Release Date: April 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you discuss what drove the hedge ineffectiveness this quarter?
A: Daniel Perotti, CFO, explained that the hedge ineffectiveness was due to increased exposure to interest rate volatility and the elevated cost of hedging, influenced by the inverted yield curve and high implied volatility. The company adjusted its hedge positioning in response to these conditions.
Q: How does the VA's new VASP program impact the valuation of VA exposures in MSRs?
A: David Spector, CEO, noted that while the program could remove tail risks and benefit current delinquent customers, there is concern about potential strategic defaults. The program's impact on servicing value is still uncertain and depends on further details and controls.
Q: What is your perspective on the market for originating second liens and Freddie Mac's recent announcement?
A: David Spector expressed support for the GSEs entering second lien originations, noting it could standardize the industry and address issues with borrowers refinancing low-rate mortgages through cash-outs. He anticipates this will be a significant and beneficial tool for the industry.
Q: Can you provide insights on your strategy for servicing portfolio growth and appetite for acquiring MSRs in 2024?
A: David Spector emphasized focusing on organic growth through the company's production channels rather than setting specific servicing size goals. Daniel Perotti added that while they review MSR portfolios on the market, their primary focus remains on adding higher note rate loans organically.
Q: What drove the increase in gain on sale margins, particularly in the Broker Direct channel?
A: David Spector attributed the improvement to rational pricing returning to the market and PennyMac's strong positioning as a preferred alternative for top brokers. The company has seen increased jumbo activity and positive broker feedback in this channel.
Q: How do you view the sustainability of your operating ROE given the current rate environment?
A: Daniel Perotti stated that they expect operating ROEs to remain in the mid to high teens, depending on market size. The company anticipates that any interest rate volatility could create additional refinancing opportunities, thereby potentially boosting their financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.