PENNYMAC FINANCIAL SERVICES, INC. (Form: 10-Q, Received: 11/06/2015 17:33:34)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30 , 201 5

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35916

PennyMac Financial Services, Inc.

(Exact name of registrant as specified in its charter)


Delaware		80-0882793
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)


6101 Condor Drive, Moorpark, California		93021
(Address of principal executive offices)		(Zip Code)

(818) 224-7442

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):


Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at November 4 , 201 5
Class A Common Stock, $0.0001 par value		21,886,868
Class B Common Stock, $0.0001 par value		5 1

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PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

September 30 , 2015

TABLE OF CONTENTS


		Page
	Special Note Regarding Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION		5

Item 1.	Financial Statements (Unaudited):	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Changes in Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	75
Item 4.	Controls and Procedures	75

PART II. OTHER INFORMATION		76

Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77

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SPECIAL NOTE REGARDING FORWARD ‑LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report”) contains certain forward ‑looking statements that are subject to various risks and uncertainties. Forward ‑looking statements are generally identifiable by use of forward ‑looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.

Forward ‑looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward ‑looking information. Examples of forward ‑looking statements include the following:

projections of our revenues, income, earnings per share, capital structure or other financial items;

descriptions of our plans or objectives for future operations, products or services;

forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and

descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward ‑looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward ‑looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

You should not place undue reliance on any forward ‑looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 13, 2015 and ou r Quarterly Reports on Form 10-Q filed thereafter .

Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate;

lawsuits or governmental actions if we do not comply with the laws and regulations applicable to our businesses;

the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”) and its enforcement of these regulations ;

our dependence on U.S. government sponsored entities and changes in their current roles or their guarantees or guidelines;

changes to government mortgage modification programs;

the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject;

foreclosure delays and changes in foreclosure practices;

certain banking regulations that may limit our business activities;

our dependence on the multi-family and commercial real estate sectors for future originations and investments in commercial mortgage loans and other commercial real estate related loans ;

changes in macroeconomic and U.S. real estate market conditions;

difficulties inherent in growing loan production volume;

difficulties inherent in adjusting the size of our operations to reflect changes in business levels;

purchase opportunities for mortgage servicing rights (“MSRs”) and our success in winning bids;

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changes in prevailing interest rates;

increases in loan delinquencies and defaults;

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business;

any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all;

our obligation to indemnify third party purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances;

our obligation to indemnify PMT and certain investment funds if our services fail to meet certain criteria or characteristics or under other circumstances;

decreases in the historical returns on the assets that we select and manage for our clients, and our resulting management and incentive fees;

the extensive amount of regulation applicable to our investment management segment;

conflicts of interest in allocating our services and investment opportunities among ourselves and certain advised entities;

the effect of public opinion on our reputation;

our recent growth;

our ability to effectively identify, manage, monitor and mitigate financial risks;

our initiation of new business activities or expansion of existing business activities;

our ability to detect misconduct and fraud; and

our ability to mitigate cybersecurity risks and cyber incidents.

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

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PART I. FINANCIAL INFORMATIO N

Item 1. Financial Statement s

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEET S (UNAUDITED)


	September 30,		December 31,
	2015		2014
	(in thousands, except share data)
ASSETS
Cash	$	47,415	$	76,256
Short-term investments at fair value		24,766		21,687
Mortgage loans held for sale at fair value (includes $1,420,782 and $976,772 pledged to secure mortgage loans sold under agreements to repurchase; and $255,134 and $148,133 pledged to secure mortgage loan participation and sale agreement)		1,696,980		1,147,884
Derivative assets		53,569		38,457
Servicing advances, net (includes $26,503 and $18,686 valuation allowance)		252,172		228,630
Carried Interest due from Investment Funds		70,196		67,298
Investment in PennyMac Mortgage Investment Trust at fair value		1,160		1,582
Mortgage servicing rights (includes $669,667 and $325,383 at fair value; $619,840 and $392,254 pledged to secure note payable; and $418,573 and $191,166 subject to excess servicing spread financing)		1,307,392		730,828
Furniture, fixtures, equipment and building improvements, net		14,107		11,339
Capitalized software, net		2,035		567
Note receivable from PennyMac Mortgage Investment Trust—secured		150,000		—
Receivable from PennyMac Mortgage Investment Trust		17,220		23,871
Receivable from Investment Funds		1,542		2,291
Deferred tax asset		25,878		46,038
Loans eligible for repurchase		97,455		72,539
Other		53,435		37,419
Total assets	$	3,815,322	$	2,506,686
LIABILITIES
Mortgage loans sold under agreements to repurchase	$	1,286,411	$	822,252
Mortgage loan participation and sale agreement		247,410		143,568
Note payable		406,990		146,855
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust		418,573		191,166
Derivative liabilities		4,632		6,513
Accounts payable and accrued expenses		85,530		62,715
Mortgage servicing liabilities at fair value		10,724		6,306
Payable to Investment Funds		30,211		35,908
Payable to PennyMac Mortgage Investment Trust		147,326		123,315
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		72,275		75,024
Liability for loans eligible for repurchase		97,455		72,539
Liability for losses under representations and warranties		18,478		13,259
Total liabilities		2,826,015		1,699,420

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding , 21,842,868 and 21,577,686 shares, respectively		2		2
Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 51 and 54 shares, respectively		—		—
Additional paid-in capital		169,297		162,720
Retained earnings		85,699		51,242
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders		254,998		213,964
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC		734,309		593,302
Total stockholders' equity		989,307		807,266
Total liabilities and stockholders’ equity	$	3,815,322	$	2,506,686

The accompanying notes are an integral part of these financial statements .

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOM E (UNAUDITED)


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands, except earnings per share)
Revenues
Net gains on mortgage loans held for sale at fair value:
From non-affiliates	$	85,744	$	50,276	$	247,822	$	128,942
Recapture payable to PennyMac Mortgage Investment Trust		(3,098)		(2,143)		(5,843)		(6,567)
		82,646		48,133		241,979		122,375
Loan origination fees		29,448		11,823		70,551		29,048
Fulfillment fees from PennyMac Mortgage Investment Trust		17,553		15,497		45,752		36,832
Net loan servicing fees:
Loan servicing fees
From non-affiliates		83,424		44,647		200,392		124,061
From PennyMac Mortgage Investment Trust		11,736		12,325		34,542		41,096
From Investment Funds		796		1,116		1,917		6,754
Ancillary and other fees		10,096		6,620		33,131		16,609
		106,052		64,708		269,982		188,520
Amortization, impairment and change in fair value of mortgage servicing rights		(59,065)		(20,339)		(128,073)		(58,271)
Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust		10,271		9,539		10,674		24,392
		(48,794)		(10,800)		(117,399)		(33,879)
Net loan servicing fees		57,258		53,908		152,583		154,641
Management fees:
From PennyMac Mortgage Investment Trust		5,742		9,623		18,524		26,609
From Investment Funds		714		1,756		3,384		5,877
		6,456		11,379		21,908		32,486
Carried Interest from Investment Funds		1,483		1,902		2,898		5,893
Net interest expense:
Interest income:
From non-affiliates		13,764		8,975		35,348		19,337
From PennyMac Mortgage Investment Trust		1,289		—		1,822		—
		15,053		8,975		37,170		19,337
Interest expense:
To non-affiliates		12,918		8,136		31,526		17,253
To PennyMac Mortgage Investment Trust		8,026		3,577		17,596		9,578
		20,944		11,713		49,122		26,831
Net interest expense		(5,891)		(2,738)		(11,952)		(7,494)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		(158)		8		(295)		20
Other		410		713		2,446		2,751
Total net revenue		189,205		140,625		525,870		376,552
Expenses
Compensation		74,129		48,375		202,695		138,232
Servicing		16,770		13,914		55,108		28,698
Technology		6,676		4,350		18,104		10,914
Loan origination		4,314		2,537		12,813		5,952
Professional services		3,803		3,290		10,710		8,150
Other		9,590		5,467		24,480		14,806
Total expenses		115,282		77,933		323,910		206,752
Income before provision for income taxes		73,923		62,692		201,960		169,800
Provision for income taxes		8,575		7,232		23,308		19,385
Net income		65,348		55,460		178,652		150,415
Less: Net income attributable to noncontrolling interest		52,668		44,971		144,195		122,336
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	12,680	$	10,489	$	34,457	$	28,079

Earnings per share
Basic	$	0.58	$	0.49	$	1.59	$	1.33
Diluted	$	0.58	$	0.49	$	1.58	$	1.32
Weighted average common shares outstanding
Basic		21,810		21,432		21,702		21,149
Diluted		76,138		75,949		76,098		75,918

T he accompanying notes are an integral part of these financial statements.

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUIT Y (UNAUDITED)


	PennyMac Financial Services, Inc. Stockholders										Noncontrolling
											interest in Private
							Additional				National Mortgage		Total
	Number of shares		Common stock				paid-in		Retained		Acceptance		stockholders'
	Class A	Class B	Class A		Class B		capital		earnings		Company, LLC		equity
	(in thousands)
Balance at December 31, 2013	20,813	—	$	2	$	—	$	153,000	$	14,400	$	461,802	$	629,204
Net income	—	—		—		—		—		28,079		122,336		150,415
Stock and unit-based compensation	32	—		—		—		2,086		—		5,393		7,479
Distributions	—	—		—		—		—		—		(20,300)		(20,300)
Issuance of common stock in settlement of directors' fees	9	—		—		—		147		—		—		147
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	672	—		—		—		6,572		—		(6,572)		—
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	—	—		—		—		(496)		—		—		(496)
Balance at September 30, 2014	21,526	—	$	2	$	—	$	161,309	$	42,479	$	562,659	$	766,449

Balance at December 31, 2014	21,578	—	$	2	$	—	$	162,720	$	51,242	$	593,302	$	807,266
Net income	—	—		—		—		—		34,457		144,195		178,652
Stock and unit-based compensation	75	—		—		—		3,746		—		9,358		13,104
Distributions	—	—		—		—		—		—		(9,627)		(9,627)
Issuance of common stock in settlement of directors' fees	13	—		—		—		223		—		—		223
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	177	—		—		—		2,919		—		(2,919)		—
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	—	—		—		—		(311)		—		—		(311)
Balance at September 30, 2015	21,843	—	$	2	$	—	$	169,297	$	85,699	$	734,309	$	989,307

The accompanying notes are an integral part of these financial statements.

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW S (UNAUDITED)


	Nine months ended September 30,
	2015		2014
	(in thousands)
Cash flow from operating activities
Net income	$	178,652	$	150,415
Adjustments to reconcile net income to net cash used in operating activities:
Net gains on mortgage loans held for sale at fair value		(241,979)		(122,375)
Accrual of servicing rebate to Investment Funds		1,193		681
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread		117,399		33,879
Carried Interest from Investment Funds		(2,898)		(5,893)
Accrual of interest on excess servicing spread financing		17,596		9,578
Amortization of debt issuance costs and commitment fees relating to financing facilities		5,688		4,217
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust		422		115
Stock and unit-based compensation expense		13,104		7,479
Provision for servicing advance losses		23,538		8,519
Depreciation and amortization		1,585		972
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust		(24,877,077)		(11,947,251)
Originations of mortgage loans held for sale		(3,106,147)		(1,261,747)
Purchase of mortgage loans from Ginnie Mae securities for modification and subsequent sale		(989,009)		(897,381)
Capitalization of interest on mortgage loans held for sale at fair value		(11,703)		—
Sale and principal payments of mortgage loans held for sale		28,346,871		13,362,317
Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust		13,708		4,955
Repurchase of mortgage loans by PennyMac Mortgage Investment Trust		12,379		—
Repurchase of mortgage loans subject to representations and warranties		(17,112)		(1,757)
Increase in servicing advances		(47,080)		(54,850)
Increase in receivable from Investment Funds		(444)		(468)
Decrease (increase) in receivable from PennyMac Mortgage Investment Trust		8,889		(781)
Decrease in deferred tax asset		21,399		14,670
Decrease in payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		(4,299)		—
Increase in other assets		(23,113)		(38,806)
Increase in accounts payable and accrued expenses		22,280		16,359
Decrease in payable to Investment Funds		(5,697)		(1,063)
Increase in payable to PennyMac Mortgage Investment Trust		22,698		23,136
Net cash used in operating activities		(519,157)		(695,080)
Cash flow from investing activities
(Increase) decrease in short-term investments		(3,079)		106,247
Advance on note receivable from PennyMac Mortgage Investment Trust—secured		(168,546)		—
Repayment of note receivable from PennyMac Mortgage Investment Trust—secured		18,546		—
Purchase of mortgage servicing rights		(379,264)		(113,348)
Sale of mortgage servicing rights		—		10,916
Settlement of derivative financial instruments used for hedging		(3,678)		3,048
Purchase of furniture, fixtures, equipment and building improvements		(5,716)		(4,006)
Acquisition of capitalized software		(1,745)		(56)
Decrease (increase) in margin deposits and restricted cash		5,331		(1,620)
Net cash (used in) provided by investing activities		(538,151)		1,181
Cash flow from financing activities
Sale of loans under agreements to repurchase		25,947,385		12,500,064
Repurchase of loans sold under agreements to repurchase		(25,482,890)		(12,041,909)
Issuance of mortgage loan participation certificates		13,265,896		180,062
Repayment of mortgage loan participation certificates		(13,162,123)		(37,679)
Borrowing on note payable		289,556		102,794
Repayment of note payable		(29,411)		—
Issuance of excess servicing spread financing		271,452		82,646
Repayment of excess servicing spread financing		(55,800)		(25,280)
Repayment of leases payable		(6)		—
Payment of debt issuance costs		(5,965)		—
Distribution to Private National Mortgage Acceptance Company, LLC partners		(9,627)		(20,187)
Net cash provided by financing activities		1,028,467		740,511
Net (decrease) increase in cash		(28,841)		46,612
Cash at beginning of period		76,256		30,639
Cash at end of period	$	47,415	$	77,251

The accompanying notes are an integral part of these financial statements.

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PENNYMAC FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT S (UNAUDITED)

Note 1—Organization and Basis of Presentation

PennyMac Financial Services, Inc. (“PFSI” or the “Company”) was formed as a Delaware corporation on December 31, 2012. Pursuant to a reorganization, the Company became a holding corporation and its primary asset is an equity interest in Private National Mortgage Acceptance Company, LLC (“PennyMac”). The Company is the managing member of PennyMac and operates and controls all of the businesses and affairs of PennyMac subject to the consent rights of other members under certain circumstances, and consolidates the financial results of PennyMac and its subsidiaries.

PennyMac is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PennyMac’s mortgage banking activities consist of residential mortgage loan production (including correspondent production and consumer direct lending) and mortgage loan servicing. PennyMac’s investment management activities and a portion of its loan servicing activities are conducted on behalf of investment vehicles that invest in residential mortgage loans and related assets. PennyMac’s primary wholly owned subsidiaries are:

PNMAC Capital Management, LLC (“PCM”) —a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM enters into investment management agreements with entities that invest in residential mortgage loans and related assets.

Presently, PCM has management agreements with PennyMac Mortgage Investment Trust (“PMT”), a publicly held real estate investment trust, PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., both registered under the Investment Company Act of 1940, as amended, an affiliate of these funds, and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, “Investment Funds”). Together, the Investment Funds and PMT are referred to as the “Advised Entities.”

PennyMac Loan Services, LLC (“PLS”) —a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates or the Advised Entities, originates new prime credit quality residential mortgage loans, and engages in other mortgage banking activities for its own account and the account of PMT.

PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development and a lender/servicer with the Veterans Administration and U.S. Department of Agriculture. We refer to each of Fannie Mae, Freddie Mac and Ginnie Mae as an “Agency” and collectively the “Agencies . ”

PNMAC Opportunity Fund Associates, LLC (“PMOFA”) —a Delaware limited liability company and the general partner of PNMAC Mortgage Opportunity Fund, L.P. PMOFA is entitled to incentive fees representing allocations of profits (“Carried Interest”) from PNMAC Mortgage Opportunity Fund, L.P..

The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification for interim financial information and with the SEC’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. The interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2015. Intercompany accounts and transactions have been eliminated.

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Preparation of financial statements in compliance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

Reclassification of previously presented balances

In April of 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest  Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability .

ASU 2015-03 specifies that its adoption be made on a retrospective basis. Accordingly, the Company has reclassified its debt issuance costs from Other assets as previously presented to Mortgage loans sold under agreements to repurchase and Mortgage loan participation and sale agreement to conform its December 31, 2014 balance sheet to the current presentation . The adoption of ASU 2015-03 did not result in changes to the Company’s previously presented consolidated statements of income or consolidated statements of cash flows.

Following is a summary of the balance sheet reclassifications:


	December 31, 2014
	As reported		As previously reported		Reclassification
	(in thousands)
Assets:
Other	$	37,419	$	37,858	$	(439)
Total assets	$	2,506,686	$	2,507,125	$	(439)
Liabilities:
Mortgage loans sold under agreements to repurchase	$	822,252	$	822,621	$	(369)
Mortgage loan participation and sale agreement	$	143,568	$	143,638	$	(70)
Total liabilities	$	1,699,420	$	1,699,859	$	(439)
Total liabilities and stockholders' equity	$	2,506,686	$	2,507,125	$	(439)

Note 2—Concentration of Risk

A substantial portion of the Company’s activities relate to the Advised Entities. Fees charged to these entities (generally comprised of fulfillment fees, loan servicing fees, management fees and Carried Interest) totaled 20 % and 3 3 % of total net revenue for the quarters ended September 30, 2015 and 2014, respectively, and 1 8 % and 3 5 % for the nine months ended September 30, 2015 and 2014, respectively.

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Note 3—Transactions with Affiliates

Transactions with PMT

Correspondent Production Activities

Following is a summary of mortgage lending and sourcing activity between the Company and PMT:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Fulfillment fee revenue	$	17,553	$	15,497	$	45,752	$	36,832
Unpaid principal balance of loans fulfilled for PennyMac Mortgage Investment Trust	$	4,073,201	$	3,677,613	$	10,542,411	$	8,588,955

Sourcing fees paid	$	3,236	$	1,384	$	7,084	$	3,401
Unpaid principal balance of loans purchased from PennyMac Mortgage Investment Trust	$	10,783,882	$	4,609,947	$	23,602,020	$	11,332,898

Proceeds from sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust	$	1,047	$	2,970	$	11,875	$	4,955
Tax service fee receivable from PennyMac Mortgage Investment Trust	$	1,291	$	703	$	3,293	$	1,753
Mortgage servicing rights recapture recognized	$	670	$	—	$	670	$	9

Mortgage Loan Servicing Activities

Following is a summary of mortgage loan servicing fees earned from PMT:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Loan servicing fees relating to PennyMac Mortgage Investment Trust:
Mortgage loans acquired for sale at fair value:
Base and supplemental	$	130	$	28	$	198	$	74
Activity-based		153		35		243		112
		283		63		441		186
Mortgage loans at fair value:
Base and supplemental		3,896		4,662		12,053		14,549
Activity-based		2,961		4,076		8,948		16,208
		6,857		8,738		21,001		30,757
Mortgage loans held in a variable interest entity by PennyMac Mortgage Investment Trust:
Base and supplemental		34		17		92		71
Activity-based		—		—		—		—
		34		17		92		71
Mortgage servicing rights:
Base and supplemental		4,473		3,459		12,783		9,930
Activity-based		89		48		225		152
		4,562		3,507		13,008		10,082
	$	11,736	$	12,325	$	34,542	$	41,096

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Management Activitie s

Following is a summary of the management fees earned from PMT:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Management fees:
Base	$	5,742	$	6,033	$	17,181	$	17,392
Performance incentive		—		3,590		1,343		9,217
	$	5,742	$	9,623	$	18,524	$	26,609

Investing and Financing Activities

Following is a summary of investing and financing activity between the Company and PMT:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Financing activities:
Excess servicing spread financing:
Issuance	$	84,165	$	9,253	$	271,452	$	82,646
Repayment	$	24,717	$	8,786	$	55,800	$	25,280
Change in fair value (gain) loss	$	10,271	$	9,539	$	10,674	$	24,392
Interest expense	$	8,026	$	3,577	$	17,596	$	9,578
Recapture recognized	$	2,428	$	2,143	$	5,173	$	6,558
Investing activities:
Note receivable from PennyMac Mortgage Investment Trust—secured:
Advances	$	97,474	$	—	$	168,546	$	—
Repayment	$	—	$	—	$	18,546	$	—
Interest income	$	1,289	$	—	$	1,822	$	—

T he Company is a party to a Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015, pursuant to which it finance s certain of its mortgage servicing rights (“ MSRs ”) and servicing advance receivables with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”) (the “Loan and Security Agreement”). On April 30, 2015 , the Company amended and restated the Loan and Security Agreement to increase t he maximum loan amount thereunder to $407 million , a $150 million increase for the purpose of facilitating the financing of the related excess servicing spre ad (“ESS”) by PMT.

In connection with the Loan and Security Agreement, the Company and PMT entered into an underlying loan and security agreement, dated as of April 30, 2015, pursuant to which PMT may borrow up to $150 million from the Company for the purpose of financing ESS. The principal amount of the borrowings under the Loan and Security Agreement i s based upon a percentage of the fair value of the ESS pledged by PMT, subject to the $150 million sublimit described above. Pursuant to the underlying loan and security agreement, PMT granted to the Company a security interest in all of its right, title and interest in, to and under the ESS pledged to secure loans. The portion of the loan amount outstanding under the Loan and Security Agreement and relating to advances outstanding with PMT under the underlying loan and security agreement is guaranteed in full by PMT.

The Company and PMT have agreed that PMT i s required to repay the Company the principal amount of such borrowings plus accrued interest to the date of such repayment, and the Company is required to repay CSFB the corresponding amount under the Lo an and Security Agreement. Interest accrues under the underlying loan and security agreement at a rate based on CSFB’s cost of funds. PMT was also required to pay the Company a fee for the structuring of the Loan and Security Agreement in an amount equal to the portion of the corresponding fee paid by the Company to CSFB under the Loan and Security Agreement and allocable to the $150.0 million relating to the ESS financing.

As of September 30, 2015, $ 150.0 million of principal was outstanding and included in Note receivable from PennyMac Mortgage Investment Trust  secured on the accompanying consolidated balance sheet s .

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Other Transactions

In connection with PMT’s initial public offering of common shares on August 4, 2009 (“IPO”), PMT conditionally agreed to reimburse the Company up to $2.9 million for underwriting fees paid to the IPO underwriters by the Company on PMT’s behalf . The Company received reimbursement payments from PMT totaling $7,000 and $237,000 for the quarter and nine months ended September 30, 2015, respectively, and $256,000 and $292,000 during the quarter and nine months ended September 30, 2014, respectively.

PMT reimburses the Company for other expenses, including common overhead expenses incurred on its behalf by the Company, in accordance with the terms of its management agreement. Such amounts are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Reimbursement of:
Common overhead incurred by the Company (1)	$	2,694	$	2,912	$	8,125	$	8,181
Expenses incurred on PMT's behalf		(85)		122		377		671
	$	2,609	$	3,034	$	8,502	$	8,852
Payments and settlements during the period (2)	$	17,709	$	31,621	$	64,575	$	72,975

(1)

During the quarter and nine month periods ended September 30, 2015, in accordance with the terms of its management agreement with PMT, the Company provided PMT with discretionary waiver s of $900,000 and $1.6 million, respectively, of overhead expenses otherwise allocable to PMT.

(2)

Payments and settlements include payments for correspondent production activities, loan servicing activities , management activities , investment activities and financing activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT.

Amounts due from PMT are summarized below:


	September 30,		December 31,
	2015		2014
	(in thousands)
Management fees	$	5,742	$	8,426
Allocated expenses		5,237		6,581
Fulfillment fees		3,031		506
Servicing fees		2,310		3,385
Conditional Reimbursement		900		1,137
Unsettled excess servicing spread issuance		—		3,836
	$	17,220	$	23,871

The Company holds an investment in PMT in the form of 75,000 common shares of beneficial interest as of September 30, 2015 and December 31, 2014. The common shares of beneficial interest had fair values of $1.2 million and $1.6 million as of September 30, 2015 and December 31, 2014, respectively.

Of the $ 147.3 million payable to PMT as of September 30, 2015, $138.3 million represents deposits made by PMT to fund servicing advances made by the Company, $8.2 million represents other expenses and unsettled ESS financing activity, and $800,000 represents MSR recapture payable to PMT.

Of the $123.3 million payable to PMT as of December 31, 2014, $116.7 million represents deposits made by PMT to fund servicing advances made by the Company, $6.2 million represents other expenses and unsettled ESS financing activity, and $460,000 represents MSR recapture payable to PMT.

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Transactions with I nvestment Funds

Amounts due from the Investment Funds are summarized below:


	September 30,		December 31,
	2015		2014
	(in thousands)
Carried Interest due from Investment Funds:
PNMAC Mortgage Opportunity Fund, LLC	$	42,283	$	40,771
PNMAC Mortgage Opportunity Fund Investors, LLC		27,913		26,527
	$	70,196	$	67,298
Receivable from Investment Funds:
Management fees	$	722	$	1,596
Loan servicing fees		315		476
Expense reimbursements		284		30
Loan servicing rebate		221		189
	$	1,542	$	2,291

Amounts due to the Investment Funds totaling $ 30.2 million and $35.9 million represent amounts advanced by the Investment Funds to fund servicing advances made by the Company as of September 30, 2015 and December 31, 2014, respectively.

Exchanged Private National Mortgage Acceptance Company, LLC Unitholders

The Company entered into a tax receivable agreement with PennyMac’s existing unitholders on the date of the IPO that will provide for the payment by PFSI to PennyMac’s exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis of PennyMac’s assets resulting from such unitholders’ exchanges and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Based on the PennyMac unitholder exchanges to date, the Company has recorded a $72.3 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of September 30, 2015. The Company made payments under the tax receivable agreement totaling $0 and $4.3 million during the quarter and nine months ended September 30, 2015.

Note 4—Earnings Per Share of Common Stock

Basic earnings per share of common stock is determined using net income attributable to the Company’s common stockholders divided by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is determined by dividing diluted net income attributable to the Company’s common stockholders by the weighted average number of shares of common stock outstanding, assuming all potentially dilutive shares of common stock were issued.

The Company applies the treasury stock method to determine the dilutive weighted average shares of common stock represented by the non - vested unit-based and stock-based compensation awards. The diluted earnings per share calculation assumes the exchange of these PennyMac Class A units for shares of common stock. Accordingly, earnings attributable to the Company’s common stockholders is also adjusted to include the earnings allocated to the PennyMac Class A units after taking into account the income taxes applicable to the shares of common stock assumed to be exchanged.

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The following table summarizes the basic and diluted earnings per share calculations:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands, except per share data)
Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	12,680	$	10,489	$	34,457	$	28,079
Weighted average shares of common stock outstanding		21,810		21,432		21,702		21,149
Basic earnings per share of common stock	$	0.58	$	0.49	$	1.59	$	1.33

Diluted earnings per share of common stock:
Net income	$	12,680	$	10,489	$	34,457	$	28,079
Effect of net income attributable to noncontrolling interest, net of income taxes		31,418		26,620		86,012		72,374
Diluted net income attributable to common stockholders	$	44,098	$	37,109	$	120,469	$	100,453
Weighted average shares of common stock outstanding		21,810		21,432		21,702		21,149
Dilutive shares:
PennyMac Class A units exchangeable to common stock		54,042		53,492		53,744		53,569
Non-vested PennyMac Class A units issuable under unit-based stock compensation plan and exchangeable to common stock		163		975		528		1,155
Shares issuable under stock-based compensation plans		123		50		124		45
Diluted weighted average shares of common stock outstanding		76,138		75,949		76,098		75,918
Diluted earnings per share of common stock	$	0.58	$	0.49	$	1.58	$	1.32

Note 5—Loan Sales and Servicing Activities

The Company originates or purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the mortgage loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the mortgage loans.

The following table summarizes cash flows between the Company and transferees as a result of the sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans in the form of loan servicing arrangements and a liability for representations and warranties it makes to purchasers and insurers of the mortgage loans, as well as unpaid principal ba lance information at period end.


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Cash flows:
Sales proceeds	$	12,738,035	$	5,345,227	$	28,357,226	$	13,367,272
Servicing fees received (1)	$	33,745	$	30,609	$	103,057	$	78,075
Net servicing advances (recoveries)	$	(9,778)	$	6,520	$	(18,733)	$	2,182
Period end information:
Unpaid principal balance of mortgage loans outstanding at end of period	$	55,216,410	$	33,297,161
Delinquencies:
30-89 days	$	1,303,412	$	662,863
90 days or more or in foreclosure or bankruptcy	$	1,249,692	$	168,503

(1)

Net of guarantee fees paid to the Agencies .

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The unpaid principal balance (“UPB”) of the Company’s mortgage servicing portfolio is summarized as follows:


	September 30, 2015
			Contract
	Servicing		servicing and		Total
	rights owned		subservicing		loans serviced
	(in thousands)
Investor:
Non-affiliated entities	$	107,933,619	$	—	$	107,933,619
Affiliated entities		—		45,294,101		45,294,101
Mortgage loans held for sale		1,602,692		—		1,602,692
	$	109,536,311	$	45,294,101	$	154,830,412
Amount subserviced for the Company (1)	$	1,798	$	—	$	1,798
Delinquent mortgage loans:
30 days	$	2,558,944	$	340,589	$	2,899,533
60 days		800,846		137,172		938,018
90 days or more
Not in foreclosure		1,124,614		872,914		1,997,528
In foreclosure		508,771		1,291,618		1,800,389
Foreclosed		19,755		577,581		597,336
	$	5,012,930	$	3,219,874	$	8,232,804
Custodial funds managed by the Company (2)	$	2,895,891	$	556,565	$	3,452,456

(1)

Certain of the mortgage loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Mortgage loans are subserviced for the Company on a transitional basis for loans where the Company has obtained the rights to service the loans but servicing of the loans has not yet been transferred to the Company’s servicing system.

(2)

Borrower and investor custodial cash accounts relate to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the mortgage loans’ investors, which is recorded as part of the interest income in the Company’s consolidated statements of income.


	December 31, 2014
			Contract
	Servicing		servicing and		Total
	rights owned		subservicing		loans serviced
	(in thousands)
Investor:
Non-affiliated entities	$	65,169,194	$	—	$	65,169,194
Affiliated entities		—		39,709,945		39,709,945
Mortgage loans held for sale		1,100,910		—		1,100,910
	$	66,270,104	$	39,709,945	$	105,980,049
Amount subserviced for the Company (1)	$	—	$	330,768	$	330,768
Delinquent mortgage loans:
30 days	$	1,372,915	$	302,091	$	1,675,006
60 days		434,428		135,777		570,205
90 days or more
Not in foreclosure		779,129		1,057,973		1,837,102
In foreclosure		422,330		1,544,762		1,967,092
Foreclosed		32,444		533,067		565,511
	$	3,041,246		3,573,670	$	6,614,916
Custodial funds managed by the Company (2)	$	1,522,295	$	388,498	$	1,910,793

(1)

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(2)

Following is a summary of the geographical distribution of mortgage loans included in the Company’s servicing portfolio for the top five and all other states as measured by UPB:


	September 30,		December 31,
State	2015		2014
	(in thousands)
California	$	38,425,517	$	33,751,630
Texas		11,542,716		6,954,778
Virginia		9,209,929		6,360,171
Florida		9,154,980		5,573,215
Maryland		5,784,906		*
Washington		*		3,830,587
All other states		80,712,364		49,509,668
	$	154,830,412	$	105,980,049

* State did not represent a top five state as of the respective date.

Note 6—Netting of Financial Instruments

The Company uses derivative financial instruments to manage exposure to interest rate risk for the interest rate lock commitments (“IRLCs”) it makes to purchase or originate mortgage loans at specified interest rates, its inventory of mortgage loans held for sale and MSRs. The Company has elected to present net derivative asset and liability positions, and cash collateral obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs.

Following are summaries of derivative assets and related netting amounts.

Offsetting of Derivative Assets


	September 30, 2015						December 31, 2014
	Gross		Gross amount		Net amount		Gross		Gross amount		Net amount
	amount of		offset in the		of assets in the		amount of		offset in the		of assets in the
	recognized		consolidated		consolidated		recognized		consolidated		consolidated
	assets		balance sheet		balance sheet		assets		balance sheet		balance sheet
	(in thousands)
Derivatives subject to master netting arrangements:
Forward purchase contracts	$	37,265	$	—	$	37,265	$	9,060	$	—	$	9,060
Forward sale contracts		862		—		862		320		—		320
MBS put options		604		—		604		476		—		476
Put options on interest rate futures purchase contracts		1,301		—		1,301		862		—		862
Call options on interest rate futures purchase contracts		4,539		—		4,539		2,193		—		2,193
Netting		—		(35,465)		(35,465)		—		(7,807)		(7,807)
		44,571		(35,465)		9,106		12,911		(7,807)		5,104
Derivatives not subject to master netting arrangements - IRLCs		44,463		—		44,463		33,353		—		33,353
	$	89,034	$	(35,465)	$	53,569	$	46,264	$	(7,807)	$	38,457

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Derivative Assets, Financial Assets, and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for netting.


	September 30, 2015								December 31, 2014
			Gross amount not								Gross amount not
			offset in the								offset in the
			consolidated								consolidated
			balance sheet								balance sheet
	Net amount								Net amount
	of assets in the				Cash				of assets in the				Cash
	consolidated		Financial		collateral		Net		consolidated		Financial		collateral		Net
	balance sheet		instruments		received		amount		balance sheet		instruments		received		amount
	(in thousands)
Interest rate lock commitments	$	44,463	$	—	$	—	$	44,463	$	33,353	$	—	$	—	$	33,353
RJ O'Brien		4,637		—		—		4,637		2,005		—		—		2,005
Jefferies & Co.		1,544		—		—		1,544		764		—		—		764
Bank of America, N.A.		1,057		—		—		1,057		—		—		—		—
Nomura		606		—		—		606		322		—		—		322
Wells Fargo Bank, N.A.		356		—		—		356		379		—		—		379
Goldman Sachs		—		—		—		—		600		—		—		600
JP Morgan		—		—		—		—		526		—		—		526
Others		906		—		—		906		508		—		—		508
	$	53,569	$	—	$	—	$	53,569	$	38,457	$	—	$	—	$	38,457

Offsetting of Derivative Liabilities and Financial Liabilities

Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related netting amounts. As discussed above, all derivatives with the exception of IRLCs are subject to master netting arrangements. The mortgage loans sold under agreements to repurchase do not qualify for netting.


	September 30, 2015						December 31, 2014
					Net						Net
					amount						amount
	Gross		Gross amount		of liabilities		Gross		Gross amount		of liabilities
	amount of		offset in the		in the		amount of		offset in the		in the
	recognized		consolidated		consolidated		recognized		consolidated		consolidated
	liabilities		balance sheet		balance sheet		liabilities		balance sheet		balance sheet
	(in thousands)
Derivatives subject to a master netting arrangement:
Forward purchase contracts	$	113	$	—	$	113	$	141	$	—	$	141
Forward sale contracts		36,619		—		36,619		16,110		—		16,110
Put options on interest rate futures sale contracts		—		—		—		8		—		8
Netting		—		(33,025)		(33,025)		—		(10,698)		(10,698)
		36,732		(33,025)		3,707		16,259		(10,698)		5,561
Derivatives not subject to a master netting arrangement - IRLCs		925		—		925		952		—		952
Total derivatives		37,657		(33,025)		4,632		17,211		(10,698)		6,513
Mortgage loans sold under agreements to repurchase:
Amount outstanding		1,287,116		—		1,287,116		822,621		—		822,621
Unamortized debt issuance costs		(705)		—		(705)		(369)		—		(369)
		1,286,411		—		1,286,411		822,252		—		822,252
	$	1,324,068	$	(33,025)	$	1,291,043	$	839,463	$	(10,698)	$	828,765

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Derivative Liabilities, Financial Liabilities, and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amount of derivative liabilities and mortgage loans sold under agreements to repurchase after considering master netting arrangements and financial instr uments or cash pledged that do not qualify under the accounting guidance for netting. All assets sold under agreements to repurchase are secured by sufficient collateral or have fair value that exceeds the liability amount recorded on the consolidated balance sheets.


	September 30, 2015								December 31, 2014
			Gross amount								Gross amount
			not offset in the								not offset in the
			consolidated								consolidated
			balance sheet								balance sheet
	Net amount						Net amount		Net amount						Net amount
	of liabilities						of liabilities		of liabilities						of liabilities
	in the				Cash		in the		in the				Cash		in the
	consolidated		Financial		collateral		consolidated		consolidated		Financial		collateral		consolidated
	balance sheet		instruments		pledged		balance sheet		balance sheet		instruments		pledged		balance sheet
	(in thousands)
Interest rate lock commitments	$	925	$	—	$	—	$	925	$	952	$	—	$	—	$	952
Credit Suisse First Boston Mortgage Capital LLC		496,904		(496,855)		—		49		464,737		(463,541)		—		1,196
Bank of America, N.A.		494,691		(494,691)		—		—		236,909		(236,771)		—		138
Morgan Stanley Bank, N.A.		198,790		(198,687)		—		103		122,148		(122,031)		—		117
Citibank, N.A.		97,190		(96,883)		—		307		699		(278)		—		421
Bank of Oklahoma		978		—		—		978		486		—		—		486
Multi-Bank		401		—		—		401		—		—		—		—
JP Morgan		352		—		—		352		—		—		—		—
Bank of New York Mellon		—		—		—		—		1,552		—		—		1,552
Others		1,517		—		—		1,517		1,651		—		—		1,651
	$	1,291,748	$	(1,287,116)	$	—	$	4,632	$	829,134	$	(822,621)	$	—	$	6,513

Note 7—Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured based on their fair values. The application of fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its fair value as discussed in the following paragraphs.

Fair Value Accounting Elections

Management identified all of its non-cash financial assets , its originated MSRs relating to loans with initial interest rates of more than 4.5% and purchased MSRs subject to ESS financing to be accounted for at fair value so changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance. Management has also elected to account for its ESS financing at fair value as a me ans of hedging the related MSRs’ fair value risk.

The Company’s subsequent accounting for MSRs is based on the class of MSRs. Originated MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5% are account ed for using the amortization me thod. Originated MSRs relating to mortgage loans with initial interest rates of more than 4.5% and purchased MSRs subject to ESS financing are accounted for at fair value with changes in fair value recorded in current period income.

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Financial Statement Items Measured at Fair Value on a Recurring Basis

Following is a summary of financial statement items that are measured at fair value on a recurring basis:


	September 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	24,766	$	—	$	—	$	24,766
Mortgage loans held for sale at fair value		—		1,633,358		63,622		1,696,980
Derivative assets:
Interest rate lock commitments		—		—		44,463		44,463
Forward purchase contracts		—		37,265		—		37,265
Forward sales contracts		—		862		—		862
MBS put options		—		604		—		604
Put options on interest rate futures purchase contracts		1,301		—		—		1,301
Call options on interest rate futures purchase contracts		4,539		—		—		4,539
Total derivative assets before netting		5,840		38,731		44,463		89,034
Netting (1)		—		—		—		(35,465)
Total derivative assets		5,840		38,731		44,463		53,569
Investment in PennyMac Mortgage Investment Trust		1,160		—		—		1,160
Mortgage servicing rights at fair value		—		—		669,667		669,667
	$	31,766	$	1,672,089	$	777,752	$	2,446,142
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	—	$	418,573	$	418,573
Derivative liabilities:
Interest rate lock commitments		—		—		925		925
Forward purchase contracts		—		113		—		113
Forward sales contracts		—		36,619		—		36,619
Total derivative liabilities before netting		—		36,732		925		37,657
Netting (1)		—		—		—		(33,025)
Total derivative liabilities		—		36,732		925		4,632
Mortgage servicing liabilities		—		—		10,724		10,724
	$	—	$	36,732	$	430,222	$	433,929

(1)

Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

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	December 31, 2014
	Level 1		Level 2			Total		Total
	(in thousands)
Assets:
Short-term investments	$	21,687		$	—	$	—	$	21,687
Mortgage loans held for sale at fair value		—			937,976		209,908		1,147,884
Derivative assets:
Interest rate lock commitments		—			—		33,353		33,353
Forward purchase contracts		—			9,060		—		9,060
Forward sales contracts		—			320		—		320
MBS put options		—			476		—		476
Put options on interest rate futures purchase contracts		862			—		—		862
Call options on interest rate futures purchase contracts		2,193			—		—		2,193
Total derivative assets before netting		3,055			9,856		33,353		46,264
Netting (1)		—			—		—		(7,807)
Total derivative assets		3,055			9,856		33,353		38,457
Investment in PennyMac Mortgage Investment Trust		1,582			—		—		1,582
Mortgage servicing rights at fair value		—			—		325,383		325,383
	$	26,324		$	947,832	$	568,644	$	1,534,993
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—		$	—	$	191,166	$	191,166
Derivative liabilities:
Interest rate lock commitments		—			—		952		952
Forward purchase contracts		—			141		—		141
Forward sales contracts		—			16,110		—		16,110
Put options on interest rate futures sale contracts		8			—		—		8
Total derivative liabilities before netting		8			16,251		952		17,211
Netting (1)		—			—		—		(10,698)
Total derivative liabilities		8			16,251		952		6,513
Mortgage servicing liabilities		—			—		6,306		6,306
	$	8		$	16,251	$	198,424	$	203,985

(1)

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As shown above, all or a portion of the Company’s mortgage loans held for sale, IRLCs, MSRs at fair value, mortgage servicing liabilities and ESS financing are measured using Level 3 inputs. Following are roll forwards of these items for the quarters and nine months ended September 30, 2015 and 2014:


	Quarter ended September 30, 2015
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights			Total
	(in thousands)
Assets:
Balance, June 30, 2015	$	34,085	$	27,737	$	581,269	$	643,091
Purchases		391,578		—		109,131		500,709
Sales		(286,481)		—		—		(286,481)
Repayments		(14,465)		—		—		(14,465)
Interest rate lock commitments issued, net		—		73,133		—		73,133
Mortgage servicing rights resulting from mortgage loan sales		—		—		6,989		6,989
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—		—		—		—
Other factors		826		58,659		(27,722)		31,763
		826		58,659		(27,722)		31,763
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(61,921)		—		—		(61,921)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(115,991)		—		(115,991)
Balance, September 30, 2015	$	63,622	$	43,538	$	669,667	$	776,827
Changes in fair value recognized during the period relating to assets still held at September 30, 2015	$	(614)	$	43,538	$	(27,722)	$	15,202

(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

(2)

Mortgage loans held for sale are transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies.


	Quarter ended September 30, 2015
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, June 30, 2015	$	359,102	$	11,791	$	370,893
Issuance of excess servicing spread financing		84,165		—		84,165
Excess servicing spread financing issued pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		2,268		—		2,268
Accrual of interest on excess servicing spread		8,026		—		8,026
Repayments		(24,717)		—		(24,717)
Mortgage servicing liabilities resulting from mortgage loan sales		—		8,358		8,358
Changes in fair value included in income		(10,271)		(9,425)		(19,696)
Balance, September 30, 2015	$	418,573	$	10,724	$	429,297
Changes in fair value recognized during the period relating to liabilities still held at September 30, 2015	$	(10,271)	$	(9,425)	$	(19,696)

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	Quarter ended September 30, 2014
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights		Total
	(in thousands)
Assets:
Balance, June 30, 2014	$	254,656	$	29,750	$	308,599	$	593,005
Purchases		217,498		—		15,704		233,202
Repayments		(10,659)		—		—		(10,659)
Interest rate lock commitments issued, net		—		30,727		—		30,727
Mortgage servicing rights resulting from mortgage loan sales		—		—		6,381		6,381
Sales		(74,817)		—		—		(74,817)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—		—		—		—
Other factors		1,797		2,289		(11,535)		(7,449)
		1,797		2,289		(11,535)		(7,449)
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(102,419)		—		—		(102,419)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(40,130)		—		(40,130)
Balance, September 30, 2014	$	286,056	$	22,636	$	319,149	$	627,841
Changes in fair value recognized during the period relating to assets still held at September 30, 2014	$	1,797	$	22,636	$	(11,535)	$	12,898

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

(2)


	Quarter ended September 30, 2014
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, June 30, 2014	$	190,244	$	5,821	$	196,065
Issuance of excess servicing spread financing		9,253		—		9,253
Excess servicing spread financing issued pursuant to a recapture agreement with PennyMac Mortgage Investment		2,619		—		2,619
Accrual of interest on excess servicing spread		3,577		—		3,577
Repayments		(8,786)		—		(8,786)
Changes in fair value included in income		(9,539)		(1,730)		(11,269)
Balance, September 30, 2014	$	187,368	$	4,091	$	191,459
Changes in fair value recognized during the period relating to liabilities still held at September 30, 2014	$	(9,539)	$	(1,730)	$	(11,269)

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	Nine months ended September 30, 2015
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights			Total
	(in thousands)
Assets:
Balance, December 31, 2014	$	209,908	$	32,401	$	325,383	$	567,692
Purchases		857,863		—		379,264		1,237,127
Sales		(798,335)		—		—		(798,335)
Repayments		(34,467)		—		—		(34,467)
Interest rate lock commitments issued, net		—		217,278		—		217,278
Mortgage servicing rights resulting from mortgage loan sales		—		—		13,107		13,107
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		4,054		—		—		4,054
Other factors		35		48,367		(48,087)		315
		4,089		48,367		(48,087)		4,369
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(175,436)		—		—		(175,436)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(254,508)		—		(254,508)
Balance, September 30, 2015	$	63,622	$	43,538	$	669,667	$	776,827
Changes in fair value recognized during the period relating to assets still held at September 30, 2015	$	(1,145)	$	43,538	$	(48,087)	$	(5,694)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

(2)


	Nine months ended September 30, 2015
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, December 31, 2014	$	191,166	$	6,306	$	197,472
Issuance of excess servicing spread financing		271,452		—		271,452
Excess servicing spread financing issued pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		4,833		—		4,833
Accrual of interest on excess servicing spread		17,596		—		17,596
Repayments		(55,800)		—		(55,800)
Mortgage servicing liabilities resulting from mortgage loan sales		—		20,442		20,442
Changes in fair value included in income		(10,674)		(16,024)		(26,698)
Balance, September 30, 2015	$	418,573	$	10,724	$	429,297
Changes in fair value recognized during the year relating to liabilities still held at September 30, 2015	$	(10,674)	$	(16,024)	$	(26,698)

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	Nine months ended September 30, 2014
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights		Total
	(in thousands)
Assets:
Balance December 31, 2013	$	3,933	$	6,761	$	224,913	$	235,607
Purchases		897,381		—		113,348		1,010,729
Repayments		(16,778)		—		—		(16,778)
Interest rate lock commitments issued, net		—		113,559		—		113,559
Mortgage servicing rights resulting from mortgage loan sales		—		—		20,647		20,647
Sales		(435,437)		—		(10,916)		(446,353)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—		—		—		—
Other factors		(84)		21,768		(28,843)		(7,159)
		(84)		21,768		(28,843)		(7,159)
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(162,959)		—		—		(162,959)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(119,452)		—		(119,452)
Balance, September 30, 2014	$	286,056	$	22,636	$	319,149	$	627,841
Changes in fair value recognized during the period relating to assets still held at September 30, 2014	$	(84)	$	22,636	$	(28,878)	$	(6,326)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

(2)


	Nine months ended September 30, 2014
	Excess		Mortgage
	servicing spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance December 31, 2013	$	138,723	$	—	$	138,723
Issuance of excess servicing spread financing		82,646		—		82,646
Excess servicing spread financing issued pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		6,093		—		6,093
Accrual of interest on excess servicing spread financing		9,578		—		9,578
Repayments		(25,280)		—		(25,280)
Changes in fair value included in income		(24,392)		4,091		(20,301)
Balance, September 30, 2014	$	187,368	$	4,091	$	191,459
Changes in fair value recognized during the period relating to liabilities still held at September 30, 2014	$	(24,393)	$	4,091	$	(20,302)

The information used in the preceding roll forwards represents activity for any financial statement items identified as using Level 3 significant inputs at either the beginning or the end of the periods presented. The Company had transfers among the levels arising from transfers of IRLCs to mortgage loans held for sale at fair value upon purchase or funding of the respective mortgage loans and from the return to salability in the active secondary market of certain mortgage loans held for sale. Such loans became saleable into the active secondary market due to curing of the loans’ defects through borrower reperformance, modification of the loan or resolution of deficiencies contained in the borrowers’ credit file.

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Net changes in fair values included in income for financial statement items carried at fair value as a result of management’s election of the fair value option by income statement line item are summarized below:


	Quarter ended September 30,
	2015						2014
	Net gains on						Net gains on
	mortgage						mortgage
	loans held		Net loan				loans held		Net loan
	for sale at		servicing				for sale at		servicing
	fair value		fees		Total		fair value		fees		Total
	(in thousands)
Assets:
Mortgage loans held for sale at fair value	$	136,119	$	—	$	136,119	$	63,076	$	—	$	63,076
Mortgage servicing rights at fair value		—		(27,722)		(27,722)		—		(11,535)		(11,535)
	$	136,119	$	(27,722)	$	108,397	$	63,076	$	(11,535)	$	51,541
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	10,271	$	10,271	$	—	$	9,539	$	9,539
Mortgage servicing liabilities at fair value		—		9,425		9,425		—		1,730		1,730
	$	—	$	19,696	$	19,696	$	—	$	11,269	$	11,269


	Nine months ended September 30,
	2015						2014
	Net gains on						Net gains on
	mortgage						mortgage
	loans held		Net				loans held		Net
	for sale at		servicing				for sale at		servicing
	fair value		fees		Total		fair value		fees		Total
	(in thousands)
Assets:
Mortgage loans held for sale at fair value	$	285,936	$	—	$	285,936	$	180,971	$	—	$	180,971
Mortgage servicing rights at fair value		—		(48,087)		(48,087)		—		(34,255)		(34,255)
	$	285,936	$	(48,087)	$	237,849	$	180,971	$	(34,255)	$	146,716
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	10,674	$	10,674	$	—	$	24,392	$	24,392
Mortgage servicing liabilities at fair value		—		16,024		16,024		—		(4,091)		(4,091)
	$	—	$	26,698	$	26,698	$	—	$	20,301	$	20,301

Following are the fair value and related principal amounts due upon maturity of loans, long-term receivables and long-term debt instruments with contractual principal amounts accounted for under the fair value option:


	September 30, 2015
			Principal
			amount
	Fair		due upon
	value		maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	1,653,875	$	1,555,975	$	97,900
90 days or more delinquent:
Not in foreclosure		39,834		40,882		(1,048)
In foreclosure		3,271		3,517		(246)
	$	1,696,980	$	1,600,374	$	96,606

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	December 31, 2014
			Principal
			amount
	Fair		due upon
	value		maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	950,697	$	894,924	$	55,773
90 days or more delinquent:
Not in foreclosure		126,171		128,533		(2,362)
In foreclosure		71,016		72,039		(1,023)
	$	1,147,884	$	1,095,496	$	52,388

Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

Following is a summary of financial statement items that were remeasured at fair value on a nonrecurring basis during the periods presented:


	September 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	482,565	$	482,565
	$	—	$	—	$	482,565	$	482,565


	December 31, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	139,505	$	139,505
	$	—	$	—	$	139,505	$	139,505

The following table summarizes the total gains (losses) on assets measured at fair value on a nonrecurring basis:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	(33,301)	$	(925)	$	(51,427)	$	(5,132)
	$	(33,301)	$	(925)	$	(51,427)	$	(5,132)

Fair Value of Financial Instruments Carried at Amortized Cost

The Company’s Cash as well as its Carried Interest due from Investment Funds , Note receivable from PennyMac Mortgage Investment Trust  secured , Mortgage loans sold under agreements to repurchase , Mortgage loan participation and sale agreement , Note payable , and amounts receivable from and payable to the Advised Entities are carried at amortized cost.

Cash is measured using a “Level 1” input.

Management has concluded that the carrying value of the Carried Interest due from Investment Funds approximates its fair value as the balance represents the amount distributable to the Company at the balance sheet date assuming liquidation of the Investment Funds.

The Company’s Note receivable from PennyMac Mortgage Investment Trust  secured , Mortgage loans sold under agreements to repurchase , Mortgage loan participation and sale agreement and Note payable are carried at amortized cost. These financial instruments do not have observable inputs and fair value is measured using management’s estimate of fair value, where the inputs into the determination of fair value require significant judgment or estimation. The Company has classified these financial instruments as “Level 3” financial statement items as of September 30, 2015 and December 31, 2014 due to the lack of observable inputs to estimate the fair value. Management has concluded that the fair value of these financial statement items approximates their carrying values due to their short terms and variable interest rates.

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The Company also carries the receivables from and payables to the Advised Entities at cost. Management has concluded that the fair value of such balances approximates their carrying values due to the short terms of such balances.

Valuation Techniques and Assumptions

Most of the Company’s financial assets , a portion of its MSRs and its ESS liability are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and all of its MSRs and ESS are “Level 3” financial statement items which require the use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” financial statement items, management has assigned the responsibility for estimating the fair value of these items to specialized staff and subjects the valuation process to significant executive management oversight. The Company’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” financial statement items other than IRLCs and maintaining its valuation policies and procedures.

With respect to the Level 3 valuations, the FAV group reports to the Company’s senior management valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” financial statement items, including the models’ performance versus actual results, and reports those results to the Company’s senior management valuation committee. The Company’s senior management valuation committee includes PFSI’s chief executive, financial, operating, credit and asset/liability management officers.

The FAV group is responsible for reporting to the Company’s senior management valuation committee on a monthly basis on the changes in the valuation of the portfolio, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.

With respect to IRLCs, the Company has assigned responsibility for developing fair values to its Capital Markets Risk Management staff. The fair values developed by the Capital Markets Risk Management staff are submitted to the Company’s senior management Secondary Marketing Working Group. The Company’s Secondary Marketing Working Group includes PFSI’s chief executive, operating, institutional mortgage banking, capital markets, asset/liability management, portfolio risk and capital markets operations officers.

Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value financial statement items:

Mortgage Loans Held for Sale

A substantial portion of the Company’s mortgage loans held for sale at fair value are saleable into active m arkets and are therefore categorized as “Level 2” fair value financial statement items and their fair values are determined using their quoted market or contracted price or market price equivalent.

Certain of the Company’s mortgage loans may become non-saleable into active markets due to identification of a defect by the Company or to the repurchase of mortgage loans with identified defects. The Company may also purchase certain delinquent government guaranteed or insured mortgage loans from Ginnie Mae guaranteed pools in its servicing portfolio. The Company’s right to purchase such mortgage loans arises as the result of the borrower’s failure to make payments for at least three consecutive months preceding the month of repurchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. To the extent such mortgage loans (“early buyout loans”) have not become saleable into another Ginnie Mae guaranteed security by becoming current either through the borrower’s reperformance or through completion of a modification of the mortgage loan’s terms, the Company measures such mortgage loans along with other mortgage loans with identified defects using “Level 3” inputs.

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The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment speeds and total prepayment / resale speeds. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

Following is a quantitative summary of key “Level 3” inputs used in the valuation of mortgage loans held for sale at fair value:


Key inputs	September 30, 2015	December 31, 2014
Discount rate
Range	2.5% – 8.8%	2.3% – 9.6%
Weighted average	2.8%	2.4%
Twelve-month projected housing price index change
Range	2.8% – 6.0%	4.2% – 5.4%
Weighted average	4.3%	4.5%
Prepayment/resale speed (1)
Range	0.6% – 18.5%	1.3% – 15.5%
Weighted average	17.2%	15.1%
Total prepayment speed (2)
Range	1.0% – 35.1%	2.1% – 38.1%
Weighted average	32.1%	35.7%

(1) Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).

(2) Total prepayment speed is measured using Life Total CPR.

Changes in fair value attributable to changes in instrument specific credit risk are measured by reference to the change in the respective loan’s delinquency status at period end from the later of the beginning of the period or acquisition date. Changes in fair value of mortgage loans held for sale are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income.

Derivative Financial Instruments

Interest Rate Lock Commitments

The Company categorizes IRLCs as a “Level 3” financial statement item. The Company estimates the fair value of an IRLC based on quoted Agency mortgage-backed securities (“MBS”) prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the mortgage loans and the probability that the mortgage loan will fund or be purchased (the “pull-through rate”).

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the fair value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in fair value measurement. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value, but increase the pull-through rate for IRLCs that have decreased in fair value as a whole . Changes in fair value of IRLCs are included in Net gains on mortgage loans held for sale in the Company’s consolidated statements of income.

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Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:



Key inputs	September 30, 2015	December 31, 2014
Pull-through rate
Range	50.3% – 100.0%	55.4% – 99.9%
Weighted average	85.5%	85.5%
Mortgage servicing rights value expressed as:
Servicing fee multiple
Range	0.8 – 5.8	2.0 – 5.0
Weighted average	3.9	3.7
Percentage of unpaid principal balance
Range	0.2% – 3.7%	0.4% – 3.1%
Weighted average	1.3%	1.2%

Hedging Derivatives

The remaining derivative financial instruments held or issued by the Company are categorized as “Level 1” or “Level 2” financial statement items. For “Level 1” fair value derivative financial instruments, the Company determines fair value with reference to the respective derivatives’ quoted prices. For “Level 2” fair value derivative financial instruments, the Company estimates the fair value of commitments to sell or purchase loans based on observable MBS prices. The Company estimates the fair value of MBS options based on observed interest rate volatilities in the MBS market. Changes in fair value of hedging derivatives are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income.

Mortgage Servicing Rights

MSRs are categorized as “Level 3” fair value financial statement items. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting net servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key inputs used in the estimation of the fair value of MSRs include prepayment rates of the underlying loans, the applicable discount rate or pricing spread, and the per-loan annual cost to service the respective mortgage loans. Changes in the fair value of MSRs are included in Net servicing fees — Amortization, impairment and change in fair value of mortgage servicing rights in the Company’s consolidated statements of income.

Table of Contents

Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition, excluding MSR purchases:


	Quarter ended September 30,
	2015		2014
	Fair	Amortized	Fair	Amortized
	value	cost	value	cost
	(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)
MSR and pool characteristics:
Amount recognized	$6,989	$154,707	$6,381	$54,819
Unpaid principal balance of underlying mortgage loans	$550,073	$11,369,493	$515,866	$4,498,619
Weighted average servicing fee rate (in basis points)	32	34	34	31
Key inputs:
Pricing spread (1)
Range	7.0% – 14.4%	6.8% – 16.2%	8.0% – 15.4%	7.5% – 15.2%
Weighted average	8.9%	9.1%	11.6%	10.9%
Annual total prepayment speed (2)
Range	7.7% – 52.3%	7.5% – 35.0%	7.6% – 42.3%	7.6% – 47.8%
Weighted average	11.9%	9.2%	9.7%	8.3%
Life (in years)
Range	1.4 – 7.5	1.9 – 9.1	1.6 – 7.3	1.4 – 7.3
Weighted average	6.5	7.0	6.7	7.1
Per-loan annual cost of servicing
Range	$59 – $101	$59 – $95	$54 – $93	$54 – $93
Weighted average	$75	$78	$83	$85

(1)

Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”) curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)

Prepayment speed is measured using Life Total CPR.

Table of Contents


	Nine months ended September 30,
	2015		2014
	Fair	Amortized	Fair	Amortized
	value	cost	value	cost
	(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)
MSR and pool characteristics:
Amount recognized	$13,107	$347,549	$20,647	$127,727
Unpaid principal balance of underlying mortgage loans	$1,072,203	$25,268,602	$1,627,529	$10,672,629
Weighted average servicing fee rate (in basis points)	32	35	33	31
Key inputs:
Pricing spread (1)
Range	7.0% – 14.4%	6.8% – 16.2%	8.0% – 16.2%	6.8% – 15.2%
Weighted average	9.4%	9.2%	11.4%	10.8%
Annual total prepayment speed (2)
Range	7.7% – 62.4%	7.5% – 39.4%	7.6% – 42.3%	7.6% – 47.8%
Weighted average	11.6%	8.8%	9.0%	8.2%
Life (in years)
Range	1.1 – 7.5	1.8 – 9.1	1.6 – 7.5	1.4 – 7.5
Weighted average	6.5	7.0	7.0	7.1
Per-loan annual cost of servicing
Range	$59 – $101	$59 – $95	$53 – $100	$53 – $100
Weighted average	$75	$76	$89	$90

(1)

Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)

Prepayment speed is measured using Life Total CPR.

Table of Contents

Following is a quantitative summary of key inputs used in the valuation and assessment for impairment of the Company’s MSRs at period end and the effect on fair value from adverse changes in those inputs (weighted averages are based upon UPB):


	September 30, 2015		December 31, 2014
	Fair	Amortized	Fair	Amortized
	value	cost	value	cost
	(Carrying value, unpaid principal balance of underlying
	mortgage loans and effect on fair value amounts in thousands)
MSR and pool characteristics:
Carrying value	$669,667	$637,725	$325,383	$405,445
Unpaid principal balance of underlying mortgage loans	$55,911,946	$51,064,561	$30,945,000	$33,745,613
Weighted average note interest rate	4.14%	3.83%	4.24%	3.82%
Weighted average servicing fee rate (in basis points)	32	32	31	30
Key inputs:
Pricing spread (1) (2)
Range	7.2% – 12.8%	7.2% – 12.8%	2.9% – 21.3%	6.3% – 15.3%
Weighted average	8.6%	8.9%	9.2%	9.7%
Effect on fair value of:
5% adverse change	($11,102)	($11,337)	($5,550)	($8,710)
10% adverse change	($21,839)	($22,287)	($10,908)	($17,083)
20% adverse change	($42,283)	($43,099)	($21,084)	($32,890)
Average life (in years)
Range	0.1 – 8.8	1.9 – 8.9	0.4 – 8.2	1.6 – 7.3
Weighted average	6.6	6.9	5.8	6.8
Prepayment speed (1) (3)
Range	5.6% – 44.5%	6.0% – 43.3%	7.6% – 60.5%	7.6% – 42.8%
Weighted average	10.5%	10.7%	11.2%	8.5%
Effect on fair value of:
5% adverse change	($14,081)	($13,780)	($7,052)	($7,359)
10% adverse change	($27,622)	($27,024)	($13,835)	($14,494)
20% adverse change	($53,202)	($52,016)	($26,654)	($28,132)
Annual per-loan cost of servicing (1)
Range	$68 – $98	$68 – $95	$59 – $109	$59 – $81
Weighted average	$86	$84	$76	$75
Effect on fair value of:
5% adverse change	($6,897)	($4,948)	($2,910)	($2,992)
10% adverse change	($13,794)	($9,896)	($5,819)	($5,983)
20% adverse change	($27,588)	($19,791)	($11,638)	($11,967)

(1)

The effect on value of an adverse change in one of the above-mentioned key inputs will result in recognized change in fair value for MSRs carried at fair value and may result in recognition of MSR impairment for MSRs carried at the lower of amortized cost or fair value. The extent of the recognized MSR impairment will depend on the relationship of fair value to the carrying value of such MSRs.

(2)

Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans.

(3)

Prepayment speed is measured using Life Total CPR.

The preceding sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated inputs ; do not incorporate changes to other inputs ; are subject to the accuracy of various models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts.

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Excess Servicing Spread Financing at Fair Value

The Company categorizes ESS financing as a “Level 3” financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS financing. The key inputs used in the estimation of ESS fair value include pricing spread and prepayment speed. Significant changes to either of those inputs in isolation could result in a significant change in the ESS fair value. Changes in these key inputs are not necessarily directly related.

ESS financing is generally subject to fair value increases when mortgage interest rates increase. Increasing mortgage interest rates normally slow mortgage refinancing activity. Decreased refinancing activity increases the life of the loans underlying the ESS, thereby increasing ESS’ fair value, which is the liability owed to PMT. Increases in the fair value of ESS decrease income and are included in Amortization, impairment and change in fair value of mortgage servicing rights .

Interest expense for ESS is accrued using the interest method based upon the expected cash flows from the ESS through the expected life of the underlying mortgage loans. Changes in fair value of ESS attributable to changes in estimated future cash flows are included in Interest expense . Other changes in fair value are recorded in C hange in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust .

Following are the key inputs used in estimating the fair value of ESS:


	September 30,	December 31,
	2015	2014
ESS and pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$54,189,421	$28,227,340
Average servicing fee rate (in basis points)	32	31
Average excess servicing spread (in basis points)	17	16
Key inputs:
Pricing spread (1)
Range	4.8% – 6.5%	1.7% – 12.0%
Weighted average	5.7%	5.3%
Average life (in years)
Range	1.5 – 8.9	0.4 – 7.3
Weighted average	6.7	5.8
Annualized prepayment speed (2)
Range	5.5% – 50.3%	7.6% – 74.6%
Weighted average	10.4%	11.2%

(1) Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to ESS.

(2) Prepayment speed is measured using Life Total CPR.

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Note 8—Mortgage Loans Held for Sale at Fair Value

Mortgage loans held for sale at fair value include the following:


	September 30,		December 31,
	2015		2014
	(in thousands)
Government-insured or guaranteed	$	1,575,536	$	866,148
Conventional conforming		57,385		66,229
Jumbo		437		5,599
Delinquent mortgage loans purchased from Ginnie Mae pools serviced by the Company		57,678		206,331
Mortgage loans repurchased pursuant to representations and warranties		5,944		3,577
	$	1,696,980	$	1,147,884
Fair value of mortgage loans pledged to secure:
Mortgage loans sold under agreements to repurchase	$	1,420,782	$	976,772
Mortgage loans pledged to secure mortgage loan participation and sale agreement	$	255,134	$	148,133

Note 9—Derivative Financial Instruments

The Company is exposed to fair value risk relative to its mortgage loans held for sale as well as to its IRLCs and MSRs. The Company bears fair value risk from the time an IRLC is made to PMT or a loan applicant to the time the mortgage loan is sold. The Company is exposed to loss in fair value of its IRLCs and mortgage loans held for sale when market mortgage interest rates increase. The Company is exposed to loss in fair value of its MSRs when market mortgage interest rates decrease.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this fair value risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of reducing the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s IRLCs, inventory of mortgage loans held for sale and MSRs.

The Company does not use derivative financial instruments for purposes other than in support of its risk management activities other than IRLCs, which are generated in the process of purchasing or originating mortgage loans held for sale. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.

Table of Contents

The Company had the following derivative financial instruments recorded on its consolidated balance sheets:


	September 30, 2015					December 31, 2014
		Fair value					Fair value
	Notional	Derivative		Derivative		Notional	Derivative		Derivative
Instrument	amount	assets		liabilities		amount	assets		liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Free-standing derivatives:
Interest rate lock commitments	2,781,551	$	44,463	$	925	1,765,597	$	33,353	$	952
Forward purchase contracts	6,063,741		37,265		113	2,634,218		9,060		141
Forward sales contracts	7,116,246		862		36,619	3,901,851		320		16,110
MBS put options	910,000		604		—	340,000		476		—
Put options on interest rate futures purchase contracts	3,375,000		1,301		—	755,000		862		—
Call options on interest rate futures purchase contracts	1,175,000		4,539		—	630,000		2,193		—
Put options on interest rate futures sale contracts	—		—		—	50,000		—		8
Total derivatives before netting			89,034		37,657			46,264		17,211
Netting			(35,465)		(33,025)			(7,807)		(10,698)
		$	53,569	$	4,632		$	38,457	$	6,513
Margin deposits placed with (collateral received from) derivative counterparties, net		$	2,440				$	(2,891)

The following table summarizes the notional value activity for derivative contracts used in the Company’s hedging activities:


	Quarter ended September 30, 2015
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)
Forward purchase contracts	6,202,418	33,050,370	(33,189,047)	6,063,741
Forward sale contracts	9,789,564	42,709,764	(45,383,082)	7,116,246
MBS put options	327,500	1,260,000	(677,500)	910,000
MBS call options	160,000	—	(160,000)	—
Put options on interest rate futures purchase contracts	2,019,500	3,365,000	(2,009,500)	3,375,000
Call options on interest rate futures purchase contracts	1,025,000	2,140,000	(1,990,000)	1,175,000


	Quarter ended September 30, 2014
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)
Forward purchase contracts	2,789,277	12,668,171	(12,652,851)	2,804,597
Forward sale contracts	4,617,100	17,409,056	(17,726,827)	4,299,329
MBS put options	225,000	505,000	(300,000)	430,000
MBS call options	95,000	50,000	(95,000)	50,000
Put options on interest rate futures purchase contracts	377,500	1,320,000	(902,500)	795,000
Call options on interest rate futures purchase contracts	170,000	675,000	(395,000)	450,000
Treasury futures purchase contracts	—	65,600	(65,600)	—
Treasury futures sale contracts	—	78,200	(78,200)	—
Call options on interest rate futures sales contracts	—	35,000	(35,000)	—

Table of Contents


	Nine months ended September 30, 2015
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)
Forward purchase contracts	2,634,218	78,426,073	(74,996,550)	6,063,741
Forward sale contracts	3,901,851	107,084,874	(103,870,479)	7,116,246
MBS put options	340,000	2,502,500	(1,932,500)	910,000
MBS call options	—	160,000	(160,000)	—
Put options on interest rate futures purchase contracts	755,000	7,190,000	(4,570,000)	3,375,000
Call options on interest rate futures purchase contracts	630,000	5,055,000	(4,510,000)	1,175,000
Put options on interest rate futures sale contracts	50,000	50,000	(100,000)	—
Call options on interest rate futures sale contracts	—	35,100	(35,100)	—


	Nine months ended September 30, 2014
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)
Forward purchase contracts	1,418,527	30,178,842	(28,792,772)	2,804,597
Forward sale contracts	2,659,000	43,791,245	(42,150,916)	4,299,329
MBS put options	185,000	1,145,000	(900,000)	430,000
MBS call options	105,000	590,000	(645,000)	50,000
Put options on interest rate futures purchase contracts	—	2,022,500	(1,227,500)	795,000
Call options on interest rate futures purchase contracts	—	1,055,000	(605,000)	450,000
Treasury futures purchase contracts	—	143,900	(143,900)	—
Treasury futures sale contracts	—	165,600	(165,600)	—
Call options on interest rate futures sales contracts	—	35,000	(35,000)	—

Following are the gains (losses) recognized by the Company on derivative financial instruments and the income statement line items where such gains and losses are included:


		Quarter ended September 30,				Nine months ended September 30,
Hedged item	Income statement line	2015		2014		2015		2014
		(in thousands)
Interest rate lock commitments and mortgage loans held for sale	Net gain on mortgage loans held for sale	$	(63,954)	$	(5,215)	$	(44,713)	$	(64,037)
Mortgage servicing rights	Net loan servicing fees	$	30,455	$	(897)	$	19,259	$	8,289

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Note 10—Mortgage Servicing Rights and Mortgage Servicing Liabilities

Carried at Fair Value:

The activity in MSRs carried at fair value is as follows:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Balance at beginning of period	$	581,269	$	308,599	$	325,383	$	224,913
Additions:
Purchases		109,131		15,704		379,264		113,348
Mortgage servicing rights resulting from mortgage loan sales		6,989		6,381		13,107		20,647
		116,120		22,085		392,371		133,995
Sales		—		—		—		(10,916)
Change in fair value due to:
Changes in valuation inputs or assumptions used in valuation model (1)		(5,651)		(544)		2,942		(989)
Other changes in fair value (2)		(22,071)		(10,991)		(51,029)		(27,854)
Total change in fair value		(27,722)		(11,535)		(48,087)		(28,843)
Balance at end of period	$	669,667	$	319,149	$	669,667	$	319,149

(1)

Principally reflects changes in discount rates and prepayment speed inputs, primarily due to changes in market mortgage interest rates.

(2)

Represents changes due to realization of cash flows.

Carried at Lower of Amortized Cost or Fair Value:

The activity in MSRs carried at the lower of amortized cost or fair value is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Amortized cost:
Balance at beginning of period	$	581,558	$	321,911	$	415,245	$	263,373
Mortgage servicing rights resulting from mortgage loan sales		154,707		54,819		347,549		127,727
Amortization		(19,522)		(8,712)		(46,051)		(23,082)
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary impairment		—		—		—		—
Balance at end of period		716,743		368,018		716,743		368,018

Valuation allowance:
Balance at beginning of period		(27,317)		(8,829)		(9,800)		(4,622)
Additions		(51,701)		(925)		(69,218)		(5,132)
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary impairment		—		—		—		—
Balance at end of period		(79,018)		(9,754)		(79,018)		(9,754)
Mortgage servicing rights, net	$	637,725	$	358,264	$	637,725	$	358,264
Fair value of mortgage servicing rights at end of period	$	647,942	$	368,270	$	647,942	$	368,270
Fair value of mortgage servicing rights at beginning of period	$	569,969	$	321,383	$	416,802	$	269,422

Table of Contents

The fair value of mortgage servicing rights pledged to se cure the note payable totaled $ 619.8 million and $3 92.3 million as of September 30, 2015 and December 31, 2014, respectively.

The following table summarizes the Company’s estimate of future amortization of its existing MSRs. This estimate was developed with the inputs used in the September 30, 2015 valuation of MSRs. The inputs underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.


	Estimated MSR
Twelve month period ending September 30,	amortization
	(in thousands)
2016	$	91,913
2017		78,700
2018		68,601
2019		60,997
2020		54,429
Thereafter		362,103
	$	716,743

Servicing fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—Ancillary and other fees on the Company’s consolidated statements of income. The fees are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Contractual servicing fees	$	83,424	$	44,647	$	200,392	$	124,061
Ancillary and other fees:
Late charges		1,420		1,171		4,538		3,021
Other		478		361		1,880		785
	$	85,322	$	46,179	$	206,810	$	127,867

Mortgage Servicing Liabilities Carried at Fair Value:

The activity in mortgage servicing liabilities carried at fair value is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Balance at beginning of period	$	11,791	$	5,821	$	6,306	$	—
Mortgage servicing liabilities resulting from mortgage loan sales		8,358		—		20,442		—
Change in fair value		(9,425)		(1,730)		(16,024)		4,091
Balance at end of period	$	10,724	$	4,091	$	10,724	$	4,091

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Note 11—Carried Interest Due from Investment Funds

The activity in the Company’s Carried Interest due from Investment Funds is summarized as follows:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Balance at beginning of period	$	68,713	$	65,133	$	67,298	$	61,142
Carried Interest recognized during the period		1,483		1,902		2,898		5,893
Proceeds received during the period		—		—		—		—
Balance at end of period	$	70,196	$	67,035	$	70,196	$	67,035

The amount of the Carried Interest that will be received by the Company depends on the Investment Funds’ future performance. As a result, the amount of Carried Interest recorded by the Company is based on the cash flows that would be produced assuming termination of the Investment Funds at period end and may be reduced in future periods based on the performance of the Investment Funds in those periods. However, the Company is not required to pay guaranteed returns to the Investment Funds and the amount of any reduction to Carried Interest will be limited to the amounts previously recognized.

Management expects the Carried Interest to be collected by the Company when the Investment Funds liquidate. The commitment period for the Investment Funds ended on December 31, 2011. The Investment Fund limited liability company and limited partnership agreements specify that the funds will continue in existence through December 31, 2016, subject to three one -year extensions by PCM at its discretion.

Note 12—Investment in PennyMac Mortgage Investment Trust at Fair Value

Following is a summary of Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Dividends received from PennyMac Mortgage Investment Trust	$	(11)	$	46	$	127	$	135
Change in fair value of investment in PennyMac Mortgage Investment Trust		(147)		(38)		(422)		(115)
	$	(158)	$	8	$	(295)	$	20
Fair value of PennyMac Mortgage Investment Trust shares at period end	$	1,160	$	1,607

Note 13—Borrowings

As of September 30, 2015, the Company maintained six borrowing facilities: four repurchase facilities that provide funding for mortgage loans held for sale ; one mortgage loan participation and sale agreement ; and one note payable secured by MSRs and servicing advances made relating to certain loans in the Company’s mortgage loan servicing portfolio.

The borrowing facilities contain various covenants, including financial covenants governing PLS’s net worth, debt to equity ratio, profitability and liquidity. Management believes that PLS was in compliance with these requirements as of September 30, 2015.

Mortgage Loans Sold Under Agreement to Repurchase

T he borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan sale and repurchase agreements. Eligible mortgage loans are sold at advance rates based on the loan type. Interest is charged at a rate based on the buyer’s overnight cost of funds rate for one agreement and on LIBOR for the other three agreements. Mortgage loans financed under these agreements may be re-pledged by the lenders. One facility also provides financing

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for government-insured loans purchased out of Ginnie Mae securities to effect either a loan modification or default resolution.

Financial data pertaining to mortgage loans sold under agreements to repurchase are as follows:


	Quarter ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in thousands)
Period end:
Unpaid principal balance	$	1,287,116		$	929,747
Unamortized issuance costs		(705)			(287)
	$	1,286,411		$	929,460
Unused amount (1)	$	112,884		$	570,253
Weighted average interest rate		1.84	%		1.73	%
Fair value of mortgage loans securing agreements to repurchase	$	1,420,782		$	1,087,425
Margin deposits placed with counterparties (2)	$	3,000		$	1,500
During the period:
Average balance of mortgage loans sold under agreements to repurchase	$	975,724		$	691,730		$	805,517		$	505,072
Weighted average interest rate (3)		1.84	%		1.83	%		1.82	%		1.82	%
Total interest expense	$	5,661		$	4,495		$	14,159		$	10,506
Maximum daily amount outstanding	$	1,496,306		$	1,010,146		$	1,496,306		$	1,010,146

(1)

The amount the Company is able to borrow under mortgage loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the mortgage loans sold.

(2)

Margin deposits are included in Other assets on the consolidated balance sheet.

(3)

Excludes the effect of amortization of commitment fees totaling $1.1 million and $3. 1 million for the quarter and nine months ended September 30, 2015, respectively, and $1.3 million and $3.5 million for the quarter and nine months ended September 30, 2014, respectively.

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:


Remaining maturity at September 30, 2015	Balance
	(in thousands)
Within 30 days	$	19,689
Over 30 to 90 days		1,267,038
Over 90 days		389
		1,287,116
Debt issuance costs		(705)
Total loans sold under agreements to repurchase	$	1,286,411
Weighted average maturity (in months)		1.9

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The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to the Company’s mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of September 30, 2015:


			Weighted average
			maturity of advances
			under repurchase
Counterparty	Amount at risk		agreement	Facility maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC	$	54,117	December 10, 2015	October 30, 2015
Bank of America, N.A.	$	52,803	December 20, 2015	January 29, 2016
Morgan Stanley Bank, N.A.	$	16,755	November 19, 2015	July 26, 2016
Citibank, N.A.	$	10,504	November 6, 2015	October 22, 2015

The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the fair value (as determined by the applicable lender) of the mortgage loans securing those agreements decreases.

Mortgage Loan Participation and Sale Agreement

Under the mortgage loan participation and sale agreement , p articipation certificates, each of which represents an undivided beneficial ownership interest in mortgage loans that have been pooled with Fannie Mae, Freddie Mac or Ginnie Mae, are sold to the lender pending the securitization of the mortgage loans and sale of the resulting securities. A commitment to sell the securities resulting from the pending securitization between the Company and a non-affiliate is also assigned to the lender as part of the sale of the participation certificate.

The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount that is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender.

The mortgage loan participation and sale agreement is summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in thousands)
Period end:
Unpaid principal balance	$	247,411		$	142,383
Unamortized issuance costs		(1)			—
	$	247,410		$	142,383
Mortgage loans pledged to secure mortgage loan participation and sale agreement	$	255,134		$	146,798
During the period:
Average balance	$	200,510		$	4,149		$	163,365		$	1,398
Weighted average interest rate (1)		1.44	%		1.40	%		1.43	%		1.40	%
Total interest expense	$	814		$	39		$	2,053		$	39

(1)

Excludes the effect of amortization of commitment fees totaling $74,000 and $276,000 for the quarter and nine months ended September 30, 2015 , respectively, and $24,000 for the quarter and nine months ended September 30, 2014 .

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Note Payable

The note payable is summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in thousands)
Period end:
Note payable secured by:
Mortgage servicing rights	$	407,000		$	154,948
Servicing advances		—			—
Unamortized issuance costs		(10)			—
	$	406,990		$	154,948
Assets pledged to secure note payable:
Mortgage servicing rights	$	619,840		$	350,758
Servicing advances	$	—		$	—
During the period:
Average balance	$	361,488		$	127,361		$	239,935		$	86,239
Weighted average interest rate		3.07	%		2.92	%		3.03	%		2.93	%
Total interest expense	$	3,760		$	1,239		$	7,858		$	2,759

The note payable wa s secured by servicing advances and MSRs relating to certain mortgage loans in the Company’s mortgage loan servicing portfolio, providing for advance rates of 50% of the carrying value of MSRs pledged and 85% of the amount of the servicing advances pledged . Interest wa s charged at a rate based on the lender’s overnight cost of funds.

In connection with the note payable, the Company entered into an agreement with PMT pursuant to which PMT may borrow up to $150 million from the Company for the purpose of financing ESS. The Company then re-pledges the ESS to secure the note payable. At September 30, 2015, PMT had advances payable to the Company totaling $ 150.0 million under this arrangement.

Excess Servicing Spread Financing

In conjunction with the Company’s purchase from non-affiliates of certain MSRs relating to pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements with PMT which are treated as financings and are carried at fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows relating to certain MSRs. The Company retained a fixed base servicing fee and all ancillary income associated with servicing the mortgage loans. The Company continues to be the servicer of the mortgage loans and provides all servicing functions, including responsibility to make servicing advances.

Following is a summary of ESS:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Balance at beginning of period	$	359,102	$	190,244	$	191,166	$	138,723
Issuances of excess servicing spread to PennyMac Mortgage Investment Trust:
For cash		84,165		9,253		271,452		82,646
Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		2,268		2,619		4,833		6,093
Accrual of interest		8,026		3,577		17,596		9,578
Repayments		(24,717)		(8,786)		(55,800)		(25,280)
Change in fair value		(10,271)		(9,539)		(10,674)		(24,392)
Balance at end of period	$	418,573	$	187,368	$	418,573	$	187,368

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Note 14—Liability for Losses Under Representations and Warranties

Following is a summary of activity in the Company’s liability for representations and warranties:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Balance at beginning of period	$	16,257	$	10,178	$	13,259	$	8,123
Provision for losses on loans sold		2,292		1,584		5,535		3,639
Incurred losses		(71)		—		(316)		—
Balance at end of period	$	18,478	$	11,762	$	18,478	$	11,762
Unpaid principal balance of mortgage loans subject to representations and warranties at period end	$	54,259,297	$	33,660,189

Note 15 —Income Taxes

T he Compa ny’s effective tax rate s for the quarter and nine months ended September 30, 2015 w ere 11.6 % a nd 11.5 % , respectively. T he Company’s effective tax rates f or the quarter and nine months ended September 30, 2014 were 11. 5 % and 11. 4 % , respectively. The difference between the Company’s effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into the Company’s shares, the portion of the Company’s income that will be subject to corporate federal and state statutory tax rates will increase, which will in turn increase the Company’ s effective income tax rate.

Note 16—Noncontrolling Interest

During the quarter and nine months ended September 30, 2015, PennyMac unitholders exchanged 43 , 830 and 177,218 Class A units for the Company’s Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 71.6% at December 31, 2014 to 71.3 % at September 30, 2015.

During the quarter and nine months ended September 30, 2014, PennyMac unitholders exchanged 192,527 and 671,736 Class A units for the Company’s Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 72.6% at December 31, 2013 to 71.7 % at September 30, 2014.

Net income attributable to the Company’s common stockholders and the effects of changes in noncontrolling ownership interest in PennyMac is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands, except share amounts)
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	12,680	$	10,489	$	34,457	$	28,079
Increase in the Company's additional paid-in capital for exchanges of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc. (Class A shares issued, 43,830 and 177,218 during the quarter and nine months ended September 30, 2015, respectively, and 192,527 and 671,736 during the quarter and nine months ended September 30, 2014, respectively)	$	487	$	1,974	$	2,919	$	6,572

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Note 17—Net Gains on Mortgage Loans Held for Sale

Net gains on mortgage loans held for sale at fair value is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Cash (loss) gain:
Mortgage loans	$	(33,957)	$	3,965	$	(70,171)	$	21,499
Hedging activities		(51,469)		(12,437)		(51,803)		(48,242)
		(85,426)		(8,472)		(121,974)		(26,743)
Non-cash gain:
Mortgage servicing rights resulting from mortgage loan sales		161,696		61,200		360,656		148,374
Mortgage servicing liabilities resulting from mortgage loan sales		(8,358)		—		(20,442)		—
MSR and ESS recapture payable to PennyMac Mortgage Investment Trust		(3,098)		(2,143)		(5,843)		(6,567)
Provision for losses relating to representations and warranties on loans sold		(2,292)		(1,584)		(5,535)		(3,639)
Change in fair value relating to loans and hedging derivatives held at period end:
Interest rate lock commitments		15,800		(7,114)		11,137		15,875
Mortgage loans		16,809		(976)		16,890		10,870
Hedging derivatives		(12,485)		7,222		7,090		(15,795)
	$	82,646	$	48,133	$	241,979	$	122,375

Note 18—Net Interest Expense

Net interest expense is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Interest income:
From non-affiliates:
Short-term investments	$	1,246	$	511	$	2,691	$	1,037
Mortgage loans held for sale at fair value		12,518		8,464		32,657		18,300
		13,764		8,975		35,348		19,337
From PennyMac Mortgage Investment Trust—Note receivable		1,289		—		1,822		—
		15,053		8,975		37,170		19,337

Interest expense:
To non-affiliates:
Mortgage loans sold under agreements to repurchase		5,661		4,495		14,159		10,506
Mortgage loan participation and sale agreement		814		39		2,053		39
Note payable		3,760		1,239		7,858		2,759
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations		1,803		747		5,003		1,340
Interest on mortgage loan impound deposits		880		1,616		2,453		2,609
		12,918		8,136		31,526		17,253
To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value		8,026		3,577		17,596		9,578
		20,944		11,713		49,122		26,831
	$	(5,891)	$	(2,738)	$	(11,952)	$	(7,494)

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Note 19—Stock-based Compensation

The Company’s 2013 Equity Incentive Plan provides for grants of stock options, time-based and performance-based restricted stock units (“RSUs”), stock appreciation rights, performance units and stock grants. As of September 30, 2015, the Company has 2.0 million units available for future awards. The Company estimates the cost of the stock options, time-based RSUs and performance-based RSUs awarded with reference to the fair value of the Company’s Class A common stock on the date of the grants. Compensation costs are fixed, except for the performance-based RSUs, at the grant’s estimated fair value on the grant date as all grantees are employees of PennyMac or directors of the Company. Expense relating to grants is included in Compensation in the Company’s consolidated statements of income.

Following is a summary of the stock-based compensation expense by instrument awarded:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Performance-based RSUs	$	2,474	$	61	$	6,819	$	1,935
Stock options		1,396		1,353		4,392		3,915
Time-based RSUs		581		499		1,718		1,372
	$	4,451	$	1,913	$	12,929	$	7,222

Following is a summary of equity awards:


	Quarter ended September 30, 2015
			Performance-		Time-based
	Stock options		based RSUs		RSUs
	(in thousands)
June 30, 2015		1,869		2,381		276
Granted		—		—		—
Vested (1)				—		—
Exercised		—		—		(4)
Forfeited or canceled		(11)		(19)		(4)
September 30, 2015		1,858		2,362		268


	Quarter ended September 30, 2014
			Performance-		Time-based
	Stock options		based RSUs		RSUs
	(in thousands)
June 30, 2014		1,162		1,100		202
Granted		16		180		6
Vested (1)				—		—
Exercised		—		—		—
Forfeited or canceled		(6)		(9)		(3)
September 30, 2014		1,172		1,271		205


	Nine months ended September 30, 2015
			Performance-		Time-based
	Stock options		based RSUs		RSUs
	(in thousands)
December 31, 2014		1,167		1,257		202
Granted		715		1,143		150
Vested (1)				—		(75)
Forfeited or canceled		(24)		(38)		(9)
September 30, 2015		1,858		2,362		268

(1) Not applicable to a rollforward of stock options outstanding.

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	Nine months ended September 30, 2014
			Performance-		Time-based
	Stock options		based RSUs		RSUs
	(in thousands)
December 31, 2013		422		496		100
Granted		769		794		144
Vested (1)				—		(31)
Forfeited or canceled		(19)		(19)		(8)
September 30, 2014		1,172		1,271		205

Hfs10

(1) Not applicable to a rollforward of stock options outstanding.

Note 20—Supplemental Cash Flow Information


	Nine months ended September 30,
	2015		2014
	(in thousands)
Cash paid for interest	$	47,867	$	25,724
Cash paid for income taxes	$	1,909	$	4,715
Non-cash investing activity:
Mortgage servicing rights resulting from mortgage loan sales	$	360,656	$	148,374
Mortgage servicing liabilities resulting from mortgage loan sales	$	20,442	$	—
Mortgage servicing rights recapture recognized	$	670	$	—
Non-cash financing activity:
Transfer of excess servicing spread pursuant to recapture agreement with PennyMac Mortgage Investment Trust	$	4,833	$	6,093
Issuance of common stock in settlement of director fees	$	223	$	147

Note 21—Regulatory Net Worth and Agency Capital Requirements

The Company, through PLS and PennyMac, is required to maintain specified levels of equity to remain a seller/servicer in good standing with the Agencies. Such equity requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.

The Agencies’ capital requirements, the calculations of which are specified by each Agency, are summarized below:


	Agency capital
	September 30, 2015				December 31, 2014
Agency–company subject to requirement	Balance (1)		Requirement		Balance (1)		Requirement
	(in thousands)
Fannie Mae–PLS	$	763,080	$	389,576	$	583,686	$	35,507
Freddie Mac–PLS	$	761,516	$	4,615	$	583,819	$	3,721
Ginnie Mae–PLS	$	555,380	$	207,974	$	536,009	$	111,457
Ginnie Mae–PennyMac	$	806,039	$	249,569	$	763,907	$	133,748
HUD–PLS	$	555,380	$	2,500	$	539,844	$	2,500

(1)

Calculated in compliance with the respective Agency’s requirements.

Noncompliance with the respective Agencies’ capital requirements can result in the respective Agency taking various remedial actions up to and including removing PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency. PennyMac and PLS had Agency capital in excess of the respective Agencies’ requirements at September 30, 2015.

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Note 22—Commitments and Contingencies

Litigation

The business of the Company involves the collection of numerous accounts, as well as the validation of liens and compliance with various state and federal lending and servicing laws. Accordingly, the Company may be involved in proceedings, claims, and legal actions arising in the ordinary course of business. As of September 30, 2015, the Company was not involved in any legal proceedings, claims, or actions that in management’s view would be reasonably likely to have a material adverse effect on the Company.

Commitments to Fund and Sell Mortgage Loans


	September 30, 2015
	(in thousands)
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$	1,563,782
Commitments to fund mortgage loans		1,217,769
	$	2,781,551
Commitments to sell mortgage loans	$	7,116,246

Note 23—Segments and Related Information

The Company operates in three segments: loan production, loan servicing and investment management.

Two of the segments are in the mortgage banking business: loan production and loan servicing. The loan production segment performs origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans, execution and management of early buyout loans and servicing of mortgage loans sourced and managed by the investment management segment, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans.

The investment management segment represents the activities of the Company’s investment manager, which include sourcing, performing diligence, bidding and closing investment asset acquisitions, managing correspondent lending activities for PMT and managing the acquired assets for the Advised Entities.

During the quarter ended June 30, 2015, the Company updated its method for allocating incentive compensation for executive management and shared services to each segment. Incentive compensation for executive management and shared services is now allocated to each segment based on its contribution to earnings rather than on usage of such executive management and shared services. The financial highlights below reflect the change in expense allocation method for the periods ended September 30, 2015. The financial highlights for the periods ended September 30, 2014 have not been restated. Following is a summary of the effect of the change in allocation on the segments’ expenses for the periods ended September 30, 2014:


	Quarter ended		Nine months ended
	September 30, 2014
	(in thousands)
Increase (decrease) in segment expenses:
Mortgage banking
Production	$	1,103	$	1,616
Servicing		616		3,839
		1,719		5,455
Investment management		(1,719)		(5,455)
	$	—	$	—

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Financial highlights by segment are as follows:


	Quarter ended September 30, 2015
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenues: (1)
Net gains on mortgage loans held for sale at fair value	$	81,005	$	1,641	$	82,646	$	—	$	82,646
Loan origination fees		29,448		—		29,448		—		29,448
Fulfillment fees from PennyMac Mortgage Investment Trust		17,553		—		17,553		—		17,553
Net servicing fees		—		57,258		57,258		—		57,258
Management fees		—		—		—		6,456		6,456
Carried Interest from Investment Funds		—		—		—		1,483		1,483
Net interest income (expense):
Interest income		13,228		1,825		15,053		—		15,053
Interest expense		6,290		14,714		21,004		—		21,004
		6,938		(12,889)		(5,951)		—		(5,951)
Other		272		121		393		(141)		252
Total net revenue		135,216		46,131		181,347		7,798		189,145
Expenses		57,477		52,187		109,664		5,618		115,282
Income (loss) before provision for income taxes and non-segment activities		77,739		(6,056)		71,683		2,180		73,863
Non-segment activities										60
Income (loss) before provision for income taxes	$	77,739	$	(6,056)	$	71,683	$	2,180	$	73,923
Segment assets at period end (2)	$	1,723,137	$	1,979,252	$	3,702,389	$	87,365	$	3,789,754

(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of deferred tax asset of $25.9 million.


	Quarter ended September 30, 2014
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenues: (1)
Net gains on mortgage loans held for sale at fair value	$	41,308	$	6,825	$	48,133	$	—	$	48,133
Loan origination fees		11,823		—		11,823		—		11,823
Fulfillment fees from PennyMac Mortgage Investment Trust		15,497		—		15,497		—		15,497
Net servicing fees		—		53,908		53,908		—		53,908
Management fees		—		—		—		11,379		11,379
Carried Interest from Investment Funds		—		—		—		1,902		1,902
Net interest income (expense):
Interest income		5,759		3,216		8,975		—		8,975
Interest expense		3,251		8,462		11,713		—		11,713
		2,508		(5,246)		(2,738)		—		(2,738)
Other		478		230		708		13		721
Total net revenue		71,614		55,717		127,331		13,294		140,625
Expenses		32,535		38,286		70,821		7,112		77,933
Income before provision for income taxes	$	39,079	$	17,431	$	56,510	$	6,182	$	62,692
Segment assets at period end (2)	$	1,366,644	$	1,003,742	$	2,370,386	$	110,791	$	2,481,177

(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of deferred tax assets of $52.8 million.

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	Nine months ended September 30, 2015
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenues: (1)
Net gains (losses) on mortgage loans held for sale at fair value	$	244,361	$	(2,382)	$	241,979	$	—	$	241,979
Loan origination fees		70,551		—		70,551		—		70,551
Fulfillment fees from PennyMac Mortgage Investment Trust		45,752		—		45,752		—		45,752
Net servicing fees		—		152,583		152,583		—		152,583
Management fees		—		—		—		21,908		21,908
Carried Interest from Investment Funds		—		—		—		2,898		2,898
Net interest income (expense):
Interest income		30,041		7,129		37,170		—		37,170
Interest expense		15,131		34,051		49,182		—		49,182
		14,910		(26,922)		(12,012)		—		(12,012)
Other		1,420		840		2,260		(109)		2,151
Total net revenue		376,994		124,119		501,113		24,697		525,810
Expenses		155,542		150,737		306,279		17,631		323,910
Income (loss) before provision for income taxes and non-segment activities		221,452		(26,618)		194,834		7,066		201,900
Non-segment activities										60
Income (loss) before provision for income taxes	$	221,452	$	(26,618)	$	194,834	$	7,066	$	201,960
Segment assets at period end (2)	$	1,723,137	$	1,979,252	$	3,702,389	$	87,365	$	3,789,754

(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of deferred tax assets of $25.9 million .


	Nine months ended September 30, 2014
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenues: (1)
Net gains on mortgage loans held for sale at fair value	$	113,947	$	8,428	$	122,375	$	—	$	122,375
Loan origination fees		29,048		—		29,048		—		29,048
Fulfillment fees from PennyMac Mortgage Investment Trust		36,832		—		36,832		—		36,832
Net servicing fees		—		154,641		154,641		—		154,641
Management fees		—		—		—		32,486		32,486
Carried Interest from Investment Funds		—		—		—		5,893		5,893
Net interest income (expense):
Interest income		15,562		3,770		19,332		5		19,337
Interest expense		8,652		18,179		26,831		—		26,831
		6,910		(14,409)		(7,499)		5		(7,494)
Other		1,504		1,014		2,518		253		2,771
Total net revenue		188,241		149,674		337,915		38,637		376,552
Expenses		90,447		95,171		185,618		21,134		206,752
Income before provision for income taxes	$	97,794	$	54,503	$	152,297	$	17,503	$	169,800
Segment assets at period end (2)	$	1,366,644	$	1,003,742	$	2,370,386	$	110,791	$	2,481,177

(1) All revenues are from external customers.

(2) Excludes parent Company assets, which consist primarily of deferred tax assets of $52.8 million.

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Note 24—Recently Issued Accounting Pronouncements

In February 2015, the FASB issued ASU 2015-02, “ Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with variable interest entities (“VIEs”), particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in ASU 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. The Company is currently assessing the potential effect that the adoption of ASU 2015-02 will have on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 should be applied on a retrospective basis and is effective for the Company for financial statements issued for fiscal years and interim periods within those fiscal years beginning after December 15, 2015.

The Company adopted ASU 2015-03 during the quarter ended June 30, 2015. As a result of the adoption of ASU 2015-03, the Company, on its September 30, 2015 consolidated balance sheet, reclassified $716,000 in debt issuance costs from Other assets and allocated such costs in the amount of $705,000 to Mortgage loans sold under agreements to repurchase ; $1,000 to Mortgage loan participation and sale agreement ; and $10,000 to Note payable . There were no changes to the Company’s consolidated statements of income or consolidated statements of cash flows as a result of the Company’s adoption of ASU 2015-03.

Note 25—Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period:

On October 22, 2015, the Company, through PLS, entered into an amendment to its master repurchase agreement with Citibank, N.A. The primary purpose of the amendment was to increase the maximum aggregate purchase price to $200 million, $150 million of which is committed. The termination date was extended to October 20, 2016. PLS also agreed to maintain various financial and other covenants, which include maintaining (i) a minimum adjusted tangible net worth at all times greater than or equal to $170 million; (ii) a minimum in unrestricted cash and cash equivalents at all times greater than or equal to $20 million; (iii) a ratio of total liabilities to adjusted tangible net worth at all times less than 10:1; and (iv) profitability of at least $1.00 for each fiscal quarter. All other terms and conditions of the master repurchase agreement remain the same in all material aspects.

All agreements to repurchase assets that matured between September 30, 2015 and the date of this Report were extended or renewed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation s

Cautionary Statement Regarding Forward-Looking Statements

The following discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and the related notes of PennyMac Financial Services, Inc. (“PFSI”) included within this Quarterly Report on Form 10-Q.

Statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,”

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“should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.

Overview

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to the words “we,” “us,” “our” and the “Company” refer to PFSI.

Our Company

We are a specialty financial services firm with a comprehensive mortgage platform and integrated business primarily focused on the production and servicing of U.S. residential mortgage loans (activities which we refer to as mortgage banking) and the management of investments related to the U.S. mortgage market. We believe that our operating capabilities, specialized expertise, access to long-term investment capital, and our management’s experience across all aspects of the mortgage business will allow us to profitably grow these activities and capitalize on other related opportunities as they arise in the future.

We operate and control all of the business and affairs of Private National Mortgage Acceptance Company, LLC (“ PennyMac ”) and are its sole managing member. PennyMac was founded in 2008 by members of our executive leadership team and two strategic partners, BlackRock Mortgage Ventures, LLC and HC Partners, LLC, formerly known as Highfields Capital Investments, LLC, together with its affiliates.

We conduct our business in three segments: loan production, loan servicing (together, these two activities comprise our mortgage banking activities ) and investment management. Our principal mortgage banking subsidiary, PennyMac Loan Services, LLC (“PLS”), is a non-bank producer and servicer of mortgage loans in the United States. Our investment management subsidiary, PNMAC Capital Management, LLC (“PCM”), is an SEC registered investment adviser. PCM manages PennyMac Mortgage Investment Trust (“ PMT ”) , a mortgage real estate investment trust, listed on the New York Stock Exchange under the ticker symbol PMT. PCM also manages PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., both registered under the Investment Company Act of 1940, as amended, an affiliate of these funds and PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.”

Mortgage Banking

Loan Production

Mortgage loans produced through o ur loan production segment are sourced through two channels: correspondent production and consumer direct lending.

In our correspondent production channel, we manage, on behalf of PMT and for our own account, the acquisition of newly originated, prime credit quality, first-lien residential mortgage loans that have been underwritten to investor guidelines. PMT acquires, from approved correspondent sellers, newly originated loans, including both conventional and government-insured or guaranteed residential mortgage loans that qualify for inclusion in securitizations that are guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Government National Mortgage Association (“Ginnie Mae”). We refer to each of Fannie Mae, Freddie Mac and Ginnie Mae as an “Agency” and collectively as the “Agencies” . For conventional mortgage loans, we perform fulfillment activities for PMT and earn a fulfillment fee for each mortgage loan purchased by PMT. In the case of government - insured or guaranteed mortgage loans, we purchase them from PMT at PMT’s cost plus a sourcing fee and fulfill them for our own account.

Through our consumer direct lending channel, we originate new prime credit quality, first-lien residential conventional and government-insured or guaranteed mortgage loans on a national basis to allow customers to purchase

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or refinance their homes. Our consumer direct model relies on the Internet and call center-based staff to acquire and interact with customers across the country. We do not have a “brick and mortar” branch network and have been developing our consumer direct operations with call centers strategically positioned across the United States.

For mortgage loans originated through our consumer direct lending channel, we conduct our own fulfillment, earn interest income and gains or losses during the holding period and upon the sale or securitization of these mortgage loans, and retain the associated mortgage servicing rights (“ MSRs ”) (subject to sharing with PMT a portion of such MSRs or cash with respect to certain consumer direct originated mortgage loans that refinance mortgage loans for which the related MSRs or excess servicing spread (“ESS”) was held by PMT).

Our loan production activity is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Unpaid principal balance of mortgage loans purchased and originated for sale:
Government-insured or guaranteed mortgage loans acquired from PennyMac Mortgage Investment Trust	$	10,783,882	$	4,609,947	$	23,602,020	$	11,332,898
Mortgage loans sourced through our consumer direct channel		1,042,302		526,838		3,077,569		1,244,117
	$	11,826,184	$	5,136,785	$	26,679,589	$	12,577,015
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust	$	4,073,201	$	3,677,613	$	10,542,411	$	8,588,955

Loan Servicing

Our loan servicing segment performs mortgage loan administration, collection, and default management activities, including the collection and remittance of mortgage loan payments; response to customer inquiries; accounting for principal and interest; holding custodial (impounded) funds for the payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions. We service a diverse portfolio of mortgage loans both as the owner of MSRs and on behalf of other MSR or mortgage owners. We provide servicing for conventional and government-insured or guaranteed mortgage loans (“prime servicing”), as well as servicing for distressed mortgage loans that have been acquired as investments by our Advised Entities (“special servicing”). As of September 30 , 201 5 , the portfolio of mortgage loans that we serviced or subserviced totaled approximately $ 154.8 billion in unpaid principal balance (“UPB”).

Investment Management

We are an investment manager through our subsidiary, PCM. PCM currently manages the Advised Entities . The Advised Entities had combined net assets of approximately $ 1.8 billion as of September 30 , 201 5 . For these activities, we earn management fees as a percentage of net assets and incentive compensation based on the entities’ performance.

Observations on Current Market Conditions

Our business is affected by macroeconomic conditions in the United States, including economic growth, unemployment rates, the residential housing market and interest rate levels and expectations. The U.S. economy continues to grow as reflected in recent economic data. During the third quarter of 2015, real U.S. gross domestic product expanded at an annual rate of 1.5% compared to a 4.3% increase for the third quarter of 2014 and a revised 3.9% increase for the second quarter of 2015. The national unemployment rate was 5.1% at September 30, 2015 compared to 5.3% at June 30, 2015 and 5.9% at September 30, 2014. Delinquency rates on residential real estate loans remain elevated compared to historical rates, but have been steadily declining. As reported by the Federal Reserve Bank, during the second quarter of 2015, the delinquency rate on residential real estate loans held by commercial banks was 5.77%, a reduction from 7.40% during the second quarter of 2014.

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Residential real estate activity appears to be stable. The seasonally adjusted annual rate of existing home sales for September 2015 was 8.8% higher than for September 2014, and the national median existing home price for all housing types was $221,900, a 6.1% increase from September 2014. On a national level, foreclosure filings during September 2015 increased by 3.1% as compared to September 2014. Foreclosure activity is expected to remain above historical average levels through 2015 and beyond.

Changes in fixed-rate residential mortgage loan interest rates generally follow changes in long-term U.S. Treasury yields. Thirty-year fixed mortgage interest rates ranged from a low of 3.84% to a high of 4.09% during the third quarter of 2015 while during the third quarter of 2014, thirty-year fixed mortgage interest rates ranged from a low of 4.10% to a high of 4.23% (Source: the Federal Home Loan Mortgage Corporation’s Weekly Primary Mortgage Market Survey).

Mortgage lenders originated an estimated $455 billion of home loans during the third quarter of 2015, up 26% from the third quarter of 2014. Although the low interest rate environment has led to an increase in the volume of borrowers seeking to refinance, we expect purchase-money loans to constitute a greater proportion of mortgage originations in the future. Mortgage originations are forecast to remain relatively flat, with current industry estimates for 2015 totaling $1.6 trillion (Source: average of Fannie Mae, Freddie Mac and Mortgage Bankers Association forecasts). We expect efforts to expand GSE product offerings (including 97% loan-to-value loans) and a recent reduction in FHA mortgage insurance premiums to make mortgage credit more affordable. In our correspondent production business, we continue to see increased competition from new and existing market participants.

In our capacity as an investment manager, we continue to see a robust market for distressed residential mortgage loans (sales of loan pools that consist of either non-performing loans, troubled but performing loans or a combination thereof) offered for sale. During 2015, the pool of sellers expanded to include Fannie Mae as a new programmatic seller, together with existing sellers including HUD, Freddie Mac and Money-center Banks. During the third quarter of 2015, we reviewed 32 mortgage loan pools totaling approximately $8.2 billion in UPB. This compares to our review of 36 mortgage loan pools totaling approximately $9.7 billion in UPB during the third quarter of 2014. During the nine months ended September 30, 2015, we acquired for PMT distressed loans with fair values totaling $242 million and $287.5 million during the same period in 2014. While we expect to see a continued supply of distressed whole loans, we believe the pricing for recent transactions has been less attractive for buyers. We remain patient and selective for PMT in making new investments in distressed whole loans and we continue to monitor the market to assess best execution opportunities for distressed portfolio investments held by the Advised Entities .

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Results of Operations

Our results of operations are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	82,646	$	48,133	$	241,979	$	122,375
Loan origination fees		29,448		11,823		70,551		29,048
Fulfillment fees from PennyMac Mortgage Investment Trust		17,553		15,497		45,752		36,832
Net loan servicing fees		57,258		53,908		152,583		154,641
Management fees		6,456		11,379		21,908		32,486
Carried Interest from Investment Funds		1,483		1,902		2,898		5,893
Net interest expense		(5,891)		(2,738)		(11,952)		(7,494)
Other		252		721		2,151		2,771
Total net revenue		189,205		140,625		525,870		376,552
Expenses		115,282		77,933		323,910		206,752
Provision for income taxes		8,575		7,232		23,308		19,385
Net income	$	65,348	$	55,460	$	178,652	$	150,415

Income before provision for income taxes by segment:
Mortgage banking:
Production	$	77,739	$	39,079	$	221,452	$	97,794
Servicing		(6,056)		17,431		(26,618)		54,503
Total mortgage banking		71,683		56,510		194,834		152,297
Investment management		2,180		6,182		7,066		17,503
	$	73,863	$	62,692	$	201,900	$	169,800
During the period:
Interest rate lock commitments issued	$	11,237,991	$	5,645,430	$	30,619,804	$	14,726,767
Fair value of mortgage loans purchased and originated for sale:
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust	$	11,350,129	$	4,861,392	$	24,864,697	$	11,947,251
Mortgage loans originated through consumer direct channel		1,053,500		534,013		3,106,148		1,262,443
	$	12,403,629	$	5,395,405	$	27,970,845	$	13,209,694
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust	$	4,073,201	$	3,677,613	$	10,542,411	$	8,588,955
At period end:
Unpaid principal balance of mortgage loan servicing portfolio:
Owned:
Mortgage servicing rights	$	106,976,506	$	60,865,411
Mortgage servicing liabilities		957,113		—
Mortgage loans held for sale		1,602,692		1,217,599
		109,536,311		62,083,010
Subserviced		45,294,101		38,000,767
	$	154,830,412	$	100,083,777
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust	$	1,513,505	$	1,588,041
Investment Funds		238,349		428,040
	$	1,751,854	$	2,016,081

Net income increased $ 9.9 million and $ 28.2 million during the quarter and nine months ended September 30, 2015, respectively, when compared to the same periods in 2014. The increase in net income during the quarter and nine months ended September 30, 2015 was primarily due to increased net gains on mortgage loans held for sale at fair value and loan origination fees, offset by increased expenses incurred to accommodate the growth of our mortgage banking segments .

Net Gains on Mortgage Loans Held for Sale at Fair Value

During the quarter and nine months ended September 30, 2015, we recognized net gains on mortgage loans held for sale at fair value totaling $82.6 million and $ 242.0 million, respectively, increases of $34.5 million and $ 119.6 million, respectively, from the same periods in 2014. T he increase during these periods was due to growth in the volume of mortgage loans that we purchased and originated and subsequently sold partially offset by reduced production margins.

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Most of our mortgage loan production currently is centered in government-insured or guaranteed loans . Over recent periods, the margins on correspondent government-insured or guaranteed mortgage loans have tended to be higher than those on conventional correspondent production. Government-insured or guaranteed mortgage lending is not as competitive as conventional conforming mortgage lending due to the added complexity involved in the origination and servicing of government-insured or guaranteed mortgage loans. We source the majority of our government-insured or guaranteed mortgage loan production through PMT. PMT is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed mortgage loans. We purchase the government-insured or guaranteed mortgage loans that PMT acquires through its correspondent lending activities and pay PMT a sourcing fee of three basis points on the UPB of such mortgage loans.

Our net gains on mortgage loans held for sale at fair value include both cash and non-cash elements. We receive proceeds on sale that include both cash and our estimate of the fair value of the MSRs. D uring the quarter and nine months ended September 30, 2015 , the net gains on mortgage loans held for sale at fair value included $ 153.3 million and $ 340.2 million, respectively, in fair value of MSRs received as part of proceeds on sales, net of mortgage servicing liabilities incurred. We also recognize a liability for our estimate of the losses we expect to incur in the future as a result of claims made against us in connection with the representations and warranties that we made in the loan sales transactions. During the quarter and nine months ended September 30, 2015, we included provisions for losses relating to the representations and warranties we provided totaling $2.3 million and $5.5 million, respectively, in our Net gains on mortgage loans held for sale at fair value .

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


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Cash (loss) gain:
Mortgage loans	$	(33,957)	$	3,965	$	(70,171)	$	21,499
Hedging activities		(51,469)		(12,437)		(51,803)		(48,242)
		(85,426)		(8,472)		(121,974)		(26,743)
Non-cash gain:
Mortgage servicing rights resulting from mortgage loan sales		161,696		61,200		360,656		148,374
Mortgage servicing liabilities resulting from mortgage loan sales		(8,358)		—		(20,442)		—
MSR and ESS recapture payable to PennyMac Mortgage Investment Trust		(3,098)		(2,143)		(5,843)		(6,567)
Provision for losses relating to representations and warranties on mortgage loans sold		(2,292)		(1,584)		(5,535)		(3,639)
Change in fair value relating to mortgage loans and hedging derivatives held at period end:
Interest rate lock commitments		15,800		(7,114)		11,137		15,875
Mortgage loans		16,809		(976)		16,890		10,870
Hedging derivatives		(12,485)		7,222		7,090		(15,795)
	$	82,646	$	48,133	$	241,979	$	122,375
During the period:
Unpaid principal balance of mortgage loans sold	$	12,197,731	$	5,088,528	$	28,379,856	$	12,742,554
Interest rate lock commitments issued:
Conventional mortgage loans	$	1,754,847	$	1,024,288	$	5,190,855	$	5,586,777
Government-insured or guaranteed mortgage loans		9,483,144		4,621,142		25,428,949		9,139,990
	$	11,237,991	$	5,645,430	$	30,619,804	$	14,726,767
Period end:
Mortgage loans held for sale at fair value	$	1,696,980	$	1,259,991
Commitments to fund and purchase mortgage loans	$	2,781,551	$	1,740,376

Provision for Losses on Representations and Warranties

We record our estimate of the losses that we expect to incur in the future as a result of claims against us in connection with the representations and warranties provided to the purchasers of the loans we sold in our Net gains on sale of mortgage loans held for sale at fair value . Our agreements with the Agencies include representations and warranties related to the loans we sell to the Agencies. The representations and warranties require adherence to Agency 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 law.

In the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or insurer. In such cases, we bear any subsequent credit loss on the mortgage loans. Our credit loss may be reduced by any recourse we have to correspondent lenders that sold such mortgage loans and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of related repurchase losses from that correspondent lender.

The method used to estimate our losses on representations and warranties is a function of our estimate of future defaults, mortgage loan repurchase rates, the severity of loss in the event of defaults and the probability of reimbursement by the correspondent loan seller. We establish a liability at the time loans are sold and review our liability estimate on a periodic basis.

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W e recorded provisions for losses under representations and warranties as a component of Net gains on mortgage loans held for sale at fair value totaling $ 2.3 million and $ 5.5 million during the quarter and nine months ended September 30, 2015 , respectively , compared to $1.6 million and $3.6 million during the quarter and nine months ended September 30, 2014, respectively . The increase in provisions for losses under representations and warranties during the quarter and nine months ended September 30, 2015 compared to the same periods in 2014 was primarily due to an increase in the volume of loan sales activity.

Following is a summary of mortgage loan repurchase and loss activity and the UPB of mortgage loans subject to representations and warranties:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
During the period:
Indemnification activity
Mortgage loans indemnified by PFSI at beginning of period	$	3,070	$	564	$	1,521	$	80
New indemnifications		214		724		1,763		1,441
Indemnified mortgage loans repurchased		—		—		—		—
Less: Indemnified mortgage loans repaid or refinanced		—		—		—		—
Mortgage loans indemnified by PFSI at end of period	$	3,284	$	1,288	$	3,284	$	1,521
Repurchase activity
Total mortgage loans repurchased by PFSI	$	5,301	$	1,003	$	17,082	$	2,715
Less: Mortgage loans repurchased by correspondent lenders		4,768		447		13,044		1,673
Less: Mortgage loans repaid by borrowers or resold with defects resolved		2,726		—		4,684		—
Net mortgage loans repurchased by PFSI with losses chargeable to liability for representations and warranties	$	(2,193)	$	556	$	(646)	$	1,042
Losses charged to liability for representations and warranties	$	71	$	—	$	316	$	—
Period end:
Unpaid principal balance of repurchased mortgage loans held	$	—	$	—
Unpaid principal balance of mortgage loans subject to representations and warranties	$	54,259,297	$	33,660,189
Liability for representations and warranties	$	18,478	$	11,762

During the quarter and nine months ended September 30, 2015, we repurchased mortgage loans totaling $5.3 million and $17.1 million in UPB, respectively . After recovery of repurchase losses from the selling correspondent lenders, we recorded losses of $71 ,000 and $ 316 ,000 , respectively, as a result of these repurchases. As the outstanding balance of mortgage loans we purchase and sell subject to representations and warranties increases and the loans sold continue to season, we expect the level of repurchase activity to increase.

The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, and other external conditions that may change over the lives of the underlying mortgage loans. Our estimate of the liability for representations and warranties is prepared initially by our credit administration staff. The liability estimate is reviewed and approved by our senior management credit committee which includes PFSI’s chief executive, operating, credit and enterprise risk, mortgage fulfillment, institutional mortgage banking and shared services officers. We did not record any adjustments to previously recorded liabilities for representations and warranties during any of the periods presented.

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Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current UPB of loans sold by us to date represents the maximum exposure to repurchases related to representations and warranties.

Other Loan Production-Related Revenues

Loan origination fees increased $ 17.6 million and $ 41.5 million during the quarter and nine months ended September 30, 201 5, respectively, compared to the same periods in 201 4 primarily due to growth in the volume of correspondent purchases in our loan production activities .

F ulfillment fees from PMT , which represent fees we collect for services we perform on behalf of PMT in connection with its acquisition, packaging and sale of mortgage loans , are calculated as a percentage of the UPB of the mortgage loans we fulfill for PMT. Fulfillment fees in creased $ 2.1 million and $8.9 million, respectively, during the quarter and nine months ended September 30, 2015 compared to the same periods in 2014 primarily due to an increase in the volume of mortgage loan fulfillment. Summarized below are our fulfillment fees:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Fulfillment fee revenue	$	17,553	$	15,497	$	45,752	$	36,832
Unpaid principal balance of loans fulfilled	$	4,073,201	$	3,677,613	$	10,542,411	$	8,588,955
Average fulfillment fee rate (in basis points)		43		42		43		43

Net loan servicing fees

Our net loan servicing fees are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Net loan servicing fees:
Loan servicing fees:
From non-affiliates	$	83,424	$	44,647	$	200,392	$	124,061
From PennyMac Mortgage Investment Trust		11,736		12,325		34,542		41,096
From Investment Funds		796		1,116		1,917		6,754
Ancillary and other fees		10,096		6,620		33,131		16,609
		106,052		64,708		269,982		188,520
Amortization, impairment and change in fair value of mortgage servicing rights		(48,794)		(10,800)		(117,399)		(33,879)
Net loan servicing fees	$	57,258	$	53,908	$	152,583	$	154,641
Average servicing portfolio	$	147,877,985	$	96,798,406	$	128,119,464	$	88,169,940

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Following is a summary of our mortgage loan servicing portfolio:



	September 30,		December 31,
	2015		2014
	(in thousands)
Mortgage loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated	$	54,259,297	$	36,564,434
Acquired		52,717,209		28,126,179
		106,976,506		64,690,613
Mortgage servicing liabilities–Originated		957,113		478,581
Mortgage loans held for sale		1,602,692		1,100,910
		109,536,311		66,270,104
Subserviced for Advised Entities		41,303,357		35,416,466
Total prime servicing		150,839,668		101,686,570
Special servicing–Subserviced for Advised Entities		3,990,744		4,293,479
Total special servicing		3,990,744		4,293,479
Total mortgage loans serviced	$	154,830,412	$	105,980,049

Loan servicing fees increased $ 41.3 million and $ 81.5 million during the quarter and nine months ended September 30, 2015, respectively, compared to the same periods in 2014 primarily due to an increase in loan servicing fees from non-affiliates resulting from growth in our mortgage loan servicing portfolio due to our purchases of MSRs , supplemented with the ongoing sales of mortgage loans with servicing rights retained. The increase in loan servicing fees was partially offset by a decrease in loan servicing fees from our Advised Entities du e to activity fees relating to sale s of reperforming mortgage loans by the Advised Entities in 2014 that did not recur in 2015.

Amortization, impairment and change in fair value of mortgage servicing rights are summarized below:



	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Amortization and realization of cash flows	$	(41,594)	$	(19,703)	$	(97,082)	$	(50,970)
Change in fair value of mortgage servicing rights and mortgage servicing liabilities carried at fair value and provision for impairment of mortgage servicing rights carried at lower of amortized cost or fair value		(47,926)		261		(50,250)		(15,590)
Change in fair value of excess servicing spread		10,271		9,539		10,674		24,392
Hedging gains (losses)		30,455		(897)		19,259		8,289
Total fair value adjustments, net of hedging results		(7,200)		8,903		(20,317)		17,091
Total amortization, impairment and change in fair value of mortgage servicing rights	$	(48,794)	$	(10,800)	$	(117,399)	$	(33,879)
Average mortgage servicing rights balances:
At lower of amortized cost or fair value	$	604,128	$	335,828	$	504,392	$	301,992
At fair value	$	649,608	$	310,694	$	484,153	$	264,289
Mortgage servicing rights at period end:
At lower of amortized cost or fair value	$	669,667	$	358,264
At fair value	$	637,725		319,149
	$	1,307,392	$	677,413

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Amortization, impairment and change in fair value of mortgage servicing rights increased $38.0 million and $ 83.5 million during the quarter and nine months ended September 30, 2015, respectively, compared to the same periods in 2014. This increase was primarily due to increased amortization of a growing mortgage servicing asset and increased impairment of MSRs resulting from the effect on fair value of the decreasing interest rate environment that prevailed during much of 2015. The nine-month period ended September 30, 2015 was also negatively impacted by a reduction in the Federal Housing Administration’s mortgage insurance premium .

Management fees and Carried Interest

Management fees and Carried Interest are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Management fees:
PennyMac Mortgage Investment Trust:
Base management fee	$	5,742	$	6,033	$	17,181	$	17,392
Performance incentive fee		—		3,590		1,343		9,217
		5,742		9,623		18,524		26,609
Investment Funds		714		1,756		3,384		5,877
Total management fees		6,456		11,379		21,908		32,486
Carried Interest		1,483		1,902		2,898		5,893
Total management fees and Carried Interest	$	7,939	$	13,281	$	24,806	$	38,379

Net assets of Advised Entities at period end:
PennyMac Mortgage Investment Trust	$	1,513,505	$	1,588,041
Investment Funds		238,349		428,040
	$	1,751,854	$	2,016,081

Management fees from PMT de creased $ 3.9 million and $ 8.1 million during the quarter and nine months ended September 30, 201 5, respectively, compared to the same periods in 201 4 primarily due to a decrease in performance incentive fees resulting from reductions in PMT’s net income during the period over which incentive fees are calculated .

Our incentive fee is based on how much PMT’s return on shareholders’ equity over a rolling twelve-month period exceeds certain thresholds. Therefore, the de crease in profitability reduced PMT’s return on equity and by extension the performance incentive fee we earned in 2015 as compared to 2014.

Management fees from the Investment Funds decreased $ 1.0 million a nd $ 2.5 million during the quarter and nine months ended September 30, 2 01 5, respectively, compared to the same periods in 2014 . The decrease was due to a reduction in the Investment Funds’ net asset values as a result of continued distributions to the Investment Funds’ investors following the end of the Investment Funds’ commitment periods on December 31, 2011, which reduces the investment base on which the management fees are computed.

Carried Interest from Investment Funds decreased $ 419,000 and $ 3.0 million during the quarter and nine months ended September 30, 201 5, respectively, compared to the same periods in 201 4 primarily due to decreases in the Investment Funds’ returns in 2015 compared to 2014 .

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Other revenues

The results of our holdings of common shares of PMT, which is included in Changes in f air value of investment in and dividends received from PMT are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Dividends received from PennyMac Mortgage Investment Trust	$	(11)	$	46	$	127	$	135
Change in fair value of investment in PennyMac Mortgage Investment Trust		(147)		(38)		(422)		(115)
	$	(158)	$	8	$	(295)	$	20
Fair value of PennyMac Mortgage Investment Trust shares at period end	$	1,160	$	1,607

Change in fair value of investment in and dividends received from PMT decreased $ 166, 000 and $ 315 ,000 during the quarter and nine months ended September 30, 201 5, respectively, compared to the same periods in 201 4 primarily due to a decrease in the fair value of our investment in common shares of PMT. We held 75,000 common shares of PMT during each of the periods ended September 30 , 201 5 and 201 4 .

Expenses

Our compensation expense is summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Salaries and wages	$	44,299	$	30,572	$	119,948	$	85,133
Incentive compensation		17,484		10,062		45,968		28,356
Taxes and benefits		7,475		5,039		21,317		14,525
Stock and unit-based compensation		4,871		2,702		15,462		10,218
	$	74,129	$	48,375	$	202,695	$	138,232

Average headcount		2,416		1,641		2,164		1,521
Period end headcount		2,483		1,693

Compensation expense increased $ 25.8 million and $ 64.5 million during the quarter and nine months ended September 30, 2015, respectively, compared to the same periods in 2014 primarily due to growth in our workforce to support the growth of our mortgage banking operations.

Servicing expense increased $ 2.9 million and $ 26.4 million during the quarter and nine months ended September 30, 201 5, respectively, compared to the same periods in 201 4 primarily due to increased realized servicing advance losses and increased provisions for expected future servicing advance losses relating to delinquent government-insured or guaranteed mortgage loans that we service. Servicing expenses also increased due to continuing growth in our mortgage loan servicing portfolio .

Technology expense increased $ 2.3 million and $ 7.2 million during the quarter and nine months ended September 30, 2015, respectively, compared to the same periods in 2014 primarily due to increased software costs as part of our continued investment in loan production and servicing infrastructure.

Loan origination expense increased $ 1.8 million and $ 6.9 million during the quarter and nine months ended September 30, 2015, respectively, compared to the same periods in 2014 due to increased loan production in 2015 compared to 2014.

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Expenses Allocated to PMT

PMT reimburses us for other expenses, including common overhead expenses incurred on its behalf by us, in accordance with the terms of our management agreement with PMT. The expense amounts presented in our consolidated statements of incom e are net of these allocations. The amount of total expenses that we allocated to PMT during the quarter and nine months ended September 30, 2015 remained generally consistent compared to the same periods in 2014 and included discretionary waivers, in accordance with the terms of the management agreement, of $900,000 and $1.6 million for the quarter and nine months ended September 30, 2015, respectively, of overhead expenses otherwise allocable to PMT.

Expense amounts allocated to PMT during the period ended September 30 , 201 5 and 201 4 are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Technology	$	1,216	$	1,232	$	3,532	$	3,289
Depreciation and amortization		531		547		1,640		1,537
Occupancy		497		569		1,463		1,627
Other		450		454		1,490		1,565
Total expenses	$	2,694	$	2,802	$	8,125	$	8,018

Provision for Income Taxes

O ur effective tax rates were 11.6% and 11.5 % during the quarter and nine months ended September 30, 2015, respectively , compared to 11.5% and 11.4% during the same periods in 2014, respectively . The difference between our effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into our shares, we expect an increase in allocated earnings that will be subject to corporate federal and state statutory tax rates, which will in turn increase our effective income tax rate .

Balance Sheet Analysis

Following is a summary of key balance sheet items as of the dates presented:


	September 30,		December 31,
	2015		2014
	(in thousands)
ASSETS
Cash and short-term investments	$	72,181	$	97,943
Mortgage loans held for sale at fair value		1,696,980		1,147,884
Servicing advances, net		252,172		228,630
Receivable from affiliates		168,762		26,162
Carried Interest due from Investment Funds		70,196		67,298
Mortgage servicing rights		1,307,392		730,828
Other assets		247,639		207,941
Total assets	$	3,815,322	$	2,506,686

LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings	$	1,940,811	$	1,112,675
Payable to affiliates		596,110		350,389
Other liabilities		289,094		236,356
Total liabilities		2,826,015		1,699,420
Total stockholders' equity		989,307		807,266
Total liabilities and stockholders' equity	$	3,815,322	$	2,506,686

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Total assets increased $ 1.3 b illion from $ 2.5 billion at December 31, 201 4 to $ 3.8 billion at September 30 , 201 5 . The increase was primarily due to an increase of $ 576 . 6 million in MSRs and an increase of $ 549.1 million in mortgage loans held for sale at fair value , resulting from purchases of MSRs and growth in our mortgage loan production .

Total liabilities increased by $ 1.1 b illion from $1.7 billion as of December 31, 2014 to $ 2.8 billion as of September 30, 2015. The increase was primarily attributable to an increase of $ 464.2 million in mortgage loans sold under agreements to repurchase, an increase of $ 103.8 million in sales of mortgage loan participation certificates, and increase of $ 260.1 million in note payable all to fund growth in our inventory of mortgage loans held for sale at fair value and MSRs , and an increase of $ 227.4 million in liabilities relating to the sale of ESS to PMT.

Cash Flows

Our cash flows for the nine months ended September 30, 2015 and 2014 are summarized below:


	Nine months ended September 30,
	2015		2014		Change
	(in thousands)
Cash flow activities:
Operating	$	(519,157)	$	(695,080)	$	175,923
Investing		(538,151)		1,181		(539,332)
Financing		1,028,467		740,511		287,956
Net cash flows	$	(28,841)	$	46,612	$	(75,453)

Our cash flows resulted in a net de crease in cash of $ 28.8 million during the nine months ended September 30, 2015. The de crease was due to cash used in our operating and investing activities exceeding cash provided by our financing activities.

Operating activities

Cash used in operating activities totaled $ 519.2 million and $ 695.1 million during the nine months ended September 30 , 2015 and 2014, respectively, primarily due to the growth of our inventory of mortgage loans held for sale at fair value .

Investing activities

Net cash used in investing activities during the nine months ended September 30, 2015 totaled $ 538.2 million primarily due to our purchases of MSRs and advances on a note receivable from PMT that we made during the period. Net cash provided by investing activities during the nine months ended September 30, 2014 totaled $ 1.2 million primarily due to a decrease in short-term investments.

Financing activities

Net cash provided by financing activities totaled $ 1.0 b illion and $ 740.5 million during the nine months ended September 30 , 2015 and 2014, respectively, primarily due to increase d sales of loans under agreements to repurchase and a mortgage loan participation agreement used to finance the growth in our inventory of mortgage loans held for sale. Cash provided by financing activities also reflects the proceeds received from issuance of ESS financing of $ 271.5 million and $ 82.6 million during the nine months ended September 30, 2015 and 2014, respectively, used to finance purchases of MSRs and $150.0 million of advances on a note receivable that were in turn advanced to PMT to finance its investment in ESS.

Liquidity and Capital Resources

Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans), fund new originations and purchases, and make investments as we identify them. We expect our primary sources of liquidity to be through cash flows from business activities, proceeds

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from borrowings, proceeds from and issuance of ESS and/or additional equity offerings. We believe that our liquidity is sufficient to meet our current liquidity needs.

Our current leverage strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. Our borrowing activities are in the form of sales of mortgage loans under agreements to repurchase, sales of mortgage loan participation certificates , a note payable secured by MSRs and ESS financing. All of our borrowings other than ESS have short-term maturities and provide for terms of approximately one year. We will continue to finance most of our assets on a short-term basis until long-term financing becomes more available. Because a significant portion of our current debt facilities consist s of short-term borrowings, we expect to renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any n ecessary financing.

Our repurchase agreements represent the sales of mortgage loans together with agreements for us to buy back the respective assets at a later date. Our mortgage loan repurchase agreements are summarized below:


	Quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in thousands)
Repurchase agreements outstanding:
Average balance	$	975,724	$	691,730	$	805,517	$	505,072
Maximum daily balance	$	1,496,306	$	1,010,146	$	1,496,306	$	1,010,146
Balance at period end	$	1,286,411	$	929,460

The difference between the maximum and average daily amounts outstanding is due to the effect of variations in the timing and levels of production and sales on mortgage loan inventories during the period .

PLS’s debt financing agreements require it to comply with various financial covenants. The most significant financial covenants currently include the following:

positive net income during each calendar quarter;

a minimum in unrestricted cash and cash equivalents of $20 million;

a minimum tangible net worth of $200 million;

a maximum ratio of total liabilities to tangible net worth of 10:1; and

at least one other warehouse or repurchase facility that finances amounts and assets similar to those being financed under our existing debt financing agreements.

Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose.

With respect to servicing performed for PMT, PLS is also subject to certain covenants under its debt agreements. C ovenants of PLS in PMT’s debt agreements are equally or sometimes less restrictive than the covenants described above.

Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.

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PLS is also subject to liquidity and net worth requirements estab lished by each of the Agencies. Effective

December 31, 2015, Fannie Mae and Freddie Mac have established new minimum liquidity requirements and revised their net worth requirements for their approved non-depository single-family seller/servicers and Ginnie Mae for its approved single-family issuers, as summarized below:

Fannie Mae and Freddie Mac liquidity requirement is equal to 0.035% (3.5 basis points) of total Agency servicing UPB plus an incremental 200 basis points of total non-performing Agency servicing UPB in excess of 6% of total Agency servicing UPB; allowable assets to satisfy liquidity requirement include cash and cash equivalents (unrestricted), certain investment-grade securities that are available for sale or held for trading including Agency mortgage-backed securities, obligations of Fannie Mae or Freddie Mac, and U.S. Treasury obligations, and unused and available portions of committed servicing advance lines;

Fannie Mae and Freddie Mac net worth requ irement is a tangible net worth/ total assets ratio greater than or equal to 6%;

Ginnie Mae single-family issuer minimum liquidity requirement is equal to the greater of $1.0 million or 0.10% (10 basis points) of the issuer’s outstanding Ginnie Mae single-family securities, which must be met with cash and cash equivalents; and

Ginnie Mae net worth requirement is equal to $2.5 million plus 0.35% (35 basis points) of the issuer’s outstanding Ginnie Mae single-family obligations.

We are continuing to evaluate the impact of these requirements on our future operations. Although there can be no assurance, we currently believe that we will be in compliance with or otherwise satisfy the applicable Agency requirements.

We have purchased portfolios of MSRs and have financed them in part through the sale to PMT of the right to receive ESS. The outstanding amount of the ESS financing is based on the current valuation of such ESS and amounts received on the underlying mortgage loans.

We continue to explore a variety of means of financing our continued growth, including debt financing through bank warehouse lines of credit, financing MSR purchases through bank lines of credit, additional repurchase agreements and corporate debt. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or whether such efforts will be successful.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements and Guarantees

As of September 30, 2015, we have not entered into any off-balance sheet arrangements or guarantees.

Contractual Obligations

As of September 30, 2015, we had contractual obligations of $ 1.3 b illion to finance assets under agreements to repurchase and $ 247.4 million to finance assets under our mortgage loan participation and sale agreement. We also had a contractual obligation of $ 407.0 million relating to a note payable secured by MSRs. We also lease our primary office facilities under an agreement that expires on February 28, 2017 and we license certain software to support our loan servicing operations.

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Payment obligations under these agreements are summarized below:


	Payments due by period
			Less than		1-3		3-5		More than
Contractual obligations	Total		1 year		years		years		5 years
	(in thousands)
Mortgage loans sold under agreements to repurchase	$	1,287,116	$	1,287,116	$	—	$	—	$	—
Mortgage loan participation and sale agreement		247,411		247,411		—		—		—
Note payable		407,000		407,000		—		—		—
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust (1)		418,573		—		—		—		418,573
Anticipated interest payments related to excess servicing spread financing at fair value		199,280		28,496		46,199		35,011		89,574
Software licenses (2)		21,916		10,958		10,958		—		—
Office leases		45,757		7,477		11,354		11,217		15,709
Total	$	2,627,053	$	1,988,458	$	68,511	$	46,228	$	523,856

(1)

The ESS payable to PMT does not have a stated contractual maturity . However, its cash flows are not expected to extend beyond the contractual maturities of the underlying mortgage loans. Such maturities extend beyond five years.

(2)

Software licenses include both volume and activity based fees that are dependent on the number of loans serviced during each period and include a base fee of approximately $490,000 per year. Estimated payments for software licenses above are based on the number of loans currently serviced by us, which totaled approximately 803 ,000 at September 30 , 201 5 . Future amounts due may significantly fluctuate based on changes in the number of loans serviced by us. For the nine months ended September 30 , 201 5 , software license fees totaled $ 18.4 million. All figures contained in this footnote are in actual amounts and not in thousands (in contrast to the table above) .

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our assets sold under agreements to repurchase is summarized by counterparty below :


			Weighted average
			maturity of
			advances under
Counterparty	Amount at risk		repurchase agreement	Facility Maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital, LLC	$	54,117	December 10, 2015	December 15, 2015
Bank of America, N.A.	$	52,803	December 20, 2015	January 29, 2016
Morgan Stanley	$	16,755	November 19, 2015	July 26, 2016
Citibank, N.A.	$	10,504	November 6, 2015	October 20, 2016

Management Agreements

PMT Management Agreement

We externally manage and advise PMT pursuant to a management agreement. Our management agreement with PMT requires us to oversee PMT’s business affairs in conformity with the investment policies that are approved and monitored by its board of trustees. We are responsible for PMT’s day-to-day management and perform such services and activities related to PMT’s assets and operations as may be appropriate. Pursuant to our management agreement, we collect a base management fee and may collect a performance incentive fee.

The management agreement provides that:

The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT’s shareholders’ equity up to $2 billion, (ii) 1.375% per year of shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s shareholders’ equity in excess of $5 billion.

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The performance incentive fee is calculated at a defined annualized percentage of the amount by which PMT’s “net income,” on a rolling four ‑quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.”

The performance incentive fee is calculated quarterly and is equal to the sum of: (a) 10% of the amount by which PMT’s net income for the quarter exceeds (i) an 8% return on equity plus the “high watermark,” up to (ii) a 12% return on PMT’s equity; plus (b) 15% of the amount by which PMT’s net income for the quarter exceeds (i) a 12% return on PMT’s equity plus the “high watermark,” up to (ii) a 16% return on PMT’s equity; plus (c) 20% of the amount by which PMT’s net income for the quarter exceeds a 16% return on equity plus the “high watermark.”

For the purpose of determining the amount of the performance incentive fee:

“Net income” is defined as net income or loss computed in accordance with U.S. GAAP and certain other non ‑cash charges determined after discussions between us and PMT’s independent trustees and approval by a majority of PMT’s independent trustees.

“Equity” is the weighted average of the issue price per common share of all of PMT’s public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four ‑quarter period.

The “high watermark” starts at zero and is adjusted quarterly. The quarterly adjustment reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30 ‑year MBS yield (the “target yield”) for the four quarters then ended. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for us to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then ‑current cumulative high watermark amount, and a performance incentive fee is earned.

The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or in PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.

The term of the management agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18 ‑month periods, unless terminated earlier in accordance with the terms of the management agreement.

In the event of termination by PMT, we may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by us, in each case during the 24-month period before termination.

Investment Funds Management Agreements

We have investment management agreements with the Investment Funds pursuant to which we receive management fees consisting of base management fees and carried interest. The Investment Funds will continue in existence through December 31, 2016, subject to three one-year extensions by PCM at its discretion, in accordance with the terms of the limited liability company and limited partnership agreements that govern the Investment Funds.

Loan Servicing Agreements

PMT Loan Servicing Agreement

We have a loan servicing agreement with PMT, pursuant to which we provide loan servicing for its portfolio of residential mortgage loans. The servicing agreement provides for servicing fees payable to us based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or whether the underlying mortgage property has become REO.

The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per ‑loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or

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foreclosure status of such loan or whether the underlying mortgage property has become REO. Presently, the base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $125 per month for mortgage loans that are in foreclosure. The base servicing fee rate for REO and REO rentals is $75 and $30 per month, respectively.

The base servicing fee rates for non ‑distressed mortgage loans subserviced by us on PMT’s behalf are also calculated through a monthly per ‑loan dollar amount, with the actual dollar amount for each mortgage loan based on whether the mortgage loan is a fixed ‑rate or adjustable ‑rate loan. The base servicing fee rates for mortgage loans subserviced on PMT’s behalf are $7.50 per month for fixed ‑rate mortgage loans and $8.50 per month for adjustable rate mortgage loans. To the extent that these mortgage loans become delinquent, we are entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $55 per month based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or $75 per month if the underlying mortgaged property becomes REO.

We are required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because PMT does not have any employees or infrastructure. For these services, we receive a supplemental servicing fee of $25 per month for each distressed whole loan and, through August 31, 2015, received a supplemental servicing fee of $3.25 per month for each non ‑distressed subserviced mortgage loan. With respect to non ‑distressed subserviced mortgage loans, the supplemental servicing fee was subject to a cap of $700,000 per quarter. The supplemental servicing fee for non-distressed subserviced mortgage loans was eliminated, effective as of September 1, 2015. We are also entitled to reimbursement for all customary, good faith reasonable and necessary out ‑of ‑pocket expenses incurred in performance of our servicing obligations.

We, on behalf of PMT, currently participate in the Home Affordable Modification Program (“HAMP”) of the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (“HUD”) (and other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for “at risk” homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles us to retain any incentive payments made to us and to which we are entitled under HAMP; provided, however, that with respect to any such incentive payments paid to us under HAMP in connection with a mortgage loan modification for which PMT previously paid us a modification fee, we shall reimburse PMT an amount equal to the incentive payments.

We also remain entitled to market ‑based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges relating to loans we service for PMT.

Investment Funds Loan Servicing Agreements

We have also entered into loan servicing agreements with the Investment Funds. Our servicing agreements with the Investment Funds generally provide for fee revenue, which varies depending on the type and quality of the loans being serviced. We are also entitled to certain customary market-based fees and charges. This arrangement was modified, effective January 1, 2012, with respect to one of the Investment Funds. At that time, we settled our accrued servicing fee rebate and amended our servicing agreement with such fund to charge scheduled servicing fees in place of the previous “at cost” servicing arrangement.

Mortgage Banking and Warehouse Services Agreement

We have also entered into a mortgage banking and warehouse services agreement (the “MBWS agreement”), pursuant to which we provide PMT with certain mortgage banking services, including fulfillment and disposition-related services, with respect to loans acquired by PMT from correspondent lenders, and certain warehouse lending services, including fulfillment and administrative services, with respect to loans financed by PMT for its warehouse lending clients.

The MBWS agreement provides for a fulfillment fee paid to us based on the type of mortgage loan that PMT acquires. The fulfillment fee is equal to a percentage of the UPB of mortgage loans purchased by PMT, with the addition of potential fee rate discounts applicable to PMT’s monthly purchase volume in excess of designated thresholds. We

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have also agreed to provide such services exclusively for PMT’s benefit, and we and our affiliates are prohibited from providing such services for any other third party.

Presently, the applicable fulfillment fee percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans saleable in accordance with the Ginnie Mae Mortgage ‑Backed Securities Guide, (iii) 0.80% for the U.S. Department of the Treasury and HUD’s Home Affordable Refinance Program (“HARP”) mortgage loans with a loan ‑to ‑value ratio of 105% or less, (iv) 1.20% for HARP mortgage loans with a loan ‑to ‑value ratio of more than 105%, and (v) 0.50% for all other mortgage loans not contemplated above; provided, however, that we may, in our sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage loan was funded.

In the event that PMT purchases mortgage loans with a total UPB in any month greater than $2.5 billion and less than $5 billion, we have agreed to discount the amount of such fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion, and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month. In the event PMT purchases mortgage loans with a total UPB in any month greater than $5 billion, we have agreed to further discount the amount of fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion, and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month.

PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the MBWS agreement, we currently purchase loans saleable in accordance with the Ginnie Mae Mortgage ‑Backed Securities Guide “as is” and without recourse of any kind to PMT at its cost, plus accrued interest and a sourcing fee of three basis points, in each case on the UPB of the loan, less loan administrative fees collected by PMT from the seller.

In consideration for the mortgage banking services provided by us with respect to PMT’s acquisition of mortgage loans under PLS’s early purchase program, we are entitled to fees (i) accruing at a rate equal to $25,000 per year per early purchase facility administered by us, and (ii) in the amount of $50 for each mortgage loan PMT acquires. In consideration for the warehouse services provided by us with respect to mortgage loans that PMT finances for its warehouse lending clients, with respect to each facility, we are entitled to fees (i) accruing at a rate equal to $25,000 per year, and (ii) in the amount of $50 for each mortgage loan that PMT finances thereunder. Where PMT has entered into both an early purchase agreement and a warehouse lending agreement with the same client, we shall only be entitled to one $25,000 per year fee and, with respect to any mortgage loan that becomes subject to both such agreements, only one $50 per mortgage loan fee.

The term of the MBWS agreement expires on February 1, 2017, subject to automatic renewal for additional 18 ‑month periods, unless terminated earlier in accordance with the terms of the agreement.

MSR Recapture Agreement

Pursuant to the terms of a MSR recapture agreement, as amended, if we refinance through our consumer direct lending business mortgage loans for which PMT previously held the MSRs, we are generally required to transfer and convey to one of PMT’s wholly ‑owned subsidiaries, without cost to PMT, the MSRs with respect to new mortgage loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have a total UPB that is not less than 30% of the total UPB of all such mortgage loans so originated.

Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair market value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on February 1, 2017, subject to automatic renewal for additional 18 ‑month periods.

Spread Acquisition and MSR Servicing Agreements

Effective February 1, 2013, we entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which we may sell to PMT or one of its wholly owned subsidiaries

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the rights to receive certain ESS from MSRs acquired by us from banks and other third party financial institutions. We are generally required to service or subservice the related mortgage loans for the applicable agency or investor. The specific terms of each transaction under the 2/1/13 Spread Acquisition Agreement are subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.

To the extent we refinance any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

On December 30, 2013, we entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/30/13 Spread Acquisition Agreement”). The terms of the 12/30/13 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Ginnie Mae MSRs under the 12/30/13 Spread Acquisition Agreement.

To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 12/30/13 Spread Acquisition Agreement also contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. However, under the 12/30/13 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the refinanced mortgage loans, we are also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the modified mortgage loans, the 12/30/13 Spread Acquisition Agreement contains provisions that require us to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

In connection with our entry into the 12/30/13 Spread Acquisition Agreement, we were also required to (i) amend the terms of our loan and security agreement (the “LSA”) with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), pursuant to which we pledged to CSFB all of our rights and interests in the Ginnie Mae MSRs we own or acquire, enabling us to finance certain of such MSRs and servicing advance receivables, and (ii) enter into a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and us. Separately, as a condition to permitting us to transfer to PMT the ESS relating to a portion of our pledged Ginnie Mae MSRs, CSFB required PMT to enter into a Security and Subordination Agreement (the “Security Agreement”), pursuant to which PMT pledged to CSFB its rights under the 12/30/13 Spread Acquisition Agreement and its interest in any ESS purchased thereunder. CSFB’s lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 12/30/13 Spread Acquisition Agreement and the terms of the acknowledgement agreement.

The Security Agreement permits CSFB to liquidate PMT’s ESS along with the related MSRs to the extent there exists an event of default under the LSA, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of PMT’s credit facilities, that would require us to either (i) repay in full the outstanding loan amount under the LSA or (ii) repurchase the ESS from PMT at fair value. To the extent we are unable to repay the loan under the LSA or repurchase the ESS, an event of default would exist under the LSA, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the ESS is liquidated as a result of certain actions or inactions by us, PMT generally would be entitled to seek indemnity from us under the 12/30/13 Spread Acquisition Agreement.

O n D e c e m b e r 19 , 2 0 14 , we e n t e r e d i n t o a t h i rd m a s t e r s pr e a d a c qu i s i t i o n a n d MS R s e rv i c i n g a g r e e m e n t w i t h PMT ( t h e “ 1 2 / 19 / 1 4 S pr e a d A c qu i s it i o n A gr e em e n t ” ) . T h e t e r m s o f t h e 12 / 19 / 1 4 S pr e a d A c qu i s i t i o n A gr e e me n t a re s u b s t a n t i a l l y s i m i l a r to t h e t e r m s o f t h e 2 / 1 / 1 3 S pr e a d A c qu i s i ti o n A g r e e m e n t , e x c e p t t h a t we o n l y i n t e n d t o sell E S S r e l a t i n g t o F r e dd i e M a c MS Rs und e r t h e 1 2 / 19 / 1 4 S pr e a d A c qu i s it i o n A gr e e m e n t .

T o t h e e x t e n t we r e f i n a n c e a n y o f t h e m or t g a g e l o a n s r e l at i n g t o t h e E S S we sell to PMT , t h e 12 / 19 / 1 4 S pr e a d A c q u i s i t i o n A gr e e m e n t a l s o c on t a i n s r e c a p t ur e p r ov i s i on s r e qu i r i n g t h a t we t r a n s f e r t o PMT , a t n o c o s t , t h e E S S r e l a t i n g t o a c e r t ai n p e r c e n t a g e o f t h e UPB o f t h e n e w l y o r i g i n a t e d m o r t g a g e l o a n s . T o t h e e x t e n t t h e f a i r m a rk e t v al u e o f t h e a ggr e g a t e E S S t o b e t r a n s f e rr e d fo r t h e a pp l i c a b l e m on t h i s l e s s t h a n $20 0 , 00 0 , we m a y , a t our op t i on , pay c a s h t o PMT i n a n a m ou n t e qu a l t o s u c h f a i r m a rk e t v a l u e i n l i e u o f t r a n s f e rr i n g s u c h E SS .

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On April 30, 2015, we amended and restated the 12/30/13 Spread Agreement and the LSA, and PMT amended and restated the Security Agreement. The primary purpose of the amendment and restatement to the 12/30/13 Spread Agreement was to evidence the ownership of the ESS under participation certificates and to otherwise incorporate the terms of previously executed amendments. Under the terms of the amendment and restatement to the LSA, the maximum loan amount was increased from $257 million to $407 million. The $150 million increase was implemented for the purpose of facilitating the financing of ESS by PMT. The aggregate loan amount outstanding under the amended and restated LSA and relating to advances outstanding with PMT is guaranteed in full by PMT. The primary purpose of PMT’s amendment and restatement to the Security Agreement was to provide CSFB with remedies under the Security Agreement relating to such guaranty obligations by PMT.

Note Receivable from PMT

In connection with certain of the amendments and restatements described above, we entered into an underlying loan and security agreement with PMT, dated as of April 30, 2015, pursuant to which PMT may borrow up to $150 million from us for the purpose of financing ESS (the “Underlying LSA”).

The principal amount of the borrowings under the Underlying LSA is based upon a percentage of the market value of the ESS pledged by PMT, subject to the $150 million sublimit described above. Pursuant to the Underlying LSA, PMT granted us a security interest in all of its right, title and interest in, to and under the ESS pledged to secure the borrowings.

We have agreed with PMT in connection with the Underlying LSA that PMT is required to repay us the principal amount of borrowings plus accrued interest to the date of such repayment, and we are required, in turn, to repay CSFB the corresponding amount under the MSR Repo. Interest accrues on the note receivable from PMT relating to the Underlying LSA at a rate based on CSFB’s cost of funds under the MSR Repo. PMT was also required to pay us a fee for the structuring of the Underlying LSA in an amount equal to the portion of the corresponding fee paid by us to CSFB allocable to the increase in the maximum loan amount under the MSR Repo resulting from the ESS financing.

Reimbursement Agreement

In connection with the IPO of PMT’s common shares on August 4, 2009, we entered into an agreement with PMT pursuant to which PMT agreed to reimburse us for the $2.9 million payment that it made to the underwriters in such offering (the “Conditional Reimbursement”) if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, the parties amended the terms of the reimbursement agreement to provide for the reimbursement to us of the Conditional Reimbursement if PMT is required to pay us performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12 month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million.

In the event the termination fee is payable to us under the management agreement and we have not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.

Debt Obligations

As described further above in “Liquidity and Capital Resources,” we currently finance certain of our assets through committed and uncommitted borrowings with major financial institution counterparties in the form of sales of mortgage loans and MSRs under agreements to repurchase, a mortgage loan participation and sale agreement, and ESS financing. The borrower under each of these facilities or arrangements is PLS, and all obligations thereunder are guaranteed by Private National Mortgage Acceptance Company, LLC.

Under the terms of these agreements, PLS is required to comply with certain financial covenants, as described further above in “Liquidity and Capital Resources,” and various non-financial covenants customary for transactions of this nature. As of September 30 , 201 5 , we were in compliance in all material respects with these covenants.

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The agreements also contain margin call provisions that, upon notice from the applicable lender, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.

In addition, the agreements contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, servicer termination events and defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for these types of transactions. The remedies for such events of default are also customary for these types of transactions and include the acceleration of the principal amount outstanding under the agreements and the liquidation by our lenders of the mortgage loans or other collateral then subject to the agreements.

All of PLS’s borrowings discussed above have short-term maturities that expire as follows :


	Outstanding		Total		Committed
Counterparty (1)	indebtedness (2)		facility size		facility		Maturity date
	(in thousands)
Bank of America, N.A.	$	494,691	$	500,000	$	225,000	January 29, 2016
Bank of America, N.A.	$	247,411	$	250,000	$	250,000	January 29, 2016
Credit Suisse First Boston Mortgage Capital LLC	$	496,855	$	500,000	$	500,000	December 15, 2015
Credit Suisse First Boston Mortgage Capital LLC	$	407,000	$	407,000	$	407,000	November 13, 2015
Morgan Stanley Bank, N.A.	$	198,687	$	300,000	$	125,000	July 26, 2016
Citibank, N.A.	$	96,883	$	100,000	$	50,000	October 20, 2016

(1)

The borrowings with Bank of America, N.A. (with a committed amount of $ 225 million) , Citibank, N.A. and Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $ 500 million) are in the form of sales of mortgage loans under agreements to repurchase. The borrowing with Bank of America, N.A. (with a committed amount of $ 250 million) is in the form of a mortgage loan participation and sale agreement. At September 30, 2015, the borrowing with Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $ 407 million) was in the form of a note payable secured by certain MSRs and loan servicing advances. Such borrowing is currently in the form of sales of MSRs under an agreement to repurchase.

(2)

Represents outstanding indebtedness reduced by cash collateral as of September 30 , 201 5 .

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market based risks. The primary market risks that we are exposed to are credit risk, interest rate risk, prepayment risk, inflation risk and market value risk .

The following sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes to other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as earnings forecasts.

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Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of September 30 , 201 5 , given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:


Pricing spread shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	697,573		$	671,857		$	659,686		$	636,605		$	625,654		$	604,843
Change in fair value:
$	$	49,632		$	23,916		$	11,744		$	(11,337)		$	(22,287)		$	(43,099)
%		7.66	%		3.69	%		1.81	%		(1.75)	%		(3.44)	%		(6.65)	%


Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	709,151		$	677,257		$	662,296		$	634,161		$	620,918		$	595,926
Change in fair value:
$	$	61,209		$	29,315		$	14,355		$	(13,780)		$	(27,024)		$	(52,016)
%		9.45	%		4.52	%		2.22	%		(2.13)	%		(4.17)	%		(8.03)	%


Per-loan servicing cost shift in %	-20%			-10%			-5%		+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	667,733		$	657,837		$	652,890	$	642,994		$	638,046		$	628,151
Change in fair value:
$	$	19,791		$	9,896		$	4,948	$	(4,948)		$	(9,896)		$	(19,791)
%		3.05	%		1.53	%		0.76	%	(0.76)	%		(1.53)	%		(3.05)	%

The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value method as of September 30 , 201 5 , given several shifts in pricing spreads, prepayment speed and annual per loan cost of servicing :


Pricing spread shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	718,101		$	693,039		$	681,152		$	658,565		$	647,828		$	630,577
Change in fair value:
$	$	48,434		$	23,372		$	11,485		$	(11,102)		$	(21,839)		$	(42,283)
%		7.23	%		3.49	%		1.72	%		(1.66)	%		(3.26)	%		(5.84)	%


Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	732,071		$	699,583		$	684,322		$	655,586		$	642,045		$	619,658
Change in fair value:
$	$	62,403		$	29,916		$	14,655		$	(14,081)		$	(27,622)		$	(53,202)
%		9.32	%		4.47	%		2.19	%		(2.10)	%		(4.12)	%		(7.47)	%


Per-loan servicing cost shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	697,255		$	683,461		$	676,564		$	662,770		$	655,873		$	642,080
Change in fair value:
$	$	27,588		$	13,794		$	6,897		$	(6,897)		$	(13,794)		$	(27,588)
%		4.12	%		2.06	%		1.03	%		(1.03)	%		(2.06)	%		(4.12)	%

Excess Servicing Spread Financing

The following tables summarize the estimated change in fair value of our excess servicing spread financing accounted for using the fair value method as of September 30 , 201 5 , given several shifts in pricing spreads and prepayment speed (decrease in the liabilities’ values increases net income) :

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Pricing spread shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	440,060		$	429,044		$	423,743		$	408,609		$	413,530		$	399,118
Change in fair value:
$	$	21,487		$	10,471		$	5,170		$	(9,964)		$	(5,043)		$	(19,455)
%		5.13	%		2.50	%		1.24	%		(2.38)	%		(1.20)	%		(4.65)	%


Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)
Fair value	$	461,449		$	439,062		$	428,595		$	408,971		$	399,763		$	382,441
Change in fair value:
$	$	42,875		$	20,488		$	10,022		$	(9,602)		$	(18,810)		$	(36,133)
%		10.24	%		4.89	%		2.39	%		(2.29)	%		(4.49)	%		(8.63)	%

Item 3. Quantitative and Qualitative Disclosures About Market Ris k

In response to this Item 3, the information set forth on pages 7 4 to 7 5 of this Report is incorporated herein by reference.

Item 4. Controls and Procedure s

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rule 13a-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosur e.

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the nine months ended September 30 , 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATIO N

Item 1. Legal Proceeding s

From time to time, we may be involved in various legal proceedings, claims and actions arising in the ordinary course of business. As of September 30 , 2015, we were not involved in any such legal proceedings, claims or actions that management believes would be reasonably likely to have a material adverse effect on us .

Item 1A. Risk Factor s

T here have been no material changes from the risk factors set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 13, 2015 and our Quarterly Reports on Form 10-Q filed thereafter.

Item 2. Unregistered Sales of Equity Securities and Use of Proceed s

None.

Item 3. Defaults Upon Senior Securitie s

None.

Item 4. Mine Safety Disclosure s

Not applicable.

Item 5. Other Informatio n

None.

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Item 6. Exhibit s


Exhibit Number		Exhibit Description
3.1		Amended and Restated Certificate of Incorporation of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

3.2		Amended and Restated Bylaws of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, 2013).

4.1		Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 4 to Form S-1 Registration Statement as filed with the SEC on April 29, 2013).

10.1		Fourth Amended and Restated Limited Liability Company Agreement of Private National Mortgage Acceptance Company, LLC, dated as of May 8, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.2		Exchange Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and Private National Mortgage Acceptance Company, LLC and the Company Unitholders (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.3		Tax Receivable Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. Private National Mortgage Acceptance Company, LLC and each of the Members (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.4		Registration Rights Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and the Holders (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.5		Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and BlackRock Mortgage Ventures, LLC (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.6		Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and HC Partners LLC (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.7†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

10.8†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 16, 2013).

10.9†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Executive Officers.

10.10†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Other Eligible Participants.

10.11†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on June 17, 2013).

10.12†		Form of PennyMac Financial Services, Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.8 of the Registrant’s Amendment No. 2 to Form S-1 Registration Statement as filed with the SEC on April 5, 2013).

Table of Contents


Exhibit Number		Exhibit Description

10.13†		Employment Agreement, dated as of April 20, 2013, by and among Private National Mortgage Acceptance Company, LLC, PennyMac Financial Services, Inc. and Stanford L. Kurland (incorporated by reference to Exhibit 10.34 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.14†		Employment Agreement, dated as of April 20, 2013, by and among Private National Mortgage Acceptance Company, LLC, PennyMac Financial Services, Inc. and David A. Spector (incorporated by reference to Exhibit 10.35 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.15		Mortgage Banking and Warehouse Services Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.9 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.16		Amendment No. 1 to Mortgage Banking and Warehouse Services Agreement, dated as of March 1, 2013, by and between PennyMac Loan Services LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.31 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.17		Amendment No. 2 to Mortgage Banking and Warehouse Services Agreement, dated as of August 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, 2013).

10.18		Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.30 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.19		Amendment No. 1 to Second Amended and Restated Flow Servicing Agreement, dated as of November 14, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 20, 2013).

10.20		Amendment No. 2 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.21		Amendment No. 3 to Second Amended and Restated Flow Servicing Agreement, dated as of December 11, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.22		Amendment No. 4 to Second Amended and Restated Flow Servicing Agreement, dated as of March 31, 2015, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

10.23		Amendment No. 5 to Second Amended and Restated Flow Servicing Agreement, dated as of September 1, 2015, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC.

10.24		MSR Recapture Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.11 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

Table of Contents


Exhibit Number		Exhibit Description
10.25		Amendment No. 1 to MSR Recapture Agreement, dated as of August 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.26		Amended and Restated Management Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.12 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.27		Amended and Restated Underwriting Fee Reimbursement Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.13 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.28		Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P., dated as of February 1, 2013 (incorporated by reference to Exhibit 10.26 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.29		Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P., dated as of September 30, 2013 (incorporated by reference to Exhibit 10.25 of the Registrant’s Form S-1/A Registration Statement as filed with the SEC on October 23, 2013).

10.30		Amendment No. 2 to Master Spread Acquisition and MSR Servicing Agreement, dated as of November 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.27 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).

10.31		Amendment No. 3 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 19, 2014, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.28 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.32		Amendment No. 4 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.32 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

10.33		Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC dated as of December 30, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K/A as filed with the SEC on March 21, 2014).

10.34		Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, dated as of June 1, 2014, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.31 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.35		Amendment No. 2 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.35 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

Table of Contents


Exhibit Number		Exhibit Description
10.36		Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of April 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015).

10.37		Amendment No. 1 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of August 26, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC.

10.38		Master Spread Acquisition and MSR Servicing Agreement, dated as of December 19, 2014, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated by reference to Exhibit 1.01 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 24, 2014).

10.39		Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.38 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

10.40		Amended and Restated Confidentiality Agreement, dated as of March 1, 2013, by and between PennyMac Mortgage Investment Trust and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.29 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.41		Amended and Restated Flow Servicing Agreement, by and between PNMAC Mortgage Co., LLC and PennyMac Loan Services, LLC, dated August 1, 2010 (incorporated by reference to Exhibit 10.14 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.42		Amendment No. 1 to the Amended and Restated Flow Servicing Agreement, dated as of December 4, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Co., LLC (incorporated by reference to Exhibit 10.41 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.43		Second Amended and Restated Flow Servicing Agreement, dated as of August 1, 2008, as amended effective as of January 1, 2012, by and between PNMAC Mortgage Opportunity Fund Investors, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.15 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.44		Amendment No. 1 to the Second Amended and Restated Flow Servicing Agreement, dated as of December 5, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Opportunity Fund Investors, LLC (incorporated by reference to Exhibit 10.43 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.45		Amended and Restated Flow Servicing Agreement, dated as of August 1, 2010, by and between PNMAC Mortgage Opportunity Fund, LP and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.27 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.46		Amendment No. 1 to the Amended and Restated Flow Servicing Agreement, dated as of December 4, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Opportunity Fund, L.P. (incorporated by reference to Exhibit 10.45 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

Table of Contents


Exhibit Number		Exhibit Description
10.47		Investment Management Agreement, as amended and restated May 26, 2011, by and between PNMAC Mortgage Opportunity Fund, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.16 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.48		Investment Management Agreement, dated as of August 1, 2008, between PNMAC Mortgage Opportunity Fund Investors, LLC and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.17 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.49		Master Repurchase Agreement, dated as of March 17, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.18 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.50		Amendment No. 1 to Master Repurchase Agreement, dated as of July 21, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.51		Amendment No. 2 to Master Repurchase Agreement, dated as of March 23, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.52		Amendment No. 3 to Master Repurchase Agreement, dated as of August 28, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.53		Amendment No. 4 to Master Repurchase Agreement, dated as of January 3, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.54		Amendment No. 5 to Master Repurchase Agreement, dated as of March 28, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.55		Amendment No. 6 to Master Repurchase Agreement, dated as of January 31, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 6, 2014).

10.56		Amendment No. 7 to Master Repurchase Agreement, dated as of March 27, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.44 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.57		Amendment No. 8 to Master Repurchase Agreement, dated as of August 13, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.48 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

Table of Contents


Exhibit Number		Exhibit Description
10.58		Amendment No. 9 to Master Repurchase Agreement, dated as of January 30, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.49 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.59		Guaranty, dated as of March 17, 2011, by Private National Mortgage Acceptance Company, LLC in favor of Bank of America, N.A (incorporated by reference to Exhibit 10.50 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.60		Master Repurchase Agreement, dated as of June 26, 2012, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.20 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.61		Amendment Number One to the Master Repurchase Agreement, dated as of December 31, 2012, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.62		Amendment Number Two to the Master Repurchase Agreement, dated April 17, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.40 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.63		Amendment Number Three to the Master Repurchase Agreement, dated June 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.41 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.64		Amendment Number Four to the Master Repurchase Agreement, dated July 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.42 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.65		Amendment Number Five to the Master Repurchase Agreement, dated February 5, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.50 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.66		Amendment Number Six to the Master Repurchase Agreement, dated February 25, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.51 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.67		Amendment Number Seven to the Master Repurchase Agreement, dated July 24, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.54 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.68		Amendment Number Eight to the Master Repurchase Agreement, dated August 7, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.55 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.69		Amendment Number Nine to the Master Repurchase Agreement, dated September 8, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.58 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

10.70		Amendment Number Ten to the Master Repurchase Agreement, dated July 6, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.69 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.71		Amendment Number Eleven to the Master Repurchase Agreement, dated August 3, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 5, 2015).

Table of Contents


Exhibit Number		Exhibit Description

10.72		Amendment Number Twelve to the Master Repurchase Agreement, dated September 7, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A.

10.73		Amendment Number Thirteen to the Master Repurchase Agreement, dated October 22, 2015, between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on October 28, 2015).

10.74		Guaranty Agreement, dated as of June 26, 2012, by Private National Mortgage Acceptance Company, LLC in favor of Citibank, N.A (incorporated by reference to Exhibit 10.61 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.75		Second Amended and Restated Loan and Security Agreement, dated as of March 27, 2012, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.22 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.76		Amendment No. 1 to Second Amended and Restated Loan Security Agreement, dated as of December 12, 2012, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.77		Amendment No. 2 to Second Amended and Restated Loan Security Agreement, dated as of March 22, 2013, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

10.78		Amendment No. 3 to Second Amended and Restated Loan Security Agreement, dated as of December 30, 2013, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on January 3, 2014).

10.79		Amendment No. 4 to Second Amended and Restated Loan Security Agreement, dated as of October 31, 2014 among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.66 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.80		Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015, among Credit Suisse First Boston Mortgage Capital LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 2, 2015).

10.81		Amendment No. 1 to Third Amended and Restated Loan and Security Agreement, dated as of June 5, 2015, among Credit Suisse First Boston Mortgage Capital LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.78 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.82		Amendment No. 2 to Third Amended and Restated Loan and Security Agreement, dated as of July 27, 2015, among Credit Suisse First Boston Mortgage Capital LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.79 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.83		Amendment No. 3 to Third Amended and Restated Loan and Security Agreement, dated as of August 26, 2015, among Credit Suisse First Boston Mortgage Capital LLC and PennyMac Loan Services, LLC .

Table of Contents


Exhibit Number		Exhibit Description
10.84		Master Spread Participation Agreement, dated as of March 27, 2015, by and among PennyMac Loan Services, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.73 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

10.85		Amendment No. 1 to Master Spread Participation Agreement, dated as of August 26, 2015, by and among PennyMac Loan Services, LLC and PennyMac Loan Services, LLC.

10.86		Loan and Security Agreement, dated as of April 30, 2015, among PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015).

10.87		Amendment No. 1 to Loan and Security Agreement, dated as of October 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC.

10.88		Second Amended and Restated Guaranty, dated as of March 27, 2015, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 2, 2015).

10.89		Amended and Restated Master Repurchase Agreement, dated as of May 3, 2013, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.36 of the Registrant’s Amendment No. 5 to Form S-1 Registration Statement as filed with the SEC on May 7, 2013).

10.90		Amendment No. 1 to Amended and Restated Master Repurchase Agreement, dated as of September 5, 2013, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.47 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.91		Amendment No. 2 to Amended and Restated Master Repurchase Agreement, dated as of January 10, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.58 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.92		Amendment No. 3 to Amended and Restated Master Repurchase Agreement, dated as of March 13, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.59 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.93		Amendment No. 4 to Amended and Restated Master Repurchase Agreement, dated as of April 30, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 5, 2014).

10.94		Amendment No. 5 to Amended and Restated Master Repurchase Agreement, dated as of May 22, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.65 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.95		Amendment No. 6 to Amended and Restated Master Repurchase Agreement, dated as of June 3, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.66 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

Table of Contents


Exhibit Number		Exhibit Description
10.96		Amendment No. 7 to Amended and Restated Master Repurchase Agreement, dated as of October 31, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.75 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.97		Amendment No. 8 to Amended and Restated Master Repurchase Agreement, dated as of December 23, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.76 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.98		Amendment No. 9 to Amended and Restated Master Repurchase Agreement, dated as of October 30, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC .

10.99		Guaranty, dated as of August 14, 2009, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.77 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.100		Master Repurchase Agreement, dated as of July 2, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013).

10.101		Amendment Number One to the Master Repurchase Agreement, dated as of August 26, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.49 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.102		Amendment Number Two to the Master Repurchase Agreement, dated as of January 28, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.63 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.103		Amendment Number Three to the Master Repurchase Agreement, dated as of June 30, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.70 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.104		Amendment Number Four to the Master Repurchase Agreement, dated as of June 29, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.98 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.105		Amendment Number Five to the Master Repurchase Agreement, dated as of July 27, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 27, 2015).

10.106		Guaranty Agreement, dated as of July 2, 2013, by Private National Mortgage Acceptance Company, LLC in favor of Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013).

10.107		Mortgage Loan Participation Purchase and Sale Agreement, dated as of August 13, 2014, by and among PennyMac Loan Services, LLC, Private National Mortgage Acceptance Company, LLC and Bank of America, N.A. (incorporated by reference to Exhibit 10.72 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.108		Amendment No. 1 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of January 30, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.84 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

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Exhibit Number		Exhibit Description

10.109		Amended and Restated Guaranty, dated as of August 13, 2014, by Private National Mortgage Acceptance Company, LLC in favor of Bank of America, N.A. (incorporated by reference to Exhibit 10.73 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.110		Flow Sale Agreement, dated as of June 16, 2015, by and between PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.104 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

31.1		Certification of Stanford L. Kurland pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Anne D. McCallion pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Anne D. McCallion pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (ii) the Consolidated Statements of Income for the quarters ended September 30, 2015 and September 30, 2014, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended September 30, 2015 and September 30, 2014, (iv) the Consolidated Statements of Cash Flows for the quarters ended September 30, 2015 and September 30, 2014 and (v) the Notes to the Consolidated Financial Statements.

*		The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

†		Indicates management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PENNYMAC FINANCIAL SERVICES, INC.
	(Registrant)

Dated: November 6 , 2015	By:	/S/ STANFORD L. KURLAND
		Stanford L. Kurland
		Chairman of the Board of Directors and Chief Executive Officer

Dated: November 6 , 2015	By:	/S/ ANNE D. MCCALLION
		Anne D. McCallion
		Chief Financial Officer

PennyMac Financial Services, Inc.
2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit

Award Agreement

This Agreement is dated as of , 2013, between PennyMac Financial Services, Inc., a corporation organized under the laws of the State of Delaware (the “ Company ”), and the individual identified in the table below (the “ Recipient ”).

Recipient

Grant Date

Vesting Commencement Date

Number of RSUs Subject to

Continued Service

Number of RSUs Subject to

Performance Components

Total Number of RSUs

Performance Period

1. Grant of Restricted Stock Units . Subject to the terms and conditions of this Award Agreement and the Company’s 2013 Equity Incentive Plan, as the same may be amended, modified, supplemented or interpreted from time to time (the “ Plan ” ) , including without limitation the vesting provisions set forth in Section 2, the Company hereby grants to the Recipient , with effect as of the Grant Date specified above , the above indicated number of restricted stock units ( the “ RSUs ” ) to obtain (i) for each RSU that is subject to vesting based on continued service, one fully paid and nonassessable share of Class A Common Stock, par value $0.0001 per share, in the Company (the “ Stock ”), and (ii) for each RSU that is subject to vesting based on the satisfaction of performance components, one fully paid and nonassessable share of Stock if the Variance to Target is [ ] , all as set forth on Exhibit A attached hereto, or such greater number (up to a maximum of [ ] shares of Stock) or lesser number as is obtained by applying the sliding scale percentage factors that are to be applied to the various performance components as set forth on such Exhibit A .

2. Vesting and Settlement .

2.1 The RSUs shall vest in accordan ce with the schedule set forth below .

(a) Vesting Based on Continued Service . O ne-third ( 1/3 ) of the RSUs subject to vesting based on continued service shall vest in a lump sum on each of the first , second, and third anniversaries of the Vesting Commencement Date specified above , subject to

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the Recipient’s continued service through each such anniversary , with any fractions rounded down except on the final installment. The shares of Stock earned as such RSUs vest will be transferred or issued to the Recipient (or his or her estate, in the event of his or her death) promptly after the date they vest , but in any event not later than the 15th day of the third month following the end of the calendar year in which such RSUs become vested .

(b) Vesting Based on Performance Components . The RSUs subject to vesting based on satisfaction of performance components are subject to cumulative achievement of goals based on the following performance components : [ (1) the Company’s Earnings Per Share, (2) the Company’s Total Shareholder Return, (3) the Company’s Return on Equity , and ( 4 ) the Recipient’s Individual Effectiveness ] , in the amounts and each as further described in Exhibit A attached hereto. T he RSUs subject to vesting based on satisfaction of performance components shall vest in a lump sum on the date the Committee determines that the goals based on the performance components have been satisfied , subject to the Recipient’s continued service through such date . The Recipient’s satisfaction of goals based on performance components shall be determined by the Committee in its sole discretion . The shares of Stock earned as such RSUs vest will be transferred or issued to the Recipient (or his or her estate, in the event of his or her death) promptly after they vest , but in any event not later than the 15th day of the third month following the end of the calendar year in which such RSUs become vested . Notwithstanding anything to the contrary in this Agreement, if any settlement of RSUs would otherwise result in the issuance of a fractional share to the Recipient after aggregating all shares and fractional shares to be issued to the Recipient in connection with such settlement, then any such final fractional share shall be eliminated and the Company shall pay to the Recipient, in lieu thereof, cash in an amount equal to (i) the average closing price of a share of Stock during the 10 most recent trading days prior to the date of issuance of the other shares issued in settlement of such RSU, multiplied by (ii) such fractional amount.

2.2 Until the RSUs vest and are issued pursuant to the terms of this Award Agreement , the Recipient shall have no rights as a stockholder, such as the right to vote or to receive dividends in respect of the Stock covered by this A ward.

2.3 The Recipient’s name shall be entered as the stockholder of record on the books and records of the transfer agent for the Company with respect to the Stock issuable pursuant to Section 2 . 1 only upon compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such issuance and with the requirements of this Agreement and of the Plan. The determination of the Committee as to such compliance shall be final and binding on the Recipient . Notwithstanding anything to the contrary in this Agreement, no Stock shall be issued in settlement of vested RSUs if the issuance of such shares would constitute a violation of any applicable federal or state securities law or other law or regulation. As a condition to the issuance of Stock to the R ecipient pursuant to Section 2.1 , the Company may require the Recipient to make any representation or warranty to the Company at the time vested Stock becomes issuable to the Recipient as in the opinion of legal counsel for the Company may be required by any applicable law or regulation, including the execution and delivery of an appropriate representation statement. Accordingly, the stock

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certificates for the Stock issued pursuant to this Award may bear appropriate legends restricting the transfer of the Stock.

3. Effect of Termination. Unless otherwise expressly provided herein, no RSUs shall vest following the date ( t he Recipient ’s “ Termination Date ”), reasonably fixed and determined by the Committee, of the voluntary or involuntary termination of t he Recipient ’s employment or other association with all of the Company and its Affiliates, for any or no reason whatsoever, including death or disability and an entity ceasing to be an Affiliate of the Company; provided, however, that military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which t he Recipient ’s reemployment rights, if any, are guaranteed by statute or by contract. As of t he Recipient ’s Termination Date, all of the then unvested RSUs shall be forfeited by t he Recipient or any t ransferee .

4. Restrictions on Transfer . The RSUs may not be assigned or transferred (by operation of law or otherwise) except by will or the laws of descent and distribution.

5 . Miscellaneous.

5 .1 No Special Service Rights . Nothing contained in this Award Agreement shall confer upon the Recipient any right with respect to the continuation of his or her employment or other association with the Company (or any Affiliate), or interfere in any way with the right of the Company (or any Affiliate), subject to the terms of any separate employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment or consulting agreement or to increase or decrease, or otherwise adjust, the other terms and conditions of the Recipient’s employment or other association with the Company and its Affiliates.

5 .2 Entire Agreement ; Counterparts . This Award Agreement, including the Plan, constitute the entire agreement of the parties with respect to the subject matter hereof. This Award Agreement may be executed in any number of counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same instrument. In making proof of this Award Agreement it shall not be necessary to produce or account for more than one such counterpart.

5. 3 Tax Consequences. The Company makes no representation or warranty as to the tax treatment to the Recipient of receipt of these RSUs, and does not warrant to the Recipient that all compensation paid or delivered to him or her for his or her services will be exempt from, or paid in compliance with, Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. The Recipient should rely on his or her own tax advisors for all such advice.

5 . 4 Community Property. To the extent the Recipient resides in a jurisdiction in which community property rules apply, w ithout prejudice to the actual rights of the spouses as between each other, for all purposes of this Award Agreement, the Recipient shall be treated as agent and attorney-in-fact for that interest held or claimed by the Recipient’s spouse

A/75523132.9

with respect to these RSUs and the parties hereto shall act in all matters as if the Recipient was the sole owner of these RSUs . This appointment is coupled with an interest and is irrevocable.

6 . Receipt of Plan. The RSUs were awarded under the Plan , to which this Award Agreement is subject in all respects , including without limitation the adjustment and tax withholding provisions therein . All capitalized terms used in this Award Agreement and not otherwise defined shall have the meanings ascribed thereto in the Plan. The Recipient has reviewed and understand s the Plan and this Award Agreement in their entirety, and has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement. The Recipient hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Award Agreement.

IN WITNESS WHEREOF , t he Recipient and the Company have entered into this Award Agreement as of the Grant Date.

PENNYMAC FINANCIAL SERVICES, INC.

By: ___________________________ _______________________________

Signature of Recipient

Title:___________________________

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PennyMac Financial Services, Inc. 2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement

Exhibit A

Recipient: ____________________ _______ _

Performance Period: _ ____________________ _______

RSUs Subject to Performance

Components (“Grant”) : ____________ ____________

Total Potential Share s i f Maximum

Potential Components Satisfied: ____ ____________________

PFSI Equity Incentive Plan Performance Objectives

Award Components	Component	Comments	Target	% of Total
	1. Earnings Per Share
	2. Total Shareholder Return (TSR)
	3. Return on Equity (ROE)
	4 . Individual Effectiveness

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PennyMac Financial Services, Inc. 2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement

Exhibit A

Pay-Out Scale for Component 1	Variance to Target	Factor







Pay-Out Scale for Component 2	Variance to Target	Factor







Pay-Out Scale for Component 3	Variance to Target	Factor







Multiplier Scale for Component 4	Rating	Description	Factor
	5	Outstanding
	4	Exceeds Expectations
	3	Meets Expectations
	2	Needs Improvement
	1	Unsatisfactory

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AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED

FLOW SERVICING AGREEMENT

Amendment No. 5 to Second Amended and Restated Flow Servicing Agreement , dated as of September 1 , 2015 (the “ Amendment ”), by and between PennyMac Loan Services, LLC, a Delaware limited liability company (the “ Servicer ”), and PennyMac Operating Partnership, L.P. , Delaware limited partnership (the “ Owner ”) .

RECITALS

WHEREAS, the Servicer and the Owner are parties to that certain Second Amended and Restated Flow Servicing Agreement , dated as of March 1, 2013 (the “ Existing Servicing Agreement ” and, as amended by th is Amendment, the “ Servicing Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Servicing Agreement .

WHEREAS, the Servicer and the Owner have agreed, subject to the terms and conditions of this Amendment, that the Existing Servicing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Servicing Agreement .

NOW, THEREFORE, in consideration of the mutual premises and mutual obligations set forth herein, the Servicer and the Owner hereby agree that the Existing Servicing Agreement is hereby amended as follows:

SECTION 1. Definitions . Section 1.01 of the Existing Servicing Agreement is hereby amended by deleting the definition s of “ Ancillary Income ”, “ Servicing Fee ” and “ Supplemental Servicing Fee ” and replacing each in its entirety as follows :

Ancillary Income : All income derived from the Mortgage Loans (other than payments or other collections in respect of principal, interest, Escrow Payments and Prepayment Penalties attributable to the Mortgage Loans) including, but not limited to, assumption fees, reconveyance fees, subordination fees, speedpay fees, mortgage pay on the web fees, automatic clearing house fees, demand statement fees, modification fees, if any, fees received with respect to checks on bank drafts returned by the related bank for insufficient funds , the Servicer’s share of all late charges, and other similar types of fees arising from or in connection with any Mortgage Loan to the extent not otherwise payable to the Mortgagor under applicable law or pursuant to the terms of the related Mortgage Note. In no event shall the Servicer be entitled to any Prepayment Penalties.

Servicing Fee : With respect to each Mortgage Loan, the monthly sum of (a) the applicable Base Servicing Fee, (b) if such Mortgage Loan is a Third Party Loan, the applicable Additional Servicing Fee , and (c) if such Mortgage Loan is a Distressed Whole Loan, the applicable Supplemental Servicing Fee . With respect to each newly boarded Mortgage Loan, boarded on or before the 15th day of the

month, the Servicer shall be entitled to receive the full monthly Servicing Fee for each newly boarded Mortgage Loan. With respect to each newly boarded Mortgage Loan boarded after the 15th day of the month, the Servicer shall be entitled to one-half of the monthly Servicing Fee for each newly boarded Mortgage Loan. With respect to each Mortgage Loan released from servicing, Servicer shall be entitled to receive the full monthly Servicing Fee irrespective of the applicable release date.

Supplemental Servicing Fee : With respect to each Distressed Whole Loan, the Supplemental Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.

Third Party Loan : A Mortgage Loan (including any Correspondent Loan) owned by a third party investor and with respect to which Owner owns or has otherwise acquired the Servicing Rights relating thereto , and any Correspondent Loan held by Owner as a whole loan .

SECTION 2. Servicing of Agency Mortgage Loans . Article III of the Existing Servicing Agreement is hereby amended by deleting Section 3.01 in its entirety and replacing it as follows:

Section 3.01 Servicer to Act as Servicer of Agency Mortgage Loans .

The Servicer shall service and administer each Agency Mortgage Loan in accordance and shall otherwise comply in all respects with the related Guide, including the requirements of such Guide relating to the maintenance of custodial and escrow accounts , it being understood that any interest paid by the depository institution on funds deposited in any related custodial account or escrow account shall accrue to the benefit of the Owner . To the extent required by law, the Owner shall be responsible for interest on escrowed funds to the Mortgagor notwithstanding that such escrow account may be non interest bearing or that interest paid thereon is insufficient for such purposes.

SECTION 3. Servicing of Non-Agency Mortgage Loans . Article IV of the Existing Servicing Agreement is hereby amended as follows:

(a) by deleting the last sentence of Section 4.04 in its entirety and replacing it as follows:

Any interest paid by the depository institution on funds deposited in the Custodial Account and relating to any Distressed Whole Loan shall accrue to the benefit of the Servicer and the Servicer may retain any such interest.

(b) by deleting Section 4.05(vi) in its entirety and replacing it as follows:

(vi) to pay to itself any interest earned on funds deposited in the Custodial Account and relating to any Distressed Whole

Loan (all such interest to be withdrawn monthly not later than each Remittance Date); and

Any interest paid on funds deposited in the Escrow Account by the depository institution and relating to any Distressed Whole Loan shall accrue to the benefit of the Servicer. To the extent required by law, the Servicer shall be responsible to pay from its own funds interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may be non interest bearing or that interest paid thereon is insufficient for such purposes.

(d) by deleting Section 4.07(vi) in its entirety and replacing it as follows:

(vi) to pay the Servicer, or any Mortgagors to the extent required by law, any interest due on the funds deposited in the Escrow Account and relating to any Distressed Whole Loan or to pay the Owner, or any Mortgagors to the extent required by law, any interest paid on the funds deposited in the Escrow Account and relating to any Mortgage Loan other than a Distressed Whole Loan ;

SECTION 4. Exhibits . Exhibit 9 of the Existing Servicing Agreement is hereby amended by deleting it in its entirety and replacing it with the form attached hereto as Exhibit A.

SECTION 5. Conditions Precedent . This Amendment shall become effective as of the date first set forth above (the “ Amendment Effective Date ”) , subject to the satisfaction of the following conditions precedent:

5.1 Delivered Documents . On or prior to the Amendment Effective Date, each party shall have received the following documents, each of which shall be satisfactory to such party in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of the Servicer and the Owner ; and

(b) such other documents as such party or counsel to such party may reasonably request.

5.2 Representations and Warranties . On or prior to the Amendment Effective Date, each party shall be in compliance in all material respects with all the terms and provisions set forth in the Existing Servicing Agreement on its part to be observed or performed.

SECTION 6. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Servicing Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 7. GOVERNING LAW . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

SECTION 8. Counterparts . This Amendment may be executed in one or more counterparts and by different parties hereto on separate counterparts, each of which, when so executed, shall constitute one and the same agreement.

SECTION 9. Conflicts . The parties hereto agree that in the event there is any conflict between the terms of this Amendment, and the terms of the Existing Servicing Agreement , the provisions of this Amendment shall control.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.

The Servicer : PENNYMAC LOAN SERVICES, LLC

By: _ /s/ Anne D. McCallion ________________
Name: Anne D. McCallion
Title: Chief Financial Officer

The Owner : PENNYMAC OPERATING PARTNERSHIP, L.P.

By: PennyMac GP OP, Inc . ,

_________________ its General Partner

By: _ /s/ Andrew S. Chang _________________
Name: Andrew S. Chang
Title: Chief Business Development Officer

Exhibit A

EXHIBIT 9

TERM SHEET

THIRD PARTY LOANS

BASE SERVICING FEES
(per loan)

With respect to each Mortgage Loan that is a Third Party Loan and not a Distressed Whole Loan, the Base Servicing Fee shall be:

(i) if such Mortgage Loan is a Fixed-Rate Mortgage Loan, $7.50; or

(ii) if such Mortgage Loan is an Adjustable-Rate Mortgage Loan, $8.50.

ADDITIONAL SERVICING FEES

(per loan)

With respect to each Mortgage Loan that is a Third Party Loan, the Additional Servicing Fee shall be one of the following:

(i) if, as of the first day of the relevant month, such Mortgage Loan is not delinquent, or is delinquent by less than 30 days, and no bankruptcy proceeding is pending by or against the Mortgagor, 0;

(ii) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 30 days or more and less than 60 days, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $10.00;

(iii) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 60 days or more and less than 90 days, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $20.00;

(iv) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 90 days or more, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $50.00;

(v) if, as of the first day of the relevant month, a bankruptcy proceeding is pending by or against the Mortgagor, $45.00;

Exh. 9- 1

(vi) if, as of the first day of the relevant month, foreclosure proceedings have been commenced and the Mortgaged Property has not become an REO Property, $55.00; or

(vii) if, as of the first day of the relevant month, the Mortgaged Property has become an REO Property, $75.00.

Exh. 9- 2

DISTRESSED WHOLE LOANS

BASE SERVICING FEES
(per loan)

With respect to each Mortgage Loan that is a Distressed Whole Loan, the Base Servicing Fee shall be one of the following:

(i) if, as of the first day of the relevant month, such Mortgage Loan is not delinquent, or is delinquent by less than 30 days, and no bankruptcy proceeding is pending by or against the Mortgagor, $30.00;

(ii) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 30 days or more and less than 90 days, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $60.00;

(iii) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 90 days or more, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $ 90 .00;

(iv) if, as of the first day of the relevant month, such Mortgage Loan is not delinquent, or is delinquent by less than 30 days, and a bankruptcy proceeding is pending by or against the Mortgagor, $100.00;

(v) if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 30 days or more, and a bankruptcy proceeding is pending by or against the Mortgagor, $100.00;

(vi) if, as of the first day of the relevant month, foreclosure proceedings have been commenced and the Mortgaged Property has not become an REO Property, $125.00; or

(vii) if, as of the first day of the relevant month, the Mortgaged Property has become an REO Property, $75.00.

SUPPLEMENTAL SERVICING FEES

With respect to each Mortgage Loan that is a Distressed Whole Loan, the Supplemental Servicing Fee shall be $25.00.

Exh. 9- 3

THIRD PARTY LOANS AND DISTRESSED WHOLE LOANS

OTHER KEY PARAMETERS


Remittance Types	Actual/Actual Basis during Interim Servicing Period
Remittance Date	See definition of Remittance Date
Servicing Advances	Servicer to be reimbursed monthly for all unpaid Servicing Advances incurred by Servicer in the prior month including Cost of Funds.
Cost of Funds on Servicing Advances	Refer to Section 5.04
Prepayment Penalties	Owner will retain 100% of the prepayment penalties.
Late Charges Collected	Servicer will retain 75 % of late charges collected by Servicer
Ancillary Income	Servicer will retain 100% of all Ancillary Income
Delegated Authority	Refer to Exhibit 10
Contract Term	Refer to Section 8.01
Eligible Mortgage Loan	See definition of Eligible Mortgage Loan

ANCILLARY INCOME AND OTHER FEES

The Servicer shall be entitled to all Ancillary Income and the following Other Fees in addition to the Servicing Fee:

Setup Fee : With respect to each Mortgage Loan, other than a Distressed Whole Loan, $10.00 if information is provided to Servicer in a format that enables electronic boarding or $25.00 if information is provided to Servicer in format that necessitates manual boarding. With respect to each Distressed Whole Loan, $15.00 if information is provided to Servicer in format that enables electronic boarding or $25.00 if information is provided to Servicer in format that necessitates manual boarding.

Service Release Fee : With respect to each Mortgage Loan, other than a Distressed Whole Loan, $25.00 if released on or prior to the first anniversary of boarding, $23.00 if released after the first anniversary of boarding and on or prior to the second anniversary of boarding, and $18.00 if released thereafter. With respect to each Distressed Whole Loan, $500.00 if released within one

Exh. 9- 4

year of boarding, $40.00 if released within two years of boarding and $40.00 if released thereafter.

Deed in Lieu Fee : $500, unless the deed in lieu is completed under the U.S. Treasury’s Home Affordable Foreclosure Alternatives initiative, in which case no Deed in Lieu Fee shall apply .

Liquidation Fee : 150 basis points of the gross proceeds received in connection with either the disposition of a Mortgage Loan (including the sale of the related Mortgage Note) or an REO Property or a full or discounted payoff accepted by the Servicer with respect to a Mortgage Loan, including a full or discounted payoff accepted in connection with the sale of the Mortgaged Property to a third party.

REO Property Rental Fee : $30 per month per REO Property .

REO Property Management Fee : Servicer’s cost if property management services and/or any related software costs are outsourced to a third party property management firm or 9% of gross rental income if Servicer provides property management services directly.

Tax Service Contract : $75.00 per Mortgage Loan .

Flood Zone Service Contract : Servicer’s cost .

MERS Fee : Servicer’s cost .

Reperformance Fee : 150 basis points of the unpaid principal balance of the Mortgage Loan (as then in effect) if the Mortgage Loan is brought current (after having been delinquent for a period of 90 days or more) without any modification and remains current for a consecutive period of 12 months or is sold prior to the expiration of such 12 months.

Modification Fee : 150 basis points of the unpaid principal balance of the Mortgage Loan (as in effect immediately after the consummation of the modification) if the modification includes an interest rate reduction or is classified by the Servicer (acting in accordance with Accepted Servicing Practices) as a full modification; or, if the Servicer participates in the U.S. Treasury’s Home Affordable Modification program (or other similar mortgage loan modification programs) and enters into a transaction involving the Mortgage Loan that results in the payment or retention of any incentive payment to the Servicer or Owner and the Servicer is not otherwise entitled to a Modification Fee as set forth above, 150 basis points of the unpaid principal balance of the Mortgage Loan (as in effect immediately after the consummation of the transaction).

If the Servicer enters into a transaction involving the Mortgage Loan under the U.S. Treasury Department’s Home Affordable Modification program (or other similar mortgage loan modification programs) that results in any incentive payment to the Servicer or Owner and the Servicer has already collected a Modification Fee, the Servicer shall reimburse the Owner the amount of such incentive payments.

In the event the Servicer effects a refinancing of a Distressed Whole Loan on behalf of the Owner and not through a third party lender and the resulting Mortgage Loan is readily saleable, or the Servicer originates a Mortgage Loan to facilitate the disposition of REO

Exh. 9- 5

Property, the Servicer shall be entitled to fees and other compensation in connection with such originations based on market-based pricing and terms that are consistent with the pricing and terms offered by the Servicer to unaffiliated third parties on a retail basis. The amount of the compensation and the pricing and terms offered by the Servicer shall be subject to review by the Owner and the Servicer from time to time to reflect market rates. The Owner shall reimburse the Servicer for any out of pocket expenses that the Servicer incurs in connection with any such origination, including title fees, legal fees and closing costs.

Exh. 9- 6

EXECUTION

AMENDMENT NO. 1
TO AMENDED AND RESTATED MASTER SPREAD ACQUISITION AND MSR SERVICING AGREEMENT

Amendment No. 1 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement , dated as of August 26 , 2015 (this “ Amendment ”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (“ CSFB ”), PENNYMAC LOAN SERVICES , LLC (the “ Seller ”) and PENNYMAC HOLDINGS , LLC (the “ Purchaser ”).

RECITALS

The Seller and the Purchaser are parties to that certain Amended and Restated Master Spread Acquisition and MSR Servicing Agreement , dated as of April 30 , 2015 ( t he “ Existing Agreement ”; as further amended by this Amendment, the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing A greement.

The Purchaser transferred the Participation Certificate to CSFB in accordance with the terms of the Existing Agreement in order to perfect CSFB ’s interest in the Participation Interest.

CSFB , the Seller and the Purchaser have agreed, subject to the terms and conditions of this Amendment, that the Existing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Agreement.

Accordingly, CSFB , the Seller and the Purchaser hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Agreement is hereby amended as follows :

SECTION 1. Definition s . The definition of “ Servicing Agreement ” in Section 1.01 of the Existing Agreement is hereby deleted in its entirety and replace d with the following:

“ Servicing Agreement ” means, with respect to each Mortgage Loan, any servicing agreement, including, with respect to any Mortgage Loan serviced for an Agency, Seller ’s “contract” with such Agency (as defined in the applicable Acknowledgment Agreement) and, without duplication, the applicable Agency Guide, as amended from time to time, and any waivers, consent letters, acknowledgments and other agreements under which such Mortgage Loan is serviced and administered.

SECTION 2. Seller’s Duties With Respect to Servicing . Section 7 .01 of the Existing Agreement is here by amended by deleting clause (a ) in its entirety and replacing it with the following:

(a) Effective on the Transaction Settlement Date for each Primary Portfolio, the Seller agrees for the benefit of the Purchaser to service the related Primary Portfolio Mortgage Loans and any Secondary Portfolio Mortgage Loans at all times in strict accordance in all material respects with the applicable Servicing Agreement . In connection with the Primary Portfolio Mortgage Loans and Secondary Portfolio

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Mortgage Loans related to each Transaction, the Seller shall not, without the express written consent of Purchaser (which consent may be withheld in its absolute discretion), (a) terminate or amend any Servicing Rights, or (b) enter into any termination, modification, waiver or amendment of any applicable Servicing Agreement or its rights and duties there under.

SECTION 3. Effective Date; Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”) subject to the satisfaction of the following conditions precedent:

3.1 Delivered Documents . On the Amendment Effective Date, CSFB shall have received the following documents, each of which shall be satisfactory to CSFB in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of CSFB , the Seller and the Purchaser ; and

(b) such other documents as CSFB or counsel to CSFB may reasonably request.

SECTION 4. Representations and Warranties . Each of the Seller and the Purchaser hereby repre sents and warrants to CSFB that it is in compliance with all the terms and provisions set forth in the Agreement on its part to be observed or p erformed, and that no Event of Default has occurred or is continuing, and (x) with respect to the Seller hereby confirms and reaffirms the representations and warranties contained in Section 6 of the Agreement and (y) with respect to the Purchaser hereby confirms and reaffirms the representations and warranties contained in Section 5 of the Agreement .

SECTION 5. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms .

SECTION 6. Severability . Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.

SECTION 7. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. This Agreement may be executed by signature(s) transmitted by facsimile.

SECTION 8. GOVERNING LAW . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, WHICH SHALL GOVERN) .

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LEGAL02/35796263v4

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.

CSFB :	CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
	By: /s/ Adam Loskove Name: Adam Loskove Title: Vice President
Seller :	PENNYMAC LOAN SERVICES, LLC
	By: /s/ Pamela Marsh Name: Pamela Marsh Title: Executive Vice President, Treasurer
Purchaser :	PENNYMAC HOLDINGS , LLC
	By: /s/ Pamela Marsh Name: Pamela Marsh Title: Executive Vice President, Treasurer

Signature Page to Amendment No. 1 to
Amended and Restated Master Spread Acquisition and MSR Servicing Agreement

EXECUTION

AMENDMENT NUMBER TWELVE

to the

MASTER REPURCHASE AGREEMENT

Dated as of June 26, 2012,

by and between

PENNYMAC LOAN SERVICES, LLC

and

CITIBANK, N.A.

This AMENDMENT NUMBER TWELVE (this “ Amendment Number Twelve ”) is made this 7th day of September, 2015, by and between PENNYMAC LOAN SERVICES, LLC (“Seller”) and CITIBANK, N.A. (“ Buyer ”), to the Master Repurchase Agreement, dated as of June 26, 2012, by and between Seller and Buyer, as such agreement may be amended from time to time (the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.

RECITALS

WHEREAS, Seller and Buyer have agreed to amend the Agreement to extend the term of the facility, as more specifically set forth herein; and

WHEREAS, as of the date hereof, Seller represents to Buyer that the Seller Parties are in full compliance with all of the terms and conditions of the Agreement and each other Program Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Program Document.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the mutual covenants herein contained, the parties hereto hereby agree as follows:

Section 1. Amendment . Effective as of September 7, 2015 (the " Amendment Effective Date "):

(a) Section 2 of the Agreement is hereby amended by adding the new definition of “2015 Extension Fee” in the appropriate alphabetical order to read as follows:

“ 2015 Extension Fee ” shall have the meaning assigned to it in the Pricing Side Letter.

(b) Section 2 of the Agreement is hereby amended by deleting the definition of “Termination Date” in its entirety and replacing it with the following:

“ Termination Date ” shall mean October 22, 2015, or such earlier date on which this Agreement shall terminate in accordance with the provisions hereof or by operation of law.”

Section 2. Fees and Expenses . Seller agrees to pay to Buyer all reasonable out of pocket costs and expenses incurred by Buyer in connection with this Amendment Number Twelve (including any 2015 Extension Fee due and payable, all reasonable fees and out of pocket costs and expenses of the Buyer’s legal counsel) in accordance with Sections 23 and 25 of the Agreement.

Section 3. Representations . Seller hereby represents to Buyer that as of the date hereof, the Seller Parties are in full compliance with all of the terms and conditions of the Agreement and each other Program Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Program Document .

Section 4. Binding Effect; Governing Law . This Amendment Number Twelve shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT NUMBER TWELVE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL GOVERN).

Section 5. Counterparts . This Amendment Number Twelve may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

Section 6. Limited Effect . Except as amended hereby, the Agreement shall continue in full force and effect in accordance with its terms. Reference to this Amendment Number Twelve need not be made in the Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Agreement, any reference in any of such items to the Agreement being sufficient to refer to the Agreement as amended hereby.

[Signature Page Follows]

Amendment Number Twelve to Master Repurchase Agreement PLS-Agency

IN WITNESS WHEREOF, Seller and Buyer have caused this Amendment Number Twelve to be executed and delivered by their duly authorized officers as of the Amendment Effective Date.

PENNYMAC LOAN SERVICES, LLC,

(Seller)

By:_ /s/ Pamela Marsh ____________________

Name: Pamela Marsh

Title: Executive Vice President, Treasurer

CITIBANK, N.A.

(Buyer and Agent, as applicable)

By: /s/ Susan Mills

Name: Susan Mills

Title: Vice President
Citibank, N.A.

Acknowledged:

PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC

By:_ /s/ Pamela Marsh ______________________

Name: Pamela Marsh

Title: Executive Vice President, Treasurer

Amendment Number Twelve to Master Repurchase Agreement PLS-Agency

EXECUTION

AMENDMENT NO. 3
TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

Amendment No. 3 to Third Amended and Restated Loan and Security Agreement , dated as of August 26 , 2015 (this “ Amendment ”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (the “ Lende r ”) , PENNY MAC LOAN SERVICES, LLC (“ Borrower ” ) , and PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC ( “ PNMAC ” ) .

RECITALS

The Borrower, Lender and PNMAC are parties to that certain Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015 , as amended by Amendment No. 1, dated June 5, 2015 and Amendment No. 2, dated as of July 27, 2015 (the “ Existing Loan Agreement ”; and as further amended by this Amendment, the “ Loan and Security Agreement ”) and the related Second Amended and Restated Pricing Side Let ter, dated as of March 27, 2015 (as the same may be amended from time to time, the “ Pricing Side Letter ”). PNMAC is a party to that certain Second Amended and Restated Guaranty (as the same may be amended from time to time, the “ PNMAC Guaranty ”), dated as of March 27, 2015, by PNMAC in favor of Lender. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Loan Agreement and the PNMAC Guaranty, as applicable.

The Borrower, the Lender and PNMAC have agreed, subject to the terms and conditions of this Amendment, that the Existing Loan Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Loan Agreement. As a condition precedent to amending the Existing Loan Agreement, the Lender has required PNMAC to ratify and affirm the PNMAC Guaranty on the date hereof.

Accordingly, the Borrower, the Lender and PNMAC hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that t he Ex isting Loan Agreement is hereby amended as follow s:

SECTION 1. Recitals . The first recital in the Existing Loan Agreement is hereby deleted in its entirety and replaced with the following:

WHEREAS, the Borrower has entered into P articipation Agreement s in order to create Participation Certificate s which evidence Portfolio Excess Spread;

SECTION 2. Definitions .

(a) The definition s of “ Acknowledgement Agreement ”, “ Asset ” , “ Participation Certificate ”, “ Receivables ”, “ Servicing Contracts ”, “ Servicing Rights ” and “ Servicing Rights Borrowing Base ” in Section 1 of the Existing Loan Agreement are hereby deleted in their entirety and replaced with the following:

“ Acknowledgment Agreement ” means (a) with respect to Agency Servicing Rights, an acknowledgment agreement in the form prescribed by Fannie Mae,

Freddie Mac or Ginnie Mae, as applicable to be executed by Borrower, Lender and such Agency as a condition to the Borrower’s pledging Fannie Mae, Freddie Mac or Ginnie Mae (as the case may be) Servicing Rights to the Lender and otherwise acceptable to Lender in its sole discretion and (b) with respect to a Participation Certificate related to Agency Servicing Rights, an acknowledgment in form and substance acceptable to Lender in its sole discretion; provided that such form of acknowledgment with respect to the Participation Certificate s related to Ginnie Mae Servicing Rights shall be an acknowledgment agreement in the form prescribed by Ginnie Mae to be executed by Borrower (in its capacities as Borrower and as I nitial Partici pant), Lender (in its capacity as Lender and as registered Participant ) and Ginnie Mae; provided further that the Underlying Spread Counterparty has joined in the acknowledgment agreement for the limited purpose of agreeing to be bound by the terms thereof which are applicable to Borrower.

“ Asset ” means any (a) Receivable, (b) any Servicing Rights and (c) without duplication, the related Participation Certificates (including, for the avoidance of doubt, all Portfolio Excess Spread ) , in each case, pledged to secure the Obligations hereunder as more particularly set forth on Schedule 2.

“ Participation Certificate ” means the original participation certificate issued and delivered in connection with a Participation Agreement , and , (i) with respect to the Participation Certificate issued pursuant to the Master Spread Acquisition Agreement, transferred by Borrower to Underlying Spread Counterparty pursuant to the Underlying Spread Transaction , and (ii) with respect to the Participation Certificate issued pursuant to the Master Spread Participation Agreement, issued to Borrower, then , in each case, re-registered into the name of the Lender .

“ Receivables ” means, collectively, the reimbursement rights relating to Servicer Advances under each Servicing Contract, each and every right of Borrower to receive reimbursement payments for the Servicer Advances in accordance with a Servicing Contract, whether now existing or hereafter arising, and whether or not constituting an “account” or a “general intangible” under the UCC but not evidenced by “chattel paper” or an “instrument,” as defined in the UCC, and the Related Security.

“ Servicing Contracts ” means, collectively, (i) with respect to all Assets other than Ginnie Mae Advances, those servicing agreements described on Schedule 2 attached hereto, as amended from time to time, to which Borrower is a party, pursuant to which Borrower acts as the servicer of portfolios of Mortgage Loans or specified Mortgage Loans, and by which Borrower’s servicing obligations are governed with respect to an Eligible Securitization Transaction and with respect to Servicing Rights, in the case of each Servicing Contract between Borrower and an Agency, subject to an Acknowledgement Agreement with such Agency, and (ii) with respect to Ginnie Mae Advances, the Repurchase Agreement to the extent of the servicing requirements set forth therein, pursuant to which Borrower will service the related Ginnie Mae Loans. For all purposes of this Agreement, the term “Servicing Contracts” shall include any and all instruments, agreements, invoices

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or other writings, which gives rise to or otherwise evidence any of the Receivables or Servicing Rights. Without limiting the generality of the foregoing, any reference herein to a “Servicing Contract” between Borrower and an Agency shall be deemed to include the relevant Acknowledgment Agreement, if any, with such Agency.

“ Servicing Rights ” means all of the Borrower’s rights and interests under any Servicing Contract, including the rights to (a) service the Mortgage Loans that are the subject matter of such Servicing Contract and (b) receive compensation payments under such Servicing Contract , directly or indirectly, for doing so.

“ Servicing Rights Borrowing Base ” means the aggregate Collateral Value of those Servicing Rights and, without duplication, the related Participation Certificates pledged to Lender hereunder.

(b) clause s ( e ) , (h), (m), (o) and (q) of the definition of “ Eligible Asset ” in Section 1 of the Existing Loan Agreement are each hereby deleted in their entirety and replaced with the following:

( e ) which is genuine and constitutes a legal, valid, binding and irrevocable payment obligation, enforceable in accordance with the terms of the Servicing Contract or (subject to the applicable Servicing Contract) Participation Agreement, as applicable, under which it has arisen, subject to no offsets, counterclaims or defenses;

(h) which is owned solely by Borrower (or with respect to Repledge Portfolio Excess Spread, the Underlying Spread Counterparty) subject to the relevant Servicing Contract free and clear of all Liens other than Liens in favor of Lender (and in the case of Repledge Portfolio Excess Spread, Liens in favor of the Borrower) and has not been sold, conveyed, pledged or assigned to any other lender, purchaser or Person;

(m) in respect of which Borrower has obtained from each Person that may have an interest in such Asset (i) all acknowledgements or approvals, if any, that are necessary to pledge such Asset as contemplated hereby (including, without limitation, the acknowledgement of any securitization trustee relating thereto) and (ii) other than with respect to an Agency, if applicable, releases of any security interests in such Asset;

(o) which is a Ginnie Mae Advance , which advance (i) is subject to reimbursement by HUD, FHA or VA for FHA Mortgage Insurance Contract or VA Loan Guaranty Agreement , as applicable, and (ii) is a claim which has not been rejected by HUD , VA or FH A for any reason which impairs the FHA Mortgage Insurance Contract or VA Loan Guaranty Agreement, as applicable ;

(q) with respect to any Asset that constitutes a Participation Certificate,

(i) which is intended to constitute a “security” as defined in the Uniform Commercial Code and is evidenced by a certificate;

(ii) for which the related Servicing Rights relate to an Eligible Securitization Transaction and have been pledged to the Lender hereunder;

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(iii) for which the Participation Certificate arose pursuant to a Participation Agreement that is in full force and effect; and

(iv) for which the related Servicing Rights are an Eligible Asset hereunder.

(a) clause s (a) and (f) of the definition of “ Eligible Securitization Transaction ” in Section 1 of the Existing Loan Agreement are each hereby deleted in their entirety and replaced with the following:

(a) other than with respect to Ginnie Mae Servicing Rights , which are reimbursable only after making payments on any related mortgage-backed securities , provides that each Asset and/or amounts due in respect thereof are reimbursable or payable to Borrower under the related Servicing Contract from amounts subsequently received in collections on account of the related Mortgage Loan;

(f) provides that the Advance Financing Person shall be entitled to reimbursement of all Servicer Advances other than in respect of loans in a Ginnie Mae pool directly by the trustee, servicer, master servicer or other party approved by the Advance Financing Person, or by withdrawal itself, in the same manner and to the same extent as if the Advance Financing Person were the servicer thereunder, free and clear of any rights of any other party but subject to all terms, conditions and other requirements of the relevant Servicing Contracts(s) ;

SECTION 3. Repayment and Prepayment of Principal . Section 2.03 of the Existing Loan Agreement is hereby amended by deleting subparagraph (b) in its entirety and replacing it with the following:

(b) Without limiting the foregoing, on each Interest Payment Date, Borrower shall sweep all amounts received with respect to (i) Servicing Rights to the applicable Servicing Rights Dedicated Account and (ii) Receivables to the Receivables Dedicated Account in accordance with Section 6.14 hereof to be applied in accordance with Section 2.07 hereof (provided that Borrower shall remit to each of the applicable Dedicated Accounts, in accordance with Section 2.14 hereof, all proceeds received with respect to Assets not otherwise required to be deposited in a clearing, custodial or escrow account pursuant to the related Servicing Contract).

SECTION 4. Agency Approvals; Servicing Facilities . Section 3.24 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

Section 3.24 Agency Approvals; Servicing Facilities . Borrower has adequate financial standing, servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices. With respect to Ginnie Mae Servicing Right s, Borrower is a Ginnie Mae approved issuer. T o the extent necessary, Borrower is an FHA Approved Mortgagee and a VA Approved Lender.

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Borrower is also approved by Fannie Mae as an approved lender and Freddie Mac as an approved seller/servicer, and, to the extent necessary, approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act. In each such case, Borrower is in good standing, with no event having occurred or Borrower having any reason whatsoever to believe or suspect will occur, including a change in insurance coverage which would either make Borrower unable to comply with the eligibility requirements for maintaining all such applicable approvals or require notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA. Should Borrower for any reason cease to possess all such applicable approvals, or should notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA be required, Borrower shall so notify Lender immediately in writing.

SECTION 5. Collateral Security . Section 4.01 of the Existing Loan Agreement is hereby amended by deleting subparagraph (d) in its entirety and replacing it with the following:

(d) The parties acknowledge that each Agency has certain rights under the appli cable Acknowledgement Agreement, including the right to cause the Borrower to transfer servicing to Lender or Lender’s designee under certain circumstances as more particularly set forth therein . To the extent that an Agency requires a transfer of servicing to Lender’s Affiliate, SPS or another Affiliate, and in order to secure Borrower’s obligations to effect such transfer, Borrower hereby assigns, pledges, conveys and grants a security interest in all of its right, title and interest in, to and under the Servicing Rights to SPS, whether now owned or hereafter acquired, now existing or hereafter created and wherever located. The parties acknowledge that, to the extent that an Agency exercises its rights to cause the Borrower to transfer the Servicing Rights and Portfolio Excess Spread to Lender, SPS or another Affiliate (and, if accepted by Lender, to cause Lender, SPS or another Affiliate of Lender to accept and assume the responsibility for performing Borrower’s servicing duties under, and otherwise complying with the applicable Servicing Contract) without the requirement of payment therefor, such transfer shall be deemed a transfer in exchange for debt forgiveness by Lender in an amount equal to the lesser of (x) the fair market value of such Servicing Rights and Portfolio Excess Spread and (y) the outstanding balance of the Loans attributable to such Servicing Rights and Portfolio Excess Spread, each as determined by Lender. SPS shall have all the rights and remedies against Borrower and the Collateral as set forth herein and under the UCC.

SECTION 6. Limited Pledge of Ginnie Mae Servicing . Section 4.04 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

Section 4.04 Limited Pledge of Ginnie Mae Servicing . To the extent that the pledge of the Borrower’s right, title and interest in mortgage servicing rights under Servicing Contracts with Ginnie Mae shall at any time be included within the security interest created hereby, the Lender acknowledges and agrees that (x) the Borrower is entitled to servicing income with respect to a given mortgage pool only so long as Borrower is an issuer in good standing pursuant to Ginnie Mae rules, regulations, guides and similar announcements; (y) upon the Borrower’s loss of such good-standing issuer status, the

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Lender’s rights to any servicing income related to a given mortgage pool also terminate; and (z) the pledge of the Borrower’s rights to servicing income conveys no rights (such as a right to become a substitute servicer or issuer) that are not otherwise specifically provided for in the rules, regulations, guides or similar announcements by Ginnie Mae, provided that this sentence shall automatically be deemed amended or modified if and to the extent Ginnie Mae amends the corresponding requirement, whether in its rules, regulations, guides, Servicing Contracts, the applicable Acknowledgment Agreements, if any, or published announcements and provided further that the security interest created hereby is subject to the following provision to be included in each financing statement filed in respect hereof (defined terms used below shall have the meaning set forth in the applicable Acknowledgment Agreement):

The property subject to the security interest reflected in this instrument includes all of the right, title and interest of PennyMac Loan Services, LLC (“ Debtor ”) in certain mortgages and/or participation interests related to such mortgages (“ Pooled Mortgages ”) and all right, title and int erest of PennyMac Holdings, LLC in such Pooled Mortgages, and pooled under the mortgage-backed securities program of the Government National Mortgage Association (“Ginnie Mae”), pursuant to section 306(g) of the National Housing Act, 12 U.S.C. § 1721(g);

To the extent that the security interest reflected in this instrument relates in any way to the Pooled Mortgages, such security interest is subject and subordinate to all rights, powers and prerogatives of Ginnie Mae, whether now existing or hereafter arising, under and in connection with: (i) 12 U.S.C. § 1721(g) and any implementing regulations; (ii) the terms and conditions of that certain Acknowledgment Agreement, with respect to the Security Interest, by and among Ginnie Mae, Debtor and Credit Suisse First Boston Mortgage Capital LLC ; (iii) applicable Guaranty Agreements and contractual agreements between Ginnie Mae and the Debtor; and (iv) the Ginnie Mae Mortgage-Backed Securities Guide, Handbook 5500.3 Rev. 1, and other applicable guides; and

such rights, powers and prerogatives of Ginnie Mae include, but are not limited to, Ginnie Mae’s right, by issuing a letter of extinguishment to Debtor, to effect and complete the extinguishment of all redemption, equitable, legal or other right, title or interest of the Debtor in the Pooled Mortgages, in which event the security interest as it relates in any way to the Pooled Mortgages shall instantly and automatically be extinguished as well.

SECTION 7. Acknowledgment Agreement . Section 4.06 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

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Section 4.06 Acknowledgement Agreements . Notwithstanding any other provision hereof to the contrary, Lender may elect, but shall not be obligated, to treat Agency Servicing Rights and the related Participation Certificate s as having zero Collateral Value until the date on which an Acknowledgment Agreement covering such has been executed and delivered by the Borrower, Lender and Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor , as applicable.

SECTION 8. Lender’s Appointment as Attorney-in-Fact .

(a) Section 4.08 of the Existing Loan Agreement is hereby amended by adding the following sentence at the end of such section:

Notwithstanding anything to the contrary herein or any of the other Loan Documents, any appointment set forth in this Section 4. 08 shall be subject to the Servicing Contracts and Acknowledgement Agreements entered into with Ginnie Mae.

(b) Section 4.08 of the Existing Loan Agreement is hereby amended by deleting clause (iii) of subparagraph (a) of such section in its entirety and replacing it with the following:

(iii) except to the extent inconsistent with the applicable Servicing Contracts and the Acknowledgment Agreements, request that Fannie Mae Servicing Rights, Freddie Mac Servicing Rights, Ginnie Mae Servicing Rights and Servicing Rights in respect of Mortgage Loans owned by any other investor or guarantor be transferred to Lender or to another servicer approved by Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) and perform (without assuming or being deemed to have assumed any of the obligations of Borrower thereunder) all aspects of each Servicing Contract that is Collateral consisting of Servicing Rights;

(c) Section 4.08 of the Existing Loan Agreement is hereby amended by deleting clause (iv) of subparagraph (a) of such section in its entirety and replacing it with the following:

(iv) request distribution to Lender of sale proceeds or any applicable contract termination fees arising from the sale or termination of such Servicing Rights and remaining after satisfaction of Borrower’s relevant obligations to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be), including costs and expenses related to any such sale or transfer of such Servicing Rights and other amounts due for unmet obligations of Borrower to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) under applicable Fannie Mae Guides, Freddie Mac Guides, Ginnie Mae Guides or such other investor’s or guarantor ’s contract;

SECTION 9. Remedies . Section 4.11 of the Existing Loan Agreement is hereby amended by adding the following sentence at the end of such section:

Notwithstanding anything to the contrary herein or in any of the other Loan Documents, the remedies set forth in this Section 4.11 shall be subject to the Servicing

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Contracts and Acknowledgement Agreements entered into with Ginnie Mae, Fannie Mae or Freddie Mac, as applicable.

SECTION 10. Repledge Portfolio Excess Spread . Section 5.02 of the Existing Loan Agreement is hereby amended by deleting subparagraph (h) thereof in its entirety and replacing it with the following :

(h) Repledge Portfolio Excess Spread . If such Loan Advance is with respect to Repledge Portfolio Excess Spread , (i ) Lender shall have received and approved the Underlying Spread Documents in its sole discretion and following such approval received duly executed copies thereof by the parties thereto, (ii) the Underlying Spread Counterparty shall have satisfied all conditions precedent to the entry into such Underlying Spread Transaction under the Underlying Spread Loan Agreement and (iii) Lender shall have received all of the following items, each of which shall be satisfactory to Lender and its counsel in form and substance :

(i) an amendment to the Master Spread Acquisition and MSR Servicing Agreement (i) requiring all cash to be remitted to the Dedicated Account and (ii) in order to evidence the transfer of the Repledge Portfolio Excess Spread from Borrower to Underlying Spread Counterparty thereunder;

(ii) an amendment to the Security and Subordination Agreement permitting all proceeds to be remitted to the Dedicated Account;

(iii) a security interest, general corporate and enforceability opinion or opinions of counsel to Borrower and Guarantor, including an Investment Company Act opinion indicating that it is not necessary to register Borrower under the Investment Company Act of 1940, as amended , and (ii) an opinion of outside counsel to Borrower and Guarantor covering comparable matters with respect to the Underlying Spread Documents; and

SECTION 11. Collections on Assets and the Dedicated Accounts . Section 6.14 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

Section 6.14 Collections on Assets and the Dedicated Accounts . Prior to the Borrower making any withdrawal from the custodial account or any other clearing account maintained under the related Servicing Contract, the Borrower shall instruct the related depository institution to remit all collections, payments and proceeds in respect of any Receivable that are payable to Borrower under such Servicing Contract (but only to the extent that such funds are payable to Borrower free and clear of any Agency rights or other restrictions on transfer set forth in such Servicing Contract) and pledged hereunder to be deposited into the Receivables Dedicated Account and on account of Servicing Rights, including the Portfolio Excess Spread, to the applicable Servicing Rights Dedicated Account; provided that any amounts received on account of Ginnie Mae Advances in the Ginnie Mae Account shall be remitted to the Dedicated Account in accordance with the Securities Account Control Agreement. Borrower shall not withdraw or direct the

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withdrawal or remittance of any amounts on account of any Receivables or Servicing Rights income related to any Servicing Contract from any custodial account into which such amounts have been deposited other than to remit to each of the applicable Dedicated Accounts or, solely with respect to Ginnie Mae Advances on deposit in the Ginnie Mae Account, as provided in the Securities Account Control Agreement.

SECTION 12. Modification of the Servicing Contracts and Participation Agreements . Section 6.31 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

Section 6.31 Modification of the Servicing Contracts and Participation Agreements . Borrower shall not consent with respect to any Servicing Contracts or Participation Agreements related to any Asset that constitutes Collateral, to (i) the modification, amendment or termination of such Servicing Contracts or Participation Agreements, (ii) the waiver of any provision of such Servicing Contracts or Participation Agreements or (iii) the resignation of Borrower as servicer under the Servicing Contracts, or the assignment, transfer, or material delegation of any of its rights or obligations, under such Servicing Contracts or Participation Agreements, without the prior written consent of Lender exercised in Lender’s sole discretion. Notwithstanding anything to the contrary herein or any of the other Loan Documents, Ginnie Mae has the absolute and unconditional right to modify the Ginnie Mae Guide at any time, Fannie Mae has the absolute and unconditional right to modify the Fannie Mae Guide at any time and Freddie Mac has the absolute and unconditional right to modify the Freddie Mac G uide at any time .

SECTION 13. Hypothecation or Pledge of Collateral . Section 10.10 of the Existing Loan Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:

Section 10.10 Hypothecation or Pledge of Collateral . Subject to the relevant Acknowledgment Agreement with any Agency, Lender shall have free and unrestricted use of all Collateral and nothing in this Agreement shall preclude Lender from engaging in repurchase transactions with all or a portion of the Collateral or otherwise pledging, repledging, transferring, hypothecating, or rehypothecating all or a portion of the Collateral.

SECTION 14. Form of Power of Attorney (Lender) . Exhibit B-1 of the Existing Loan Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with the exhibit attached hereto as Annex I .

SECTION 15. Form of Power of Attorney (SPS) . Exhibit B-2 of the Existing Loan Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with the exhibit attached hereto as Annex II .

SECTION 16. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:

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2 .1 Delivered Documents . On the Amendment Effective Date, the Lender shall have received the following documents, each of which sh all be satisfactory to the Lender in form and substance:

(a) this Amendment, executed and delivered by the duly authorized officers of the Lender, Borrower and P N MAC ;

(b) an amendment to the Participation Agreement executed and delivered by the parties thereto; and

SECTION 17. Representations and Warranties . The Borrower hereby represents and warrants to the Lender that it is in compliance with all the terms and provisions set forth in the Existing Loan Agreement on its part to be observed or performed, and that no Event of Default has occurred and is continuing, and hereby confirms and reaffirms the representations and warranties contained in the Loan and Security Agreement.

SECTION 18. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Loan Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 19. Severability . Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction .

SECTION 20. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts (including by facsimile or .pdf), each of which shall be an original and all of which taken together shall constitute one and the same instrument.

Section 1. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.

SECTION 21. Reaffirmation of Guarant y . PNMAC hereby ratifies and affirms all of the terms, covenants, conditions and obligations of the PNMAC Guaranty.

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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC , as Lender

By: /s/ Adam Loskove
Name: Adam Loskove
Title: Vice President

PENNYMAC LOAN SERVICES, LLC , as Borrower

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC , as a Guarantor

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

Signature Page to Amendment No. 3 to Third Amended and Restated Loan and Security Agreement

ANNEX I

EXHIBIT B-1

FORM OF POWER OF ATTORNEY

Reference is made to the Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015 (as amended from time to time, the “ Agreement ”) among PennyMac Loan Services, LLC (the “ Borrower ”), Private National Mortgage Acceptance Company, LLC (the “ Guarantor ”) and Credit Suisse First Boston Mortgage Capital LLC (the “ Lender ”).

KNOW ALL MEN BY THESE PRESENTS, Borrower hereby irrevocably constitutes and appoints Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in Lender’s discretion, in accordance with the terms of the Agreement, for the purpose of carrying out the terms of the Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Agreement, and, without limiting the generality of the foregoing, Borrower hereby gives Lender the power and right, on behalf of Borrower, without assent by, but with notice to, Borrower, if permitted under the terms of the Agreement, to do the following:

(a) in the name of Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due with respect to (i) all r eceivables arising und er or related to any servicing c ontract described in the Agreement ; (ii) all servicing r ights a rising under or related to any s e rvicing c ontract described in the Agreement ; (iii) all rights to reimbursement of assets under related servicing c ontract s described in the Agreement ; (iv) any ac count s described in the Agreement ; (v) all records, instruments or other documentation evidencing any of the foregoing; (vi) all “general intangibles”, “accounts”, “chattel paper”, “securities accounts”, “investment property”, “deposit accounts” and “money” as defined in the Uniform Commercial Code relating to or constituting any and all of the foregoing (including, without limitation, all of Borrower’s rights, title and interest in an d under any related servicing c ontracts described in the Agreement ); and (vii) any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing ( any and all property listed in clauses (i) through (vii), collectively, the “ Collateral ”) and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Lender for the purpose of collecting any and all such moneys due with respect to any Collateral whenever payable;

(b) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral;

(c) except to the extent inconsistent with the applicable Servicing Contracts and the Acknowledgement Agreements, request that Fannie Mae Servicing Rights, Freddie Mac Servicing Rights, Ginnie Mae Servicing Rights and Servicing Rights in respect of

Exhibit B-1- 1

LEGAL02/35727242v6

Mortgage Loans owned by any other investor or guarantor be transferred to Lender or to another servicer approved by Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) and perform (without assuming or being deemed to have assumed any of the obligations of Borrower thereunder) all aspects of each Servicing Contract that is Servicing Rights Collateral;

(d) request distribution to Lender of sale proceeds or any applicable contract termination fees arising from the sale or termination of such Servicing Rights and remaining after satisfaction of Borrower’s relevant obligations to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be), including costs and expenses related to any such sale or transfer of such Servicing Rights and other amounts due for unmet obligations of Borrower to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) under applicable Fannie Mae Guides, Freddie Mac Guides, Ginnie Mae Guides or such other investor’s or guarantor’s contract;

(e) deal with investors and any and all subservicers and master servicers in respect of any of the servicing r ights in the same manner and with the same effect as if done by Borrower; and

(f) (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to Lender or as Lender shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as Lender may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner thereof for all purposes, and to do, at Lender’s option and Borrower’s expense, at any time, and from time to time, all acts and things which Lender deems necessary to protect, preserve or realize upon the Collateral and Lender’s Liens thereon and to effect the intent of the Agreement, all as fully and effectively as Borrower might do.

This power of attorney is a power coupled with an interest and shall be irrevocable until such time as all Obligations have been paid in full and the Agreement is terminated.

Borrower also authorizes Lender, at any time and from time to time, to execute, in connection with any sale provided for in the Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

Exhibit B-1- 2

LEGAL02/35727242v6

The powers conferred on Lender are solely to protect Lender’s interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither Lender nor any of its officers, directors, or employees shall be responsible to Borrower for any act or failure to act hereunder, except for Lender’s own gross negligence or willful misconduct.

Notwithstanding anything to the contrary herein or any of the other Loan Documents, this power of attorney shall be subject to the Servicing Contracts and Acknowledgement Agreements entered into with Ginnie Mae, Fannie Mae or Freddie Mac, as applicable.

Any capitalized term used but not defined herein shall have the meaning assigned to such term in the Agreement.

TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, BORROWER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND LENDER ON ITS OWN BEHALF AND ON BEHALF OF LENDER’S ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.

Exhibit B-1- 3

LEGAL02/35727242v6

IN WITNESS WHEREOF Borrower has caused this Power of Attorney to be executed and Borrower’s seal to be affixed this day of ________ , 2015.

PENNYMAC LOAN SERVICES, LLC

By: _______________________________________________________
Name:
Title:

Signature Page to Power of Attorney

STATE OF )
) ss.:
COUNTY OF )

On the ____________ day of _______ , 2015 before me, a Notary Public in and for said State, personally appeared , known to me to be ______________________________________________ of Borrower, the institution that executed the within instrument and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument.

IN WITNESS WHEREOF, I have hereunto set my hand affixed my office seal the day and year in this certificate first above written.

_____________________________
Notary Public

My Commission expires

Signature Page to Power of Attorney

ANNEX II

EXHIBIT B-2

FORM OF POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, Borrower hereby irrevocably constitutes and appoints Select Portfolio Servicing, Inc. (“SPS”) and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in SPS’s discretion, in accordance with the terms of the Agreement, for the purpose of carrying out the terms of the Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Agreement, and, without limiting the generality of the foregoing, Borrower hereby gives SPS the power and right, on behalf of Borrower, without assent by, but with notice to, Borrower, if permitted under the terms of the Agreement, to do the following:

(a) in the name of Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due with respect to (i) all receivables arising under or related to any servicing contract described in the Agreement; (ii) all servicing rights arising under or related to any servicing contract described in the Agreement; (iii) all rights to reimbursement of assets under related servicing contracts described in the Agreement; (iv) any accounts described in the Agreement; (v) all records, instruments or other documentation evidencing any of the foregoing; (vi) all “general intangibles”, “accounts”, “chattel paper”, “securities accounts”, “investment property”, “deposit accounts” and “money” as defined in the Uniform Commercial Code relating to or constituting any and all of the foregoing (including, without limitation, all of Borrower’s rights, title and interest in and under any related servicing contracts described in the Agreement); and (vii) any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing (any and all property listed in clauses (i) through (vii), collectively, the “ Collateral ”) and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by SPS for the purpose of collecting any and all such moneys due with respect to any Collateral or related Mortgage Loans whenever payable;

(g) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral or related Mortgage Loans;

(h) except to the extent inconsistent with the applicable Servicing Contracts and the Acknowledgement Agreements, request that Fannie Mae Servicing Rights, Freddie Mac Servicing Rights, Ginnie Mae Servicing Rights and Servicing Rights in respect of

Exhibit B-2- 1

LEGAL02/35727242v6

Mortgage Loans owned by any other investor or guarantor be transferred to SPS or to another servicer approved by Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) and perform (without assuming or being deemed to have assumed any of the obligations of Borrower thereunder) all aspects of each Servicing Contract that is Servicing Rights Collateral;

(i) request distribution to SPS of sale proceeds or any applicable contract termination fees arising from the sale or termination of such Servicing Rights and remaining after satisfaction of Borrower’s relevant obligations to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be), including costs and expenses related to any such sale or transfer of such Servicing Rights and other amounts due for unmet obligations of Borrower to Fannie Mae, Freddie Mac, Ginnie Mae or such other investor or guarantor (as the case may be) under applicable Fannie Mae Guides, Freddie Mac Guides, Ginnie Mae Guides or such other investor’s or guarantor ’s contract;

(j) deal with investors and any and all subservicers and master servicers in respect of any of the servicing r ights and related Mortgage Loans in the same manner and with the same effect as if done by Borrower; and

(k) (A) to direct any party liable for any payment under any Collateral or the related Mortgage Loans to make payment of any and all moneys due or to become due thereunder directly to SPS or as SPS shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as SPS may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though SPS were the absolute owner thereof for all purposes, and to do, at SPS’s option and Borrower’s expense, at any time, and from time to time, all acts and things which SPS deems necessary to protect, preserve or realize upon the Collateral and SPS’s Liens thereon and to effect the intent of the Agreement, all as fully and effectively as Borrower might do.

This power of attorney is a power coupled with an interest and shall be irrevocable until such time as all Obligations have been paid in full and the Agreement is terminated.

Borrower also authorizes SPS, at any time and from time to time, to execute, in connection with any sale provided for in the Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

Exhibit B-2- 2

LEGAL02/35727242v6

The powers conferred on SPS are solely to protect SPS’s interests in the Collateral and shall not impose any duty upon SPS to exercise any such powers. SPS shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither SPS nor any of its officers, directors, or employees shall be responsible to Borrower for any act or failure to act hereunder, except for SPS’s own gross negligence or willful misconduct.

Any capitalized term used but not defined herein shall have the meaning assigned to such term in the Agreement.

TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, BORROWER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SPS ON ITS OWN BEHALF AND ON BEHALF OF SPS’S ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.

Exhibit B-2- 3

LEGAL02/35727242v6

IN WITNESS WHEREOF Borrower has caused this Power of Attorney to be executed and Borrower’s seal to be affixed this day of ______ , 2015.

PENNYMAC LOAN SERVICES, LLC

By: _______________________________________________________
Name:
Title:

Exhibit B-2- 4

LEGAL02/35727242v6

STATE OF [ ] )
) ss.:
COUNTY OF [ ] )

On the ____________ day of March, 2015 before me, a Notary Public in and for said State, personally appeared , known to me to be ______________________________________________ of Borrower, the institution that executed the within instrument and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument.

IN WITNESS WHEREOF, I have hereunto set my hand affixed my office seal the day and year in this certificate first above written.

_____________________________
Notary Public

My Commission expires

Exhibit B-2- 5

LEGAL02/35727242v6

EXECUTION

AMENDMENT NO. 1
TO MASTER SPREAD PARTICIPATION AGREEMENT

Amendment No. 1 to Master Spread Participation Agreement , dated as of August 26 , 2015 (this “ Amendment ”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (the “ Lender ”), PENNYMAC LOAN SERVICES, LLC (the “ Company ”) and PENNYMAC LOAN SERVICES, LLC (the “ Initial Participant ”).

RECITALS

The Company and the Initial Participant are parties to that certain Master Spread Participation Agreement, dated as of March 27 , 2015 ( t he “ Existing Agreement ”; as further amended by this Amendment, the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing A greement.

The Initial Participant transferred the Participation Certificate to the Lender in accordance with the terms of the Existing Agreement in order to perfect the Lender’s interest in the Participation Interest.

The Lender , the Company and the Initial Participant have agreed, subject to the terms and conditions of this Amendment, that the Existing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Agreement.

Accordingly, the Lender , the Company and the Initial Participant hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Agreement is hereby amended as follows :

SECTION 1. Definition s . The definition of “ Servicing Agreement ” in Section 1 of the Existing Agreement is hereby deleted in its entirety and replace d with the following:

“ Servicing Agreement ” means, with respect to each Mortgage Loan, any servicing agreement, including, with respect to any Mortgage Loan serviced for an Agency, Borrower’s “contract” with such Agency (as defined in the applicable Acknowledgment Agreement) and, without duplication, the applicable Agency Guide, as amended from time to time, and any waivers, consent letters, acknowledgments and other agreements under which such Mortgage Loan is serviced and administered.

SECTION 2. Servicing and Other Matters . Section 7(a) of the Existing Agreement is hereby amended by deleting clause (i) in its entirety and replacing it with the following:

(i) The Company agrees for the benefit of the Participant to service the related Portfolio Mortgage Loans at all times in strict accordance in all material respects with the related Servicing Agreement. In connection with the Portfolio Mortgage Loans related to each Participation Certificate, the Company shall not, without the express written consent of Participant (which consent may be withheld in its absolute discretion), (a) terminate or amend any Servicing Rights, or (b) enter

- 1 -

LEGAL02/35727263v4

into any termination, modification, waiver or amendment of any applicable Servicing Agreement or its rights and duties thereunder.

3.1 Delivered Documents . On the Amendment Effective Date, the Lender shall have received the following documents, each of which shall be satisfactory to the Lender in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of the Lender , the Company and the Initial Participant ; and

(b) such other documents as the Lender or counsel to the Lender may reasonably request.

SECTION 4. Representations and Warranties . Each of the Company and the Initial Participant hereby repre sents and warrants to the Lender that it is in compliance with all the terms and provisions set forth in the Agreement on its part to be observed or p erformed, and that no Event of Default has occurred or is continuing, and (x) with respect to the Company hereby confirms and reaffirms the representations and warranties contained in Section 6 of the Agreement and (y) with respect to the Initial Participant hereby confirms and reaffirms the representations and warranties contained in Section 5 of the Agreement .

[Signature Page Follows]

‑ 2 ‑

LEGAL02/35727263v4

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.

Lender :	CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
	By: /s/ Adam Loskove Name: Adam Loskove Title: Vice President
Company :	PENNYMAC LOAN SERVICES, LLC
	By: /s/ Pamela Marsh Name: Pamela Marsh Title: Executive Vice President, Treasurer
Initial Participant :	PENNYMAC LOAN SERVICES, LLC
	By: /s/ Pamela Marsh Name: Pamela Marsh Title: Executive Vice President, Treasurer

Signature Page to Amendment No. 1 to Master Spread Participation Agreement

UNDERLYING ESS LSA EXECUTION

AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT

( PORTFOLIO EXCESS SPREAD )

This Amendment No. 1 to Loan and Security Agreement (Portfolio Excess Spread ) ( this “ Amendment ”) is made as of October 30 , 2015 by and between PENNYMAC LOAN SERVICES, LLC (the “ Lender ”) and PENNYMAC HOLDINGS, LLC ( the “ Borrower ”).

Lender and Borrower previously entered into a Loan and Security Agreement , dated as of April 30 , 2015 (the “ Existing Agreement ”, and as further amended by this Amendment, the “ Agreement ”).

Lender and Borrower have agreed, subject to the terms and conditions of this Amendment, that the Existing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Agreement.

Accordingly , Lender and Borrower hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Agreement is hereby amended as follows:

SECTION 1. Definitions . Section 1.01 of the Existing Agreement is hereby amended by deleting the definition of “ Termination Date ” in its entirety and replacing it with the following in its proper alphabetical order:

“Termination Date” means the earliest of (a) December 15 , 2015; and (b) the Obligations having become immediately due and payable pursuant to Section 7.03 of the Loan Agreement.

SECTION 2. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:

2.1 Delivered Documents . On the Amendment Effective Date, Lender shall have received the following documents, each of which shall be satisfactory to Lender in form and substance:

(a) this Amendment, executed and delivered by the duly authorized officers of the Lender and Borrower ; and

(b) such other documents as Lender or counsel to Lender may reasonably request.

SECTION 3. Representations and Warranties . Borrower hereby represents and warrants to Lender that Borrower is in compliance with all the terms and provisions set forth in the Agreement on its part to be observed or performed, and that no Event of Default under the Agreement has occurr e d or is continuing and hereby confirms and reaffirms the representations and warranties contained in Article III of the Agreement.

SECTION 4. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 5. Severability . Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.

SECTION 6. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment in Portable Document Format (PDF) or by facsimile shall be effective as delivery of a manually executed original counterpart of this Amendment.

SECTION 7. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or trustees as of the date first above written.

PENNYMAC HOLDINGS, LLC

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

PENNYMAC LOAN SERVICES, LLC

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

Signature Page to Amendmen t No. 1 to Loan and Security Agreement

PennyMac Financial Services, Inc.
2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit

Award Agreement

Recipient

Grant Date

Vesting Commencement Date

Number of RSUs Subject to

Continued Service

Number of RSUs Subject to

Performance Components

Total Number of RSUs

Performance Period

1. Grant of Restricted Stock Units . Subject to the terms and conditions of this Award Agreement and the Company’s 2013 Equity Incentive Plan, as the same may be amended, modified, supplemented or interpreted from time to time (the “ Plan ” ) , including without limitation the vesting provisions set forth in Section 2, the Company hereby grants to the Recipient , with effect as of the Grant Date specified above , the above indicated number of restricted stock units ( the “ RSUs ” ) to obtain (i) for each RSU that is subject to vesting based on continued service, one fully paid and nonassessable share of Class A Common Stock, par value $0.0001 per share, in the Company (the “ Stock ”), and (ii) for each RSU that is subject to vesting based on the satisfaction of performance components, one fully paid and nonassessable share of Stock if the Variance to Target is [ ], all as set forth on Exhibit A attached hereto, or such greater number (up to a maximum of [ ] shares of Stock ) or lesser number as is obtained by applying the sliding scale percentage factors that are to be applied to the various performance components as set forth on such Exhibit A .

2. Vesting and Settlement .

2.1 The RSUs shall vest in accordan ce with the schedule set forth below .

A/75576823.3

(b) Vesting Based on Performance Components . The RSUs subject to vesting based on satisfaction of performance components are subject to cumulative achievement of goals based on the following performance components : [(1) the Company’s Earnings Per Share, (2) the Company’s Total Shareholder Return, (3) the Company’s Total Shareholder Return, and (4) the Recipient’s Individual Effectiveness], in the amounts and each as further described in Exhibit A attached hereto. T he RSUs subject to vesting based on satisfaction of performance components shall vest in a lump sum on the date the Committee determines that the goals based on the performance components have been satisfied , subject to the Recipient’s continued service through such date . The Recipient’s satisfaction of goals based on performance components shall be determined by the Committee in its sole discretion . The shares of Stock earned as such RSUs vest will be transferred or issued to the Recipient (or his or her estate, in the event of his or her death) promptly after they vest , but in any event not later than the 15th day of the third month following the end of the calendar year in which such RSUs become vested . Notwithstanding anything to the contrary in this Agreement, if any settlement of RSUs would otherwise result in the issuance of a fractional share to the Recipient after aggregating all shares and fractional shares to be issued to the Recipient in connection with such settlement, then any such final fractional share shall be eliminated and the Company shall pay to the Recipient, in lieu thereof, cash in an amount equal to (i) the average closing price of a share of Stock during the 10 most recent trading days prior to the date of issuance of the other shares issued in settlement of such RSU, multiplied by (ii) such fractional amount.

A/75576823.3

certificates for the Stock issued pursuant to this Award may bear appropriate legends restricting the transfer of the Stock.

4. Restrictions on Transfer . The RSUs may not be assigned or transferred (by operation of law or otherwise) except by will or the laws of descent and distribution.

5 . Miscellaneous.

A/75576823.3

with respect to these RSUs and the parties hereto shall act in all matters as if the Recipient was the sole owner of these RSUs . This appointment is coupled with an interest and is irrevocable.

IN WITNESS WHEREOF , t he Recipient and the Company have entered into this Award Agreement as of the Grant Date.

PENNYMAC FINANCIAL SERVICES, INC.

By: ___________________________ _______________________________

Signature of Recipient

Title:___________________________

A/75576823.3

PennyMac Financial Services, Inc. 2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement

Exhibit A

Recipient: ____________________ _______ _

Performance Period: _ ____________________ _______

RSUs Subject to Performance

Components (“Grant”) : ____________ ____________

Total Potential Share s if Maximum

Potential Components Satisfied: ____ ____________________


PFSI Equity Incentive Plan Performance Objectives - Chiefs Only

Award Components	Component	Comments	Target	% of Total
	1. Earnings Per Share
	2. Total Shareholder Return (TSR)
	3. Return on Equity (ROE)
	4 . Individual Effectiveness

A/75576823.3

PennyMac Financial Services, Inc. 2013 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement

Exhibit A

Pay-Out Scale for Component 1	Variance to Target	Factor







Pay-Out Scale for Component 2	Variance to Target	Factor







Pay-Out Scale for Component 3	Variance to Target	Factor







Multiplier Scale for Component 4	Rating	Description	Factor
	5	Outstanding
	4	Exceeds Expectations
	3	Meets Expectations
	2	Needs Improvement
	1	Unsatisfactory

A/75576823.3

PLS REPO FACILITY EXECUTION

AMENDMENT NO. 9 TO

AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT

Amendment No. 9 to Amended and Restated Master Repurchase Agreement , dated as of October 30 , 2015 (this “ Amendment ”), among Credit Suisse First Boston Mortgage Capital LLC (the “ Buyer ”), PennyMac Loan Services, LLC (the “ Seller ”) and Private National Mortgage Acceptance Company, LLC ( the “ Guarantor ”) .

RECITALS

The Buye r, the Seller and the Guarantor are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of May 3 , 2013 ( as amended by Amendment No. 1, dated as of September 5, 2013 , Amendment No. 2, dated as of January 10, 2014 , Amendment No. 3, dated as of March 13, 2014 , Amendment No. 4, dated as of April 30, 2014 , Amendment No. 5 , dated as of May 22 , 2014 , Amendment No. 6, dated as of June 3, 2014 , Amendment No. 7, dated as of October 31, 2014 , and Amendment No. 8, dated as of December 23, 2014, the “ Existing Repurchase Agreement ”; as further amended by this Amendment , the “ Repurchase Agreement ”) and the related Pricing Side Letter, dated as of May 3 , 2013 ( as amended , restated, supplemented or otherwise modified from time to time , the “ Pricing Side Letter ”). The Guarantor is part y to that certain Guaranty ( as amended , restated, supplemented or otherwise modified from time to time, the “ Guaranty ”), dated as of August 14, 2009 , by the Guarantor in favor of Buyer. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement and Guaranty, as applicable.

The Buyer , the Seller and the Guarantor have agreed, subject to the terms and conditions of this Amendment, that the Existing Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Repurchase Agreement . As a condition precedent to amending the Existing Repurchase Agreement , the B uyer has required the Guarantor to ratify and affirm the Guaranty on the date hereof.

Accordingly, the Buyer, the Se ller and the Guarantor hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Repurchase Agreement is hereby amended as follows:

SECTION 1. Definitions . Section 2 of the Existing Repurchase Agreement is hereby amended by deleting the definition of “ Termination Date ” in its entirety and replacing it with the following :

“ Termination Date ” means the earlier of (a) December 15 , 2015, and (b) the date of the occurrence of an Event of Default.

SECTION 2. Conditions Precedent . T his Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”) , subject to the satisfaction of the following conditions precedent:

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LEGAL02/35937094v3

2.1 Delivered Documents . On the Amendment Effective Date, the Buyer shall have received the following documents, each of which shall be satisfactory to the Buyer in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of the Buye r, the Seller and the Guarantor ; and

(b) such other documents as the Buyer or counsel to the Buyer may reasonably request.

SECTION 3. Representations and Warranties . Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 13 of the Repurchase Agreement.

SECTION 4. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Repurchase Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 5. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

SECTION 7. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.

SECTION 8. Reaffirmation of Guaranty . The Guarantor hereby ratif ies and affirm s all of the terms, covenants, conditions and obligations of the Guaranty and acknowledge s and agree s that the term “Obligations” as used in the Guaranty shall apply to all of the Obligations of Seller to Buyer under the Repurchase Agreement and related Program Agreements , as amended hereby.

[Remainder of page intentionally left blank]

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LEGAL02/35937094v3

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC , as Buyer

By: /s/ Margaret Dellafera
Name: Margaret Dellafera
Title: Vice President

PENNYMAC LOAN SERVICES, LLC , as Seller

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC , as Guarantor

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Executive Vice President, Treasurer

Signature Page to Amendment No. 9 to Amended and Restated Master Repurchase Agreement

Exhibit 31.1

CERTIFICATION

I, Stanford L. Kurland, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PennyMac Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 6 , 2015

/S/ STANFORD L. KURLAND
Stanford L. Kurland
Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Anne D. McCallion, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PennyMac Financial Services, Inc.;

b. [Intentionally omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)];

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 6 , 2015

/S/ ANNE D. MCCALLION
Anne D. McCallion
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of PennyMac Financial Services, Inc. (the “Company”) for the quarter ended September 30 , 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanford L. Kurland, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

5
/S/ STANFORD L. KURLAND
Stanford L. Kurland
Chairman of the Board and Chief Executive Officer

November 6 , 2015

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PennyMac Financial Services, Inc. and will be retained by PennyMac Financial Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of PennyMac Financial Services, Inc. (the “Company”) for the quarter ended September 30 , 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anne D. McCallion, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ ANNE D. MCCALLION
Anne D. McCallion
Chief Financial Officer

November 6 , 2015