PENNYMAC FINANCIAL SERVICES, INC. (Form: 10-Q, Received: 08/09/2016 14:34:23)

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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 June 30, 2016

☐ 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.)


3043 Townsgate Road, Westlake Village, California		91361
(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 August 8, 2016
Class A Common Stock, $0.0001 par value		22,193,572
Class B Common Stock, $0.0001 par value		49

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PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

June 30, 2016

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	56
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	80

PART II. OTHER INFORMATION		82

Item 1.	Legal Proceedings	82
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
Item 3.	Defaults Upon Senior Securities	82
Item 4.	Mine Safety Disclosures	82
Item 5.	Other Information	82
Item 6.	Exhibits	83

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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, 2015, filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016.

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;

changes in prevailing interest rates;

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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)


	June 30,		December 31,
	2016		2015
	(in thousands, except share amounts)

ASSETS
Cash (includes $124,026 and $93,757 pledged to creditors)	$	143,715	$	105,472
Short-term investments at fair value		41,063		46,319
Mortgage loans held for sale at fair value (includes $2,071,968 and $1,079,489 pledged to creditors)		2,097,138		1,101,204
Derivative assets		124,542		50,280
Servicing advances, net (includes $38,647 and $33,458 valuation allowance)		296,581		299,354
Carried Interest due from Investment Funds pledged to creditors		70,763		69,926
Investment in PennyMac Mortgage Investment Trust at fair value		1,217		1,145
Mortgage servicing rights (includes $526,294 and $660,247 at fair value; $1,285,700 and $803,560 pledged to creditors)		1,290,928		1,411,935
Real estate acquired in settlement of loans		1,394		—
Furniture, fixtures, equipment and building improvements, net (includes $27,240 and $14,034 pledged to creditors)		27,851		16,311
Capitalized software, net (includes $986 and $783 pledged to creditors)		6,209		3,025
Note receivable from PennyMac Mortgage Investment Trust		150,000		150,000
Receivable from PennyMac Mortgage Investment Trust		22,054		18,965
Receivable from Investment Funds		1,288		1,316
Deferred tax asset		4,878		18,378
Mortgage loans eligible for repurchase		286,048		166,070
Other		50,651		45,594
Total assets	$	4,616,320	$	3,505,294
LIABILITIES
Assets sold under agreements to repurchase	$	1,591,798	$	1,166,731
Mortgage loan participation and sale agreement		737,176		234,872
Notes payable		114,235		61,136
Obligations under capital lease		22,886		13,579
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value		294,551		412,425
Derivative liabilities		3,734		9,083
Accounts payable and accrued expenses		102,310		89,915
Mortgage servicing liabilities at fair value		4,681		1,399
Payable to Investment Funds		28,209		30,429
Payable to PennyMac Mortgage Investment Trust		160,712		162,379
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		74,850		74,315
Liability for mortgage loans eligible for repurchase		286,048		166,070
Liability for losses under representations and warranties		24,277		20,611
Total liabilities		3,445,467		2,442,944

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,189,337 and 21,990,831 shares, respectively		2		2
Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 50 and 51 shares, respectively		—		—
Additional paid-in capital		176,742		172,354
Retained earnings		118,120		98,470
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders		294,864		270,826
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC		875,989		791,524
Total stockholders' equity		1,170,853		1,062,350
Total liabilities and stockholders’ equity	$	4,616,320	$	3,505,294

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

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOM E (UNAUDITED)


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands, except earnings per share)

Revenue
Net gains on mortgage loans held for sale at fair value:
From non-affiliates	$	132,118	$	85,411	$	225,594	$	162,078
Recapture payable to PennyMac Mortgage Investment Trust		(1,915)		(1,456)		(3,867)		(2,745)
		130,203		83,955		221,727		159,333
Mortgage loan origination fees		28,907		24,421		51,341		41,103
Fulfillment fees from PennyMac Mortgage Investment Trust		19,111		15,333		32,046		28,199
Net mortgage loan servicing fees:
Mortgage loan servicing fees:
From non-affiliates		92,770		66,867		184,097		116,968
From PennyMac Mortgage Investment Trust		16,427		12,136		27,880		22,806
From Investment Funds		723		153		1,424		1,121
Ancillary and other fees		10,818		11,850		22,270		23,035
		120,738		91,006		235,671		163,930
Amortization, impairment and change in fair value of mortgage servicing rights		(111,611)		(15,324)		(228,474)		(69,008)
Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust		17,428		(7,133)		36,877		403
		(94,183)		(22,457)		(191,597)		(68,605)
Net mortgage loan servicing fees		26,555		68,549		44,074		95,325
Management fees:
From PennyMac Mortgage Investment Trust		5,199		5,779		10,551		12,782
From Investment Funds		531		1,184		1,091		2,670
		5,730		6,963		11,642		15,452
Carried Interest from Investment Funds		244		182		837		1,415
Net interest expense:
Interest income:
From non-affiliates		18,332		12,651		30,259		21,584
From PennyMac Mortgage Investment Trust		2,222		533		3,824		533
		20,554		13,184		34,083		22,117
Interest expense:
To non-affiliates		19,753		10,531		33,725		18,608
To PennyMac Mortgage Investment Trust		5,713		5,818		12,728		9,570
		25,466		16,349		46,453		28,178
Net interest expense		(4,912)		(3,165)		(12,370)		(6,061)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		229		(244)		143		(137)
Result of real estate acquired in settlement of loans		393		—		(42)		—
Other		1,346		357		1,809		2,036
Total net revenue		207,806		196,351		351,207		336,665
Expenses
Compensation		83,147		70,422		151,445		128,566
Servicing		13,430		28,603		34,317		38,338
Technology		7,733		6,490		14,580		11,428
Loan origination		4,910		4,148		9,096		8,499
Professional services		4,559		4,074		8,292		6,907
Other		9,769		7,815		19,080		14,890
Total expenses		123,548		121,552		236,810		208,628
Income before provision for income taxes		84,258		74,799		114,397		128,037
Provision for income taxes		9,963		8,619		13,559		14,733
Net income		74,295		66,180		100,838		113,304
Less: Net income attributable to noncontrolling interest		59,820		53,431		81,188		91,527
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,475	$	12,749	$	19,650	$	21,777

Earnings per share
Basic	$	0.66	$	0.59	$	0.89	$	1.01
Diluted	$	0.65	$	0.59	$	0.89	$	1.01
Weighted average common shares outstanding
Basic		22,078		21,700		22,042		21,647
Diluted		76,280		76,105		76,236		76,063

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

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PENNYMAC FINANCIAL SERVICES, INC.

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


	Class A Common Stock							Noncontrolling
								interest in Private
				Additional				National Mortgage		Total
	Number of	Par		paid-in		Retained		Acceptance		stockholders'
	shares	value		capital		earnings		Company, LLC		equity
	(in thousands)

Balance at December 31, 2014	21,578	$	2	$	162,720	$	51,242	$	593,302	$	807,266
Net income	—		—		—		21,777		91,527		113,304
Stock and unit-based compensation	72		—		2,452		—		6,146		8,598
Distributions	—		—		—		—		(9,627)		(9,627)
Issuance of common stock in settlement of directors' fees	8		—		149		—		—		149
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	133		—		2,432		—		(2,432)		—
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.	—		—		(217)		—		—		(217)
Balance at June 30, 2015	21,791	$	2	$	167,536	$	73,019	$	678,916	$	919,473

Balance at December 31, 2015	21,991	$	2	$	172,354	$	98,470	$	791,524	$	1,062,350
Net income	—		—		—		19,650		81,188		100,838
Stock and unit-based compensation	93		—		2,119		—		5,917		8,036
Issuance of common stock in settlement of directors' fees	12		—		149		—		—		149
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.	93		—		2,640		—		(2,640)		—
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.	—		—		(520)		—		—		(520)
Balance at June 30, 2016	22,189	$	2	$	176,742	$	118,120	$	875,989	$	1,170,853

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

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW S (UNAUDITED)


	Six months ended June 30,
	2016		2015
	(in thousands)

Cash flow from operating activities
Net income	$	100,838	$	113,304
Adjustments to reconcile net income to net cash used in operating activities:
Net gains on mortgage loans held for sale at fair value		(221,727)		(159,333)
Accrual of servicing rebate payable to Investment Funds		148		1,114
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread		191,597		68,605
Carried Interest from Investment Funds		(837)		(1,415)
Amortization of debt issuance costs and commitment fees relating to financing facilities		5,215		3,631
Capitalization of interest on mortgage loans held for sale at fair value		(13,513)		(4,745)
Accrual of interest on excess servicing spread financing		12,728		9,570
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust		(72)		275
Results of real estate acquired in settlement in loans		42		—
Stock and unit-based compensation expense		8,036		8,598
Provision for servicing advance losses		12,519		16,013
Depreciation and amortization		2,274		911
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust		(16,783,840)		(13,514,568)
Originations of mortgage loans held for sale		(2,730,709)		(2,052,648)
Purchase of mortgage loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale		(703,464)		(531,842)
Purchase of commercial real estate loans from non-affiliates		(5,912)		—
Sale and principal payments of mortgage loans held for sale		19,176,697		15,619,191
Sale of loans held for sale to PennyMac Mortgage Investment Trust		8,139		10,828
Repurchase of mortgage loans and real estate acquired in settlement of loans subject to representations and warranties		(11,399)		(11,567)
Increase in servicing advances		(11,182)		(32,189)
Increase in receivable from Investment Funds		(120)		(971)
(Increase) decrease in receivable from PennyMac Mortgage Investment Trust		(2,056)		9,175
Decrease in deferred tax asset		13,515		12,826
Payments to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		—		(4,299)
Increase in other assets		(10,941)		(14,282)
Increase in accounts payable and accrued expenses		9,781		20,941
Decrease in payable to Investment Funds		(2,220)		(4,653)
(Decrease) increase in payable to PennyMac Mortgage Investment Trust		(2,332)		16,120
Net cash used in operating activities		(958,795)		(421,410)
Cash flow from investing activities
Decrease (increase) in short-term investments		5,256		(1,890)
Advance on note receivable from PennyMac Mortgage Investment Trust		—		(71,072)
Repayment of note receivable from PennyMac Mortgage Investment Trust		—		18,546
Purchase of mortgage servicing rights		(11)		(270,133)
Net settlement of derivative financial instruments used for hedging		138,801		(8,293)
Purchase of furniture, fixtures, equipment and building improvements		(14,459)		(2,277)
Acquisition of capitalized software		(3,342)		(860)
(Increase) decrease in margin deposits and restricted cash		(16,443)		19,932
Net cash provided by (used in) investing activities		109,802		(316,047)
Cash flow from financing activities
Sale of assets under agreements to repurchase		18,461,897		14,379,136
Repurchase of assets sold under agreements to repurchase		(18,037,356)		(13,937,711)
Issuance of mortgage loan participation certificates		10,843,858		7,937,026
Repayment of mortgage loan participation certificates		(10,341,436)		(7,884,705)
Advances on notes payable		68,000		129,012
Repayment of notes payable		(15,671)		(29,411)
Issuance of excess servicing spread financing		—		187,287
Repayment of excess servicing spread financing		(38,281)		(31,083)
Repurchase of excess servicing spread financing		(59,045)		—
Advances of obligations under capital lease		12,652		—
Repayment of obligation under capital lease		(3,345)		(5)
Payment of debt issuance costs		(4,037)		(3,990)
Distribution to Private National Mortgage Acceptance Company, LLC members		—		(9,627)
Net cash provided by financing activities		887,236		735,929
Net increase (decrease) in cash		38,243		(1,528)
Cash at beginning of period		105,472		76,256
Cash at end of period	$	143,715	$	74,728

The accompanying notes are an integral part of these consolidated 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 mortgage 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 (“REIT”), PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., (the “Master Fund”), both registered under the Investment Company Act of 1940, as amended, an affiliate of these registered funds and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, the “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 residential mortgage loans on behalf of non-affiliates and the Advised Entities, purchases and 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 (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) and U.S. Department of Agriculture (“USDA”) (each an “Agency” and collectively the “Agencies”).

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

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 (“ASC”) 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, 2015.

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

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indicative of the results of operations to be anticipated for the full year ending December 31, 2016. Intercompany accounts and transactions have been eliminated.

Preparation of financial statements in compliance with GAAP requires management to make estimates and judgments 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.

Note 2—Concentration of Risk

A substantial portion of the Company’s activities relate to the Advised Entities. Fees (generally comprised of fulfillment fees, mortgage loan servicing fees, management fees and Carried Interest) and interest charged to these entities totaled 26% and 10% of total net revenue for the quarters ended June 30, 2016 and 2015, respectively, and 28% and 17% for the six months ended June 30, 2016 and 2015, respectively.

Note 3—Transactions with Affiliates

Transactions with PMT

Operating Activities

Mortgage Loan Production Activities

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Fulfillment fee revenue	$	19,111	$	15,333	$	32,046	$	28,199
Unpaid principal balance of mortgage loans fulfilled for PMT	$	5,174,020	$	3,579,078	$	8,433,383	$	6,469,210

Sourcing fees paid to PMT	$	2,824	$	2,427	$	4,773	$	3,848
Unpaid principal balance of mortgage loans purchased from PMT	$	9,409,399	$	8,082,764	$	15,905,121	$	12,818,138

Proceeds from sale of mortgage loans held for sale to PMT	$	3,424	$	2,423	$	8,139	$	10,828
Tax service fee from PMT	$	1,464	$	1,113	$	2,471	$	2,002
Mortgage servicing rights and excess servicing spread recapture incurred	$	1,915	$	1,456	$	3,867	$	2,745
Mortgage banking and warehouse service fees paid by PMT	$	1	$	—	$	2	$	—

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Mortgage Loan Servicing Activities

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)


Mortgage loans acquired for sale at fair value:
Base and supplemental	$	79	$	42	$	135	$	68
Activity-based		172		59		287		90
		251		101		422		158
Mortgage loans at fair value:
Base and supplemental		2,959		4,210		6,359		8,272
Activity-based		8,518		3,093		11,967		5,987
		11,477		7,303		18,326		14,259
Mortgage servicing rights:
Base and supplemental		4,583		4,627		8,927		8,253
Activity-based		116		105		205		136
		4,699		4,732		9,132		8,389
	$	16,427	$	12,136	$	27,880	$	22,806

Investment Management Activities

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 a combination of cash and PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.

Following is a summary of the base management and performance incentive fees earned from PMT:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Base management	$	5,199	$	5,709	$	10,551	$	11,439
Performance incentive		—		70		—		1,343
	$	5,199	$	5,779	$	10,551	$	12,782

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 of the management agreement between PMT and the Company, the Company 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 the Company, in each case during the 24-month period before termination.

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Expense Reimbursement

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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Reimbursement of:
Common overhead incurred by the Company (1)	$	2,435	$	2,702	$	4,996	$	5,431
Expenses incurred on (the Company's) PMT's behalf		(169)		83		(114)		462
	$	2,266	$	2,785	$	4,882	$	5,893
Payments and settlements during the period (2)	$	28,952	$	24,114	$	56,613	$	46,866

(1)

For the quarter ended June 30, 2015, reimbursement of common overhead incurred by the Company included a discretionary waiver, in accordance with the terms of the management agreement, of $700,000 of overhead expenses otherwise allocable to PMT. On December 15, 2015, the Company and PMT amended their management agreement to provide that the total overhead costs and expenses incurred by the Company in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

(2)

Payments and settlements include payments for operating, investment and financing activities itemized in this Note and netting settlements made pursuant to master netting agreements between the Company and PMT.

Amounts due from and payable to PMT are summarized below:


	June 30,		December 31,
	2016		2015
	(in thousands)

Receivable from PMT:
Management fees	$	5,200	$	5,670
Servicing fees		9,154		3,682
Correspondent production fees		2,567		2,729
Fulfillment fees		1,890		1,082
Interest on note receivable		1,042		412
Conditional reimbursement		900		900
Allocated expenses		847		1,043
Expenses incurred on PMT's behalf		454		3,447
	$	22,054	$	18,965
Payable to PMT:
Deposits made by PMT to fund servicing advances	$	148,337	$	153,573
Mortgage servicing rights ("MSR") recapture payable		605		781
Other		11,770		8,025
	$	160,712	$	162,379

Conditional Reimbursement of Underwriting Fees

In connection with its 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 $73,000 and $230,000 for the quarter and six months ended June 30, 2015, respectively, and received no reimbursement from PMT during the six months ended June 30, 2016.

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In the event a termination fee is payable to the Company under the management agreement, and the Company has 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.

Investing Activities

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Note receivable from PennyMac Mortgage Investment Trust:
Interest income	$	2,222	$	533	$	3,824	$	533

Common shares of beneficial interest of PennyMac Mortgage Investment Trust:
Dividends received from PennyMac Mortgage Investment Trust	$	36	$	46	$	71	$	138
Change in fair value of investment in PennyMac Mortgage Investment Trust		193		(290)		72		(275)
	$	229	$	(244)	$	143	$	(137)


	June 30,		December 31,
	2016		2015
	(in thousands)

Note receivable from PennyMac Mortgage Investment Trust:	$	150,000	$	150,000
Common shares of beneficial interest of PennyMac Mortgage Investment Trust:
Fair value	$	1,217	$	1,145
Number of shares		75		75

Financing Activities

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Excess servicing spread financing:
Issuance:
Cash	$	—	$	140,875	$	—	$	187,287
Pursuant to recapture agreement	$	1,690	$	1,319	$	3,601	$	2,565
Repayment	$	(17,400)	$	(18,352)	$	(38,281)	$	(31,083)
Repurchase	$	—	$	—	$	(59,045)	$	—
Change in fair value	$	(17,428)	$	(7,133)	$	(36,877)	$	403
Interest expense	$	5,713	$	5,818	$	12,728	$	9,570
Excess servicing spread recapture incurred pursuant to refinancings by the Company of mortgage loans subject to excess servicing spread	$	1,604	$	1,456	$	3,426	$	2,745

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Investment Funds

Amounts due from and payable to the Investment Funds are summarized below:


	June 30,		December 31,
	2016		2015
	(in thousands)

Carried Interest due from Investment Funds:
PNMAC Mortgage Opportunity Fund, LLC	$	42,430	$	41,893
PNMAC Mortgage Opportunity Fund Investors, LLC		28,333		28,033
	$	70,763	$	69,926
Receivable from Investment Funds:
Management fees	$	455	$	655
Expense reimbursements		359		45
Mortgage loan servicing fees		247		392
Mortgage loan servicing rebate		227		224
	$	1,288	$	1,316
Payable to Investment Funds—Servicing advances	$	28,209	$	30,429

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 the Company to PennyMac’s exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that the Company 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 $74.9 million and $74.3 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of June 30, 2016 and December 31, 2015, respectively. The Company made payments under the tax receivable agreement totaling $0 and $ 4.3 million during the quarter and six months ended June 30, 2015, respectively. There were no payments made during the six months ended June 30, 2016.

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.

Potentially dilutive shares of common stock include non-vested unit and stock-based compensation awards and PennyMac Class A units. The Company applies the treasury stock method to determine the diluted weighted average shares of common stock outstanding represented by the non-vested unit and stock-based compensation awards. The diluted earnings per share calculation assumes the exchange of 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 that would be 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands, except per share amounts )

Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,475	$	12,749	$	19,650	$	21,777
Weighted average shares of common stock outstanding		22,078		21,700		22,042		21,647
Basic earnings per share of common stock	$	0.66	$	0.59	$	0.89	$	1.01

Diluted earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,475	$	12,749	$	19,650	$	21,777
Effect of net income attributable to PennyMac Class A units exchangeable to common stock, net of income taxes		35,433		31,925		48,040		54,688
Diluted net income attributable to common stockholders	$	49,908	$	44,674	$	67,690	$	76,465
Weighted average shares of common stock outstanding		22,078		21,700		22,042		21,647
Dilutive shares:
PennyMac Class A units exchangeable to common stock		54,021		53,620		54,032		53,592
Non-vested PennyMac Class A units issuable under unit-based stock compensation plan and exchangeable to common stock		—		650		—		714
Common shares issuable under stock-based compensation plan		181		135		162		110
Diluted weighted average shares of common stock outstanding		76,280		76,105		76,236		76,063
Diluted earnings per share of common stock	$	0.65	$	0.59	$	0.89	$	1.01

Potentially dilutive securities are excluded from the calculation of diluted earnings per share when their inclusion would be anti-dilutive. The following table summarizes the anti-dilutive weighted-average number of outstanding stock options and performance-based restricted stock units (“RSUs”) excluded from the calculation of diluted earnings per share:


	Quarter ended June 30,				Six months ended June 30,
	2016			2015	2016			2015
	(in thousands except for weighted-average exercise price)

Stock options (1)		2,795		1,875		2,450		1,635
Performance-based RSUs (2)		2,684		2,389		2,512		2,126
Total anti-dilutive stock-based compensation units		5,479		4,264		4,962		3,761
Weighted-average exercise price of anti-dilutive stock options (1)	$	15.81	$	18.17	$	15.81	$	18.17

(1)

Certain stock options were outstanding but not included in the computation of diluted earnings per share because the weighted-average exercise prices were anti-dilutive.

(2)

Certain performance-based RSUs were outstanding but not included in the computation of diluted earnings per share due to performance thresholds not being achieved.

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 sold in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the mortgage loans sold.

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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:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Cash flows:
Sales proceeds	$	11,234,497	$	9,853,346	$	19,176,697	$	15,619,191
Servicing fees received (1)	$	60,623	$	35,317	$	119,103	$	69,312
Net servicing advances	$	(1,264)	$	(5,248)	$	(9,545)	$	(8,955)

(1)

Net of guarantee fees paid to the Agencies.


	June 30,		December 31,
	2016		2015
	(in thousands)

Unpaid principal balance of mortgage loans outstanding at end of period	$	71,436,178	$	60,687,246
Delinquencies:
30-89 days	$	1,796,640	$	1,539,568
90 days or more:
Not in foreclosure	$	434,899	$	340,313
In foreclosure or bankruptcy	$	347,221	$	227,025
Foreclosed	$	2,630	$	755

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


	June 30, 2016
			Contract		Total
	Servicing		servicing and		mortgage
	rights owned		subservicing		loans serviced
	(in thousands)

Investor:
Non-affiliated entities	$	117,787,996	$	—	$	117,787,996
Affiliated entities		—		51,958,636		51,958,636
Mortgage loans held for sale		1,971,903		—		1,971,903
	$	119,759,899	$	51,958,636	$	171,718,535
Amount subserviced for the Company (1)	$	12,375	$	—	$	12,375
Delinquent mortgage loans:
30 days	$	2,621,050	$	324,346	$	2,945,396
60 days		788,609		117,638		906,247
90 days or more:
Not in foreclosure		1,340,898		640,677		1,981,575
In foreclosure or bankruptcy		638,916		910,346		1,549,262
Foreclosed		24,855		493,441		518,296
	$	5,414,328	$	2,486,448	$	7,900,776
Custodial funds managed by the Company (2)	$	3,163,812	$	804,003	$	3,967,815

(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 when the Company has obtained the rights to service the mortgage loans but servicing of the loans has not yet transferred to the Company’s servicing system.

(2)

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the custodial funds it manages on behalf of the mortgage loans’ investors, which is included in Interest income in the Company’s consolidated statements of income.


	December 31, 2015
			Contract		Total
	Servicing		servicing and		mortgage
	rights owned		subservicing		loans serviced
	(in thousands)

Investor:
Non-affiliated entities	$	111,409,601	$	—	$	111,409,601
Affiliated entities		—		47,810,632		47,810,632
Mortgage loans held for sale		1,052,485		—		1,052,485
	$	112,462,086	$	47,810,632	$	160,272,718
Amount subserviced for the Company (1)	$	14,454	$	—	$	14,454
Delinquent mortgage loans:
30 days	$	2,666,435	$	349,859	$	3,016,294
60 days		834,617		136,924		971,541
90 days or more:
Not in foreclosure		1,270,236		788,410		2,058,646
In foreclosure or bankruptcy		656,617		1,180,014		1,836,631
Foreclosed		23,372		542,031		565,403
	$	5,451,277	$	2,997,238	$	8,448,515
Custodial funds managed by the Company (2)	$	2,242,146	$	502,751	$	2,744,897

(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 when 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 placement fees on custodial funds it manages on behalf of the mortgage loans’ investors, which is included in Interest income in the Company’s consolidated statements of income.

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:


	June 30,		December 31,
State	2016		2015
	(in thousands)

California	$	40,010,729	$	39,007,363
Texas		13,679,577		12,191,722
Virginia		11,194,022		9,816,114
Florida		10,897,536		9,709,940
Maryland		7,090,073		6,151,945
All other states		88,846,598		83,395,634
	$	171,718,535	$	160,272,718

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.

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Offsetting of Derivative Assets

Following are summaries of derivative assets and related netting amounts.


	June 30, 2016						December 31, 2015
	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 not subject to a master netting arrangement - IRLCs	$	91,607	$	—	$	91,607	$	45,885	$	—	$	45,885
Derivatives subject to a master netting arrangement:
Forward purchase contracts		125,358		—		125,358		4,181		—		4,181
Forward sale contracts		664		—		664		4,965		—		4,965
Mortgage-backed security ("MBS") put options		1,777		—		1,777		404		—		404
Put options on interest rate futures purchase contracts		1,618		—		1,618		1,832		—		1,832
Call options on interest rate futures purchase contracts		8,279		—		8,279		1,555		—		1,555
Netting		—		(104,761)		(104,761)		—		(8,542)		(8,542)
		137,696		(104,761)		32,935		12,937		(8,542)		4,395
	$	229,303	$	(104,761)	$	124,542	$	58,822	$	(8,542)	$	50,280

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 qualify for set off accounting.


	June 30, 2016								December 31, 2015
			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	$	91,607	$	—	$	—	$	91,607	$	45,885	$	—	$	—	$	45,885
Fannie Mae		10,279		—		—		10,279		453		—		—		453
Barclays Capital		7,483		—		—		7,483		72		—		—		72
RJ O'Brien		7,341		—		—		7,341		2,246		—		—		2,246
Bank of America, N.A.		4,141		—		—		4,141		—		—		—		—
JP Morgan		2,661		—		—		2,661		—		—		—		—
Morgan Stanley Bank, N.A.		383		—		—		383		—		—		—		—
Wells Fargo Bank, N.A.		370		—		—		370		53		—		—		53
Goldman Sachs		125		—		—		125		471		—		—		471
Jefferies & Co.		—		—		—		—		888		—		—		888
Others		152		—		—		152		212		—		—		212
	$	124,542	$	—	$	—	$	124,542	$	50,280	$	—	$	—	$	50,280

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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 set off accounting.


	June 30, 2016						December 31, 2015
					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 not subject to a master netting arrangement - IRLCs	$	1,345	$	—	$	1,345	$	2,112	$	—	$	2,112
Derivatives subject to a master netting arrangement:
Forward purchase contracts		119		—		119		9,004		—		9,004
Forward sale contracts		101,772		—		101,772		7,497		—		7,497
Put options on interest rate futures purchase contracts		2,070		—		2,070		203		—		203
Call options on interest rate futures purchase contracts		234		—		234		47		—		47
Netting		—		(101,806)		(101,806)		—		(9,780)		(9,780)
		104,195		(101,806)		2,389		16,751		(9,780)		6,971
Total derivatives		105,540		(101,806)		3,734		18,863		(9,780)		9,083
Mortgage loans sold under agreements to repurchase:
Amount outstanding		1,591,947		—		1,591,947		1,167,405		—		1,167,405
Unamortized debt issuance costs		(149)		—		(149)		(674)		—		(674)
		1,591,798		—		1,591,798		1,166,731		—		1,166,731
	$	1,697,338	$	(101,806)	$	1,595,532	$	1,185,594	$	(9,780)	$	1,175,814

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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 assets sold under agreements to repurchase after considering master netting arrangements and financial instruments 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.


	June 30, 2016								December 31, 2015
			Gross amounts								Gross amounts
			not offset in the								not offset in the
	Net amount		consolidated				Net amount		Net amount		consolidated				Net amount
	of liabilities		balance sheet				of liabilities		of liabilities		balance sheet				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	$	1,345	$	—	$	—	$	1,345	$	2,112	$	—	$	—	$	2,112
Bank of America, N.A.		372,742		(372,742)		—		—		271,130		(269,510)		—		1,620
Credit Suisse First Boston Mortgage Capital LLC		856,725		(855,962)		—		763		795,179		(794,470)		—		709
Morgan Stanley Bank, N.A.		168,200		(168,200)		—		—		49,763		(49,521)		—		242
Citibank, N.A.		157,201		(157,201)		—		—		55,948		(53,904)		—		2,044
Barclays Capital		37,842		(37,842)		—		—		—		—		—		—
Nomura		330		—		—		330		—		—		—		—
Raymond James & Associates		271		—		—		271		—		—		—		—
Cantor Fitzgerald LP		195		—		—		195		—		—		—		—
Bank of Oklahoma		497		—		—		497		135		—		—		135
Bank of New York Mellon		—		—		—		—		154		—		—		154
JP Morgan		—		—		—		—		672		—		—		672
BNP Paribas		—		—		—		—		738		—		—		738
Others		333		—		—		333		657		—		—		657
Unamortized debt issuance costs		(149)		149		—		—		(674)		674		—		—
	$	1,595,532	$	(1,591,798)	$	—	$	3,734	$	1,175,814	$	(1,166,731)	$	—	$	9,083

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.

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and other inputs.

Level 3—Prices determined using significant unobservable inputs. In situations where observable inputs are unavailable (for example, when there is little or no market activity for an asset or liability at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

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As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.

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%, purchased MSRs subject to excess servicing spread financing (“ESS”) and mortgage servicing liabilities (“MSLs”) 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 at fair value as a means of hedging the related MSRs’ fair value risk.

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:


	June 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)

Assets:
Short-term investments	$	41,063	$	—	$	—	$	41,063
Mortgage loans held for sale at fair value		—		2,059,059		38,079		2,097,138
Derivative assets:
Interest rate lock commitments		—		—		91,607		91,607
Forward purchase contracts		—		125,358		—		125,358
Forward sales contracts		—		664		—		664
MBS put options		—		1,777		—		1,777
Put options on interest rate futures purchase contracts		1,618		—		—		1,618
Call options on interest rate futures purchase contracts		8,279		—		—		8,279
Total derivative assets before netting		9,897		127,799		91,607		229,303
Netting		—		—		—		(104,761)
Total derivative assets		9,897		127,799		91,607		124,542
Investment in PennyMac Mortgage Investment Trust		1,217		—		—		1,217
Mortgage servicing rights at fair value		—		—		526,294		526,294
	$	52,177	$	2,186,858	$	655,980	$	2,790,254
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	—	$	294,551	$	294,551
Derivative liabilities:
Interest rate lock commitments		—		—		1,345		1,345
Forward purchase contracts		—		119		—		119
Forward sales contracts		—		101,772		—		101,772
Put options on interest rate futures purchase contracts		2,070		—		—		2,070
Call options on interest rate futures purchase contracts		234		—		—		234
Total derivative liabilities before netting		2,304		101,891		1,345		105,540
Netting		—		—		—		(101,806)
Total derivative liabilities		2,304		101,891		1,345		3,734
Mortgage servicing liabilities		—		—		4,681		4,681
	$	2,304	$	101,891	$	300,577	$	302,966

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	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)

Assets:
Short-term investments	$	46,319	$	—	$	—	$	46,319
Mortgage loans held for sale at fair value		—		1,052,673		48,531		1,101,204
Derivative assets:
Interest rate lock commitments		—		—		45,885		45,885
Forward purchase contracts		—		4,181		—		4,181
Forward sales contracts		—		4,965		—		4,965
MBS put options		—		404		—		404
Put options on interest rate futures purchase contracts		1,832		—		—		1,832
Call options on interest rate futures purchase contracts		1,555		—		—		1,555
Total derivative assets before netting		3,387		9,550		45,885		58,822
Netting		—		—		—		(8,542)
Total derivative assets		3,387		9,550		45,885		50,280
Investment in PennyMac Mortgage Investment Trust		1,145		—		—		1,145
Mortgage servicing rights at fair value		—		—		660,247		660,247
	$	50,851	$	1,062,223	$	754,663	$	1,859,195
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	—	$	412,425	$	412,425
Derivative liabilities:
Interest rate lock commitments		—		—		2,112		2,112
Forward purchase contracts		—		9,004		—		9,004
Forward sales contracts		—		7,497		—		7,497
Put options on interest rate futures purchase contracts		203		—		—		203
Call options on interest rate futures purchase contracts		47		—		—		47
Total derivative liabilities before netting		250		16,501		2,112		18,863
Netting		—		—		—		(9,780)
Total derivative liabilities		250		16,501		2,112		9,083
Mortgage servicing liabilities		—		—		1,399		1,399
	$	250	$	16,501	$	415,936	$	422,907

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As shown above, all or a portion of the Company’s mortgage loans held for sale, IRLCs, MSRs, ESS and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of these items for the quarters and six month periods ended June 30, 2016 and 2015:


	Quarter ended June 30, 2016
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights			Total
	(in thousands)

Assets:
Balance, March 31, 2016	$	33,030	$	71,885	$	594,403	$	699,318
Purchases		142,912		—		—		142,912
Sales		(3,826)		—		—		(3,826)
Repayments		(10,617)		—		—		(10,617)
Interest rate lock commitments issued, net		—		102,755		—		102,755
Mortgage servicing rights resulting from mortgage loan sales		—		—		4,820		4,820
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(1,078)		—		—		(1,078)
Other factors		—		77,518		(72,929)		4,589
		(1,078)		77,518		(72,929)		3,511
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(122,342)		—		—		(122,342)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(161,896)		—		(161,896)
Balance, June 30, 2016	$	38,079	$	90,262	$	526,294	$	654,635
Changes in fair value recognized during the period relating to assets still held at June 30, 2016	$	442	$	90,262	$	(72,929)	$	17,775

(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 June 30, 2016
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)

Liabilities:
Balance, March 31, 2016	$	321,976	$	6,747	$	328,723
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		1,690		—		1,690
Accrual of interest		5,713		—		5,713
Repayments		(17,400)		—		(17,400)
Changes in fair value included in income		(17,428)		(2,066)		(19,494)
Balance, June 30, 2016	$	294,551	$	4,681	$	299,232
Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2016	$	(17,428)	$	(2,066)	$	(19,494)

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	Quarter ended June 30, 2015
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights		Total
	(in thousands)

Assets:
Balance, March 31, 2015	$	83,684	$	54,392	$	361,413	$	499,489
Purchases		400,705		—		206,996		607,701
Sales		(386,586)		—		—		(386,586)
Repayments		(11,610)		—		—		(11,610)
Interest rate lock commitments issued, net		—		61,365		—		61,365
Mortgage servicing rights resulting from mortgage loan sales		—		—		3,443		3,443
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		1,739		—		—		1,739
Other factors		746		(10,245)		9,417		(82)
		2,485		(10,245)		9,417		1,657
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(54,593)		—		—		(54,593)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(77,775)		—		(77,775)
Balance, June 30, 2015	$	34,085	$	27,737	$	581,269	$	643,091
Changes in fair value recognized during the period relating to assets still held at June 30, 2015	$	481	$	(10,245)	$	9,417	$	(347)

(1)

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

(2)


	Quarter ended June 30, 2015
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)

Liabilities:
Balance, March 31, 2015	$	222,309	$	6,529	$	228,838
Issuance of excess servicing spread financing:
For cash		140,875		—		140,875
Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		1,319		—		1,319
Mortgage servicing liabilities resulting from mortgage loan sales		—		9,156		9,156
Accrual of interest		5,818		—		5,818
Repayments		(18,352)		—		(18,352)
Changes in fair value included in income		7,133		(3,894)		3,239
Balance, June 30, 2015	$	359,102	$	11,791	$	370,893
Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2015	$	7,133	$	(3,894)	$	3,239

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	Six months ended June 30, 2016
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights			Total
	(in thousands)

Assets:
Balance, December 31, 2015	$	48,531	$	43,773	$	660,247	$	752,551
Purchases		488,798		—		11		488,809
Sales		(278,318)		—		—		(278,318)
Repayments		(19,858)		—		—		(19,858)
Interest rate lock commitments issued, net		—		181,218		—		181,218
Mortgage servicing rights resulting from mortgage loan sales		—		—		9,288		9,288
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		691		—		—		691
Other factors		—		149,188		(143,252)		5,936
		691		149,188		(143,252)		6,627
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(201,765)		—		—		(201,765)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(283,917)		—		(283,917)
Balance, June 30, 2016	$	38,079	$	90,262	$	526,294	$	654,635
Changes in fair value recognized during the period relating to assets still held at June 30, 2016	$	860	$	90,262	$	(143,252)	$	(52,130)

(1)

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

(2)


	Six months ended June 30, 2016
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)

Liabilities:
Balance, December 31, 2015	$	412,425	$	1,399	$	413,824
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		3,601		—		3,601
Accrual of interest		12,728		—		12,728
Repurchase		(59,045)		—		(59,045)
Repayments		(38,281)		—		(38,281)
Mortgage servicing liabilities resulting from mortgage loan sales		—		5,409		5,409
Changes in fair value included in income		(36,877)		(2,127)		(39,004)
Balance, June 30, 2016	$	294,551	$	4,681	$	299,232
Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2016	$	(29,667)	$	(2,127)	$	(31,794)

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	Six months ended June 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		466,285		—		270,133		736,418
Sales		(511,854)		—		—		(511,854)
Repayments		(20,002)		—		—		(20,002)
Interest rate lock commitments issued, net		—		144,145		—		144,145
Mortgage servicing rights resulting from mortgage loan sales		—		—		6,118		6,118
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		4,054		—		—		4,054
Other factors		(791)		(10,292)		(20,365)		(31,448)
		3,263		(10,292)		(20,365)		(27,394)
Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)		(113,515)		—		—		(113,515)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(138,517)		—		(138,517)
Balance, June 30, 2015	$	34,085	$	27,737	$	581,269	$	643,091
Changes in fair value recognized during the period relating to assets still held at June 30, 2015	$	906	$	(10,292)	$	(20,365)	$	(29,751)

(1)

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

(2)


	Six months ended June 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:
For cash		187,287		—		187,287
Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		2,565		—		2,565
Mortgage servicing liabilities resulting from mortgage loan sales		—		12,084		12,084
Accrual of interest		9,570		—		9,570
Repayments		(31,083)		—		(31,083)
Changes in fair value included in income		(403)		(6,599)		(7,002)
Balance, June 30, 2015	$	359,102	$	11,791	$	370,893
Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2015	$	(403)	$	(6,599)	$	(7,002)

The information used in the preceding roll forwards represents activity for any financial statement items identified as using “Level 3” significant fair value inputs at either the beginning or the end of the periods presented. The Company had transfers among the fair value 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 mortgage loans become 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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Financial Statement Items Measured at Fair Value under the Fair Value Option

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 June 30,
	2016						2015
	Net gains on						Net gains on
	mortgage		Net mortgage				mortgage		Net mortgage
	loans held		loan				loans held		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	$	164,527	$	—	$	164,527	$	68,503	$	—	$	68,503
Mortgage servicing rights at fair value		—		(72,929)		(72,929)		—		9,417		9,417
	$	164,527	$	(72,929)	$	91,598	$	68,503	$	9,417	$	77,920
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	17,428	$	17,428	$	—	$	(7,133)	$	(7,133)
Mortgage servicing liabilities at fair value		—		2,066		2,066		—		3,894		3,894
	$	—	$	19,494	$	19,494	$	—	$	(3,239)	$	(3,239)


	Six months ended June 30,
	2016						2015
	Net gains on		Net				Net gains on		Net
	mortgage		mortgage				mortgage		mortgage
	loans held		loan				loans held		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	$	300,608	$	—	$	300,608	$	149,817	$	—	$	149,817
Mortgage servicing rights at fair value		—		(143,252)		(143,252)		—		(20,365)		(20,365)
	$	300,608	$	(143,252)	$	157,356	$	149,817	$	(20,365)	$	129,452
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	—	$	36,877	$	36,877	$	—	$	403	$	403
Mortgage servicing liabilities at fair value		—		2,127		2,127		—		6,599		6,599
	$	—	$	39,004	$	39,004	$	—	$	7,002	$	7,002

Following are the fair value and related principal amounts due upon maturity of assets accounted for under the fair value option:


	June 30, 2016
			Principal
			amount
	Fair		due upon
	value		maturity		Difference
	(in thousands)

Mortgage loans held for sale:
Current through 89 days delinquent	$	2,076,718	$	1,951,046	$	125,672
90 days or more delinquent:
Not in foreclosure		12,924		12,882		42
In foreclosure		7,496		7,975		(479)
	$	2,097,138	$	1,971,903	$	125,235

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	December 31, 2015
			Principal
			amount
	Fair		due upon
	value		maturity		Difference
	(in thousands)

Mortgage loans held for sale:
Current through 89 days delinquent	$	1,068,548	$	1,016,314	$	52,234
90 days or more delinquent:
Not in foreclosure		26,399		26,999		(600)
In foreclosure		6,257		6,598		(341)
	$	1,101,204	$	1,049,911	$	51,293

Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

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


	June 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	764,634	$	764,634
Real estate acquired in settlement of loans		—		—		948		948
	$	—	$	—	$	765,582	$	765,582


	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	202,991	$	202,991
	$	—	$	—	$	202,991	$	202,991

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value	$	(72,647)	$	13,566	$	(149,720)	$	(18,126)
Real estate acquired in settlement of loans		393		—		(42)		—
	$	(72,254)	$	13,566	$	(149,762)	$	(18,126)

Fair Value of Financial Instruments Carried at Amortized Cost

The Company’s Cash as well as its Carried Interest due from Investment Funds , Assets sold under agreements to repurchase , Mortgage loan participation and sale agreements , Notes payable , Obligations under capital lease, Note receivable from PMT and amounts receivable from and payable to the Advised Entities are carried at amortized cost.

Cash is measured using a “Level 1” fair value input.

The Company 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 borrowings carried at amortized cost do not have observable inputs and the fair value is measured using management’s estimate of fair value, where the inputs into the determination of fair value require

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significant management judgment or estimation. The Company has classified these financial instruments as “Level 3” fair value financial statement items due to the lack of observable inputs to estimate their fair values.

The Company has concluded that the fair value of the receivables from and payables to the Advised Entities and the Note receivable from PMT approximates the carrying value due to their short terms and/or variable interest rates.

Valuation Techniques and Inputs

Most of the Company’s financial assets, a portion of its MSRs and its ESS financing and MSLs 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, ESS and MSLs are “Level 3” fair value 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 judgments 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” fair value 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 senior management oversight. The Company’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value financial statement items other than IRLCs and maintaining its valuation policies and procedures.

With respect to the non-IRLC “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” fair value 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 the Company’s chief executive, financial, operating, risk, business development 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 “Level 3” fair value financial statement items, 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 reviewed by the Company’s Capital Markets Operations group.

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

Most of the Company’s mortgage loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value financial statement items and their fair values are determined using their quoted market or contracted selling 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 by the Company of a mortgage loan with an identified defect. The Company may also purchase certain delinquent government guaranteed or insured mortgage loans from Ginnie Mae guaranteed pools in its mortgage loan 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 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 mortgage loans with identified defects using “Level 3” fair value inputs.

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The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment speeds and total prepayment 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” fair value inputs used in the valuation of mortgage loans held for sale at fair value:



Key inputs	June 30, 2016	December 31, 2015
Discount rate
Range	2.5% – 8.1%	2.5% – 9.1%
Weighted average	3.2%	2.8%
Twelve-month projected housing price index change
Range	2.3% – 4.8%	1.8% – 5.0%
Weighted average	4.0%	3.7%
Voluntary prepayment / resale speed (1)
Range	0.4% – 21.4%	0.6% – 20.1%
Weighted average	17.0%	16.6%
Total prepayment speed (2)
Range	0.7% – 38.6%	0.7% – 37.6%
Weighted average	30.4%	30.9%

(1) Voluntary prepayment 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 mortgage loan’s delinquency status and performance history 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” fair value financial statement item. The Company estimates the fair value of an IRLC based on quoted Agency 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 the IRLC, the principal and interest payment cash flows that have decreased in fair value. Changes in fair value of IRLCs are included in Net gains on mortgage loans held for sale at fair value in the consolidated statements of income.

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Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of IRLCs:



Key inputs	June 30, 2016	December 31, 2015
Pull-through rate
Range	37.1% – 100.0%	54.1% – 100.0%
Weighted average	84.9%	90.1%
Mortgage servicing rights value expressed as:
Servicing fee multiple
Range	1.2 – 5.5	1.0 – 5.8
Weighted average	4.0	4.4
Percentage of unpaid principal balance
Range	0.2% – 2.6%	0.2% – 3.8%
Weighted average	1.1%	1.5%

Hedging Derivatives

The remaining derivative financial instruments held or issued by the Company are categorized as “Level 1” or “Level 2” fair value financial statement items. The Company estimates the fair value of commitments to sell and purchase mortgage 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 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 the prepayment rates of the underlying mortgage 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 consolidated statements of income.

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Following are the key “Level 3” fair value inputs used in determining the fair value of MSRs at the time of initial recognition, excluding MSR purchases:


	Quarter ended June 30,
	2016		2015
	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	$4,820	$127,652	$3,443	$125,561
Unpaid principal balance of underlying mortgage loans	$400,433	$10,370,549	$280,613	$8,762,024
Weighted average servicing fee rate (in basis points)	33	29	34	36
Key inputs:
Pricing spread (1)
Range	7.2% – 9.5%	7.2% – 14.4%	7.0% – 13.4%	6.8% – 15.7%
Weighted average	8.7%	8.9%	9.9%	9.0%
Annual total prepayment speed (2)
Range	3.3% – 45.1%	3.9% – 50.9%	7.7% – 46.0%	7.7% – 34.0%
Weighted average	12.2%	9.8%	10.2%	8.3%
Life (in years)
Range	1.6 – 11.8	1.3 – 11.8	1.5 – 7.3	2.1 – 7.3
Weighted average	6.7	7.7	6.6	7.0
Per-loan annual cost of servicing
Range	$68 – $105	$68 – $106	$59 – $82	$59 – $82
Weighted average	$89	$90	$74	$75

(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.

(2)

Prepayment speed is measured using Life Total CPR.

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	Six months ended June 30,
	2016		2015
	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	$9,288	$223,966	$6,118	$192,842
Unpaid principal balance of underlying mortgage loans	$768,240	$17,354,721	$522,130	$13,899,109
Weighted average servicing fee rate (in basis points)	33	31	33	35
Key inputs:
Pricing spread (1)
Range	7.2% – 9.8%	7.2% – 14.4%	7.0% – 14.4%	6.8% – 15.9%
Weighted average	8.7%	8.9%	10.3%	9.3%
Annual total prepayment speed (2)
Range	3.3% – 52.3%	3.8% – 50.9%	7.7% – 62.4%	7.6% – 39.4%
Weighted average	12.7%	10.3%	11.0%	8.5%
Life (in years)
Range	1.3 – 11.8	1.3 – 11.9	1.1 – 7.3	1.8 – 7.3
Weighted average	6.5	7.5	6.4	7.0
Per-loan annual cost of servicing
Range	$68 – $105	$68 – $106	$59 – $82	$59 – $82
Weighted average	$85	$87	$74	$75

(1)

(2)

Prepayment speed is measured using Life Total CPR.

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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):


	June 30, 2016				December 31, 2015
	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	$	526,294	$	764,634	$	660,247	$	751,688
Unpaid principal balance of underlying mortgage loans	$	49,376,858	$	67,659,946	$	54,182,477	$	56,420,227
Weighted average note interest rate		4.1%		3.8%		4.1%		3.8%
Weighted average servicing fee rate (in basis points)		32		32		32		32
Key inputs:
Pricing spread (1)
Range		7.6% – 14.4%		7.6% – 14.4%		7.2% – 14.1%		7.2% – 12.8%
Weighted average		8.8%		9.2%		8.9%		8.9%
Effect on fair value of (2):
5% adverse change	$	(8,472)	$	(12,998)	$	(11,115)	$	(13,467)
10% adverse change	$	(16,665)	$	(25,551)	$	(21,857)	$	(26,472)
20% adverse change	$	(32,268)	$	(49,405)	$	(42,293)	$	(51,183)
Average life (in years)
Range		1.6 – 8.9		1.3 – 9.2		1.9 – 9.0		1.8 – 9.1
Weighted average		6.0		6.3		6.9		7.4
Prepayment speed (3)
Range		6.8% – 38.6%		6.8% – 53.1%		5.3% – 43.8%		5.7% – 46.7%
Weighted average		12.7%		12.8%		9.7%		9.5%
Effect on fair value of (2):
5% adverse change	$	(11,946)	$	(18,312)	$	(12,475)	$	(14,360)
10% adverse change	$	(23,401)	$	(35,830)	$	(24,499)	$	(28,197)
20% adverse change	$	(44,946)	$	(68,674)	$	(47,286)	$	(54,406)
Annual per-loan cost of servicing
Range		$78 – $105		$79 – $106		$68 – $97		$68 – $95
Weighted average		$96		$94		$86		$84
Effect on fair value of (2):
5% adverse change	$	(6,393)	$	(6,680)	$	(6,812)	$	(5,725)
10% adverse change	$	(12,785)	$	(13,361)	$	(13,624)	$	(11,451)
20% adverse change	$	(25,570)	$	(26,722)	$	(27,247)	$	(22,901)

(1)

The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs.

(2)

For MSRs carried at fair value, an adverse change in one of the above-mentioned key inputs is expected to result in a reduction in fair value which will be recognized in income. For MSRs carried at lower of amortized cost or fair value, an adverse change in one of the above-mentioned key inputs may result in recognition of MSR impairment. The extent of the recognized MSR impairment will depend on the relationship of fair value to the carrying value of such MSRs.

(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 events, 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 as a “Level 3” fair value financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS. 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 fair value of ESS. Changes in these key inputs are not necessarily directly related.

ESS 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 mortgage loans underlying the ESS, thereby increasing its fair value, which is owed to PMT. Increases in the fair value of ESS decrease income and are included in Net mortgage loan servicing fees.

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. Other changes in fair value are recorded in Amortization, impairment and change in fair value of mortgage servicing rights .

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


	June 30,	December 31,
	2016	2015

Carrying value (in thousands)	$294,551	$412,425
ESS and pool characteristics:
Unpaid principal balance of underlying mortgage loans (in thousands)	$36,151,940	$51,966,405
Average servicing fee rate (in basis points)	34	32
Average excess servicing spread (in basis points)	19	17
Key inputs:
Pricing spread (1)
Range	4.7% – 5.9%	4.8% – 6.5%
Weighted average	5.5%	5.7%
Average life (in years)
Range	1.6 – 8.9	1.4 – 9.0
Weighted average	6.2	6.9
Annualized prepayment speed (2)
Range	6.8% – 37.3%	5.2% – 52.4%
Weighted average	12.5%	9.6%

(1) 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:


	June 30,		December 31,
	2016		2015
	(in thousands)

Government-insured or guaranteed	$	1,947,944	$	992,805
Conventional conforming		109,744		59,868
Jumbo		1,371		—
Delinquent mortgage loans purchased from Ginnie Mae pools serviced by the Company		28,745		42,600
Mortgage loans repurchased pursuant to representations and warranties		9,334		5,931
	$	2,097,138	$	1,101,204
Fair value of mortgage loans pledged to secure:
Assets sold under agreements to repurchase	$	1,302,339	$	833,748
Mortgage loan participation and sale agreement		769,629		245,741
	$	2,071,968	$	1,079,489

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.

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


	June 30, 2016					December 31, 2015
		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:
Interest rate lock commitments	3,868,230	$	91,607	$	1,345	3,487,366	$	45,885	$	2,112
Forward purchase contracts	13,510,863		125,358		119	5,254,293		4,181		9,004
Forward sales contracts	13,614,196		664		101,772	6,230,811		4,965		7,497
MBS put options	3,550,000		1,777		—	1,275,000		404		—
Put options on interest rate futures purchase contracts	1,000,000		1,618		2,070	1,650,000		1,832		203
Call options on interest rate futures purchase contracts	452,100		8,279		234	600,000		1,555		47
Total derivatives before netting			229,303		105,540			58,822		18,863
Netting			(104,761)		(101,806)			(8,542)		(9,780)
		$	124,542	$	3,734		$	50,280	$	9,083
Deposits placed with (received from) derivative counterparties, net		$	2,955				$	(1,238)

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


	Quarter ended June 30, 2016
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)

Forward purchase contracts	9,464,470	46,870,345	(42,823,952)	13,510,863
Forward sale contracts	10,418,906	56,521,979	(53,326,689)	13,614,196
MBS put options	1,375,000	6,750,000	(4,575,000)	3,550,000
Put options on interest rate futures purchase contracts	1,750,000	1,650,000	(2,400,000)	1,000,000
Call options on interest rate futures purchase contracts	3,937,500	—	(3,485,400)	452,100


	Quarter ended June 30, 2015
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)

Forward purchase contracts	5,124,867	25,739,853	(24,662,302)	6,202,418
Forward sale contracts	7,464,527	37,634,838	(35,309,801)	9,789,564
MBS put options	450,000	457,500	(580,000)	327,500
MBS call options	—	160,000	—	160,000
Put options on interest rate futures purchase contracts	1,470,500	2,284,500	(1,735,500)	2,019,500
Call options on interest rate futures purchase contracts	870,000	2,170,000	(2,015,000)	1,025,000
Put options on interest rate futures sale contracts	100,000	—	(100,000)	—

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	Six months ended June 30, 2016
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)

Forward purchase contracts	5,254,293	77,682,720	(69,426,150)	13,510,863
Forward sale contracts	6,230,811	95,918,405	(88,535,020)	13,614,196
MBS put options	1,275,000	9,450,000	(7,175,000)	3,550,000
Put options on interest rate futures purchase contracts	1,650,000	4,675,000	(5,325,000)	1,000,000
Call options on interest rate futures purchase contracts	600,000	3,637,500	(3,785,400)	452,100


	Six months ended June 30, 2015
	Balance			Balance
	beginning of		Dispositions/	end of
Instrument	period	Additions	expirations	period
	(in thousands)

Forward purchase contracts	2,634,218	45,375,703	(41,807,503)	6,202,418
Forward sale contracts	3,901,851	64,375,110	(58,487,397)	9,789,564
MBS put options	340,000	1,242,500	(1,255,000)	327,500
MBS call options	—	160,000	—	160,000
Put options on interest rate futures purchase contracts	755,000	3,825,000	(2,560,500)	2,019,500
Call options on interest rate futures purchase contracts	630,000	2,915,000	(2,520,000)	1,025,000
Put options on interest rate futures sale contracts	50,000	50,000	(100,000)	—
Call options on interest rate futures sales contracts	—	35,100	(35,100)	—

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


		Quarter ended June 30,				Six months ended June 30,
Hedged item	Income statement line	2016		2015		2016		2015
		(in thousands)

Interest rate lock commitments and mortgage loans held for sale	Net gains on mortgage loans held for sale	$	(48,943)	$	45,029	$	(118,119)	$	19,241
Mortgage servicing rights	Net mortgage loan servicing fees	$	64,948	$	(28,317)	$	123,668	$	(11,196)

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Note 10—Mortgage Servicing Rights

Carried at Fair Value

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Balance at beginning of period	$	594,403	$	361,413	$	660,247	$	325,383
Additions:
Purchases		—		206,996		11		270,133
Mortgage servicing rights resulting from mortgage loan sales		4,820		3,443		9,288		6,118
		4,820		210,439		9,299		276,251
Change in fair value due to:
Changes in valuation inputs used in valuation model (1)		(51,855)		26,308		(100,731)		8,593
Other changes in fair value (2)		(21,074)		(16,891)		(42,521)		(28,958)
Total change in fair value		(72,929)		9,417		(143,252)		(20,365)
Balance at end of period	$	526,294	$	581,269	$	526,294	$	581,269

	June 30,		December 31,
	2016		2015
Fair value of mortgage servicing rights pledged to secure:
Assets sold under agreements to repurchase	$	418,257	$	37,705
Note payable		107,160		20,881
	$	525,417	$	58,586

(1)

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

(2)

Represents changes due to realization of cash flows.

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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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Amortized cost:
Balance at beginning of period	$	866,989	$	470,490	$	798,925	$	415,245
Mortgage servicing rights resulting from mortgage loan sales		127,652		125,561		223,966		192,842
Amortization		(33,050)		(14,493)		(61,300)		(26,529)
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary-impairment		—		—		—		—
Balance at end of period		961,591		581,558		961,591		581,558

Valuation allowance:
Balance at beginning of period		(124,310)		(41,492)		(47,237)		(9,800)
Additions		(72,647)		14,175		(149,720)		(17,517)
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary-impairment		—		—		—		—
Balance at end of period		(196,957)		(27,317)		(196,957)		(27,317)
Mortgage servicing rights, net	$	764,634	$	554,241	$	764,634	$	554,241
Fair value of mortgage servicing rights at beginning of period	$	743,062	$	437,824	$	766,345	$	416,802
Fair value of mortgage servicing rights at end of period	$	764,634	$	569,969

	June 30,		December 31,
	2016		2015
Fair value of mortgage servicing rights pledged to secure:
Assets sold under agreements to repurchase	$	739,763	$	744,974
Note payable		20,520		—
	$	760,283	$	744,974

The following table summarizes the Company’s estimate of future amortization of its existing MSRs. This estimate was developed with the inputs applicable to the June 30, 2016 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 June 30,	amortization
	(in thousands)

2017	$	139,642
2018		114,718
2019		97,719
2020		84,154
2021		73,351
Thereafter		452,007
	$	961,591

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Servicing fees relating to MSRs are recorded in Net mortgage loan 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Contractual servicing fees	$	92,770	$	66,867	$	184,097	$	116,968
Ancillary and other fees:
Late charges		1,346		1,467		2,881		3,118
Other		476		691		860		1,402
	$	94,592	$	69,025	$	187,838	$	121,488

Mortgage Servicing Liabilities Carried at Fair Value

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Balance at beginning of period	$	6,747	$	6,529	$	1,399	$	6,306
Mortgage servicing liabilities resulting from mortgage loan sales		—		9,156		5,409		12,084
Change in fair value		(2,066)		(3,894)		(2,127)		(6,599)
Balance at end of period	$	4,681	$	11,791	$	4,681	$	11,791

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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Balance at beginning of period	$	70,519	$	68,531	$	69,926	$	67,298
Carried Interest recognized during the period		244		182		837		1,415
Proceeds received during the period		—		—		—		—
Balance at end of period	$	70,763	$	68,713	$	70,763	$	68,713

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 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—Borrowings

The borrowing facilities described throughout this Note 12 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio, profitability and liquidity. Management believes that the Company was in compliance with these covenants as of June 30, 2016.

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Assets Sold Under Agreement to Repurchase

The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by mortgage loans held for sale at fair value or MSRs. Eligible mortgage loans and participation certificates secured by MSRs are sold at advance rates based on the fair value of the assets sold. Interest is charged at a rate based on the buyer’s overnight cost of funds rate for two agreements and on LIBOR for the other four agreements. Mortgage loans and MSRs financed under these agreements may be re-pledged by the lenders.

Following is a summary of financial information relating to assets sold under agreements to repurchase:


	Quarter ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(dollars in thousands)

During the period:
Average balance of assets sold under agreements to repurchase	$	1,352,401		$	819,988		$	1,195,987		$	719,003
Weighted average interest rate (1)		3.06	%		1.80	%		2.87	%		1.80	%
Total interest expense	$	12,252		$	4,758		$	20,912		$	8,498
Maximum daily amount outstanding	$	1,803,371		$	1,264,046		$	1,863,455		$	1,264,046


		June 30,			December 31,
	2016			2015
	(dollars in thousands)

Carrying value:
Unpaid principal balance	$	1,591,947		$	1,167,405
Unamortized debt issuance costs		(149)			(674)
	$	1,591,798		$	1,166,731
Unused amount (2)	$	415,053		$	40,178
Fair value of assets securing repurchase agreements
Mortgage loans held for sale	$	1,302,339		$	833,748
Mortgage servicing rights		1,158,020			782,679
	$	2,460,359		$	1,616,427
Weighted average interest rate		2.68	%		2.50	%
Margin deposits placed with counterparties (3)	$	2,500		$	2,500

(1)

Excludes the effect of amortization of commitment fees totaling $1.8 million and $ 1.0 million for the quarters ended June 30, 2016 and 2015, respectivel y, and $3.6 million and $2.3 million for the six months ended June 30, 2016 and 2015, respectively.

(2)

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

(3)

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

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


Remaining maturity at June 30, 2016	Balance
	(in thousands)

Within 30 days	$	56,338
Over 30 to 90 days		1,535,033
Over 90 days		576
		1,591,947
Unamortized debt issuance costs		(149)
Total loans sold under agreements to repurchase	$	1,591,798
Weighted average maturity (in months)		1.8

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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 interest payable) relating to the Company’s mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of June 30, 2016:


			Weighted average
			maturity of advances
			under repurchase
Counterparty	Amount at risk		agreement	Facility maturity
	(in thousands)

Credit Suisse First Boston Mortgage Capital LLC	$	754,830	September 27, 2016	September 27, 2016
Credit Suisse First Boston Mortgage Capital LLC	$	43,002	September 8, 2016	March 30, 2017
Bank of America, N.A.	$	40,601	September 22, 2016	March 28, 2017
Morgan Stanley Bank, N.A.	$	15,071	August 24, 2016	August 26, 2016
Citibank, N.A.	$	13,851	August 8, 2016	October 20, 2016
Barclays Bank PLC	$	3,931	September 22, 2016	December 2, 2016

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 assets securing those agreements decreases.

Mortgage Loan Participation and Sale Agreements

Certain of the borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan and sale agreements. Participation 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 at the time a participation certificate is sold.

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 June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(dollars in thousands)

During the period:
Average balance	$	189,363		$	162,150		$	178,460		$	144,484
Weighted average interest rate (1)		1.69	%		1.43	%		1.68	%		1.43	%
Total interest expense	$	917		$	651		$	1,698		$	1,239
Maximum daily amount outstanding	$	737,319		$	199,572		$	737,319		$	199,572


	June 30,			December 31,
	2016			2015
	(dollars in thousands)

Carrying value:
Unpaid principal balance	$	737,319		$	234,898
Unamortized debt issuance costs		(143)			(26)
	$	737,176		$	234,872
Weighted average interest rate		1.71	%		1.45	%
Fair value of mortgage loans pledged to secure mortgage loan participation and sale agreement	$	769,629		$	245,741

(1)

Excludes the effect of amortization of facility fees totaling $ 107,000 and $63,000 for the quarters ended June 30, 2016 and 2015, respective ly, and $185,000 and $130,000 for the six months ended June 30, 2016 and 2015, respectively.

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Notes Payable

The Company entered into a revolving credit agreement classified as a note payable, dated as of December 30, 2015, pursuant to which the lenders have agreed to make revolving loans in an amount not to exceed $100,000,000. Interest on the note payable accrues at an annual rate of interest equal to, at the election of the Company, either LIBOR plus the applicable contract margin or an alternate base rate. The maturity date of the note payable is 364 days following the date of the revolving credit agreement. The proceeds of the loans are to be used solely for working capital and general corporate purposes of the Company and its subsidiaries.

As of June 30, 2016, a second note payable is secured by MSRs relating to certain mortgage loans in the Company’s servicing portfolio. Interest is charged at a rate based on LIBOR plus the applicable contract margin.

Notes payable are summarized below:


	Quarter ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(dollars in thousands)

During the period:
Average balance	$	121,941		$	214,618		$	103,554		$	178,152
Weighted average interest rate (1)		4.53	%		3.00	%		4.47	%		2.98	%
Total interest expense	$	2,291		$	2,463		$	3,889		$	4,098
Maximum daily amount outstanding	$	128,849		$	257,000		$	128,849		$	257,000


	June 30,		December 31,
	2016		2015
	(in thousands)

Carrying value:
Unpaid principal balance	$	115,006	$	62,677
Unamortized debt issuance costs		(771)		(1,541)
	$	114,235	$	61,136
Unused amount	$	84,994	$	57,328
Assets pledged to secure notes payable:
Mortgage servicing rights	$	127,680	$	20,881
Cash	$	124,026	$	93,757
Carried Interest	$	70,763	$	69,296

(1)

Excluding the effect of amortization of debt issuance costs totaling $0.9 million and $1.5 million during the quarter and six months ended June 30, 2016.

Obligations under Capital Lease

In December 2015, the Company entered into a capital lease transaction secured by certain fixed assets and capitalized software. The capital lease matures on December 9, 2019 and bears interest at a spread over one month LIBOR.

Obligations under capital lease are summarized below:


	Quarter ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(dollars in thousands)

During the period:
Average balance	$	17,566		$	—		$	15,641		$	—
Weighted average interest rate		2.44	%		—	%		2.44	%		—	%
Total interest expense	$	161		$	—		$	224		$	—
Maximum daily amount outstanding	$	24,720		$	—		$	24,720		$	—

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	June 30,		December 31,
	2016		2015
	(in thousands)

Unpaid principal balance	$	22,886	$	13,579
Assets pledged to secure obligations under capital lease:
Furniture, fixtures and equipment	$	27,240	$	14,034
Capitalized software	$	986	$	783

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. 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 the responsibility to make servicing advances.

Following is a summary of ESS:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Balance at beginning of period	$	321,976	$	222,309	$	412,425	$	191,166
Issuances of excess servicing spread to PennyMac Mortgage Investment Trust:
For cash		—		140,875		—		187,287
Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		1,690		1,319		3,601		2,565
Accrual of interest		5,713		5,818		12,728		9,570
Repayment		(17,400)		(18,352)		(38,281)		(31,083)
Repurchase (1)		—		—		(59,045)		—
Change in fair value		(17,428)		7,133		(36,877)		(403)
Balance at end of period	$	294,551	$	359,102	$	294,551	$	359,102

(1)

On February 29, 2016, the Company and PMT terminated that certain master spread acquisition and MSR servicing agreement that the parties entered into effective February 1, 2013 (the “2/1/13 Spread Acquisition Agreement”) and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, the Company reacquired from PMT all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by the Company to PMT under the 2/1/13 Spread Acquisition Agreement and then subject to such 2/1/13 Spread Acquisition Agreement. On February 29, 2016, the Company also reacquired from PMT all of its right, title and interest in and to all of the Freddie Mac ESS previously sold to PMT by the Company.

Note 13—Liability for Losses Under Representations and Warranties

Following is a summary of the Company’s liability for losses under representations and warranties:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Balance at beginning of period	$	22,209	$	14,689	$	20,611	$	13,259
Provision for losses on mortgage loans sold		2,286		1,748		4,368		3,243
Incurred losses		(218)		(180)		(702)		(245)
Balance at end of period	$	24,277	$	16,257	$	24,277	$	16,257
Unpaid principal balance of mortgage loans subject to representations and warranties at period end	$	72,151,175	$	44,794,166

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Note 14 —Income Taxes

The Company’s effective tax rates were 11.8% and 11.5% for the quarters ended June 30, 2016 and 2015, respectively, and 11.9% and 11.5% for the six months ended June 30, 2016 and 2015, 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 15—Noncontrolling Interest

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,475	$	12,749	$	19,650	$	21,777
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.	$	2,039	$	1,640	$	2,640	$	2,432
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC for Class A stock of PennyMac Financial Services, Inc.		90		89		93		133


	June 30,		December 31,
	2016		2015
Percentage of noncontrolling interest in Private National Mortgage Acceptance Company, LLC	70.9	%	71.1	%

Note 16—Net Gains on Mortgage Loans Held for Sale

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

From non-affiliates:
Cash (loss) gain:
Mortgage loans	$	20,830	$	(38,944)	$	42,231	$	(36,214)
Hedging activities		(77,593)		17,995		(150,133)		(334)
		(56,763)		(20,949)		(107,902)		(36,548)
Non-cash gain:
Mortgage servicing rights resulting from mortgage loan sales		132,472		129,004		233,254		198,960
Mortgage servicing liabilities resulting from mortgage loan sales		—		(9,156)		(5,409)		(12,084)
Provision for losses relating to representations and warranties on loans sold		(2,286)		(1,748)		(4,368)		(3,243)
Change in fair value relating to mortgage loans and hedging derivatives held at period end:
Interest rate lock commitments		18,377		(26,654)		46,488		(4,663)
Mortgage loans		11,669		(12,120)		31,517		81
Hedging derivatives		28,649		27,034		32,014		19,575
		132,118		85,411		225,594		162,078
Recapture payable to PennyMac Mortgage Investment Trust		(1,915)		(1,456)		(3,867)		(2,745)
	$	130,203	$	83,955	$	221,727	$	159,333

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Note 17—Net Interest Expense

Net interest expense is summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Interest income:
From non-affiliates:
Short-term investments	$	284	$	204	$	456	$	334
Mortgage loans held for sale at fair value		13,262		11,718		23,743		20,139
Custodial funds		4,786		729		6,060		1,111
		18,332		12,651		30,259		21,584
From PennyMac Mortgage Investment Trust—Note receivable		2,222		533		3,824		533
		20,554		13,184		34,083		22,117

Interest expense:
To non-affiliates:
Assets sold under agreements to repurchase		12,252		4,758		20,912		8,498
Mortgage loan participation and sale agreement		917		651		1,698		1,239
Notes payable		2,291		2,463		3,889		4,098
Obligations under capital lease		161		—		224		—
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations		3,422		1,676		5,527		3,200
Interest on mortgage loan impound deposits		710		983		1,475		1,573
		19,753		10,531		33,725		18,608
To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value		5,713		5,818		12,728		9,570
		25,466		16,349		46,453		28,178
	$	(4,912)	$	(3,165)	$	(12,370)	$	(6,061)

Note 18—Stock-based Compensation

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Performance-based RSUs	$	1,644	$	2,474	$	4,433	$	4,345
Stock options		1,423		1,516		2,503		2,996
Time-based RSUs		641		602		1,348		1,137
Exchangeable PNMAC units		18		58		43		120
	$	3,726	$	4,650	$	8,327	$	8,598

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Following is a summary of equity award activity:


	Quarter ended June 30, 2016
	Performance-		Stock		Time-based		Exchangeable
	based RSUs		options		RSUs		PNMAC units
	(in thousands)

March 31, 2016		2,686		2,799		454		76,057
Granted		—		—		—		52
Vested		—		—		(49)		—
Exercised		—		—		—		—
Forfeited or canceled		(13)		(13)		(7)		—
June 30, 2016		2,673		2,786		398		76,109


	Quarter ended June 30, 2015
	Performance-		Stock		Time-based		Exchangeable
	based RSUs		options		RSUs		PNMAC units
	(in thousands)

March 31, 2015		2,398		1,881		289		75,971
Granted		—		—		32		44
Vested		—		—		(40)		—
Exercised		—		—		—		—
Forfeited or canceled		(17)		(12)		(5)		—
June 30, 2015		2,381		1,869		276		76,015


	Six months ended June 30, 2016
	Performance-		Stock		Time-based		Exchangeable
	based RSUs		options		RSUs		PNMAC units
	(in thousands)

December 31, 2015		2,351		1,845		271		76,029
Granted		813		962		251		80
Vested				—		(115)		—
Exercised		—		—		—		—
Forfeited or canceled		(491)		(21)		(9)		—
June 30, 2016		2,673		2,786		398		76,109


	Six months ended June 30, 2015
	Performance-		Stock		Time-based		Exchangeable
	based RSUs		options		RSUs		PNMAC units
	(in thousands)

December 31, 2015		1,257		1,167		202		75,936
Granted		1,143		715		150		79
Vested		—		—		(71)		—
Exercised		—		—		—		—
Forfeited or canceled		(19)		(13)		(5)		—
June 30, 2015		2,381		1,869		276		76,015

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Note 19—Supplemental Cash Flow Information


	Six months ended June 30,
	2016		2015
	(in thousands)

Cash paid for interest	$	44,065	$	27,231
Cash paid for income taxes	$	43	$	1,907
Non-cash investing activity:
Mortgage servicing rights resulting from mortgage loan sales	$	233,254	$	198,960
Mortgage servicing liabilities resulting from mortgage loan sales	$	5,409	$	12,084
Non-cash financing activity:
Transfer of excess servicing spread to PennyMac Mortgage Investment Trust pursuant to a recapture agreement	$	3,601	$	2,565
Issuance of common stock in settlement of director fees	$	149	$	149

Note 20—Regulatory Capital and Liquidity Requirements

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

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



	June 30, 2016				December 31, 2015
Agency–company subject to requirement	Balance (1)		Requirement		Balance (1)		Requirement
	(in thousands)

Capital
Fannie Mae & Freddie Mac - PLS	$	1,034,006	$	301,900	$	835,157	$	283,655
Ginnie Mae - PLS	$	826,031	$	383,702	$	633,222	$	386,732
Ginnie Mae - PennyMac	$	1,006,192	$	422,072	$	894,731	$	425,405
HUD - PLS	$	826,031	$	2,500	$	633,222	$	2,500
Liquidity
Fannie Mae & Freddie Mac - PLS	$	162,194	$	41,221	$	145,431	$	38,936
Ginnie Mae - PLS	$	162,194	$	102,216	$	145,431	$	95,868

(1)

Calculated in compliance with the respective Agency’s requirements.

Noncompliance with an Agency’s requirements can result in such Agency taking various remedial actions up to and including terminating PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency. PennyMac and PLS had Agency capital and liquidity in excess of the respective Agencies’ requirements at June 30, 2016.

Note 21—Commitments and Contingencies

Commitments to Fund and Sell Mortgage Loans


	June 30, 2016
	(in thousands)

Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$	2,031,517
Commitments to fund mortgage loans		1,836,713
	$	3,868,230

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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 June 30, 2016, 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.

Commitment to Make Distributions to PennyMac Owners

Under the terms of its Limited Liability Company Agreement, PennyMac is required to make cash distributions to the Company’s noncontrolling interest holders in amounts sufficient to allow such noncontrolling interest holders to pay federal and state taxes on their allocable share of PennyMac income. Such distributions, if required, are generally made quarterly. The Company expects to complete the calculation of estimated PennyMac taxable income and to determine the amount of any tax distribution obligation in September 2016.

Note 22—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 mortgage loan origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans, execution and management of early buyout (“EBO”) 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 production activities for PMT and managing the acquired assets for the Advised Entities.

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Financial performance and results by segment are as follows:


	Quarter ended June 30, 2016
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)

Revenue: (1)
Net gains on mortgage loans held for sale at fair value	$	115,894	$	14,309	$	130,203	$	—	$	130,203
Mortgage loan origination fees		28,907		—		28,907		—		28,907
Fulfillment fees from PennyMac Mortgage Investment Trust		19,111		—		19,111		—		19,111
Net mortgage loan servicing fees		—		26,555		26,555		—		26,555
Management fees		—		—		—		5,730		5,730
Carried Interest from Investment Funds		—		—		—		244		244
Net interest income (expense):
Interest income		11,528		9,026		20,554		—		20,554
Interest expense		6,825		18,625		25,450		16		25,466
		4,703		(9,599)		(4,896)		(16)		(4,912)
Other		849		851		1,700		268		1,968
Total net revenue		169,464		32,116		201,580		6,226		207,806
Expenses		64,959		53,085		118,044		5,504		123,548
Income (loss) before provision for income taxes and non-segment activities		104,505		(20,969)		83,536		722		84,258
Non-segment activities		—		—		—		—		—
Income (loss) before provision for income taxes	$	104,505	$	(20,969)	$	83,536	$	722	$	84,258
Segment assets at period end (2)	$	2,222,007	$	2,289,922	$	4,511,929	$	95,141	$	4,607,070

(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of deferred tax asset of $ 4.9 million and working capital of $4.4 million.

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	Quarter ended June 30, 2015
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)

Revenue: (1)
Net gains on mortgage loans held for sale at fair value	$	86,377	$	(2,422)	$	83,955	$	—	$	83,955
Mortgage loan origination fees		24,421		—		24,421		—		24,421
Fulfillment fees from PennyMac Mortgage Investment Trust		15,333		—		15,333		—		15,333
Net mortgage loan servicing fees		—		68,549		68,549		—		68,549
Management fees		—		—		—		6,963		6,963
Carried Interest from Investment Funds		—		—		—		182		182
Net interest income (expense):
Interest income		10,200		2,984		13,184		—		13,184
Interest expense		5,200		11,149		16,349		—		16,349
		5,000		(8,165)		(3,165)		—		(3,165)
Other		235		101		336		(223)		113
Total net revenue		131,366		58,063		189,429		6,922		196,351
Expenses		55,085		60,508		115,593		5,959		121,552
Income (loss) before provision for income taxes	$	76,281	$	(2,445)	$	73,836	$	963	$	74,799
Segment assets at period end (2)	$	1,631,661	$	1,671,371	$	3,303,032	$	88,050	$	3,391,082

(1) All revenues are from external customers.

(2) Excludes parent Company assets, which consist primarily of deferred tax asset of $34.2 million.


	Six months ended June 30, 2016
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)

Revenue: (1)
Net gains (losses) on mortgage loans held for sale at fair value	$	194,108	$	27,619	$	221,727	$	—	$	221,727
Loan origination fees		51,341		—		51,341		—		51,341
Fulfillment fees from PennyMac Mortgage Investment Trust		32,046		—		32,046		—		32,046
Net servicing fees		—		44,074		44,074		—		44,074
Management fees		—		—		—		11,642		11,642
Carried Interest from Investment Funds		—		—		—		837		837
Net interest income (expense):
Interest income		19,905		14,177		34,082		1		34,083
Interest expense		11,708		34,769		46,477		26		46,503
		8,197		(20,592)		(12,395)		(25)		(12,420)
Other		1,088		619		1,707		204		1,911
Total net revenue		286,780		51,720		338,500		12,658		351,158
Expenses		113,867		112,151		226,018		10,792		236,810
Income (loss) before provision for income taxes and non-segment activities		172,913		(60,431)		112,482		1,866		114,348
Non-segment activities (2)		—		—		—		—		49
Income (loss) before provision for income taxes	$	172,913	$	(60,431)	$	112,482	$	1,866	$	114,397
Segment assets at period end (3)	$	2,222,007	$	2,289,922	$	4,511,929	$	95,141	$	4,607,070

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(1)

All revenues are from external customers.

(2)

Relates to parent Company interest expense eliminated in consolidation.

(3)

Excludes parent Company assets, which consist primarily of deferred tax asset of $ 4.9 million and working capital of $4.4 million.


	Six months ended June 30, 2015
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)

Revenue: (1)
Net gains on mortgage loans held for sale at fair value	$	163,356	$	(4,023)	$	159,333	$	—	$	159,333
Loan origination fees		41,103		—		41,103		—		41,103
Fulfillment fees from PennyMac Mortgage Investment Trust		28,199		—		28,199		—		28,199
Net servicing fees		—		95,325		95,325		—		95,325
Management fees		—		—		—		15,452		15,452
Carried Interest from Investment Funds		—		—		—		1,415		1,415
Net interest income (expense):
Interest income		16,813		5,304		22,117		—		22,117
Interest expense		8,841		19,337		28,178		—		28,178
		7,972		(14,033)		(6,061)		—		(6,061)
Other		1,148		719		1,867		32		1,899
Total net revenue		241,778		77,988		319,766		16,899		336,665
Expenses		98,065		98,550		196,615		12,013		208,628
Income (loss) before provision for income taxes	$	143,713	$	(20,562)	$	123,151	$	4,886	$	128,037
Segment assets at period end (2)	$	1,631,661	$	1,671,371	$	3,303,032	$	88,050	$	3,391,082

(1) All revenues are from external customers.

(2) Excludes parent Company assets, which consist primarily of deferred tax asset of $34.2 million.

Note 23—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 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. The Company adopted ASU 2015-02 effective January 1, 2016. The adoption of ASU 2015-02 had no effect on the Company’s consolidated financial statements.

On January 5, 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option, the presentation and disclosure requirements for financial instruments, and the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.

ASU 2016-01 requires that:

• All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings.

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• When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The accumulated gains and losses due to these changes will be reclassified from accumulated other comprehensive income to earnings if the financial liability is settled before maturity.

• For financial instruments measured at amortized cost, public business entities will be required to use the exit price when measuring the fair value of financial instruments for disclosure purposes.

• Financial assets and financial liabilities shall be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or fair value) and form of financial asset (e.g., loans, securities).

• Public business entities will no longer be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost.

• Entities will have to assess the realizability of a deferred tax asset related to a debt security classified as available for sale in combination with the entity’s other deferred tax assets.

The classification and measurement guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income is permitted and can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. The Company is currently assessing the potential effect that the adoption of ASU 2016-01 will have on its consolidated financial statements.

On February 25, 2016, the FASB issued ASU No. 2016-02 , Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors) and supersedes previous leasing standards. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

ASU 2016-02 is effective for the Company for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the potential impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In March of 2016, The FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including:

Modifies the accounting for income taxes relating to share-based payments. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) will be recognized as income tax expense or benefit in the consolidated income statement. The tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. An entity will recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Under current GAAP, excess tax benefits are recognized in additional paid-in capital; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the consolidated income statement in the period they reduce income taxes payable.

Changes the classification of excess tax benefits on the consolidated statement of cash flows. In the consolidated statement of cash flows, excess tax benefits will be classified along with other income tax cash flows as an operating activity. Under current GAAP, excess tax benefits are separated from other income tax cash flows and classified as a financing activity.

Changes the requirement to estimate the number of awards that are expected to vest. Under ASC 2016-09, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest as presently required or account for forfeitures when they occur. Under current GAAP, accruals of compensation cost are based on the number of awards that are expected to vest.

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Changes the tax withholding requirements for share-based payment awards to qualify for equity accounting. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Under current GAAP, for an award to qualify for equity classification is that an entity cannot partially settle the award in cash in excess of the employer’s minimum statutory withholding requirements.

Establishes GAAP for the classification of employee taxes paid when an employer withholds shares for tax withholding purposes. Cash paid by an employer when directly withholding shares for tax- withholding purposes should be classified as a financing activity. This guidance establishes GAAP related to the classification of withholding taxes in the statement of cash flows as there is no such guidance under current GAAP.

ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. The Company is currently assessing the potential effect that the adoption of ASU 2016-09 will have on its consolidated financial statements.

Note 24—Subsequent Events

During July 2016, the Company entered into a letter of intent to acquire approximately $1.0 billion in UPB of MSRs related to defaulted government loans from a third party. The MSR acquisition by the Company is subject to the negotiation and execution of definitive documentation, continuing due diligence and customary closing conditions. There can be no assurance that the committed amounts will ultimately be acquired or that the transaction will be completed at all.

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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,” “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. PLS is a seller/servicer for the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which is a government-sponsored entity (“GSE”). It is also an approved issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), a lender of the Federal Housing Administration (“FHA”), a lender/servicer of the Veterans Administration (“VA”) and the U.S. Department of Agriculture (“USDA”), and a servicer for the Home Affordable Modification Program (“HAMP”). We refer to each of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA and USDA as an “Agency” and collectively as the “Agencies.” PLS is able to service loans in all 50 states, the District of Columbia, Guam and the U.S. Virgin Islands, and originate loans in 49 states and the District of Columbia, either because PLS is properly licensed in a particular jurisdiction or exempt or otherwise not required to be licensed in that jurisdiction.

Our investment management subsidiary, PNMAC Capital Management, LLC (“PCM”), is a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisors Act of 1940, as amended, 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, PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP, both registered under the Investment

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Company Act of 1940 (“Investment Company Act”), 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

Our loan production segment sources mortgage loans through two channels: correspondent production and consumer direct lending.

In correspondent production 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 mortgage loans, including both conventional and government-insured or guaranteed residential mortgage loans that qualify for inclusion in securitizations that are guaranteed by 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 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 or refinance their homes. The 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 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 loans, and retain the associated MSRs (subject to sharing with PMT a portion of such MSRs or cash with respect to certain consumer direct originated loans that refinance loans for which the related mortgage servicing rights (“MSRs”) or excess servicing spread (“ESS”) was held by PMT).

Our loan production activity is summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(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	$	9,409,399	$	8,082,764	$	15,905,121	$	12,818,138
Mortgage loans sourced through our consumer direct channel		1,501,234		1,138,269		2,708,217		2,035,267
	$	10,910,633	$	9,221,033	$	18,613,338	$	14,853,405
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust	$	5,174,020	$	3,579,078	$	8,433,383	$	6,469,210

Loan Servicing

Our mortgage 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 June 30, 2016, the portfolio of mortgage loans that we serviced or subserviced

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totaled approximately $171.7 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 $1.6 billion as of June 30, 2016. 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, albeit at a slower pace, as reflected in recent economic data. During the second quarter of 2016, U.S. real gross domestic product expanded at an annual rate of 1.2% compared to 2.6% for the second quarter of 2015 and 0.8% for the first quarter of 2016. The national seasonally adjusted unemployment rate was 4.9% at June 30, 2016 compared to 5.0% at March 31, 2016 and 5.3% at June 30, 2015. 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 first quarter of 2016, the delinquency rate on residential real estate loans held by commercial banks was 4.8%, a reduction from 6.2% during the first quarter of 2015.

Residential real estate activity appears to be expanding. The seasonally adjusted annual rate of existing home sales for June 2016 was 3.0% higher than for June 2015, and the national median existing home price for all housing types was $247,700, a 4.8% increase from June 2015 (Source: National Association of Realtors®). On a national level, foreclosure filings during the quarter ended June 30, 2016 decreased by 14% as compared to the quarter ended June 30, 2015. However, foreclosure activity is expected to remain above historical average levels through 2016 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 3.48% to a high of 3.66% during the second quarter of 2016 while during the second quarter of 2015, thirty-year fixed mortgage interest rates ranged from a low of 3.65% to a high of 4.04% (Source: Freddie Mac’s Weekly Primary Mortgage Market Survey). Interest rates generally declined in the second quarter of 2016 and generally increased in the second quarter of 2015. This impacted MSR and other interest rate sensitive asset valuations and production activity.

Mortgage lenders originated an estimated $510 billion of home loans during the second quarter of 2016, up 4.1% from the second quarter of 2015. Total mortgage originations are forecast to be somewhat higher in 2016 versus 2015, with current industry estimates for 2016 averaging $1.8 trillion (Source: average of Fannie Mae, Freddie Mac and Mortgage Bankers Association forecasts).

We believe there is long-term market opportunity for the production of non-Agency jumbo mortgage loans. However, most new jumbo mortgage loans are either being originated or purchased by banks, and the current market for jumbo mortgage loan securitizations is limited, as evidenced by weak demand and inconsistent pricing observed throughout 2015 and the first half of 2016. Prime jumbo MBS securitizations totaled $0.9 billion in UPB during the second quarter of 2016, a decrease from $2.8 billion during the second quarter of 2015. During the six months ended June 30, 2016, we produced approximately $13 million in UPB of jumbo loans compared to $91 million in UPB of jumbo loans produced during the six months ended June 30, 2015.

In our capacity as an investment manager, we expect to see a continued supply of distressed whole loans; however, we believe the pricing for recent transactions has been less attractive for buyers. We are transitioning PMT’s portfolio away from distressed whole loans to correspondent-related investments such as CRT and MSRs, 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Revenues:
Net gains on mortgage loans held for sale at fair value	$	130,203	$	83,955	$	221,727	$	159,333
Mortgage loan origination fees		28,907		24,421		51,341		41,103
Fulfillment fees from PennyMac Mortgage Investment Trust		19,111		15,333		32,046		28,199
Net mortgage loan servicing fees		26,555		68,549		44,074		95,325
Management fees		5,730		6,963		11,642		15,452
Carried Interest from Investment Funds		244		182		837		1,415
Net interest expense		(4,912)		(3,165)		(12,370)		(6,061)
Other		1,968		113		1,910		1,899
Total net revenue		207,806		196,351		351,207		336,665
Expenses		123,548		121,552		236,810		208,628
Provision for income taxes		9,963		8,619		13,559		14,733
Net income	$	74,295	$	66,180	$	100,838	$	113,304

Income before provision for income taxes by segment:
Mortgage banking:
Production	$	104,505	$	76,281	$	172,913	$	143,713
Servicing		(20,969)		(2,445)		(60,431)		(20,562)
Total mortgage banking		83,536		73,836		112,482		123,151
Investment management		722		963		1,866		4,886
Non-segment activities (1)		—		—		49		—
	$	84,258	$	74,799	$	114,397	$	128,037
During the period:
Interest rate lock commitments issued	$	12,924,700	$	11,588,488	$	21,665,118	$	19,381,813
Fair value of mortgage loans purchased and originated for sale:
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust	$	9,933,264	$	8,524,895	$	16,783,840	$	13,514,733
Mortgage loans originated through consumer direct channel		1,512,546		1,148,435		2,730,709		2,052,648
Commercial real estate		1,312		—		5,912		—
	$	11,447,122	$	9,673,330	$	19,520,461	$	15,567,381
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust	$	5,174,020	$	3,579,078	$	8,433,383	$	6,469,210

	June 30,		December 31,
	2016		2015
Unpaid principal balance of mortgage loan servicing portfolio:
Owned:
Mortgage servicing rights	$	117,036,803	$	110,602,704
Mortgage servicing liabilities		751,193		806,897
Mortgage loans held for sale		1,971,903		1,052,485
		119,759,899		112,462,086
Subserviced		51,958,636		47,810,632
	$	171,718,535	$	160,272,718
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust	$	1,360,826	$	1,496,113
Investment Funds		201,490		231,745
	$	1,562,316	$	1,727,858

(1)

Relates to parent Company interest expense eliminated in consolidation.

Net income increased $8.1 million and decreased $12.5 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015. These changes reflect the effects on our mortgage banking activities of decreasing interest rates during the first six months of 2016 as compared to the same period of 2015. The increase in net income during the quarter ended June 30, 2016, compared to the same quarter ended June 30, 2015, was primarily due to an increase in gain on mortgage loans held for sale at fair value that was partially offset by a decrease in net mortgage loan servicing fees. The decrease in net income for the six month period ended June 30, 2016, as compared to the six month period ended June 30, 2015, was due to a decrease in net mortgage loan servicing fees partly offset by an increase in gain on mortgage loans held for sale at fair value.

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Net Gains on Mortgage Loans Held for Sale at Fair Value

Most of our mortgage loan production 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.

During the quarter and six months ended June 30, 2016, we recognized net gains on mortgage loans held for sale at fair value totaling $130.2 million and $221.7 million, respectively, increases of $46.2 million and $62.4 million from the same periods in 2015. The increase was due to growth in the volume of mortgage loans that we committed to purchase or originate and an improvement in production margins resulting from an increase in volume of our consumer direct channel, which earns higher margins than our correspondent production channel.

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 and mortgage servicing liabilities created or incurred in such transactions. During the quarter and six months ended June 30, 2016, the net gains on mortgage loans held for sale at fair value included $132.5 million and $227.8 million, respectively, in fair value of MSRs received as proceeds on sales, net of mortgage servicing liabilities incurred. During the quarter and six months ended June 30, 2015, the net gains on mortgage loans held for sale at fair value included $119.8 million and $186.9 million, respectively, in fair value of MSRs received as proceeds on sale, 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 six months ended June 30, 2016, we included provisions for losses relating to the representations and warranties we provided totaling $2.3 million and $4.4 million, respectively, in our Net gains on mortgage loans held for sale at fair value . During the quarter and six months ended June 30, 2015, we included provisions for losses relating to the representations and warranties we provided totaling $1.7 million and $3.2 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Cash (loss) gain:
Mortgage loans	$	20,830	$	(38,944)	$	42,231	$	(36,214)
Hedging activities		(77,593)		17,995		(150,133)		(334)
		(56,763)		(20,949)		(107,902)		(36,548)
Non-cash gain:
Mortgage servicing rights resulting from mortgage loan sales		132,472		129,004		233,254		198,960
Mortgage servicing liabilities resulting from mortgage loan sales		—		(9,156)		(5,409)		(12,084)
Provision for losses relating to representations and warranties on mortgage loans sold		(2,286)		(1,748)		(4,368)		(3,243)
Change in fair value relating to mortgage loans and derivative financial instruments outstanding at period end:
Interest rate lock commitments		18,377		(26,654)		46,488		(4,663)
Mortgage loans		11,669		(12,120)		31,517		81
Hedging derivatives		28,649		27,034		32,014		19,575
		132,118		85,411		225,594		162,078
Recapture payable to PennyMac Mortgage Investment Trust		(1,915)		(1,456)		(3,867)		(2,745)
	$	130,203	$	83,955	$	221,727	$	159,333
During the period:
Unpaid principal balance of mortgage loans sold	$	10,766,503	$	9,416,468	$	18,381,560	$	14,925,336
Interest rate lock commitments issued:
Conventional mortgage loans	$	847,051	$	1,652,242	$	1,394,368	$	3,436,009
Government-insured or guaranteed mortgage loans		12,077,649		9,936,246		20,270,750		15,945,804
	$	12,924,700	$	11,588,488	$	21,665,118	$	19,381,813
Period end:
Mortgage loans held for sale at fair value	$	2,097,138	$	1,594,262
Commitments to fund and purchase mortgage loans	$	3,868,230	$	4,296,134

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 we provide to the purchasers and insurers of the mortgage loans we sell in our Net gains on sale of mortgage loans held for sale at fair value . Our agreements with the purchasers and insurers include representations and warranties related to the mortgage loans we sell. The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the mortgage 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 identified defects or indemnify the purchaser 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

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reimbursement by the correspondent mortgage loan seller. We establish a liability at the time loans are sold and review our liability estimate on a periodic basis.

We 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 $4.4 million during the quarter and six months ended June 30, 2016, respectively, compared to $1.7 million and $3.2 million during the quarter and six months ended June 30, 2015. The increase in provision for losses under representations and warranties during the quarter and six months ended June 30, 2016 compared to the same periods in 2015 was primarily due to an increase in the volume of mortgage loan sales activity, partly offset by lower expected loss rates on our new production during 2016 as compared to 2015.

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

During the period:
Indemnification activity
Mortgage loans indemnified by PFSI at beginning of period	$	3,540	$	2,202	$	3,470	$	1,521
New indemnifications		1,716		868		1,855		1,549
Less:
Indemnified mortgage loans repurchased		—		—		—		—
Indemnified mortgage loans repaid or refinanced		384		—		453		—
Mortgage loans indemnified by PFSI at end of period	$	4,872	$	3,070	$	4,872	$	3,070
Repurchase activity
Total mortgage loans repurchased by PFSI	$	4,486	$	7,291	$	11,399	$	11,781
Less:
Mortgage loans repurchased by correspondent lenders		3,075		7,756		6,340		8,276
Mortgage loans repaid by borrowers or resold with defects resolved		814		1,585		1,141		1,958
Net mortgage loans repurchased by PFSI with losses chargeable to liability for representations and warranties	$	597	$	(2,050)	$	3,918	$	1,547
Losses charged to liability for representations and warranties	$	218	$	180	$	702	$	245
Period end:
Unpaid principal balance of mortgage loans subject to representations and warranties	$	72,151,175	$	44,794,166
Liability for representations and warranties	$	24,277	$	16,257

During the quarter and six months ended June 30, 2016, we repurchased mortgage loans totaling $4.5 million and $11.4 million in UPB, respectively . We recorded losses of $218,000 and $702,000, respectively net of recoveries from correspondent lenders, 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, purchaser or insurer loss mitigation strategies, and other external conditions that may change over the lives of the

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underlying mortgage loans. Our estimate of the liability for representations and warranties is developed by our credit administration staff. The liability estimate is reviewed and approved by our senior management credit committee which includes our senior executives and senior management in our loan production, loan servicing and credit risk management areas. We did not record any adjustments to previously recorded liabilities for representations and warranties during any of the periods presented.

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

Other mortgage loan production-related revenues

Loan origination fees increased $4.5 million and $10.2 million during the quarter and six months ended June 30, 2016, compared to the same periods in 2015 primarily due to growth in the volume of correspondent purchases in our loan production activities.

Fulfillment 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 increased $3.8 million during the quarter and six months ended June 30, 2016 compared to the same periods in 2015. The effect of the increase in volume of mortgage loans we fulfilled for PMT was partially offset by a reduction in the average fulfillment fee rate we charged during 2016 as compared to 2015 resulting from contractual discretionary reductions in fulfillment fees made to facilitate certain transactions.

Summarized below are our fulfillment fees:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Fulfillment fee revenue	$	19,111	$	15,333	$	32,046	$	28,199
Unpaid principal balance of mortgage loans fulfilled	$	5,174,020	$	3,579,078	$	8,433,383	$	6,469,210
Average fulfillment fee rate (in basis points)		37		43		38		44

Net mortgage loan servicing fees

Our net mortgage loan servicing fees are summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Net mortgage loan servicing fees:
Mortgage loan servicing fees:
From non-affiliates	$	92,770	$	66,867	$	184,097	$	116,968
From PennyMac Mortgage Investment Trust		16,427		12,136		27,880		22,806
From Investment Funds		723		153		1,424		1,121
Ancillary and other fees		10,818		11,850		22,270		23,035
		120,738		91,006		235,671		163,930
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread		(94,183)		(22,457)		(191,597)		(68,605)
Net loan servicing fees	$	26,555	$	68,549	$	44,074	$	95,325
Average mortgage loan servicing portfolio	$	167,966,390	$	125,390,557	$	165,413,607	$	117,979,004

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Following is a summary of our mortgage loan servicing portfolio in UPB:



	June 30,		December 31,
	2016		2015
	(in thousands)

Mortgage loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated	$	71,436,178	$	59,880,349
Acquired		45,600,625		50,722,355
		117,036,803		110,602,704
Mortgage servicing liabilities–Originated		751,193		806,897
Mortgage loans held for sale		1,971,903		1,052,485
		119,759,899		112,462,086
Subserviced for Advised Entities		48,894,531		43,963,378
Total prime servicing		168,654,430		156,425,464
Special servicing–Subserviced for Advised Entities		3,064,105		3,847,254
Total mortgage loans serviced	$	171,718,535	$	160,272,718

Mortgage loan servicing fees increased approximately $29.7 million and $71.7 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015, primarily due to an increase in mortgage loan servicing fees from nonaffiliates resulting from growth in our portfolio of MSRs .

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



	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Amortization of mortgage servicing rights carried at lower of amortized cost or fair value and realization of cash flows of mortgage servicing rights carried at fair value	$	(54,126)	$	(31,384)	$	(103,822)	$	(55,488)
Other changes 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		(122,433)		44,377		(248,320)		(2,324)
Change in fair value of excess servicing spread		17,428		(7,133)		36,877		403
Hedging results		64,948		(28,317)		123,668		(11,196)
Total fair value adjustments, net of hedging results		(40,057)		8,927		(87,775)		(13,117)
Total amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread	$	(94,183)	$	(22,457)	$	(191,597)	$	(68,605)
Average mortgage servicing rights balances:
Carried at lower of amortized cost or fair value	$	772,734	$	488,354
Carried at fair value		571,074		467,328
	$	1,343,808	$	955,682

	June 30,		December 31,
	2016		2015
Mortgage servicing rights
Carried at lower of amortized cost or fair value	$	764,634	$	751,688
Carried at fair value		526,294		660,247
	$	1,290,928	$	1,411,935

Amortization, impairment and change in fair value of mortgage servicing rights increased $71.7 million and $123.0 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in

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2015. This increase was primarily due to increased amortization caused by both a growing mortgage servicing asset and a shorter amortization period resulting from increased prepayment expectations, and increased impairment of MSRs resulting from the effect on fair value of the decreasing interest rate environment that prevailed during the first half of 2016.

Management fees and Carried Interest

Management fees and Carried Interest are summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Management fees:
PennyMac Mortgage Investment Trust:
Base management	$	5,199	$	5,709	$	10,551	$	11,439
Performance incentive fee		—		70		—		1,343
		5,199		5,779		10,551		12,782
Investment Funds		531		1,184		1,091		2,670
Total management fees		5,730		6,963		11,642		15,452
Carried Interest		244		182		837		1,415
Total management fees and Carried Interest	$	5,974	$	7,145	$	12,479	$	16,867

	June 30,		December 31,
	2016		2015
Net assets of Advised Entities at period end:
PennyMac Mortgage Investment Trust	$	1,360,826	$	1,496,113
Investment Funds		201,490		231,745
	$	1,562,316	$	1,727,858

Management fees from PMT decreased $580,000 and $2.2 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The decrease was primarily due to:

a decrease in base management fees of $510,000 and $888,000, respectively, due primarily to the effect of a share repurchase program on PMT’s shareholders’ equity upon which its base management fee is based; and

a decrease in performance incentive fees of $70,000 and $1.3 million resulting from a decline in PMT’s financial performance over the four-quarter period for which incentive fees were calculated.

Management fees from the Investment Funds decreased $653,000 and $1.6 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015. 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 period.

Carried Interest from Investment Funds increased $62,000 and decreased $578,000 during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015.

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Other revenues

Net interest expense increased $1.7 million and $6.3 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015 due to growth in financing of our investments in non-interest earning assets, primarily MSRs.

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


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Dividends received from PennyMac Mortgage Investment Trust	$	36	$	46	$	71	$	138
Change in fair value of investment in PennyMac Mortgage Investment Trust		193		(290)		72		(275)
	$	229	$	(244)	$	143	$	(137)
Fair value of PennyMac Mortgage Investment Trust shares at period end	$	1,217	$	1,307

Change in fair value of investment in and dividends received from PMT increased $473,000 and $280,000 during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015 due to an increase in the fair value of our investment in PMT. We held 75,000 common shares of PMT during each of the periods ended June 30, 2016 and 2015.

Expenses

Our compensation expense is summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Salaries and wages	$	50,110	$	40,207	$	98,223	$	75,649
Incentive compensation		19,421		18,134		25,751		28,484
Taxes and benefits		8,663		7,117		17,545		13,842
Stock and unit-based compensation		4,953		4,964		9,926		10,591
	$	83,147	$	70,422	$	151,445	$	128,566
Head count:
Average		2,636		2,186		2,594		2,046
Period end		2,682		2,354

Compensation expense increased $12.7 million and $22.9 million, during the quarter and six months ended June 30, 2016 compared to the same periods in 2015. The increase in compensation expense was primarily due to the growth in our mortgage banking segments.

Incentive compensation decreased primarily due to lower attainment of profitability targets during the first quarter of 2016 compared to the first quarter of 2015.

Servicing expense decreased $15.2 million and $4.0 million during the quarter and six months ended June 30, 2016 compared to the same periods in 2015. The decrease was primarily due to the increase in expected losses (provision for servicing advance losses) during the second quarter of 2015 based on observed performance as compared to a more modest increase during the second quarter of 2016.

Technology expense increased $1.2 million and $3.2 million during the quarter and six months ended June 30, 2016, respectively, compared to the same periods in 2015 primarily due to increased software costs as part of our continued investment in loan production and servicing infrastructure.

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Expenses Allocated to PMT

We are reimbursed by PMT for other expenses, including common overhead expenses we have incurred on PMT’s behalf, in accordance with the terms of our management agreement with PMT. We present the expense amounts in the consolidated statements of income net of these allocations.

Common overhead expense amounts allocated to PMT during the periods ended June 30, 2016 and 2015 are summarized below:


	Quarter ended June 30,				Six months ended June 30,
	2016 (1)		2015		2016		2015
	(in thousands)

Technology	$	1,125	$	1,178	$	2,270	$	2,316
Occupancy		512		487		1,085		966
Depreciation and amortization		407		537		806		1,109
Other		391		500		835		1,040
Total expenses	$	2,435	$	2,702	$	4,996	$	5,431

(1)

For the quarter ended June 30, 2015, reimbursement of common overhead incurred by us included a discretionary waiver, in accordance with the terms of the management agreement, of $700,000 of overhead expenses otherwise allocable to PMT. On December 15, 2015, we amended the management agreement to provide that the total overhead costs and expenses incurred by us in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

Provision for Income Taxes

Our effective tax rates were 11.8% and 11.9% during the quarter and six months ended June 30, 2016, respectively, compared to 11.5% during the same periods in 2015. 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.

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Balance Sheet Analysis

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


	June 30,		December 31,
	2016		2015
	(in thousands)

ASSETS
Cash and short-term investments	$	184,778	$	151,791
Mortgage loans held for sale at fair value		2,097,138		1,101,204
Servicing advances, net		296,581		299,354
Receivable from affiliates		173,342		170,281
Carried Interest due from Investment Funds		70,763		69,926
Mortgage servicing rights		1,290,928		1,411,935
Other		502,790		300,803
Total assets	$	4,616,320	$	3,505,294

LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings	$	2,466,095	$	1,462,739
Payable to affiliates		558,322		679,548
Other		421,050		300,657
Total liabilities		3,445,467		2,442,944
Stockholders' equity		1,170,853		1,062,350
Total liabilities and stockholders' equity	$	4,616,320	$	3,505,294

Total assets increased $ 1.1 billion from $3.5 billion at December 31, 2015 to $ 4.6 billion at June 30, 2016. The increase was primarily due to an increase of $1.0 billion in mortgage loans held for sale at fair value, resulting from growth in our mortgage loan production.

Total liabilities increased by $ 1.0 b illion from $2.4 billion as of December 31, 2015 to $3.4 billion as of June 30, 2016. The increase was primarily attributable to an increase in borrowings to fund growth in our inventory of mortgage loans held for sale at fair value and MSRs.

Cash Flows

Our cash flows for the six months ended June 30, 2016 and 2015 are summarized below:


	Six months ended June 30,
	2016		2015		Change
	(in thousands)

Cash flow activities:
Operating	$	(958,795)	$	(421,410)	$	(537,385)
Investing		109,802		(316,047)		425,849
Financing		887,236		735,929		151,307
Net cash flows	$	38,243	$	(1,528)	$	39,771

Our cash flows resulted in a net increase in cash of $38.2 million during the six months ended June 30, 2016 as discussed below.

Operating activities

Net cash used in operating activities totaled $958.8 million and $ 421.4 million during the six months ended June 30, 2016 and 2015, respectively, primarily due to the growth of our inventory of mortgage loans held for sale at fair value.

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Investing activities

Net cash provided by investing activities during the six months ended June 30, 2016 totaled $ 109.8 million primarily due to $138.8 million in net settlements of derivative financial instruments received in our hedging of MSRs, partially offset by acquisitions of fixed assets and capitalized software. Net cash used in investing activities during the six months ended June 30, 2015 totaled $ 316.0 million primarily due to our purchase of MSRs during the period.

Financing activities

Net cash provided by financing activities totaled $887.2 m illion and $ 735.9 million during the six months ended June 30, 2016 and 2015, respectively, primarily due to increased financing for the growth in our inventory of mortgage loans held for sale at fair value.

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, margin calls relating to hedges, and tax distributions to noncontrolling interest holders), 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 from borrowings 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 assets sold under agreements to repurchase, sales of mortgage loan participation certificates, a note payable, a revolving credit agreement, ESS and a capital lease. All of our borrowings other than ESS and the capital lease 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 longer-term financing becomes more available. Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to renew these facilities in advance of their maturity dates in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.

Our repurchase agreements represent the sales of assets together with agreements for us to buy back the respective assets at a later date. The table below presents the average outstanding, maximum and ending balances:


	Quarter ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(in thousands)

Repurchase agreements outstanding:
Average balance	$	1,352,401	$	819,988	$	1,195,987	$	719,003
Maximum daily balance	$	1,803,371	$	1,264,046	$	1,863,455	$	1,264,046
Balance at period end	$	1,591,947	$	1,264,046

Our secured financing agreements at PLS require us to comply with various financial covenants. The most significant financial covenants specific to PLS 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 one of our existing secured financing agreements.

With respect to servicing performed for PMT, PLS is also subject to certain covenants under its debt agreements. Covenants of PLS in PMT’s debt agreements are at least equal to, or less restrictive, than the covenants described above.

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In addition to the covenants noted above, our revolving credit agreement (classified as a note payable) and capital lease contain additional financial covenants specific to PennyMac including, but not limited to,

a minimum of cash and carried interest equal to the amount borrowed under the revolving credit agreement;

a minimum of unrestricted cash and cash equivalents equal to $25 million;

a minimum tangible net worth of $500 million;

a minimum asset coverage ratio (the ratio of the total asset amount to the total commitment) of 2.5; and

a maximum ratio of total indebtedness to tangible net worth ratio of 5:1.

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.

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.

We are also subject to liquidity and net worth requirements established by FHFA and GNMA for Agency seller/servicers. Effective December 31, 2015, FHFA and Ginnie Mae have established new minimum liquidity requirements and revised their net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae and Freddie Mac and Ginnie Mae for its approved single-family issuers, as summarized below:

FHFA liquidity requirement is equal to 0.035% (3.5 basis points) of total Agency servicing UPB plus an incremental 200 basis points of the amount by which total nonperforming Agency servicing UPB exceeds 6% of the applicable 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;

FHFA net worth requirement 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 believe that we are currently in compliance with 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, bank loans, repurchase agreements, securitization transactions 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.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements and Guarantees

As of June 30, 2016, we have not entered into any off-balance sheet arrangements or guarantees.

Contractual Obligations

As of June 30, 2016, we had on-balance contractual obligations of $1.6 billion to finance assets under agreements to repurchase and $737.3 million to finance assets under our mortgage loan participation and sale agreement. We also had contractual obligations of $115.0 million relating to notes payable. Additionally, we entered into ESS transactions and a capital lease transaction secured by certain fixed assets and capitalized software of which $22.9 million was outstanding as of June 30, 2016. We also lease our primary office facilities under an agreement that expires on April 30, 2026 and we license certain software to support our loan servicing operations.

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)

Assets sold under agreements to repurchase	$	1,591,947	$	1,591,947	$	—	$	—	$	—
Mortgage loan participation and sale agreements		737,319		737,319		—		—		—
Notes payable		115,006		115,006		—		—		—
Obligations under capital lease		22,886		8,743		14,143		—		—
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust (1)		294,551		—		—		—		294,551
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		74,850		—		—		—		74,850
Anticipated interest payments related to excess servicing spread financing at fair value		120,495		18,004		28,829		21,559		52,103
Software licenses (2)		3,280		3,280		—		—		—
Office leases		82,195		7,864		20,923		21,019		32,389
Total	$	3,042,529	$	2,482,163	$	63,895	$	42,578	$	453,893

(1)

The ESS financing obligation payable to PMT does not have a stated contractual maturity date and will pay down as the underlying MSRs receive the excess servicing fee rate due to PMT.

(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 $820,000 per month. Estimated payments for software licenses above are based on the number of loans currently serviced by us, which totaled approximately 902,000 at June 30, 2016. Future amounts due may significantly fluctuate based on changes in the number of loans serviced by us. For the six months ended June 30, 2016, software license fees totaled $6.6 million. All figures contained in this footnote are in actual amounts and not in thousands (in contrast to the table above).

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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 our assets sold under agreements to repurchase is summarized by counterparty below as of June 30, 2016:


			Weighted average
			maturity of
			advances under
Counterparty	Amount at risk		repurchase agreement	Facility Maturity
	(in thousands)

Credit Suisse First Boston Mortgage Capital LLC	$	754,830	September 27, 2016	September 27, 2016
Credit Suisse First Boston Mortgage Capital LLC	$	43,002	September 8, 2016	March 30, 2017
Bank of America, N.A.	$	40,601	September 22, 2016	March 28, 2017
Morgan Stanley Bank, N.A.	$	15,071	August 24, 2016	August 26, 2016
Citibank, N.A.	$	13,851	August 8, 2016	October 20, 2016
Barclays Bank PLC	$	3,931	September 22, 2016	December 2, 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.

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

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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.

Under our management agreement, we are entitled to reimbursement of our organizational and operating expenses, including third-party expenses, incurred on PMT’s behalf. Additionally, on December 15, 2015, we amended our management agreement to provide that the total overhead costs and expenses incurred by us in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

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 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. To the extent that we rent PMT’s REO under its REO rental program, we collect an REO rental fee of $30 per month per REO, an REO lease renewal fee of $100 per lease renewed, and a property management fee in an amount equal to our 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 we provide property management services directly. We are also entitled to retain any tenant paid application fees, late rent fees and to seek reimbursement for certain third party vendor fees

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.

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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. 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 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, and (iii) 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 less than or equal to $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.

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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 $1,500 per year per early purchase facility administered by us, and (ii) in the amount of $35 for each mortgage loan PMT acquires thereunder. 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 $40,000 per annum for each of the first twenty (20) warehouse lending facilities active in any month and $10,000 per annum for each additional warehouse lending facility active in any month, 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 the applicable warehouse lending fees.

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 previously sold to PMT or one of its wholly owned subsidiaries the rights to receive certain ESS from MSRs acquired by us from banks and other third party financial institutions. We were generally required to service or subservice the related mortgage loans for the applicable agency or investor. We only used the 2/1/13 Spread Acquisition Agreement for the purpose of selling ESS relating to Fannie Mae MSRs. The specific terms of each transaction under the 2/1/13 Spread Acquisition Agreement were 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 refinanced any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contained 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 was less than $200,000, we were, at our option, permitted to pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

On February 29, 2016, the parties terminated the 2/1/13 Spread Acquisition Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, we reacquired from PMT all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by us to PMT and then subject to such 2/1/13 Spread Acquisition Agreement.

On December 19, 2014, we entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/19/14 Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are

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substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.

To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 12/19/14 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. To the extent the fair market 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 market value in lieu of transferring such ESS.

On February 29, 2016, we reacquired from PMT all of its right, title and interest in and to all of the Freddie Mae ESS previously sold by us to PMT and then subject to such 12/19/14 Spread Acquisition Agreement. The 12/19/14 Spread Acquisition Agreement remains in full force and effect.

On April 30, 2015, we amended and restated a third master spread acquisition and MSR servicing agreement with PMT (the “4/30/15 Spread Acquisition Agreement”). The terms of the 4/30/15 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement and the 12/19/14 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Ginnie Mae MSRs under the 4/30/15 Spread Acquisition Agreement. The primary purpose of the amendment and restatement to the 4/30/15 Spread Agreement was to evidence the ownership of the ESS under participation certificates and to otherwise incorporate the terms of previously executed amendments.

To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 4/30/15 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 4/30/15 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 4/30/15 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 4/30/15 Spread Acquisition Agreement, we were also required to (i) amend and restate the terms of a 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. 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. On November 10, 2015, the LSA was further amended and restated to convert the form of the borrowing into a repurchase agreement (as amended and restated, the “MSR Repo”). The aggregate loan amount outstanding under the MSR Repo and relating to advances outstanding with PMT is guaranteed in full by PMT.

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 4/30/15 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 4/30/15 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 MSR Repo, 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 MSR Repo or (ii) repurchase the ESS from PMT at fair value. To the extent we are unable to repay the loan under the MSR Repo or repurchase the ESS, an event of default would exist under the MSR Repo, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the

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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 4/30/15 Spread Acquisition Agreement.

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.

Loan Purchase Agreements

We have entered into a mortgage loan purchase agreement and a flow commercial mortgage loan purchase agreement with PMT. Currently, we use the mortgage loan purchase agreement for the purpose of selling to PMT prime jumbo residential mortgage loans and conventional mortgage loans eligible for delivery into Agency credit risk transfer securities, in each case originated by us through our consumer direct lending business. We use the flow commercial mortgage loan purchase agreement for the purpose of selling to PMT small balance commercial mortgage loans, including multifamily mortgage loans, originated by us as part of our commercial lending business. Each of the loan purchase agreements contains customary terms and provisions, including representations and warranties, covenants, repurchase remedies and indemnities. The purchase prices paid to us by PMT for such loans are market-based.

Commercial Mortgage Servicing Oversight Agreement

We have also entered into a commercial mortgage servicing oversight agreement with PMT that governs our oversight of the master and/or special servicing performed by third party servicers in connection with certain commercial mortgage loans acquired by PMT. For the oversight services performed under this agreement, we are entitled to collect a fee equal to 5 basis points per annum based on the UPB of the related commercial mortgage loans for which we provide oversight servicing.

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.

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Debt Obligations

As described further above in “Liquidity and Capital Resources,” we currently finance certain of our assets through borrowings with major financial institution counterparties in the form of sales of assets under agreements to repurchase, mortgage loan participation and sale agreements, two notes payable, ESS and a capital lease. The borrower under each of these facilities is PLS with the exception of the revolving credit agreement, which is classified as a note payable, and the capital lease, in each case where the borrower is PennyMac. All PLS obligations as previously noted are guaranteed by PennyMac.

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 June 30, 2016, we were in compliance in all material respects with these covenants.

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 the borrowings discussed above have short-term maturities that expire as follows:


	Outstanding		Total		Committed
Lender	indebtedness (4)		facility size		Facility		Maturity date
	(dollar amounts in thousands)
Assets sold under agreements to repurchase (1)
Credit Suisse First Boston Mortgage Capital LLC	$	407,000	$	407,000	$	407,000	September 27, 2016
Credit Suisse First Boston Mortgage Capital LLC	$	448,963	$	500,000	$	300,000	March 30, 2017
Bank of America, N.A.	$	372,742	$	500,000	$	225,000	March 28, 2017
Morgan Stanley Bank, N.A.	$	168,200	$	200,000	$	125,000	August 26, 2016
Citibank, N.A.	$	157,201	$	200,000	$	150,000	October 20, 2016
Barclays Bank PLC (2)	$	37,842	$	200,000	$	—	December 2, 2016
Mortgage loan participation and sale agreements
Bank of America, N.A.	$	737,319	$	800,000	$	—	March 28, 2017
Barclays Bank PLC (2)	$	—	$	—	$	—	December 2, 2016
Notes payable (3)
Credit Suisse AG	$	50,000	$	100,000	$	100,000	December 28, 2016
Barclays Bank PLC (2)	$	65,006	$	100,000	$	100,000	December 2, 2016
Obligations under capital lease
Banc of America Leasing and Capital LLC	$	22,886	$	25,000	$	25,000	December 9, 2019

(1)

The borrowing with Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $407 million) is in the form of sales of participation certificates representing beneficial ownership in MSRs and ESS under agreements to repurchase. The other borrowings are in the form of sales of mortgage loans under agreements to repurchase.

(2)

The borrowings with Barclays Bank PLC are subject to a total aggregate facility amount of $300 million, of which $100 million represents the maximum amount for MSRs.

(3)

The borrowing with Credit Suisse AG (with a committed amount of $100 million) is in the form of a revolving credit agreement, which is secured by cash and carried interest and classified as a note payable. The borrowing with Barclays Bank PLC (with a total facility size of $100 million) is in the form of a note payable secured by MSRs.

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(4)

Except with respect to the Credit Suisse AG note payable, which is secured primarily by cash collateral, amounts shown represent outstanding indebtedness reduced by cash collateral as of June 30, 2016.

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.

Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of June 30, 2016, 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	$	821,558		$	792,059		$	778,100		$	751,636		$	739,083		$	715,229
Change in fair value:
$	$	56,924		$	27,425		$	13,466		$	(12,998)		$	(25,551)		$	(49,405)
%		7.4	%		3.6	%		1.8	%		(1.7)	%		(3.3)	%		(6.5)	%


Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	846,911		$	803,848		$	783,790		$	746,322		$	728,804		$	695,960
Change in fair value:
$	$	82,277		$	39,214		$	19,157		$	(18,312)		$	(35,830)		$	(68,674)
%		10.8	%		5.1	%		2.5	%		(2.4)	%		(4.7)	%		(9.0)	%


Per-loan servicing cost shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	791,356		$	777,995		$	771,314		$	757,954		$	751,273		$	737,912
Change in fair value:
$	$	26,722		$	13,361		$	6,680		$	(6,680)		$	(13,361)		$	(26,722)
%		3.5	%		1.8	%		0.9	%		(0.9)	%		(1.8)	%		(3.5)	%

The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value method as of June 30, 2016, 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	$	563,250		$	544,128		$	535,058		$	517,822		$	509,629		$	494,026
Change in fair value:
$	$	36,956		$	17,834		$	8,764		$	(8,472)		$	(16,665)		$	(32,268)
%		7.0	%		3.4	%		1.7	%		(1.6)	%		(3.2)	%		(6.1)	%

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Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	579,638		$	551,785		$	538,762		$	514,348		$	502,893		$	481,348
Change in fair value:
$	$	53,344		$	25,491		$	12,468		$	(11,946)		$	(23,401)		$	(44,946)
%		10.1	%		4.8	%		2.4	%		(2.3)	%		(4.5)	%		(8.5)	%


Per-loan servicing cost shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	551,864		$	539,079		$	532,687		$	519,901		$	513,509		$	500,724
Change in fair value:
$	$	25,570		$	12,875		$	6,393		$	(6,393)		$	(12,785)		$	(25,570)
%		4.9	%		2.4	%		1.2	%		(1.2)	%		(2.4)	%		(4.9)	%

Excess Servicing Spread Financing

The following tables summarize the estimated change in fair value of our ESS accounted for using the fair value method as of June 30, 2016, given several shifts in pricing spreads and prepayment speed (decrease in the liabilities’ values increases net income):


Pricing spread shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	309,154		$	301,676		$	298,071		$	291,114		$	287,757		$	281,272
Change in fair value:
$	$	14,602		$	7,125		$	3,520		$	(3,437)		$	(6,794)		$	(13,280)
%		5.0	%		2.4	%		1.2	%		(1.2)	%		(2.3)	%		(4.5)	%


Prepayment speed shift in %	-20%			-10%			-5%			+5%			+10%			+20%
	(dollar amounts in thousands)

Fair value	$	328,642		$	310,782		$	302,476		$	286,983		$	279,751		$	266,211
Change in fair value:
$	$	34,091		$	16,231		$	7,925		$	(7,568)		$	(14,800)		$	(28,340)
%		11.6	%		5.5	%		2.7	%		(2.6)	%		(5.0)	%		(9.6)	%

Item 3. Quantitative and Qualitative Disclosures About Market Ris k

In response to this Item 3, the information set forth on pages 79 to 80 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

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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 disclosure.

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the six months ended June 30, 2016 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 June 30, 2016 , 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

There 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, 2015, filed with the SEC on March 10, 2016 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. Exhibits


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 (incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.10†		PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Other Eligible Participants (incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

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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).

10.13†		Employment Agreement, dated December 8, 2015, among Stanford L. Kurland, Private National Mortgage Acceptance Company, LLC and PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

10.14†		Employment Agreement, dated December 8, 2015, among David A. Spector, Private National Mortgage Acceptance Company, LLC and PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

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		Amendment No. 3 to Mortgage Banking and Warehouse Services Agreement, dated as of December 15, 2015, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 16, 2015).

10.19		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).

10.20		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).

10.21		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).

10.22		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).

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10.23		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).

10.24		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 (incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.25		Amendment No. 6 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2016, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC.

10.26		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).

10.27		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).

10.28		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).

10.29		Amendment Number One to Amended and Restated Management Agreement, dated as of December 15, 2015, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 18, 2015).

10.30		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).

10.31		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).

10.32		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 (incorporated by reference to Exhibit 10.37 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.33		Amendment No. 2 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of November 10, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.40 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.34		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).

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10.35		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).

10.36		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).

10.37		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).

10.38		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).

10.39		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 ).

10.40		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).

10.41		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).

10.42		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).

10.43		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).

10.44		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).

10.45		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).

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10.46		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).

10.47		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).

10.48		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).

10.49		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).

10.50		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).

10.51		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).

10.52		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).

10.53		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).

10.54		Amendment No. 10 to Master Repurchase Agreement, dated as of March 29, 2016, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.62 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

10.55		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).

10.56		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).

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10.57		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).

10.58		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).

10.59		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).

10.60		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).

10.61		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).

10.62		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).

10.63		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).

10.64		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).

10.65		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).

10.66		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).

10.67		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).

10.68		Amendment Number Twelve to the Master Repurchase Agreement, dated September 7, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.72 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.69		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).

10.70		Amendment Number Fourteen to the Master Repurchase Agreement, dated July 25, 2016, between PennyMac Loan Services, LLC and Citibank, N.A.

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10.71		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).

10.72		Amended and Restated Master Spread Participation Agreement, dated as of November 10, 2015, by and among PennyMac Loan Services, LLC and PennyMac Loan Services, LLC as the Initial Participant (incorporated by reference to Exhibit 10.189 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015) .

10.73		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).

10.74		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 (incorporated by reference to Exhibit 10.87 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.75		Amendment No. 2 to Loan and Security Agreement, dated as of November 10, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.92 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.76		Amendment No. 3 to Loan and Security Agreement, dated as of December 15, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.93 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.77		Amendment No. 4 to Loan and Security Agreement, dated as of January 28, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.94 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.78		Amendment No. 5 to Loan and Security Agreement, dated as of March 31, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.96 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

10.79		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).

10.80		Third Amended and Restated Guaranty (Participation Certificates and Servicing), dated as of November 10, 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 November 16, 2015).

10.81		Master Repurchase Agreement (Participation Certificates and Servicing), dated as of November 10, 2015, 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 filed with the SEC on November 16, 2015).

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10.82		Second Amended and Restated Master Repurchase Agreement, dated as of March 31, 2016, 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 April 6, 2016).

10.83		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 ).

10.84		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).

10.85		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).

10.86		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).

10.87		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).

10.88		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).

10.89		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).

10.90		Amendment Number Six to the Master Repurchase Agreement, dated as of November 9, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.118 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.91		Amendment Number Seven to the Master Repurchase Agreement, dated July 26, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A.

10.92		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).

10.93		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).

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10.94		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).

10.95		Amendment No. 2 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 22, 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 10.122 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.96		Amendment No. 3 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 29, 2016, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC.


10.97		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).

10.98		Mortgage Loan Purchase Agreement, dated as of September 25, 2012, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.124 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.99		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).

10.100		Amended and Restated Flow Commercial Mortgage Loan Purchase Agreement, dated as of June 1, 2016, by and between PennyMac Loan Services, LLC and PennyMac Corp.

10.101		Servicing Agreement, dated as of July 13, 2015, between PennyMac Corp., PennyMac Holdings, LLC, any other parties signing this Agreement as owner of Mortgage Loans listed in Schedule I and any New Owners, PennyMac Loan Services, LLC, and Midland Loan Services, a division of PNC Bank, National Association (incorporated by reference to Exhibit 10.127 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.102		Amended and Restated Commercial Mortgage Service Oversight Agreement, dated as of June 1, 2016, among PennyMac Corp., PennyMac Holdings, LLC, and PennyMac Loan Services, LLC.

10.103		Master Repurchase Agreement, dated as of December 4, 2015, among Barclays Bank PLC, 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 December 10, 2015).

10.104		Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 4, 2015, between PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 10, 2015).

10.105		Loan and Security Agreement, dated as of December 4, 2015, among PennyMac Loan Services, LLC, Private National Mortgage Acceptance Company, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 10, 2015).

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10.106		Amendment Number One to the Loan and Security Agreement, dated as of February 26, 2016, among Barclays Bank PLC, 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 March 3, 2016)

10.107		Master Lease Agreement No. 30350-90000, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

10.108		Addendum to Master Lease Agreement No. 30350-90000, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & 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 December 14, 2015).

10.109		Schedule Number 001 to Master Lease Agreement, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

10.110		Schedule Number 002 to Master Lease Agreement, dated as of May 4, 2016, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.140 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

10.111		Guaranty, dated as of December 9, 2015, by PennyMac Loan Services, LLC in favor of Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

10.112		Credit Agreement, dated December 30, 2015, by and among Private National Mortgage Acceptance Company, LLC, the lenders that are parties thereto, Credit Suisse AG and Credit Suisse Securities (USA) LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 30, 2015).

10.113		Collateral and Guaranty Agreement, dated December 30, 2015, by and among Private National Mortgage Acceptance Company, LLC, Credit Suisse AG, Cayman Islands Branch, PennyMac Financial Services, Inc., PNMAC Capital Management, LLC, PennyMac Loan Services, LLC and PNMAC Opportunity Fund Associates, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 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.

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101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 (ii) the Consolidated Statements of Income for the quarters ended June 30, 2016 and June 30, 2015, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended June 30, 2016 and June 31, 2015, (iv) the Consolidated Statements of Cash Flows for the quarters ended June 30, 2016 and June 30, 2015 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 it 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.

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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: August 9, 2016	By:	/S/ STANFORD L. KURLAND
		Stanford L. Kurland
		Chairman of the Board of Directors and Chief Executive Officer

Dated: August 9, 2016	By:	/S/ ANNE D. McCALLION
		Anne D. McCallion
		Chief Financial Officer

Exhibit 10.100

AMENDED & RESTATED

FLOW COMMERCIAL MORTGAGE LOAN PURCHASE AGREEMENT

This Amended and Restated Flow Commercial Mortgage Loan Purchase Agreement (the “ Agreement ”) is made and entered into as of June 1, 2016 by and between PennyMac Loan Services, LLC (the “ Seller ”) and PennyMac Corp. (the “ Purchaser ”).

WHEREAS, the Purchaser and the Seller previously entered into a Flow Commercial Mortgage Loan Purchase Agreement, dated as of December 1, 2015 (the “ Existing Purchase Agreement ”);

WHEREAS, the parties hereto have requested that the Existing Purchase Agreement be amended and restated, in its entirety, on the terms and subject to the conditions set forth herein;

WHEREAS, the Seller desires to sell, from time to time, to the Purchaser, and the Purchaser desires to purchase, from time to time, from the Seller, certain first-lien commercial mortgage loans (the “ Mortgage Loans ”) on a servicing released basis as described herein, and which shall be delivered individually on various dates as provided herein (each, a “ Closing Date ”);

WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or other security instrument creating a first lien on a commercial property or conventional multifamily housing with five residential units or more, as applicable; and

WHEREAS, the Purchaser and the Seller wish to prescribe the manner of the conveyance, transfer of servicing and control of the Mortgage Loans.

NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Purchaser and the Seller agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Defined Terms .

Whenever used in this Agreement, the following words and phrases shall have the following meaning specified in this Article:

“ Advances ”: All recoverable Escrow Advances and Servicing Advances.

“ Anticipated Repayment Date ”: With respect to any Mortgage Loan that is identified in Schedule 1 to the Purchase Price and Terms Agreement as having a Revised Rate, the date upon which such Mortgage Loan commences accruing interest at such Revised Rate.

“ ARD Loan ”: Any Mortgage Loan the terms of which provide that if, after an Anticipated Repayment Date, the related Borrower has not prepaid such Mortgage Loan in full, any principal outstanding on that date will accrue interest at the Revised Rate rather than the Initial Rate.

“ Assignment ”: An assignment of an individual Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the assignment of the Mortgage and the sale or transfer of the Mortgage Loan from the Seller to the Purchaser, in substantially the form of Exhibit A .

“ Assignment of Leases, Rents and Profits ”: With respect to any Mortgaged Property, any assignment of leases, rents and profits or similar agreement executed by the Mortgagor, assigning to the mortgagee all of the income, rents and profits derived from the ownership, operation, leasing or disposition of all or a portion of such Mortgaged Property, in the form which was duly executed, acknowledged and delivered, as amended, modified, renewed or extended through the date hereof and from time to time hereafter.

“ Business Day ”: Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in the State of California are authorized or obligated by law or executed order to be closed.

“ Closing Date ”: The date or dates on which the Purchaser from time to time shall purchase, and the Seller from time to time shall sell, Mortgage Loans and the Servicing Rights related to such Mortgage Loans. The Closing Date shall be the date designated as such in the related Purchase Price and Terms Agreement.

“ Code ”: The Internal Revenue Code of 1986, as amended from time to time, any successor statute thereto, and any temporary or final regulations of the United States Department of the Treasury promulgated pursuant thereto.

“ Collateral ”: With respect to a Mortgage Loan, the Mortgaged Property and any other collateral security for the obligation of the Mortgagor to repay such Mortgage Loan.

“ Cut-off Date ”: The date designated as such in the related Purchase Price and Terms Agreement.

“ Defect ”: Defined in Section 2.04 .

“ Endorsement ”: Endorsement of a Mortgage Note, without recourse, by the Seller.

“ Escrow Advances ”: Any amounts advanced by Seller, Purchaser or the third party servicer for either Seller or Purchaser for the purpose of effecting the payment of taxes, assessments and any insurance premiums relating to a Mortgaged Property.

“ Escrowed Funds ”: (i) Funds that are escrowed with Seller by a Mortgagor under the Mortgage Loan Documents on account of real estate taxes, insurance premiums, insurance proceeds, repairs, improvements, tenant security deposits, reserves or other purpose relating to the Mortgage Loan, (ii) funds that are advanced by Seller into an escrow or other account established pursuant to a Mortgage Loan Document for any of the foregoing purposes, and (iii) funds that are held by Seller in a suspense account or in any other account which funds have not been applied to the Mortgage Loan, including, without limitation, adequate protection payments and cash collateral held by Seller.

“ Freddie Mac ” means the Federal Home Loan Mortgage Corporation or any successor thereto.

“ Freddie Mac SBL Loan ” means a small balance Mortgage Loan providing financing for the acquisition or refinance of conventional multifamily housing with five residential units or more and eligible for delivery to Freddie Mac under the terms of the Guide.

“ Guide ” means any and all applicable rules, regulations, requirements and guidelines of Freddie Mac, as the same may be amended from time to time, including without limitation the Freddie Mac Multifamily Seller/Servicer Guide and the SBL Addendum .

“ Hazard Insurance Policy ”: Defined in Section 3.02(xv) .

“ Initial Rate ”: The stated Mortgage Rate with respect to an ARD Loan or a Freddie Mac SBL Loan which is a Hybrid ARM under the Guide as of the Cut-off Date.

“ Liability Insurance Policy ”: Defined in Section 3.02(xvi) .

“ Loan Amount ”: The principal balance of the Mortgage Loan on the Cut-off Date.

“ Mortgage ”: The mortgage, deed of trust or other instrument securing a Mortgage Note, which creates an unsubordinated first lien on the fee simple estate in the real property securing the Mortgage Note.

“ Mortgage Loan ”: An individual mortgage loan, including but not limited to the Mortgage Loan Documents and all documents included in the Submitted Mortgage File, and any and all rights, benefits, proceeds and obligations arising therefrom or in connection therewith, and which is the subject of this Agreement.

“ Mortgage Loan Documents :” All instruments and documents executed in connection with a Mortgage Loan, including the Mortgage Note and the Mortgage and any environmental indemnities and guaranties.

“ Mortgage Loan Information ”: The Mortgage Loan information set forth on Schedule 1 to each Purchase Price and Terms Agreement with respect to each Mortgage Loan.

“ Mortgage Note ”: The promissory note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage.

“ Mortgaged Property ”: With respect to a Mortgage Loan, the underlying real property securing repayment of a Mortgage Note, consisting of a fee simple estate.

“ Mortgage Rate ”: With respect to each Mortgage Loan, the annual rate at which interest accrues on such Mortgage Loan (in the absence of a default), as set forth in the related Note from time to time.

“ Mortgagor ”: The obligor on a Mortgage Note.

“ Person ”: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, incorporated organization or government or any agency or political subdivision thereof.

“ Purchase Price ”: Defined in Section 2.01(b) .

“ Purchase Premium ”: The amount by which the Purchase Price for a Mortgage Loan or pool of Mortgage Loans exceeds the Loan Amount of such Mortgage Loan as of the applicable Cut-off Date. A Purchase Premium will exist for any Mortgage Loan for which the Purchase Price Percentage exceeds one hundred percent (100%).

“ Purchase Price and Terms Agreement ”: With respect to each Mortgage Loan, an agreement, in the form attached hereto as Exhibit B , by and between the Seller and the Purchaser. For Freddie Mac SBL Loans, the alternative form of Schedule 3 in Exhibit B shall be used.

“ Purchase Price Percentage ”: As defined in Section 2.01(d) hereof.

“ REMIC Provisions ”: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Section 860A through 860G of subchapter M of chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to time.

“ Revised Rate ”: With respect to those Mortgage Loans identified on Schedule 1 to the Purchase Priece and Terms Agreement as having a revised rate, the increased interest rate after the Anticipated Repayment Date (in the absence of a default) for each applicable Mortgage Loan, as calculated and as set forth in the related Mortgage Loan.

“ SBL Addendum ” means the Small Balance Loan Addendum to the Freddie Mac Multifamily Seller/Servicer Guide.

“ SBL Repurchase Period ” means, with respect to Freddie Mac SBL Loans, the same time period that Purchaser’s SBL Repurchase Obligations remain in effect as set forth in the Guide, including for the avoidance of doubt any applicable Limited Extended Repurchase Period as defined in the Guide.

“ SBL Repurchase Obligations ” means, with respect to Freddie Mac SBL Loans, the obligations of Purchaser to repurchase a Freddie Mac SBL Loan from Freddie Mac under the terms and conditions set forth in the Guide.

“ SBL Securitization ” means, with respect to Freddie Mac SBL Loans, the sale by Freddie Mac of the Freddie Mac SBL Loan to a real estate mortgage investment conduit trust that will issue securities backed by the Freddie Mac SBL Loans under the terms and conditions set forth in the Guide and the REMIC Provisions.

“ Servicing Advances ”: All customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance by Seller, Purchaser or a third party servicer for either Seller or Purchaser that do not constitute Escrow Advances incurred in the performance by Seller, Purchaser or a third party servicer for either Seller or Purchaser of its servicing

obligations, including but not limited to, the cost (including reasonable attorneys’ fees and disbursements), related to (i) the preservation, restoration and protection of the Mortgaged Property, (ii) any enforcement or judicial proceedings, and (iii) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage (including default management and similar services, appraisal services and real estate broker services).

“ Servicing Rights ”: Any and all of the following: (a) any and all rights to service the Mortgage Loans; (b) any payments or other monies received for servicing the Mortgage Loans; (c) any late fees, penalties or similar payments with respect to the Mortgage Loans; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights thereunder; (e) Escrowed Funds or other similar payments with respect to the Mortgage Loans and any amounts actually collected with respect thereto; (f) all accounts and other rights to payment related to any of the property described in this paragraph; and (g) any and all documents, files, records, servicing files, servicing documents, servicing records, data tapes, computer records, or other information pertaining to the Mortgage Loans or pertaining to the past, present or prospective servicing of the Mortgage Loans.

“ Submitted Mortgage File ”: The Mortgage Loan Documents and any other documents, instruments and agreements required by the Purchaser and pertaining to a particular Mortgage Loan as specified on Schedule 2 to the applicable Purchase Price and Terms Agreement.

ARTICLE II

SALE AND CONVEYANCE OF MORTGAGE LOANS;

POSSESSION OF SUBMITTED MORTGAGE FILES;

BOOKS AND RECORDS;

DELIVERY OF MORTGAGE LOAN DOCUMENTS

Section 2.01 Sale and Conveyance of Mortgage Loans; Delivery of Mortgage Loan Documents .

(a) Subject to the terms and conditions of this Agreement, the Seller agrees from time to time to sell, transfer, assign, set over and convey to the Purchaser, without recourse (except as provided for herein), but subject to the terms of this Agreement, and the Purchaser agrees to purchase from time to time, for the Purchase Price, the Mortgage Loans identified in the related Purchase Price and Terms Agreement, together with the related Submitted Mortgage Files, the Servicing Rights and all rights and obligations arising under the documents contained therein.

(b) Seller shall provide to Purchaser access to the Submitted Mortgage Files and copies of all other information and materials in Seller’s or its agent’s possession or control relating to the Mortgage Loan Purchaser is contemplating purchasing. Purchaser shall conduct such due diligence concerning such Mortgage Loan as Purchaser shall deem to be appropriate, including, without limitation, conducting

credit checks on obligors of such Mortgage Loan and reviewing title materials relating to the Mortgaged Property that secures such Mortgage Loan. Purchaser may elect to purchase any such Mortgage Loan, in Purchaser’s sole discretion. If Purchaser elects to purchase any such Mortgage Loan pursuant to this Agreement, Purchaser will provide to Seller a Purchase Price and Terms Agreement relating to any such Mortgage Loan Purchaser has elected to purchase, completed and executed by Purchaser. Within two (2) Business Days following its receipt of such Purchase Price and Terms Agreement, Seller will return to Purchaser such Purchase Price and Terms Agreement, executed by Seller.

(c) The fact that the Purchaser has conducted or has failed to conduct any partial or complete examination of the Submitted Mortgage Files and other due diligence for the Mortgage Loans shall not affect the Purchaser’s rights to demand repurchase or other relief as provided herein or affect the Seller’s obligations with respect thereto.

(d) The Purchase Price for each Mortgage Loan shall be (a) the percentage (the “ Purchase Price Percentage ”) stated in the related Purchase Price and Terms Agreement, multiplied by the Loan Amount of such Mortgage Loan as of the related Cut-off Date, plus (b) such amount, if any, of accrued interest on such Mortgage Loan as is described and agreed to in the applicable Purchase Price and Terms Agreement, but in no event will Purchaser be obligated to pay for more than 60 days of accrued and unpaid interest on any Mortgage Loan, plus (c) all outstanding Advances with respect to such Mortgage Loan. The Purchase Price for a Mortgage Loan shall be paid to the Seller by wire transfer of immediately available funds on the related Closing Date to the account of the Seller set forth in the related Purchase Price and Terms Agreement.

(e) The Purchaser shall be entitled to (1) all payments of principal received in regard to the Mortgage Loan on and after the related Cut-off Date, and (2) all payments of interest and other payments on the Mortgage Loan (including, without limitation, reimbursement of Advances) received on and after the related Cut-off Date.

(f) The following shall be conditions precedent to the obligation of the Purchaser to pay the Purchase Price to the Seller:

(1) The Seller shall deliver to the Purchaser the Submitted Mortgage File, as well as such other documentation requested by the Purchaser;

(2) The Seller shall execute and deliver to the Purchaser an Endorsement without recourse with respect to each of the Mortgage Notes; and

(3) The Seller shall execute, acknowledge and deliver to the Purchaser an Assignment with respect to each of the Mortgages;

(4) The Seller shall prepare and deliver to the Purchaser a UCC ‑3 assignment statement with respect to each of the UCC-1 financing statements (if

any) previously filed with respect to the Mortgage Loans, naming the Purchaser as assignee of secured party; and

(5) The Seller shall have notified each Mortgagor under each Mortgage Loan that all rights under such Mortgage Loan have been transferred to the Purchaser, and that all future payments with respect to such Mortgage Loan are to be made directly to the Purchaser, and the address to which such payments are to be made at the Purchaser, pursuant to a written notice in form and substance satisfactory to Purchaser (and Seller shall provide Purchaser with copies of each such written notice sent to each such Mortgagor, which written notice shall have been sent to each Mortgagor via both regular mail, and certified mail return receipt requested).

(g) If the Seller cannot deliver an original Mortgage with evidence of recording thereon, or an original Assignment with evidence of recording thereon by the applicable Closing Date, the Seller shall promptly deliver the same to the Purchaser upon receipt thereof from the public recording official, except in cases where the original Mortgage or Assignment is retained permanently by the recording office, in which case the Seller shall deliver an original copy of such Mortgage or Assignment, certified by the public recording office to be a true and complete copy of the recorded original thereof, as the case may be.

(h) In the event that (i) the original recorded Mortgage was not delivered pursuant to Section 2.01(f) above, or (ii) any original recorded Assignment was not delivered pursuant to Section 2.01(f) above, the Seller shall use best efforts to promptly secure the delivery of such originals and shall cause such originals to be delivered to the Purchaser promptly upon receipt thereof. Notwithstanding the foregoing, in the event that the original Mortgage or original Assignment is not so delivered to the Purchaser within forty-five (45) days following the applicable Closing Date, the Seller shall, upon the request of the Purchaser, repurchase the Mortgage Loan in the manner specified in Sections 3.03(d) , (e) and (f) .

Section 2.02 Possession of Submitted Mortgage Files .

Upon each Closing Date, the ownership of each Mortgage Loan, including the Mortgage Loan Documents and the contents of the related Submitted Mortgage File and all rights, benefits, payments, proceeds and obligations arising therefrom or in connection therewith, shall be vested in the Purchaser, and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or which come into the possession of the Seller shall immediately vest in the Purchaser.

Section 2.03 Examination of Submitted Mortgage Files .

As provided in Section 2.01(b) above, the Seller shall make the related Submitted Mortgage File with respect to each Mortgage Loan available for examination by the Purchaser via secure electronic transmission. Such examination of the Submitted Mortgage Files may be made by the Purchaser or its designee at any reasonable time before the related Closing Date. The fact that the Purchaser or its designee has conducted or has failed to conduct any partial or complete examination of the Submitted Mortgage Files shall not impair in any way the

Purchaser’s (or any of its successor’s) rights to demand repurchase, substitution or other relief as provided in this Agreement, provided, however, that the Purchaser (or any of its successors) may not, following the related Closing Date, demand repurchase, substitution or other relief with respect to a Mortgage Loan based on a breach of a representation or warranty set forth in Section 3.02 that is disclosed as to such Mortgage Loan in the applicable Purchase Price and Terms Agreement.

Section 2.04 Defective Documents .

If the Purchaser finds any document or documents constituting a part of a Submitted Mortgage File which was delivered or which was to be delivered by the Seller to the Purchaser (including documents in the Submitted Mortgage File which were received by the Seller from its borrower) to be defective or missing in any material respect (a “ Defect ”), the Purchaser shall so notify the Seller within sixty (60) days of discovery by the Purchaser of the Defect. If the Seller finds a Defect, the Seller shall promptly so notify the Purchaser. The Seller shall have a period of forty (40) days following receipt of written demand for correction or cure from the Purchaser within which to correct or cure any such Defect after the Seller is notified of same. If the Defect is capable of cure, but is not reasonably expected to be cured within such forty (40) day period, the Seller may, by written notice to the Purchaser, request additional time within which to effect correction or cure. The Purchaser shall have no obligation to grant any such extension of time for correction or cure. If the Purchaser does grant such an extension of time, the Seller shall have such additional time for correction or cure as is expressly granted in writing by the Purchaser. The Seller hereby covenants and agrees that, if the Defect is not corrected or cured within the applicable cure period described above, the Seller will, upon the expiration of such cure period, repurchase the related Mortgage Loan in the manner set forth in Section 3.03 . Discovery by the Purchaser or the Seller of the possible existence of fraud in connection with a Mortgage Loan shall not constitute a Defect, but shall be governed by the provisions of Sections 3.02(iv) and 3.03 .

Section 2.05 Payments Received by Seller Following the Closing Date .

Without limiting Sections 2.02 or 2.04 above, should the Seller receive any monthly payments of principal and interest or payments of any other sums in connection with or owing with respect to any of the Mortgage Loans following the applicable Closing Date, Seller shall promptly (and in any event within two (2) Business Days) , remit all such payments and sums to Purchaser.

Section 2.06 Assignment of Non-Seller Originated Loans .

On the applicable Closing Date, Seller shall also be deemed to have assigned, conveyed and transferred to Purchaser all of Seller’s right, title and interest in all purchase agreements under which Seller acquired any non-Seller originated Mortgage Loan sold on such Closing Date. If requested by Purchaser, Seller shall execute and deliver to Purchaser such additional assignments of the loan purchase agreements with respect to the non-Seller originated Mortgage Loans as Purchaser shall reasonably request.

Section 2.07 Refinance of Mortgage Loans .

Seller shall not, without the prior written consent of Purchaser, refinance any Mortgage Loan prior to the date that is sixty (60) days prior to the maturity date of such Mortgage Loan. In connection with the refinance of any such Mortgage Loan, Seller shall give to Purchaser a right to participate in or purchase such Mortgage Loan on terms that are reasonably acceptable to both Seller and Purchaser (it being understood that Purchaser is not, hereby, committing to any such participation or purchase of any such refinanced Mortgage Loan).

Section 2.08 Substitution of Trustees .

Seller shall cooperate fully with Purchaser, and take all actions reasonably requested by Purchaser, in causing and effectuating the substitution of new trustees designated by Purchaser for the existing trustees under any or all of the Mortgages, as required by Purchaser in its sole discretion; which actions shall include, without limitation, completing and obtaining the necessary information and signatures on substitution of trustee forms acceptable to Purchaser, and to otherwise cooperate fully in the transfer of the trustee position under each Mortgage designated by Purchaser to the new trustee designated by Purchaser.

Section 2.09 Repayment of Purchase Premium .

Seller agrees that as to any Mortgage Loan that is repaid in full within one year of the Closing Date, Seller shall repay to Purchaser the Purchase Premium paid by Purchaser with respect to each such Mortgage Loan.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER;
REPURCHASE; REVIEW OF MORTGAGE LOANS

Section 3.01 Representations and Warranties of the Seller .

The Seller represents, warrants and covenants to the Purchaser that as of each Closing Date:

(i) Due Organization . The Seller is, and as of the date of the origination of each Mortgage Loan that Seller originated was, an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all licenses necessary to carry on its business now being conducted and is licensed, qualified and in good standing under the laws of each state where a Mortgaged Property is located or is otherwise exempt under applicable law from such qualification or is otherwise not required under applicable law to effect such qualification; no demand for such qualification has been made upon the Seller by any state having jurisdiction and in any event the Seller is or will be in compliance with the laws of any such state to the extent necessary to insure the enforceability of each Mortgage Loan;

(ii) Due Authority, Execution and Enforceability . The Seller had the full power and authority and legal right to originate the Mortgage Loans that it

originated. The Seller has the full power and authority to hold each Mortgage Loan, to sell each Mortgage Loan and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement. The Seller has duly authorized the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement, the Assignments and the Endorsements. This Agreement (assuming due authorization, execution and delivery of this Agreement by the Purchaser), the Assignments and the Endorsements constitute legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, subject to applicable bankruptcy, reorganization, receivership, conservatorship, insolvency, moratorium and other laws relating to or affecting creditors’ rights generally or the rights of creditors of banks and to the general principles of equity (whether such enforceability is considered in a proceeding in equity or at law);

(iii) No Conflict . None of the execution and delivery of this Agreement, the origination of the Mortgage Loans by the Seller, the sale of the Mortgage Loans, the consummation of the transactions contemplated hereby, or the fulfillment of or compliance with the terms and conditions of this Agreement, will conflict with or result in a breach of any of the terms, conditions or provisions of the Seller’s charter or bylaws or any legal restriction or any agreement or instrument to which the Seller is now a party or by which it is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Seller or its property is subject;

(iv) Ability to Perform . The Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement;

(v) No Material Default . The Seller is not in material default under any agreement, contract, instrument or indenture of any nature whatsoever to which the Seller is a party or by which it is bound, which default would have a material effect on the ability of the Seller to perform under this Agreement, nor to the best of Seller’s knowledge, has any event occurred which with notice would constitute a default under any such agreement, contract, instrument or indenture and have a material adverse effect on the ability of the Seller to perform its obligations under this Agreement;

(vi) No Consent Required . No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Seller of or compliance by the Seller with this Agreement, the delivery of the Submitted Mortgage Files to the Purchaser, the sale of the Mortgage Loans to the Purchaser or the consummation of the transactions contemplated by this Agreement or, if required, such approval has been obtained prior to the Closing Date;

(vii) Origination/Collection Practices . The origination and collection practices used by the Seller with respect to each Mortgage Note and Mortgage Loan have been in all respects legal, proper and prudent in the mortgage origination and servicing business;

(viii) Genuineness of Documents . All documents prepared by the Seller or the Mortgagor and submitted to the Purchaser are genuine, and the Seller certifies that any and all copies of documents concerning Mortgage Loans purchased by the Purchaser are accurate and complete copies of those documents within the Seller’s files;

(ix) Fidelity Bond and Errors and Omissions Insurance . The Seller maintains a fidelity bond and errors and omissions insurance coverage each in an amount of at least one million dollars ($1,000,000), and has provided the Purchaser with evidence thereof;

(x) Enforcement Actions . The Seller is not subject to any enforcement action relating to commercial real estate lending issued by a federal or state regulatory agency. Except as disclosed by the Seller to the Purchaser, the Seller is not subject to any enforcement actions not relating to commercial real estate lending issued by a federal or state regulatory agency.

Section 3.02 Representations and Warranties as to Individual Mortgage Loans .

With respect to each Mortgage Loan other than a Freddie Mac SBL Loan, the Seller hereby makes the representations and warranties set forth on Exhibit C-1 to the Purchaser as of the related Closing Date. With respect to each Freddie Mac SBL Loan, the Seller hereby makes the representations and warranties set forth on Exhibit C-2 to the Purchaser as of the related Closing Date. To the extent that any of the representations and warranties set forth on Exhibit C-2 is inconsistent with the requirements of the Guide, the Guide shall control and such representation or warranty shall be interpreted to be given meaning consistent with the terms of the Guide.

Section 3.03 Repurchase .

(a) It is understood and agreed that the representations and warranties set forth in Sections 3.01 and 3.02 shall survive the sale of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment or the examination of any Submitted Mortgage File by the Purchaser or its agents.

(b) Upon discovery by the Purchaser of a failure or breach of any of the foregoing representations and warranties set forth in Sections 3.01 or 3.02 as to or that affect any Mortgage Loan, the Purchaser may give written notice of such failure or breach to the Seller. Unless permitted a greater period of time to cure as set forth in Section 2.04 and except as to a breach of Section 3.01(iv) , for which there shall be no cure period, the Seller shall have a period of thirty (30) days from the earlier of discovery by Seller or receipt of written notice from the Purchaser to the Seller of any such failure or breach of representation or warranty within which to

correct or cure such failure or breach of representation or warranty at the Seller’s sole expense.

(c) The Seller hereby covenants and agrees that if any such failure or breach of representation or warranty is not corrected or cured within the applicable cure period, the Seller will, within five (5) days after demand to do so by the Purchaser, repurchase the affected Mortgage Loan in the manner specified in Sections 3.03(d), (e) and (f) .

(d) The repurchase price will be equal to the sum of:

(i) the original purchase price of the affected Mortgage Loan less any amounts received by Purchaser with respect to such Mortgage Loan on or prior to the date of repurchase; plus

(ii) all accrued interest on such Mortgage Loan from the date to which interest was last paid through and including the date of repurchase; plus

(iii) all other amounts payable under the Mortgage Loan Documents for such Mortgage Loan through the time of repurchase; plus

(iv) Purchaser’s reasonable and customary out-of-pocket expenses incurred by Purchaser in transferring such Mortgage Loan back to Seller (as reasonably approved by Seller); plus

(v) all unreimbursed Advances made by Purchaser or any servicer of the related Mortgage Loan for the Purchaser, other than Seller.

(e) Any repurchase shall be accomplished by delivery to the Purchaser, in immediately available funds, of the amount of the repurchase price.

(f) Upon delivery to the Purchaser of the repurchase price, the Purchaser shall take each of the actions described in Section 2.01(e) to assign the Mortgage Loan Documents back to the Seller without recourse, representation or warranty.

(g) If Seller is required to repurchase a Mortgage Loan which is cross-collateralized with one or more Mortgage Loans, the Seller shall be required to repurchase all such Mortgage Loans.

Section 3.04 Non-Solicitation .

The Seller agrees that it shall not solicit any Mortgagors, and with respect to Freddie Mac SBL Loans, any sponsors related to the Mortgage Loans (in writing or otherwise) to refinance any of the Mortgage Loans; provided, however, that (1) mass advertising or mailings (such as placing advertisements on television, on radio, in magazines or in newspapers or including messages in billing statements) that is not exclusively directed towards the Mortgagors, or (2) a solicitation for business from the Seller, its parent or affiliated companies to a Mortgagor that does not derive from a full or partial list of the Mortgagors shall not constitute “solicitation” and shall not violate this covenant. For the avoidance of doubt, the Seller and Purchaser are each free to solicit the Mortgagors and, with respect to Freddie Mac SBL Loans, any sponsors related

to the Mortgage Loans for loan products to finance properties other than the Mortgaged Properties.

ARTICLE IV

THE SELLER

Section 4.01 Indemnification; Third Party Claims .

Without limiting Section 3.03 hereof, but subject to the limitations set forth below, the Seller agrees to indemnify and hold harmless the Purchaser against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may incur or sustain in any way related to any acts or omissions by Seller occurring with respect to any of the Mortgage Loans prior to the related Closing Date, including without limitation any lender liability claims and other claims based on the alleged wrongful actions of Seller (collectively, “ Claims ”). The Seller shall immediately assume the defense of any such Claim and pay all expenses in connection therewith, including counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against it or the Purchaser in respect of such Claim. Nothing contained herein shall prohibit the Purchaser, at Seller’s expense, from retaining its own counsel to assist in such proceedings or to observe such proceedings.

Section 4.02 Merger or Consolidation of the Seller .

The Seller will keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans and to perform its duties under this Agreement.

Any person into which the Seller may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation (including, without limitation, by means of the sale of all or substantially all of the Seller’s assets to such Person) to which the Seller shall be a party, or any Person succeeding to the business of the Seller, shall be obligated to perform Seller’s obligations under this Agreement, anything herein to the contrary notwithstanding.

ARTICLE V

MISCELLANEOUS PROVISIONS

Section 5.01 Governing Law .

This Agreement shall be governed by and construed in accordance with the laws of the State of California.

Section 5.02 Notices .

Any notices or other communications permitted or required hereunder shall be in writing and shall be deemed conclusively to have been given if personally delivered, sent by courier with delivery against signature therefor, mailed by registered mail, postage prepaid, and return receipt requested or transmitted by telecopier and confirmed by a similar writing mailed or sent by courier as provided above, to (i) in the case of the Seller, PennyMac Loan Services, LLC, 36 Discovery, Suite 220, Irvine, CA 92618, Attention: Steve Skolnik or such other address as may hereafter be furnished to the Seller in writing by the Purchaser, and (ii) in the case of the Purchaser, PennyMac Corp., 6101 Condor Drive, Moorpark, CA 93021, Attention: Andrew Chang, or such other address as may hereafter be furnished to the Purchaser in writing by the Seller.

Section 5.03 Severability of Provisions .

If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, the invalidity of any such covenant, agreement, provision or term of this Agreement shall in no way affect the validity or enforceability of the other provisions of this Agreement.

Section 5.04 Exhibits .

The exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.

Section 5.05 General Interpretive Principles .

For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(i) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

(ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles;

(iii) references herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement, unless the context shall otherwise require;

(iv) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

(v) the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; and

(vi) the term “include” or “including” shall mean without limitation by reason of enumeration.

Section 5.06 Waivers and Amendments, Non-contractual Remedies; Preservation of Remedies .

This Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived, only by a written instrument signed by authorized representatives of the parties or, in the case of a waiver, by an authorized representative of the party waiving compliance. No such written instrument shall be effective unless it expressly recites that it is intended to amend, supersede, cancel, renew or extend this Agreement or to waive compliance with one or more of the terms hereof, as the case may be. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. Except as otherwise provided for herein, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.

Section 5.07 Captions .

All section titles or captions contained in this Agreement or in any Schedule or Exhibit annexed hereto or referred to herein are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement.

Section 5.08 Counterparts .

This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

Section 5.09 Entire Agreement .

This Agreement (including the Schedules and Exhibits annexed hereto or referred to herein) between the parties hereto contain the entire agreement between the parties with respect to the transactions contemplated hereby and supersede all prior agreements, written or oral, with respect thereto.

Section 5.10 Further Assurances .

Each party hereto shall take such additional action as may be reasonably necessary to effectuate this Agreement and the transactions contemplated hereby. The Seller will promptly and duly execute and deliver to the Purchaser such documents and assurances and take such further action as the Purchaser may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of the Purchaser.

Section 5.11 Jurisdiction; Venue .

The parties hereby agree that any controversy arising under or in relation to this Agreement shall be shall be tried and litigated only in the state and federal courts located in the Counties of Los Angeles or Orange, State of California. The parties hereby irrevocably consent to jurisdiction, and venue of such courts for any such litigation and waive any other venue to which they might be entitled.

Section 5.12 Mutual Drafters; Interpretation .

This Agreement is the product of negotiation between the Purchaser and the Seller. Accordingly, this Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender.

Section 5.13 Attorneys’ Fees .

In the event any party to this Agreement shall be required to commence any proceeding against any other party pursuant to this Agreement, the party prevailing in such action or proceeding shall be entitled to recover from the other party, or parties, the prevailing party’s reasonable attorneys’ fees and costs including, without limitation, all witness fees and associated expenses, including matters on appeal, whether or not the proceeding or action proceeds to judgment. Except as may be otherwise provided herein, each of the parties to this Agreement will bear their own attorneys’ fees incurred in the negotiation and preparation of this Agreement.

[signature page follows]

IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first set forth above.

“Seller:”

PENNYMAC LOAN SERVICES, LLC

By:	/s/ Steven F. Skolnik
	Steven F. Skolnik
	Managing Director, Commercial Lending


	“Purchaser:”

PENNYMAC CORP.

By:	/s/ Vandad Fartaj
	Vandad Fartaj
	Senior Managing Director and
	Chief Investment Officer

List of Exhibits and Schedules:

Exhibit A Form of Assignment

Exhibit B Form of Purchase Price and Terms Agreement

Exhibit C Representations and Warranties

EXHIBIT A

FORM OF ASSIGNMENT

WHEN RECORDED MAIL TO:

PennyMac Corp.

6101 Condor Drive

Moorpark, CA 93021

Attention: _____________

Loan no.:

Escrow no.:

CORPORATION ASSIGNMENT OF DEED OF TRUST

FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to

_____________________all beneficial interest under that certain Deed of Trust dated, executed by _______________________________________ Trustors, to, Trustee as per Deed of Trust and recorded on __________________ as Instrument No. _____________ in book ________________, page___________________, of Official Records in the County Recorder’s office _______________ County, describing land therein as:

“ AS DESCRIBED ON SAID RECORDED DEED OF TRUST REFERRED TO HEREIN ”

TOGETHER with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Deed of Trust.

	By:
	Name:
	Title:

ACKNOWLEDGMENT

STATE OF CALIFORNIA )

)

COUNTY OF )

On _____________________, before me, ____________________, a Notary Public, personally appeared ____________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature _______________________________

EXHIBIT B

FORM OF PURCHASE PRICE AND TERMS AGREEMENT

THIS PURCHASE PRICE AND TERMS AGREEMENT, dated as of ______________, 20__ (this “Purchase Price and Terms Agreement”), is hereby executed by and between PennyMac Loan Services, LLC, as seller and interim servicer (the “ Seller ”), and PennyMac Corp., as purchaser (the “ Purchaser ”) under this Purchase Price and Terms Agreement and the Flow Commercial Mortgage Loan Purchase Agreement, dated as of December 1, 2015 (the “ MLPA ”), all the provisions of which are incorporated herein and shall be a part of this Purchase Price and Terms Agreement as if set forth herein in full (this Purchase Price and Terms Agreement together with the MLPA so incorporated, the “ Agreement ”).

PRELIMINARY STATEMENT

The Purchaser has agreed to purchase from the Seller and the Seller has agreed to sell to the Purchaser, on a servicing released basis and without recourse, a Mortgage Loan, as described in, and having a Loan Amount as described in, the Schedule attached hereto as Schedule 1 .

In consideration of the premises and the mutual agreements hereinafter set forth, and intending to be legally bound, the Purchaser and the Seller agree hereby as follows:

1. MLPA; Designation.

The Seller and the Purchaser acknowledge that the MLPA prescribes certain obligations of the Seller and the Purchaser with respect to the Mortgage Loan. The Seller and the Purchaser each agree to observe and perform such prescribed duties, responsibilities and obligations, and acknowledge that the MLPA is and shall be a part of this Agreement to the same extent as if set forth herein in full.

2. Defined Terms.

In addition to the definitions set forth in Article I of the MLPA, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article in regard to the Mortgage Loans being sold pursuant to this Purchase Price and Terms Agreement.

Mortgage Loan: ____________________________

Cut-off Date: ____, 20__.

Closing Date: ____, 20__.

Purchase Price Percentage: _____%

Loan Amount: $________

Purchase Price (Purchase Price Percentage x Loan Amount): $________

Accrued Interest: $_______

3. Conveyance of Mortgage Loan; Possession of Submitted Mortgage Files.

The Seller, simultaneously with the execution and delivery of this Purchase Price and Terms Agreement, does hereby agree, as provided in the MLPA, to absolutely sell, transfer and assign, without recourse, except as set forth in the MLPA, to the Purchaser the ownership interest comprising all of the right, title and interest of the Seller in and to the Mortgage Loan identified on Schedule 1 hereto on a servicing released basis and all principal, interest and other proceeds of any kind received with respect to such Mortgage Loan, including but not limited to proceeds

derived from the conversion, voluntary or involuntary, of any of such assets into cash or other liquidated property.

4. Wire Instructions.

A. Distributions that may be made to Purchaser by wire transfer pursuant to the MLPA shall be made in accordance with the following wire instructions:

Bank: _____________________

ABA Number: ________________

Account Name: ________________

Account Number: ________________

Reference: ________________

Attn: ________________

or in accordance with such other instructions as may hereafter be furnished to the Seller in writing by the Purchaser, provided that such instructions have been received by the Seller prior to the date the distribution in question is made.

B. The Purchase Price for the Mortgage Loans will be wire transferred by Purchaser to the Seller in accordance with the following wire transfer instructions:

Bank: _____________________

ABA Number: ________________

Account Name: ________________

Account Number: ________________

Reference: ________________

Attn: ________________

or in accordance with such other instructions as may hereafter be furnished to the Purchaser in writing by the Seller, provided that such instructions have been received by the Purchaser prior to the related Closing Date.

5. Counterparts.

This Purchase Price and Terms Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument.

6. Governing Law.

This Purchase Price and Terms Agreement shall be governed by and construed in accordance with the laws of the State of California and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

7. Amendment.

This Purchase Price and Terms Agreement may be amended from time to time by the Seller and the Purchaser by written agreement signed by the Seller and the Purchaser.

[Signature Page Follows]

IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed to this Purchase Price and Terms Agreement by their respective officers thereunto duly authorized as of the day and year first above written.


	SELLER:

	PENNYMAC LOAN SERVICES, LLC

	By:

	Name:

	Title:



	PURCHASER:

	PENNYMAC CORP.

	By:

	Name:

	Title:

SCHEDULE 1

TO THE PURCHASE PRICE AND TERMS AGREEMENT

MORTGAGE LOAN INFORMATION

SCHEDULE 2

TO THE PURCHASE PRICE AND TERMS AGREEMENT

CONTENTS OF SUBMITTED MORTGAGE LOAN FILE

SCHEDULE 3

(STANDARD MORTGAGE LOANS)

TO THE PURCHASE PRICE AND TERMS AGREEMENT

EXCEPTIONS

TITLE EXCEPTIONS

SCHEDULE 3

(FREDDIE MAC SBL LOANS)

TO THE PURCHASE PRICE AND TERMS AGREEMENT

Refer to Exceptions listed in the Commitment each as defined in the Guide.

EXHIBIT C-1

STANDARD REPRESENTATIONS AND WARRANTIES

1. Whole Loan; Ownership of Mortgage Loans . Except with respect to a Mortgage Loan that is part of a loan combination identified as such on Schedule 3 to the applicable Purchase Price and Terms Agreement, each Mortgage Loan is a whole loan and not a participation interest in a Mortgage Loan. At the time of the sale, transfer and assignment to Purchaser, no Mortgage Note or Mortgage was subject to any assignment (other than assignments to the Seller), participation or pledge, and the Seller had good title to, and was the sole owner of, each Mortgage Loan free and clear of any and all liens, charges, pledges, encumbrances, participations, any other ownership interests on, in or to such Mortgage Loan other than any servicing rights appointment or similar agreement. Seller has full right and authority to sell, assign and transfer each Mortgage Loan, and the assignment to Purchaser constitutes a legal, valid and binding assignment of such Mortgage Loan free and clear of any and all liens, pledges, charges or security interests of any nature encumbering such Mortgage Loan.

2. Loan Document Status . Each related Mortgage Note, Mortgage, Assignment of Leases, Rents and Profits (if a separate instrument), guaranty and other agreement executed by or on behalf of the related Mortgagor, guarantor or other obligor in connection with such Mortgage Loan is the legal, valid and binding obligation of the related Mortgagor, guarantor or other obligor (subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency or market value limit deficiency legislation), as applicable, and is enforceable in accordance with its terms, except (i) as such enforcement may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (ii) that certain provisions in such Mortgage Loan Documents (including, without limitation, provisions requiring the payment of default interest, late fees or prepayment/yield maintenance fees, charges and/or premiums) are, or may be, further limited or rendered unenforceable by or under applicable law, but (subject to the limitations set forth in clause (i) above) such limitations or unenforceability will not render such Mortgage Loan Documents invalid as a whole or materially interfere with the mortgagee's realization of the principal benefits and/or security provided thereby (clauses (i) and (ii) collectively, the “Standard Qualifications”) .

Except as set forth in the immediately preceding sentences, there is no valid offset, defense, counterclaim or right of rescission available to the related Mortgagor with respect to any of the related Mortgage Notes, Mortgages or other Mortgage Loan Documents, including, without limitation, any such valid offset, defense, counterclaim or right based on intentional fraud by Seller in connection with the origination of the Mortgage Loan, that would deny the mortgagee the principal benefits intended to be provided by the Mortgage Note, Mortgage or other Mortgage Loan Documents.

3. Mortgage Provisions . The Mortgage Loan Documents for each Mortgage Loan contain provisions that render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or, if applicable, non-judicial foreclosure subject to the limitations set forth in the Standard Qualifications.

4. Mortgage Status; Waivers and Modifications . Since origination and except by written instruments set forth in the related Submitted Mortgage File or as otherwise provided in the related Mortgage Loan documents (a) the material terms of such Mortgage, Mortgage Note, Mortgage Loan guaranty, and related Mortgage Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect; (b) no related Mortgaged Property or any portion thereof has been released from the lien of the related Mortgage in any manner which materially interferes with the security intended to be provided by such Mortgage or the use or operation of the remaining portion of such Mortgaged Property; and (c) neither the related Mortgagor nor the related guarantor has been released from its material obligations under the Mortgage Loan. With respect to each Mortgage Loan, except as contained in a written document included in the Submitted Mortgage File, there have been no modifications, amendments or waivers, that could be reasonably expected to have a material adverse effect on such Mortgage Loan.

5. Lien; Valid Assignment . Subject to the Standard Qualifications, each Assignment and assignment of Assignment of Leases, Rents and Profits to the Purchaser constitutes a legal, valid and binding assignment to the Purchaser. Each related Mortgage and Assignment of Leases, Rents and Profits is freely assignable without the consent of the related Mortgagor. Each related Mortgage is a legal, valid and enforceable first lien on the related Mortgagor's fee or leasehold interest in the Mortgaged Property in the principal amount of such Mortgage Loan or allocated loan amount (subject only to Permitted Encumbrances (as defined below) and the title exceptions to paragraph (6) set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement (each such title exception, a “Title Exception”)), except as the enforcement thereof may be limited by the Standard Qualifications. Such Mortgaged Property (subject to and excepting Permitted Encumbrances and the Title Exceptions) as of origination was, and as of the Cut-off Date, to the Seller's knowledge, is free and clear of any recorded mechanics' liens, recorded materialmen's liens and other recorded encumbrances which are prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender's title insurance policy (as described below), and, to the Seller's knowledge and subject to the rights of tenants (as tenants only) (subject to and excepting Permitted Encumbrances and the Title Exceptions), no rights exist which under law could give rise to any such lien or encumbrance that would be prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender's title insurance policy (as described below). Notwithstanding anything herein to the contrary, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of Uniform

Commercial Code (“UCC”) financing statements is required in order to effect such perfection.

6. Permitted Liens; Title Insurance . Each Mortgaged Property securing a Mortgage Loan is covered by an American Land Title Association loan title insurance policy or a comparable form of loan title insurance policy approved for use in the applicable jurisdiction (or, if such policy is yet to be issued, by a pro forma policy, a preliminary title policy with escrow instructions or a “marked up” commitment, in each case binding on the title insurer) (the “Title Policy”) in the original principal amount of such Mortgage Loan (or with respect to a Mortgage Loan secured by multiple properties, an amount equal to at least the allocated loan amount with respect to the Title Policy for each such property) after all advances of principal (including any advances held in escrow or reserves), that insures for the benefit of the owner of the indebtedness secured by the Mortgage, the first priority lien of the Mortgage, which lien is subject only to (a) the lien of current real property taxes, water charges, sewer rents and assessments not yet due and payable; (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record; (c) the exceptions (general and specific) and exclusions set forth in such Title Policy; (d) other matters to which like properties are commonly subject; (e) the rights of tenants (as tenants only) under leases (including subleases) pertaining to the related Mortgaged Property and condominium declarations; and (f) if the related Mortgage Loan is cross-collateralized and cross-defaulted with another Mortgage Loan (each a “Crossed Mortgage Loan”), the lien of the Mortgage for another Mortgage Loan that is cross-collateralized and cross-defaulted with such Crossed Mortgage Loan, provided that none of which items (a) through (f), individually or in the aggregate, materially and adversely interferes with the value or current use of the Mortgaged Property or the security intended to be provided by such Mortgage or the Mortgagor's ability to pay its obligations when they become due (collectively, the “Permitted Encumbrances”) . Except as contemplated by clause (f) of the preceding sentence, none of the Permitted Encumbrances are mortgage liens that are senior to or coordinate and co-equal with the lien of the related Mortgage. Such Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) is in full force and effect, all premiums thereon have been paid and no claims have been made by the Seller thereunder and no claims have been paid thereunder. Neither the Seller, nor to the Seller's knowledge, any other holder of the Mortgage Loan, has done, by act or omission, anything that would materially impair the coverage under such Title Policy.

7. Junior Liens . It being understood that B notes secured by the same Mortgage as a Mortgage Loan are not subordinate mortgages or junior liens, except for any Crossed Mortgage Loan, there are, as of origination, and to the Seller's knowledge, as of the Cut-off Date, no subordinate mortgages or junior liens securing the payment of money encumbering the related Mortgaged Property (other than Permitted Encumbrances and the Title Exceptions, taxes and assessments, mechanics and materialmen's liens (which are the subject of the representation in paragraph (5) above), and equipment and other personal property financing). Except as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, the Seller has no knowledge of any mezzanine debt secured directly by interests in the related Mortgagor.

8. Assignment of Leases, Rents and Profits . There exists as part of the related Submitted Mortgage File an Assignment of Leases, Rents and Profits (either as a separate instrument or incorporated into the related Mortgage). Subject to the Permitted Encumbrances and the Title Exceptions, each related Assignment of Leases, Rents and Profits creates a valid first-priority collateral assignment of, or a valid first-priority lien or security interest in, rents and certain rights under the related lease or leases, subject only to a license granted to the related Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the related leased property, except as the enforcement thereof may be limited by the Standard Qualifications. The related Mortgage or related Assignment of Leases, Rents and Profits, subject to applicable law, provides that, upon an event of default under the Mortgage Loan, a receiver is permitted to be appointed for the collection of rents or for the related mortgagee to enter into possession to collect the rents or for rents to be paid directly to the mortgagee.

9. UCC Filings . If the related Mortgaged Property is operated as a hospitality property, the Seller has filed and/or recorded or caused to be filed and/or recorded (or, if not filed and/or recorded, have been submitted in proper form for filing and/or recording), UCC financing statements in the appropriate public filing and/or recording offices necessary at the time of the origination of the Mortgage Loan to perfect a valid security interest in all items of physical personal property reasonably necessary to operate such Mortgaged Property owned by such Mortgagor and located on the related Mortgaged Property (other than any non-material personal property, any personal property subject to a purchase money security interest, a sale and leaseback financing arrangement as permitted under the terms of the related Mortgage Loan documents or any other personal property leases applicable to such personal property), to the extent perfection may be effected pursuant to applicable law by recording or filing, as the case may be. Subject to the Standard Qualifications, each related Mortgage (or equivalent document) creates a valid and enforceable lien and security interest on the items of personalty described above. No representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC financing statements are required in order to effect such perfection.

10. Condition of Property . Seller or the originator of the Mortgage Loan inspected or caused to be inspected each related Mortgaged Property within six months of origination of the Mortgage Loan and within twelve months of the Cut-off Date.

An engineering report or property condition assessment was prepared in connection with the origination of each Mortgage Loan no more than twelve months prior to the Cut-off Date. To the Seller's knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable mortgage loans, as of the Closing Date, each related Mortgaged Property was free and clear of any material damage (other than (i) any damage or deficiency that is estimated to cost less than $50,000 to repair, (ii) any deferred maintenance for which escrows were established at origination and (iii) any damage fully covered by insurance) that would affect materially and adversely the use or value of such Mortgaged Property as security for the Mortgage Loan.

11. Taxes and Assessments . All taxes, governmental assessments and other outstanding governmental charges (including, without limitation, water and sewage charges), or installments thereof, that could be a lien on the related Mortgaged Property that would be of equal or superior priority to the lien of the Mortgage and that prior to the Cut-off Date have become delinquent in respect of each related Mortgaged Property have been paid, or an escrow of funds has been established in an amount sufficient to cover such payments and reasonably estimated interest and penalties, if any, thereon. For purposes of this representation and warranty, real estate taxes and governmental assessments and other outstanding governmental charges and installments thereof shall not be considered delinquent until the earlier of (a) the date on which interest and/or penalties would first be payable thereon and (b) the date on which enforcement action is entitled to be taken by the related taxing authority.

12. Condemnation . As of the date of origination and to the Seller's knowledge as of the Cut-off Date, there is no proceeding pending, and, to the Seller's knowledge as of the date of origination and as of the Cut-off Date, there is no proceeding threatened, for the total or partial condemnation of such Mortgaged Property that would have a material adverse effect on the value, use or operation of the Mortgaged Property.

13. Actions Concerning Mortgage Loan . As of the date of origination and to the Seller's knowledge as of the Cut-off Date, there was no pending or filed action, suit or proceeding, arbitration or governmental investigation involving any Mortgagor, guarantor, or Mortgagor's interest in the Mortgaged Property, an adverse outcome of which would reasonably be expected to materially and adversely affect (a) such Mortgagor's title to the Mortgaged Property, (b) the validity or enforceability of the Mortgage, (c) such Mortgagor's ability to perform under the related Mortgage Loan, (d) such guarantor's ability to perform under the related guaranty, (e) the principal benefit of the security intended to be provided by the Mortgage Loan documents or (f) the current principal use of the Mortgaged Property.

14. Escrow Deposits . All escrow deposits and payments required to be escrowed with lender pursuant to each Mortgage Loan are in the possession, or under the control, of the Seller or its servicer, and there are no deficiencies (subject to any applicable grace or cure periods) in connection therewith, and all such escrows and deposits (or the right thereto) that are required to be escrowed with lender under the related Mortgage Loan Documents are being conveyed by the Seller to Purchaser or its servicer.

15. No Holdbacks . The Loan Amount as of the Cut-off Date of the Mortgage Loan set forth on Exhibit A to the Applicable Purchase Price and Terms Agreement has been fully disbursed as of the Closing Date and there is no requirement for future advances thereunder (except in those cases where the full amount of the Mortgage Loan has been disbursed but a portion thereof is being held in escrow or reserve accounts pending the satisfaction of certain conditions relating to leasing, repairs or other matters with respect to the related Mortgaged Property, the Mortgagor or other considerations determined by Seller to merit such holdback).

16. Insurance . Each related Mortgaged Property is, and is required pursuant to the related Mortgage to be, insured by a property insurance policy providing coverage for loss in accordance with coverage found under a “special cause of loss form” or “all risk form” that includes replacement cost valuation issued by an insurer meeting the requirements of the related Mortgage Loan Documents and having a claims-paying or financial strength rating of any one of the following: (i) at least “A-:VIII” from A.M. Best Company, (ii) at least “A3” (or the equivalent) from Moody's Investors Service, Inc. or (iii) at least “A-” from Standard & Poor's Ratings Services (collectively the “ Insurance Rating Requirements ”), in an amount (subject to a customary deductible) not less than the lesser of (1) the original principal balance of the Mortgage Loan and (2) the full insurable value on a replacement cost basis of the improvements, furniture, furnishings, fixtures and equipment owned by the borrower and included in the Mortgaged Property (with no deduction for physical depreciation), but, in any event, not less than the amount necessary or containing such endorsements as are necessary to avoid the operation of any coinsurance provisions with respect to the related Mortgaged Property.

Each related Mortgaged Property is also covered, and required to be covered pursuant to the related Mortgage Loan Documents, by business interruption or rental loss insurance which (subject to a customary deductible) covers a period of not less than 12 months (or with respect to each Mortgage Loan on a single asset with a principal balance of $50 million or more, 18 months).

If any material part of the improvements, exclusive of a parking lot, located on a Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the related Mortgagor is required to maintain insurance in the maximum amount available under the National Flood Insurance Program.

If the Mortgaged Property is located within 25 miles of the coast of the Gulf of Mexico or the Atlantic coast of Florida, Georgia, South Carolina or North Carolina, the related Mortgagor is required to maintain coverage for windstorm and/or windstorm related perils and/or “named storms” issued by an insurer meeting the Insurance Rating Requirements or endorsement covering damage from windstorm and/or windstorm related perils and/or named storms.

The Mortgaged Property is covered, and required to be covered pursuant to the related Mortgage Loan Documents, by a commercial general liability insurance policy issued by an insurer meeting the Insurance Rating Requirements including coverage for property damage, contractual damage and personal injury (including bodily injury and death) in amounts as are generally required by the Seller for loans originated for securitization, and in any event not less than $1 million per occurrence and $2 million in the aggregate.

An architectural or engineering consultant has performed an analysis of each of the Mortgaged Properties located in seismic zones 3 or 4 in order to evaluate the structural and seismic condition of such property, for the sole purpose of assessing either the scenario expected limit (“SEL”) or the probable maximum loss (“PML”) for the Mortgaged Property in the event of an earthquake. In such instance, the SEL or PML,

as applicable, was based on a 475-year return period, an exposure period of 50 years and a 10% probability of exceedance. If the resulting report concluded that the SEL or PML, as applicable, would exceed 20% of the amount of the replacement costs of the improvements, earthquake insurance on such Mortgaged Property was obtained by an insurer rated at least “A:VIII” by A.M. Best Company or “A3” (or the equivalent) from Moody's Investors Service, Inc. or “A-” by Standard & Poor's Ratings Services in an amount not less than 100% of the SEL or PML, as applicable.

The Mortgage Loan Documents require insurance proceeds in respect of a property loss to be applied either (a) to the repair or restoration of all or part of the related Mortgaged Property, with respect to all property losses in excess of 5% of the then outstanding principal amount of the related Mortgage Loan (or Loan Combination, if applicable), the lender (or a trustee appointed by it) having the right to hold and disburse such proceeds as the repair or restoration progresses, or (b) to the payment of the outstanding principal balance of such Mortgage Loan (or Loan Combination, if applicable) together with any accrued interest thereon.

All premiums on all insurance policies referred to in this section required to be paid as of the Cut off Date have been paid, and such insurance policies name the lender under the Mortgage Loan and its successors and assigns as a loss payee under a mortgagee endorsement clause or, in the case of the general liability insurance policy, as named or additional insured. Such insurance policies will inure to the benefit of the Trustee (or, in the case of a Mortgage Loan that is a Non-Serviced Mortgage Loan, the applicable Other Trustee). Each related Mortgage Loan obligates the related Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do so, authorizes the lender to maintain such insurance at the Mortgagor's cost and expense and to charge such Mortgagor for related premiums. All such insurance policies (other than commercial liability policies) require at least 10 days' prior notice to the lender of termination or cancellation arising because of nonpayment of a premium and at least 30 days' prior notice to the lender of termination or cancellation (or such lesser period, not less than 10 days, as may be required by applicable law) arising for any reason other than non-payment of a premium and no such notice has been received by Seller.

17. Access; Utilities; Separate Tax Lots . Each Mortgaged Property (a) is located on or adjacent to a public road and has direct legal access to such road, or has access via an irrevocable easement or irrevocable right of way permitting ingress and egress to/from a public road, (b) is served by or has uninhibited access rights to public or private water and sewer (or well and septic) and all required utilities, all of which are appropriate for the current use of the Mortgaged Property, and (c) constitutes one or more separate tax parcels which do not include any property which is not part of the Mortgaged Property or is subject to an endorsement under the related Title Policy insuring the Mortgaged Property, or in certain cases, an application has been, or will be, made to the applicable governing authority for creation of separate tax lots, in which case the Mortgage Loan requires the Mortgagor to escrow an amount sufficient to pay taxes for the existing tax parcel of which the Mortgaged Property is a part until the separate tax lots are created.

18. No Encroachments . To Seller's knowledge based solely on surveys obtained in connection with origination and the lender's Title Policy (or, if such policy is not yet issued, a pro forma title policy, a preliminary title policy with escrow instructions or a “marked up” commitment) obtained in connection with the origination of each Mortgage Loan, all material improvements that were included for the purpose of determining the appraised value of the related Mortgaged Property at the time of the origination of such Mortgage Loan are within the boundaries of the related Mortgaged Property, except encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No improvements on adjoining parcels encroach onto the related Mortgaged Property except for encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No improvements encroach upon any easements except for encroachments the removal of which would not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements obtained with respect to the Title Policy.

19. No Contingent Interest or Equity Participation . No Mortgage Loan has a shared appreciation feature, any other contingent interest feature or a negative amortization feature (except that an ARD Loan may provide for the accrual of the portion of interest in excess of the rate in effect prior to the Anticipated Repayment Date) or an equity participation by Seller.

20. REMIC . The Mortgage Loan is a “qualified mortgage” within the meaning of Code Section 860G(a)(3) (but determined without regard to the rule in the U.S. Department of Treasury Regulations (the “ Treasury Regulations ”) Section 1.860G-2(f)(2) that treats certain defective mortgage loans as qualified mortgages), and, accordingly, (A) the issue price of the Mortgage Loan to the related Mortgagor at origination did not exceed the non-contingent principal amount of the Mortgage Loan and (B) either: (a) such Mortgage Loan is secured by an interest in real property (including buildings and structural components thereof, but excluding personal property) having a fair market value (i) at the date the Mortgage Loan was originated at least equal to 80% of the adjusted issue price of the Mortgage Loan (or Loan Combination, as applicable) on such date or (ii) at the Closing Date at least equal to 80% of the adjusted issue price of the Mortgage Loan (or Loan Combination, as applicable) on such date, provided that for purposes hereof, the fair market value of the real property interest must first be reduced by (A) the amount of any lien on the real property interest that is senior to the Mortgage Loan and (B) a proportionate amount of any lien that is in parity with the Mortgage Loan; or (b) substantially all of the proceeds of such Mortgage Loan were used to acquire, improve or protect the real property which served as the only security for such Mortgage Loan (other than a recourse feature or other third-party credit enhancement within the meaning of Section 1.860G-2(a)(1)(ii) of the Treasury Regulations). If the Mortgage Loan was “significantly modified” prior to the Closing Date so as to result in a taxable exchange under Section 1001 of the Code, it either (x) was modified as a result of the default or reasonably foreseeable default of such Mortgage Loan or (y) satisfies the provisions of either sub-clause (B)(a)(i) above (substituting the date of the last such modification for the date the Mortgage Loan was originated) or sub-clause (B)(a)(ii),

including the proviso thereto. Any prepayment premium and yield maintenance charges applicable to the Mortgage Loan constitute “customary prepayment penalties” within the meaning of Section 1.860G-1(b)(2) of the Treasury Regulations. All terms used in this paragraph shall have the same meanings as set forth in the related Treasury Regulations.

21. Compliance with Usury Laws . The Mortgage Rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of such Mortgage Loan complied as of the date of origination with, or was exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury.

22. Authorized to do Business . To the extent required under applicable law, as of the Cut-off Date or as of the date that such entity held the Mortgage Note, each holder of the Mortgage Note was authorized to transact and do business in the jurisdiction in which each related Mortgaged Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of such Mortgage Loan by the Purchaser.

23. Trustee under Deed of Trust . With respect to each Mortgage which is a deed of trust, as of the date of origination and, to the Seller's knowledge, as of the Closing Date, a trustee, duly qualified under applicable law to serve as such, currently so serves and is named in the deed of trust or has been substituted in accordance with the Mortgage and applicable law or may be substituted in accordance with the Mortgage and applicable law by the related mortgagee.

24. Local Law Compliance . To the Seller's knowledge, based upon any of a letter from any governmental authorities, a legal opinion, an architect's letter, a zoning consultant's report, an endorsement to the related Title Policy, or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily or, if applicable, manufactured housing community mortgage loans intended for securitization, with respect to the improvements located on or forming part of each Mortgaged Property securing a Mortgage Loan as of the date of origination of such Mortgage Loan and as of the Cut-off Date, there are no material violations of applicable zoning ordinances, building codes and land laws (collectively “ Zoning Regulations ”) other than those which (i) constitute a legal non-conforming use or structure, as to which as the Mortgaged Property may be restored or repaired to the full extent necessary to maintain the use of the structure immediately prior to a casualty or the inability to restore or repair to the full extent necessary to maintain the use or structure immediately prior to the casualty would not materially and adversely affect the use or operation of the Mortgaged Property, (ii) are insured by the Title Policy or other insurance policy, (iii) are insured by law and ordinance insurance coverage in amounts customarily required by the Seller for loans originated for securitization that provides coverage for additional costs to rebuild and/or repair the property to current Zoning Regulations or (iv) would not have a material adverse effect on the Mortgage Loan. The terms of the Mortgage Loan Documents require the Mortgagor to comply in all material respects with all applicable governmental regulations, zoning and building laws.

25. Licenses and Permits . Each Mortgagor covenants in the Mortgage Loan Documents that it shall keep all material licenses, permits and applicable governmental authorizations necessary for its operation of the Mortgaged Property in full force and effect, and to the Seller's knowledge based upon a letter from any government authorities or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily or, if applicable, manufactured housing community mortgage loans intended for securitization, all such material licenses, permits and applicable governmental authorizations are in effect. The Mortgage Loan requires the related Mortgagor to be qualified to do business in the jurisdiction in which the related Mortgaged Property is located.

26. Recourse Obligations . The Mortgage Loan Documents for each Mortgage Loan provide that (a) the related Mortgagor and at least one individual or entity shall be fully liable for actual losses, liabilities, costs and damages arising from certain acts of the related Mortgagor and/or its principals specified in the related Mortgage Loan Documents, which acts generally include the following: (i) acts of fraud or intentional material misrepresentation, (ii) misapplication or misappropriation of rents, insurance proceeds or condemnation awards, (iii) intentional material physical waste of the Mortgaged Property, and (iv) any breach of the environmental covenants contained in the related Mortgage Loan Documents, and (b) the Mortgage Loan shall become full recourse to the related Mortgagor and at least one individual or entity, if the related Mortgagor files a voluntary petition under federal or state bankruptcy or insolvency law.

27. Mortgage Releases . The terms of the related Mortgage or related Mortgage Loan Documents do not provide for release of any material portion of the Mortgaged Property from the lien of the Mortgage except (a) a partial release, accompanied by principal repayment, or partial Defeasance (as defined in paragraph (32)), of not less than a specified percentage at least equal to the lesser of (i) 110% of the related allocated loan amount of such portion of the Mortgaged Property and (ii) the outstanding principal balance of the Mortgage Loan, (b) upon payment in full of such Mortgage Loan, (c) upon a Defeasance (as defined in paragraph (32)), (d) releases of out-parcels that are unimproved or other portions of the Mortgaged Property which will not have a material adverse effect on the underwritten value of the Mortgaged Property and which were not afforded any value in the appraisal obtained at the origination of the Mortgage Loan and are not necessary for physical access to the Mortgaged Property or compliance with zoning requirements, or (e) as required pursuant to an order of condemnation. With respect to any partial release under the preceding clauses (a) or (d), either: (x) such release of collateral (i) would not constitute a “significant modification” of the subject Mortgage Loan within the meaning of Section 1.8600-2(b)(2) of the Treasury Regulations and (ii) would not cause the subject Mortgage Loan to fail to be a “qualified mortgage” within the meaning of Code Section 860G(a)(3)(A); or (y) the mortgagee or servicer can, in accordance with the related Mortgage Loan Documents, condition such release of collateral on the related Mortgagor's delivery of an opinion of tax counsel to the effect specified in the immediately preceding clause (x). For purposes of the preceding clause (x), if the fair market value of the real property constituting such Mortgaged Property after the release is not equal to at least 80% of the principal balance of the Mortgage Loan (or Loan Combination, as applicable) outstanding after the release,

the Mortgagor is required to make a payment of principal in an amount not less than the amount required by the REMIC Provisions.

In the case of any Mortgage Loan, in the event of a taking of any portion of a Mortgaged Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, the Mortgagor can be required to pay down the principal balance of the Mortgage Loan in an amount not less than the amount required by the REMIC Provisions and, to such extent, condemnation proceeds may not be required to be applied to the restoration of the Mortgaged Property or released to the Mortgagor, if, immediately after the release of such portion of the Mortgaged Property from the lien of the Mortgage (but taking into account the planned restoration) the fair market value of the real property constituting the remaining Mortgaged Property is not equal to at least 80% of the remaining principal balance of the Mortgage Loan (or Loan Combination, as applicable).

No Mortgage Loan that is secured by more than one Mortgaged Property or that is a Crossed Mortgage Loan permits the release of cross-collateralization of the related Mortgaged Properties or a portion thereof, including due to a partial condemnation, other than in compliance with the loan-to-value ratio and other requirements of the REMIC Provisions.

28. Financial Reporting and Rent Rolls . Each Mortgage requires the Mortgagor to provide the owner or holder of the Mortgage with quarterly (other than for single-tenant properties) and annual operating statements, and quarterly (other than for single-tenant properties) rent rolls for properties that have leases contributing more than 5% of the in-place base rent and annual financial statements, which annual financial statements with respect to each Mortgage Loan with more than one Mortgagor are in the form of an annual combined balance sheet of the Mortgagor entities (and no other entities), together with the related combined statements of operations, members' capital and cash flows, including a combining balance sheet and statement of income for the Mortgaged Properties on a combined basis.

29. Acts of Terrorism Exclusion . With respect to each Mortgage Loan over $20 million, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) do not specifically exclude Acts of Terrorism, as defined in the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 and the Terrorism Risk Insurance Program Reauthorization Act of 2015 (collectively referred to as “TRIA”), from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each other Mortgage Loan, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) did not, as of the date of origination of the Mortgage Loan, and, to Seller's knowledge, do not, as of the Cut off Date, specifically exclude Acts of Terrorism, as defined in TRIA, from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each Mortgage Loan, the related Mortgage Loan Documents do not expressly waive or prohibit the mortgagee from requiring coverage for Acts of Terrorism, as defined in TRIA, or damages related

thereto except to the extent that any right to require such coverage may be limited by commercial availability on commercially reasonable terms, or as otherwise indicated on Schedule 3 to the applicable Purchase Price and Terms Agreement; provided, however, that if TRIA or a similar or subsequent statute is not in effect, then, provided that terrorism insurance is commercially available, the Mortgagor under each Mortgage Loan is required to carry terrorism insurance, but in such event the Mortgagor shall not be required to spend on terrorism insurance coverage more than two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the related Mortgage Loan Documents (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance) at such time, and if the cost of terrorism insurance exceeds such amount, the Mortgagor is required to purchase the maximum amount of terrorism insurance available with funds equal to such amount.

30. Due on Sale or Encumbrance . Subject to specific exceptions set forth below, each Mortgage Loan contains a “due on sale” or other such provision for the acceleration of the payment of the unpaid principal balance of such Mortgage Loan if, without the consent of the holder of the Mortgage (which consent, in some cases, may not be unreasonably withheld) and/or complying with the requirements of the related Mortgage Loan Documents (which provide for transfers without the consent of the lender which are customarily acceptable to the Seller lending on the security of property comparable to the related Mortgaged Property, including, without limitation, transfers of worn-out or obsolete furnishings, fixtures, or equipment promptly replaced with property of equivalent value and functionality and transfers by leases entered into in accordance with the Mortgage Loan Documents), (a) the related Mortgaged Property, or any equity interest of greater than 50% in the related Mortgagor, is directly or indirectly pledged, transferred or sold, other than as related to (i) family and estate planning transfers or transfers upon death or legal incapacity, (ii) transfers to certain affiliates as defined in the related Mortgage Loan Documents, (iii) transfers of less than, or other than, a controlling interest in the related Mortgagor, (iv) transfers to another holder of direct or indirect equity in the Mortgagor, a specific Person designated in the related Mortgage Loan Documents or a Person satisfying specific criteria identified in the related Mortgage Loan Documents, such as a qualified equityholder, (v) transfers of stock or similar equity units in publicly traded companies or (vi) a substitution or release of collateral within the parameters of paragraphs (27) and (32) herein or the exceptions thereto set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, or (vii) by reason of any mezzanine debt that existed at the origination of the related Mortgage Loan as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, or future permitted mezzanine debt in each case as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement or (b) the related Mortgaged Property is encumbered with a subordinate lien or security interest against the related Mortgaged Property, other than (i) any Companion Loan or any subordinate debt that existed at origination and is permitted under the related Mortgage Loan Documents, (ii) purchase money security interests, (iii) any Crossed Mortgage Loan as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, or (iv) Permitted Encumbrances. The Mortgage or other Mortgage Loan Documents provide that to the extent any Rating Agency fees are incurred in connection with the review of and consent to any transfer or

encumbrance, the Mortgagor is responsible for such payment along with all other reasonable fees and expenses incurred by the Mortgagee relative to such transfer or encumbrance.

31. Single-Purpose Entity . Each Mortgage Loan requires the Mortgagor to be a Single-Purpose Entity for at least as long as the Mortgage Loan is outstanding. Both the Mortgage Loan Documents and the organizational documents of the Mortgagor with respect to each Mortgage Loan with a Cut-off Date Loan Amount in excess of $5 million provide that the Mortgagor is a Single-Purpose Entity, and each Mortgage Loan with a Cut-off Date Loan Amount of $20 million or more has a counsel's opinion regarding non-consolidation of the Mortgagor. For this purpose, a “Single-Purpose Entity” shall mean an entity, other than an individual, whose organizational documents (or if the Mortgage Loan has a Cut-off Date Loan Amount equal to $5 million or less, its organizational documents or the related Mortgage Loan Documents) provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more of the Mortgaged Properties and prohibit it from engaging in any business unrelated to such Mortgaged Property or Properties, and whose organizational documents further provide, or which entity represented in the related Mortgage Loan Documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Mortgaged Property or Properties, or any indebtedness other than as permitted by the related Mortgage(s) or the other related Mortgage Loan Documents, that it has its own books and records and accounts separate and apart from those of any other person (other than a Mortgagor for a Crossed Mortgage Loan), and that it holds itself out as a legal entity, separate and apart from any other person or entity.

32. Defeasance . With respect to any Mortgage Loan that, pursuant to the Mortgage Loan Documents, can be defeased (a “ Defeasance ”), (i) the Mortgage Loan Documents provide for Defeasance as a unilateral right of the Mortgagor, subject to satisfaction of conditions specified in the Mortgage Loan Documents; (ii) the Mortgage Loan cannot be defeased within two years after the Closing Date; (iii) the Mortgagor is permitted to pledge only United States “government securities” within the meaning of Section 1.860G-2(a)(8)(ii) of the Treasury Regulations, the revenues from which will, in the case of a full Defeasance, be sufficient to make all scheduled payments under the Mortgage Loan when due, including the entire remaining principal balance on the maturity date (or on or after the first date on which payment may be made without payment of a yield maintenance charge or prepayment penalty) or, if the Mortgage Loan is an ARD Loan, the entire principal balance outstanding on the Anticipated Repayment Date, and if the Mortgage Loan permits partial releases of real property in connection with partial Defeasance, the revenues from the collateral will be sufficient to pay all such scheduled payments calculated on a principal amount equal to a specified percentage at least equal to the lesser of (a) 110% of the allocated loan amount for the real property to be released and (b) the outstanding principal balance of the Mortgage Loan; (iv) the Mortgagor is required to provide a certification from an independent certified public accountant that the collateral is sufficient to make all scheduled payments under the Mortgage Note as set forth in clause (iii) above; (v) if the Mortgagor would continue to own assets in addition to the Defeasance collateral, the portion of the Mortgage Loan secured by

defeasance collateral is required to be assumed (or the mortgagee may require such assumption) by a Single-Purpose Entity; (vi) the Mortgagor is required to provide an opinion of counsel that the mortgagee has a perfected security interest in such collateral prior to any other claim or interest; and (vii) the Mortgagor is required to pay all rating agency fees associated with Defeasance (if rating confirmation is a specific condition precedent thereto) and all other reasonable expenses associated with Defeasance, including, but not limited to, accountant's fees and opinions of counsel.

33. Fixed Interest Rates . Each Mortgage Loan bears interest at a rate that remains fixed throughout the remaining term of such Mortgage Loan, except in the case of ARD Loans and situations where default interest is imposed.

34. Ground Leases . For purposes of the Agreement, a “ Ground Lease ” shall mean a lease creating a leasehold estate in real property where the fee owner as the ground lessor conveys for a term or terms of years its entire interest in the land, or with respect to air rights leases, the air, and buildings and other improvements, if any, comprising the premises demised under such lease to the ground lessee (who may, in certain circumstances, own the building and improvements on the land), subject to the reversionary interest of the ground lessor as fee owner and does not include industrial development agency (IDA) or similar leases for purposes of conferring a tax abatement or other benefit.

With respect to any Mortgage Loan where the Mortgage Loan is secured by a leasehold estate under a Ground Lease in whole or in part, and the related Mortgage does not also encumber the related lessor's fee interest in such Mortgaged Property, based upon the terms of the Ground Lease and any estoppel or other agreement received from the ground lessor in favor of Seller, its successors and assigns, Seller represents and warrants that:

a. The Ground Lease or a memorandum regarding such Ground Lease has been duly recorded or submitted for recordation in a form that is acceptable for recording in the applicable jurisdiction. The Ground Lease or an estoppel or other agreement received from the ground lessor permits the interest of the lessee to be encumbered by the related Mortgage and does not restrict the use of the related Mortgaged Property by such lessee, its successors or assigns in a manner that would materially adversely affect the security provided by the related Mortgage;

b. The lessor under such Ground Lease has agreed in a writing included in the related Submitted Mortgage File (or in such Ground Lease) that the Ground Lease may not be amended or modified, or canceled or terminated by agreement of lessor and lessee, without the prior written consent of the lender, and no such consent has been granted by the Seller since the origination of the Mortgage Loan except as reflected in any written instruments which are included in the related Submitted Mortgage File;

c. The Ground Lease has an original term (or an original term plus one or more optional renewal terms, which, under all circumstances, may be exercised, and will be enforceable, by either Mortgagor or the mortgagee) that extends not less

than 20 years beyond the stated maturity of the related Mortgage Loan, or 10 years past the stated maturity if such Mortgage Loan fully amortizes by the stated maturity (or with respect to a Mortgage Loan that accrues on an actual 360 basis, substantially amortizes);

d. The Ground Lease either (i) is not subject to any liens or encumbrances superior to, or of equal priority with, the Mortgage, except for the related fee interest of the ground lessor and the Permitted Encumbrances, or (ii) is subject to a subordination, non-disturbance and attornment agreement to which the mortgagee on the lessor's fee interest in the Mortgaged Property is subject;

e. The Ground Lease does not place commercially unreasonable restrictions on the identity of the Mortgagee and the Ground Lease is assignable to the holder of the Mortgage Loan and its successors and assigns without the consent of the lessor thereunder, and in the event it is so assigned, it is further assignable by the holder of the Mortgage Loan and its successors and assigns without the consent of the lessor;

f. The Seller has not received any written notice of material default under or notice of termination of such Ground Lease. To the Seller's knowledge, there is no material default under such Ground Lease and no condition that, but for the passage of time or giving of notice, would result in a material default under the terms of such Ground Lease and to the Seller's knowledge, such Ground Lease is in full force and effect as of the Closing Date;

g. The Ground Lease or ancillary agreement between the lessor and the lessee requires the lessor to give to the lender written notice of any default, and provides that no notice of default or termination is effective against the lender unless such notice is given to the lender;

h. A lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under the Ground Lease through legal proceedings) to cure any default under the Ground Lease which is curable after the lender's receipt of notice of any default before the lessor may terminate the Ground Lease;

i. The Ground Lease does not impose any restrictions on subletting that would be viewed as commercially unreasonable by the Seller in connection with loans originated for securitization;

j. Under the terms of the Ground Lease, an estoppel or other agreement received from the ground lessor and the related Mortgage (taken together), any related insurance proceeds or the portion of the condemnation award allocable to the ground lessee's interest (other than (i) de minimis amounts for minor casualties or (ii) in respect of a total or substantially total loss or taking as addressed in clause (k) below) will be applied either to the repair or to restoration of all or part of the related Mortgaged Property with (so long as such proceeds are in excess of the

threshold amount specified in the related Mortgage Loan Documents) the lender or a trustee appointed by it having the right to hold and disburse such proceeds as repair or restoration progresses, or to the payment of the outstanding principal balance of the Mortgage Loan, together with any accrued interest;

k. In the case of a total or substantially total taking or loss, under the terms of the Ground Lease, an estoppel or other agreement and the related Mortgage (taken together), any related insurance proceeds, or portion of the condemnation award allocable to ground lessee's interest in respect of a total or substantially total loss or taking of the related Mortgaged Property to the extent not applied to restoration, will be applied first to the payment of the outstanding principal balance of the Mortgage Loan, together with any accrued interest; and

l. Provided that the lender cures any defaults which are susceptible to being cured, the ground lessor has agreed to enter into a new lease with lender upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in a bankruptcy proceeding.

35. Servicing . The servicing and collection practices used by the Seller with respect to the Mortgage Loan have been, in all respects, legal and have met customary industry standards for servicing of commercial loans for conduit loan programs.

36. Origination and Underwriting . The origination practices of the Seller (or the related originator if the Seller was not the originator) with respect to each Mortgage Loan have been, in all material respects, legal and as of the date of its origination, such Mortgage Loan and the origination thereof complied in all material respects with, or was exempt from, all requirements of federal, state or local law relating to the origination of such Mortgage Loan; provided that such representation and warranty does not address or otherwise cover any matters with respect to federal, state or local law otherwise covered in this Exhibit C.

37. No Material Default; Payment Record . No Mortgage Loan has been more than 30 days delinquent, without giving effect to any grace or cure period, in making required payments since origination, and as of the date hereof, no Mortgage Loan is more than 30 days delinquent (beyond any applicable grace or cure period) in making required payments as of the Closing Date. To the Seller's knowledge, there is (a) no material default, breach, violation or event of acceleration existing under the related Mortgage Loan, or (b) no event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, which default, breach, violation or event of acceleration, in the case of either clause (a) or clause (b), materially and adversely affects the value of the Mortgage Loan or the value, use or operation of the related Mortgaged Property, provided, however, that this representation and warranty does not cover any default, breach, violation or event of acceleration that specifically pertains to or arises out of an exception scheduled to any other representation and warranty made by the Seller in this Exhibit C. No person other than

the holder of such Mortgage Loan may declare any event of default under the Mortgage Loan or accelerate any indebtedness under the Mortgage Loan Documents.

38. Bankruptcy . As of the date of origination of the related Mortgage Loan and to the Seller's knowledge as of the Cut-off Date, no Mortgagor, guarantor or tenant occupying a single-tenant property is a debtor in state or federal bankruptcy, insolvency or similar proceeding.

39. Organization of Mortgagor . With respect to each Mortgage Loan, in reliance on certified copies of the organizational documents of the Mortgagor delivered by the Mortgagor in connection with the origination of such Mortgage Loan, the Mortgagor is an entity organized under the laws of a state of the United States of America, the District of Columbia or the Commonwealth of Puerto Rico. Except with respect to any Crossed Mortgage Loan, no Mortgage Loan has a Mortgagor that is an Affiliate of another Mortgagor. (An “Affiliate” for purposes of this paragraph (39) means, a Mortgagor that is under direct or indirect common ownership and control with another Mortgagor.)

40. Environmental Conditions . A Phase I environmental site assessment (or update of a previous Phase I and or Phase II site assessment) and, with respect to certain Mortgage Loans, a Phase II environmental site assessment (collectively, an “ESA”) meeting ASTM requirements conducted by a reputable environmental consultant in connection with such Mortgage Loan within 12 months prior to its origination date (or an update of a previous ESA was prepared), and such ESA either (i) did not identify the existence of recognized environmental conditions (as such term is defined in ASTM E1527-05 or its successor, hereinafter “ Environmental Condition ”) at the related Mortgaged Property or the need for further investigation with respect to any Environmental Condition that was identified, or (ii) if the existence of an Environmental Condition or need for further investigation was indicated in any such ESA, then at least one of the following statements is true: (A) an amount reasonably estimated by a reputable environmental consultant to be sufficient to cover the estimated cost to cure any material noncompliance with applicable environmental laws or the Environmental Condition has been escrowed by the related Mortgagor and is held or controlled by the related lender; (B) if the only Environmental Condition relates to the presence of asbestos-containing materials, radon in indoor air, lead based paint or lead in drinking water, and the only recommended action in the ESA is the institution of such a plan, an operations or maintenance plan has been required to be instituted by the related Mortgagor that can reasonably be expected to mitigate the identified risk; (C) the Environmental Condition identified in the related environmental report was remediated or abated in all material respects prior to the date hereof, and, if and as appropriate, a no further action or closure letter was obtained from the applicable governmental regulatory authority (or the Environmental Condition affecting the related Mortgaged Property was otherwise listed by such governmental authority as “closed” or a reputable environmental consultant has concluded that no further action is required); (D) a secured creditor environmental policy or a pollution legal liability insurance policy that covers liability for the Environmental Condition was obtained from an insurer rated no less than A-(or the equivalent) by Moody’s, S&P and/or Fitch; (E) a party not related to the Mortgagor was identified as the responsible party for such Environmental Condition and such responsible party has financial resources reasonably estimated to be

adequate to address the situation; or (F) a party related to the Mortgagor having financial resources reasonably estimated to be adequate to address the situation is required to take action. To Seller's knowledge, except as set forth in the ESA, there is no Environmental Condition (as such term is defined in ASTM E1527-05 or its successor) at the related Mortgaged Property.

41. Appraisal . The Servicing File contains an appraisal of the related Mortgaged Property with an appraisal date within 6 months of the Mortgage Loan origination date, and within 12 months of the Closing Date. The appraisal is signed by an appraiser who is either a Member of the Appraisal Institute (“ MAI ”) and/or has been licensed and certified to prepare appraisals in the state where the Mortgaged Property is located. Each appraiser has represented in such appraisal or in a supplemental letter that the appraisal satisfies the requirements of the “Uniform Standards of Professional Appraisal Practice” as adopted by the Appraisal Standards Board of the Appraisal Foundation and has certified that such appraiser had no interest, direct or indirect, in the Mortgaged Property or the Mortgagor or in any loan made on the security thereof, and its compensation is not affected by the approval or disapproval of the Mortgage Loan.

42. Mortgage Loan Information . The Mortgage Loan Information pertaining to each Mortgage Loan which is set forth on Schedule 1 to the applicable Purchase Price and Terms Agreement is true and correct in all material respects as of the Cut-off Date and contains all information required by the Agreement to be contained therein.

43. Cross-Collateralization . No Mortgage Loan is cross-collateralized or cross-defaulted with any other mortgage loan, except as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement.

44. Advance of Funds by the Seller . After origination, no advance of funds has been made by Seller to the related Mortgagor other than in accordance with the Mortgage Loan Documents, and, to Seller's knowledge, no funds have been received from any person other than the related Mortgagor or an affiliate for, or on account of, payments due on the Mortgage Loan (other than as contemplated by the Mortgage Loan Documents, such as, by way of example and not in limitation of the foregoing, amounts paid by the tenant(s) into a lender-controlled lockbox if required or contemplated under the related lease or Mortgage Loan Documents). Neither Seller nor any affiliate thereof has any obligation to make any capital contribution to any Mortgagor under a Mortgage Loan, other than contributions made on or prior to the date hereof.

45. Compliance with Anti-Money Laundering Laws . Seller has complied in all material respects with all applicable anti-money laundering laws and regulations, including without limitation the USA Patriot Act of 2001 with respect to the origination of the Mortgage Loan, the failure to comply with which would have a material adverse effect on the Mortgage Loan.

EXHIBIT C-2

REPRESENTATIONS AND WARRANTIES (FREDDIE MAC SBL LOANS)

For purposes of these representations and warranties, the phrase “to the knowledge of Seller” or “to Seller’s knowledge” will mean, except where otherwise expressly set forth below, the actual state of knowledge of Seller or any servicer acting on its behalf regarding the matters referred to, after Seller’s having conducted such inquiry and due diligence into such matters as would be customarily required by Freddie Mac’s underwriting standards represented in the Guide as modified by the SBL Addendum. Capitalized terms not otherwise defined in this Exhibit C-2 will have the meaning set forth in the Guide.

Seller represents and warrants, subject to the exceptions set forth in Schedule 1 to the Commitment, with respect to each Loan, that as of the Freddie Mac Funding Date, unless Freddie Mac specifies a different date, the following representations and warranties are true and correct in all material respects:

(1) Crossed Loan . Except with respect to any subordinate mortgage identified in Paragraph 2 , the Loan is not cross-collateralized or cross-defaulted with any other mortgage loan (“Crossed Loan”) not being transferred to Freddie Mac.

(2) Subordinate Loan . There are no subordinate loans encumbering the Property and Seller has no knowledge of any mezzanine debt related to the Property.

(3) Licenses, Permits and Authorization .

(a) As of the Origination Date, to Seller’s knowledge, based on Borrower’s representations and warranties in the Loan Documents, Borrower, commercial lessee and/or operator of the Property were in possession of all material licenses, permits, and authorizations required for use of the Property as it was then operated.

(b) Seller has not modified the provisions of the Loan Documents in which Borrower covenants that it will remain in material compliance with all material licenses, permits and other legal requirements necessary and required to conduct its business.

(4) Condition of Property . To Seller’s knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable loans, one of the following is applicable:

(a) the Property is free of any material damage that would materially and adversely affect the use or value of the Property as security for the Loan (other than normal wear and tear), or

(b) to the extent a prudent multifamily mortgage lender would so require, Seller has required a reserve, letter of credit, guaranty, insurance coverage or other mitigant with respect to the condition of the Property.

(5) Ground Leases . The Loan is not secured in whole or in part by Borrower’s interest as lessee under a ground lease of the Property without also being secured by the fee interest in the Property.

(6) Valid Lien .

(a) (i) Seller has not modified the Loan Documents in any manner that would negate or impair the validity or enforceability of the Mortgage or the creation of a valid and enforceable lien on the Property, subject to Permitted Encumbrances (defined below) and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (ii) Seller has no actual knowledge of any provision in the Loan Documents that would negate or impair the validity or enforceability of the Mortgage or the creation of a valid and enforceable lien on the Property, subject to Permitted Encumbrances and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b) If the Loan is a Crossed Loan, the Mortgage encumbering the Property also secures one or more other Crossed Loans.

(c) Based on the Title Policy (defined below), the Property is free and clear of any mechanics’ and materialmen’s liens which are prior to or equal with the lien of the Mortgage, except those which are bonded over or for which an escrow has been established.

(d) A UCC financing statement has been filed and/or recorded (or sent for filing or recording) (or, in the case of fixtures, the Mortgage constitutes a fixture filing) in all places (if any) necessary at the time of origination of the Loan to perfect a valid security interest in the personal property owned by Borrower and reasonably necessary to operate the Property in its current use other than for any of the following:

(i) non-material personal property,

(ii) personal property subject to purchase money security interests, and

(iii) personal property that is leased equipment, to the extent a security interest may be created by filing or recording.

Notwithstanding the foregoing, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC financing statements are required in order to effect such perfection.

(e) Any security agreement or equivalent document related to and delivered in connection with the Loan establishes and creates a valid and enforceable lien on the physical personal property of Borrower reasonably necessary to the operation of the Property (other than on healthcare licenses or on payments to be made under Medicare, Medicaid or similar federal, state or local third party payor programs that are not assignable without governmental approval), subject to Permitted Encumbrances and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(7) Title Insurance.

(a) The Property is covered by an ALTA lender’s title insurance policy (or its equivalent as set forth in the applicable jurisdiction) that evidences such title insurance policy (“Title Policy”), in the original principal amount of the Loan (or, in the case of a Crossed Loan, the allocated loan amount of the portions of the Property that are covered by the Title Policy).

(b) The Title Policy insures that the Mortgage is a valid first priority lien on the Property, subject only to Permitted Encumbrances.

(d) No material claims have been made or paid under the Title Policy.

(e) Seller has not done, by act or omission, anything that would materially impair or diminish the coverage under the Title Policy, and has no knowledge of any such action or omission.

(f) Immediately following the transfer and assignment of the Loan to Freddie Mac, the Title Policy will inure to the benefit of Freddie Mac without the consent of or notice to the insurer of the Title Policy.

(g) Seller and its successors and assigns are the sole named insureds under the Title Policy.

(h) To Seller’s knowledge, the insurer of the Title Policy is qualified to do business in the jurisdiction in which the Property is located.

“Permitted Encumbrances” means:

(i) the lien of current real property taxes, ground rents, water charges, sewer rents and assessments not yet delinquent,

(ii) covenants, conditions and restrictions, rights of way, easements and other matters of public record specifically identified in the Title Policy, none of which, individually or in the aggregate, materially interferes with any of the following:

(A) the current use of the Property,

(B) the security in the collateral intended to be provided by the lien of the Mortgage,

(D) the value of the Property,

(iii) exceptions (general and specific) and exclusions set forth in the Title Policy, none of which, individually or in the aggregate, materially interferes with any of the following:

(A) the current use of the Property,

(B) the security in the collateral intended to be provided by the lien of the Mortgage,

(D) the value of the Property,

(iv) the rights of tenants, as tenants only, under leases, including subleases, pertaining to the Property,

(v) other matters to which similar properties are commonly subject, none of which, individually or in the aggregate, materially interferes with any of the following:

(A) the current use of the Property,

(B) the security in the collateral intended to be provided by the lien of the Mortgage,

(D) the value of the Property.

(8) Zoning . Based upon the “Zoning Due Diligence” (defined below) one of the following is applicable to the Property:

(a) the improvements located on or forming part of the Property materially comply with applicable zoning laws and ordinances, or

(b) the improvements located on or forming part of the Property constitute a legal non-conforming use or structure; and one of the following is true:

(i) the non-compliance does not materially and adversely affect the value of the Property, or

(ii) ordinance and law coverage is provided in amounts required by the Guide.

The foregoing may be based upon one or more of the following (“Zoning Due Diligence”):

(a) a statement of full restoration by a zoning authority,

(b) copies of legislation or variance permitting full restoration of the Property,

(d) an opinion of counsel,

(e) other due diligence considered reasonable by prudent multifamily lenders in the lending area where the Property is located,

(f) ordinance and law coverage as required by the Guide.

(9) Environmental Conditions .

(a) As of the Origination Date, Borrower represented and warranted in all material respects that to its knowledge Borrower has not used, caused or permitted to exist (and will not use, cause or permit to exist) on the Property any “Hazardous Materials ” (defined below) in any manner which violates federal, state or local laws, ordinances, regulations, orders, directives or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of hazardous materials or other environmental laws. The foregoing Borrower representation and warranty is subject to each of the following:

(i) exceptions set forth in certain “Physical Risk Report(s)” (defined below),

(ii) Hazardous Materials that are commonly used in the operation and maintenance of properties of similar kind and nature to the Property,

(iii) Hazardous Materials that are commonly used in accordance with prudent management practices and applicable law, and

(iv) Hazardous Materials that are commonly used in a manner that does not result in any contamination of the Property that is not permitted by law.

(b) Seller has not modified the provisions of the Loan Documents which require Borrower to comply, and to cause the Property to be in compliance, with all “Hazardous Materials Laws” (defined below) applicable to the Property.

(c) Seller has not modified the provisions of the Loan Documents which require Borrower (or an affiliate of Borrower) to indemnify, defend and hold lender and its successors and assigns harmless from and against losses, liabilities, damages, injuries, penalties, fines, expenses, and claims of any kind whatsoever (including attorneys’ fees and costs) paid, incurred or suffered by, or asserted against, any such party resulting from a breach of the foregoing representations or warranties given by Borrower in connection with the Loan.

(d) To the best of Seller’s knowledge, in reliance on the Physical Risk Reports prepared in connection with the origination of the Loan and except as set forth in such Physical Risk Reports, the Property is in material compliance with all applicable Hazardous Materials Laws, and to the best of Seller’s knowledge, no notice of violation of such laws has been issued by any governmental agency or authority, except, in all cases, as indicated in such Physical Risk Reports.

(e) Seller has not taken any action which would cause the Property not to be in compliance with all Hazardous Materials Laws.

“Hazardous Materials” means

(i) petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives; flammable materials; radioactive materials; polychlorinated biphenyls (“ PCBs ”) and compounds containing them,

(ii) lead and lead-based paint,

(iii) asbestos or asbestos-containing materials in any form that is or could become friable,

(iv) underground or above-ground storage tanks that are not subject to a “no further action” letter from the regulatory authority in the related property jurisdiction, whether empty or containing any substance,

(v) any substance the presence of which on the Property is prohibited by any federal, state or local authority,

(vi) any substance that requires special handling and any other “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” by or within the meaning of any Hazardous Materials Law, or

(vii) any substance that is regulated in any way by or within the meaning of any Hazardous Materials Law.

“Hazardous Materials Law” means:

(i) any federal, state, and local law, ordinance and regulation and standard, rule, policy and other governmental requirement, administrative ruling and court judgment and decree in effect now or in the future and including all amendments, that relate to Hazardous Materials or the protection of human health or the environment and apply to Borrower or to the Property, and

(ii) Hazardous Materials Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, et. seq., and their state analogs.

“Physical Risk Report” means a report by a physical risk consultant which includes information (i) regarding any environmental sampling results, (ii) from environmental data base searches, (iii) regarding Hazardous Materials evidenced by a physical inspection, and (iv) on any recognized environmental conditions noted on the Physical Risk Report – Form 1104 or similar form of report used in connection with the origination of the Loan, if available for the Property.

(10) Grace Period . Seller has not modified the Loan Documents to provide for a grace period with respect to delinquent monthly payments due under the Note or if Seller has modified the Loan Documents to provide for a grace period, such grace period is no longer than 10 days from the applicable payment date.

(11) Due on Encumbrance . Seller has not modified the provisions of the Loan Documents which prohibit Borrower from doing either of the following:

(a) mortgaging or otherwise encumbering the Property without the prior written consent of lender or the satisfaction of debt service coverage and other criteria specified in the Loan Documents, or

(b) carrying any additional indebtedness, except as set forth in the Loan Documents or in connection with trade debt and equipment financings incurred in the ordinary course of Borrower’s business.

(12) Carveouts to Non-Recourse .

(a) Seller has not modified the provisions of the Loan Documents which provide that:

(i) Borrower will be liable to lender for any losses incurred by lender due to any of the following:

(A) the misapplication or misappropriation of rents (after a demand is made after an event of default), insurance proceeds or condemnation awards,

(B) any breach of the environmental covenants contained in the Loan Documents, or

(C) fraud by Borrower in connection with the application for or creation of the Loan or in connection with any request for any action or consent by lender.

(ii) The Loan will become full recourse in the event of a voluntary bankruptcy filing by Borrower.

(13) Financial Statements . Seller has not modified the provisions of the Loan Documents which require that Borrower provide the owner or holder of the Loan with annual operating statements, rent rolls and related information and annual financial statements.

(14) Due on Sale .

(a) Seller has not modified the provisions of the Loan Documents which provide for the acceleration of the payment of the unpaid principal balance of the Loan if, without the consent of the holder of the Loan and/or in compliance with the requirements of the Loan Documents, the Property or a controlling interest in Borrower is directly or indirectly transferred or sold, except with respect to any of the following transfers:

(i) transfers of certain interests in Borrower to any person or entity already holding direct or indirect interests in Borrower, their family members, affiliated companies and other estate planning related transfers that satisfy certain criteria specified in the Loan Documents,

(ii) transfers of less than a controlling interest in Borrower,

(iii) transfers of common stock in publicly traded companies, or

(iv) if the Property is a residential cooperative property, transfers of stock of Borrower in connection with the assignment of a proprietary lease for a unit in the Property by a tenant-shareholder of Borrower to another person or entity which by virtue of such transfer becomes a tenant-shareholder in Borrower.

(b) Seller has not modified any provision of the Loan Documents which requires Borrower to pay all fees and expenses associated with securing the consent or approval of the holder of the Mortgage for all actions requiring such consent or approval under the Mortgage including the cost of counsel opinions relating to a real estate mortgage investment conduit (“REMIC”) or other securitization and tax issues.

(15) Assignment of Leases .

(a) Seller has not modified the provisions of the Mortgage which contain an Assignment of Leases that is part of the Mortgage.

(b) Based upon the Title Policy, the Assignment of Leases creates a valid present assignment of, or a valid first priority lien or security interest in, certain rights under the related lease or leases, subject only to a license granted to Borrower to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the leased Property, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(c) Based upon the Title Policy, no person or entity other than Borrower owns any interest in any payments due under any lease that is superior to or of equal priority with lender’s interest.

(d) Seller has not modified the provisions of the Mortgage which provide for the appointment of a receiver for rents or allows the holder of the Mortgage to enter into possession to collect rents or provides for rents to be paid directly to the lender in the event of a default under the Loan or Mortgage.

(16) Insurance Proceeds and Condemnation Awards.

(a) Seller has not modified the provisions of the Loan Documents which provide that insurance proceeds and condemnation awards will be applied to one of the following:

(i) restoration or repair of the Property,

(ii) restoration or repair of the Property, with any excess insurance proceeds or condemnation awards after restoration or repair being paid to Borrower, or

(iii) reduction of the principal amount of the Loan.

(b) To Seller’s knowledge, there is no proceeding pending for the total or partial condemnation of the Property that would have a material adverse effect on the use or value of the Property.

(17) Customary Provisions .

(a) The Note or Mortgage for the Loan, together with applicable state law, contains customary and enforceable provisions so as to render the rights and remedies of the holder of the Note or Mortgage adequate for the practical realization against the Property of the principal benefits of the security in the collateral intended to be provided by the Note or the lien of the Mortgage, including realization by judicial or, if applicable, non-judicial foreclosure, except as the enforcement of the Mortgage may be limited by bankruptcy, insolvency, reorganization, moratorium, redemption or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b) Borrower is not a debtor in, and the Property is not the subject of, any currently pending state or federal bankruptcy or insolvency proceeding, and, as of the Origination Date, no guarantor was a debtor in any state or federal bankruptcy or insolvency proceeding.

(18) Litigation . Based solely on the “Litigation Due Diligence”, to the knowledge of Seller, as of the Origination Date and taking into consideration any applicable reserve, letter of credit, guaranty, insurance coverage or other mitigant required in connection with the underwriting of the Loan, there are no actions, suits or proceedings before any court, administrative agency or arbitrator concerning the Loan, Borrower or Property, an adverse outcome of which would reasonably be expected to materially and adversely affect any of the following:

(a) title to the Property or the validity or enforceability of the Mortgage,

(b) the value of the Property as security for the Loan,

(d) Borrower’s ability to perform under the Loan.

The foregoing is based on one or both of the following (“Litigation Due Diligence”):

(x) information regarding litigation contained in the Borrower and Borrower Principal Certificate (Form 1115) delivered with respect to Borrower as part of the submission of the full underwriting package, or

(y) judgment lien search delivered as a part of the title insurance search.

(19) Escrow Deposits .

(a) Except as previously disbursed pursuant to the Loan Documents, all escrow deposits and payments relating to the Loan that are required to be deposited or paid, have been deposited or paid.

(b) All such escrow deposits that have not been disbursed pursuant to the Loan Documents are being conveyed by Seller to Freddie Mac and identified with appropriate detail.

(c) All escrow deposits and payments required pursuant to the Loan are in the possession, or under the control, of Seller or its servicer.

(20) Valid Assignment .

(a) Each assignment of the Mortgage from Seller to Freddie Mac is in recordable form and constitutes the legal, valid and binding assignment from Seller to Freddie Mac, except as enforcement may be limited by bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium or other laws relating to or affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(b) Each Mortgage is freely assignable without the consent of Borrower.

(21) Qualification To Do Business . To the extent required under applicable law, Seller is and has at all required times been authorized to transact and do business in the jurisdiction in which the Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of the Loan .

(22) Ownership .

(a) Immediately prior to the transfer of the Loan to Freddie Mac, Seller had good title to, and was the sole owner of, the Loan.

(b) Seller has full right, power and authority to transfer and assign the Loan to Freddie Mac and has validly and effectively conveyed (or caused to be conveyed) to Freddie Mac all of Seller’s legal and beneficial interest in and to the Loan free and clear of any and all liens, pledges, charges, security interests and/or other encumbrances of any kind.

(23) Deed of Trust . If the Mortgage is a deed of trust, each of the following is true:

(a) A trustee, duly qualified under applicable law to serve as trustee, currently serves as trustee and is named in the deed of trust (or has been or may be substituted in accordance with applicable law by lender).

(b) Seller has not modified the deed of trust to provide for the payment of fees or expenses to the trustee by Seller, Freddie Mac or any transferee of Seller or Freddie Mac.

(24) Validity of Loan Documents, No Offset .

(a) Seller has not modified the Loan Documents in any manner that would cause the Note, Mortgage and other agreements that evidence or secure the Loan and were executed by or for the benefit of Borrower or any guarantor to not be enforceable in accordance with their terms, and Seller has no actual knowledge of any such unenforceability, in either case except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(b) To Seller’s knowledge, there is no valid offset, defense, counterclaim, or right of rescission, abatement or diminution available to Borrower or any guarantor with respect to the Note, Mortgage or other agreement, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(c) To Seller’s knowledge, no offset, defense, counterclaim or right of rescission, abatement or diminution has been asserted by Borrower or any guarantor.

(25) Compliance with Usury Laws . As of the Origination Date, the interest rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of the Loan was in compliance with, or was exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury.

(26) No Shared Appreciation . The Loan has no shared appreciation rights (it being understood that equity holdings, including without limitation, preferred equity holdings, will not be considered shared appreciation rights with respect to the Loan), any other contingent interest feature or a negative amortization feature.

(27) Whole Loan . The Loan is a whole loan and is not a participation interest in the Loan.

(28) Reserved .

(29) Full Disbursement . The proceeds of the Loan have been fully disbursed and there is no requirement for future advances.

(30) No Advances . No advance of funds has been made by Seller to Borrower (other than mezzanine debt and the acquisition of preferred equity interests by the preferred equity interest holder, as disclosed to Freddie Mac), and no advance of funds have, to Seller’s knowledge, been received (directly or indirectly) from any person or entity other than Borrower for or on account of payments due on the Loan.

(31) All Collateral Transferred . All collateral that secures the Loan is being transferred to Freddie Mac as part of the Loan (other than healthcare licenses, Medicare, Medicaid or similar federal, state or local third party payor programs, including housing assistance payments contracts, that are not transferable without governmental approval).

(32) Loan Status; Waivers and Modifications . All of the following are true and correct:

(a) the material terms of the Mortgage, Note and Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect,

(b) neither the Property nor any portion of the Property has been released from the lien of the Mortgage in any manner which materially interferes with the security intended to be provided by the Mortgage or the use, value or operation of the Property, and

(33) Defaults.

(a) There exists no monetary default (other than payments due but not yet more than 30 days past due) or, to Seller’s knowledge, material non-monetary default, breach, violation or event of acceleration under the Loan.

(b) To Seller’s knowledge, there exists no event that, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration under the Loan; provided , however , that the representations and warranties set forth in this Paragraph 33(b) do not address or otherwise cover any default, breach, violation or event of acceleration that specifically pertains to any matter otherwise covered by any other representation or warranty made by Seller; and, provided , further , that a breach by Borrower of any representation or warranty contained in any Loan Document (each, a “ Borrower Representation ”) will not constitute a material non - monetary default, breach, violation or event of acceleration for purposes of this Paragraph 33(b) if the subject matter of such Borrower Representation is covered by any exception to any representation or warranty made by Seller in Exhibit F attached to the Commitment or Early Rate Lock Application.

(c) Since the Origination Date, except as set forth in the Final Delivery Package, Seller has not waived any material default, breach, violation or event of acceleration under any of the Loan Documents.

(d) Pursuant to the terms of the Loan Documents, no person or party other than the holder of the Note and Mortgage may declare an event of default or accelerate the indebtedness under the Loan Documents.

(34) Payments Current . No scheduled payment of principal and interest under any Loan was more than 30 days past due as of the date of this Certificate, and no Loan was more than 30 days delinquent in the twelve-month period immediately preceding the date of this Certificate.

(35) Qualified Loan . The Loan constitutes a “qualified mortgage” within the meaning of Section 860G(a)(3) of the Code (but without regard to the rule in Treasury Regulation Section 1.860G-2(f)(2) that treats a defective obligation as a “qualified mortgage” or any substantially similar successor provision). Any prepayment premiums and yield maintenance charges payable upon a voluntary prepayment under the terms of the Loan constitute “customary prepayment penalties” within the meaning of Treasury Regulation Section 1.860G-1(b)(2).

(36) Prepayment upon Condemnation . Seller has not modified the provisions of the Loan Documents which require that in the event of a taking of any portion of a Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, if, immediately after the release of such portion of the Property from the lien of the Mortgage (but taking into account any planned restoration), the ratio of (A) the unpaid principal balance of the Loan to (B) the fair market value of the Property constituting the remaining Property is greater than 125%, Borrower can be required to apply the award with respect to such taking to prepay the Loan in the amount required to prevent the SBL Securitization from failing to meet applicable federal income tax qualification requirements or subject the SBL Securitization to any tax (“REMIC Provisions”) and such amount may not, to such extent, be used to restore the Property or be released to Borrower.

(37) Releases of Property .

(a) The Loan does not require the lender to release all or any portion of the Property from the lien of the Mortgage, except as in compliance with the REMIC Provisions and one of the following:

(i) upon payment in full of all amounts due under the Loan,

(ii) in connection with a full or partial defeasance pursuant to provisions in the Loan Documents,

(iii) unless such portion of the Property was not considered material for purposes of underwriting the Loan, was not included in the appraisal for the Property or does not generate income,

(iv) upon the payment of a release price at least equal to the allocated loan amount or, if none, the appraised value of the released parcel and any related prepayment, or

(v) with respect to any Crossed Loans or if the Loan is secured by multiple Properties, in connection with the release of any cross-collateralization pursuant to provisions in the Loan Documents.

(b) With respect to clauses (iii), (iv) and (v) above, the Loan Documents provide that if the fair market value of the real property constituting the remaining Property immediately after the release of such portion of the Property from the lien of the Mortgage is not equal to at least 80% of the remaining principal amount of the Loan, Borrower can be required to prepay the Loan in the amount equal to or greater than the amount required by the REMIC Provisions.

(38) Origination and Servicing . The origination, servicing and collection practices used by Seller or, to Seller’s knowledge, any prior holder or servicer of the Loan have been in compliance with all applicable laws and regulations, and substantially in accordance with the practices of prudent multifamily mortgage lenders with respect to similar mortgage loans and in compliance with the Guide in all material respects.

(39) Freddie Mac Eligible . The Loan was underwritten in accordance with the Guide, is eligible for SBL Securitization, and the representations, warranties, covenants and other obligations under Freddie Mac’s guidelines, including the Guide, are incorporated herein by reference in their entirety, except where Freddie Mac has expressly waived such requirements in writing respecting such Loan in the Commitment. Each Exception to the Representations and Warranties for each Loan is marked “X” in Schedule 1 to the Commitment and Seller has included a true and accurate description of each applicable Exception in the Commitment, along with any mitigants identified for that Exception. Seller represents and warrants that, if it identified additional Exception(s) for the Loan after the date of the Commitment, Seller documented those Exception(s) in an amendment to the Commitment that fully restated Schedule 1 of the Commitment and added the new Exception(s).

(40) Compliance with the Guide . Each Loan complies with the Guide in all material respects.

Exhibit 10.102

PENNYMAC CORP., as an Owner,

PENNYMAC HOLDINGS, LLC, as an Owner, and

PENNYMAC LOAN SERVICES, LLC

as Oversight Servicer,

_______________________________________________

COMMERCIAL MORTGAGE SERVICING OVERSIGHT AGREEMENT

Dated as of June 1, 2016

This Amended and Restated Commercial Mortgage Servicing Oversight Agreement (“Agreement”), is dated and effective as of June 1, 2016, among PENNYMAC CORP., as Owner, PENNYMAC HOLDINGS, LLC, as Owner, and PENNYMAC LOAN SERVICES, LLC, as PLS or Oversight Servicer.

PRELIMINARY STATEMENT

WHEREAS, the Owner and the Seller previously entered into a Commercial Mortgage Servicing Oversight Agreement, dated as of December 15, 2015 (the “ Existing Oversight Agreement ”);

WHEREAS, the parties hereto have requested that the Existing Oversight Agreement be amended and restated, in its entirety, on the terms and subject to the conditions set forth herein;

WHEREAS, Owner has entered a Servicing Agreement dated July 13, 2015 with Midland Loan Services, a Division of PNC Bank, National Association “(Midland”) and PLS, under which Owner engaged Midland to act as the Master Servicer of Mortgage Loans that the Owner acquires from time to time and as the Special Servicer with respect to certain Mortgage Loans, and engaged PLS to act as Special Servicer for certain other Mortgage Loans;

WHEREAS, Owner has requested that PLS oversee the servicing activities of Midland on behalf of Owner; and,

WHEREAS, the parties desire to provide the terms and conditions of PLS’ oversight of the servicing performed by Midland.

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Defined Terms . Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:

“ Accepted Servicing Practices ”: Servicing Mortgage Loans (a) in accordance with (i) applicable federal, state, and local laws, regulations, and ordinances, and investor requirements including, with respect to Freddie Mac SBL Loans, the Guide, (ii) the terms and provisions of the Mortgage Loan Documents, (iii) the express terms hereof, and (iv) the customary and usual standards of practice of prudent institutional commercial mortgage loan servicers, and (b) to the extent consistent with the foregoing requirements, in the same manner in which the Master Servicer or the applicable Special Servicer services commercial mortgage loans for itself, its Affiliates, or other third party portfolios of mortgage loans similar to the Mortgage Loans.

“ Action ”: Any litigation, claim, action, suit, arbitration, inquiry, proceeding, investigation, or similar proceeding by or before any Governmental Authority or arbitrator.

“ Additional Collateral ”: Any non-real property collateral (including any letters of credit or reserve funds) pledged and/or delivered by or on behalf of the Borrower and held by the mortgagee to secure payment on any Mortgage Loan.

“ Affiliate ”: With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person; provided, however, that in respect of Owner, the term “Affiliate” shall include only PennyMac Mortgage Investment Trust and its wholly owned subsidiaries and, in respect of Oversight Servicer, the term “Affiliate” shall include only Private National Mortgage Acceptance Company, LLC and its wholly owned subsidiaries. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“ Agreement ”: This Commercial Mortgage Servicing Oversight Agreement , as the same may be modified, supplemented or amended from time to time.

“ Borrower ”: The obligor on a Note.

“ Business Day ”: Any day other than a Saturday, a Sunday or a day on which banking institutions in the States of California or New York are authorized or obligated by law or executive order to be closed.

“ Change of Control ” means the acquisition (in one or more transactions) by any Person, or two or more Persons acting in concert, of (i) beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of voting stock or other ownership interests of an entity at any time if after giving effect to such acquisition(s) such Person or Persons own(s) fifty percent (50%) or more of such outstanding voting stock or other ownership interests on a fully diluted basis or (ii) the power or right to control or otherwise limit or modify, directly or indirectly, the management and operations of such Person.

“ Custodian ”: Deutsche Bank Trust Company Americas, in its capacity as Custodian under the Amended and Restated Custodial Agreement dated May 12, 2015, as amended from time to time, or any successor custodian duly appointed by Owner.

“ Event of Default ” has the meaning set forth in Section 8.01 of this Agreement.

“ Freddie Mac ”: The Federal Home Loan Mortgage Corporation or any successor thereto.

“Freddie Mac SBL Loan” means a small balance Mortgage Loan providing financing for the acquisition or refinance of conventional multifamily housing with five residential units or more and eligible for delivery to Freddie Mac under the terms of the Freddie Mac Guide.

“Guide” means any and all rules, regulations, requirements and guidelines of Freddie Mac applicable to Freddie Mac SBL Loans, as the same may be amended from time to time, including without limitation the Freddie Mac Multifamily Seller/Servicer Guide.

“ Governmental Authority ” means any federal, state, municipal, national, or local or other governmental department, court, commission, board, bureau, agency, intermediary, carrier or instrumentality, or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory, or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory, or possession thereof, a foreign sovereign entity, or country or jurisdiction or the District of Columbia.

“ Loan Servicing ”: Those services pertaining to the Mortgage Loans which Master Servicer or Special Servicer m ust perform , applying Accepted Servicing Practices, under the terms of the Midland Servicing Agreement.

“ Losses ” mean any and all losses, damages, liabilities, fines, claims, demands, deficiencies, judgments, assessments, settlements, penalties, injuries, actions, suits, costs, and expenses of any nature whatsoever including, without limitation, reasonable attorneys’ fees and court costs.

“ Master Servicer ”: Midland, or any successor servicer as provided in the Midland Servicing Agreement.

“ Midland ”: Midland Loan Services, a Division of PNC Bank, National Association, or any successor Servicer as herein provided.

“ Midland Servicing Agreement ”: The Servicing Agreement dated July 13, 2015 among Owner, Midland and PLS.

“ Monthly Payment ”: With respect to any Mortgage Loan, the scheduled monthly payment of interest or the scheduled monthly payment of principal and interest, as the case may be, on such Mortgage Loan which is payable by a Borrower on the due date under the related Note.

“ Mortgage ”: With respect to each Mortgage Loan, the mortgage, deed of trust or other instrument securing the related Note, which creates a lien on the real property securing such Note.

“ Mortgage Loan ”: Each of the MSS Mortgage Loans and PMSS Mortgage Loans identified on any Mortgage Loan Schedule under the Midland Servicing Agreement.

“ Mortgage Loan Documents ”: With respect to each Mortgage Loan, the related Note, the related Mortgage and any and all other documents executed and delivered in connection with the origination or subsequent modification of such Mortgage Loan.

“ Mortgage Loan Schedule ”: A schedule of certain mortgage loans owned and held by the Owner which sets forth information with respect to such mortgage loans, as amended from time to time by the parties pursuant to Section 4.01(a) of the Midland Servicing Agreement.

“ Mortgaged Property ”: The real property and improvements thereon securing repayment of the debt evidenced by the related Note. Such term shall also include any REO Property.

“ MSS Mortgage Loans ”: The Mortgage Loans identified as such on any Mortgage Loan Schedule under the Midland Servicing Agreement as being special serviced by Midland.

“ Note ”: With respect to any Mortgage Loan, the promissory note or other evidence of indebtedness or agreements evidencing the indebtedness of a Borrower under such Mortgage Loan.

“ Oversight Servicing ”: Those services to be performed by the Oversight Servicer pertaining to the Mortgage Loans in overseeing the performance of Midland in its capacity as Master Servicer and Special Servicer under the Midland Servicing Agreement, applying Accepted Servicing Practices, as more specifically set forth in Section 3.01.

“ Owner ”: PennyMac Corp. and PennyMac Holdings, LLC, each with respect to any Mortgage Loans which it owns or holds a beneficial interest in.

“ Person ”: Any individual, corporation, limited liability company, partnership, joint venture, estate, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“ PMSS Mortgage Loans ”: The Mortgage Loans identified as being special serviced by PLS on any Mortgage Loan Schedule under the Midland Servicing Agreement.

“ Private Securitization Transaction ”: Any transaction involving either (1) a sale of some or all of the Mortgage Loans directly or indirectly to an entity that issues privately offered, rated mortgage-backed securities or (2) an issuance of privately offered, rated securities, the payments of which are determined primarily by reference to one or more portfolios of mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans, in each case, in a transaction exempt from registration under federal, state and local securities laws.

“ Public Securitization Transaction ”: Any transaction subject to Regulation AB involving either (1) a sale or other transfer of some or all of the Mortgage Loans directly or indirectly to an issuing entity in connection with an issuance of publicly offered, rated mortgage-backed securities or (2) an issuance of publicly offered, rated securities, the payments on which are determined primarily by reference to one or more portfolios of residential mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans. With respect to Freddie Mac SBL Loans, the sale by Freddie Mac of the Freddie Mac SBL Loan to a real estate mortgage investment conduit trust that will issue securities backed by the Freddie Mac SBL Loans under the terms and conditions set forth in the Guide and the REMIC Provisions.

“ Regulatory Event ” means a situation in which (i) either Owner or Oversight Servicer becomes subject to any Regulatory Order or an Action initiated by a Governmental Authority, and (ii) such Regulatory Order or Action prevents or materially impairs such party’s ability to discharge its material obligations hereunder in any material respect, or the continuance of the arrangements contemplated by this Agreement by such party.

“ Regulatory Order ” means any injunction, order, judgment, decree, memorandum of understanding, consent decree, directive, or regulatory restriction, or any change in or interpretation of any law, rule or regulation, issued or imposed by a Governmental Authority and such event is not removed or stayed within thirty (30) days, or such shorter period as necessitated by such Governmental Authority, after reasonable efforts to so remove or stay such event are instituted by the party or parties made subject to thereto.

“REMIC Provisions”: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Section 860A through 860G of subchapter M of chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to time.

“ Servicing File ”: With respect to each Mortgage Loan, all documents, information and records relating to the Mortgage Loan and any Additional Collateral that are necessary to enable the Master Servicer or the Special Servicer to perform its duties and service the Mortgage Loan in compliance with the terms of this Agreement, and any additional documents or information related thereto maintained or created by the Master Servicer or the Special Servicer. Documents or information in the Servicing File may be maintained by the Master Servicer or the Special Servicer in any commonly used electronic format in lieu of paper. For the avoidance of doubt, Original Mortgage Loan Documents held by Owner's designated document custodian shall not be considered part of the Servicing File but the copies of such originals shall be considered part of the Servicing File.

“ Servicing Transfer Date ”: With respect to each Mortgage Loan, the first Business Day of the month following delivery by Owner to the Master Servicer of a Mortgage Loan Schedule and the related Servicing File under the Midland Servicing Agreement or such other date as agreed in writing between the parties.

“ Special Servicer ”: With respect to MSS Mortgage Loans, Midland or any successor special servicer. With respect to PMSS Mortgage Loans, PLS or any successor special servicer.

“ Whole Loan Transfer ”: The sale or transfer by Owner of some or all of the Mortgage Loans in a whole loan or participation format other than a Private Securitization Transaction or a Public Securitization Transaction.

Section 1.02. General Interpretive Principles . For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a) The terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

(b) Accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America;

(c) References herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;

(d) A reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

(e) The words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision;

(f) The term “include” “includes” or “including” shall be deemed to be followed by the phrase “without limitation”; and,

(g) Any and all capitalized terms which are not defined herein and which are defined in the Midland Servicing Agreement shall have the respective meanings set forth in the Midland Servicing Agreement, unless the context otherwise requires.

ARTICLE II

RETENTION AND AUTHORITY OF OVERSIGHT SERVICER

Section 2.01. Engagement . The Owner engages Oversight Servicer to perform, and Oversight Servicer agrees to perform, throughout the term of, and upon and subject to the terms, covenants and provisions of, this Agreement, oversight of the Loan Servicing activities of Midland with respect to each of the Mortgage Loans where Midland is the Master Servicer and/or Special Servicer.

Section 2.02. Servicing Standard . Oversight Servicer shall review Master Servicer’s performance of Loan Servicing activities with respect to the Mortgage Loans in light of Accepted Servicing Practices.

Section 2.03. Authority of Oversight Servicer .

(a) In performing its Oversight Servicing obligations hereunder, Oversight Servicer shall, except as otherwise provided herein and subject to the terms of this Agreement, have full power and authority, acting alone or through others, to take any and all actions in connection with such Oversight Servicing that it deems necessary or appropriate. Without limiting the generality of the foregoing, Oversight Servicer is hereby authorized and empowered by the Owner when the Oversight Servicer deems it appropriate in its reasonable judgment, to execute and deliver, on behalf of the Owner, (i) any and all documents or instruments necessary to maintain the lien of each Mortgage on the related Mortgaged Property and any other Additional Collateral; (ii) any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments with respect to each of the Mortgage Loans; and (iii) any and all documents or instruments necessary to provide instructions or approval of any action as requested by Master Servicer or Custodian; provided, however, that Oversight Servicer shall notify the Owner in writing in the event that Oversight Servicer intends to execute and deliver any such instrument referred to in clause (ii) above. The Owner agrees to cooperate with Oversight Servicer by executing and delivering to Oversight Servicer (i) a power of attorney

evidencing Oversight Servicer’s authority and power under this Section in the form provided in Exhibit B , and (ii) from time to time, such other documents or instruments deemed necessary or appropriate by Oversight Servicer to enable Oversight Servicer to carry out its Oversight Servicing obligations hereunder.

(b) In the performance of its Oversight Servicing obligations hereunder, Oversight Servicer shall take any action that is directed by the Owner which relates to Oversight Servicer’s Oversight Servicing obligations under this Agreement; provided, however, that Oversight Servicer shall not be obligated to take, or to refrain from taking, any action which the Owner requests that Oversight Servicer take or refrain from taking to the extent that Oversight Servicer determines in its reasonable and good faith judgment that such action or inaction (i) may cause a violation of applicable laws, regulations, codes, ordinances, court orders or restrictive covenants with respect to any Mortgage Loan, Borrower, Mortgaged Property; (ii) may cause a violation of any provision of a Mortgage Loan Document; or (iii) may be a violation of the Accepted Servicing Practices.

(c) In performing its Oversight Servicing obligations hereunder, Oversight Servicer shall, except as otherwise provided herein and subject to the terms of this Agreement, have the same access as the Owner to Servicing Files, other Mortgage Loan Documents, Borrower data and information, and other books and records maintained by the Master Servicer and Custodian. Owner agrees to cooperate with Oversight Servicer by executing and delivering to Master Servicer and Custodian such documents or instruments deemed necessary or appropriate to provide Oversight Servicer such access.

ARTICLE III

SERVICES TO BE PERFORMED

Section 3.01. Oversight Services . Oversight Servicer agrees to oversee the Loan Servicing activities of Midland on behalf of Owner with respect to each of the Mortgage Loans, upon and subject to the terms of this Agreement. Oversight Servicer shall perform such Oversight Servicing in a commercially reasonable and professional manner and consistent with Accepted Servicing Practices, which shall include but not be limited to the following:

(a) appointing a knowledgeable, single point-of-contact for the relationship with Midland to ensure direct communication of any issues, concerns or requests;

(b) accessing Midland’s system of record to perform a series of data integrity checks relative to primary servicing functions, including timely and accurate boarding and set up of all Mortgage Loans;

(c) reviewing a number of reports from Master Servicer, including reserve, payment and delinquency status, to confirm that Master Servicer is performing in accordance with the Servicing Agreement and Accepted Servicing Practices;

(d) downloading information from the system of record to produce customized borrower performance reports to aid Owner in tracking Mortgage Loan performance;

(e) reviewing Master Servicer’s accounting and cash management processing procedures to verify that payments are timely and accurately applied;

(f) meeting at least monthly with Master Servicer to review data, reports and other appropriate topics related to Master Servicer’s performance of services under the Midland Servicing Agreement;

(g) developing a vendor scorecard to evaluate Master Servicer on appropriate commercial servicing obligations including compliance with regulations, investor guidelines and Owner’s policies;

(h) reviewing Master Servicer’s escrow administration procedures to confirm that taxes and insurance are timely paid, reserves are properly calculated, and escrow analysis is performed in accordance with Accepted Servicing Practices;

(i) reviewing Master Servicer’s procedures for confirming that adequate property and liability insurance coverage is in place in accordance with Accepted Servicing Practices;

(j) analyzing Master Servicer’s asset management process, including tracking of Mortgage Loan covenants, property inspection procedures, and Borrowers’ financial statement collection and analysis, if applicable;

(k) assessing Master Servicer’s customer service quality, including average time to answer calls, average response time to email and written inquiries, website functionality, call handling process, dispute resolution success, and complaint handling;

(l) assisting Owner in monitoring Master Servicer’s process for collecting delinquent payments and managing delinquencies, if applicable;

(m) reviewing calculations of interest and penalties to ensure Master Servicer’s compliance to the Mortgage Loan Documents, if applicable;

(n) reviewing Master Servicer’s process for sending deferred maintenance notices in order to preserve the value of Mortgage Property;

(o) assisting Owner in timely reporting investors and ensuring that Master Servicer, including in its capacity as Special Servicer of the MSS Mortgage Loans if applicable, provides all necessary information for such reporting, if applicable;

(p) monitoring Midland’s performance of special servicing activities on MSS Mortgage Loans, including loan workouts, foreclosure, bankruptcy and REO management, if applicable;

(q) monitoring Master Servicer’s forbearance activity to ensure appropriate handling, if applicable;

(r) reviewing Master Servicer’s investor reporting capabilities, including accuracy and timeliness of reports and ability to create ad hoc reports;

(s) assessing Master Servicer’s investor remittance capabilities;

(t) assessing the strengths and weaknesses of Master Servicer’s system of record, including technology initiatives, data backup procedures, and disaster recovery and business continuity plans;

(u) reviewing Master Servicer’s staffing levels, employee training, hiring practices, and employee performance and monitoring;

(v) assessing the quality of Master Servicer management’s response to audit findings and quality control reviews;

(w) reviewing Master Servicer’s litigation and regulatory inquiry management process;

(x) reviewing Master Servicer’s policies and procedures and process for updating such P&Ps; and,

(y) reviewing Master Servicer’s vendor management process and procedures, including for appraisers, environmental and engineering firms, attorneys, receivers, property managers and real estate agents;

(z) performing any other tasks outlined as “PennyMac Owner” or “PennyMac Owner Oversight” tasks in the Servicer Responsibility Matrix attached as an exhibit to the Midland Servicing Agreement;

(aa) reviewing Master Servicer’s process on Freddie Mac SBL Loan for monitoring the expiration dates of financing statements filed and recorded with respect to Freddie Mac’s perfected security interest in personal property and timely filing continuation statements;

(bb) to the extent not addressed in 3.01(z), performing any other post-purchase reporting tasks required by the Guide, preparing and executing remittance and reporting respecting Freddie Mac SBL Loan repurchases in compliance with Chapters 53 and 54 of the Guide, preparing and executing remittances due for Freddie Mac SBL Loan Defaulted Mortgages, reporting, no later than the 1st day of each month, a balance for the SBL Cash Collateral Account from the depository institution, and other mutually agreed services for the Freddie Mac SBL loans, all of the above subject to Oversight Servicer’s completion of the training required by Freddie Mac and in coordination with Master Servicer.

Section 3.02. Administrative Procedures . Owner and Oversight Servicer shall develop appropriate administrative procedures for coordinating with each other, reporting on Oversight Servicer’s results of work performed, and meeting with Owner from time to time to discuss Oversight Servicer’s recommendations regarding the Loan Servicing activities of Master Servicer.

Section 3.03. Additional Consulting Services . Oversight Servicer agrees to perform such additional consulting services related to the Loan Servicing as may be reasonably requested from time-to-time by Owner, subject to mutual agreement on an appropriate statement of work and additional fees for such services.

ARTICLE IV

COMPENSATION

Section 4.01 Oversight Servicing Fees . As compensation for services performed by Oversight Servicer under this Agreement, Owner will pay Oversight Servicer the fees set forth and calculated in accordance with attached Exhibit A (“Oversight Servicing Fees”). For the avoidance of doubt, such Oversight Servicing Fees shall be separate from and in addition to any compensation that PLS is entitled to under the Midland Servicing Agreement for acting as Special Servicer with respect to the PMSS Mortgage Loans.

Section 4.02 Reimbursement of Travel Expenses . During the term of this Agreement, Owner will reimburse Oversight Servicer for its actual, reasonable, out-of-pocket expenses for travel reasonably necessary in connection with work under this Agreement (e.g., visits to Master Servicer’s facilities). Oversight Servicer shall submit accurate and complete supporting documents for reimbursement of such expenses and shall follow any reasonable policies, requirements, or directions imposed by Owner in connection with such expenses.

Section 4.03 Invoices and Payments . Oversight Servicer shall deliver to Owner an invoice on or before the seventh (7th) calendar day of each month, accompanied by a report detailing the calculation of the Oversight Servicing Fees earned for the preceding calendar month (in a mutually agreed format). Owner will pay the Oversight Servicing Fees, as reflected on such invoice and report, to Oversight Servicer in immediately available funds on or before the eighteenth (18 th ) day of each calendar month, or the immediately preceding Business Day if the 18 th is not a Business Day. Each monthly payment shall also include reimbursement of any travel expenses of Oversight Servicer pursuant to Section 4.02 if Oversight Servicer submits the supporting documents to Owner on or before the seventh (7th) calendar day of such month.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Section 5.01 Representations and Warranties of Oversight Servicer . Oversight Servicer makes the following representations and warranties as of the date of this Agreement and as of each Servicing Transfer Date:

(a) Due Organization and Good Standing . Oversight Servicer is a limited liability company duly organized, validly existing, and in good standing under the laws of Delaware.

(b) Authority and Capacity . Oversight Servicer has all requisite organizational power, authority, and capacity to carry on its business as it is now being conducted, to execute and deliver this Agreement, and to perform all of its obligations hereunder.

Oversight Servicer does not believe, nor does it have any cause or reason to believe, that it cannot perform each and every covenant of Oversight Servicer contained in this Agreement.

(c) Effective Agreement . The execution, delivery, and performance of this Agreement by Oversight Servicer and consummation of the transactions contemplated hereby have been or will be duly and validly authorized by all necessary organizational or other action; and this Agreement is a valid and legally binding agreement of Oversight Servicer enforceable against Oversight Servicer in accordance with its terms, subject to bankruptcy, insolvency, and similar laws affecting generally the enforcement of creditors’ rights and the discretion of a court to grant specific performance.

(d) No Conflict . Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with its terms and conditions, will (a) violate, conflict with, result in the breach of, constitute a default under, be prohibited by, or require any additional approval under any of the terms, conditions, or provisions of the articles of incorporation, by-laws, or other organizational documents of Oversight Servicer, as applicable, or of any mortgage, indenture, deed of trust, loan or credit agreement, or other agreement or instrument to which Oversight Servicer is a party or by which Oversight Servicer is bound, or of any law, ordinance, rule, or regulation of any governmental authority applicable to Oversight Servicer, or of any order, judgment, or decree of any court or governmental authority applicable to Oversight Servicer, or (b) result in the creation or imposition of any lien, charge, or encumbrance of any nature upon the Mortgage Loans or the properties or assets of Oversight Servicer.

(e) Consents, Approvals and Compliance . Oversight Servicer has all licenses, approvals, permits, and other authorizations required under Accepted Servicing Practices to oversee servicing of the Mortgage Loans, and the same are in full force and effect, without notice of possible suspension, revocation, or impairment. Any requisite consents or approvals of other Persons to the execution and delivery of this Agreement, or the performance of the transactions contemplated hereby by Oversight Servicer, have been or will be obtained prior to the applicable Servicing Transfer Date or such other earlier or later date as expressly provided herein. Oversight Servicer has complied with, and is not in default under, any law, ordinance, requirement, regulation, rule, or order applicable to its business or properties, the violation of which might materially and adversely affect the operations or financial condition of Oversight Servicer or its ability to perform its obligations hereunder.

(f) Ordinary Course of Business . The transactions contemplated by this Agreement are in the ordinary course of business of Oversight Servicer.

(g) Litigation . There is no Action existing or pending, or to the best of Oversight Servicer’s knowledge, threatened, or any order, injunction, or decree outstanding, against or relating to Oversight Servicer that could have a material adverse effect upon: (i) the Mortgage Loans to be oversight serviced by Oversight Servicer hereunder; (ii) the performance by Oversight Servicer of its obligations under this Agreement.

(h) Authority of Oversight Servicer . Oversight Servicer’s execution and delivery of this Agreement has been (i) specifically approved by the Board of Directors of

Oversight Servicer, and such approval is reflected in the books and records of such Board of Directors, or (ii) approved by an officer of Oversight Servicer, who was duly authorized by the Board of Directors of Oversight Servicer to enter into such types of transactions and such authorization is reflected in the books and records of the Board of Directors.

(i) Insurance . Oversight Servicer has in full force and effect all insurance required to oversee servicing of the Mortgage Loans pursuant to Accepted Servicing Practices and as necessary to perform its obligations hereunder.

Section 5.02 Representations and Warranties of Owner . As an inducement to Oversight Servicer to enter into this Agreement, each Owner represents and warrants as to itself as of the date of this Agreement and each Servicing Transfer Date as follows:

(a) Due Organization and Good Standing . PennyMac Corp., as Owner, is duly organized, validly existing and in good standing as a corporation under the laws of the State of Delaware and has the power and authority to own its assets and to transact the business in which it is currently engaged. PennyMac Holdings, LLC, as Owner, is duly organized, validly existing and in good standing as a limited liability company under the laws of the State of Delaware and has the power and authority to own its assets and to transact the business in which it is currently engaged.

(b) No Violation of Organizational Documents or Agreements . The execution and delivery of this Agreement by each Owner, and the performance and compliance with the terms of this Agreement by each Owner, will not violate the Owner’s organizational documents or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material agreement or other instrument to which the Owner is a party or which is applicable to it or any of its assets.

(c) Full Power and Authority . Each Owner has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has duly authorized the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement.

(d) Binding Obligation . This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid, legal and binding obligation of each Owner, enforceable against the Owner in accordance with the terms hereof, subject to (A) applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights generally, and (B) general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law.

(e) No Violation of Law, Regulation or Order . Each Owner is not in violation of, and its execution and delivery of this Agreement and its performance and compliance with the terms of this Agreement will not constitute a violation of, any law, any order or decree of any court or arbiter, or, to the Owner’s knowledge, any order, regulation or demand of any federal, state or local governmental or regulatory authority, which violation, in the Owner’s good faith and reasonable judgment, is likely to affect materially and adversely either the ability of the Owner to perform its obligations under this Agreement or the financial condition of the Owner.

(f) No Material Litigation . No litigation is pending or, to the best of the Owner’s knowledge, threatened against the Owner that, if determined adversely to the Owner, would prohibit the Owner from entering into this Agreement or that, in the Owner’s good faith and reasonable judgment, is likely to materially and adversely affect either the ability of the Owner to perform its obligations under this Agreement or the financial condition of the Owner.

(g) No Consent Required . Any consent, approval, authorization or order of any court or governmental agency or body required under federal or state law for the execution, delivery and performance by the Owner of or compliance by the Owner with this Agreement or the consummation of the transactions contemplated by this Agreement has been obtained and is effective except where the lack of consent, approval, authorization or order would not have a material adverse effect on the performance by the Owner under this Agreement.

Section 5.03 Survival . The representations and warranties of set forth in this Article V shall survive the execution and delivery of this Agreement and each Servicing Transfer Date and shall continue in full force and effect after the termination date. Upon discovery by any party of any breach of any of the foregoing representations and warranties, such party shall give prompt written notice thereof to the other parties.

ARTICLE VI

TERM AND TERMINATION

Section 6.01 Term of the Agreement . The initial term of this Agreement shall be for the same three (3) year term as the Midland Servicing Agreement unless terminated earlier as provided in this Article VI (“Initial Term”). After the Initial Term, this Agreement shall renew automatically every 18 months for an additional 18 month period (an “Automatic Renewal Term”) unless the Owner or Oversight Servicer terminates this Agreement upon the expiration of the Initial Term or any Automatic Renewal Term and upon at least 90 days’ prior written notice to the Owner or Oversight Servicer, as applicable.

Section 6.02 Termination for Convenience . Owner may terminate this Agreement for convenience (i.e., for any reason or no reason) by giving Oversight Servicer written notice, (i) specifying termination in whole or in part as to a portion of the Mortgage Loans, as the case may be, and (ii) designating the termination date, which shall be not less than ninety (90) days after the date of such notice.

Section 6.03 Termination for Event of Default .

(a) By giving Oversight Servicer written notice and designating the termination date, which may be immediately on the date of such written notice, Owner may terminate this Agreement for an Event of Default by Oversight Servicer.

(b) Termination by Owner in connection with an Event of Default will be without prejudice to and with full reservation of any other rights and remedies available to Owner under this Agreement or at law or in equity.

(c) No termination fees will be payable in connection with any termination by Owner for an Event of Default by Oversight Servicer.

Section 6.04 Termination for Regulatory Event . Any party may terminate this Agreement in whole or in part by giving the other parties at least thirty (30) days’ prior written notice and designating the termination date if there is a Regulatory Event or changes are made to applicable law that would prohibit, prevent, or materially impair such party’s continuing this Agreement with the other party with respect to all or specific Mortgage Loans. Such termination will not be considered a termination for convenience or as a result of an Event of Default.

Section 6.05 Termination for Change in Oversight Servicer Circumstances .

(a) Owner may terminate this Agreement by notice to Oversight Servicer in the event of (a) a sale of a direct or indirect majority interest in Oversight Servicer to a non-affiliated Person, (b) a Change of Control of Oversight Servicer, or (c) a change in the corporate status of Oversight Servicer, including any merger or consolidation with any Person (other than any merger or consolidation (i) with respect to which Oversight Servicer will be the continuing Person, and (ii) if such merger or consolidation will not otherwise result in an Event of Default by Oversight Servicer hereunder).

(b) Owner’s written consent to a change in Oversight Servicer circumstances under this Agreement will constitute consent under all other agreements between Owner and Oversight Servicer concerning the servicing of the Mortgage Loans.

(c) Such termination will not be considered to be a termination for convenience or a termination in connection with an Event of Default.

Section 6.06 Other Termination Provisions . If a Mortgage Loan is repurchased by the originator, a prior servicer or other third party, this Agreement will automatically terminate with respect to such Mortgage Loan, and such termination will not be considered to be a termination for convenience or an Event of Default.

Section 6.07 Duties upon Termination; Transfer of Books, Records and Accounts . Regardless of the basis for termination or expiration of this Agreement (in whole or in part), commencing upon effectiveness of a notice of the termination of this Agreement, and continuing after the effective date of expiration or, if applicable, termination of this Agreement (as such effective date may be extended pursuant to Section 6.08), Oversight Servicer will provide reasonable assistance with the transfer of the Oversight Servicing to Owner or another designated Person. Oversight Servicer shall (i) deliver all books, records, documents, files, data tapes, and other information and data related to the Mortgage Loans to the Owner or other Persons designated by the Owner; and (ii) fully cooperate with the Owner and any new servicer to effectuate an orderly transition of Oversight Servicing of the related Mortgage Loans. Oversight Servicer will use commercially reasonable efforts to minimize Owner’s costs and management time resulting from the cessation of the terminated servicing and to minimize the implementation time for the transfer of the terminated servicing to Owner and/or its successor servicer or Oversight Servicer. Upon such termination, any Oversight Servicing Fees which remain unpaid shall be remitted by Owner to Oversight Servicer within ten (10) Business Days

after Owner’s receipt of an itemized invoice therefor. Such transfers and actions will be at Oversight Servicer’s expense, unless this Agreement is terminated by Owner in accordance with Section 6.02.

Section 6.08 Extension of Expiration or Termination Date . Oversight Servicer acknowledges that the services provided under this Agreement are vital to Owner and must continue without interruption during any transition period (except as otherwise directed by Owner) if Owner decides to perform such services itself or engage a successor servicer to perform them, or to provide an orderly wind-down of servicing in the event of a partial or complete cessation or termination of servicing with respect to any or all Mortgage Loans. To provide for orderly completion of such transition, Owner has the right to extend the effective date of termination or expiration one or more times as it elects, in its discretion, provided that the total of all such extensions will not exceed ninety (90) days following the original effective date of such termination or expiration. Owner will use commercially reasonable efforts to exercise this option by notice delivered to Oversight Servicer at least thirty (30) days before the upcoming expiration or termination date.

Section 6.09 Transfer of Mortgage Loans .

(a) The Oversight Servicer acknowledges that any or all of the Mortgage Loans may be sold, transferred, assigned or otherwise conveyed by the Owner to any third party without the consent or approval of the Oversight Servicer. Except as provided in Section 6.03, any such transfer shall constitute a termination of this Agreement with respect to such Mortgage Loans, subject to the Owner’s notice requirements under Section 6.02. Owner acknowledges that the Oversight Servicer shall not be obligated to perform Oversight Servicing with respect to such transferred Mortgage Loans for any third party unless and until the Oversight Servicer and such third party execute an oversight servicing agreement having terms which are mutually agreeable to Oversight Servicer and such third party.

(b) Until Oversight Servicer receives written notice from the Owner of the sale, transfer, assignment or conveyance of one or more Mortgage Loans, the Owner shall be presumed to be the owner and holder of such Mortgage Loans and Oversight Servicer shall continue to earn Oversight Servicing Fees with respect to such Mortgage Loans.

ARTICLE VII

INDEMNIFICATION

Section 7.01 Indemnification by Oversight Servicer . Oversight Servicer will indemnify and hold Owner, its directors, officers, and employees, harmless from, and will reimburse Owner, its directors, officers, and employees for, any and all Losses incurred to the extent that such Losses arise out of, relate to, or result from any breach of any representation or warranty of Oversight Servicer hereunder or the material breach of any term, covenant, condition, agreement, or obligation of Oversight Servicer set forth in this Agreement, or in any schedule, exhibit, or certificate furnished pursuant hereto. Notwithstanding any provision to the contrary, Oversight Servicer will have no obligation to indemnify or hold Owner harmless from and against that portion of any claim for indemnification that arises from any fact or circumstance for which Oversight Servicer is entitled to indemnification by Owner pursuant to Section 7.02. Further,

Owner will not enforce against Oversight Servicer any indemnity obligation with respect to (i) Losses relating to any representations and warranties made by a third party and related to the sale or origination of the Mortgage Loans, or (ii) any servicing deficiencies, to the extent any servicing deficiency is caused solely by any action or failure of the prior servicer or Master Servicer. Notwithstanding the foregoing, Oversight Servicer will be liable to the extent of any Losses caused by Oversight Servicer’s failure to notify Owner of such Losses as required by this Agreement and Accepted Servicing Practices and will take any corrective action requested by Owner, to the extent any such corrective action is reasonably able to be taken by Oversight Servicer, or for any other failure in Oversight Servicer’s performance of its responsibilities on or after the applicable Servicing Transfer Date.

Section 7.02 Indemnification by Owner . Owner will indemnify and hold Oversight Servicer harmless from, and will reimburse Oversight Servicer for, all Losses incurred to the extent that such Losses arise out of, relate to, or result from the following: (i) the breach of any term, covenant, condition, agreement, or obligation of Owner set forth in this Agreement or in any schedule, exhibit, or certificate furnished pursuant hereto; (ii) any acts or omissions of the Master Servicer or prior servicer relating to the Mortgage Loans except to the extent that Oversight Servicer was a contributing cause; (iii) a claim by a Borrower or any other party to a Mortgage Loan to the extent that such claim arises solely out of alleged acts or omissions of the Master Servicer or prior servicer or any party in connection with the origination or servicing of such Borrower’s Mortgage Loan and except to the extent that Oversight Servicer was a contributing cause; or (iv) subject to Oversight Servicer’s performance under this Agreement and its reasonable effort to avoid such claim: (A) the failure of the information contained in a Mortgage Loan Schedule or other data or information provided by or on behalf of Owner to be true and complete in all material respects, (B) Owner, the Master Servicer or the prior servicer’s failure to provide information regarding the Mortgage Loans, or (C) a data integrity failure with respect to data provided by or on behalf of Owner, Master Servicer or a prior servicer.

Section 7.03 Notice of Indemnifiable Actions .

(a) Each party to this Agreement will promptly (but in all cases within ten (10) days) notify the other party in writing of the existence of any matter known to it giving rise to any obligation of the other party under this Article VII and, in the case of any Action brought by a third party which may give rise to any such obligation, each party will promptly (but in all cases within ten (10) days) notify the other party of the commencement of such Action as and when same becomes known to it. Subject to Section 7.05, the indemnifying party (the “Indemnifying Party”) may, at its own cost and expense, assume and control the defense of any third-party Action, including, without limitation, the right to designate counsel and to control all negotiations, litigation, settlements, compromises, and appeals of any such claim or potential claim; provided, however, that the counsel is reasonably satisfactory to the indemnified party (“Indemnified Party”) in the exercise of its reasonable discretion. The party not controlling the defense or prosecution of any such third-party Action may participate at its own cost and expense. Following the full discharge of the Indemnifying Party’s obligations, the Indemnified Party will, subject to Accepted Servicing Practices or other requirements of Owner, assign to the Indemnifying Party any and all related claims against third parties. Subject to Accepted Servicing Practices, promptly after receipt, the Indemnified Party will refund to the Indemnifying

Party the amounts of all recoveries received by the Indemnified Party with respect to any Action with respect to which it was also reimbursed for Losses by the Indemnifying Party.

(b) Following receipt of written notice from the Indemnified Party of a demand for indemnification, the Indemnifying Party will seek to cure the problem giving rise to the demand, if possible, and pay the amount for which it is liable, or otherwise take the actions which it is required to take within thirty (30) days or such other time as may be required by Owner or other third-party claimant. As to any claim for indemnity for which notice is given as herein provided, the corresponding obligation of indemnity will continue to survive until whichever of the following events first occurs: (i) the Indemnifying Party will have discharged its obligation of indemnity to the Indemnified Party with respect to such claim, as required hereunder; (ii) a court of competent jurisdiction will have finally determined that the Indemnifying Party is not liable to the Indemnified Party with respect to such claim; or (iii) the Indemnified Party will have released in writing (or be held by a court of competent jurisdiction to have released) the Indemnifying Party from any liability with respect to such claim.

Section 7.04 Mitigation of Losses . An Indemnified Party will, to the extent practicable and reasonably within its control, make good faith efforts to mitigate any Losses of which it has adequate notice, provided that an Indemnified Party will not be obligated to act in a manner which it reasonably believes is adverse to its own best interests. Except to the extent required by Accepted Servicing Practices, nothing in this Article VII will be construed as obligating any party to this Agreement to sue any third party.

Section 7.05 Control of Actions .

(a) Owner will have the right to assume some or all of the control or defense of any Action, including by transfer of some or all of the control or defense of such Action to the prior servicer or other third party settlement; provided, however, that the Owner shall not enter into any settlement that obligates Oversight Servicer to take any action, incur any expense, or make any admission of guilt without Oversight Servicer’s prior written consent, and further provided that Oversight Servicer shall have the right to be represented by independent counsel of their own choosing, at their own cost and expense, in connection with such claim or suit. In connection therewith, Oversight Servicer will make available such information and assistance as Owner or such prior servicer or other third party may reasonably request, including any witnesses, pertinent records, materials, and information in Oversight Servicer’s possession or under Oversight Servicer’s control.

(b) If Oversight Servicer retains control over the defense of an Action as permitted herein, Oversight Servicer and Owner (and to the extent requested by Owner, the prior servicer or other third party) will confer in good faith, and Oversight Servicer will reasonably consider suggestions from Owner and its counsel regarding the control or defense of the Action. The parties may jointly agree upon counsel reasonably acceptable to such parties to represent them to defend the Action, and when appropriate, will enter into joint defense agreements for retaining joint counsel. Oversight Servicer will follow any directions from Owner to bill all or any portion of the Losses or any cost or expenses of the defense of such Action to a third party, provided that Owner will remain liable for such amounts to the extent provided in this Agreement.

ARTICLE VIII

DEFAULT

Section 8.01 Events of Default .

(a) The following shall constitute an Event of Default under this Agreement on the part of the Oversight Servicer:

(i) the failure by the Oversight Servicer duly to observe or perform in any material respect any other covenant or agreement on the part of the Oversight Servicer set forth in this Agreement that has not been remedied for a period of thirty (30) days after the date on which notice of such failure is given to the Oversight Servicer by the Owner; provided, however, that, with respect to any such failure that is susceptible to cure but not curable within such 30-day period, Oversight Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as Oversight Servicer has commenced to cure such failure within the initial 30-day period, Oversight Servicer is diligently pursuing a full cure, and Oversight Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner;

(ii) any breach of any representation or warranty on the part of Oversight Servicer set forth in this Agreement that has not been remedied for a period of thirty (30) days after the date on which notice of such breach, requiring the same to be remedied, is given to Oversight Servicer by the Owner; provided, however, that, with respect to any such breach that is susceptible to cure but not curable within such 30-day period, Oversight Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as Oversight Servicer has commenced to cure such failure within the initial 30-day period, Oversight Servicer is diligently pursuing a full cure and Oversight Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner;

(iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, shall have been entered against Oversight Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days;

(iv) Oversight Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to Oversight Servicer or of or relating to all or substantially all of its property;

(v) Oversight Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations;

(vi) Oversight Servicer fails to maintain its license to do business or service residential mortgage loans in any jurisdiction where the Mortgaged Properties are located for more than ninety (90) days after receiving notice from any Person thereof, provided that such failure shall not constitute an Event of Default if, prior to the expiration of such ninety (90) day period, the Oversight Servicer transfers the affected Mortgaged Properties to an oversight servicer that (A) satisfies the licensing requirements for the jurisdiction where such Mortgaged Properties are located and (B) is reasonably acceptable to Owner; or

(vii) without the prior consent of the Owner or as expressly permitted or required by the other provisions of this Agreement, Oversight Servicer attempts to assign this Agreement or its right to servicing compensation hereunder, or to delegate its duties hereunder, in each case whether in whole or in part, or Oversight Servicer sells or otherwise disposes of all or substantially all of its property or assets.

In each and every such case, so long as an Event of Default shall not have been remedied, in addition to whatever rights the Owner may have at law or equity to damages, including injunctive relief and specific performance, the Owner, by notice in writing to Oversight Servicer, may terminate without compensation all the rights and obligations of Oversight Servicer under this Agreement.

(b) In case one or more Events of Default by Oversight Servicer occur and shall not have been remedied, the Owner, by notice in writing to Oversight Servicer, shall be entitled, in addition to whatever rights the Owner may have at law or equity to damages, including injunctive relieve and specific performance, to terminate all the rights and obligations of Oversight Servicer under this Agreement, by notice in writing to Oversight Servicer and without payment of any other compensation; provided, however, that Oversight Servicer shall continue to be obligated to pay and entitled to receive all amounts accrued or owing by or to it under this Agreement on or prior to the date of such termination, whether in respect of Oversight Servicing Fees or otherwise and such amounts shall be due and payable at the times and in the manner as if Oversight Servicer were not terminated. Upon receipt by Oversight Servicer of such written notice, all authority and power of Oversight Servicer under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the Owner or any successor appointed by the Owner. Upon written request from the Owner, Oversight Servicer shall prepare, execute and deliver any and all documents and other instruments, place in such successor’s possession all Mortgage Files to the extent provided to Oversight Servicer, and do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise, at Oversight Servicer’s sole expense or as otherwise consistent with Accepted Servicing Practices. Oversight Servicer agrees to cooperate with the Owner and such successor in effecting the termination of Oversight Servicer’s responsibilities and rights hereunder.

Section 8.02 Waiver of Defaults . The Owner may waive in writing any default by Oversight Servicer in the performance of its obligations hereunder and its consequences. Upon any such written waiver of a default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement.

No such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon except to the extent expressly so waived.

ARTICLE IX

MISCELLANEOUS PROVISIONS

Section 9.01 Entire Agreement; Amendment . This Agreement, including all documents and exhibits incorporated by reference, together with the Midland Servicing Agreement, constitute the entire agreement between the parties with respect to servicing of the Mortgage Loans. All prior negotiations or representations of the parties are merged into this Agreement and shall have no force or effect unless expressly stated herein. This Agreement may be amended and any provision hereof waived, but, only in writing signed by the party against whom such enforcement is sought.

Section 9.02 Governing Law . This Agreement and any claim, controversy or dispute arising under or related to or in connection with the Agreement, the relationship of the parties, and/or the interpretation and enforcement of the rights and duties of the parties will be governed by the laws of the State of New York (without regard to conflicts of laws principles other than sections 5-1401 and 5-1402 of the New York general obligations law), except to the extent preempted by federal law.

Section 9.03 Notices . All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given upon the delivery or mailing thereof, as the case may be, sent by registered or certified mail, return receipt requested:

If to the Owner to:

PennyMac Corp.

Attn: Chief Operating Officer

3043 Townsgate Road

Westlake Village, California 91361

PennyMac Holdings, LLC

Attn: Chief Operating Officer

3043 Townsgate Road

Westlake Village, California 91361

With a copy to:

PennyMac Operating Partnership, L.P.

Attn: General Counsel

3043 Townsgate Road

Westlake Village, California 91361

If to the Oversight Servicer:

PennyMac Loan Services, LLC

Attn: Director, Servicing Operations

3043 Townsgate Road

Westlake Village, California 91361

With a copy to:

PennyMac Loan Services, LLC

Attn: General Counsel

3043 Townsgate Road

Westlake Village, California 91361

Section 9.04 Severability of Provisions . If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenant(s), agreement(s), provision(s) or term(s) shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.

Section 9.05 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

Section 9.06 Relationship of Parties . Nothing herein contained shall be deemed or construed to create a partnership or joint venture between the parties. The duties and responsibilities of Master Servicer or Special Servicer shall be rendered by it as an independent contractor and not as an agent of the Owner. Master Servicer or Special Servicer shall have full control of all of its acts, doings, proceedings, relating to or requisite in connection with the discharge of its duties and responsibilities under this Agreement.

Section 9.07 Attorneys’ Fees . If any claim, legal action or any arbitration or other proceeding is brought for the enforcement of the Agreement or because of a dispute, breach, default or misrepresentation in connection with any of the provisions of the Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that claim, action or proceeding, in addition to any other relief to which such party may be entitled.

Section 9.08. Confidentiality . Each party understands that certain information which it has been furnished and will be furnished in connection with the Agreement, including information concerning business procedures, servicing fees or prices, Non Public Personal Information and/or Personally Identifiable Financial Information (as those terms are defined in Regulations on Privacy of Consumer Information published at 12 C.F.R. Sections 43(m) and (o)), policies or plans of the other party or any of its Affiliates, is confidential and proprietary, and each party agrees that it will maintain the confidentiality of such information and will not disclose it to others (except for its Affiliates and its and their respective directors, managers, officers, employees, financing sources, agents, representatives and advisors who have a need to know such information) or use it, except in connection with this Agreement or as such party reasonably determines necessary as a part of its filing of Securities and Exchange Commission Forms 8-K, 10-Q or 10-K as related to disclosures to investors, without the prior written consent of the party furnishing such information. Information which is publicly known or which has been disclosed to the other party by third parties who have a right to do so shall not be deemed confidential or proprietary information for these purposes. If any party, or any of its Affiliates or any officer, director, employee or agent of any of the foregoing is at any time requested or

required to disclose any information supplied to it in connection with the Agreement, such party agrees to provide the affected party with prompt notice of such request(s) so that the affected party may seek an appropriate protective order and/or waive notifying party’s compliance with the terms of this Section 9.08. Notwithstanding the terms of this Section 9.08, if, (i) in the absence of a protective order or the receipt of a waiver, a party is nonetheless, in the opinion of its counsel, legally compelled to disclose information concerning another party or else stand liable for contempt or suffer other censure or penalty, or (ii) such request for disclosure is made by a governmental entity, the party may disclose such information without liability hereunder. Following termination of this Agreement, each party agrees to promptly return to the other, immediately upon request, all confidential materials, and all copies thereof, which have been furnished to it in connection with this Agreement.

Section 9.09 Cooperation of Oversight Servicer with a Reconstitution .

(a) Oversight Servicer and Owner agree that with respect to some or all of the Mortgage Loans, on one or more dates (each a “Reconstitution Date”), at the Owner’s sole option, the Owner may effect a sale (each, a “Reconstitution”) of some or all of the Mortgage Loans then subject to this Agreement and the Midland Servicing Agreement, without recourse, to:

(i) Fannie Mae or Freddie Mac in one or more Whole Loan Transfers with respect to multifamily Mortgage Loans, which Reconstitution with respect to Freddie Mac SBL Loans shall also include a subsequent Public Securitization Transaction;

(ii) one or more other third-party purchasers in one or more Whole Loan Transfers;

(iii) one or more trusts or other entities to be formed as part of one or more Private Securitization Transactions; or

(iv) one or more trusts or other entities to be formed as part of one or more Public Securitization Transactions.

(b) With respect to each Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, as the case may be, entered into by the Owner, Oversight Servicer shall:

(i) upon request of the Owner or, in the case of Freddie Mac SBL Loans, in the absence of a written notice to Oversight Servicer to the contrary, continue to provide oversight for the servicing of the Mortgage Loans included in such Reconstitution pursuant to a pooling and servicing agreement or other agreement;

(ii) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, provide as applicable:

(A) information pertaining to Oversight Servicer of the type and scope customarily included in offering documents for commercial mortgage-backed securities transactions involving single or multiple loan originators including

information regarding financial condition and mortgage loan delinquency, foreclosure and loss experience or other information as is otherwise reasonably requested by the Owner, and to deliver to the Owner any non-public, unaudited financial information, in which case the Owner shall bear the cost of having such information audited by certified public accountants if the Owner desires such an audit, or as is otherwise reasonably requested by the Owner and which Oversight Servicer is capable of providing without unreasonable effort or expense (collectively “Servicer Information”), and to indemnify the Owner and its affiliates for material misstatements or omissions contained in Oversight Servicer Information; provided, however, Owner shall indemnify and hold harmless Oversight Servicer and its affiliates for material misstatements or omissions contained in all other information in any offering document, other than Servicer Information; and

(B) such opinions of counsel, letters from auditors, and certificates of officers of Oversight Servicer as are reasonably believed necessary by the trustee, any rating agency or the Owner, as the case may be, in connection with such Private Securitization Transaction or Public Securitization Transaction. The Owner shall pay all third party costs associated with the preparation of the information described in clause (ii)(A) above and the delivery of any opinions (other than opinions by in-house counsel), letters or certificates described in this clause (ii)(B).

(iii) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, aid in the negotiation and execution of one or more custodial agreements among the Owner, Master Servicer or Special Servicer and a third party custodian/trustee which is generally considered to be a prudent custodian/trustee in the secondary mortgage market designated by the Owner in its sole discretion after consultation with Oversight Servicer, Master Servicer or Special Servicer, in each case for the purpose of pooling the Mortgage Loans with other Mortgage Loans for resale or securitization; and

(iv) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, (1) cooperate fully with the Owner, any prospective purchaser, any Rating Agency or any party to any agreement to be executed in connection with such Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, with respect to all reasonable requests and due diligence procedures, including participating in meetings with Rating Agencies, bond insurers and such other parties as the Owner shall designate and participating in meetings with prospective purchasers of the Mortgage Loans or interests therein and providing information reasonably requested by such purchasers; (2) to execute, deliver and perform all reconstitution agreements required by the Owner, and to use its best reasonable, good faith efforts to facilitate such Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, as the case may be; (3) (a) to restate the representations and warranties set forth in this Agreement as of the Reconstitution Date which shall not be materially more onerous than those required under this Agreement or (b) make the representations and warranties with respect to the

oversight of the servicing of the Mortgage Loans set forth in the related selling/servicing guide of the master servicer or issuer, as the case may be, or such representations and warranties with respect to the oversight of the servicing of the Mortgage Loans as may be required by any Rating Agency or prospective purchaser of the related securities or such Mortgage Loans, in connection with such Reconstitution; provided, however, that such representations and warranties shall not be materially more onerous than those required under this Agreement. Master Servicer or Special Servicer shall use its reasonable best efforts to provide to such master servicer or issuer, as the case may be, and any other participants in such Reconstitution: (i) any and all information and appropriate verification of information which may be reasonably available to Master Servicer or Special Servicer or its affiliates, whether through letters of its auditors and counsel or otherwise, as the Owner or any such other participant shall reasonably request and (ii) subject to the provisions of this Section 9.09(b), to execute, deliver and satisfy all conditions set forth in any indemnity agreement required by the Owner or any such participant; provided that Master Servicer or Special Servicer is given an opportunity to review and reasonably negotiate in good faith provisions of such indemnity.

(c) Any execution of a pooling and servicing agreement or reconstitution agreement by Oversight Servicer shall be conditioned on Oversight Servicer receiving the Oversight Servicing Fees, or such other servicing fees and compensation acceptable to Oversight Servicer. All Mortgage Loans not sold or transferred pursuant to a Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction shall be subject to this Agreement and shall continue to be overseen in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect. Notwithstanding any provision to the contrary in this Agreement, if Oversight Servicer is performing oversight servicing with respect to a Reconstitution, the Owner agrees that in such Reconstitution any performance termination triggers shall be substantially similar to those contained in this Agreement or the Freddie Mac Guide, if applicable, or otherwise subject to approval by Oversight Servicer in its reasonable discretion.

Section 9.10 Article and Section Headings . The article and section headings in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof.

Section 9.11 Counterparts . This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.

Section 9.12 Trademarks . Owner and Oversight Servicer agree that they and their employees, subcontractors and agents, shall not, without the prior written consent of the other party in each instance, (i) use in advertising, publicity or otherwise the name of each and every other party to this Agreement or their Affiliates or any of their managing directors, partners or employees, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned by the other party or their Affiliates, or (ii) represent, directly or indirectly, any product or any service provided by Owner and Oversight Servicer as approved or endorsed by the other parties to this Agreement or their Affiliates.

Section 9.13 WAIVER OF TRIAL BY JURY . OVERSIGHT SERVICER AND OWNER EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.14 LIMITATION OF DAMAGES . NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE PARTIES AGREE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE, PROVIDED, HOWEVER, THAT SUCH LIMITATION SHALL NOT BE APPLICABLE WITH RESPECT TO THIRD PARTY CLAIM MADE AGAINST A PARTY.

Section 9.15 SUBMISSION TO JURISDICTION; WAIVERS . OVERSIGHT SERVICER AND OWNER EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY:

(a) SUBMITS FOR ITSELF IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT OF CALIFORNIA AND APPELLATE COURTS FROM ANY THEREOF;

(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

(c) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement by their respective officers duly authorized as of the date first above written.


PENNYMAC CORP., a Delaware corporation

(Owner)


By:	/s/ Vandad Fartaj
	Name:	Vandad Fartaj
	Title:	Senior Managing Director and
		Chief Investment Officer


PENNYMAC HOLDINGS, LLC, a Delaware limited
liability company

(Owner)


By:	/s/ Andrew S. Chang
	Name:	Andrew S. Chang
	Title:	Senior Managing Director and
		Chief Business Development Officer


PENNYMAC LOAN SERVICES, LLC, a Delaware
limited liability company

(Oversight Servicer)


By:	/s/ Steven F. Skolnik
	Name:	Steven F. Skolnik
	Title:	Managing Director, Commercial Lending

EXHIBIT A

OVERSIGHT SERVICING FEES

Monthly Oversight Servicing Fee: An amount equal to the product of (a) the aggregate outstanding principal balance of Mortgage Loans as of the first day of each month subject to the Midland Servicing Agreement during such month, times (y) 0.05% (5 basis points) divided by (z) twelve (12).

EXHIBIT B

FORM OF POWER OF ATTORNEY

LIMITED POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

THAT, PENNYMAC CORP., a Delaware corporation, as an Owner, and PENNYMAC HOLDINGS, LLC, a Delaware limited liability company, as an Owner (“ Owners ”), by these presents do hereby make, constitute and appoint PENNYMAC LOAN SERVICES, LLC (“ Oversight Servicer ”), a Delaware limited liability company, Owners’ true and lawful agent and attorney-in-fact, and hereby grant it authority and power to take, through its duly authorized officers and designated agents, the Actions (as such term is defined herein) in Owners’ name, place and stead. This limited power of attorney (“ Limited Power of Attorney ”) is given in connection with, and relates solely to that certain Commercial Mortgage Servicing Oversight Agreement dated as of November [_], 2015, between Owners and Oversight Servicer , under the terms of which Oversight Servicer shall oversee the servicing activities of Midland Loan Services, a Division of PNC Bank, National Association “(Midland”) under a Servicing Agreement dated July 13, 2015 among Midland, Owners and Oversight Servicer (“Midland Servicing Agreement”). Pursuant to the Midland Servicing Agreement, Owners engaged Midland to act as the Master Servicer of Mortgage Loans that the Owners acquire or originate from time to time and as the Special Servicer with respect to certain of those Mortgage Loans as defined in the Midland Servicing Agreement.

As used above, the term “Actions” shall mean and be limited to the following acts, in each case only with respect to any of the Mortgage Loans and only as mandated or permitted by federal, state or local laws or other legal requirements or restrictions:

1. Execute or file any documents necessary and appropriate to authorize or consent to Midland’s performance of actions respecting any Mortgage Loan;

2. Correct or otherwise remedy any errors or deficiencies contained in any transfer or reconveyance documents provided or prepared by Owner, Master Servicer or a prior transferor, including, but not limited to note indorsements;

3. Execute or file quitclaim deeds or, only where necessary and appropriate, special warranty deeds or other deeds causing the transfer of title to a third party, in respect of property acquired through a foreclosure or deed-in-lieu of foreclosure (“REO Property”);

4. Execute and deliver documentation with respect to the marketing and sale of REO Property, including: eviction notices, listing agreements, purchase and sale agreements, escrow instructions, HUD-1 settlement statements, and any other document necessary to effect the transfer of REO Property.

5. To execute, acknowledge, seal and deliver deed of trust/mortgage note endorsements, lost note affidavits, assignments of deed of trust/mortgage and other recorded documents, satisfactions/releases/reconveyances of deed of trust/mortgage, subordinations and modifications, tax authority notifications and declarations, deeds, bills of sale, and other instruments of sale, conveyance, and

transfer, appropriately completed, with all ordinary or necessary endorsements, acknowledgments, affidavits, and supporting documents as may be necessary or appropriate to effect its execution, delivery, conveyance, recordation or filing.

6. To execute and deliver insurance filings and claims, affidavits of debt, substitutions of trustee, substitutions of counsel, non military affidavits, notices of rescission, foreclosure deeds, transfer tax affidavits, affidavits of merit, verifications of complaints, notices to quit, bankruptcy declarations for the purpose of filing motions to lift stays, and other documents or notice filings on behalf of Owner in connection with insurance, foreclosure, bankruptcy and eviction actions.

7. To endorse any checks or other instruments received by the Oversight Servicer and made payable to either Owner.

8. To pursue any deficiency, debt or other obligation, secured or unsecured, including but not limited to those arising from foreclosure or other sale, promissory note or check. This power also authorizes the Servicer to collect, negotiate or otherwise settle any deficiency claim, including interest and attorney’s fees.

9. To do any other act or complete any other document that arises in the normal course of oversight servicing of all Mortgage Loans and REO Properties, as defined in, and subject to the terms of the Midland Servicing Agreement.

With respect to the Actions, Owner gives to said attorney-in-fact full power and authority to execute such instruments and to do and perform all and every act and thing requisite, necessary and proper to carry into effect the power or powers granted by or under this Limited Power of Attorney as fully, to all intents and purposes, as the undersigned might or could do, and hereby does ratify and confirm all that said attorney-in-fact shall lawfully do or cause to be done by authority hereof.

Nothing contained herein shall be construed to grant Servicer the power to (i) initiate or defend any suit, litigation, or proceeding in the name of Owners or be construed to create a duty of Owners to initiate or defend any suit, litigation, or proceeding in the name of Servicer, (ii) incur or agree to any liability or obligation in the name of or on behalf of Owners, or (iii) execute any document or take any action on behalf of, or in the name, place, or stead of, Owners, except as provided herein. This Limited Power of Attorney is entered into and shall be governed by the laws of the State of New York without regard to conflicts of law principles of such state.

[ Remainder of page intentionally left blank .]

IN WITNESS WHEREOF , the Owners has executed this Limited Power of Attorney this ____ day of November, 2015.


	PENNYMAC CORP.

	By:
	Title:

	PENNYMAC HOLDINGS, LLC

	By:
	Title:


	Witness:
	Name:
	Title:


	Witness:
	Name:
	Title:


A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA


COUNTY OF _________________)

On _________________________ before me, __________________________________________________
	(insert name and title of the officer)

Personally appeared ___________________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ (Seal)

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

EXHIBIT 10.25

AMENDMENT NO. 6

TO SECOND AMENDED AND RESTATED

FLOW SERVICING AGREEMENT

Amendment No. 6 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2016 (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 this 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. Exhibits .

1.1 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.

2.1 Exhibit 11 is hereby added to the Existing Servicing Agreement in the form attached hereto as Exhibit B.

SECTION 2. 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:

2.1 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:

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

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

2.2 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 3. 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 4. 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 5. 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 6. 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:	Senior Managing Director and
		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:	Senior Managing Director and
		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;

(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.

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)

(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.

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

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 Lease Renewal Fee : $100 per lease renewed.

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 directly those property management services identified on Schedule [x] to the Agreement .

REO Property Tenant Paid Fees : Servicer may retain any tenant paid application fee or late rent fee.

REO Property Third-Party Vendor Fees : In the event Servicer provides property management services directly, Servicer may charge Owner the Servicer's cost for support services provided by any third-party vendor that arise out of Servicer’s property management services. Such fees may include, but are not limited to, related software, real estate broker marketing, eviction and inspection services, as well as leasing fees to the real estate broker.

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 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.

Exhibit B

PROPERTY MANAGEMENT SERVICES

For purposes of this Servicing Agreement, REO Property Management Services may include:

LEASING SERVICES .

Market Rental Property;

Show Rental Property;

Qualify Tenant;

Lease Property;

Coordinate Move-In;

Manage Security Deposit; and

Perform Move-Out Inspection.

PROPERTY MANAGEMENT SERVICES .

Collect Rent;

Manage Evictions;

Respond to Tenant Inquiries;

Maintain Property;

Perform Routine Maintenance; and

Manage Unit Turnover.

ASSET MANAGEMENT SERVICES

Initial and On-Going Property Preservation Services;

Remediation Services;

Utilities and Home Owner Association Management;

Code Violations Management and Mitigation;

Property Tax Management Services;

Legal Eviction Program Management;

Provision of Cash-For-Relocation Program Management;

Valuation Services;

Authorization of Repairs and Improvements; and

Property and Casualty Insurance Services .

RENOVATION SERVICES

Provision of Renovation Services;

Initial Property Screening Assessment;

Renovation Estimate Assessment;

Property Onboarding Assessment;

Scope of Work;

Final Scope of Work;

Management of Change Orders; and

Inspection for Turnover to Leasing.

PROPERTY PRESERVATION AND INSPECTION SERVICES

Provision of Property Preservation and Inspection Services;

Communications to Owner of Property Conditions, Preservation Activities and Repairs at Properties;

Document Retention;

Property Occupancy Inspection;

Other Inspections As Needed and As Determined By Servicer;

Lawn Maintenance;

Pool Maintenance;

Debris and Hazard Removal;

Discoloration Remediation;

Health and Life Safety Issue Remediation; Miscellaneous Preservation Activities;

Code Violation Management and Mitigation;

Management of Utilities and Home Owner Association;

Marketing Signs.

INSURANCE SERVICES

Standard Property and Casualty Insurance Services; and

Claims Management and Loss Mitigation Services.

Exhibit 10.70

EXECUTION

AMENDMENT NUMBER FOURTEEN

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 FOURTEEN (this “ Amendment Number Fourteen ”) is made this 25th day of July, 2016, 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 has requested to renew the term of the Agreement and that Buyer agree to amend the Agreement 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 July 25, 2016 (the " Amendment Effective Date "):

(a) Section 2 of the Agreement is hereby amended by adding the definitions of “Par Margin Amount” and "Par Margin Percentage" in the appropriate alphabetical order as follows:

“ Par Margin Amount ” means, with respect to any Transaction, as of any date of determination, the amount obtained by application of the Par Margin Percentage to the Repurchase Price for such Transaction as of such date.

“ Par Margin Percentage ” shall have the meaning assigned thereto in the Pricing Side Letter.

(b) Section 6(a) of the Agreement is hereby amended by deleting the section in its entirety and replacing it with the following (bold added for emphasis):

If at any time either (i) the aggregate Market Value of all Purchased Loans subject to all Transactions is less than the aggregate MV Margin Amount for all such Transactions, or (ii) the aggregate unpaid principal balance of the Purchased Loans subject to all Transactions is less than the aggregate Par Margin Amount for all such Transactions, (either such event, a “ Margin Deficit ”), then Buyer may, by notice to Seller, require Seller in such Transactions to transfer to Buyer cash within the time period specified in clause (b) below, so that both (x) the cash and aggregate Market Value of the

Purchased Loans will thereupon equal or exceed such aggregate MV Margin Amount and (y) the cash and unpaid principal balance of such Purchased Loans, will thereupon equal or exceed such aggregate Par Margin Amount (either such requirement, a “ Margin Call ”). Buyer shall deposit such cash into a non-interest bearing account until the next succeeding Repurchase Date. Notwithstanding the foregoing, Buyer may elect in its sole discretion to permit Seller to transfer to Buyer additional Eligible Loans (“ Additional Purchased Loans ”) for no additional consideration or a combination of cash and Additional Purchased Loans, to cure a Margin Deficit, in either case within the time period set forth in clause (b) below.

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 Fourteen (including any Commitment Fee or 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 Fourteen shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT NUMBER FOURTEEN 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 Fourteen 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 Fourteen 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]

IN WITNESS WHEREOF, Seller and Buyer have caused this Amendment Number Fourteen 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:	Managing Director, 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:	Managing Director, Treasurer

Amendment Number Fourteen to Master Agreement PLS-Agency

Exhibit 10.91

EXECUTION COPY

AMENDMENT NUMBER SEVEN

to the

MASTER REPURCHASE AGREEMENT

Dated as of July 2, 2013,

among

PENNYMAC LOAN SERVICES, LLC,

MORGAN STANLEY BANK. N.A.

and

MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC

This AMENDMENT NUMBER SEVEN (this “ Amendment Number Seven ”) is made this 26 th day of July, 2016, among PENNYMAC LOAN SERVICES, LLC a Delaware limited liability company, as seller (“ Seller ”), MORGAN STANLEY BANK, N.A., a national banking association, as buyer (“ Buyer ”) and MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC, a New York limited liability company, as agent for Buyer (“ Agent ”), to the Master Repurchase Agreement, dated as of July 2, 2013, 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, Buyer and Agent have agreed to amend the Agreement to extend the Termination Date thereunder, as more specifically set forth herein; and

WHEREAS, as of the date hereof, Seller represents to Buyer and Agent that Seller is 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 1. Amendment . Effective as of July 26, 2016 (the “ Amendment Effective Date ”), the defined term "Termination Date" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows:

“Termination Date” shall mean August 26, 2016 or such earlier date on which this Repurchase Agreement shall terminate in accordance with the provisions hereof or by operation of law.

Section 2. Defined Terms . Any terms capitalized but not otherwise defined herein shall have the respective meanings set forth in the Agreement.

Section 3. Effectiveness . This Amendment Number Seven shall become effective as of the date that the Agent shall have received:

(a) counterparts hereof duly executed by each of the parties hereto, and

(b) counterparts of that certain Amendment Number Six to the Pricing Side Letter, dated as of the date hereof, duly executed by each of the parties thereto.

Section 4. Fees and Expenses . Seller agrees to pay to Buyer and Agent all reasonable out of pocket costs and expenses incurred by Buyer or Agent in connection with this Amendment Number Seven (including all reasonable fees and out of pocket costs and expenses of Buyer’s or Agent’s legal counsel) in accordance with Section 13.04 and 13.06 of the Agreement.

Section 5. Representations . Seller hereby represents to Buyer and Agent that as of the date hereof and taking into account the terms of this Amendment Number Seven, Seller is 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 6. Binding Effect; Governing Law . This Amendment Number Seven shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT NUMBER SEVEN 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 7. Counterparts . This Amendment Number Seven 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 8. 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 Seven 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]

IN WITNESS WHEREOF, Seller, Buyer and Agent have caused this Amendment Number Seven 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:		Managing Director, Treasurer


MORGAN STANLEY BANK, N.A.
(Buyer)


By:	/s/ Christopher Schmidt
Name:		Christopher Schmidt
Title:		Authorized Signatory


MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC
(Agent)


By:	/s/ Todor Glogov
Name:		Todor Glogov
Title:		Vice President

Amendment Number Seven to Master Repurchase Agreement

Exhibit 10.96

EXECUTION

AMENDMENT NO. 3
TO MORTGAGE LOAN PARTICIPATION PURCHASE AND SALE AGREEMENT

Amendment No. 3 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 29, 2016 (this “ Amendment ”), by and among Bank of America, N.A. (“ Purchaser ”), PennyMac Loan Services, LLC (“ Seller ”) and Private National Mortgage Acceptance Company, LLC (“ Guarantor ”).

RECITALS

Purchaser, Guarantor and Seller are parties to that certain Mortgage Loan Participation Purchase And Sale Agreement, dated as of August 13, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the “ Existing MLPSA ”; and as further amended by this Amendment, the “ MLPSA ”). The Guarantor is a party to that certain Amended and Restated Guaranty (as amended, restated, supplemented or otherwise modified from time to time, the “ Guaranty ”), dated as of August 13, 2014, made by Guarantor in favor of Purchaser.

Purchaser, Seller and Guarantor have agreed, subject to the terms and conditions of this Amendment, that the Existing MLPSA be amended to reflect certain agreed upon revisions to the terms of the Existing MLPSA. As a condition precedent to amending the Existing MLPSA, Purchaser has required Guarantor to ratify and affirm the Guaranty on the date hereof.

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

Section 1. Definitions . Section 1 of the Existing MLPSA is hereby amended by:

1.1 deleting the definitions of “ Discount Rate ”, “ Effective Date ”, “ Expiration Date ”, and “ Security Issuance Failure ” in their entirety and replacing them with the following:

“ Discount Rate ”: With respect to each Participation Certificate, a discount rate determined as of the related Purchase Date equal to (a) the greater of (i) One-Month LIBOR, and (ii) the LIBOR Floor, plus (b) the Applicable Percentage. Notwithstanding the foregoing, under no circumstances shall the Discount Rate be less than zero.

“ Effective Date ”: March 29, 2016 .

“ Expiration Date ”: The earlier of (i) March 28, 2017, (ii) at Purchaser’s option, upon the occurrence of an Event of Default, and (iii) the date on which this Agreement shall terminate in accordance with the provisions hereof or by operation of law .

“ Security Issuance Failure ”: The Failure of the Security (a) to be issued for any reason within the reasonable control of the Seller (as determined by Purchaser in its sole good faith discretion), including but not limited to Seller’s failure to perform any of its obligations under this Agreement or any other Program Document or failure to perform

in Strict Compliance with the related Agency Program, (b) to be issued for any reason outside of the reasonable control of the Seller (as determined by Purchaser in its sole good faith discretion), including, but not limited to, third party systems failures, or (c) to be Delivered to Purchaser or its designee (such designee being properly notified it is holding such Security for Purchaser); provided, that solely with respect to clauses (b) and (c) a Security Issuance Failure shall not have occurred to the extent (i) Seller has performed its obligations under this Agreement and each other Program Document; (ii) Seller has performed in Strict Compliance with the related Agency Program; (iii) such failure to be issued or Delivered arises solely from the acts or omissions of a party other than the Seller (as determined by Purchaser in its sole good faith discretion) and (iv) such failure is cured within one (1) Business Day of Seller’s notice or knowledge of such failure.

1.2 adding the following definition in its proper alphabetical order:

“ LIBOR Floor ”: 0%.

Section 2. Events of Default. Section 6(e) of the Existing MLPSA is hereby amended by deleting the “.” at the end of subclause (xii) and adding the following:

(xiii) Seller’s or Guarantor’s audited financial statements or notes thereto or other opinions or conclusions stated therein shall be qualified or limited by reference to the status of Seller or Guarantor, as applicable, as a “going concern” or reference of similar import;

(xiv) Seller has, without the express written consent of Purchaser, entered into any settlement with, or consented to the issuance of a consent order by, any Governmental Authority in which the fines, penalties, settlement amounts or any other amounts owed by Seller thereunder exceeds $5,000,000 in the aggregate.

An Event of Default shall be deemed to be continuing unless expressly waived by Purchaser in writing.

Section 3. Fees and Expenses . Seller hereby agrees to pay to Purchaser, on demand, any and all reasonable fees, costs and expenses (including reasonable fees and expenses of counsel) incurred by Purchaser in connection with the development, preparation and execution of this Amendment, irrespective of whether any transactions hereunder are executed.

Section 4. 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:

4.1 Delivered Documents . On the Amendment Effective Date, the Purchaser shall have received this Amendment, executed and delivered by a duly authorized officer of Purchaser, Seller and Guarantor.

4.2 Facility Fee . Seller shall have paid to Purchaser in immediately available funds that portion of the Facility Fee due and payable on the Amendment Effective Date.

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

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.

Section 7. 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 8. GOVERNING LAW . THE AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

Section 9. Reaffirmation of Guaranty . The Guarantor hereby (i) agrees that the liability of Guarantor or rights of Purchaser under the Guaranty shall not be affected as a result of this Amendment, (ii) ratifies and affirms all of the terms, covenants, conditions and obligations of the Guaranty and (iii) acknowledges and agrees that such Guaranty is and shall continue to be in full force and effect.

[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.


	Bank of America, N.A ., as Purchaser


	By:	/s/ Adam Robitshek
		Name: Adam Robitshek
		Title: Vice President


	PENNYMAC LOAN SERVICES, LLC , as Seller


	By:	/s/ Pamela Marsh
		Name: Pamela Marsh
		Title: Managing Director, Treasurer


	PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC , as Guarantor


	By:	/s/ Pamela Marsh
		Name: Pamela Marsh
		Title: Managing Director, Treasurer

Signature Page to Amendment No. 3 to Mortgage Loan Participation Purchase and Sale 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: August 9, 2016

/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: August 9, 2016

/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 June 30, 2016 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. Kurkland
Stanford L. Kurland
Chairman of the Board and Chief Executive Officer
August 9, 2016

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 June 30, 2016 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

August 9, 2016