects its run-rate earnings to approach the current dividend level, supported by additional investments in non-Agency mortgage-backed securities and continued stability from seasoned mortgage servicing rights. Management remains attentive to interest rate movements and the evolving credit environment, with Spector emphasizing, “Our risk management capabilities and diversified strategies position us well to deliver returns in 2025 and beyond.”

Key Insights from Management’s Remarks

Management pointed to robust securitization activity, stable performance from legacy assets, and cost controls as key factors influencing the quarter’s results and shaping their outlook.

• Securitization momentum: PMT completed three securitizations of Agency-eligible investor loans and its first jumbo loan securitization since 2013, retaining significant interests in these transactions. This activity reflects a shift toward creating investments internally, rather than relying on external market purchases, which management believes enhances risk-adjusted returns.

• MSR and credit risk transfer stability: Approximately two-thirds of PMT’s equity is invested in seasoned mortgage servicing rights (MSRs) and GSE credit risk transfer (CRT) transactions. These portfolios have shown low delinquency rates and produce stable cash flows, partly due to borrowers having less incentive to refinance because of low fixed rates on underlying loans.

• Interest rate volatility impact: The company’s interest rate sensitive strategies posted a pretax loss, as fair value increases in MSRs were more than offset by losses in interest rate hedges and market-driven declines. Management highlighted the challenges posed by a volatile treasury environment, which compressed margins and affected valuations.

• Correspondent production gains: Income from the correspondent production segment improved, driven by gains on nonowner-occupied and jumbo loans. The renewal of the mortgage banking services agreement with PennyMac Financial Services allows PMT to selectively retain a portion of mortgage production, supporting future investment pipelines.

• Leverage and capital management: PMT’s leverage increased, primarily due to nonrecourse debt tied to its securitization activities. Management emphasized that this debt is limited to cash flows from the associated loans, reducing risk to the broader balance sheet. The company also issued new unsecured senior notes to support ongoing investment activity.

Drivers of Future Performance

PMT’s outlook is anchored by continued securitization activity, disciplined capital deployment, and stable returns from legacy assets, though market volatility and interest rate trends remain key variables.

• Ongoing securitization cadence: Management intends to maintain a regular schedule of Agency-eligible and jumbo loan securitizations, aiming to create and retain investments with low- to mid-teens returns. This approach is expected to drive incremental earnings and sustain the company’s dividend, provided market conditions remain supportive.

• Portfolio stability from seasoned assets: The company expects its seasoned MSR and CRT portfolios to continue generating stable cash flows, as most underlying borrowers hold low-rate loans and have little incentive to refinance. This stability is seen as a buffer against earnings volatility from newer investment activities.

• Interest rate and credit environment risks: Management noted that further interest rate volatility or widening credit spreads could impact valuations and earnings. However, they believe the diversified structure of PMT’s investment portfolio and ability to adjust capital deployment offer flexibility to respond to changing market dynamics.

Catalysts in Upcoming Quarters

In the coming quarters, our team will monitor (1) the pace and profitability of new loan securitizations and PMT’s ability to sustain its issuance schedule; (2) the performance and cash flow stability of seasoned MSR and CRT portfolios, particularly as interest rates shift; and (3) evolving leverage metrics as nonrecourse debt increases. We will also watch for regulatory or market developments that could impact securitization volumes or asset valuations.

PennyMac Mortgage Investment Trust currently trades at $12.62, in line with $12.69 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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