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, 2022
or
☐ | 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: 001-38727
PennyMac Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 83-1098934 | |
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, $0.0001 par value | PFSI | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 2, 2022 | |
Common Stock, $0.0001 par value | 52,464,912 |
PENNYMAC FINANCIAL SERVICES, INC.
FORM 10-Q
June 30, 2022
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 59 | |
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2
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 prepayment rates; 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, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2022.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
| ● | changes in prevailing interest rates; |
| ● | our exposure to risks of loss resulting from adverse weather conditions, man-made or natural disasters, the effect of climate change, and pandemics, such as the corona virus (“COVID-19”); |
| ● | 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; |
| ● | foreclosure delays and changes in foreclosure practices; |
| ● | the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject; |
| ● | our ability to manage third-party service providers and vendors and their compliance with laws, regulations and investor requirements; |
3
| ● | changes in macroeconomic and U.S. real estate market conditions; |
| ● | difficulties inherent in adjusting the size of our operations to reflect changes in business levels; |
| ● | maintaining sufficient capital and liquidity and compliance with financial covenants; |
| ● | our substantial amount of indebtedness; |
| ● | increases in loan delinquencies and defaults; |
| ● | failure to modify, resell or refinance early buyout loans or defaults of early buyout loans beyond our expectations; |
| ● | our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business; |
| ● | 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 exposure to counterparties that are unwilling or unable to honor contractual obligations, including their obligation to indemnify us or repurchase defective mortgage loans; |
| ● | our ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights; |
| ● | our obligation to indemnify PMT if our services fail to meet certain criteria or characteristics or under other circumstances; |
| ● | decreases in the 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 PMT; |
| ● | the effect of public opinion on our reputation; |
| ● | our ability to effectively identify, manage and hedge our credit, interest rate, prepayment, liquidity and climate risks; |
| ● | our initiation of new business activities or expansion of existing business activities; |
| ● | our ability to detect misconduct and fraud; |
| ● | our ability to effectively deploy new information technology applications and infrastructure; |
| ● | our ability to mitigate cybersecurity risks and cyber incidents; |
| ● | our ability to pay dividends to our stockholders; and |
| ● | our organizational structure and certain requirements in our charter documents. |
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.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, | December 31, | ||||
| 2022 |
| 2021 | |||
(in thousands, except share amounts) | ||||||
ASSETS | ||||||
Cash | $ | 1,415,396 | $ | 340,069 | ||
Short-term investment at fair value | 4,961 | 6,873 | ||||
Loans held for sale at fair value (includes $3,270,508 and $9,135,577 pledged to creditors) | 3,586,810 | 9,742,483 | ||||
Derivative assets | 103,901 | 333,695 | ||||
Servicing advances, net (includes valuation allowance of $66,143 and $120,940; $279,664 and $232,107 pledged to creditors) | 570,822 | 702,160 | ||||
Mortgage servicing rights at fair value (includes $5,163,544 and $3,856,791 pledged to creditors) | 5,217,167 | 3,878,078 | ||||
Operating lease right-of-use assets | 82,078 | 89,040 | ||||
Investment in PennyMac Mortgage Investment Trust at fair value | 1,037 | 1,300 | ||||
Receivable from PennyMac Mortgage Investment Trust | 43,234 | 40,091 | ||||
Loans eligible for repurchase | 2,778,768 | 3,026,207 | ||||
Other (includes $25,547 and $45,294 pledged to creditors) | 468,081 | 616,616 | ||||
Total assets | $ | 14,272,255 | $ | 18,776,612 | ||
LIABILITIES | ||||||
Assets sold under agreements to repurchase | $ | 2,441,816 | $ | 7,292,735 | ||
Mortgage loan participation purchase and sale agreements | 502,116 | 479,845 | ||||
Obligations under capital lease | — | 3,489 | ||||
Notes payable secured by mortgage servicing assets | 1,793,260 | 1,297,622 | ||||
Unsecured senior notes | 1,778,055 | 1,776,219 | ||||
Derivative liabilities | 42,702 | 22,606 | ||||
Mortgage servicing liabilities at fair value | 2,337 | 2,816 | ||||
Accounts payable and accrued expenses | 317,998 | 359,413 | ||||
Operating lease liabilities | 102,756 | 110,003 | ||||
Payable to PennyMac Mortgage Investment Trust | 98,991 | 228,019 | ||||
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement | 27,014 | 30,530 | ||||
Income taxes payable | 885,721 | 685,262 | ||||
Liability for loans eligible for repurchase | 2,778,768 | 3,026,207 | ||||
Liability for losses under representations and warranties | 39,336 | 43,521 | ||||
Total liabilities | 10,810,870 | 15,358,287 | ||||
Commitments and contingencies – Note 16 | ||||||
STOCKHOLDERS’ EQUITY | ||||||
Common stock—authorized 200,000,000 shares of $0.0001 par value; and , 52,938,854 and 56,867,202 shares, respectively | 5 | 6 | ||||
Additional paid-in capital | — | 125,396 | ||||
Retained earnings | 3,461,380 | 3,292,923 | ||||
Total stockholders' equity | 3,461,385 | 3,418,325 | ||||
Total liabilities and stockholders' equity | $ | 14,272,255 | $ | 18,776,612 | ||
The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter ended June 30, |
| Six months ended June 30, | ||||||||||
2022 | 2021 |
| 2022 | 2021 | ||||||||
(in thousands, except earnings per share) | ||||||||||||
Revenues | ||||||||||||
Net gains on loans held for sale at fair value: | ||||||||||||
From non-affiliates | $ | 227,319 | $ | 594,196 | $ | 535,430 | $ | 1,362,785 | ||||
From PennyMac Mortgage Investment Trust | (4,752) | (11,548) | (14,404) | (25,796) | ||||||||
222,567 | 582,648 | 521,026 | 1,336,989 | |||||||||
Loan origination fees: | ||||||||||||
From non-affiliates | 37,541 | 90,163 | 103,057 | 186,008 | ||||||||
From PennyMac Mortgage Investment Trust | 2,404 | 7,128 | 4,746 | 15,320 | ||||||||
39,945 | 97,291 | 107,803 | 201,328 | |||||||||
Fulfillment fees from PennyMac Mortgage Investment Trust | 20,646 | 54,020 | 37,400 | 114,855 | ||||||||
Net loan servicing fees: | ||||||||||||
Loan servicing fees: | ||||||||||||
From non-affiliates | 259,338 | 208,275 | 504,147 | 419,028 | ||||||||
From PennyMac Mortgage Investment Trust | 20,335 | 20,015 | 41,423 | 39,108 | ||||||||
Other | 22,677 | 31,731 | 48,038 | 61,330 | ||||||||
302,350 | 260,021 | 593,608 | 519,466 | |||||||||
Change in fair value of mortgage servicing rights and mortgage servicing liabilities | 112,102 | (336,268) | 325,013 | (112,805) | ||||||||
Change in fair value of excess servicing spread financing payable to | — | — | — | (1,037) | ||||||||
Mortgage servicing rights hedging results | (176,005) | 91,118 | (393,865) | (351,033) | ||||||||
(63,903) | (245,150) | (68,852) | (464,875) | |||||||||
Net loan servicing fees | 238,447 | 14,871 | 524,756 | 54,591 | ||||||||
Net interest expense: | ||||||||||||
Interest income: | ||||||||||||
From non-affiliates | 49,864 | 80,797 | 103,746 | 162,491 | ||||||||
From PennyMac Mortgage Investment Trust | — | — | — | 387 | ||||||||
49,864 | 80,797 | 103,746 | 162,878 | |||||||||
Interest expense: | ||||||||||||
To non-affiliates | 71,127 | 102,431 | 148,434 | 208,864 | ||||||||
To PennyMac Mortgage Investment Trust | — | — | — | 1,280 | ||||||||
71,127 | 102,431 | 148,434 | 210,144 | |||||||||
Net interest expense | (21,263) | (21,634) | (44,688) | (47,266) | ||||||||
Management fees from PennyMac Mortgage Investment Trust | 7,910 | 11,913 | 16,027 | 20,362 | ||||||||
Change in fair value of investment in and dividends received from | (194) | 144 | (192) | 545 | ||||||||
Results of real estate acquired in settlement of loans | 810 | 540 | 1,353 | 1,320 | ||||||||
Other | 2,647 | 2,459 | 5,534 | 4,214 | ||||||||
Total net revenues | 511,515 | 742,252 | 1,169,019 | 1,686,938 | ||||||||
Expenses | ||||||||||||
Compensation | 198,192 | 265,067 | 443,739 | 523,896 | ||||||||
Loan origination | 44,931 | 75,675 | 120,264 | 163,067 | ||||||||
Technology | 34,621 | 34,236 | 69,407 | 67,908 | ||||||||
Professional services | 20,793 | 24,834 | 40,896 | 38,120 | ||||||||
Marketing and advertising | 13,007 | 10,213 | 35,410 | 16,878 | ||||||||
Occupancy and equipment | 9,371 | 9,029 | 18,840 | 18,067 | ||||||||
Servicing | 3,051 | 31,290 | 1,805 | 50,473 | ||||||||
Other | 10,023 | 12,393 | 26,612 | 23,006 | ||||||||
Total expenses | 333,989 | 462,737 | 756,973 | 901,415 | ||||||||
Income before provision for income taxes | 177,526 | 279,515 | 412,046 | 785,523 | ||||||||
Provision for income taxes | 48,363 | 75,286 | 109,290 | 204,426 | ||||||||
Net income | $ | 129,163 | $ | 204,229 | $ | 302,756 | $ | 581,097 | ||||
Earnings per share | ||||||||||||
Basic | $ | 2.38 | $ | 3.10 | $ | 5.51 | $ | 8.61 | ||||
Diluted | $ | 2.28 | $ | 2.94 | $ | 5.23 | $ | 8.16 | ||||
Weighted average shares outstanding | ||||||||||||
Basic | 54,167 | 65,890 | 54,995 | 67,493 | ||||||||
Diluted | 56,642 | 69,399 | 57,892 | 71,248 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Quarter ended June 30, 2022 | ||||||||||||||
Additional | Total | |||||||||||||
Number of | Par | paid-in | Retained | stockholders' | ||||||||||
| shares |
| value |
| capital |
| earnings |
| equity | |||||
(in thousands) | ||||||||||||||
Balance, March 31, 2022 | 55,342 | $ | 6 | $ | — | $ | 3,441,597 | $ | 3,441,603 | |||||
Net income | — | — | — | 129,163 | 129,163 | |||||||||
Stock-based compensation | 23 | — | 15,352 | — | 15,352 | |||||||||
Issuance of common stock in settlement of directors' fees | 1 | — | 51 | — | 51 | |||||||||
Repurchase of common stock | (2,427) | (1) | (15,403) | (98,241) | (113,645) | |||||||||
Common stock dividend ($0.20 per share) | — | — | — | (11,139) | (11,139) | |||||||||
Balance, June 30, 2022 | 52,939 | $ | 5 | $ | — | $ | 3,461,380 | $ | 3,461,385 | |||||
Quarter ended June 30, 2021 | ||||||||||||||
Additional | Total | |||||||||||||
Number of | Par | paid-in | Retained | stockholders' | ||||||||||
| shares |
| value |
| capital |
| earnings |
| equity | |||||
(in thousands) | ||||||||||||||
Balance, March 31, 2021 | 66,961 | $ | 7 | $ | 762,585 | $ | 2,704,822 | $ | 3,467,414 | |||||
Net income | — | — | — | 204,229 | 204,229 | |||||||||
Stock-based compensation | 96 | — | 10,621 | — | 10,621 | |||||||||
Issuance of common stock in settlement of directors' fees | 1 | — | 50 | — | 50 | |||||||||
Repurchase of common stock | (2,574) | (1) | (154,919) | — | (154,920) | |||||||||
Common stock dividend ($0.20 per share) | — | — | — | (13,565) | (13,565) | |||||||||
Balance, June 30, 2021 | 64,484 | $ | 6 | $ | 618,337 | $ | 2,895,486 | $ | 3,513,829 | |||||
Six months ended June 30, 2022 | ||||||||||||||
Additional | Total | |||||||||||||
Number of | Par | paid-in | Retained | stockholders' | ||||||||||
| shares |
| value |
| capital |
| earnings |
| equity | |||||
(in thousands) | ||||||||||||||
Balance, December 31, 2021 | 56,867 | $ | 6 | $ | 125,396 | $ | 3,292,923 | $ | 3,418,325 | |||||
Net income | — | — | — | 302,756 | 302,756 | |||||||||
Stock-based compensation | 817 | — | 17,823 | — | 17,823 | |||||||||
Issuance of common stock in settlement of directors' fees | 2 | — | 102 | — | 102 | |||||||||
Repurchase of common stock | (4,747) | (1) | (143,321) | (111,735) | (255,057) | |||||||||
Common stock dividends ($0.40 per share) | — | — | — | (22,564) | (22,564) | |||||||||
Balance, June 30, 2022 | 52,939 | $ | 5 | $ | — | $ | 3,461,380 | $ | 3,461,385 | |||||
Six months ended June 30, 2021 | ||||||||||||||
Additional | Total | |||||||||||||
Number of | Par | paid-in | Retained | stockholders' | ||||||||||
| shares |
| value |
| capital |
| earnings |
| equity | |||||
(in thousands) | ||||||||||||||
Balance, December 31, 2020 | 70,906 | $ | 7 | $ | 1,047,052 | $ | 2,342,329 | $ | 3,389,388 | |||||
Net income | — | — | — | 581,097 | 581,097 | |||||||||
Stock-based compensation | 803 | — | 14,622 | — | 14,622 | |||||||||
Issuance of common stock in settlement of directors' fees | 2 | — | 101 | — | 101 | |||||||||
Repurchase of common stock | (7,227) | (1) | (443,438) | — | (443,439) | |||||||||
Common stock dividends ($0.40 per share) | — | — | — | (27,940) | (27,940) | |||||||||
Balance, June 30, 2021 | 64,484 | $ | 6 | $ | 618,337 | $ | 2,895,486 | $ | 3,513,829 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
7
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, | ||||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
Cash flow from operating activities | ||||||
Net income | $ | 302,756 | $ | 581,097 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Net gains on loans held for sale at fair value | (521,026) | (1,336,989) | ||||
Change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread | (325,013) | 113,842 | ||||
Mortgage servicing rights hedging results | 393,865 | 351,033 | ||||
Capitalization of interest and advances on loans held for sale | (2,817) | (1,925) | ||||
Accrual of interest on excess servicing spread financing payable to PennyMac Mortgage Investment Trust | — | 1,280 | ||||
Amortization of debt issuance costs | 10,133 | 13,977 | ||||
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust | 263 | (475) | ||||
Results of real estate acquired in settlement in loans | (1,353) | (1,320) | ||||
Stock-based compensation expense | 24,223 | 19,771 | ||||
Reversal of provision for servicing advance losses | (51,293) | (33,590) | ||||
Impairment of capitalized software | — | 728 | ||||
Depreciation and amortization | 14,375 | 14,967 | ||||
Amortization of right-of-use assets | 7,755 | 6,918 | ||||
Purchase of loans held for sale from PennyMac Mortgage Investment Trust | (23,982,890) | (35,474,697) | ||||
Origination of loans held for sale | (15,128,696) | (27,731,285) | ||||
Purchase of loans held for sale from non-affiliates | (1,215,388) | (2,664,336) | ||||
Purchase of loans from Ginnie Mae securities and early buyout investors | (4,752,678) | (11,562,768) | ||||
Sale to non-affiliates and principal payments of loans held for sale | 50,841,788 | 79,007,900 | ||||
Sale of loans held for sale to PennyMac Mortgage Investment Trust | 298,862 | — | ||||
Repurchase of loans subject to representations and warranties | (45,176) | (43,914) | ||||
Decrease in servicing advances | 128,940 | 12,543 | ||||
(Increase) decrease in receivable from PennyMac Mortgage Investment Trust | (3,998) | 18,058 | ||||
Sale of real estate acquired in settlement of loans | 9,937 | 9,503 | ||||
Decrease in other assets | 134,692 | 63,006 | ||||
(Decrease) increase in accounts payable and accrued expenses | (54,033) | 61,121 | ||||
Decrease in operating lease liabilities | (8,040) | (8,265) | ||||
Decrease in payable to PennyMac Mortgage Investment Trust | (140,615) | (28,584) | ||||
Payments to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement | (3,516) | (3,350) | ||||
Increase (decrease) in income taxes payable | 200,459 | (52,648) | ||||
Net cash provided by operating activities | 6,131,516 | 1,331,598 | ||||
Statements continue on the next page
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC FINANCIAL SERVICES, INC.
(Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, | ||||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
Cash flow from investing activities | ||||||
Decrease in short-term investment | 1,912 | 11,497 | ||||
Net change in assets purchased from PMT under agreement to resell | — | 80,862 | ||||
Net settlement of derivative financial instruments used for hedging of mortgage servicing rights | (574,109) | (345,621) | ||||
Acquisition of capitalized software | (39,267) | (21,594) | ||||
Decrease in margin deposits | 188,176 | 134,666 | ||||
Purchase of furniture, fixtures, equipment and leasehold improvements | (4,089) | (5,049) | ||||
Net cash used in investing activities | (427,377) | (145,239) | ||||
Cash flow from financing activities | ||||||
Sale of assets under agreements to repurchase | 42,087,498 | 69,437,269 | ||||
Repurchase of assets sold under agreements to repurchase | (46,938,843) | (70,839,012) | ||||
Issuance of mortgage loan participation purchase and sale certificates | 9,556,801 | 12,508,356 | ||||
Repayment of mortgage loan participation purchase and sale certificates | (9,533,871) | (12,517,580) | ||||
Repayment of obligations under capital lease | (3,489) | (4,187) | ||||
Issuance of notes payable secured by mortgage servicing assets | 500,000 | — | ||||
Issuance of unsecured senior notes | — | 650,000 | ||||
Repayment of excess servicing spread financing | — | (134,624) | ||||
Payment of debt issuance costs | (12,892) | (18,648) | ||||
Issuance of common stock pursuant to exercise of stock options | 1,380 | 3,397 | ||||
Payment of withholding taxes relating to stock-based compensation | (7,780) | (8,546) | ||||
Payment of dividend to holders of common stock | (22,564) | (27,940) | ||||
Repurchase of common stock | (255,057) | (443,439) | ||||
Net cash used in financing activities | (4,628,817) | (1,394,954) | ||||
Net increase (decrease) in cash and restricted cash | 1,075,322 | (208,595) | ||||
Cash and restricted cash at beginning of period | 340,093 | 532,781 | ||||
Cash and restricted cash at end of period | $ | 1,415,415 | $ | 324,186 | ||
Cash and restricted cash at end of period are comprised of the following: | ||||||
Cash | $ | 1,415,396 | $ | 324,158 | ||
Restricted cash included in Other assets | 19 | 28 | ||||
$ | 1,415,415 | $ | 324,186 | |||
Supplemental cash flow information: | ||||||
Cash paid for interest | $ | 154,745 | $ | 208,015 | ||
Cash (refunds received) paid for income taxes, net | $ | (91,169) | $ | 257,074 | ||
Non-cash investing activities: | ||||||
Mortgage servicing rights resulting from loan sales | $ | 1,014,555 | $ | 953,895 | ||
Operating right-of-use assets recognized | $ | 793 | $ | 7,813 | ||
Non-cash financing activities: | ||||||
Mortgage servicing liabilities resulting from loan sales | $ | — | $ | 64,383 | ||
Issuance of Excess servicing spread payable to PennyMac Mortgage Investment Trust | $ | — | $ | 557 | ||
Issuance of common stock in settlement of directors' fees | $ | 102 | $ | 101 | ||
The accompanying notes are an integral part of these consolidated financial statements.
9
PENNYMAC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization
PennyMac Financial Services, Inc. (“PFSI,” or the “Company”) is a holding corporation and its primary assets are equity interests in Private National Mortgage Acceptance Company, LLC (“PNMAC”). The Company is the managing member of PNMAC, and it operates and controls all of the businesses and consolidates the financial results of PNMAC and its subsidiaries.
PNMAC is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PNMAC’s mortgage banking activities consist of residential mortgage loan production and servicing. PNMAC’s investment management activities and a portion of its loan servicing activities are conducted on behalf of PennyMac Mortgage Investment Trust (“PMT”), a publicly-traded real estate mortgage investment trust that invests primarily in mortgage-related assets. PNMAC’s primary wholly owned subsidiaries are:
| ● | PennyMac Loan Services, LLC (“PLS”) — a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates and PMT, purchases, originates and sells 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 (“FHA”) Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the U.S. Department of Veterans Affairs (“VA”) and U.S. Department of Agriculture (“USDA”) (each of the above an “Agency” and collectively the “Agencies”).
| ● | PNMAC Capital Management, LLC (“PCM”)— a Delaware limited liability company registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM has an investment management agreement with PMT. |
Note 2—Basis of Presentation
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 Accounting Standards Codification for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these consolidated financial statements and notes do not include all of the information required by GAAP for complete financial statements. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods presented, but are not necessarily indicative of income to be anticipated for the full year ending December 31, 2022. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires management to make judgments and estimates 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.
10
Note 3—Concentration of Risk
A portion of the Company’s activities relate to PMT. Revenues generated from PMT (generally comprised of gains on loans held for sale, loan origination and fulfillment fees, loan servicing fees, change in fair value of excess servicing spread financing (“ESS”), net interest, management fees, change in fair value of investment in and dividends received from PMT, and expense allocations received from PMT) totaled 9% and 11% of total net revenue for the quarters ended June 30, 2022 and 2021, respectively, and 8% and 10% for the six months ended June 30, 2022 and 2021, respectively. The Company also purchased 66% and 54% of its newly originated loan production from PMT during the quarters ended June 30, 2022 and 2021, respectively, and 59% and 54% during the six months ended June 30, 2022 and 2021, respectively.
Note 4—Related Party Transactions
Transactions with PMT
Operating Activities
Mortgage Loan Production Activities and Mortgage Servicing Rights (“MSRs”) Recapture
The Company sells newly originated loans to PMT under a mortgage loan purchase agreement. The Company has typically utilized the mortgage loan purchase agreement for the purpose of selling to PMT conforming balance non-government insured or guaranteed loans, as well as prime jumbo residential mortgage loans.
MSR Recapture
Pursuant to the terms of an MSR recapture agreement by and between the Company and PMT, which was amended and restated for a term of five years effective July 1, 2020, if the Company refinances mortgage loans for which PMT holds the MSRs, the Company is generally required to transfer and convey to PMT cash in an amount equal to:
| ● | 40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”; |
| ● | 35% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 15% and up to 30%; and |
| ● | 30% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30%. |
The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance of all recaptured mortgage loans, to (ii) the aggregate unpaid principal balance of all mortgage loans for which the Company held the MSRs and that were refinanced or otherwise paid off in such month. The Company has also agreed to allocate sufficient resources to target a recapture rate of at least 15%.
Fulfillment Services
The Company provides PMT with certain mortgage banking services, including fulfillment and disposition-related services, for which it receives a monthly fulfillment fee. Pursuant to the terms of a mortgage banking services agreement, the fulfillment fees shall not exceed the following:
| ● | the number of loan commitments multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus |
| ● | $315 multiplied by the number of purchased loans that are sold to Fannie Mae and Freddie Mac up to the and including 16,500 per quarter and $195 multiplied by the number of such purchased loans in excess of 16,500 per quarter, plus |
| ● | $750 multiplied by the number of all purchased loans that are sold or securitized to parties other than Fannie Mae and Freddie Mac; provided however, that no fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae loans. |
11
Sourcing Fees
PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae mortgage-backed securities (“MBS”) and act as a servicer. Accordingly, under the mortgage banking services agreement, the Company purchases mortgage loans underwritten in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from PMT at PMT’s cost less an administrative fee plus accrued interest and a sourcing fee ranging from one to two basis points, generally based on the average number of calendar days the loans are held by PMT before being purchased by the Company.
While the Company purchases these mortgage loans “as is” and without recourse of any kind from PMT, where the Company has a claim for repurchase, indemnity or otherwise against a correspondent seller, it is entitled, at its sole expense, to pursue any such claim through or in the name of PMT.
Following is a summary of loan production activities, including recapture, between the Company and PMT:
Loan Servicing
The Company and PMT have entered into a loan servicing agreement (the “Servicing Agreement”), pursuant to which the Company provides subservicing for PMT’s MSRs and loans held for sale (prime servicing) and its portfolio of residential mortgage loans purchased with credit deterioration (special servicing). The Servicing Agreement provides for servicing fees of per-loan monthly amounts based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or the real estate acquired in settlement of loans (“REO”). The Company also remains entitled to customary ancillary income and market-based fees and charges relating to loans it services for PMT. These include boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and a percentage of late charges.
Prime Servicing
| ● | The base servicing fees for prime loans are calculated through a monthly per-loan dollar amount, with the actual dollar amount for each loan based on whether the loan is a fixed-rate or adjustable-rate loan. The base servicing fee rates are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans. |
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| ● | To the extent that prime loans become delinquent, the Company is entitled to an additional servicing fee per loan ranging from $10 to $55 per month based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes REO. The Company is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees. |
| ● | The Company also receives certain fees for COVID-19-related forbearance and modification activities provided for under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). |
Special Servicing (Distressed loans)
| ● | The base servicing fee rates for distressed loans range from $30 per month for current loans up to $95 per month for loans in foreclosure proceedings. The base servicing fee rate for REO is $75 per month. The Company also receives a supplemental servicing fee of $25 per month for each distressed loan. |
| ● | The Company receives activity-based fees for modifications, foreclosures and liquidations that it facilitates with respect to distressed loans, as well as other market-based refinancing and loan disposition fees. The Company may also receive REO rental fees, property lease renewal fees, property management fees, tenant paid application fees, late rent fees, and third-party vendor fees associated with its management of REO. |
Following is a summary of loan servicing fees earned from PMT:
The Servicing Agreement expires on June 30, 2025.
Investment Management Activities
The Company has a management agreement with PMT (the “Management Agreement”), pursuant to which the Company oversees PMT’s business affairs in conformity with the investment policies that are approved and monitored by its board of trustees, for which PFSI collects 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 average shareholders’ equity up to $2 billion, (ii) 1.375% per year of PMT’s average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s average shareholders’ equity in excess of $5 billion. |
| ● | The performance incentive fee is calculated quarterly 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 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.”
13
For the purpose of determining the amount of the performance incentive fee:
“Net income” is defined as net income or loss attributable to PMT’s common shares of beneficial interest computed in accordance with GAAP adjusted for certain other non-cash charges determined after discussions between the Company 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 rolling four-quarter period.
The “high watermark” is the quarterly adjustment that 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 the Company to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s “net income” over (or under) the Target Yield, until the “net income” in excess of the Target Yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned.
The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or 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.
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 immediately preceding the date of termination.
Following is a summary of the base management and performance incentive fees earned from PMT:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Base management | $ | 7,910 | $ | 8,648 | $ | 16,027 |
| $ | 17,097 | |||
Performance incentive | — | 3,265 | — | 3,265 | ||||||||
$ | 7,910 | $ | 11,913 | $ | 16,027 | $ | 20,362 | |||||
Expense Reimbursement
Under the Management Agreement, PMT reimburses the Company for its organizational and operating expenses, including third-party expenses, incurred on PMT’s behalf, it being understood that the Company and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of PMT. With respect to the allocation of the Company’s and its affiliates’ personnel compensation, the Company is reimbursed $165,000 per fiscal quarter, such amount to be reviewed annually and not preclude reimbursement for any other services performed by the Company or its affiliates.
PMT is also required to pay its pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Company and its affiliates required for PMT’s and its subsidiaries’ operations. These expenses are allocated based on the ratio of PMT’s proportion of gross assets compared to all remaining gross assets owned or managed by the Company as calculated at each fiscal quarter end.
14
The Company received reimbursements from PMT for expenses as follows:
| (1) | Payments and settlements include payments for management fees and correspondent production activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT. |
Investing Activities
Master Repurchase Agreement
On December 19, 2016, the Company, through PLS, entered into a master repurchase agreement with one of PMT’s wholly-owned subsidiaries, PennyMac Holdings, LLC (“PMH”) (the “PMH Repurchase Agreement”), pursuant to which PMH may borrow from the Company for the purpose of financing PMH’s participation certificates representing beneficial ownership in ESS. PLS then re-pledges such participation certificates to PNMAC GMSR ISSUER TRUST (the “Issuer Trust”) under a master repurchase agreement by and among PLS, the Issuer Trust and PNMAC, as guarantor (the “PC Repurchase Agreement”). The Issuer Trust was formed for the purpose of allowing PLS to finance MSRs and ESS relating to such MSRs (the “GNMA MSR Facility”).
In the first quarter of 2021, PLS repurchased the ESS from PMH at fair market value, effectively terminating the borrowing arrangements allowing PMH to finance its participation certificates representing beneficial ownership in ESS. Such ESS is now included in PLS's participation certificates representing beneficial ownership in ESS and MSRs, which PLS pledges in connection with the GNMA MSR Facility.
PMT Common Stock
The Company owns 75,000 common shares of beneficial interest of PMT.
Following is a summary of investing activities between the Company and PMT:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Interest income relating to Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell | $ | — | $ | — | $ | — | $ | 387 | ||||
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust | $ | (194) | $ | 144 | $ | (192) | $ | 545 | ||||
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
Common shares of beneficial interest of PennyMac Mortgage Investment Trust: | ||||||
Fair value | $ | 1,037 | $ | 1,300 | ||
Number of shares | 75 | 75 | ||||
15
Financing Activities
Spread Acquisition and MSR Servicing Agreements
The Company has a master spread acquisition and MSR servicing agreement with PMT (the “Spread Acquisition Agreement”) pursuant to which the Company may sell to PMT, from time to time, the right to receive participation certificates representing beneficial ownership in ESS arising from Ginnie Mae MSRs acquired by the Company, in which case the Company generally would be required to service or subservice the related mortgage loans for Ginnie Mae.
To the extent the Company refinances any of the mortgage loans relating to the ESS it has issued, the Spread Acquisition Agreement also contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equal to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, the Company is 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 equal to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the Spread Acquisition Agreement contains provisions that require the Company to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, settle its obligation to PMT in cash in an amount equal to such fair market value in lieu of transferring such ESS.
During the six months ended June 30, 2021, the Company repaid its outstanding ESS financing through the repurchase of the ESS from PMT.
Following is a summary of financing activities between the Company and PMT:
16
Receivable from and Payable to PMT
Amounts receivable from and payable to PMT are summarized below:
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
Receivable from PMT: | ||||||
Allocated expenses and expenses incurred on PMT's behalf | $ | 12,053 | $ | 15,431 | ||
Fulfillment fees | 10,511 | — | ||||
Management fees | 7,910 | 8,918 | ||||
Servicing fees | 6,725 | 6,848 | ||||
Correspondent production fees | 6,035 | 8,894 | ||||
$ | 43,234 | $ | 40,091 | |||
Payable to PMT: | ||||||
Amounts advanced by PMT to fund its servicing advances | $ | 95,409 | $ | 212,066 | ||
Other | 3,582 | 15,953 | ||||
$ | 98,991 | $ | 228,019 | |||
Exchanged Private National Mortgage Acceptance Company, LLC Unitholders
On May 8, 2013, the Company entered into a tax receivable agreement with certain former owners of PNMAC that provides for the payment from time to time by the Company to PNMAC’s exchanged unitholders of an amount equal to 85% of the amount of the net tax benefits, if any, that the Company is deemed to realize as a result of (i) increases in tax basis of PNMAC’s assets resulting from exchanges of ownership interests in PNMAC 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.
Although a reorganization in November 2018 eliminated the potential for unitholders to exchange any additional units subject to this tax receivable agreement, the Company continues to be subject to the agreement and will be required to make payments, to the extent any of the tax benefits specified above are deemed to be realized, under the tax receivable agreement to those certain prior owners of PNMAC who effected exchanges of ownership interests in PNMAC for the Company’s common stock before the closing of the reorganization.
The Company has recorded $27.0 million and $30.5 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of June 30, 2022 and December 31, 2021, respectively. The Company made $3.5 million of payments under the tax receivable agreement during the quarter and six months ended June 30, 2022 and made $3.4 million of payments during the quarter and six months ended June 30, 2021.
.
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Note 5—Loan Sales and Servicing Activities
The Company originates or purchases and sells loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.
The following table summarizes cash flows between the Company and transferees as a result of the sale of loans in transactions where the Company maintains continuing involvement with the loans as servicer:
| (1) | Net of guarantee fees paid to the Agencies. |
The following table summarizes the UPB of the loans sold by the Company in transactions when it maintains continuing involvement with the loans as servicer:
| (1) | Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act. |
18
The following tables summarize the UPB of the Company’s loan servicing portfolio:
| (1) | Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act. |
| (2) | Custodial funds include cash accounts holding funds on behalf of borrowers and investors relating to loans serviced under servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, which are included in Interest income in the Company’s consolidated statements of income. |
19
| (1) | Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act. |
| (2) | Custodial funds include cash accounts holding funds on behalf of borrowers and investors relating to loans serviced under servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, which are included in Interest income in the Company’s consolidated statements of income. |
Following is a summary of the geographical distribution of loans included in the Company’s loan servicing portfolio for the top five and all other states as measured by UPB:
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Note 6—Fair Value
Most of the Company’s assets and certain of its liabilities are measured at or based on their fair values. 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 significant 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. |
| ● | Level 3— Prices determined using significant unobservable inputs. In situations where observable inputs are unavailable, 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. |
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. Such differences may result in significantly different fair value measurements. 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
The Company identified its MSRs, its mortgage servicing liabilities (“MSLs”) and all of its non-cash financial assets 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. The Company has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSRs’ fair value risk.
21
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Following is a summary of assets and liabilities that are measured at fair value on a recurring basis:
June 30, 2022 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
(in thousands) | ||||||||||||
Assets: | ||||||||||||
Short-term investment | $ | 4,961 | $ | — | $ | — | $ | 4,961 | ||||
Loans held for sale at fair value | — | 3,083,257 | 503,553 | 3,586,810 | ||||||||
Derivative assets: | ||||||||||||
Interest rate lock commitments | — | — | 70,685 | 70,685 | ||||||||
Forward purchase contracts | — | 61,855 | — | 61,855 | ||||||||
Forward sales contracts | — | 24,499 | — | 24,499 | ||||||||
MBS put options | — | 7,868 | — | 7,868 | ||||||||
Put options on interest rate futures purchase contracts | 11,844 | — | — | 11,844 | ||||||||
Call options on interest rate futures purchase contracts | 13,709 | — | — | 13,709 | ||||||||
Total derivative assets before netting | 25,553 | 94,222 | 70,685 | 190,460 | ||||||||
Netting | — | — | — | (86,559) | ||||||||
Total derivative assets | 25,553 | 94,222 | 70,685 | 103,901 | ||||||||
Mortgage servicing rights at fair value | — | — | 5,217,167 | 5,217,167 | ||||||||
Investment in PennyMac Mortgage Investment Trust | 1,037 | — | — | 1,037 | ||||||||
$ | 31,551 | $ | 3,177,479 | $ | 5,791,405 | $ | 8,913,876 | |||||
Liabilities: | ||||||||||||
Derivative liabilities: | ||||||||||||
Interest rate lock commitments | $ | — | $ | — | $ | 5,534 | $ | 5,534 | ||||
Forward purchase contracts | — | 13,005 | — | 13,005 | ||||||||
Forward sales contracts | — | 89,488 | — | 89,488 | ||||||||
Total derivative liabilities before netting | — | 102,493 | 5,534 | 108,027 | ||||||||
Netting | — | — | — | (65,325) | ||||||||
Total derivative liabilities | — | 102,493 | 5,534 | 42,702 | ||||||||
Mortgage servicing liabilities at fair value | — | — | 2,337 | 2,337 | ||||||||
$ | — | $ | 102,493 | $ | 7,871 | $ | 45,039 | |||||
22
23
As shown above, all or a portion of the Company’s loans held for sale, Interest Rate Lock Commitments (“IRLCs”), MSRs, ESS and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of assets and liabilities measured at fair value using “Level 3” inputs at either the beginning or the end of the period presented:
| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
Quarter ended June 30, 2021 | ||||||||||||
Net interest | Mortgage | |||||||||||
Loans held | rate lock | servicing | ||||||||||
Assets | for sale |
| commitments (1) |
| rights |
| Total | |||||
(in thousands) | ||||||||||||
Balance, March 31, 2021 |
| $ | 5,202,065 | $ | 337,940 | $ | 3,268,910 | $ | 8,808,915 | |||
Purchases and issuances, net | 6,828,094 | 351,934 | — | 7,180,028 | ||||||||
Capitalization of interest and advances | 60,439 | — | — | 60,439 | ||||||||
Sales and repayments | (3,866,340) | — | — | (3,866,340) | ||||||||
Mortgage servicing rights resulting from loan sales | — | — | 483,362 | 483,362 | ||||||||
Changes in fair value included in income arising from: | ||||||||||||
Changes in instrument-specific credit risk | 179,792 | — | — | 179,792 | ||||||||
Other factors | — | 332,435 | (339,624) | (7,189) | ||||||||
179,792 | 332,435 | (339,624) | 172,603 | |||||||||
Transfers from Level 3 to Level 2 | (4,585,789) | — | — | (4,585,789) | ||||||||
Transfers to loans held for sale | — | (678,699) | — | (678,699) | ||||||||
Balance, June 30, 2021 | $ | 3,818,261 | $ | 343,610 | $ | 3,412,648 | $ | 7,574,519 | ||||
Changes in fair value recognized during the quarter relating to assets still held at June 30, 2021 | $ | 74,184 | $ | 343,610 | $ | (339,624) | $ | 78,170 | ||||
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| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
Six months ended June 30, 2022 | ||||||||||||
Net interest | Mortgage | |||||||||||
Loans held | rate lock | servicing | ||||||||||
Assets | for sale |
| commitments (1) |
| rights |
| Total | |||||
| (in thousands) | |||||||||||
Balance, December 31, 2021 | $ | 1,128,876 | $ | 322,193 | $ | 3,878,078 | $ | 5,329,147 | ||||
Purchases and issuances, net | 2,733,726 | 307,289 | — | 3,041,015 | ||||||||
Capitalization of interest and advances | 47,719 | — | — | 47,719 | ||||||||
Sales and repayments | (1,264,888) | — | — | (1,264,888) | ||||||||
Mortgage servicing rights resulting from loan sales | — | — | 1,014,555 | 1,014,555 | ||||||||
Changes in fair value included in income arising from: | ||||||||||||
Changes in instrument-specific credit risk | (30,210) | — | — | (30,210) | ||||||||
Other factors | (21,318) | (566,483) | 324,534 | (263,267) | ||||||||
(51,528) | (566,483) | 324,534 | (293,477) | |||||||||
Transfers from Level 3 to Level 2 | (2,089,966) | — | — | (2,089,966) | ||||||||
Transfers to real estate acquired in settlement of loans | (386) | — | — | (386) | ||||||||
Transfers to loans held for sale | — | 2,152 | — | 2,152 | ||||||||
Balance, June 30, 2022 | $ | 503,553 | $ | 65,151 | $ | 5,217,167 | $ | 5,785,871 | ||||
Changes in fair value recognized during the period relating to assets still held at June 30, 2022 | $ | (28,700) | $ | 65,151 | $ | 324,534 | $ | 360,985 | ||||
| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
25
| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
The Company had transfers among the fair value levels arising from the return to salability in the active secondary market of certain loans held for sale and from transfers of IRLCs to loans held for sale at fair value upon purchase or funding.
26
Assets and Liabilities Measured at Fair Value under the Fair Value Option
Net changes in fair values included in income for assets and liabilities 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, | ||||||||||||||||||
2022 | 2021 | |||||||||||||||||
Net gains on | Net | Net gains on | Net | |||||||||||||||
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: | ||||||||||||||||||
Loans held for sale | $ | (96,365) | $ | — | $ | (96,365) | $ | 761,841 | $ | — | $ | 761,841 | ||||||
Mortgage servicing rights | — | 111,875 | 111,875 | — | (339,624) | (339,624) | ||||||||||||
$ | (96,365) | $ | 111,875 | $ | 15,510 | $ | 761,841 | $ | (339,624) | $ | 422,217 | |||||||
Liabilities: | ||||||||||||||||||
Mortgage servicing liabilities | $ | — | $ | 227 | $ | 227 | $ | — | $ | 3,356 | $ | 3,356 | ||||||
Six months ended June 30, | ||||||||||||||||||
2022 | 2021 | |||||||||||||||||
Net gains on | Net | Net gains on | Net | |||||||||||||||
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: | ||||||||||||||||||
Loans held for sale | $ | (204,343) | $ | — | $ | (204,343) | $ | 1,411,960 | $ | — | $ | 1,411,960 | ||||||
Mortgage servicing rights | — | 324,534 | 324,534 | — | (122,421) | (122,421) | ||||||||||||
$ | (204,343) | $ | 324,534 | $ | 120,191 | $ | 1,411,960 | $ | (122,421) | $ | 1,289,539 | |||||||
Liabilities: | ||||||||||||||||||
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust | $ | — | $ | — | $ | — | $ | — | $ | (1,037) | $ | (1,037) | ||||||
Mortgage servicing liabilities | — | 479 | 479 | — | 9,616 | 9,616 | ||||||||||||
$ | — | $ | 479 | $ | 479 | $ | — | $ | 8,579 | $ | 8,579 | |||||||
Following are the fair value and related principal amounts due upon maturity of loans held for sale:
Assets Measured at Fair Value on a Nonrecurring Basis
Following is a summary of assets that were measured at fair value on a nonrecurring basis:
Real estate acquired in settlement of loans | Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
| (in thousands) | |||||||||||
June 30, 2022 | $ | — | $ | — | $ | 1,666 | $ | 1,666 | ||||
December 31, 2021 | $ | — | $ | — | $ | 2,588 | $ | 2,588 | ||||
27
The following table summarizes the (losses) gains recognized on assets when they were remeasured at fair value on a nonrecurring basis:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Real estate acquired in settlement of loans | $ | (326) | $ | (434) | $ | (740) | $ | (743) | ||||
Fair Value of Financial Instruments Carried at Amortized Cost
The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Obligations under capital lease, Notes payable secured by mortgage servicing assets and Unsecured senior notes are carried at amortized cost.
These liabilities are classified as “Level 3” fair value items due to the Company’s reliance on unobservable inputs to estimate their fair values. The Company has concluded that the fair values of these liabilities other than Notes payable secured by mortgage servicing assets and the Unsecured senior notes approximate their carrying values due to their short terms and/or variable interest rates.
The Company estimates the fair value of the Notes payable secured by mortgage servicing assets and the Unsecured senior notes using indications of fair value provided by non-affiliate brokers. The fair value and carrying value of these notes are summarized below:
Valuation Governance
Most of the Company’s financial assets, and all of its MSRs, ESS, derivative liabilities 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 derivatives and all of its MSRs, ESS, and MSLs are “Level 3” fair value assets and liabilities which require 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 assets and liabilities, the Company has assigned responsibility for estimating the fair value of these assets and liabilities 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 assets and liabilities other than IRLCs and maintaining its valuation policies and procedures. |
| ● | The Company’s Capital Markets Risk Management staff develops the fair value of the Company’s IRLCs which is reviewed by its Capital Markets Operations group. |
28
With respect to the non-IRLC “Level 3” valuations, the FAV group reports to the Company’s senior management valuation committee, which oversees the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities, 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 financial, investment and credit officers as well as other senior members of the Company’s finance, capital markets and risk management staffs.
The FAV group is responsible for reporting to the Company’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, 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.
Valuation Techniques and Inputs
Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:
Loans Held for Sale
Most of the Company’s loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets. The fair values of “Level 2” fair value loans are determined using their contracted selling price or quoted market price or market price equivalent.
Certain of the Company’s loans held for sale are not saleable into active markets and are therefore categorized as “Level 3” fair value assets. Loans held for sale categorized as “Level 3” fair value assets include:
| ● | Government guaranteed or insured loans purchased by the Company from Ginnie Mae guaranteed securities in its loan servicing portfolio. The Company’s right to purchase government guaranteed or insured loans arises as the result of the loan being at least three months delinquent on the date of purchase 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. Such loans may be resold to investors and thereafter may be repurchased to the extent they become eligible for resale into a new Ginnie Mae guaranteed security. |
Loans become eligible for resale into a new Ginnie Mae security when the loans become current either through completion of a modification of the loan’s terms or after six months of timely payments following either the completion of certain types of payment deferral programs or borrower reperformance and when the issuance date of the new security is at least 210 days after the date the loan was last delinquent.
| ● | Loans that are not saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a loan with an identified defect. |
The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value loans held for sale. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value loans held for sale are discount rates, home price projections, voluntary prepayment/resale and total prepayment speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.
29
Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of loans held for sale:
| (1) | Weighted average inputs are based on the fair value of the “Level 3” loans. |
| (2) | Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”). |
| (3) | Total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayment and resale rates. |
Changes in fair value of loans held for sale attributable to changes in the loan’s instrument-specific credit risk are measured with reference to the change in the respective 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 loans held for sale are included in Net gains on 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 “Level 3” fair value assets or liabilities. The Company estimates the fair value of IRLCs based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and the probability that the loan will be funded or purchased (the “pull-through rate”).
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the estimated fair value of MSRs attributable to the mortgage loans it has committed to purchase and the pull-through rate. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in the IRLCs’ 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 loan principal and interest payment cash flow component, which has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans held for sale at fair value in the consolidated statements of income.
30
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
| (1) | For purpose of this table, IRLC asset and liability positions are shown net. |
| (2) | Weighted average inputs are based on the committed amounts. |
Hedging Derivatives
Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities; fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities.
Changes in the fair value of hedging derivatives are included in Net gains on loans held for sale at fair value, or Net loan servicing fees – Mortgage servicing rights hedging results, as applicable, in the consolidated statements of income.
Mortgage Servicing Rights
MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), pricing spread (discount rate), and annual per-loan cost to service the underlying loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.
31
Following are the key inputs used in determining the fair value of MSRs received by the Company when it retains the obligation to service the mortgage loans it sells:
| (1) | Weighted average inputs are based on the UPB of the underlying loans. |
| (2) | Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information. |
| (3) | Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. Effective January 1, 2022, the Company applies a pricing spread to the United State Treasury Securities (the “Treasury”) yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”)/swap curve. The change in reference interest rate from the LIBOR/swap to the Treasury did not have a significant effect on the Company’s fair value measurement of MSRs. |
32
Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs and the effect on the fair value from adverse changes in those inputs:
| (1) | Weighted average inputs are based on the UPB of the underlying loans. |
| (2) | Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information. |
| (3) | These sensitivity analyses are limited in that they were performed as of a particular date; only contemplate the movements in the indicated inputs; do not incorporate changes to other inputs; are subject to the accuracy of the 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 to account for changing circumstances. For these reasons, the estimates should not be viewed as earnings forecasts. |
| (4) | Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap to the Treasury did not have a significant effect on the Company’s fair value measurement of MSRs. |
33
Excess Servicing Spread Financing at Fair Value
ESS is categorized as a “Level 3” fair value liability. Because ESS is a claim to a portion of the cash flows from MSRs, the fair value measurement of the ESS is similar to that of MSRs. The Company uses the same discounted cash flow approach to measuring the ESS as it uses to measure MSRs except that certain inputs relating to the cost to service the mortgage loans underlying the MSRs and certain ancillary income are not included as these cash flows do not accrue to the holder of the 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 directly related.
ESS is generally subject to fair value increases when mortgage interest rates increase. Increasing mortgage interest rates normally discourage mortgage refinancing activity. Decreased refinancing activity increases the life of the mortgage loans underlying the ESS, thereby increasing the fair value of this financing. Changes in the fair value of ESS are included in Net loan servicing fees—Change in fair value of excess servicing spread financing payable to PennyMac Mortgage Investment Trust. During the six months ended June 30, 2021, the Company repaid its outstanding ESS financing payable to PMT.
Mortgage Servicing Liabilities
MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. The key inputs used in the estimation of the fair value of MSLs include the applicable pricing spread, annual total prepayment speed, and the per-loan annual cost of servicing the underlying loans. Changes in the fair value of MSLs are included in Net servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.
Following are the key inputs used in determining the fair value of MSLs:
| (1) | Weighted average inputs are based on UPB of the underlying mortgage loans. |
| (2) | Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information. |
| (3) | Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSLs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap to the Treasury did not have a significant effect on the Company’s fair value measurement of MSLs. |
34
Note 7—Loans Held for Sale at Fair Value
Loans held for sale at fair value include the following:
June 30, | December 31, | |||||
Loan type |
| 2022 |
| 2021 | ||
(in thousands) | ||||||
Government-insured or guaranteed | $ | 2,409,046 | $ | 6,030,518 | ||
Conventional conforming | 644,470 | 2,583,089 | ||||
Jumbo | 29,741 | — | ||||
Purchased from Ginnie Mae securities serviced by the Company | 450,598 | 1,082,444 | ||||
Repurchased pursuant to representations and warranties | 52,955 | 46,432 | ||||
$ | 3,586,810 | $ | 9,742,483 | |||
Fair value of loans pledged to secure: | ||||||
Assets sold under agreements to repurchase | $ | 2,738,333 | $ | 8,629,861 | ||
Mortgage loan participation purchase and sale agreements | 532,175 | 505,716 | ||||
$ | 3,270,508 | $ | 9,135,577 | |||
Note 8—Derivative Financial Instruments
The Company holds and issues derivative financial instruments in connection with its operating activities. Derivative financial instruments are created as a result of the Company’s loan production activities and when the Company enters into derivative transactions as part of its interest rate risk management activities. Derivative financial instruments created as a result of the Company’s loan production activities are IRLCs that are created when the Company commits to purchase or originate a loan for sale.
The Company engages in interest rate risk management activities in an effort to moderate the effect of changes in market interest rates on the fair value of certain of the its assets. 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 loans held for sale and its MSRs.
The Company does not designate and qualify any of its derivatives for hedge accounting. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.
35
Derivative Notional Amounts, Fair Value of Derivatives and Netting of Financial Instruments
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.
The Company had the following derivative financial instruments recorded on its consolidated balance sheets:
| (1) | Notional amounts provide an indication of the volume of the Company’s derivative activity. |
| (2) | All derivatives used for hedging purposes are interest rate derivatives and are used as economic hedges. |
36
Derivative Assets, Financial Instruments, and Cash Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance to qualify for setoff accounting.
June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
Gross amount not | Gross amount not | |||||||||||||||||||||||
offset in the | offset in the | |||||||||||||||||||||||
consolidated | consolidated | |||||||||||||||||||||||
Net amount | balance sheet | Net amount | balance sheet | |||||||||||||||||||||
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 | $ | 70,685 | $ | — | $ | — | $ | 70,685 | $ | 323,473 | $ | — | $ | — | $ | 323,473 | ||||||||
RJ O'Brien | 25,552 | — | — | 25,552 | 5,219 | — | — | 5,219 | ||||||||||||||||
Nomura Securities International, Inc. | 6,938 | — | — | 6,938 | — | — | — | — | ||||||||||||||||
Bank of America, N.A. | — | — | — | — | 3,005 | — | — | 3,005 | ||||||||||||||||
Others | 726 | — | — | 726 | 1,998 | — | — | 1,998 | ||||||||||||||||
$ | 103,901 | $ | — | $ | — | $ | 103,901 | $ | 333,695 | $ | — | $ | — | $ | 333,695 | |||||||||
Derivative Liabilities, Financial Instruments 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 meet the accounting guidance to qualify for setoff accounting. 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.
| (1) | Amounts represent the UPB of Assets sold under agreements to repurchase. |
37
Following are the gains (losses) recognized by the Company on derivative financial instruments and the income statement lines where such gains and losses are included:
| (1) | Represents net change in fair value of IRLCs from the beginning to the end of the period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loans or the cancellation of the commitment are shown in the rollforward of IRLCs for the period in Note 6 – Fair Value – Assets and Liabilities Measured at Fair Value on a Recurring Basis. |
Note 9—Mortgage Servicing Rights and Mortgage Servicing Liabilities
Mortgage Servicing Rights at Fair Value
The activity in MSRs is as follows:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Balance at beginning of period | $ | 4,707,039 | $ | 3,268,910 | $ | 3,878,078 | $ | 2,581,174 | ||||
MSRs resulting from loan sales | 398,253 | 483,362 | 1,014,555 | 953,895 | ||||||||
Change in fair value due to: | ||||||||||||
Changes in valuation inputs used in valuation model (1) | 233,697 | (239,514) | 557,625 | 73,376 | ||||||||
Other changes in fair value (2) | (121,822) | (100,110) | (233,091) | (195,797) | ||||||||
Total change in fair value | 111,875 | (339,624) | 324,534 | (122,421) | ||||||||
Balance at end of period | $ | 5,217,167 | $ | 3,412,648 | $ | 5,217,167 | $ | 3,412,648 | ||||
UPB of underlying loans at end of period | $ | 297,269,682 | $ | 252,475,400 | ||||||||
June 30, | December 31, | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable secured by mortgage servicing assets | $ | 5,163,544 | $ | 3,856,791 | ||||||||
| (1) | Principally reflects changes in annual total prepayment speed, pricing spread, per loan annual cost of servicing and UPB of underlying loan inputs. |
| (2) | Represents changes due to realization of cash flows. |
38
Mortgage Servicing Liabilities at Fair Value
The activity in MSLs is summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Balance at beginning of period | $ | 2,564 | $ | 46,026 | $ | 2,816 | $ | 45,324 | ||||
Mortgage servicing liabilities resulting from loan sales | — | 57,421 | — | 64,383 | ||||||||
Changes in fair value due to: | ||||||||||||
Changes in valuation inputs used in valuation model (1) | (129) | 11,083 | (267) | 17,847 | ||||||||
Other changes in fair value (2) | (98) | (14,439) | (212) | (27,463) | ||||||||
Total change in fair value | (227) | (3,356) | (479) | (9,616) | ||||||||
Balance at end of period | $ | 2,337 | $ | 100,091 | $ | 2,337 | $ | 100,091 | ||||
UPB of underlying loans at end of period | $ | 41,481 | $ | 6,135,249 | ||||||||
| (1) | Principally reflects changes in expected borrower performance and servicer losses given default. During the quarter ended September 30, 2021, significant changes were made to valuation inputs used to estimate the fair value of MSLs in recognition of the observed increase in the proportion of performing government insured or guaranteed loans and reduced expected costs and losses from defaulted government insured or guaranteed loans underlying the Company’s MSLs. |
| (2) | Represents changes due to realization of cash flows. |
Contractual servicing fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; other fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Loan servicing fees—Other on the Company’s consolidated statements of income. Such amounts are summarized below:
39
Note 10—Leases
The Company has operating lease agreements relating to its facilities. The Company’s operating lease agreements have remaining terms ranging from less than one year to eight years; some of the operating lease agreements include options to extend the term for up to five years. None of the Company’s operating lease agreements require the Company to make variable lease payments.
The Company’s lease agreements are summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(dollars in thousands) | ||||||||||||
Lease expense: | ||||||||||||
Operating leases | $ | 5,008 | $ | 4,508 | $ | 9,962 | $ | 8,874 | ||||
Short-term leases | 241 | 420 | 460 | 470 | ||||||||
Net lease expense included in Occupancy and equipment | $ | 5,249 | $ | 4,928 | $ | 10,422 | $ | 9,344 | ||||
Other information: | ||||||||||||
Payments for operating leases | $ | 5,388 | $ | 5,149 | $ | 10,257 | $ | 10,185 | ||||
Operating lease right-of-use assets recognized | $ | 793 | $ | 4,570 | $ | 793 | $ | 7,813 | ||||
Period end weighted averages: | ||||||||||||
Remaining lease term (in years) | 5.3 | 5.9 | ||||||||||
Discount rate | 3.9% | 4.1% | ||||||||||
Lease payments of the Company’s operating lease liabilities are summarized below:
40
Note 11—Other Assets
Other assets are summarized below:
June 30, | December 31, | |||||
2022 |
| 2021 | ||||
(in thousands) | ||||||
Capitalized software, net | $ | 138,382 | $ | 109,480 | ||
Margin deposits | 64,783 | 100,482 | ||||
Prepaid expenses | 46,486 | 64,924 | ||||
Furniture, fixtures, equipment and building improvements, net | 31,756 | 31,677 | ||||
Deposits securing Assets sold under agreements to repurchase and Notes payable secured by mortgage servicing assets | 25,547 | 36,632 | ||||
Other servicing receivables | 22,554 | 113,820 | ||||
Servicing fees receivable, net | 18,693 | 23,672 | ||||
Interest receivable | 10,828 | 9,688 | ||||
Real estate acquired in settlement of loans | 8,002 | 7,474 | ||||
Other | 101,050 | 118,767 | ||||
$ | 468,081 | $ | 616,616 | |||
Other assets pledged to secure: | ||||||
Assets sold under agreements to repurchase and Notes payable secured by mortgage servicing assets | $ | 25,547 | $ | 36,632 | ||
Obligations under capital lease: | ||||||
Capitalized software, net | — | 4,546 | ||||
Furniture, fixture, equipment and building improvements, net | — | 4,116 | ||||
$ | 25,547 | $ | 45,294 | |||
Note 12—Short-Term Debt
The borrowing facilities described throughout these Notes 12 and 13 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio and liquidity. Management believes that the Company was in compliance with these covenants as of June 30, 2022.
Assets Sold Under Agreements to Repurchase
The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by loans held for sale at fair value or participation certificates backed by mortgage servicing assets. Eligible assets are sold at advance rates based on the fair value (as determined by the lender) of the assets sold. Interest is charged at a rate based on the Secured Overnight Financing Rate (“SOFR”) or LIBOR, as applicable. Loans and participation certificates financed under these agreements may be re-pledged by the lenders.
Fannie Mae MSR Facility
On April 28, 2021, the Company, through its wholly-owned subsidiaries, PLS, PNMAC, and PFSI ISSUER TRUST - FMSR, entered into a structured finance transaction, allowing PLS to finance Fannie Mae MSRs and ESS (the “Fannie Mae MSR Facility”). In connection with the Fannie Mae MSR Facility, PLS pledges and/or sells to PFSI ISSUER TRUST - FMSR participation certificates representing beneficial interests in MSRs and ESS pursuant to the terms of a master repurchase agreement, dated as of April 28, 2021, by and between PLS, PFSI Issuer Trust - FMSR and PNMAC (the “FMSR PC Repurchase Agreement”). In return, PFSI ISSUER TRUST- FMSR has issued to PLS the Series 2021-MSRVF1 Note, dated April 28, 2021, known as the “PFSI ISSUER TRUST - FMSR Collateralized Notes, Series 2021-MSRVF1” (the “FMSR VFN”), and may, from time to time, issue to institutional investors term notes, in each case secured on a pari passu basis by the participation certificates relating to the MSRs (the “FMSR Term Notes”). The maximum principal balance of the FMSR VFN is $1 billion.
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Under the FMSR PC Repurchase Agreement, PLS grants to PFSI ISSUER TRUST – FMSR a security interest in all of its right, title and interest in, to and under participation certificates representing beneficial interests in MSRs and ESS, including all of its rights and interests in any MSRs and ESS it thereafter owns or acquires. The principal amount paid by PFSI ISSUER TRUST - FMSR for the participation certificates under the FMSR PC Repurchase Agreement is based upon a percentage of the market value of the underlying MSRs (inclusive of the ESS). Upon PLS’s repurchase of the participation certificates, PLS is required to repay PFSI ISSUER TRUST - FMSR the principal amount relating thereto plus accrued interest (at a rate reflective of the current market and consistent with the weighted average note rate of the FMSR VFN and any outstanding term notes) to the date of such repurchase.
PLS also entered into a master repurchase agreement on April 28, 2021 (the “FMSR VFN Repurchase Agreement”) with Credit Cuisse First Boston Mortgage Capital LLC (“CSFB”), as administrative agent, and Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as purchaser, pursuant to which PLS sold the FMSR VFN to CSCIB with an agreement to repurchase such FMSR VFN at a later date. The FMSR VFN Repurchase Agreement has a term extending through May 31, 2024. The FMSR VFN Repurchase Agreement provides for a maximum purchase price of $250 million, all of which is committed.
The principal amount paid by CSCIB for the FMSR VFN is based upon a percentage of the market value of such FMSR VFN. Upon PLS’s repurchase of the FMSR VFN, PLS is required to repay CSCIB the principal amount relating thereto plus accrued interest (at a rate reflective of the current market based on a spread above SOFR to the date of such repurchase.
Freddie Mac MSR Facility
On December 7, 2021, the Company entered a Master Repurchase Agreement secured by Freddie Mac MSRs with a maximum purchase price of $175 million which may be further reduced by amounts outstanding with Credit Suisse under other financing facilities. The facility expires on May 31, 2024. The Company is not currently borrowing under this facility.
Ginnie Mae MSR Facility
The Company, through its wholly-owned subsidiaries PLS, PNMAC, and the Issuer Trust, have a structured finance transaction, in which PLS pledges and/or sells to the Issuer Trust participation certificates representing beneficial interests in MSRs and ESS pursuant to the terms of the PC Repurchase Agreement (the “GNMA MSR Facility”). In return, the Issuer Trust has issued to PLS, pursuant to the terms of an indenture, the Series 2016-MSRVF1 Variable Funding Note, known as the “PNMAC GMSR ISSUER TRUST MSR Collateralized Notes, Series 2016-MSRVF1” (the “VFN”), and has issued and may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors additional term notes, in each case secured on a pari passu basis by the participation certificates relating to the MSRs and ESS. The maximum principal balance of the VFN is $2 billion.
On July 30, 2021, the Company, through its wholly-owned subsidiaries PLS, PNMAC and the Issuer Trust, entered into agreements to syndicate existing variable funding note repurchase agreements as part of the Ginnie Mae MSR structured finance facility. The Company entered into an Amended and Restated Series 2016-MSRVF1 Master Repurchase Agreement by and among PLS, as seller, CSFB, as administrative agent to the buyers, CSCIB, as a buyer, Citibank, N.A., as a buyer, and PNMAC, as a guarantor (the “Syndicated GMSR Servicing Spread Agreement”), related to the servicing spread. The Syndicated GMSR Servicing Spread Agreement added Citibank as a syndicate buyer of MSRs and related ESS, and increased the borrowing capacity from $400 to $500 million, all of which is committed on a 50-50 pro rata basis between CSCIB and Citibank.
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Ginnie Mae Servicing Advances
On April 1, 2020, the Company, through its wholly-owned subsidiaries PLS, PNMAC and the PNMAC GMSR ISSUER TRUST, issued a series of variable funding notes, the Series 2020-SPIADVF1 Notes (“GMSR Servicing Advance Notes”), to be sold under agreement to repurchase pursuant to a Master Repurchase Agreement, dated as of April 1, 2020, with Credit Suisse First Boston Mortgage Capital LLC, acting as administrative agent on behalf of Credit Suisse AG, Cayman Islands Branch, as buyer (the “GMSR Servicing Advances Repurchase Agreement”). The GMSR Servicing Advances Repurchase Agreement provides the Company with financing secured by servicing advance receivables to pay, in accordance with the Ginnie Mae requirements, in the event borrowers are delinquent: (i) regularly scheduled monthly principal and interest to mortgage-backed securities holders; (ii) taxes, homeowner’s insurance, and other escrowed items; and (iii) other expenses related to servicing delinquent loans as specified by (A) state and federal laws and (B) government agencies, including the FHA, the VA, and the USDA.
On July 30, 2021, the Company, through its wholly-owned subsidiaries PLS, PNMAC and the Issuer Trust, entered into agreements to syndicate existing variable funding note repurchase agreements, as part of the Ginnie Mae servicing advance facility. The Company entered into an Amended and Restated Series 2020-SPIADVF1 Master Repurchase Agreement by and among PLS, as seller, CSFB, as administrative agent to the buyers, CSCIB, as a buyer, Citibank, as a buyer, and PNMAC, as a guarantor (the “Syndicated GMSR SAR Agreement”). The Syndicated GMSR SAR Agreement added Citibank as a syndicate buyer of servicing advances receivables and provides a $600 million borrowing capacity, all of which is committed on a 50-50 pro rata basis between CSCIB and Citibank.
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Assets sold under agreements to repurchase are summarized below:
June 30, | December 31, | ||||||||||||
| 2022 |
| 2021 | ||||||||||
(dollars in thousands) | |||||||||||||
Carrying value: | |||||||||||||
Unpaid principal balance funded under: | |||||||||||||
Committed facilities | $ | 2,290,666 | $ | 5,079,581 | |||||||||
Uncommitted facilities | 155,348 | 2,217,779 | |||||||||||
2,446,014 | 7,297,360 | ||||||||||||
Unamortized debt issuance costs | (4,198) | (4,625) | |||||||||||
$ | 2,441,816 | $ | 7,292,735 | ||||||||||
Weighted average interest rate | 3.32 | % | 1.83 | % | |||||||||
Available borrowing capacity (2): | |||||||||||||
Committed | $ | 1,614,334 | $ | 285,419 | |||||||||
Uncommitted | 6,464,652 | 8,417,221 | |||||||||||
$ | 8,078,986 | $ | 8,702,640 | ||||||||||
Fair value of assets securing repurchase agreements: | |||||||||||||
Loans held for sale | $ | 2,738,333 | $ | 8,629,861 | |||||||||
Servicing advances (3) | $ | 279,664 | $ | 232,107 | |||||||||
Mortgage servicing rights (3) | $ | 5,163,544 | $ | 3,552,812 | |||||||||
Deposits (3) | $ | 25,547 | $ | 36,632 | |||||||||
Margin deposits (4) | $ | 8,375 | $ | 10,875 | |||||||||
| (1) | Excludes the effect of amortization of debt issuance costs and utilization fees of $3.5 million and $5.3 million for the quarters ended June 30, 2022 and 2021, respectively, and $7.1 million and $11.8 million for the six months ended June 30, 2022 and 2021, 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 financed. |
| (3) | Beneficial interests in the Ginnie Mae MSRs, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral backing for the VFN, GMSR Servicing Advance Notes, and the Term Notes described in Note 13 – Long-Term Debt- Notes payable secured by mortgage servicing assets. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. |
| (4) | Margin deposits are included in Other assets on the Company’s consolidated balance sheets. |
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Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
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 assets sold under agreements to repurchase is summarized by counterparty below as of June 30, 2022:
| (1) | The calculation of the amount at risk includes the VFN and the Term Notes because beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing for the VFN, and the Term Notes described in Notes payable secured by mortgage servicing assets below. The VFN financing is included in Assets sold under agreements to repurchase and the Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. |
The Company is subject to margin calls during the period the repurchase 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 Purchase and Sale Agreements
One of the borrowing facilities secured by loans held for sale is in the form of mortgage loan participation purchase 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 a 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. The holdback amount is not required to be paid to the Company until the settlement of the security and its delivery to the lender.
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The mortgage loan participation purchase and sale agreements are summarized below:
| (1) | Excludes the effect of amortization of debt issuance costs totaling $172,000 for the quarters ended June 30, 2022 and 2021, and $344,000 for the six months ended June 30, 2022 and 2021. |
Note 13—Long-Term Debt
Obligations Under Capital Lease
The Company had a capital lease transaction secured by certain fixed assets and capitalized software. The capital lease matured on June 13, 2022 and bore interest at a spread over one-month LIBOR.
Obligations under capital lease are summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(dollars in thousands) | ||||||||||||
Average balance | $ | 523 | $ | 9,072 | $ | 1,695 | $ | 10,169 | ||||
Weighted average interest rate | 2.49% | 2.10% | 2.18% | 2.12% | ||||||||
Total interest expense | $ | 5 | $ | 48 | $ | 20 | $ | 107 | ||||
Maximum daily amount outstanding | $ | 1,396 | $ | 10,468 | $ | 3,489 | $ | 11,864 | ||||
December 31, | ||||||||||||
| 2021 | |||||||||||
(dollars in thousands) | ||||||||||||
Unpaid principal balance |
| $ | 3,489 | |||||||||
Weighted average interest rate | 2.11% | |||||||||||
Assets pledged to secure obligations under capital lease: | ||||||||||||
Capitalized software | $ | 4,546 | ||||||||||
Furniture, fixtures and equipment | $ | 4,116 | ||||||||||
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Notes Payable Secured by Mortgage Servicing Assets
Term Notes
In connection with the GNMA MSR Facility, the Issuer Trust issued secured term notes (the “Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). The Term Notes are secured by participation certificates relating to Ginnie Mae mortgage servicing assets financed pursuant to the GNMA MSR Facility, and rank pari passu with the VFNs and the GMSR Servicing Advance Notes.
Following is a summary of the issued and outstanding Term Notes:
| (1) | The Term Notes’ indentures provide the Company with the option to extend the maturity of the Term Notes by two years after their stated . |
Notes payable secured by mortgage servicing assets are summarized below:
| (1) | Excludes the effect of amortization of debt issuance costs totaling $548,000 and $634,000 for the quarters ended June 30, 2022 and 2021, respectively, and $1.0 and $1.2 million for the six months ended June 30, 2022 and 2021, respectively. |
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June 30, | December 31, | ||||||||||||
| 2022 |
| 2021 | ||||||||||
(dollars in thousands) | |||||||||||||
Carrying value: | |||||||||||||
Unpaid principal balance | $ | 1,800,000 |
| $ | 1,300,000 | ||||||||
Unamortized debt issuance costs | (6,740) | (2,378) | |||||||||||
$ | 1,793,260 | $ | 1,297,622 | ||||||||||
Weighted average interest rate | 4.76% | 2.84% | |||||||||||
Assets pledged to secure notes payable (1): | |||||||||||||
Servicing advances | $ | 279,664 | $ | 232,107 | |||||||||
Mortgage servicing rights | $ | 4,681,236 | $ | 3,856,791 | |||||||||
Deposits | $ | 25,547 | $ | 36,632 | |||||||||
| (1) | Beneficial interests in the Ginnie Mae MSRs, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral for the VFN, the GMSR Servicing Advance Notes and any outstanding Term Notes. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. Beneficial interests in the Fannie Mae MSRs are pledged to the PFSI Issuer Trust - FMSR and serve as the collateral for the FMSR VFN and any outstanding FMSR Term Notes. The FMSR VFN financing is included in Assets sold under agreements to repurchase and any outstanding FMSR Term Note would be included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. |
Unsecured Senior Notes
The Company issued unsecured senior notes (the “Unsecured Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The Unsecured Notes are senior unsecured obligations of the Company and will rank senior in right of payment to any future subordinated indebtedness of the Company, equally in right of payment with all existing and future senior indebtedness of the Company and effectively subordinated to any future secured indebtedness of the Company to the extent of the fair value of collateral securing such indebtedness.
The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by PFSI’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries defined in the indenture under which the Unsecured Notes were issued). The guarantees are senior unsecured obligations of the guarantors and will rank senior in right of payment to any future subordinated indebtedness of the guarantors, equally in right of payment with all existing and future senior indebtedness of the guarantors and effectively subordinated to any future secured indebtedness of the guarantors to the extent of the fair value of collateral securing such indebtedness. The Unsecured Notes and the guarantees are structurally subordinated to the indebtedness and liabilities of the Company’s subsidiaries that do not guarantee the Unsecured Notes.
Following is a summary of the Company’s outstanding Unsecured Notes issued:
| (1) | Before the optional redemption date, the Company may redeem some or all of the Unsecured Notes for that issuance at a price equal to 100% of the principal amount, plus accrued and unpaid interest and a make-whole premium or the Company may redeem up to 40% of the Unsecured Notes for that issuance with an amount equal to or less than the net proceeds from certain equity offerings at the redemption price set forth in the indenture, plus accrued and unpaid interest. On or after the optional redemption date, the Company may redeem some or all of the Unsecured Notes for that issuance at the redemption prices set forth in the indenture, plus accrued and unpaid interest. |
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| (1) | Excludes the effect of amortization of debt issuance costs of $923,000 and $571,000 for the quarters ended June 30, 2022 and 2021, respectively, and $1.8 million and $918,000 for the six months ended June 30, 2022 and 2021, respectively. |
Maturities of Long-Term Debt
Maturities of long-term debt obligations (based on final maturity dates) are as follows:
Twelve months ended June 30, | |||||||||||||||||||||
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Thereafter |
| Total | ||||||||
(in thousands) | |||||||||||||||||||||
Notes payable secured by mortgage servicing assets | $ | 650,000 | $ | 650,000 | $ | — | $ | — | $ | 500,000 | $ | — | $ | 1,800,000 | |||||||
Unsecured senior notes | — | — | — | 650,000 | — | 1,150,000 | 1,800,000 | ||||||||||||||
Total | $ | 650,000 | $ | 650,000 | $ | — | $ | 650,000 | $ | 500,000 | $ | 1,150,000 | $ | 3,600,000 | |||||||
Note 14—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, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
(in thousands) | |||||||||||||
Balance at beginning of period | $ | 42,794 | $ | 38,428 | $ | 43,521 | $ | 32,688 | |||||
Provision for losses: | |||||||||||||
Resulting from sales of loans | 2,182 | 10,304 | 6,236 | 20,357 | |||||||||
Reduction in liability due to change in estimate | (2,227) | (3,640) | (5,396) | (7,325) | |||||||||
Losses incurred, net | (3,413) | (757) | (5,025) | (1,385) | |||||||||
Balance at end of period | $ | 39,336 | $ | 44,335 | $ | 39,336 | $ | 44,335 | |||||
Unpaid principal balance of loans subject to representations and warranties at end of period | $ | 278,793,884 | $ | 234,327,924 | |||||||||
Note 15—Income Taxes
The Company’s effective income tax rates were 27.2% and 26.9% for the quarters ended June 30, 2022 and 2021, respectively, and 26.5% and 26.0% for the six months ended June 30, 2022 and 2021, respectively.
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Note 16—Commitments and Contingencies
Commitments to Purchase and Fund Mortgage Loans
The Company’s commitments to purchase and fund loans totaled $7.7 billion as of June 30, 2022.
Litigation
From time to time, the Company may be a party to legal proceedings, lawsuits and other claims arising in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, income, or cash flows of the Company.
On November 5, 2019, Black Knight Servicing Technologies, LLC, a wholly-owned indirect subsidiary of Black Knight, Inc. (“BKI”), filed a Complaint and Demand for Jury Trial in the Fourth Judicial Circuit Court in and for Duval County, Florida (the “Florida State Court”), captioned Black Knight Servicing Technologies, LLC v. PennyMac Loan Services, LLC, Case No. 2019-CA-007908 (the “BKI Complaint”). Allegations contained within the BKI Complaint include breach of contract and misappropriation of MSP® System trade secrets in order to develop an imitation mortgage-processing system intended to replace the MSP® System.
The BKI Complaint seeks damages for breach of contract and misappropriation of trade secrets, injunctive relief under the Florida Uniform Trade Secrets Act and declaratory judgment of ownership of all intellectual property and software developed by or on behalf of PLS as a result of its wrongful use of and access to the MSP® System and related trade secret and confidential information. On March 30, 2020, the Florida State Court granted a motion to compel arbitration filed by PLS. While no assurance can be provided as to the ultimate outcome of this claim or the account of any losses to the Company, the Company believes the BKI Complaint is without merit and plans to vigorously defend the matter, which remains pending.
Regulatory Matters
The Company and/or its subsidiaries are subject to various state and federal regulations related to its loan production and servicing operations by the various states it operates in as well as federal agencies such as the Consumer Financial Protection Bureau (“CFPB”), HUD, and the FHA and is subject to the requirements of the Agencies to which it sells loans and for which it performs loan servicing activities. As a result, the Company may become involved in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by such various federal, state and local regulatory bodies.
On January 7, 2021, PLS received a letter from the CFPB notifying PLS that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement was considering recommending that the CFPB take legal action against PLS for alleged violations of the Real Estate Settlement Procedures Act and Truth in Lending Act. The CFPB's examination covered the period from March 2015 through September 2016. Should the CFPB commence an action, it may seek restitution, civil monetary penalties, injunctive relief, or other corrective action, the extent of which remains uncertain at this time. Notably, certain of the alleged violations were originally self-identified by PLS and remediated before the CFPB's examination, and all alleged violations were fully remediated as of August 2017. PLS confirmed these remediation actions as well as full restitution to any affected borrowers in its response to the NORA letter submitted on February 8, 2021. While the NORA process remains open and pending at this time, and there can be no assurance as to the nature or extent of any actions taken by the CFPB with regard to these alleged violations, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on its financial statements or operations.
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Cessation of the LIBOR Index
The Company historically used a LIBOR index to establish the applicable interest rates in lending and financing transactions. One-week and two-month United States Dollar LIBOR rates have been discontinued in 2022 and non-U.S. dollar LIBOR settings cease to be representative. The Company has serviced LIBOR-based adjustable rate mortgages and other financial arrangements that may incorporate fallback provisions or replacement provisions related to the LIBOR transition. The discontinuation of LIBOR could materially affect our interest expense and earnings, our cost of capital, and the fair value of certain of our assets and the instruments we use to hedge their value. Furthermore, the transition away from widely used benchmark rates like LIBOR could result in customers or other market participants challenging the determination of their interest or dividend payments, disputing the interpretations or implementation of contract or instrument “fallback” provisions and other transition related changes.
Note 17—Stockholders’ Equity
In August 2021, the Company’s board of directors approved an increase to the Company’s common stock repurchase program from $1 billion to $2 billion.
Following is a summary of activity under the stock repurchase program:
Quarter ended June 30, | Six months ended June 30, | Cumulative | |||||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 |
| total (1) | |||||||
(in thousands) | |||||||||||||||
Shares of common stock repurchased | 2,427 | 2,574 | 4,747 | 7,227 | 29,821 | ||||||||||
Cost of shares of common stock repurchased | $ | 113,645 | $ | 154,920 | $ | 255,057 | $ | 443,439 | $ | 1,565,678 | |||||
| (1) | Amounts represent the total shares of common stock repurchased under the stock repurchase program from inception through June 30, 2022. |
Note 18—Net Gains on Loans Held for Sale
Net gains on loans held for sale at fair value are summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
From non-affiliates: | ||||||||||||
Cash (losses) gains: | ||||||||||||
Loans | $ | (451,171) | $ | 387,305 | $ | (1,395,392) |
| $ | 470,017 | |||
Hedging activities | 82,617 | (325,651) | 972,704 | 410,574 | ||||||||
(368,554) | 61,654 | (422,688) | 880,591 | |||||||||
Non-cash gains: | ||||||||||||
Mortgage servicing rights and mortgage servicing liabilities resulting from loan sales | 398,253 | 425,941 | 1,014,555 | 889,512 | ||||||||
Provisions for losses relating to representations and warranties: | ||||||||||||
Pursuant to loan sales | (2,182) | (10,304) | (6,236) | (20,357) | ||||||||
Reductions in liability due to change in estimate | 2,227 | 3,640 | 5,396 | 7,325 | ||||||||
Changes in fair values of loans and derivatives held at period end: | ||||||||||||
Interest rate lock commitments | 27,251 | 5,670 | (257,043) | (333,416) | ||||||||
Loans | (43,349) | (50,322) | 177,081 | 54,900 | ||||||||
Hedging derivatives | 213,673 | 157,917 | 24,365 | (115,770) | ||||||||
227,319 | 594,196 | 535,430 | 1,362,785 | |||||||||
From PennyMac Mortgage Investment Trust (1) | (4,752) | (11,548) | (14,404) | (25,796) | ||||||||
$ | 222,567 | $ | 582,648 | $ | 521,026 | $ | 1,336,989 | |||||
| (1) | Gains on sale of loans to PMT are described in Note 4–Related Party Transactions. |
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Note 19—Net Interest Expense
Net interest expense is summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Interest income: | ||||||||||||
From non-affiliates: | ||||||||||||
Cash and short-term investments | $ | 405 | $ | 747 | $ | 977 | $ | 1,734 | ||||
Loans held for sale at fair value | 36,777 | 76,453 | 85,890 | 151,277 | ||||||||
Placement fees relating to custodial funds | 12,682 | 3,597 | 16,879 | 9,480 | ||||||||
49,864 | 80,797 | 103,746 | 162,491 | |||||||||
From PennyMac Mortgage Investment Trust—Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell | — | — | — | 387 | ||||||||
49,864 | 80,797 | 103,746 | 162,878 | |||||||||
Interest expense: | ||||||||||||
To non-affiliates: | ||||||||||||
Assets sold under agreements to repurchase | 18,949 | 44,623 | 42,719 | 96,802 | ||||||||
Mortgage loan participation purchase and sale agreements | 1,377 | 1,039 | 2,497 | 2,134 | ||||||||
Obligations under capital lease | 5 | 48 | 20 | 107 | ||||||||
Notes payable secured by mortgage servicing assets | 13,656 | 10,104 | 23,565 | 19,992 | ||||||||
Unsecured senior notes | 23,688 | 16,169 | 47,116 | 28,839 | ||||||||
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations | 12,286 | 29,144 | 29,765 | 58,580 | ||||||||
Interest on mortgage loan impound deposits | 1,166 | 1,304 | 2,752 | 2,410 | ||||||||
71,127 | 102,431 | 148,434 | 208,864 | |||||||||
To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value | — | — | — | 1,280 | ||||||||
71,127 | 102,431 | 148,434 | 210,144 | |||||||||
$ | (21,263) | $ | (21,634) | $ | (44,688) | $ | (47,266) | |||||
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Note 20—Stock-based Compensation
On May 24, 2022, PFSI’s stockholders approved and adopted the 2022 Equity Incentive Plan and no additional equity awards will be issued from the Company’s 2013 Equity Incentive Plan.
Following is a summary of the stock-based compensation activity:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Grants: | ||||||||||||
Units: | ||||||||||||
Performance-based restricted share units ("RSUs") | — | — | 342 | 310 | ||||||||
Stock options | — | — | 574 | 249 | ||||||||
Time-based RSUs | — | — | 331 | 171 | ||||||||
Grant date fair value: | ||||||||||||
Performance-based RSUs | $ | — | $ | — | $ | 19,522 | $ | 18,237 | ||||
Stock options | — | — | 12,138 | 5,116 | ||||||||
Time-based RSUs | — | — | 18,903 | 10,066 | ||||||||
Total | $ | — | $ | — | $ | 50,563 | $ | 33,419 | ||||
Vestings and exercises: | ||||||||||||
Performance-based RSUs vested | — | — | 643 | 640 | ||||||||
Stock options exercised | 19 | 97 | 63 | 185 | ||||||||
Time-based RSUs vested | 2 | 2 | 246 | 307 | ||||||||
Compensation expense | $ | 14,948 | $ | 8,894 | $ | 24,223 | $ | 19,771 | ||||
Note 21—Earnings Per Share
Basic earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding, assuming all dilutive securities were issued.
The Company’s potentially dilutive securities are stock-based compensation awards. The Company applies the treasury stock method to determine the diluted weighted average number of shares of common stock outstanding based on the outstanding stock-based compensation awards.
The following table summarizes the basic and diluted earnings per share calculations:
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Calculations of diluted earnings per share require certain potentially dilutive shares to be excluded when their inclusion in the diluted earnings per share calculation would be anti-dilutive. The following table summarizes the weighted-average number of anti-dilutive outstanding RSUs and stock options excluded from the calculation of diluted earnings per share:
| (1) | Certain performance-based RSUs were outstanding but not included in the computation of earnings per share because the performance thresholds included in such RSUs have not been achieved. |
| (2) | Certain stock options were outstanding but not included in the computation of diluted earnings per share because the weighted-average exercise prices were above the average stock prices for the period. |
Note 22—Regulatory Capital and Liquidity Requirements
The Company, through PLS, is required to maintain specified levels of capital and liquidity to remain a seller/servicer in good standing with the Agencies. Such capital and liquid asset requirements generally are tied to the size of the Company’s loan servicing portfolio, loan origination volume and delinquency rates.
The Company is subject to financial eligibility requirements established by the Federal Housing Finance Agency for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac. The eligibility requirements include:
| ● | tangible net worth of $2.5 million plus 25 basis points of the UPB of the Company’s total 1-4 unit servicing portfolio, excluding mortgage loans subserviced for others; |
| ● | a liquidity requirement equal to 3.5 basis points of the aggregate UPB serviced for the Agencies plus 200 basis points of total nonperforming Agency servicing UPB less 70% of such nonperforming Agency servicing UPB in excess of 600 basis points where the underlying loans are in COVID-19 forbearance but were current at the time they entered forbearance. |
The Company is also subject to financial eligibility requirements for Ginnie Mae single-family issuers. The eligibility requirements include net worth of $2.5 million plus 35 basis points of PLS' outstanding Ginnie Mae single-family obligations and a liquidity requirement equal to the greater of $1.0 million or 10 basis points of PLS' outstanding Ginnie Mae single-family securities.
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The Agencies’ capital and liquidity requirements, the calculations of which are specified by each Agency, are summarized below:
| (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 the Company’s ability to sell loans to and service loans on behalf of the respective Agency.
Note 23—Segments
The Company operates in three segments: production, servicing and investment management.
Two of the segments are in the mortgage banking business: production and servicing. The production segment performs loan origination, acquisition and sale activities. The servicing segment performs servicing of loans, execution and management of early buyout loan transactions and servicing of loans sourced and managed by the investment management segment for PMT, 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 and managing the acquired assets and correspondent production activities for PMT.
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Financial performance and results by segment are as follows:
| (1) | All revenues are from external customers. |
| (1) | All revenues are from external customers. |
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| (1) | All revenues are from external customers. |
| (1) | All revenues are from external customers. |
(
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Note 24—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period:
| ● | On August 2, 2022, the Company announced that the board of directors declared cash dividend of $0.20 per common share. The dividend will be paid on August 26, 2022 to common shareholders of record as of August 16, 2022. |
| ● | All agreements to repurchase assets that matured before the date of this Report were extended or renewed. |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 including 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 section entitled “Risk Factors” in Part II Item 1A and in our Annual Report on Form 10-K, 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 Securities 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 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 the experience of our management team across all aspects of the mortgage business will allow us to profitably engage in these activities and capitalize on other related opportunities as they arise in the future.
Our primary assets are equity interests in Private National Mortgage Acceptance Company, LLC (“PNMAC”). We are the managing member of PNMAC, and we operate and control all of the businesses and affairs of PNMAC, and consolidate the financial results of PNMAC and its subsidiaries. We conduct our business in three segments: production, servicing (together, production and servicing comprise our mortgage banking activities) and investment management:
| ● | The production segment performs loan origination, acquisition and sale activities. |
| ● | The servicing segment performs loan servicing for both newly originated loans we are holding for sale and loans we service for others, including for PennyMac Mortgage Investment Trust, a mortgage real estate investment trust listed on the New York Stock Exchange under the ticker symbol “PMT”. |
| ● | The investment management segment represents our investment management activities, which include the activities associated with investment asset acquisitions and dispositions such as sourcing, due diligence, negotiation and settlement. |
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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. PLS is also an approved issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), a lender of the Federal Housing Administration (“FHA”), and a lender/servicer of the U.S. Department of Veterans Affairs (“VA”) and the U.S. Department of Agriculture (“USDA”). 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 is PNMAC Capital Management, LLC (“PCM”), a Delaware limited liability company registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM has an investment management contract with PMT.
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Results of Operations
Our results of operations are summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| |||||
(dollars in thousands, except per share amounts) | ||||||||||||||
Revenues: | ||||||||||||||
Net gains on loans held for sale at fair value | $ | 222,567 | $ | 582,648 | $ | 521,026 | $ | 1,336,989 | ||||||
Loan origination fees | 39,945 | 97,291 | 107,803 | 201,328 | ||||||||||
Fulfillment fees from PennyMac Mortgage Investment Trust | 20,646 | 54,020 | 37,400 | 114,855 | ||||||||||
Net loan servicing fees | 238,447 | 14,871 | 524,756 | 54,591 | ||||||||||
Net interest expense | (21,263) | (21,634) | (44,688) | (47,266) | ||||||||||
Management fees | 7,910 | 11,913 | 16,027 | 20,362 | ||||||||||
Other | 3,263 | 3,143 | 6,695 | 6,079 | ||||||||||
Total net revenues | 511,515 | 742,252 | 1,169,019 | 1,686,938 | ||||||||||
Expenses: | ||||||||||||||
Compensation | 198,192 | 265,067 | 443,739 | 523,896 | ||||||||||
Loan origination | 44,931 | 75,675 | 120,264 | 163,067 | ||||||||||
Technology | 34,621 | 34,236 | 69,407 | 67,908 | ||||||||||
Servicing | 3,051 | 31,290 | 1,805 | 50,473 | ||||||||||
Other | 53,194 | 56,469 | 121,758 | 96,071 | ||||||||||
Total expenses | 333,989 | 462,737 | 756,973 | 901,415 | ||||||||||
Income before provision for income taxes | 177,526 | 279,515 | 412,046 | 785,523 | ||||||||||
Provision for income taxes | 48,363 | 75,286 | 109,290 | 204,426 | ||||||||||
Net income | $ | 129,163 | $ | 204,229 | $ | 302,756 | $ | 581,097 | ||||||
Earnings per share | ||||||||||||||
Basic | $ | 2.38 | $ | 3.10 | $ | 5.51 | $ | 8.61 | ||||||
Diluted | $ | 2.28 | $ | 2.94 | $ | 5.23 | $ | 8.16 | ||||||
Annualized return on average stockholders' equity | 14.9% | 23.3% | 17.6% | 33.2% | ||||||||||
Dividend declared per share | $ | 0.20 | $ | 0.20 | $ | 0.40 | $ | 0.40 | ||||||
Income before provision for income taxes by segment: | ||||||||||||||
Mortgage banking: | ||||||||||||||
Production | $ | 9,885 | $ | 244,442 | $ | 19,155 | $ | 607,337 | ||||||
Servicing | 167,394 | 30,924 | 392,547 | 172,668 | ||||||||||
Total mortgage banking | 177,279 | 275,366 | 411,702 | 780,005 | ||||||||||
Investment management | 247 | 4,149 | 344 | 5,518 | ||||||||||
$ | 177,526 | $ | 279,515 | $ | 412,046 | $ | 785,523 | |||||||
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (1) | $ | 165,710 | $ | 471,440 | $ | 333,753 | $ | 1,145,748 | ||||||
During the period: | ||||||||||||||
Interest rate lock commitments issued | $ | 17,872,576 | $ | 34,271,160 | $ | 42,998,079 | $ | 70,389,873 | ||||||
At end of period: | ||||||||||||||
Interest rate lock commitments outstanding | $ | 7,665,657 | $ | 13,879,343 | ||||||||||
Unpaid principal balance of loan servicing portfolio: | ||||||||||||||
Owned: | ||||||||||||||
Mortgage servicing rights and liabilities | $ | 297,311,164 | $ | 258,610,649 | ||||||||||
Loans held for sale | 3,575,712 | 10,438,935 | ||||||||||||
300,886,876 | 269,049,584 | |||||||||||||
Subserviced for PMT | 226,388,582 | 204,174,462 | ||||||||||||
$ | 527,275,458 | $ | 473,224,046 | |||||||||||
Net assets of PennyMac Mortgage Investment Trust | $ | 2,070,640 | $ | 2,343,390 | ||||||||||
Book value per share | $ | 65.38 | $ | 54.49 | ||||||||||
| (1) | To provide investors with information in addition to our results as determined by accounting principles generally accepted in the United States (“GAAP”), we disclose Adjusted EBITDA as a non-GAAP measure. Adjusted EBITDA is a measure that is frequently used in our industry to measure performance and we believe that this measure provides supplemental information that is useful to investors. Adjusted EBITDA is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income, or any other performance measure calculated in accordance with GAAP. |
We define “Adjusted EBITDA” as net income plus provision for income taxes, depreciation and amortization, excluding decrease (increase) in fair value of mortgage servicing rights (“MSRs”) net of mortgage servicing liabilities (“MSLs”), due to changes in the valuation inputs we use in our valuation models, increase (decrease) in
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fair value of excess servicing spread (“ESS”) payable to PMT, hedging losses (gains) associated with MSRs, stock-based compensation and interest expense on corporate debt or corporate revolving credit facilities and capital lease.
We believe that the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. However, other companies may define Adjusted EBITDA differently, and as a result, our measures of Adjusted EBITDA may not be directly comparable to those of other companies.
Adjusted EBITDA measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| a) | they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; |
| b) | they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; and |
| c) | they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows. |
Because of these limitations, Adjusted EBITDA measures are not intended as alternatives to net income as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the periods indicated:
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Business Trends
Due to significant inflationary pressures, the U.S. Federal Reserve raised the federal funds rate in the first half of 2022 and is expected to continue to raise interest rates through the year as well as reduce the federal government’s overall portfolio of Treasury and mortgage-backed securities. Increasing interest rates are expected to reduce the size of the mortgage origination market from an estimated $4.4 trillion in 2021 to a current forecast range from $2.4 trillion to $2.8 trillion for 2022 according to leading economists. Lower projected mortgage transaction volumes and increasing interest rates are expected to cause a decrease in all mortgage production activities and increase competition in the mortgage production business, while also leading to a reduction in prepayment speeds in our mortgage servicing portfolio from the elevated levels experienced in 2021. Rising interest rates will increase the costs of certain floating rate borrowings, as well as provide greater interest income from our placement fees on deposits and loans held for sale. We have and expect to continue to reduce business expenses to align with the lower projected mortgage production activities for the remainder of the year.
Income Before Provisions for Income Taxes
For the quarter ended June 30, 2022, income before provision for income taxes decreased $102.0 million compared to the same period in 2021. The decrease was primarily due to a $360.1 million decrease in Net gains on loans held for sale at fair value, a $57.3 million decrease in Loan origination fees and a $33.4 million decrease in fulfillment fees from PMT due to lower production volumes and overall gain on sale margins during the quarter ended June 30, 2022 compared to the same period in 2021, partially offset by a $223.6 million increase in Net loan servicing fees reflecting improved valuation results in our MSRs and a $128.7 million decrease in total expenses, primarily due to reductions in compensation, loan origination and servicing expenses.
For the six months ended June 30, 2022, income before provision for income taxes decreased $373.5 million compared to the same period in 2021. The decrease was primarily due to a $816.0 million decrease in Net gains on loans held for sale at fair value, a $93.5 million decrease in Loan origination fees and a $77.5 million decrease in fulfillment fees from PMT due to lower production volumes and gain on sale margins during the six months ended June 30, 2022 compared to the same period in 2021, partially offset by a $470.2 million increase in Net loan servicing fees reflecting improved valuation results in our MSRs and a $144.4 million decrease in total expenses.
Net Gains on Loans Held for Sale at Fair Value
In our production segment, revenues reflect the effects of increasing interest rates on both demand for mortgage loans and gain on sale margins during the quarter and six months ended June 30, 2022 compared to the strong demand due to the historically low interest rate environment that prevailed during the same periods in 2021.
During the quarter and six months ended June 30, 2022, we recognized Net gains on loans held for sale at fair value totaling $222.6 million and $521.0 million, respectively, a decrease of $360.1 million and $816.0 million, respectively, compared to the same periods in 2021. The decreases were primarily due to lower production volumes, lower overall gain on sale margins and decreases in early buyout (“EBO”) loan redelivery gains as a result of lower volumes and modifications as well as gain on sale margins during the quarter and six months ended June 30, 2022 compared to the same periods in 2021.
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Our net gains on loans held for sale are summarized below:
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Non-cash elements of gain on sale of loans held for sale
Our gains on loans held for sale include both cash and non-cash elements. We recognize a significant portion of our gains on loans held for sale when we make commitments to purchase or fund mortgage loans. We recognize this gain in the form of interest rate lock commitments (“IRLC”). We adjust our initial gain amount as the loan purchase or origination process progresses until the loan is either funded or cancelled. We also receive non-cash proceeds on sale that include our estimate of the fair value of MSRs and we incur liabilities for mortgage servicing liabilities (which represent the fair value of the costs we expect to incur in excess of the fees we receive for EBO loans we have resold to third party investors) and for the fair value of our estimate of the losses we expect to incur relating to the representations and warranties we provide in our loan sale transactions.
The MSRs, MSLs, and liability for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates represented approximately 179% and 195% of our gains on sales of loans held for sale at fair value for the quarter and six months ended June 30, 2022, respectively, as compared to 72% and 66% for the quarter and six months ended June 30, 2021, respectively. These estimates change as circumstances change and changes in these estimates are recognized in income in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our results of operations.
Interest Rate Lock Commitments, Mortgage Servicing Rights and Mortgage Servicing Liabilities
The methods and key inputs we use to measure and update our measurements of IRLCs, MSRs and MSLs are detailed in Note 6 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Quarterly Report.
Representations and Warranties
Our agreements with the purchasers and insurers include representations and warranties related to the 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 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 loans with the identified defects or indemnify the purchaser or insurer. In such cases, we bear any subsequent credit losses on the loans. Our credit losses may be reduced by any recourse we have to correspondent originators that sold such loans to us 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 seller.
Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current unpaid principal balance (“UPB”) of loans sold by us and subject to representation and warranty liability to date represents the maximum exposure to repurchases related to representations and warranties.
The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable judgment. The level of 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 underlying loans. Our estimate of the liability for representations and warranties is developed by our credit administration staff 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.
The method used to estimate our losses on representations and warranties is a function of our estimate of future defaults, loan repurchase rates, the severity of loss in the event of default, if applicable, and the probability of reimbursement by the correspondent loan seller. We establish a liability at the time loans are sold and review our liability estimate on a periodic basis.
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We recorded provisions for losses under representations and warranties relating to current loan sales as a component of Net gains on loans held for sale at fair value totaling $2.2 million and $6.2 million for the quarter and six months ended June 30, 2022, respectively, compared to $10.3 million and $20.4 million for the quarter and six months ended June 30, 2021, respectively. The decreases in the provision relating to current loan sales are primarily attributable to a reduction in loan sales.
We also recorded reductions in the liability of $2.2 million and $5.4 million during the quarter and six months ended June 30, 2022, respectively, compared to $3.6 million and $7.3 million during the quarter and six months ended June 30, 2021, respectively. The reductions in the liability resulted from previously sold loans meeting performance criteria established by the Agencies which significantly limit the likelihood of certain repurchase or indemnification claims.
Following is a summary of loan repurchase activity and the UPB of loans subject to representations and warranties:
During the quarter and six months ended June 30, 2022, we repurchased loans totaling $28.0 million and $45.5 million, respectively. We charged losses of $3.4 million and $5.0 million to the liability during the quarter and six months ended June 30, 2022, respectively. Our losses arising from representations and warranties have historically been minimized by our ability to either recover most of the losses from our correspondent sellers or from our ability to profitably refinance and resell repurchased loans. The recent increases in market interest rates may affect certain of our correspondent sellers’ ability to honor their obligations to repurchase delinquent loans. Furthermore, these market factors and expected economic slowdown may increase the level of borrower defaults, increasing the level of repurchases we are required to make and making profitable resolutions of repurchased loans more difficult. We expect these developments will increase the losses we incur in relation to our representations and warranties compared to our historical experience. However, we believe our recorded liability is presently adequate to absorb such losses.
Loan Origination Fees
Loan origination fees decreased $57.3 million and $93.5 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decreases were primarily due to a decrease in the volume of loans we produced.
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Fulfillment Fees from PennyMac Mortgage Investment Trust
Fulfillment fees from PMT represent fees we collect for services we perform on behalf of PMT in connection with the acquisition, packaging and sale of loans. The fulfillment fees are calculated based on the number of loans we fulfill for PMT.
Fulfillment fees decreased $33.4 million and $77.5 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decreases were primarily due to a decrease in loan production volume.
Net Loan Servicing Fees
Our net loan servicing fee income has two primary components: fees earned for servicing the loans and the effects of MSR and MSL valuation changes, net of hedging results as summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Loan servicing fees | $ | 302,350 | $ | 260,021 | $ | 593,608 | $ | 519,466 | ||||
Effects of MSRs and MSLs | (63,903) | (245,150) | (68,852) | (464,875) | ||||||||
Net loan servicing fees | $ | 238,447 | $ | 14,871 | $ | 524,756 | $ | 54,591 | ||||
Loan servicing fees
Following is a summary of our loan servicing fees:
Loan servicing fees from non-affiliates generally relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the unpaid principal balance of the loan serviced and we collect these fees from borrower payments. Loan servicing fees from PMT are primarily related to PMT’s MSRs and are established at monthly per-loan amounts based on whether the loan is a fixed-rate or adjustable-rate loan and the loan’s delinquency or foreclosure status as detailed in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report. Other loan servicing fees are comprised primarily of borrower-contracted fees such as late charges and reconveyance fees.
The increases in loan servicing fees from non-affiliates and from PMT for the quarter and six months ended June 30, 2022 were primarily due to growth of our loan servicing portfolio as compared to the same periods in 2021. The decreases in other loan servicing fees for the quarter and six months ended June 30, 2022, were primarily due to decreases in fees charged to correspondent lenders related to borrower early loan payoffs resulting from the reduction in prepayment activity we experienced in the current rising interest rate environment as compared to the same periods in 2021.
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Mortgage Servicing Rights and Mortgage Servicing Liabilities
We have elected to carry our servicing assets and liabilities at fair value. Changes in fair value have two components: changes due to realization of the contractual servicing fees and changes due to changes in market inputs used to estimate the fair value of MSRs and MSLs. We endeavor to moderate the effects of changes in fair value by entering into derivatives transactions and, until March 2021, by financing certain of our purchases of MSRs with the sale of a portion of the MSR assets’ cash flows to PMT in the form of ESS.
Change in fair value of MSRs, MSLs and ESS and the related hedging results are summarized below:
Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of the remaining cash flows to be realized. During the quarter and six months ended June 30, 2022, realization of cash flows increased primarily due to the growth in our investment in MSRs partially offset by a reduction in the rate at which the MSRs are expected to be realized as a result of slower prepayment expectations in 2022 as compared to 2021.
Other changes in fair value of MSRs increased during both the six months ended June 30, 2022 and the same period in 2021 due to significant increases in interest rates and resulting decreases in expected future prepayment speeds in each period. The change for the six months ended June 30, 2022 was larger than the same period in 2021 due to the larger increase in interest rates experienced during the six months ended June 30, 2022.
Hedging results reflect valuation losses attributable to the effects of interest rate increases on the fair value of the hedging instruments during the six months ended June 30, 2022 and 2021.
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Following is a summary of our loan servicing portfolio:
| (1) | Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act. |
Net Interest Expense
Net interest expense decreased $371,000 and $2.6 million during the quarter and six months ended June 30, 2022 compared to the same periods in 2021. The decreases were primarily due to:
| ● | an increase in placement fees we receive relating to custodial funds that we manage due to increased earning rates, partially offset by lower average balances of custodial funds held; |
| ● | a decrease in interest shortfall on repayments of loans serviced for Agency securitizations, reflecting decreased loan payoffs as a result of decreased borrower refinancing activity due to the higher interest rate environment; partially offset by |
| ● | an increase in interest on unsecured senior notes. |
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Management Fees from PennyMac Mortgage Investment Trust
Quarter ended June 30, | Six months ended June 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(in thousands) | ||||||||||||
Base management |
| $ | 7,910 |
| $ | 8,648 | $ | 16,027 |
| $ | 17,097 | |
Performance incentive | — | 3,265 | — | 3,265 | ||||||||
$ | 7,910 | $ | 11,913 | $ | 16,027 | $ | 20,362 | |||||
Net assets of PMT at end of period | $ | 2,070,640 | $ | 2,343,390 | ||||||||
Management fees decreased $4.0 million and $4.3 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decreases were primarily due to the non-recurrence of $3.3 million of performance inventive fees earned during the quarter and six months ended June 30, 2021, as result of PMT’s profitability during the measurement period ended June 30, 2021, on which its performance incentive fee was based. Base management fees declined due to a decrease in PMT’s shareholders’ equity which is the basis for the base management fees.
Expenses
Compensation
Compensation expenses are summarized below:
Quarter ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
Salaries and wages | $ | 116,059 | $ | 154,391 | $ | 258,068 | $ | 298,022 | ||||
Severance | 7,456 | 15 | 12,591 | 84 | ||||||||
Incentive compensation | 39,245 | 71,888 | 93,543 | 144,543 | ||||||||
Taxes and benefits | 20,484 | 29,879 | 55,314 | 61,476 | ||||||||
Stock and unit-based compensation | 14,948 | 8,894 | 24,223 | 19,771 | ||||||||
$ | 198,192 | $ | 265,067 | $ | 443,739 | $ | 523,896 | |||||
Head count: | ||||||||||||
Average | 5,706 | 7,151 | 6,316 | 7,008 | ||||||||
Period end | 5,088 | 7,231 | ||||||||||
Compensation expense decreased $66.9 million and $80.2 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decreases were primarily due to reductions in loan production in 2022 that resulted in a workforce reduction and decreased incentive compensation accruals due to reduced achievement of profitability targets.
Loan origination
Loan origination expense decreased $30.7 million and $42.8 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decreases were primarily due to decreased lending activities during the quarter and six months ended June 30, 2022 compared to the same periods during 2021.
Servicing
Servicing expenses decreased $28.2 million and $48.7 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. These decreases were primarily due to a larger reversal of the provision for estimated servicing advance losses recorded in prior periods than during the quarter and six months ended June 30, 2022. The reduction reflects the ongoing improvements in the performance of our servicing portfolio as we continue to resolve delinquent loans relating to the COVID-19 pandemic.
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Professional services
Professional expenses decreased $4.0 million during the quarter ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease in consulting expenses related to technology infrastructure. Professional expenses increased $2.8 million during the six months ended June 30, 2022 compared to the same period in 2021 primarily due to increase in legal and consulting fees related to our investments in technology infrastructure.
Marketing and advertising
Marketing and advertising expense increased $2.8 million and $18.5 million during the quarter and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The increases were primarily attributable to our new brand marketing campaign and increased marketing expenses for consumer direct lending.
Provision for Income Taxes
Our effective income tax rates were 27.2% and 26.5% during the quarter and six months ended June 30, 2022, respectively, compared to 26.9% and 26.0% during the same periods in 2021.
Balance Sheet Analysis
Following is a summary of key balance sheet items as of the dates presented:
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
ASSETS | ||||||
Cash and short-term investments | $ | 1,420,357 | $ | 346,942 | ||
Loans held for sale at fair value | 3,586,810 | 9,742,483 | ||||
Derivative assets | 103,901 | 333,695 | ||||
Servicing advances, net | 570,822 | 702,160 | ||||
Investments in and advances to affiliates | 44,271 | 41,391 | ||||
Mortgage servicing rights | 5,217,167 | 3,878,078 | ||||
Loans eligible for repurchase | 2,778,768 | 3,026,207 | ||||
Other | 550,159 | 705,656 | ||||
Total assets | $ | 14,272,255 | $ | 18,776,612 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Short-term debt | $ | 2,943,932 | $ | 7,772,580 | ||
Long-term debt | 3,571,315 | 3,077,330 | ||||
6,515,247 | 10,849,910 | |||||
Liability for loans eligible for repurchase | 2,778,768 | 3,026,207 | ||||
Income taxes payable | 885,721 | 685,262 | ||||
Other | 631,134 | 796,908 | ||||
Total liabilities | 10,810,870 | 15,358,287 | ||||
Stockholders' equity | 3,461,385 | 3,418,325 | ||||
Total liabilities and stockholders' equity | $ | 14,272,255 | $ | 18,776,612 | ||
Leverage ratios: | ||||||
Total debt / Stockholders' equity | 1.9 | 3.2 | ||||
Total debt / Tangible stockholders' equity | 2.0 | 3.3 | ||||
Total assets decreased $4.5 billion from $18.8 billion at December 31, 2021 to $14.3 billion at June 30, 2022. The decrease was primarily due to decreases of $6.2 billion in loans held for sale at fair value, partially offset by an increase of $1.3 billion in MSRs. The decrease in loans held for sale at fair value was primarily due to lower origination volume during the six months ended June 30, 2022.
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Total liabilities decreased $4.5 billion from $15.3 billion at December 31, 2021 to $10.8 billion at June 30, 2022. The decrease was primarily due to a decrease of $4.8 billion in short-term debt, partially offset by an increase of $494 million in long-term debt, reflecting decreased borrowing requirements relating to our inventory of loans held for sale, partially offset by financing of our growing investment in MSRs.
Cash Flows
Our cash flows are summarized below:
| Six months ended June 30, |
| ||||||||
2022 |
| 2021 |
| Change |
| |||||
(in thousands) | ||||||||||
Operating | $ | 6,131,516 | $ | 1,331,598 | $ | 4,799,918 | ||||
Investing | (427,377) |
| (145,239) |
| (282,138) | |||||
Financing | (4,628,817) |
| (1,394,954) |
| (3,233,863) | |||||
Net increase (decrease) in cash and restricted cash | $ | 1,075,322 | $ | (208,595) | $ | 1,283,917 | ||||
Our cash flows resulted in a net increase in cash and restricted cash of $1.1 billion during the six months ended June 30, 2022 as discussed below.
Operating activities
Net cash provided by operating activities totaled $6.1 billion during the six months ended June 30, 2022 compared with net cash provided in operating activities of $1.3 billion during the same period in 2021. Our cash flows from operating activities are primarily influenced by changes in the levels of our inventory of mortgage loans held for sale as shown below:
Six months ended June 30, | |||||||||
2022 | 2021 | ||||||||
(in thousands) | |||||||||
Cash flows from: | |||||||||
Loans held for sale | $ | 6,015,822 | $ | 1,530,900 | |||||
Other operating sources | 115,694 | (199,302) | |||||||
$ | 6,131,516 | $ | 1,331,598 | ||||||
Investing activities
Net cash used in investing activities during the six months ended June 30, 2022 totaled $427.4 million, primarily due to $574.1 million in net settlement of derivative financial instruments used to hedge our investment in MSRs, partially offset by a $188.2 million decrease in margin deposits. Net cash used in investing activities during the six months ended June 30, 2021 totaled $145.2 million, primarily due to $345.6 million in net settlement of derivative financial instruments used to hedge our investment in MSRs, partially offset by a $134.7 million decrease in margin deposits.
Financing activities
Net cash used in financing activities totaled $4.6 billion during the six months ended June 30, 2022, primarily due to a decrease of $4.8 billion in short-term borrowings and $255.1 million of common stock repurchases, partially offset by issuance of a $500 million term note. The reduction in borrowings reflects reduced inventory of loans held for sale. Net cash used in financing activities totaled $1.4 billion during the six months ended June 30, 2021, primarily due to a decrease of $761.0 million in borrowings, $443.4 million of repurchase of our common stock and $134.6 million of repayment of ESS financing.
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Liquidity and Capital Resources
Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans and on our MSR investments), 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 bank borrowings and proceeds from and issuance of equity or debt offerings. In addition, we utilized existing borrowings to increase our cash balances to over $1.4 billion in the second quarter of 2022.
The effect of the COVID-19 pandemic on our operations, liquidity and capital resources remain uncertain and difficult to predict, for further discussion of the potential impacts of the COVID-19 pandemic please also see the section entitled “Risk Factors” in Part II. Item 1A and in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 23, 2022.
Our current borrowing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. Our borrowing activities are in the form of sales of assets under agreements to repurchase, sales of mortgage loan participation purchase and sale certificates, notes payable secured by mortgage servicing rights, a capital lease and unsecured senior notes. A significant amount of our borrowings have short-term maturities and provide for advances with terms ranging from 30 days to 364 days. Because a significant portion of our current debt facilities consist of short-term debt, we expect to renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any 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, maximum daily and ending balances:
The differences between the average and maximum daily balances on our repurchase agreements reflect both the effect of decreasing loan inventory levels during the six months ended June 30, 2022 and the fluctuations throughout the periods of our inventory as we fund and pool mortgage loans for sale in guaranteed mortgage securitizations.
Our repurchase 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 decrease 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.
Our secured financing agreements at PLS require us to comply with various financial covenants. The most significant financial covenants currently include the following:
| ● | a minimum in unrestricted cash and cash equivalents of $100 million; |
| ● | a minimum tangible net worth of $1.25 billion; |
| ● | 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 that are similar to those being financed under certain of our existing secured financing agreements. |
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With respect to servicing performed for PMT, PLS is also subject to certain covenants under PMT’s debt agreements. Covenants in PMT’s debt agreements are equally, or sometimes less, restrictive than the covenants described above.
Our Unsecured Notes’ indentures contain covenants that limit the Company and our restricted subsidiaries’ ability to engage in specified types of transactions, including, but not limited to the following:
| ● | pay dividends or distributions, redeem or repurchase equity, prepay subordinated debt and make certain loans or investments; |
| ● | incur, assume or guarantee additional debt or issue preferred stock; |
| ● | incur liens on assets; |
| ● | merge or consolidate with another person or sell all or substantially all of our assets to another person; |
| ● | transfer, sell or otherwise dispose of certain assets including capital stock of subsidiaries; |
| ● | enter into transactions with affiliates; and |
| ● | allow to exist certain restrictions on the ability of our non-guarantor restricted subsidiaries to pay dividends or make other payments to us. |
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.
We are also subject to liquidity and net worth requirements established by the Federal Housing Finance Agency (“FHFA”) for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie Mae, Freddie Mac, and Ginnie Mae for its approved single-family issuers, as summarized below:
| ● | The 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 (reduced by 70% of the UPB of nonperforming Agency loans that are in COVID-19 payment forbearance and were current when they entered such forbearance) 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; |
| ● | The FHFA net worth requirement is a minimum net worth of $2.5 million plus 0.25% (25 basis points) of UPB for total 1-4 unit residential mortgage loans serviced and a tangible net worth/total assets ratio greater than or equal to 6%; |
| ● | The 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 |
| ● | The 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.
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On August 4, 2021, our Board of Directors increased our common stock repurchase program from $1 billion to $2 billion. Share repurchases may be effected through open market purchases or privately negotiated transactions in accordance with applicable rules and regulations. The stock repurchase program does not have an expiration date and the authorization does not obligate us to acquire any particular amount of common stock. From inception through June 30, 2022, we have repurchased approximately $1.6 billion of common shares under our stock repurchase program.
We continue to explore a variety of means of financing our business, 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.
Off-Balance Sheet Arrangements and Guarantees
As of June 30, 2022, we have not entered into any off-balance sheet arrangements.
Debt Obligations
As described further above in “Liquidity and Capital Resources,” we currently finance certain of our assets through short-term borrowings with major financial institutions in the form of sales of assets under agreements to repurchase and mortgage loan participation purchase and sale agreements. We access the capital market for long-term debt through the issuance of secured term notes and unsecured senior notes and we have an outstanding long term capital lease. The issuer under our secured term note facilities is PLS or a wholly-owned issuer trust guaranteed by PNMAC. In addition, we have issued unsecured senior notes guaranteed by certain of our restricted wholly-owned domestic subsidiaries.
Under the terms of these financing 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, 2022, we believe we were in compliance in all material respects with these covenants.
Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires PLS to maintain positive net income for at least one of the previous two consecutive quarters, or other similar measures. PLS is compliant with all such conditions.
The financing 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 financing 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.
The Company issued unsecured senior notes (the “Unsecured Notes”) to qualified institutional buyers in 2020 and 2021 under Rule 144A of the Securities Act of 1933, as amended. The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries defined in the indentures under which the Unsecured Notes were issued). The Company is required to maintain certain financial covenants under terms of the Unsecured Notes, as described further above in “Liquidity and Capital Resources.” We believe the Company was in compliance with all financial covenants in the Unsecured Notes as of June 30, 2022.
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Our debt obligations have the following size and maturities:
| (1) | Outstanding indebtedness as of June 30, 2022. |
| (2) | Total facility size, committed facility and maturity date include contractual changes through the date of this Report. |
| (3) | The $100 million is borrowed from CSFB and Citibank, N.A. under a sale of a VFN under an agreement to repurchase up to a maximum of $500 million secured by Ginnie Mae MSRs. No borrowing is outstanding from CSFB and Citibank, N.A. under a sale of the GMSR Servicing Advance Notes under an agreement to repurchase up to a maximum of $600 million. Maximum amounts borrowed under both agreements to repurchase may be reduced by amounts utilized under other debt agreements with CSFB and Citibank N.A. |
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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, 2022:
| (1) | The borrowing facility with Credit Suisse First Boston Mortgage Capital LLC and Citibank, N.A. is in the form of a sale of a variable funding note under an agreement to repurchase. |
| (2) | The borrowing facilities with Credit Suisse First Boston Mortgage Capital LLC and Citibank, N.A. are in the form of an asset sale under agreement to repurchase. |
All debt financing arrangements that matured between June 30, 2022 and the date of this Report have been renewed or extended and are described in Note 12—Short-Term Debt to the accompanying consolidated financial statements.
Critical Accounting Estimates
Preparation of financial statements in compliance with GAAP requires us to make estimates 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. Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.
Our Annual Report on Form 10-K for the year ended December 31, 2021 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.
Item 3. 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 fair value risk, interest rate risk and prepayment risk.
Fair Value Risk
Our IRLCs, mortgage loans held for sale, MSRs and MSLs are reported at their fair values. The fair value of these assets fluctuates primarily due to changes in interest rates. The fair value risk we face is primarily attributable to interest rate risk and prepayment risk.
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Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. Changes in interest rates affect both the fair value of, and interest income we earn from, our mortgage-related investments and our derivative financial instruments. This effect is most pronounced with fixed-rate mortgage assets.
In general, rising interest rates negatively affect the fair value of our IRLCs and inventory of mortgage loans held for sale and positively affect the fair value of our MSRs. Changes in interest rates significantly influence the prepayment speeds of the loans underlying our investments in MSRs, which can have a significant effect on their fair values. Changes in interest rate are most prominently reflected in the prepayment speeds of the loans underlying our investments in MSRs and the discount rate used in their valuation.
Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Presently much of our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, as determined by the particular financing arrangement.
Prepayment Risk
To the extent that the actual prepayment rate on the mortgage loans underlying our MSRs differs from what we projected when we initially recognized these assets and liabilities when we measure fair value as of the end of each reporting period, the carrying value of these assets and liabilities will be affected. In general, a decrease in the principal balances of the mortgage loans underlying our MSRs or an increase in prepayment expectations will decrease our estimates of the fair value of the MSRs, thereby reducing net servicing income, partially offset by the beneficial effect on net servicing income of a corresponding reduction in the fair value of our MSLs.
Risk Management Activities
We engage in risk management activities primarily in an effort to mitigate the effect of changes in interest rates on the fair value of our assets. To manage this price risk, we use derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of our assets, primarily prepayment exposure on our MSR investments as well as IRLCs and our inventory of loans held for sale. Our objective is to minimize our hedging expense and maximize our loss coverage based on a given hedge expense target. We do not use derivative financial instruments other than IRLCs for purposes other than in support of our risk management activities.
Our strategies are reviewed daily within a disciplined risk management framework. We use a variety of interest rate and spread shifts and scenarios and define target limits for market value and liquidity loss in those scenarios. With respect to our IRLCs and inventory of loans held for sale, we use MBS forward sale contracts to lock in the price at which we will sell the mortgage loans or resulting MBS, and further use MBS put options to mitigate the risk of our IRLCs not closing at the rate we expect. With respect to our MSRs, we seek to mitigate mortgage-based loss exposure utilizing MBS forward purchase and sale contracts, address exposures to smaller interest rate shifts with Treasury and interest rate swap futures, and use options and swaptions to achieve target coverage levels for larger interest rate shocks.
Fair Value Sensitivities
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 inputs used; and do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as earnings forecasts.
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Mortgage Servicing Rights
The following tables summarize the estimated change in fair value of MSRs as of June 30, 2022, given several shifts in pricing spreads, prepayment speed and annual per loan cost of servicing:
Change in fair value attributable to shift in: |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
(in thousands) | |||||||||||||||||||
Prepayment speed | $ | 346,740 | $ | 167,258 | $ | 82,179 | $ | (79,424) | $ | (156,226) | $ | (302,462) | |||||||
Pricing spread | $ | 327,698 | $ | 158,923 | $ | 78,280 | $ | (76,013) | $ | (149,848) | $ | (291,326) | |||||||
Annual per-loan cost of servicing | $ | 150,461 | $ | 75,231 | $ | 37,615 | $ | (37,615) | $ | (75,231) | $ | (150,461) | |||||||
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rule 13a-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be involved in various legal and regulatory proceedings, lawsuits and other claims arising in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, results of operations, or cash flows of the Company. See Note 16 — Commitments and Contingencies, to the financial statements contained in this report for a discussion of legal proceedings that are incorporated by reference into this Item 1.
Item 1A. Risk Factors
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, 2021, filed with the SEC on February 23, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended June 30, 2022.
Stock Repurchase Program
The following table summarizes information about our stock repurchase during the quarter ended June 30, 2022:
| Total number |
|
|
| Total number of | Approximate dollar | ||||||
April 1, 2022 – April 30, 2022 | 904,989 | $ | 48.63 | 904,989 | $ | 503,957,362 | ||||||
May 1, 2022 – May 31, 2022 | 559,604 | $ | 48.04 | 559,604 | $ | 477,072,376 | ||||||
June 1, 2022 – June 30, 2022 | 962,400 | $ | 44.42 | 962,400 | $ | 434,321,914 | ||||||
Total | 2,426,993 | $ | 46.83 | 2,426,993 | $ | 434,321,914 | ||||||
| (1) | In August 2021, the Company’s board of directors approved an increase to the Company’s common stock repurchase program from $1 billion to $2 billion. The stock repurchase program does not require the Company to purchase a specific number of shares, and the timing and amount of any shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Stock repurchases may be effected through privately negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The stock repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
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Item 6. Exhibits
Incorporated by Reference | |||
|---|---|---|---|
Exhibit No. | Exhibit Description | Form | Filing Date |
2.1 | 8-K12B | November 1, 2018 | |
3.1 | Amended and Restated Certificate of Incorporation of New PennyMac Financial Services, Inc. | 8-K12B | November 1, 2018 |
3.1.1 | 8-K12B | November 1, 2018 | |
3.2 | Amended and Restated Bylaws of New PennyMac Financial Services, Inc. | 8-K12B | November 1, 2018 |
3.2.1 | 10-Q | November 4, 2019 | |
10.1† | * | ||
10.2 | 8-K | June 14, 2022 | |
10.3 | 8-K | June 14, 2022 | |
10.4 | * | ||
10.5 | * | ||
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10.6 | * | ||
10.7 | * | ||
10.8 | * | ||
10.9 | * | ||
31.1 | * | ||
31.2 | * | ||
32.1 | ** | ||
32.2 | ** | ||
101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (ii) the Consolidated Statements of Operation for the quarter ended June 30, 2022 and June 30, 2021, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarter ended June 30, 2022 and June 30, 2021, (iv) the Consolidated Statements of Cash Flows for the quarter ended June 30, 2022 and June 30, 2021 and (v) the Notes to the Consolidated Financial Statements. | * | |
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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*Filed herewith
**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 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. | ||
Dated: August 5, 2022 | By: | /s/ DAVID A. SPECTOR |
David A. Spector | ||
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
Dated: August 5, 2022 | By: | /s/ DANIEL S. PEROTTI |
Daniel S. Perotti | ||
Senior Managing Director and Chief Financial Officer (Principal Financial Officer) | ||
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Exhibit 10.1
PENNYMAC FINANCIAL SERVICES, INC.
2022 EQUITY INCENTIVE PLAN
| | Page |
1. | Purpose | 1 |
2. | Definitions | 1 |
3. | Term of the Plan | 5 |
4. | Stock Subject to the Plan | 5 |
| 4.1 Plan Share Limitations. | 5 |
| 4.2 Non-Employee Director Limit | 5 |
| 4.3 Adjustment of Limitations | 5 |
5. | Administration | 6 |
6. | Authorization of Grants | 6 |
| 6.1 Eligibility | 6 |
| 6.2 General Terms of Awards | 6 |
| 6.3 Effect of Termination of Employment, Etc | 6 |
| 6.4 Non-Transferability of Awards | 6 |
7. | Specific Terms of Awards | 7 |
| 7.1 Options. | 7 |
| 7.2 Stock Appreciation Rights. | 8 |
| 7.3 Restricted Stock. | 8 |
| 7.4 Restricted Stock Units. | 9 |
| 7.5 Performance Units. | 9 |
| 7.6 Stock Grants | 10 |
| 7.7 Awards to Participants Outside the United States | 10 |
8. | Adjustment Provisions | 10 |
| 8.1 Adjustment for Corporate Actions | 10 |
| 8.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events | 10 |
| 8.3 Related Matters | 11 |
| 8.4 Transactions | 11 |
9. | Change of Control | 12 |
10. | Settlement of Awards | 13 |
| 10.1 In General | 13 |
| 10.2 Violation of Law | 13 |
| 10.3 Corporate Restrictions on Rights in Stock | 14 |
| 10.4 Investment Representations | 14 |
| 10.5 Registration | 14 |
| 10.6 Placement of Legends; Stop Orders; etc | 14 |
| 10.7 Tax Withholding | 15 |
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| 10.8 Company Charter and By-Laws; Other Company Policies | 15 |
11. | Reservation of Stock | 15 |
12. | Limitation of Rights in Stock; No Special Service Rights | 15 |
13. | Unfunded Status of Plan | 16 |
14. | Nonexclusivity of the Plan | 16 |
15. | No Guarantee of Tax Consequences | 16 |
16. | Termination and Amendment of the Plan | 16 |
| 16.1 Termination or Amendment of the Plan | 16 |
| 16.2 Termination or Amendment of Outstanding Awards; Assumptions | 16 |
| 16.3 Limitations on Amendments, Etc | 17 |
17. | Notices and Other Communications | 17 |
18. | Governing Law | 17 |
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PENNYMAC FINANCIAL SERVICES, INC.
2022 EQUITY INCENTIVE PLAN
1.Purpose
This Plan is intended to encourage ownership of Stock by employees, consultants and directors of the Company and its Affiliates and to provide additional incentive for them to promote the success of the Company’s business through the grant of Awards of or pertaining to shares of the Company’s Stock. The Plan is intended to be an incentive stock option plan within the meaning of Section 422 of the Code, but not all Awards are required to be Incentive Options.
2.Definitions
As used in this Plan, the following terms shall have the respective meanings set out below, unless the context clearly requires otherwise:
2.1.Accelerate, Accelerated, and Acceleration, means: (a) when used with respect to an Option or Stock Appreciation Right, that as of the time of reference the Option or Stock Appreciation Right will become exercisable with respect to some or all of the shares of Stock for which it was not then otherwise exercisable by its terms; (b) when used with respect to Restricted Stock or Restricted Stock Units, that the Risk of Forfeiture otherwise applicable to the Stock or Units shall expire with respect to some or all of the shares of Restricted Stock or Units then still otherwise subject to the Risk of Forfeiture; and (c) when used with respect to Performance Units, that the applicable Performance Goals or other business objectives shall be deemed to have been met as to some or all of the Units.
2.2.Affiliate means any corporation, partnership, limited liability company, business trust, or other entity controlling, controlled by or under common control with the Company.
2.3.Assumed and Assumption have the meanings given such terms in Section 9.
2.4.Award means any grant or sale pursuant to the Plan of Options, Stock Appreciation Rights, Performance Units, Restricted Stock, Restricted Stock Units, or Stock Grants.
2.5.Award Agreement means an agreement between the Company and the recipient of an Award, or other notice of grant of an Award, setting forth the terms and conditions of the Award.
2.6.Board means the Company’s Board of Directors.
2.7.Change of Control means the occurrence of any of the following after the date of approval of the Plan by the Board:
(a)any (i) merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (ii) sale or exchange of all of the Stock of the Company for cash, securities or other property, (iii) sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions, or (iv) any liquidation or dissolution of the Company, unless securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities immediately prior to that transaction; or
(b)any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means of a merger or consolidation, beneficial ownership (determined pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the said Exchange Act) of securities possessing more than
20% of the total combined voting power of the Company’s outstanding securities unless pursuant to a tender or exchange offer made directly to the Company’s stockholders that the Board recommends such stockholders accept, other than (i) the Company or any of its Affiliates, (ii) an employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities; or
(c)over a period of twelve (12) consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board; or
(d)a majority of the Board votes in favor of a decision that a Change of Control has occurred.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur for purposes of the foregoing clause (b) solely as the result of an acquisition of Company securities by the Company which, by reducing the number of shares of the Company’s outstanding securities, increases the proportionate number of Company securities beneficially owned by any person to 20 percent or more of the combined voting power of all of the then outstanding Company securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Company securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 20 percent or more of the combined voting power of all of the then outstanding Company securities, then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (b); provided, however, that any increase in ownership of the Company by HC Partners shall not constitute a “Change on Control”.
2.1.Code means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto, and any regulations issued from time to time thereunder.
2.2.Committee means the Compensation Committee of the Board, which in general is responsible for the administration of the Plan, as provided in Section 5 of this Plan. For any period during which no such committee is in existence “Committee” shall mean the Board and all authority and responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the Board.
2.3.Company means PennyMac Financial Services, Inc., a corporation organized under the laws of the State of Delaware.
2.4.Disability means a physical or mental condition entitling a Participant to benefits under the applicable long-term disability plan of the Company or any its subsidiaries, or if no such plan exists, a “permanent and total disability” (within the meaning of Section 22(e)(3) of the Code) or as determined by the Company in accordance with applicable laws.
2.5.Effective Date means the date the Plan is approved by stockholders in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules.
2.6.Grant Date means the date as of which an Option is granted, as determined under Section 7.1(a).
2.7.Good Reason has the meaning set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it means if a Participant has complied with the “Good Reason Process (as defined below) following the occurrence of any of the following events, without such employee’s express written consent:
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(a)a material reduction by the Company in the Participant’s base salary except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; or
(b)a material change in Participant’s title, position, duties or responsibilities which represents an adverse change from his or her title, position, duties or responsibilities as in effect immediately prior to the Change of Control; or
(c)the relocation of the office at which the Participant is principally employed immediately prior to the Change of Control to a location more than fifty (50) miles from the location of such office, except to the extent the Participant was not previously assigned to a principal location and except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations at the time of the Change of Control.
Notwithstanding the foregoing, the Participant shall not have Good Reason to terminate employment with the Company (or otherwise have the right to claim that he or she has been constructively terminated from employment) due solely to the fact that the Company shall cease to be a public company and shall become a subsidiary of another publicly-traded corporation.
Any event described in Section 2.15(a), (b) or (c) which occurs prior to a Change of Control but which the Participant reasonably demonstrates (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with, or in anticipation of, a Change of Control, shall constitute Good Reason for purposes of this Plan notwithstanding that it occurred prior to a Change of Control.
Notwithstanding the foregoing, any change in the Participant’s duties or responsibilities or any relocation of the Participant’s principal place of employment shall not constitute Good Reason if such Participant either requested, volunteered to undertake, or consented in writing to, such change or relocation. The Participant’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
2.15.Good Reason Process means that (i) such employee reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) such employee notifies the Company in writing of the first occurrence of the Good Reason condition within 60 days of when such employee first becomes aware, or should with reasonable diligence have become aware, of the first occurrence of such condition; (iii) such employee cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”) to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) such employee terminates his employment within 60 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.
2.16.Incentive Option means an Option which by its terms is to be treated as an “incentive stock option” within the meaning of Section 422 of the Code.
2.17.Market Value means the value of a share of Stock on a particular date determined by such methods or procedures as may be established by the Committee. Unless otherwise determined by the Committee, the Market Value of Stock as of any date is the closing price for the Stock as reported on the New York Stock Exchange (or on any other national securities exchange on which the Stock is then listed) for that date or, if no closing price is reported for that date, the closing price on the first following date for which a closing price is reported. For purposes of Awards effective as of the effective date of the Company’s initial public offering, Market Value of Stock shall be the price at which the Company’s Stock is offered to the public in its initial public offering.
2.18.Nonstatutory Option means any Option that is not an Incentive Option.
2.19.Option means an option to purchase shares of Stock.
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2.20.Optionee means an eligible individual to whom an Option shall have been granted under the Plan.
2.21.Participant means any holder of an outstanding Award under the Plan.
2.22.Performance Criteria means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria used to establish Performance Goals are limited to: (a) cash flow (before or after dividends), (b) earnings per share (including, without limitation, earnings before interest, taxes, depreciation and amortization), (c) stock price, (d) return on equity, (e) stockholder return or total stockholder return, (f) return on capital (including, without limitation, return on total capital or return on invested capital), (g) return on investment, (h) return on assets or net assets, (i) market capitalization, (j) economic value added, (k) debt leverage (debt to capital), (l) revenue, (m) sales or net sales, (n) backlog, (o) income, pre-tax income or net income, (p) operating income or pre-tax profit, (q) operating profit, net operating profit or economic profit, (r) gross margin, operating margin or profit margin, (s) return on operating revenue or return on operating assets, (t) cash from operations, (u) operating ratio, (v) operating revenue, (w) market share improvement, (x) general and administrative expenses and (y) customer service.
2.23.Performance Goals means, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon one or more of the Performance Criteria. The Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, subsidiary, or an individual, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Affiliate, either individually, alternatively or in any combination, and measured either quarterly, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee.
2.24.Performance Period means the one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of one or more Performance Goals or other business objectives will be measured for purposes of determining a Participant’s right to, and the payment of, an Award.
2.25.Performance Unit means a right granted to a Participant under Section 7.5, to receive cash, Stock or other Awards, the payment of which is contingent on achieving Performance Goals or other business objectives established by the Committee.
2.26.Plan means this 2022 Equity Incentive Plan of the Company, as amended from time to time, and including any attachments or addenda hereto.
2.27.Restricted Stock means a grant or sale of shares of Stock to a Participant subject to a Risk of Forfeiture.
2.28.Restricted Stock Units means rights to receive shares of Stock at the close of a Restriction Period, subject to a Risk of Forfeiture.
2.29.Restriction Period means the period of time established by the Committee in connection with an Award of Restricted Stock or Restricted Stock Units, during which the shares of Restricted Stock or Restricted Stock Units are subject to a Risk of Forfeiture described in the applicable Award Agreement.
2.30.Risk of Forfeiture means a limitation on the right of the Participant to retain Restricted Stock or Restricted Stock Units, including a right of the Company to reacquire shares of Restricted Stock at less than its then Market Value, arising because of the occurrence or non-occurrence of specified events or conditions.
2.31.Stock means Common Stock, par value $0.0001 per share, of the Company, and such other securities as may be substituted for Stock pursuant to Section 8.
2.32.Stock Appreciation Right means a right to receive any excess in the Market Value of shares of Stock (except as otherwise provided in Section 7.2(c)) over a specified exercise price.
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2.33.Stock Grant means the grant of shares of Stock not subject to restrictions or other forfeiture conditions.
2.34.Stockholders’ Agreement means any agreement by and among the holders of at least a majority of the outstanding voting securities of the Company and setting forth, among other provisions, restrictions upon the transfer of shares of Stock or on the exercise of rights appurtenant thereto (including but not limited to voting rights).
2.35.Ten Percent Owner means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code). Whether a person is a Ten Percent Owner shall be determined with respect to an Option based on the facts existing immediately prior to the Grant Date of the Option.
3.Term of the Plan
Unless the Plan shall have been earlier terminated by the Board, Awards may be granted under this Plan at any time in the period commencing on the Effective Date and ending immediately prior to the tenth anniversary of the Effective Date; provided, however, no grants of Incentive Options may be granted under this Plan after the tenth anniversary of the date the Plan is approved by the Board. Awards granted pursuant to the Plan within that period shall not expire solely by reason of the termination of the Plan.
4.Stock Subject to the Plan
4.1Plan Share Limitations.
(a) The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 4,600,000 shares of Stock (the “Initial Limit”), plus, on January 1, 2023, and each January 1 thereafter through January 1, 2032, the number of shares of Stock authorized under this Section 4.1(a) of this 2022 Equity Incentive Plan will be increased by an amount equal to the least of (i) 1.75% of outstanding Stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (ii) 1,322,024 shares, and (iii) any lower amount determined by the Board (the “Annual Increase”). In no event shall the number of shares available for issuance pursuant to Incentive Options exceed 4,600,000 shares of Stock. For purposes of applying the foregoing limitations, (a) if any Option or Stock Appreciation Right expires, terminates, or is cancelled for any reason without having been exercised in full, or if any other Award is forfeited by the recipient or repurchased at less than its Market Value, the shares of Stock not purchased by the Optionee or which are forfeited by the recipient or repurchased shall again be available for Awards to be granted under the Plan and (b) if any Option is exercised by delivering previously owned shares of Stock in payment of the exercise price therefor, only the net number of shares, that is, the number of shares of Stock issued minus the number received by the Company in payment of the exercise price, shall be considered to have been issued pursuant to an Award granted under the Plan. In addition, settlement of any Award shall not count against the foregoing limitations except to the extent settled in the form of Stock.
(b)Shares of Stock issued pursuant to the Plan may be either authorized but unissued shares or shares held by the Company in its treasury.
4.2Non-Employee Director Limit. Notwithstanding anything to the contrary in this Plan, the maximum value of all Awards granted under this Plan to any director in his or her capacity as such during any single calendar year shall be $750,000. For the purpose of this limitation, the value of any Award shall be its grant date fair value, as determined in accordance with ASC Topic 718 or successor provision but excluding the impact of estimated forfeitures related to service-based vesting provisions
4.3Adjustment of Limitations. Each of the share limitations of this Section 4 shall be subject to adjustment pursuant to Section 8 of the Plan.
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5.Administration
The Plan shall be administered by the Committee; provided, however, that at any time and on any one or more occasions the Board may itself exercise any of the powers and responsibilities assigned the Committee under the Plan and when so acting shall have the benefit of all of the provisions of the Plan pertaining to the Committee’s exercise of its authorities hereunder; and provided further, however, that the Committee may delegate to an executive officer or officers the authority to grant Awards hereunder to employees who are not officers, and to consultants, in accordance with such guidelines as the Committee shall set forth at any time or from time to time. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make or to select the manner of making all determinations with respect to each Award to be granted by the Company under the Plan including the employee, consultant or director to receive the Award and the form of Award. In making such determinations, the Committee may take into account the nature of the services rendered by the respective employees, consultants, and directors, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective Award Agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee’s determinations made in good faith on matters referred to in the Plan shall be final, binding and conclusive on all persons having or claiming any interest under the Plan or an Award made pursuant hereto.
6.Authorization of Grants
6.1Eligibility. The Committee may grant from time to time and at any time prior to the termination of the Plan one or more Awards, either alone or in combination with any other Awards, to any employee of or consultant to one or more of the Company and its Affiliates or to any non-employee member of the Board or of any board of directors (or similar governing authority) of any Affiliate. However, only employees of the Company, and of any parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code, shall be eligible for the grant of an Incentive Option.
6.2General Terms of Awards. Each grant of an Award shall be subject to all applicable terms and conditions of the Plan (including but not limited to any specific terms and conditions applicable to that type of Award set out in the following Section), and such other terms and conditions, not inconsistent with the terms of the Plan, as the Committee may prescribe. No prospective Participant shall have any rights with respect to an Award, unless and until such Participant shall have complied with the applicable terms and conditions of such Award (including if applicable delivering a fully executed copy of any agreement evidencing an Award to the Company).
6.3Effect of Termination of Employment, Etc. Unless the Committee shall provide otherwise with respect to any Award (including, but not limited to, in a Participant’s Award Agreement), if the Participant’s employment or other association with the Company and its Affiliates ends for any reason, including because of the Participant’s employer ceasing to be an Affiliate, (a) any outstanding Option or Stock Appreciation Right of the Participant shall cease to be exercisable in any respect not later than thirty (30) days following that event and, for the period it remains exercisable following that event, shall be exercisable only to the extent exercisable at the date of that event, and (b) any other outstanding Award of the Participant shall be forfeited or otherwise subject to return to or repurchase by the Company on the terms specified in the applicable Award Agreement. Cessation of the performance of services in one capacity, for example, as an employee, shall not result in termination of an Award while the Participant continues to perform services in another capacity, for example as a director. Military or sick leave or other bona fide leave shall not be deemed a termination of employment or other association, provided that it does not exceed the longer of ninety (90) days or the period during which the absent Participant’s reemployment rights, if any, are guaranteed by statute or by contract. To the extent consistent with applicable law, the Committee may provide that Awards continue to vest for some or all of the period of any such leave, or that their vesting shall be tolled during any such leave and only recommence upon the Participant’s return from leave, if ever.
6.4Non-Transferability of Awards. Except as otherwise provided in this Section 6.4, Awards shall not be transferable, and no Award or interest therein may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All of a Participant’s rights in any
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Award may be exercised during the life of the Participant only by the Participant or the Participant’s legal representative. However, the Committee may, at or after the grant of an Award of a Nonstatutory Option, or shares of Restricted Stock, provide that such Award may be transferred by the recipient to a family member; provided, however, that any such transfer is without payment of any consideration whatsoever and that no transfer shall be valid unless first approved by the Committee, acting in its sole discretion. For this purpose, “family member” means any child, stepchild, grandchild, parent, grandparent, stepparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household (other than a tenant or employee), a trust in which the foregoing persons have more than fifty (50) percent of the beneficial interests, a foundation in which the foregoing persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty (50) percent of the voting interests.
7.Specific Terms of Awards
7.1Options.
(a)Date of Grant. The granting of an Option shall take place at the time specified in the Award Agreement.
(b)Exercise Price. The price at which shares of Stock may be acquired under each Incentive Option shall be not less than 100% of the Market Value of Stock on the Grant Date, or not less than 110% of the Market Value of Stock on the Grant Date if the Optionee is a Ten Percent Owner. The price at which shares of Stock may be acquired under each Nonstatutory Option shall not be so limited solely by reason of this Section.
(c)Option Period. No Incentive Option may be exercised on or after the tenth anniversary of the Grant Date, or on or after the fifth anniversary of the Grant Date if the Optionee is a Ten Percent Owner. The Option period under each Nonstatutory Option shall not be so limited solely by reason of this Section.
(d)Exercisability. An Option may be immediately exercisable or become exercisable in such installments, cumulative or non-cumulative, as the Committee may determine. The Committee may Accelerate an Option in whole or in part at any time; provided, however, that in the case of an Incentive Option, any such Acceleration of the Option would not cause the Option to fail to comply with the provisions of Section 422 of the Code or the Optionee consents to the Acceleration.
(e)Method of Exercise. An Option may be exercised by the Optionee giving written notice, in the manner provided in Section 17, specifying the number of shares of Stock with respect to which the Option is then being exercised. The notice shall be accompanied by payment in the form of cash or check payable to the order of the Company in an amount equal to the exercise price of the shares of Stock to be purchased or, subject in each instance to the Committee’s approval, acting in its sole discretion, and to such conditions, if any, as the Committee may deem necessary to avoid adverse accounting effects to the Company, (i) by delivery to the Company of shares of Stock having a Market Value equal to the exercise price of the shares to be purchased, or (ii) by surrender of the Option as to all or part of the shares of Stock for which the Option is then exercisable in exchange for shares of Stock having an aggregate Market Value equal to the difference between (1) the aggregate Market Value of the surrendered portion of the Option, and (2) the aggregate exercise price under the Option for the surrendered portion of the Option. If the Stock is traded on an established market, payment of any exercise price may also be made through and under the terms and conditions of any formal cashless exercise program authorized by the Company entailing the sale of the Stock subject to an Option in a brokered transaction (other than to the Company). Receipt by the Company of such notice and payment in any authorized or combination of authorized means shall constitute the exercise of the Option. Within thirty (30) days thereafter but subject to the remaining provisions of the Plan, the Company shall deliver or cause to be delivered to the Optionee or his agent a certificate or certificates or shall cause the Stock to be held in book-entry position through the Company’s transfer agent’s direct registration system for the number of shares then being purchased. Such shares of Stock shall be fully paid and nonassessable.
(f)Limit on Incentive Option Characterization. An Incentive Option shall be considered to be an Incentive Option only to the extent that the number of shares of Stock for which the Option first becomes exercisable in a calendar year do not have an aggregate Market Value (as of the date of the grant of the Option) in
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excess of the “current limit”. The current limit for any Optionee for any calendar year shall be $100,000 minus the aggregate Market Value at the date of grant of the number of shares of Stock available for purchase for the first time in the same year under each other Incentive Option previously granted to the Optionee under the Plan, and under each other incentive stock option previously granted to the Optionee under any other incentive stock option plan of the Company and its Affiliates. Any shares of Stock which would cause the foregoing limit to be violated shall be deemed to have been granted under a separate Nonstatutory Option, otherwise identical in its terms to those of the Incentive Option.
(g)Notification of Disposition. Each person exercising any Incentive Option granted under the Plan shall be deemed to have covenanted with the Company to report to the Company any disposition of the shares of Stock issued upon such exercise prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code and, if and to the extent that the realization of income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, to remit to the Company an amount in cash sufficient to satisfy those requirements.
7.2Stock Appreciation Rights.
(a)Tandem or Stand-Alone. Stock Appreciation Rights may be granted in tandem with an Option (at or, in the case of a Nonstatutory Option, after, the award of the Option), or alone and unrelated to an Option. Stock Appreciation Rights in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem Stock Appreciation Rights are exercised.
(b)Exercise Price. Stock Appreciation Rights shall have an exercise price of not less than fifty percent (50%) of the Market Value of the Stock on the date of award, or in the case of Stock Appreciation Rights in tandem with Options, the exercise price of the related Option.
(c)Other Terms. Except as the Committee may deem inappropriate or inapplicable in the circumstances, Stock Appreciation Rights shall be subject to terms and conditions substantially similar to those applicable to a Nonstatutory Option. In addition, an Stock Appreciation Right related to an Option which can only be exercised during limited periods following a Change of Control may entitle the Participant to receive an amount based upon the highest price paid or offered for Stock in any transaction relating to the Change of Control or paid during the thirty (30) day period immediately preceding the occurrence of the Change of Control in any transaction reported in the stock market in which the Stock is normally traded.
7.3Restricted Stock.
(a)Purchase Price. Shares of Restricted Stock shall be issued under the Plan for such consideration, if any, in cash, other property or services, or any combination thereof, as is determined by the Committee.
(b)Issuance of Stock. Each Participant receiving a Restricted Stock Award, subject to subsection (c) below, shall be issued a stock certificate in respect of such shares of Restricted Stock or the shares shall be held in book-entry position through the Company’s transfer agent’s direct registration system. If a certificate is issued, such certificate shall be registered in the name of such Participant, and, if applicable, shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award substantially in the following form:
The shares evidenced by this certificate are subject to the terms and conditions of PennyMac Financial Services, Inc. 2022 Equity Incentive Plan and an Award Agreement entered into by the registered owner and PennyMac Financial Services, Inc., copies of which will be furnished by the Company to the holder of the shares evidenced by this certificate upon written request and without charge.
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If the Stock is in book-entry position through the Company’s transfer-agent’s direct registration system, the restrictions will be appropriately noted.
(c)Escrow of Shares. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award.
(d)Restrictions and Restriction Period. During the Restriction Period applicable to shares of Restricted Stock, such shares shall be subject to limitations on transferability and a Risk of Forfeiture arising on the basis of such conditions related to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it deems appropriate.
(e)Rights Pending Lapse of Risk of Forfeiture or Forfeiture of Award. Except as otherwise provided in the Plan or the applicable Award Agreement, at all times prior to lapse of any Risk of Forfeiture applicable to, or forfeiture of, an Award of Restricted Stock, the Participant shall have all of the rights of a stockholder of the Company, including the right to vote, and the right to receive any dividends with respect to, the shares of Restricted Stock (but any dividends or other distributions payable in shares of Stock or other securities of the Company shall constitute additional Restricted Stock, subject to the same Risk of Forfeiture as the shares of Restricted Stock in respect of which such shares of Stock or other securities are paid). The Committee, as determined at the time of Award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares of Stock are available under Section 4.
(f)Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be delivered to the Participant promptly if not theretofore so delivered.
7.4Restricted Stock Units.
(a)Character. Each Restricted Stock Unit shall entitle the recipient to a share of Stock at a close of such Restriction Period as the Committee may establish and subject to a Risk of Forfeiture arising on the basis of such conditions relating to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it deems appropriate.
(b)Form and Timing of Payment. Payment of earned Restricted Stock Units shall be made in a single lump sum following the close of the applicable Restriction Period. At the discretion of the Committee, Participants may be entitled to receive payments equivalent to any dividends declared with respect to Stock referenced in grants of Restricted Stock Units but only following the close of the applicable Restriction Period and then only if the underlying Stock shall have been earned. Unless the Committee shall provide otherwise, any such dividend equivalents shall be paid, if at all, without interest or other earnings.
7.5Performance Units.
(a)Character. Each Performance Unit shall entitle the recipient to the value of a specified number of shares of Stock, over the initial value for such number of shares, if any, established by the Committee at the time of grant, at the close of a specified Performance Period to the extent specified business objectives, including but not limited to Performance Goals, shall have been achieved.
(b)Earning of Performance Units. The Committee shall set Performance Goals or other business objectives in its discretion which, depending on the extent to which they are met within the applicable
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Performance Period, will determine the number and value of Performance Units that will be paid out to the Participant. After the applicable Performance Period has ended, the holder of Performance Units shall be entitled to receive payout on the number and value of Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals or other business objectives have been achieved.
(c)Form and Timing of Payment. Payment of earned Performance Units shall be made in a single lump sum following the close of the applicable Performance Period. At the discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Stock which have been earned in connection with grants of Performance Units which have been earned, but not yet distributed to Participants. The Committee may permit or, if it so provides at grant require, a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Stock that would otherwise be due to such Participant by virtue of the satisfaction of any requirements or goals with respect to Performance Units. If any such deferral election is required or permitted, the Committee shall establish rules and procedures for such payment deferrals.
7.6Stock Grants. Stock Grants shall be awarded solely in recognition of significant prior or expected contributions to the success of the Company or its Affiliates, as an inducement to employment, in lieu of compensation otherwise already due and in such other limited circumstances as the Committee deems appropriate. Stock Grants shall be made without forfeiture conditions of any kind.
7.7Awards to Participants Outside the United States. The Committee may modify the terms of any Award under the Plan granted to a Participant who is, at the time of grant or during the term of the Award, resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that the Award shall conform to laws, regulations, procedures, and customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment abroad, shall be as comparable as practicable to the value of such an Award to a Participant who is resident or primarily employed in the United States. The Committee may establish supplements or sub-plans to, or amendments, restatements, or alternative versions of, the Plan for the purpose of granting and administrating any such modified Award. No such modification, supplement, sub-plan, amendment, restatement or alternative version may increase the share limit of Section 4.
8.Adjustment Provisions
8.1Adjustment for Corporate Actions. All of the share numbers set forth in the Plan reflect the capital structure of the Company as of the date immediately following the consummation of the initial public offering of the Company’s Stock. If subsequent to that date the outstanding shares of Stock (or any other securities covered by the Plan by reason of the prior application of this Section) are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to shares of Stock, as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar distribution with respect to such shares of Stock, an appropriate and proportionate adjustment will be made in (i) the maximum numbers and kinds of shares provided in Section 4, (ii) the numbers and kinds of shares or other securities subject to the then outstanding Awards, (iii) the exercise price for each share or other unit of any other securities subject to then outstanding Options and Stock Appreciation Rights (without change in the aggregate purchase price as to which such Options or Rights remain exercisable), and (iv) the repurchase price of each share of Restricted Stock then subject to a Risk of Forfeiture in the form of a Company repurchase right.
8.2Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. In the event of any corporate action not specifically covered by the preceding Section, including but not limited to an extraordinary cash distribution on Stock, a corporate separation or other reorganization or liquidation, the Committee may make such adjustment of outstanding Awards and their terms, if any, as it, in its sole discretion, may deem equitable and appropriate in the circumstances. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in this Section) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee
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determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
8.3Related Matters. Except as expressly permitted under Section 8.1 or Section 8.2, any adjustment of an Option or Stock Appreciation Right exercise price shall be prohibited. Any adjustment in Awards made pursuant to Section 8.1 or Section 8.2 shall be determined and made, if at all, by the Committee, acting in its sole discretion, and shall include any correlative modification of terms, including of Option exercise prices, rates of vesting or exercisability, Risks of Forfeiture, applicable repurchase prices for Restricted Stock, and Performance Goals and other business objectives which the Committee may deem necessary or appropriate so as to ensure the rights of the Participants in their respective Awards are not substantially diminished nor enlarged as a result of the adjustment and corporate action other than as expressly contemplated in this Section 8. The Committee, in its discretion, may determine that no fraction of a share of Stock shall be purchasable or deliverable upon exercise, and in that event if any adjustment hereunder of the number of shares of Stock covered by an Award would cause such number to include a fraction of a share of Stock, such number of shares of Stock shall be adjusted to the nearest smaller whole number of shares. No adjustment of an Option exercise price per share pursuant to Sections 8.1 or 8.2 shall result in an exercise price which is less than the par value of the Stock.
8.4Transactions.
(a)Definition of Transaction. In this Section 8.4, “Transaction” means (1) any merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) any sale or exchange of all of the Stock of the Company for cash, securities or other property, (3) any sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions or (4) any liquidation or dissolution of the Company.
(b)Treatment of Options and Stock Appreciation Rights. In a Transaction, the Committee may take any one or more of the following actions as to all or any (or any portion of) outstanding Options and Stock Appreciation Rights (collectively, “Rights”).
(i)Provide that such Rights shall be assumed, or substantially equivalent rights shall be provided in substitution therefore, by the acquiring or succeeding entity (or an affiliate thereof).
(ii)Upon written notice to the holders, provide that the holders’ unexercised Rights will terminate immediately prior to the consummation of such Transaction unless exercised within a specified period following the date of such notice.
(iii)Provide that outstanding Rights shall become exercisable in whole or in part prior to or upon the Transaction.
(iv)Provide for cash payments, net of applicable tax withholdings, to be made to holders equal to the excess, if any, of (A) the acquisition price times the number of shares of Stock subject to an Option (to the extent the exercise price does not exceed the acquisition price) over (B) the aggregate exercise price for all such shares of Stock subject to the Option, in exchange for the termination of such Option; provided, that if the acquisition price does not exceed the exercise price of any such Option, the Committee may cancel that Option without the payment of any consideration therefore prior to or upon the Transaction. For this purpose, “acquisition price” means the amount of cash, and market value of any other consideration, received in payment for a share of Stock surrendered in a Transaction but need not take into account any deferred consideration unless and until received.
(v)Provide that, in connection with a liquidation or dissolution of the Company, Rights shall convert into the right to receive liquidation proceeds net of the exercise price thereof and any applicable tax withholdings.
(vi)Any combination of the foregoing.
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For purposes of paragraph (1) above, a Right shall be considered assumed, or a substantially equivalent right shall be considered to have been provided in substitution therefore, if following consummation of the Transaction the Right confers the right to purchase or receive the value of, for each share of Stock subject to the Right immediately prior to the consummation of the Transaction, the consideration (whether cash, securities or other property) received as a result of the Transaction by holders of Stock for each share of Stock held immediately prior to the consummation of the Transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if the consideration received as a result of the Transaction is not solely common stock (or its equivalent) of the acquiring or succeeding entity (or an affiliate thereof), the Committee may provide for the consideration to be received upon the exercise of Right to consist of or be based on solely common stock (or its equivalent) of the acquiring or succeeding entity (or an affiliate thereof) equivalent in value to the per share consideration received by holders of outstanding shares of Stock as a result of the Transaction.
(c)Treatment of Other Awards. As to outstanding Awards other than Options or Share Appreciation Rights, upon the occurrence of a Transaction other than a liquidation or dissolution of the Company which is not part of another form of Transaction, the repurchase and other rights of the Company under each such Award shall inure to the benefit of the Company’s successor and shall, unless the Committee determines otherwise, apply to the cash, securities or other property which the Stock was converted into or exchanged for pursuant to such Transaction in the same manner and to the same extent as they applied to the Award. Upon the occurrence of a Transaction involving a liquidation or dissolution of the Company which is not part of another form of Transaction, except to the extent specifically provided to the contrary in the instrument evidencing any Award or any other agreement between a Participant and the Company, all Risks of Forfeiture and Performance Goals or other business objectives, where otherwise applicable to any such Awards, shall automatically be deemed terminated or satisfied, as applicable.
(d)Related Matters. In taking any of the actions permitted under this Section 8.4, the Committee shall not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically. Any determinations required to carry out the foregoing provisions of this Section 8.4, including but not limited to the market value of other consideration received by holders of Stock in a Transaction and whether substantially equivalent Rights have been substituted, shall be made by the Committee acting in its sole discretion. In connection with any action or actions taken by the Committee in respect of Awards and in connection with a Transaction, the Committee may require such acknowledgements of satisfaction and releases from Participants as it may determine.
9.Change of Control
(a)Except as otherwise set forth in an Award Agreement or any other Company policy, upon the occurrence of a Change of Control all outstanding Awards, other than those addressed in (b) below, shall be assumed, or substantially equivalent rights shall be provided in substitution therefor, or shall otherwise be continued in a manner satisfactory to the Committee, by the acquiring or succeeding entity (or an affiliate thereof) (collectively, “Assumed” or “Assumption”).
(b)Upon the occurrence of a Change of Control, if a pro rata portion of the Performance Goals under Awards conditioned on the achievement of Performance Goals or other business objectives, including the payouts attainable under outstanding Performance Units if applicable, has been achieved as of the effective date of the Change of Control, then such Performance Goals shall be deemed satisfied as of such Change of Control as to a pro rata portion of the number of shares subject to the original Award (in all cases giving effect to any multiplier or sliding scale to be applied pursuant to the terms of the original Award). The pro rata portion of such Performance Goals and such number of shares subject to the original Awards shall each be based on the length of time within the Restriction Period or Performance Period which has elapsed prior to the effective date of the Change of Control. The remaining portion of such Awards that is not eligible to be deemed satisfied in accordance with the preceding sentence shall be Assumed. Assumption shall be deemed to have occurred in respect of all Awards conditioned on the achievement of Performance Goals or other business objectives, including the payouts attainable under outstanding Performance Units if applicable, if such remaining portion of such shares is subjected to (i) comparable performance goals based on the post-Change of Control business of the acquiror or succeeding entity (or an affiliate
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thereof), and (ii) a measurement period using a comparable period of time to the original Award, each in a manner satisfactory to the Committee.
(c)To the extent an Award is required to be Assumed hereunder and is not Assumed or earned in a Change of Control as determined under the foregoing provisions:
(i)any and all Options and Stock Appreciation Rights not already exercisable in full which are not based on achievement of Performance Goals or other business objectives shall Accelerate with respect to 100% of the shares for which such Options or Stock Appreciation Rights are not then exercisable;
(ii)any Risk of Forfeiture applicable to Restricted Stock and Restricted Stock Units which are not based on achievement of Performance Goals or other business objectives shall lapse with respect to 100% of the Restricted Stock and Restricted Stock Units still subject to such Risk of Forfeiture immediately prior to the Change of Control; and
(iii) the outstanding Awards conditioned on the achievement of Performance Goals or other business objectives, including the payouts attainable under outstanding Performance Units if applicable, shall be deemed to have been satisfied, earned, or forfeited as of the effective date of the Change of Control in such amounts as the Committee shall determine in its sole discretion.
(d)All such Awards of Performance Units and Restricted Stock Units shall be paid to the extent earned to Participants in accordance (b) or (c) above within thirty (30) days following the effective date of the Change of Control.
(e) None of (a) through (c) above shall apply, however, (i) in the case of any Award pursuant to an Award Agreement requiring other or additional terms upon a Change of Control (or similar event), or (ii) if specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges.
10.Settlement of Awards
10.1In General. Options and Restricted Stock shall be settled in accordance with their terms. All other Awards may be settled in cash, Stock, or other Awards, or a combination thereof, as determined by the Committee at or after grant and subject to any contrary Award Agreement. The Committee may not require settlement of any Award in Stock pursuant to the immediately preceding sentence to the extent issuance of such Stock would be prohibited or unreasonably delayed by reason of any other provision of the Plan.
10.2Violation of Law. Notwithstanding any other provision of the Plan or the relevant Award Agreement, if, at any time, in the reasonable opinion of the Company, the issuance of shares of Stock covered by an Award may constitute a violation of law, then the Company may delay such issuance until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation and (ii) in the case where such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied:
(a)the shares of Stock are at the time of the issue of such shares effectively registered under the Securities Act of 1933, as amended; or
(b)the Company shall have determined, on such basis as it deems appropriate (including an opinion of counsel in form and substance satisfactory to the Company) that the sale, transfer, assignment, pledge, encumbrance or other disposition of such shares does not require registration under the Securities Act of 1933, as amended or any applicable State securities laws.
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Furthermore, the inability of the Company to obtain or maintain, or the impracticability of it obtaining or maintaining, authority from any governmental agency having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance of any Stock hereunder, shall relieve the Company of any liability in respect of the failure to issue such Stock as to which such requisite authority shall not have been obtained, and shall constitute circumstances in which the Committee may determine to amend or cancel Awards pertaining to such Stock, with or without consideration to the affected Participants.
10.3Corporate Restrictions on Rights in Stock. Any Stock to be issued pursuant to Awards granted under the Plan shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the charter, certificate or articles, and by-laws, of the Company. Whenever Stock is to be issued pursuant to an Award, if the Committee so directs at or after grant, the Company shall be under no obligation to issue such shares until such time, if ever, as the recipient of the Award (and any person who exercises any Option, in whole or in part), shall have become a party to and bound by the Stockholders’ Agreement, if any.
10.4Investment Representations. The Company shall be under no obligation to issue any shares of Stock covered by any Award unless the shares to be issued pursuant to Awards granted under the Plan have been effectively registered under the Securities Act of 1933, as amended, or the Participant shall have made such written representations to the Company (upon which the Company believes it may reasonably rely) as the Company may deem necessary or appropriate for purposes of confirming that the issuance of such shares will be exempt from the registration requirements of that Act and any applicable state securities laws and otherwise in compliance with all applicable laws, rules and regulations of any jurisdiction in which Participants may reside or primarily work, including but not limited to that the Participant is acquiring the shares for his or her own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution of any such shares.
10.5Registration. If the Company shall deem it necessary or desirable to register under the Securities Act of 1933, as amended, or other applicable statutes any shares of Stock issued or to be issued pursuant to Awards granted under the Plan, or to qualify any such shares of Stock for exemption from the Securities Act of 1933, as amended or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each recipient of an Award, or each holder of shares of Stock acquired pursuant to the Plan, such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for that purpose and may require reasonable indemnity to the Company and its officers and directors from that holder against all losses, claims, damage and liabilities arising from use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. In addition, the Company may require of any such person that he or she agree that, without the prior written consent of the Company or the managing underwriter in any public offering of shares of Stock, he or she will not sell, make any short sale of, loan, grant any option for the purchase of, pledge or otherwise encumber, or otherwise dispose of, any shares of Stock during the 180 day period commencing on the effective date of the registration statement relating to the underwritten public offering of securities. Without limiting the generality of the foregoing provisions of this Section 10.5, if in connection with any underwritten public offering of securities of the Company the managing underwriter of such offering requires that the Company’s directors and officers enter into a lock-up agreement containing provisions that are more restrictive than the provisions set forth in the preceding sentence, then (a) each holder of shares of Stock acquired pursuant to the Plan (regardless of whether such person has complied or complies with the provisions of clause (b) below) shall be bound by, and shall be deemed to have agreed to, the same lock-up terms as those to which the Company’s directors and officers are required to adhere; and (b) at the request of the Company or such managing underwriter, each such person shall execute and deliver a lock-up agreement in form and substance equivalent to that which is required to be executed by the Company’s directors and officers.
10.6Placement of Legends; Stop Orders; etc. Each share of Stock to be issued pursuant to Awards granted under the Plan may bear a reference to the investment representations made in accordance with Section 10.4 in addition to any other applicable restrictions under the Plan, and the terms of the Award and under the Stockholders’ Agreement and, if applicable, to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares of Stock. All shares of Stock or other securities issued under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then
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listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions, or, if the Stock will be held in book-entry position through the Company’s transfer agent’s direct registration system, the restrictions will be appropriately noted.
10.7Tax Withholding. Whenever shares of Stock are issued or to be issued pursuant to Awards granted under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy federal, state, local, foreign or other withholding tax requirements if, when, and to the extent required by law (whether so required to secure for the Company an otherwise available tax deduction or otherwise) prior to the delivery of any certificate or certificates, held in book-entry position through the Company’s transfer agent’s direct registration system, for such shares. The obligations of the Company under the Plan shall be conditional on satisfaction of all such withholding obligations and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to a Participant or to utilize any other withholding method prescribed by the Committee from time to time. However, in such cases Participants may elect, subject to the approval of the Committee, acting in its sole discretion, to satisfy an applicable withholding requirement, in whole or in part, by having the Company withhold shares of Stock to satisfy their tax obligations. All elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee deems appropriate. If shares of Stock are withheld to satisfy an applicable withholding requirement, the shares of Stock withheld shall have a Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction, provided, however, if shares of Stock are withheld to satisfy a withholding requirement imposed by a country other than the United States, the amount withheld may exceed such minimum, provided that it is not in excess of the actual amount required to be withheld with respect to the Participant under applicable tax law or regulations.
10.8Company Charter and By-Laws; Other Company Policies. This Plan and all Awards granted hereunder are subject to the charter and By-Laws of the Company, as they may be amended from time to time, and all other Company policies duly adopted by the Board, the Committee or any other committee of the Board and as in effect from time to time regarding the acquisition, ownership or sale of Stock by employees and other service providers, including, without limitation, policies intended to limit the potential for insider trading and to avoid or recover compensation payable or paid on the basis of inaccurate financial results or statements, employee conduct, and other similar events.
11.Reservation of Stock
The Company shall at all times during the term of the Plan and any outstanding Awards granted hereunder reserve or otherwise keep available such number of shares of Stock as will be sufficient to satisfy the requirements of the Plan (if then in effect) and the Awards and shall pay all fees and expenses necessarily incurred by the Company in connection therewith.
12.Limitation of Rights in Stock; No Special Service Rights
A Participant shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the shares of Stock subject to an Award, unless and until a certificate shall have been issued therefor and delivered to the Participant or his agent, or the Stock shall be issued through the Company’s transfer agent’s direct registration system. Any Stock to be issued pursuant to Awards granted under the Plan shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the certificate or articles of incorporation and the by-laws of the Company. Nothing contained in the Plan or in any Award Agreement shall confer upon any recipient of an Award any right with respect to the continuation of his or her employment or other association with the Company (or any Affiliate), or interfere in any way with the right of the Company (or any Affiliate), subject to the terms of any separate employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment or consulting agreement or to increase or decrease, or otherwise adjust, the other terms and conditions of the recipient’s employment or other association with the Company and its Affiliates.
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13.Unfunded Status of Plan
The Plan is intended to constitute an “unfunded” plan for incentive compensation, and the Plan is not intended to constitute a plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments with respect to Options, Stock Appreciation Rights and other Awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. It is further intended that all Awards shall be granted and maintained on a basis which ensures they are exempt from, or otherwise compliant with, the requirements of Section 409A of the Code and the Plan shall be governed, interpreted and enforced consistent with such intent. Neither the Committee nor the Company, nor any of its Affiliates or its or their officers, employees, agents, or representatives, shall have any liability or responsibility for any adverse federal, state or local tax consequences and penalty taxes which may result the grant or settlement of any Award on a basis contrary to the provisions of Section 409A of the Code or comparable provisions of any applicable state or local income tax laws.
14.Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor any action taken in connection with the adoption or operation of the Plan shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options and restricted stock other than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
15.No Guarantee of Tax Consequences
It is intended that all Awards shall be granted and maintained on a basis which ensures they are exempt from, or otherwise compliant with, the requirements of Section 409A of the Code, pertaining non-qualified plans of deferred compensation, and the Plan shall be governed, interpreted and enforced consistent with such intent. However, neither the Company nor any Affiliate, nor any director, officer, agent, representative or employee of either, guarantees to the Participant or any other person any particular tax consequences as a result of the grant of, exercise of rights under, or payment in respect of an Award, including but not limited to that an Option granted as an Incentive Option has or will qualify as an “incentive stock option” within the meaning of Section 422 of the Code or that the provisions and penalties of Section 409A of the Code will or will not apply and no person shall have any liability to a Participant or any other party if a payment under an Award that is intended to benefit from favorable tax treatment or avoid adverse tax treatment fails to realize such intention or for any action taken by the Board or the Committee with respect to the Award.
16.Termination and Amendment of the Plan
16.1Termination or Amendment of the Plan. Subject to the limitations contained in Section 16.3 below, including specifically the requirement of stockholder approval, if applicable, the Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable. Unless the Board otherwise expressly provides, no amendment of the Plan shall affect the terms of any Award outstanding on the date of such amendment.
16.2Termination or Amendment of Outstanding Awards; Assumptions. Subject to the limitations contained in Section 16.3 below, including specifically the requirement of stockholder approval, if applicable, the Committee may at any time:
(a)amend the terms of any Award theretofore granted, prospectively or retroactively, provided that the Award as amended is consistent with the terms of the Plan;
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(b)within the limitations of the Plan, modify, extend or assume outstanding Awards or accept the cancellation of outstanding Awards or of outstanding stock options or other equity-based compensation awards granted by another issuer in return for the grant of new Awards for the same or a different number of shares of Stock and on the same or different terms and conditions (including but not limited to the exercise price of any Option); and
(c)offer to buy out for a payment in cash or cash equivalents an Award previously granted or authorize the recipient of an Award to elect to cash out an Award previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
16.3Limitations on Amendments, Etc.
(a)Without the approval of the Company’s stockholders, no amendment or modification of the Plan by the Board may (i) increase the number of shares of Stock which may be issued under the Plan, (ii) change the description of the persons eligible for Awards, or (iii) effect any other change for which stockholder approval is required by law or the rules of any relevant stock exchange.
(b)No action by the Board or the Committee pursuant to this Section 16 shall impair the rights of the recipient of any Award outstanding on the date of such amendment or modification or such Award, as the case may be, without the Participant’s consent; provided, however, that no such consent shall be required if (i) the Board or Committee, as the case may be, determines in its sole discretion and prior to the date of any Change of Control that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation, including without limitation the provisions of Section 409A of the Code, or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, (ii) the Board or Committee, as the case may be, determines in its sole discretion and prior to the date of any Change of Control that such amendment or alteration is not reasonably likely to significantly diminish the benefits provided under the Award, or that any such diminution has been adequately compensated, or (iii) the Board or Committee, as the case may be, determines in its sole discretion that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation.
17.Notices and Other Communications
Any communication or notice required or permitted to be given under the Plan shall be in such form as the Committee may determine from time to time. If a notice, demand, request or other communication is required or permitted to be given in writing, then any such notice, demand, request or other communication hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by first class registered, certified or overnight mail, postage prepaid, or telecopied with a confirmation copy by regular, certified or overnight mail, addressed or telecopied, as the case may be, (i) if to the recipient of an Award, at his or her residence address last filed with the Company and (ii) if to the Company, at its principal place of business, addressed to the attention of its Treasurer, or to such other address or telecopier number, as the case may be, as the addressee may have designated by notice to the addressor. All such notices, requests, demands and other communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of mailing, when received by the addressee; and (iii) in the case of facsimile transmission, when confirmed by facsimile machine report.
18.Governing Law
The Plan and all Award Agreements and actions taken hereunder and thereunder shall be governed, interpreted and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof.
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Exhibit 10.4
EXECUTION VERSION
FLOW SERVICING AGREEMENT
between
PENNYMAC CORP.,
as Owner
and
PENNYMAC LOAN SERVICES, LLC,
as Servicer
Dated June 1, 2022
TABLE OF CONTENTS
| | Page |
ARTICLE I DEFINITIONS | 1 | |
Section 1.01 | Definitions. | 1 |
ARTICLE II SERVICING MORTGAGE LOANS | 20 | |
Section 2.01 | Servicing Mortgage Loans. | 20 |
Section 2.02 | Closing Documents. | 21 |
ARTICLE III SERVICING OF AGENCY MORTGAGE LOANS | 22 | |
Section 3.01 | Servicer to Act as Servicer of Agency Mortgage Loans. | 22 |
Section 3.02 | Guides Control. | 22 |
Section 3.03 | Agency Rights. | 22 |
Section 3.04 | Additional Agency Rights. | 22 |
Section 3.05 | Limits on Subservicer’s Rights. | 23 |
Section 3.06 | Cooperation with Each Agency. | 23 |
Section 3.07 | Prevailing Party Rights. | 23 |
Section 3.08 | Investor Reports. | 23 |
Section 3.09 | Limitation of Claims. | 24 |
Section 3.10 | No Interest in Servicing Rights. | 24 |
Section 3.11 | Joint and Several Liability. | 24 |
Section 3.12 | Conflict with Acknowledgement Agreement or Modified Guide Exhibit 33. | 24 |
ARTICLE IV SERVICING OF NON-AGENCY MORTGAGE LOANS | 24 | |
Section 4.01 | Servicer to Act as Servicer of Non-Agency Mortgage Loans. | 24 |
Section 4.02 | Liquidation of Mortgage Loans. | 26 |
Section 4.03 | Collection of Mortgage Loan Payments; Payment Clearing Account. | 27 |
Section 4.04 | Establishment of and Deposits to Custodial Account. | 28 |
Section 4.05 | Permitted Withdrawals From Custodial Account. | 29 |
Section 4.06 | Establishment of and Deposits to Escrow Account. | 30 |
Section 4.07 | Permitted Withdrawals From Escrow Account. | 30 |
Section 4.08 | Payment of Taxes, Insurance and Other Charges. | 31 |
Section 4.09 | Protection of Accounts. | 32 |
Section 4.10 | Maintenance of Hazard Insurance. | 32 |
Section 4.11 | Maintenance of Mortgage Impairment Insurance Policy. | 34 |
Section 4.12 | Maintenance of Fidelity Bond and Errors and Omissions Insurance. | 34 |
Section 4.13 | Inspections. | 35 |
Section 4.14 | Restoration of Mortgaged Property. | 35 |
Section 4.15 | Title, Management and Disposition of REO Property. | 36 |
Section 4.16 | Costs and Expenses. | 37 |
Section 4.17 | Liquidity and Litigation Reserves. | 37 |
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Section 4.18 | Transfers of Mortgaged Properties. | 39 |
Section 4.19 | Satisfaction of Mortgages and Release of Mortgage Files. | 40 |
Section 4.20 | Notification of Adjustments. | 41 |
Section 4.21 | Recordation of Assignments of Mortgage. | 41 |
Section 4.22 | [Reserved]. | 41 |
Section 4.23 | Credit Reporting. | 41 |
Section 4.24 | Superior Liens. | 41 |
Section 4.25 | [Reserved]. | 42 |
Section 4.26 | Tax and Flood Service Contracts. | 42 |
Section 4.27 | Maintenance of PMI Policies and LPMI Policies; Collections Thereunder. | 42 |
Section 4.28 | Reliability of Information/Exceptional Expenses. | 43 |
Section 4.29 | Escrow Obligations. | 43 |
Section 4.30 | No Obligation to Advance Delinquent Payments. | 44 |
Section 4.31 | MERS Transfers. | 44 |
ARTICLE V PAYMENTS; REPORTS | 44 | |
Section 5.01 | Remittances. | 44 |
Section 5.02 | Reports to the Owner. | 45 |
Section 5.03 | Tax Reporting. | 45 |
Section 5.04 | Cost of Funds. | 46 |
ARTICLE VI RECORDS, INFORMATION AND COMPLIANCE DOCUMENTS | 46 | |
Section 6.01 | Possession of Servicing Files. | 46 |
Section 6.02 | Annual Statement as to Compliance. | 46 |
Section 6.03 | Annual Independent Public Accountants’ Servicing Report. | 47 |
Section 6.04 | Provision of Information. | 47 |
Section 6.05 | Right to Examine Servicer Records. | 47 |
Section 6.06 | Compliance with Gramm-Leach-Bliley Act of 1999. | 48 |
Section 6.07 | [Reserved]. | 48 |
Section 6.08 | Financial Statements; Servicing Facilities. | 48 |
Section 6.09 | Use of Subservicers. | 48 |
ARTICLE VII SERVICING COMPENSATION | 49 | |
Section 7.01 | Servicing Compensation. | 49 |
ARTICLE VIII TERMINATION | 51 | |
Section 8.01 | Termination. | 51 |
Section 8.02 | Outbound Transfer of Servicing. | 53 |
ARTICLE IX INDEMNIFICATION AND ASSIGNMENT AND OTHER MATTERS RELATED TO SERVICER | 56 | |
Section 9.01 | Indemnification. | 56 |
Section 9.02 | Limitation on Liability of Servicer and Others. | 57 |
Section 9.03 | Limitation on Resignation and Assignment by Servicer. | 57 |
Section 9.04 | Assignment by Owner. | 58 |
Section 9.05 | Merger or Consolidation of the Servicer. | 58 |
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Section 9.06 | Additional Activities of the Servicer. | 58 |
ARTICLE X REPRESENTATIONS AND WARRANTIES | 58 | |
Section 10.01 | Representations and Warranties of the Owner. | 58 |
Section 10.02 | Representations and Warranties of the Servicer. | 60 |
ARTICLE XI DEFAULT | 62 | |
Section 11.01 | Events of Default. | 62 |
Section 11.02 | Waiver of Defaults. | 64 |
ARTICLE XII RECONSTITUTIONS | 64 | |
Section 12.01 | Cooperation of Servicer with a Reconstitution. | 64 |
ARTICLE XIII MISCELLANEOUS PROVISIONS | 66 | |
Section 13.01 | Notices. | 66 |
Section 13.02 | Amendment. | 67 |
Section 13.03 | Entire Agreement. | 67 |
Section 13.04 | Binding Effect; Beneficiaries. | 67 |
Section 13.05 | Headings. | 68 |
Section 13.06 | Further Assurances. | 68 |
Section 13.07 | Governing Law. | 68 |
Section 13.08 | Relationship of Parties. | 68 |
Section 13.09 | Severability of Provisions. | 68 |
Section 13.10 | No Waiver; Cumulative Remedies. | 68 |
Section 13.11 | Recordation of Assignments of Mortgage. | 69 |
Section 13.12 | Exhibits. | 69 |
Section 13.13 | Counterparts. | 69 |
Section 13.14 | Trademarks. | 69 |
Section 13.15 | Confidentiality of Information. | 69 |
Section 13.16 | WAIVER OF TRIAL BY JURY. | 69 |
Section 13.17 | LIMITATION OF DAMAGES. | 70 |
Section 13.18 | SUBMISSION TO JURISDICTION; WAIVERS. | 70 |
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EXHIBITS
EXHIBIT 1 | LIST OF MONTHLY AND DAILY REPORTS |
EXHIBIT 2 | FORM OF CUSTODIAL ACCOUNT CERTIFICATION |
EXHIBIT 3 | RESERVED |
EXHIBIT 4 | FORM OF ESCROW ACCOUNT CERTIFICATION |
EXHIBIT 5 | RESERVED |
EXHIBIT 6 | FORM OF OFFICER’S CERTIFICATE |
EXHIBIT 7 | MORTGAGE LOAN DOCUMENTS |
EXHIBIT 8 | FORM OF LIMITED POWER OF ATTORNEY |
EXHIBIT 9 | TERM SHEET |
EXHIBIT 10 | DELEGATION OF AUTHORITY MATRIX |
EXHIBIT 11 | SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE |
EXHIBIT 12 | PROPERTY MANAGEMENT SERVICES |
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FLOW SERVICING AGREEMENT
This Flow Servicing Agreement (this “Agreement”) is entered into as of June 1, 2022 (the “Effective Date”) by and between PennyMac Loan Services, LLC, a Delaware limited liability company (the “Servicer”), and PennyMac Corp., a Delaware corporation (the “Owner”).
RECITALS
WHEREAS, the Servicer is in the business of servicing residential mortgage loans similar to the Mortgage Loans;
WHEREAS, the Owner desires that the Servicer service some or all of the Mortgage Loans, and the Servicer is willing to perform such servicing; and
WHEREAS, the Owner and the Servicer desire to enter the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and agreements set forth herein and for other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
Section 1.01 | Definitions. |
The following terms are defined as follows:
AAA: As defined in Section 7.01.
Accepted Servicing Practices: With respect to any Mortgage Loan (including any related REO Property), each of those mortgage servicing practices (including collection procedures) of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located, which servicing practices (i) are in compliance with all applicable federal, state and local laws, regulations and guidance, including without limitation Regulation X, 12 C.F.R. § 1024, and Regulation Z, 12 C.F.R. § 1026, (ii) shall be in accordance with the Servicer’s policies and procedures as amended from time to time for mortgage loans of the same type, (iii) are in accordance with the terms of the related Mortgage and Mortgage Note and (iv) with respect to any Agency Mortgage Loan, are at a minimum based on the requirements set forth from time to time in the applicable Guide.
Acknowledgment Agreement: As applicable to Freddie Mac Mortgage Loans , (i) the Amended and Restated Acknowledgment Agreement effective as of March 10, 2021, by and among the Federal Home Loan Mortgage Corporation, Owner, PennyMac REIT, and Citibank, N.A., (ii) the Acknowledgment Agreement effective as of [ ], by and among the Federal Home Loan Mortgage Corporation, Owner, PennyMac Holdings, LLC, PennyMac REIT, and Goldman
Sachs Bank USA, or (iii) any additional Acknowledgment Agreement by and among the Federal Home Loan Mortgage Corporation, Owner, and additional counterparties entered after the Effective Date, each as amended, modified, restated or supplemented from time to time.
Actual/Actual Basis: Remittance to the Owner or its designee which requires the Servicer to remit to the Owner or such designee the actual interest and actual principal collected from each Mortgagor.
Additional Servicing Fee: With respect to each Third Party Loan, the Additional Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.
Adjustable-Rate Mortgage Loan: A Mortgage Loan which provides for the adjustment of the Mortgage Interest Rate payable in respect thereto.
Affiliate: With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. 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.
Agency: With respect to an Agency Mortgage Loan, Fannie Mae, Freddie Mac or Ginnie Mae, as applicable.
Agency Mortgage Loan: A Mortgage Loan that is a Fannie Mae Mortgage Loan, a Freddie Mac Mortgage Loan or a Ginnie Mae Mortgage Loan.
Ancillary Income: All income derived from the Mortgage Loans (other than payments or other collections in respect of principal, interest, Escrow Payments and Prepayment Penalties attributable to the Mortgage Loans) including, but not limited to, assumption fees, reconveyance fees, subordination fees, speedpay fees, mortgage pay on the web fees, automatic clearing house fees, demand statement fees, modification fees, if any, fees received with respect to checks on bank drafts returned by the related bank for insufficient funds, the Servicer’s share of all late charges, and other similar types of fees arising from or in connection with any Mortgage Loan to the extent not otherwise payable to the Mortgagor under Applicable Law or pursuant to the terms of the related Mortgage Note. In no event shall the Servicer be entitled to any Prepayment Penalties.
Appraised Value: With respect to any Mortgaged Property, the lesser of (i) the value thereof as determined by an appraisal made for the originator of the Mortgage Loan at the time of origination of the Mortgage Loan and (ii) the purchase price for the related Mortgaged Property paid by the Mortgagor with the proceeds of the Mortgage Loan; provided, however, in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely upon the value determined by an appraisal made for the originator of such Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage Loan.
Arbitrator: As defined in Section 7.01.
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Applicable Law: Refers to all applicable federal, state and local laws, ordinances, regulations, orders and regulator guidance, including, without limitation and as amended, the following:
(i)Title VI of the Civil Rights Act of 1964;
(ii)Title VIII of the Civil Rights Act of 1968, as amended;
(iii)Section 527 of the National Housing Act;
(iv)The Equal Credit Opportunity Act;
(v)The Fair Credit Reporting Act;
(vi)All applicable laws governing consumer protection, data privacy and/or the safeguarding of borrower personal information including, without limitation, the Gramm- Leach-Bliley Act;
(vii) Executive Order 11063, Equal Opportunity in Housing, issued by the President of the United States on November 20, 1962;
(viii)The foreign assets control regulations, 31 C.F.R. Chapter V, as amended, and any authorizing legislation or executive order relating thereto, as administered by the Office of Foreign Assets Control (“OFAC”) within the United States Department of the Treasury (collectively, “OFAC Regulations”);
(ix)The Bank Secrecy Act, the Money Laundering Control Act and Title III of the USA PATRIOT Act;
(x)Section 5 of the Federal Trade Commission Act and similar laws that prohibit unfair or deceptive acts or practices;
(xi)The Truth in Lending Act;
(xii)The Real Estate Settlement Procedures Act;
(xiii)The Fair Debt Collections Practices Act;
(xiv)The Homeowners Protection Act of 1998;
(xv)Judicial and professional rules of conduct governing discussions with opposing parties in litigation when represented by counsel (e.g., solicitation of delinquent borrowers in bankruptcy or borrowers engaged in litigation with the Servicer);
(xvi) The U.S. Bankruptcy Code;
(xvii)The Electronic Signatures in Global and National Commerce Act, as enacted by the United States government (“E-SIGN”);
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(xviii)The Uniform Electronic Transactions Act, as enacted by the applicable State (“UETA”) unless superseded by E-SIGN; and
(xix)Applicable state privacy and consumer protection laws, including without limitation the California Consumer Privacy Act of 2018 and its implementing regulations, and similar state laws and regulations now existing or that may be effective in the future.
Asset Balance: On any day for any Mortgage Loan, other than a liquidated Mortgage Loan, the total unpaid outstanding principal balance of such Mortgage Loan on such date.
Assignment of Mortgage: An assignment of the 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 the sale of the Mortgage to the Owner.
Base Servicing Fee: The Base Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.
BPO: A broker price opinion.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking and savings and loan institutions in the States of New York or California are authorized or obligated by law or executive authority to be closed.
Code: The Internal Revenue Code of 1986, as amended.
Combined Loan-to-Value Ratio or CLTV: With respect to any Second Lien Mortgage Loan, the ratio (expressed as a percentage) of the sum of the outstanding principal amount of such Second Lien Mortgage Loan plus the outstanding principal amount of the related First Lien Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if such Second Lien Mortgage Loan was made to finance part of the acquisition of the related Mortgaged Property, the purchase price of the Mortgaged Property.
Commission: The Securities and Exchange Commission and any successor thereto.
Condemnation Proceeds: All awards or settlements in respect of a Mortgaged Property, whether permanent or temporary, partial or entire, by exercise of the power of eminent domain or condemnation, to the extent not required to be released to a Mortgagor in accordance with the terms of the related Mortgage Loan Documents.
Correspondent Loan: A newly originated Mortgage Loan acquired by Owner or one of its wholly owned subsidiaries from a third party originator under the correspondent lending program established by Owner or such subsidiary.
Cost of Funds: The amount payable by the Owner to the Servicer pursuant to Section 5.04, which amount shall be equal to one-twelfth of the product of (x) the average daily balance of Servicing Advances and (y) the sum of (i) the Cost of Funds Index plus 0 basis points.
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Cost of Funds Index: A per annum rate equal to the London interbank offered rate for one-month United States dollar deposits as such rate appears, in The Wall Street Journal (West Coast edition), as of the first Business Day of such calendar month. If the rate above is unavailable, the Servicer shall select a comparable source mutually agreeable to the Servicer and the Owner from which to determine such rate.
Custodial Account: The separate trust account or accounts created and maintained pursuant to Section 4.04 at a Qualified Depository.
Custodial Agreement: The agreement governing the retention of the originals of each Mortgage Note, Mortgage, Assignment of Mortgage and other Mortgage Loan Documents.
Custodian: The custodian of the Mortgage Loan Documents as specified under the related Custodial Agreement.
Cut-off Date: The date set forth in the related Purchase Agreement, if applicable.
Deed in Lieu Fee: With respect to each Mortgaged Property, the title to which is acquired by deed in lieu of foreclosure, the Deed in Lieu Fee as set forth in Exhibit 9.
Delinquent Mortgage Loan: As defined in Section 8.01(c).
Dispute: As defined in Section 7.01.
Distressed Whole Loan: Any Mortgage Loan classified by the PennyMac REIT Manager as troubled or distressed and acquired by Owner as part of a pool of mortgage loans that are or are expected to be re-performing and/or under-performing mortgage loans.
Due Date: The day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.
Due Period: With respect to amounts collected by the Servicer and required to be remitted to the Owner (or as otherwise directed in writing by the Owner) on each Remittance Date, the period commencing on the first day of the month and ending on the last day of the month preceding the month of the Remittance Date.
Eligible Investments: Any one or more of the obligations or securities listed below, acquired at a purchase price of not greater than par which investment provides for a date of maturity not later than one day prior to the Remittance Date in each month (or such other date as permitted under this Agreement):
(i)direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America or any agency or instrumentality thereof, provided such the obligations are backed by the full faith and credit of the United States of America (“Direct Obligations”);
(ii)(A) federal funds, demand and time deposits in, certificates of deposits of, or bankers’ acceptances issued by, any depository institution or trust company (including
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U.S. subsidiaries of foreign depositories) incorporated or organized under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state authorities, so long as at the time of such investment or the contractual commitment providing for such investment, such depository institution or trust company has a short-term uninsured debt rating in the highest available rating category of Moody’s and S&P and provided that each such investment has an original maturity of no more than 365 days; and (B) any other demand or time deposit or deposit which is fully insured by the FDIC;
(iii)repurchase obligations with a term not to exceed 30 days with respect to any security described in clause (i) above and entered into with a depository institution or trust company (acting as principal) that has obligations with an investment-grade rating from a Rating Agency, provided, however, that collateral transferred pursuant to such repurchase obligation must be of the type described in clause (i) above and must (A) be valued daily at current market prices plus accrued interest, (B) pursuant to such valuation, be equal, at all times, to 105% of the cash transferred by a party in exchange for such collateral and (C) be delivered to such party or, if such party is supplying the collateral, an agent for such party, in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities;
(iv)securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which have a credit rating from a Rating Agency that rates such securities in its highest long-term unsecured rating categories at the time of investment or the contractual commitment providing for such investment;
(v)commercial paper (including both non-interest bearing discount obligations and interest bearing obligations payable on demand or on a specified date not more than thirty (30) days after the date of issuance thereof) that is rated by a Rating Agency that rates such securities in its highest short term rating category available at the time of such investment;
(vi)certificates or receipts representing direct ownership interests in future interest or principal payments on obligations of the United States of America or its agencies or instrumentalities (which obligations are backed by the full faith and credit of the United States of America) held by a custodian in safekeeping on behalf of the holders of such receipts; and
(vii)any other demand, money market, common trust fund or time deposit or obligation, or interest bearing or other security or investment rated investment grade level by a Rating Agency;
provided, however, that no such instrument shall be an Eligible Investment if such instrument evidences either (i) a right to receive only interest payments with respect to the obligations underlying such instrument, or (ii) both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with
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respect to such instrument provide a yield to maturity of greater than 120% of the yield to maturity at par of such underlying obligations.
Eligible Mortgage Loan: A mortgage loan that is a fixed-rate or Adjustable-Rate Mortgage Loan that is secured by either a 1st lien or 2nd lien Mortgage on a single family (i.e., one- to four-unit) residential Mortgaged Property located in any of the 50 states of the United States or in the District of Columbia; provided, however, that such mortgage loan shall not be a High Cost Loan or a HOEPA Loan. Notwithstanding the foregoing, an Eligible Mortgage Loan shall be one of the types of mortgage loans that the Servicer currently services on its servicing platform.
Errors and Omissions Insurance Policy: An errors and omissions insurance policy to be maintained by the Servicer pursuant to Section 4.12.
Escrow Account: The separate trust account or accounts created and maintained pursuant to Section 4.06 at a Qualified Depository.
Escrow Payment: With respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, flood insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the related Mortgage or any other document.
Event of Default: Any one of the conditions or circumstances enumerated in Section 11.01.
Fannie Mae: The Federal National Mortgage Association, or any successor thereto.
Fannie Mae Guide: Collectively, the Fannie Mae Selling Guide and Servicing Guide, as such Guides may be amended from time to time hereafter.
Fannie Mae Mortgage Loan: A Mortgage Loan underwritten in accordance with the guidelines of Fannie Mae described in the Fannie Mae Guide.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
Fee Amendment: As defined in Section 7.01.
Fee Negotiation Request: As defined in Section 7.01.
Fidelity Bond: A fidelity bond to be maintained by the Servicer pursuant to Section 4.12.
First Lien Mortgage Loan: A Mortgage Loan secured by a Mortgage in first lien position on the related Mortgaged Property.
Fitch: Fitch, Inc., or any successor thereto.
Fixed-Rate Mortgage Loan: A fixed-rate mortgage loan serviced pursuant to this Agreement.
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Flood Zone Service Contract: A transferable contract maintained for a Mortgaged Property with a nationally recognized flood zone service provider for the purpose of obtaining the current flood zone status relating to such Mortgaged Property.
Foreclosure Commencement: With respect to any Mortgage Loan, the delivery of the applicable file to the Servicer’s foreclosure counsel for initiation of foreclosure proceedings.
Freddie Mac: Federal Home Loan Mortgage Corporation, or any successor thereto.
Freddie Mac Guide: The Freddie Mac Single-Family Seller/Servicer Guide, as such Freddie Mac Guide may be amended from time to time hereafter.
Freddie Mac Mortgage Loan: A Mortgage Loan sold by the Owner to Freddie Mac in accordance with the guidelines of Freddie Mac described in the Freddie Mac Guide and the other Freddie Mac Purchase Documents pertaining to Freddie Mac Seller Servicer Numbers _____..
Freddie Mac Purchase Documents: Has the meaning given the term “Purchase Documents” in the Freddie Mac Guide.
Freddie Mac Servicing : Has the meaning given the term “Servicing” in the Freddie Mac Guide
Freddie Mac Servicing Contract: Has the meaning given the term “Servicing Contract” in the Freddie Mac Guide.
Freddie Mac Servicing Contract Rights: Has the meaning given the term “Servicing Contract Rights” in the Freddie Mac Guide
Ginnie Mae: The Government National Mortgage Association, or any successor thereto.
Ginnie Mae Mortgage Loan: A Mortgage Loan underwritten in accordance with the guidelines of Ginnie Mae described in the Ginnie Mae Guide.
Ginnie Mae Guide: The Ginnie Mae Mortgage-Backed Securities Guide, as such Guide may hereafter from time to time be amended.
Guide: With respect to any Fannie Mae Mortgage Loan, the Fannie Mae Guide; with respect to any Freddie Mac Mortgage Loan, the Freddie Mac Guide and the other Freddie Mac Purchase Documents; and with respect to any Ginnie Mae Mortgage Loan, the Ginnie Mae Guide.
Gross Margin: With respect to each Adjustable-Rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note which amount is added to the Index in accordance with the terms of such Mortgage Note to determine on each Interest Rate Adjustment Date the Mortgage Interest Rate for such Mortgage Loan.
High Cost Loan: A Mortgage Loan (a) covered by HOEPA or (b) classified as a “high cost,” “threshold,” “covered,” “predatory” or similar loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law imposing
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heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees).
HOEPA: The Federal Home Ownership and Equity Protection Act of 1994, as amended.
HOEPA Loan: A Mortgage Loan which (a) is subject to HOEPA or (b) which the Servicer discovers is subject to HOEPA.
Inbound Transfer Date: The date on which the Servicer begins servicing the related Mortgage Loan pursuant to this Agreement.
Index: With respect to each Adjustable-Rate Mortgage Loan, the index set forth in the related Mortgage Note.
Insurance Proceeds: With respect to each Mortgage Loan, proceeds of insurance policies insuring such Mortgage Loan or the related Mortgaged Property.
Interest Rate Adjustment Date: With respect to each Adjustable-Rate Mortgage Loan, the date specified in the related Mortgage Note on which the Mortgage Interest Rate is adjusted.
Interest Shortfall: The amount of interest due a third party owner or guarantor of a Mortgage Loan following a payoff or Principal Prepayment where the interest accrued and due from the underlying Mortgagor is insufficient to pay the interest due to such third party owner pursuant to the terms of the applicable Guide or the terms of any Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction. Such Interest Shortfall shall be the sole responsibility of the Owner.
Interim Servicing Period: With respect to any Mortgage Loan, the period commencing on the related Inbound Transfer Date and ending on the Reconstitution Date.
Lender Paid Mortgage Insurance Policy or LPMI Policy: A policy of mortgage guaranty insurance issued by an insurer which meets the requirements of Fannie Mae and Freddie Mac in which the owner or servicer of the Mortgage Loan is responsible for the premiums associated with such mortgage insurance policy.
Lifetime Rate Cap: With respect to each Adjustable-Rate Mortgage Loan, the provision of the related Mortgage Note that provides for an absolute maximum Mortgage Interest Rate thereunder. The Mortgage Interest Rate during the terms of each Adjustable-Rate Mortgage Loan shall not at any time exceed the Mortgage Interest Rate at the time of origination of such Adjustable-Rate Mortgage Loan by more than the amount per annum set forth on the Mortgage Loan Schedule.
Liquidation Fee: With respect to each sale of an REO Property or a Mortgaged Property through a foreclosure sale, or each full or discounted payoff accepted by the Servicer in satisfaction of a defaulted Mortgage Loan, the Liquidation Fee as set forth in Exhibit 9.
Liquidation Proceeds: Amounts, other than Condemnation Proceeds and Insurance Proceeds, received in connection with the liquidation of a defaulted Mortgage Loan, whether
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through the sale or assignment of such Mortgage Loan, trustee’s sale, foreclosure sale or otherwise, or the sale of the related Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage Loan, other than amounts received following the acquisition of an REO Property pursuant to Section 4.15 and prior to such liquidation.
Liquidity Reserve: As defined in Section 4.17.
Liquidity Reserve Account: The separate trust account or accounts to be created and maintained under the circumstances described in Section 4.17.
Litigation Reserve: As defined in Section 4.17.
Litigation Reserve Account: The separate trust account or accounts to be created and maintained under the circumstances described in Section 4.17.
Loan-to-Value Ratio or LTV: With respect to any First Lien Mortgage Loan, the ratio (expressed as a percentage) of the outstanding principal amount of such First Lien Mortgage Loan to the lesser of (a) the Appraised Value of the related Mortgaged Property at origination or (b) if such First Lien Mortgage Loan was made to finance the acquisition of the related Mortgaged Property, the purchase price of such Mortgaged Property.
Management Agreement: The Third Amended and Restated Management Agreement dated as of June 30, 2020 by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC, as such agreement may be amended from time to time.
MBS Agreement: The Second Amended and Restated Mortgage Banking Services Agreement, between the Servicer and PennyMac Corp., dated as of June 30, 2020, as such agreement may be amended from time to time.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto.
MERS Mortgage Loan: Any Mortgage Loan as to which the related Mortgage or Assignment of Mortgage has been recorded in the name of MERS, as agent for the holder from time to time of the Mortgage Note and which is identified as a MERS Mortgage Loan on the related Mortgage Loan Schedule.
MERS® System: The system of recording transfers of mortgages electronically maintained by MERS.
MOM Loan: Any Mortgage Loan as to which MERS acts as the mortgagee of record of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof.
Monthly Payment: The scheduled monthly payment of principal and interest on a Mortgage Loan.
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Moody’s: Moody’s Investors Service, Inc., and any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first or second lien, as applicable, on an unsubordinated estate in fee simple in real property securing such Mortgage Note; except that with respect to real property located in jurisdictions in which the use of leasehold estates for residential properties is a widely accepted practice, the mortgage, deed of trust or other instrument securing the Mortgage Note may secure and create a first or second lien, as applicable, upon a leasehold estate of the Mortgagor.
Mortgage File: The items pertaining to a particular Mortgage Loan referred to as the Mortgage File in Exhibit 7 annexed hereto, and any additional documents required to be added to the Mortgage File pursuant to this Agreement.
Mortgage Impairment Insurance Policy: A mortgage impairment or blanket hazard insurance policy as described in Section 4.11.
Mortgage Interest Rate: With respect to each Mortgage Loan, the annual rate of interest borne on the related Mortgage Note.
Mortgage Loan: An individual mortgage loan to be serviced pursuant to this Agreement, as identified on the Mortgage Loan Schedule, which mortgage loan shall be an Eligible Mortgage Loan and includes without limitation the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, Servicing Rights and all other rights, benefits, proceeds and obligations arising from or in connection with such mortgage loan, excluding replaced or repurchased mortgage loans.
Mortgage Loan Documents: The documents listed on Exhibit 7 attached hereto pertaining to any Mortgage Loan.
Mortgage Loan Remittance Rate: With respect to each Mortgage Loan, the annual rate of interest remitted to the Owner (or as otherwise directed in writing by the Owner), which shall be equal to the related Mortgage Interest Rate.
Mortgage Loan Schedule: The schedule of Mortgage Loans in the form attached as a schedule to the Notice of Inbound Transfer, to be delivered from time to time by the Owner to the Servicer, which schedule shall include, but not be limited to, the following information with respect to each Mortgage Loan (or such lesser information as the Service Provider may determine in its reasonable discretion):
(1)the name of the Seller and the Seller’s Mortgage Loan identifying number;
(2)the Mortgagor’s name;
(3)the street address of the Mortgaged Property including the city, state and ZIP code;
(4)a code indicating whether the Mortgaged Property is owner-occupied, a second home or investment property;
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(5)the number and type of residential units constituting the Mortgaged Property (i.e., a one-family residence, a two- to four-family residence, a unit in a condominium project or a unit in a planned unit development);
(6)the original months to maturity or the remaining months to maturity from the related Cut-off Date, in any case based on the original amortization schedule and, if different, the maturity expressed in the same manner but based on the actual amortization schedule;
(7)the LTV at origination in the case of a First Lien Mortgage Loan;
(8)the CLTV at origination in the case of a Second Lien Mortgage Loan;
(9)the Mortgage Interest Rate as of the related Cut-off Date;
(10)the date on which the Monthly Payment was due on the Mortgage Loan and, if such date is not consistent with the Due Date currently in effect, such Due Date;
(11)the stated maturity date;
(12)the amount of the Monthly Payment as of the related Cut-off Date;
(13)the last payment date on which a Monthly Payment was actually applied to pay interest and the outstanding principal balance;
(14)the original principal amount of the Mortgage Loan;
(15)the principal balance of the Mortgage Loan as of the close of business on the related Cut-off Date, after deduction of payments of principal due and collected on or before the related Cut-off Date;
(16)in the case of an Adjustable-Rate Mortgage Loan, the next Interest Rate Adjustment Date;
(17)in the case of an Adjustable-Rate Mortgage Loan, the Gross Margin;
(18)in the case of an Adjustable-Rate Mortgage Loan, the Lifetime Rate Cap under the terms of the Mortgage Note;
(19)in the case of an Adjustable-Rate Mortgage Loan, a code indicating the type of Index;
(20)in the case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Cap under the terms of the Mortgage Note;
(21)in the case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Floor under the terms of the Mortgage Note;
(22)the type of Mortgage Loan (i.e., Fixed-Rate, Adjustable-Rate, First Lien, Second Lien);
(23)a code indicating the purpose of the loan (i.e., purchase, rate and term refinance, equity take-out refinance);
(24)a code indicating the related documentation program (i.e. full, alternative or reduced);
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(25)the loan credit classification (as described in the related Underwriting Guidelines);
(26)whether the Mortgage Loan provides for a Prepayment Penalty;
(27)the Prepayment Penalty period of the Mortgage Loan, if applicable;
(28)a description of the Prepayment Penalty, if applicable;
(29)the Mortgage Interest Rate as of origination;
(30)the credit risk score (FICO score) of the related Mortgagor at origination;
(31)the date of origination;
(32)in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment period;
(33)in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment percentage;
(34)in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate floor;
(35)the Mortgage Interest Rate calculation method (i.e., 30/360, simple interest, other);
(36)a code indicating whether the Mortgage Loan is assumable;
(37)a code indicating whether the Mortgage Loan has been modified;
(38)the one year payment history;
(39)the Due Date for the first Monthly Payment;
(40)the original Monthly Payment due;
(41)with respect to the related Mortgagor, the debt-to-income ratio;
(42)the Appraised Value of the Mortgaged Property;
(43)the sales price of the Mortgaged Property if the Mortgage Loan was originated in connection with the purchase of the Mortgaged Property;
(44)the MERS identification number;
(45)a code indicating whether the Mortgage Loan has borrower paid, lender paid or deep primary mortgage insurance coverage and, if so, (i) the insurer’s name, (ii) the policy or certification number, (iii) the premium rate and (iv) the coverage percentage;
(46)in the case of a Second Lien Mortgage Loan, the outstanding principal balance of the superior lien;
(47)a code indicating whether the Mortgage Loan is a HOEPA Loan;
(48)a code indicating whether the Mortgage Loan is a High Cost Loan;
(49)a code indicating whether the Mortgage Loan is a subject to a buydown;
(50)flood zone and flood insurance coverage information with respect to the Mortgage Loan (to the extent known by the Owner);
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(51)whether the Mortgage Loan is subject to a repurchase agreement;
(52)if the Mortgage Loan is subject to a repurchase agreement, the name of the counterparty; and
(53)in the case of a negative amortization Mortgage Loan, the next payment adjustment date and the maximum negative amortization.
With respect to the Mortgage Loans in the aggregate, the Mortgage Loan Schedule shall set forth the following information, as of the related Cut-off Date:
(a)the number of Mortgage Loans;
(b)the current aggregate outstanding principal balance of the Mortgage Loans;
(c)the weighted average Mortgage Interest Rate of the Mortgage Loans; and
(d)the weighted average maturity of the Mortgage Loans.
Mortgage Note: The note or other evidence of the indebtedness of a Mortgagor under a Mortgage Loan secured by a Mortgage.
Mortgaged Property: The real property (or leasehold estate, if applicable) securing repayment of the debt evidenced by a Mortgage Note.
Mortgagor: The obligor on a Mortgage Note.
MSR Recapture Agreement: The Amended and Restated MSR Recapture Agreement, dated as of June 30, 2020, by and between the Servicer and the Owner, as may be amended from time to time.
Non-Agency Mortgage Loan: A Mortgage Loan that is not an Agency Mortgage Loan.
Nonrecoverable Advance: Any Servicing Advance previously made or proposed to be made in respect of a Mortgage Loan or REO Property which, in the good faith judgment of the Servicer, will not or, in the case of a proposed advance, would not, be ultimately recoverable from related Insurance Proceeds, Liquidation Proceeds or otherwise from such Mortgage Loan or REO Property.
Notice of Inbound Transfer: A notice in the form mutually agreed upon by the Owner and the Servicer prior to a pending transfer whereby the Owner notifies the Servicer of the addition of the Mortgage Loans specified therein to the coverage of this Agreement.
Officer’s Certificate: A certificate signed by the Chairman of the Board or the Vice Chairman of the Board or a President or Vice President or the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries of the Servicer, and delivered to the Owner.
Opinion of Counsel: A written opinion of counsel, who may be counsel for the Servicer, reasonably acceptable to the Owner; provided, however, that any Opinion of Counsel relating to the qualification of any account required to be maintained pursuant to this Agreement at a Qualified Depository must be (unless otherwise stated in such Opinion of Counsel) an opinion of counsel who (i) is in fact independent of the Servicer, (ii) does not have any material direct or
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indirect financial interest in the related Servicer or is an Affiliate of either of them and (iii) is not connected with the Servicer as an officer, employee, director or person performing similar functions.
Originator: With respect to a Mortgage Loan, the originator of such Mortgage Loan.
Other Fees: With respect to each Mortgage Loan, those fees set forth in Exhibit 9 for the specific services described therein.
Outbound Transfer Date: With respect to a Mortgage Loan, the date on which the physical servicing of such Mortgage Loan is transferred from the Servicer pursuant to this Agreement to a successor servicer.
Outstanding Owner Servicing Advances: As defined in Section 4.28(f).
P&I Advance: Payments of principal and interest advanced by Servicer to a third party owner or guarantor of a Mortgage Loan, including those Mortgage Loans in any pool created pursuant to the terms of the applicable Guide or the terms of any Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, and any amounts required to be advanced due to negative amortization or Interest Shortfall due such owner upon the payoff or Principal Prepayment of a Mortgage Loan. Such P&I Advance shall be the sole responsibility of the Owner.
Parent: As defined in Section 13.14.
Payment Clearing Account: The account established and maintained pursuant to the second paragraph of Section 4.03.
PennyMac Property Preservation Program: The proprietary property preservation programs designed by PNMAC Capital Management, LLC to modify and enhance the value of Mortgage Loans or mitigate losses to Mortgage Loans, as amended from time to time, and presented to the Servicer by the program technology and other documentation administered and provided by the PennyMac REIT Manager.
PennyMac REIT: PennyMac Mortgage Investment Trust, a Maryland real estate investment trust, or any successor thereto.
PennyMac REIT Manager: PNMAC Capital Management, LLC, a Delaware limited liability company, or any successor thereto.
Periodic Rate Cap: With respect to each Adjustable-Rate Mortgage Loan, the provision of the Mortgage Note which provides for an absolute maximum amount by which the Mortgage Interest Rate specified therein may increase on an Interest Rate Adjustment Date above the Mortgage Interest Rate previously in effect.
Periodic Rate Floor: With respect to each Adjustable-Rate Mortgage Loan, the provision of the related Mortgage Note which provides for an absolute maximum amount by which the
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related Mortgage Interest Rate may decrease on an Interest Rate Adjustment Date below the Mortgage Interest Rate previously in effect.
Person: Any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof.
PMI Policy: A policy of primary mortgage guaranty insurance issued by a Qualified Insurer.
Prepayment Penalty: Any prepayment premium, penalty or charge collected by the Servicer with respect to a Mortgage Loan from a Mortgagor in connection with any Principal Prepayment pursuant to the terms of such Mortgage Loan.
Prime Rate: The prime rate in effect from time to time as published as the average rate in The Wall Street Journal (West Coast edition).
Principal Prepayment: Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any Prepayment Penalty thereon, and which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.
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 entity that issues 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.
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.
Purchase Agreement: The agreement pursuant to which the Owner purchased Mortgage Loans from the related Seller, if applicable.
Qualified Depository: Either (i) an account or accounts maintained with a federal or state chartered depository institution or trust company the short-term unsecured debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the short-term unsecured debt obligations of such holding company of which) are rated A-2 by S&P or Prime-2 by Moody’s (or a comparable rating if another Rating Agency is specified by the Owner by written notice to the Servicer) at the time any amounts are held on deposit therein, (ii) an account or accounts the deposits in which are fully insured by the FDIC or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity.
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Qualified Insurer: Any insurer which meets the requirements of Fannie Mae and Freddie Mac.
Rating Agency: Any credit rating agency that is a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) of the Securities Exchange Act of 1934, as amended, in the residential mortgage asset class and is designated by the Owner, or any successor to such organization.
Reconstitution: As defined in Section 12.01.
Reconstitution Date: As defined in Section 12.01.
Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were not used to purchase the related Mortgaged Property.
Regulation AB: Subpart 22.1100-Asset Backed Securities (Regulation AB), 17 C.F.R. §§ 229.1100-22.1123, as amended, and subject to such clarification and interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,631 (Jan. 7, 2005)) or by the staff of the Commission, or as may be provided by the Commission or its staff from time to time as of an applicable date of determination.
Remittance Date: With respect to each Mortgage Loan, not later than the last Business Day of the month following the month in which payments in respect of such Mortgage Loan are received and credited.
REO Property: A Mortgaged Property acquired by the Servicer on behalf of the Owner through foreclosure or by deed in lieu of foreclosure, as described in Section 4.15.
REO Property Management Fee: With respect to any REO Property rented by Servicer for the benefit of Owner as part of Servicer’s management thereof, the REO Property Management Fee as set forth in Exhibit 9.
REO Property Rental Fee: With respect to any REO Property rented by Servicer for the benefit of Owner as part of Servicer’s management thereof, the REO Property Rental Fee as set forth in Exhibit 9.
RESPA: Real Estate Settlement Procedures Act, as amended from time to time.
S&P: S&P Global, Inc., and any successor thereto.
Second Lien Mortgage Loan: A Mortgage Loan secured by a Mortgage in second lien position on the related Mortgaged Property.
Seller: With respect to each Mortgage Loan, the Seller set forth in the related Mortgage Loan Schedule, if applicable.
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Service Release Fee: With respect to each Mortgage Loan, the fee set forth in Exhibit 9 hereto payable by the Owner to the Servicer upon the release of such Mortgage Loan from the Servicer’s loan administration system; provided, however, that no such fee shall be payable by the Owner if the Mortgage Loan or the servicing thereof is transferred (i) to the Servicer or an Affiliate of the Servicer or (ii) pursuant to an Event of Default.
Servicer: PennyMac Loan Services, LLC or its successor in interest or any permitted assignee or designee of under this Agreement as herein provided and as provided in Section 8.02.
Servicer Employees: As defined in Section 4.12.
Servicer Information: As defined in Section 12.01(b)(ii)(A).
Servicing Advances: All customary, reasonable and necessary “out-of-pocket” costs and expenses (including reasonable attorneys’ fees and disbursements) incurred (regardless if any such advance is not, in the reasonable determination of the Servicer, a Nonrecoverable Advance when made but, thereafter, becomes a Nonrecoverable Advance) in the performance by the Servicer of its servicing obligations, including, but not limited to, the cost of (a) the preservation, restoration and protection of the Mortgaged Property or REO Property, (b) any fees relating to any enforcement or judicial proceedings, excluding foreclosures, (c) amounts advanced to correct defaults on any mortgage loan which is senior to the Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan that is senior to the Mortgage Loan, (d) any appraisals, valuations, broker price opinions, inspections, or environmental assessments, (e) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage, (f) taxes, assessments, water rates, sewer rents, mortgage insurance premiums, fire and hazard insurance premiums, flood insurance premiums and other charges which are or may become a lien upon the Mortgaged Property, and (g) executing and recording instruments of satisfaction, deeds of reconveyance.
Servicing Criteria – The “servicing criteria” set forth in Item 1122(d) of Regulation AB, as set forth on Exhibit 11 hereto.
Servicing Fee: With respect to each Mortgage Loan, the monthly sum of (a) the applicable Base Servicing Fee, (b) if such Mortgage Loan is a Third Party Loan, the applicable Additional Servicing Fee and (c) if such Mortgage Loan is a Distressed Whole Loan, the applicable Supplemental Servicing Fee. With respect to each newly boarded Mortgage Loan, boarded on or before the 15th day of month, the Servicer shall be entitled to receive the full monthly Servicing Fee for each newly boarded Mortgage Loan. With respect to each newly boarded Mortgage Loan boarded after the 15th day of the month, the Servicer shall be entitled to one-half of the monthly Servicing Fee for each newly boarded Mortgage Loan. With respect to each Mortgage Loan released from servicing, Servicer shall be entitled to receive the full monthly Servicing Fee irrespective of the applicable release date.
Servicing File: With respect to each Mortgage Loan, the file retained by the Servicer consisting of originals, if provided, or copies of all documents in the related Mortgage File which are not delivered to the Owner, its designee or the Custodian and copies of the related Mortgage Loan Documents.
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Servicing Officer: Any officer of the Servicer involved in or responsible for, the administration and servicing of the Mortgage Loans whose name appears on a list of servicing officers that is required to be furnished by the Servicer to the Owner, as such list may from time to time be amended.
Servicing Rights: With respect to a Mortgage Loan, the right and obligation (and, with respect to any Agency Mortgage Loan, the indivisible, conditional and non-delegable right and obligation) to do any and all of the following: (a) service and administer such Mortgage Loan; (b) collect any payments or monies payable or received for servicing such Mortgage Loan; (c) collect any late fees, assumption fees, penalties or similar payments with respect to such Mortgage Loan; (d) enforce the provisions of all agreements or documents creating, defining or evidencing any such servicing rights and all rights of the servicer thereunder, including, but not limited to, any clean-up calls and termination options; (e) collect and apply any escrow payments or other similar payments with respect to such Mortgage Loan; (f) control and maintain all accounts and other rights to payments related to any of the property described in the other clauses of this definition; (g) possess and use any and all documents, files, records, servicing files, servicing documents, servicing records, data tapes, computer records, or other information pertaining to such Mortgage Loan or pertaining to the past, present or prospective servicing of such Mortgage Loan; and (h) enforce any and all rights, powers and privileges incident to any of the foregoing, all in accordance with Accepted Servicing Practices.
Special Deposit Account: An account which the Owner and the Servicer agree shall be a special deposit account for the benefit of the Owner under Applicable Law.
Subservicer: Any Person that services Mortgage Loans on behalf of the Servicer or any Subservicer and is responsible for the performance (whether directly or through Subservicers) of a substantial portion of the material servicing functions required to be performed by the Servicer under this Agreement.
Supplemental Servicing Fee: With respect to each Distressed Whole Loan, the Supplemental Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.
Tax Service Contract: A life of loan tax service contract maintained for a Mortgaged Property with a tax service provider for the purpose of obtaining current information from local taxing authorities relating to such Mortgaged Property.
Third Party Loan: A Mortgage Loan (including any Correspondent Loan) owned by a third party investor and with respect to which Owner owns or has otherwise acquired the Servicing Rights relating thereto, and any Correspondent Loan held by Owner as a whole loan.
Underwriting Guidelines: The underwriting guidelines of the applicable Originator, as identified or specified in the related Purchase Agreement, if applicable.
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.
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ARTICLE II
SERVICING MORTGAGE LOANS
Section 2.01 | Servicing Mortgage Loans. |
The Owner and the Servicer shall take the following actions with respect to each Mortgage Loan that the Owner desires to have serviced by the Servicer hereunder in order to effect the transfer of servicing to the Servicer on the related Inbound Transfer Date:
(a)Delivery of Mortgage Loan Data. With respect to each pool of Mortgage Loans to be serviced under this Agreement, no later than thirty (30) calendar days prior to the Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer), the Owner shall furnish or cause to be furnished to the Servicer complete and accurate Mortgage Loan data reflecting the status of payments, balances and other pertinent information necessary to service such Mortgage Loans including but not limited to: (i) master file; (ii) Adjustable-Rate Mortgage Loan master file; (iii) escrow file; (iv) tax and insurance payee file; (v) Adjustable-Rate Mortgage Loan history file; (vi) servicing activities; and (vii) any other pertinent information reasonably required by the Servicer. Such information shall be provided to the Servicer in such electronic format as is mutually agreed upon by both parties.
(b)Delivery of Notification Letter. With respect to each pool of Mortgage Loans to be serviced under this Agreement, the Owner shall use its best efforts to deliver or cause to be delivered to the Servicer a Notice of Inbound Transfer for such Mortgage Loans not less than thirty (30) days prior to the related Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer). The Notice of Inbound Transfer shall include a statement of the related delinquency methodology to be used for the related Mortgage Loans as determined by the Owner.
(c)Delivery of Servicing and Other Files. The Owner shall use its reasonable best efforts to provide Servicer with hard copies (or imaged copies if available) of the Servicing File with respect to each Mortgage Loan transferred to Servicer within fifteen (15) Business Days prior to the applicable Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer). The Owner shall use its reasonable best efforts to provide Servicer with hard copies (or imaged copies if available) of any default file with respect to each Mortgage Loan transferred to Servicer within five (5) Business Days of the applicable Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer). Any costs and expenses to deliver the aforementioned files shall be borne by the Owner.
(d)Notice to Mortgagors. The Owner shall cause to be provided to each Mortgagor a “Notice of assignment, sale or transfer of servicing” to the Servicer. Upon boarding of each Mortgage Loan originated by a third-party originator, the Servicer shall deliver to each related Mortgagor a “Welcome Letter” in accordance with RESPA and Accepted Servicing Practices.
(e)Transfer of Escrow Funds and Other Proceeds. The Servicer shall use its best efforts to transfer or cause to be transferred to a designated account, within one (1) Business Day and not later than three (3) Business Days following the Inbound Transfer Date by wire
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transfer, an amount equal to the sum of (i) Escrow Payments collected from each Mortgagor; and if applicable (ii) all undistributed insurance loss draft funds; (iii) all unapplied funds received by the Owner or any prior servicer; (iv) all unapplied interest on escrow balances accrued through the related Inbound Transfer Date; (v) all buydown funds held by the Owner or any prior servicer as of the related Inbound Transfer Date; and (vi) all other related amounts held by the respective owner of the Mortgage Loan or any prior servicer of such Mortgage Loan as of the related Inbound Transfer Date that the Owner or any prior servicer is not entitled to retain. The Owner shall be responsible for any interest on escrow amounts held by the Owner prior to the related Inbound Transfer Date. The Servicer shall be entitled to deduct from Servicer’s monthly remittance to the Owner any shortfalls in Escrow Payments that result from Owner’s failure to deliver any Escrow Payment in full to the Servicer. To the extent the Custodial Account has insufficient funds to fully fund such shortfalls in the Escrow Payments plus all other amounts due to the Servicer as set forth in Section 5.01 herein, the Owner shall wire such shortfall amount to the Servicer promptly upon receipt of notice of such shortfalls from the Servicer.
(f)Outstanding Servicing Advances. The Servicer agrees to reimburse the prior servicer or the Owner, as applicable, within thirty (30) days following the related Inbound Transfer Date for all unreimbursed Servicing Advances made by the prior servicer or the Owner with respect to the Mortgage Loans as of such Inbound Transfer Date (the “Outstanding Owner Servicing Advances”) and for which the prior servicer or the Owner has provided to the Servicer reasonably detailed documentation evidencing such advances. The Servicer shall have no obligation to board Outstanding Owner Servicing Advances or reimburse the prior servicer unless the Servicer has received reasonably detailed documentation allowing the Servicer to collect such advances from the Mortgagor.
(g)Notwithstanding anything in this Section 2.01 or this Agreement to the contrary, the Owner and the Servicer acknowledge and agree that with respect to any Freddie Mac Mortgage Loan, any transfer of servicing referred to herein is a transfer of physical servicing and not a transfer of Freddie Mac Servicing Contract Rights, and as set forth in Section 8102.1 of the Freddie Mac Guide, the Servicer has no interest in the Freddie Mac Servicing Contract between Freddie Mac and the Owner.
Section 2.02 | Closing Documents. |
Simultaneously with the execution and delivery of this Agreement, the Servicer shall deliver to the Owner an Officer’s Certificate, in the form of Exhibit 6, with respect to the Servicer, including all attachments thereto. If requested by the Owner in connection with any Notice of Inbound Transfer, the Servicer shall deliver the following documents to or at the direction of the Owner:
1. | a copy of this Agreement; |
2. | a Custodial Account Certification in the form of Exhibit 2, as required under Article IV, or a copy of any similar certification previously delivered under the Original Agreement or this Agreement; and |
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3. | an Escrow Account Certification in the form of Exhibit 4, as required under Article IV, or a copy of any similar certification previously delivered under the Original Agreement or this Agreement. |
ARTICLE III
SERVICING OF AGENCY MORTGAGE LOANS
Section 3.01 | Servicer to Act as Servicer of Agency Mortgage Loans. |
(a)The Servicer shall service and administer each Agency Mortgage Loan in accordance and shall otherwise comply in all respects with the related Guide, including the requirements of such Guide relating to the maintenance of custodial and escrow accounts, it being understood that any interest paid by the depository institution on funds deposited in any related custodial account or escrow account shall accrue to the benefit of the Owner. To the extent required by law, the Owner shall be responsible for interest on escrowed funds to the Mortgagor notwithstanding that such escrow account may be non interest bearing or that interest paid thereon is insufficient for such purposes.
Section 3.02 | Guides Control. |
Except as provided in Section 3.12 of this Agreement, in the event of any conflict between the provisions of this Agreement, in so far as they may relate to any Agency Mortgage Loan, and the terms of the related Guide, the terms of such Guide shall control. This Agreement requires Servicer to (a) comply with requirements imposed on Owner under Section 1302.2 and Section 1302.3 of the Freddie Mac Guide and (b) refrain from interfering with or impairing any obligations of Owner to Freddie Mac under a Freddie Mac Purchase Document which has been disclosed to the Servicer in accordance with Section 8102.1(a) of the Freddie Mac Guide.
Section 3.03 | Agency Rights. |
The Servicer’s rights with respect to the Agency Mortgage Loans are subject and subordinate in all respects to all rights, powers and prerogatives of the applicable Agency under the applicable Guide, at law and in equity, including without limitation an Agency’s right to suspend or terminate the Owner’s Servicing Rights (in whole or in part, and with or without cause) and to suspend or terminate the Owner as an approved seller/servicer or servicer (whether with or without cause) without recourse to an Agency whatsoever, such that the Servicer’s rights with respect to the Agency Mortgage Loans pursuant to this Agreement are subject to extinguishment at any time. If Freddie Mac suspends or disqualifies the Owner as an approved Freddie Mac Seller/Servicer, or terminates the Freddie Mac Servicing Contract between Freddie Mac and the Owner, then notwithstanding any provision in this Agreement to the contrary, with respect to any Freddie Mac Mortgage Loans, this Agreement shall, without notice, demand or other action, immediately terminate and be of no further force and effect.
Section 3.04 | Additional Agency Rights. |
Owner’s execution and delivery of this Agreement constitutes Owner’s express written consent to permit any Agency, consistent with the applicable Guide, to have access to, or to have disclosed to it, or to receive copies of (i) any and all mortgage records pertaining to any Agency
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Mortgage Loans serviced by Owner for the applicable Agency and subserviced by Servicer; (ii) this Agreement; and (iii) any and all other records, documents, files, information and data maintained or held by Owner (or by others on Owner’s behalf), including, without limitation, any Servicer (a) organizational and associated documents such as its articles of organization, operating agreement, employment agreements and management agreements, and (b) contract(s) with a Related Third Party as defined in the Freddie Mac Guide, which an Agency considers necessary or desirable to determine or assess the correctness and completeness of the mortgage records pertaining to any Agency Mortgage Loans serviced by the Owner for the applicable Agency and subserviced by Servicer, to assure that Owner and Servicer are complying with the requirements of the applicable Guide.
Section 3.05 | Limits on Servicer’s Rights. |
This Agreement does not include or convey to the Servicer (i) the right to assume the role of the Owner as an approved servicer of any Agency or to assume any part or the entirety of the Owner’s Freddie Mac Servicing Contract with Freddie Mac; (ii) the right to suspend or terminate Owner’s master servicing contracts with any Agency (in whole or in part, and with or without cause) or the right to suspend or terminate Owner as an approved Seller/Servicer or servicer of any Agency (whether with or without cause); (iii) the right to transfer the Servicing Rights relating to any Agency Mortgage Loan; (iv) status as a third-party beneficiary of any of the agreements between Owner and any Agency, including the applicable Guide, (v) any interest in the Owner’s Freddie Mac Servicing Contract with Freddie Mac, or (vi) the right to make any claims against Freddie Mac arising out of or relating to this Agreement, the Freddie Mac Servicing Contract with Freddie Mac or any Freddie Mac Mortgage Loans. Except as expressly required under the Freddie Mac Guide or the other Freddie Mac Purchase Documents, with respect to Freddie Mac Mortgage Loans Freddie Mac has no duty to provide notice or otherwise deal with the Servicer.
Section 3.06 | Cooperation with Each Agency. |
Servicer shall cooperate with each Agency in connection with its performance of services under this Agreement. Servicer shall cooperate with Freddie Mac in connection with responding to and complying with consumer requests and other requests received by Freddie Mac or on behalf of persons who wish to exercise their rights under the CCPA and similar State laws and regulations. In all Security Incidents as defined in Section 1302.2(c) of the Freddie Mac Guide, the Servicer must cooperate with Freddie Mac including, without limitation, by providing all information and assistance requested to enable Freddie Mac to comply with its legal obligations, technical forensics information to determine the extent of the Security Incident and other information and assistance to identify, evaluate and manage any issues arising out of the Security Incident as Freddie Mac deems necessary or advisable.
Section 3.07 | Prevailing Party Rights. |
In any legal action or proceeding to defend or enforce an Agency’s rights with respect to the Servicing Rights or such Agency’s rights as a third-party beneficiary to this Agreement, the prevailing party shall be entitled to recover attorneys’ fees and costs.
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Section 3.08 | Investor Reports. |
Owner and Servicer shall each provide to each Agency, at such address as such Agency may from time to time designate, on or before the twentieth (20th) day (or if such day is not a Business Day, as defined in the applicable Guide, then the next succeeding Business Day) of each calendar month, a written report containing (i) any notice of default or event of default under this Agreement, received or sent by Owner or Servicer, respectively, (ii) any notice of an act, event or circumstance indicating that with the passage of time, without cure of such act, event or circumstance, there would be an event of default, received or sent by Owner or Servicer, respectively, and (iii) such other information or documents that an Agency may request with respect to this Agreement or the related Agency Mortgage Loans, all in form and substance acceptable to such Agency, to the extent that such other information or documents may be requested of other servicers and subservicers. An Agency’s determinations with respect to this Section 3.08 shall be made in its sole and absolute discretion.
Section 3.09 | Limitation of Claims. |
Servicer may only make any claims against an Agency, arising out of or relating to this Agreement or the Agency Mortgage Loans, through Owner. Freddie Mac shall have no liability to, and no obligation to provide notice to or otherwise deal with, the Servicer in any manner. Notwithstanding anything herein to the contrary, the Servicer shall have no rights to direct Freddie Mac in any way pursuant to this Agreement or to communicate with or bring any action or proceeding against Freddie Mac pursuant to this Agreement, and only the Owner shall have the right to bring an action against Freddie Mac pursuant to this Agreement.
Section 3.10 | No Interest in Servicing Rights. |
Servicer acknowledges and agrees that it has no interest in the Servicing Rights or in any agreements between Owner and an Agency.
Section 3.11 | Joint and Several Liability. |
Owner and Servicer shall jointly and severally indemnify, defend and hold harmless each Agency from and against any losses, damages or expenses arising out of or relating to Servicer’s fraud, willful misconduct or negligent acts or omissions in connection with its subservicing of the related Agency Mortgage Loans pursuant to this Agreement; provided, however, that it is expressly understood and agreed that Servicer shall not be liable to any Agency for any such losses, damages or expenses in connection with either (i) the origination of any related Agency Mortgage Loan, or (ii) the servicing of any Agency Mortgage Loan other than during the period Servicer is or was obligated to service such Agency Mortgage Loan pursuant to this Agreement.
In addition to the foregoing, with respect to Freddie Mac Mortgage Loans, notwithstanding Freddie Mac's written approval of the Servicer in accordance with the provisions of Section 8102.1 of the Freddie Mac Guide, and notwithstanding the actual performance by the Servicer of all or a portion of the Owner’s Freddie Mac Servicing responsibilities, the Servicer and the Owner agree (a) that they are jointly and severally liable to Freddie Mac and shall indemnify, defend and hold Freddie Mac harmless from and against any and all loss, damage or expense, including court costs and attorney fees arising out of or relating to the Owner's failure to comply with any Freddie Mac
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Servicing (as such term is defined in the Freddie Mac Guide) requirement that is a result of, or caused by, the Servicer’s failure to comply with any Freddie Mac Servicing requirement within the scope of this Agreement or violation of any of its representations, warranties, covenants and agreements set forth in its executed Freddie Mac Form 479A (Single Family Agent Certification and Agreement) and (b) that Freddie Mac may exercise any and all rights and remedies available under the Freddie Mac Guide and the other Freddie Mac Purchase Documents and applicable law against either or both the Owner and/or the Servicer for any such Freddie Mac Servicing violation(s), provided however that under no circumstances will Freddie Mac be entitled to any duplicative recovery. Notwithstanding any other provision of this Agreement to the contrary, the Owner shall continue to be responsible and liable to Freddie Mac for all Freddie Mac Servicing requirements and all representations and warranties made by the Owner, in accordance with the terms of the Freddie Mac Guide and the other Freddie Mac Purchase Documents.
Section 3.12 | Conflict with Acknowledgement Agreement. |
In the event of any conflict between this Agreement or the Guide and the Acknowledgment Agreement, the provisions of the Acknowledgment Agreement shall prevail.
Section 3.13 | Additional Provisions Applicable to Freddie Mac Mortgage Loans. |
(a)Any and all references to the term “Servicer” in this Agreement shall mean the Servicer in its capacity as Servicing Agent (as such term is defined in the Freddie Mac Guide) for and on behalf of the Owner, and any and all references to the term “Owner” in this Agreement shall mean the Owner in its capacity as Servicer and holder of the Servicing Contract Rights associated with the Freddie Mac Mortgage Loans. For purposes of clarity, any reference in this Agreement to “Owner’s rights to the Mortgage Loans” or words of similar effect which directly or indirectly imply the Owner has any right or interest in the Freddie Mac Mortgage Loans shall be construed to be limited in all respects to solely the Owner’s rights as a holder of the Servicing Contract Rights as provided in the Freddie Mac Servicing Contract, the Freddie Mac Guide and the other Freddie Mac Purchase Documents.
(b)The Owner has previously sold, and will on and after the Effective Date continue to sell, all right, title and interest in the Freddie Mac Mortgage Loans to Freddie Mac in accordance with the Freddie Mac Guide and the other Freddie Mac Purchase Documents, including, but not limited to, Sections 1201.3, 1202.2 and 1301.8(b) of the Freddie Mac Guide.
(c)Freddie Mac and the Owner have entered into the Freddie Mac Servicing Contract relating to the Freddie Mac Mortgage Loans which are now and/or which hereafter are to be serviced by the Owner pursuant to the Freddie Mac Servicing Contract. In accordance with the Freddie Mac Guide and the Freddie Mac Servicing Contract, simultaneously with the Owner’s sale of Mortgages to Freddie Mac, the Freddie Mac Servicing Contract Rights are established by Freddie Mac. The Owner holds or will hold only the Freddie Mac Servicing Contract Rights associated with the Freddie Mac Mortgage Loans in accordance with the Freddie Mac Servicing Contract and the Freddie Mac Guide.
(d)Prior to the Effective Date, the Owner and the Servicer executed and delivered to Freddie Mac two (2) Form 479A Single-Family Servicing Agent Certification and
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Agreements (individually and collectively, the “Servicing Agent Certification and Agreement”) whereby the Owner has designated the Servicer to carry out the Owner’s responsibilities to perform the servicing function with respect to the Freddie Mac Mortgage Loans subject to the terms and provisions of the Freddie Mac Servicing Contract and the Freddie Mac Guide, and the Servicer agreed to do so in compliance with the requirements of the Freddie Mac Servicing Contract and the Freddie Mac Guide as Servicing Agent (as such term is defined in the Freddie Mac Guide) on behalf of the Owner.
(e)The Servicer has no right, title or interest in the Freddie Mac Mortgage Loans or in the Freddie Mac Servicing Contract Rights associated with the Freddie Mac Mortgage Loans, and the Servicer expressly and irrevocably waives, any right to claim it has any Freddie Mac Servicing Contract Rights with respect to the Freddie Mac Mortgage Loans.
(f)With respect to Freddie Mac Mortgage Loans, this Agreement incorporates the provisions of Freddie Mac Guide Chapter 8102 by reference and such provisions are a substantive contractual part of this Agreement such that the Owner and the Servicer expressly agree to be bound by the terms and conditions set forth in Guide Chapter 8102.
ARTICLE IV
SERVICING OF NON-AGENCY MORTGAGE LOANS
Section 4.01 | Servicer to Act as Servicer of Non-Agency Mortgage Loans. |
The Servicer shall service the Non-Agency Mortgage Loans in accordance with the provisions of this Agreement and its obligations in respect of the Mortgage Loans shall be limited to those set forth in this Agreement. To the extent set forth in and subject to the terms of the Delegation of Authority Matrix attached as Exhibit 10 hereto, the Owner hereby delegates authority to the Servicer to carry out the Servicer’s servicing and administration duties with respect to the Non-Agency Mortgage Loans without obtaining the Owner’s prior written approval.
Consistent with the terms of this Agreement, the PennyMac Property Preservation Program, and Accepted Servicing Practices, the Servicer may, with respect to a Non-Agency Mortgage Loan, (i) waive any late payment charge or, if applicable, any penalty interest, or (ii) extend the due dates for the Monthly Payments due on a Mortgage Note, or waive, in whole or in part, a Prepayment Penalty. Unless in compliance with the PennyMac Property Preservation Program, the terms of any Non-Agency Mortgage Loan may only be modified, varied or forgiven with the prior written consent of the Owner while the Non-Agency Mortgage Loan remains outstanding. The Servicer’s analysis supporting any forbearance and the conclusion that any forbearance meets the standards of this section shall be reflected in writing or electronically in the Servicing File. The Servicer is hereby authorized and empowered to execute and deliver on behalf of itself and the Owner, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Non-Agency Mortgage Loans and with respect to the Mortgaged Properties. If reasonably required by the Servicer, the Owner shall furnish the Servicer with a fully executed Power of Attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement with respect to the Non-Agency Mortgage Loans. With respect to the Non-Agency Mortgage Loans, the Servicer may request the consent of the Owner in writing by certified mail,
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overnight courier or such other means as may be agreed to by the parties to a course of action that the Servicer proposes to take under this Agreement. Unless the Owner shall give written notice to the Servicer that it objects to any such recommended course of action within ten (10) Business Days immediately following the day on which the Owner received the Servicer’s written consent request (together with its recommended course of action and relevant supporting documentation), the Owner shall be deemed to have consented to such recommended course of action, and Servicer may take the action recommended to the Owner, unless the Servicer determines, in its reasonable discretion, that such action is no longer prudent or applicable and the Servicer notifies the Owner of such decision not to act. In the event that the Owner shall object to the Servicer’s recommended course of action, Servicer shall take such action as is required by the Owner, and the Servicer shall have no liability therefor if it is not negligent in performing such action. Further, to the extent the Servicer has provided the Owner with reasonably timely notice, the Owner shall indemnify and hold harmless the Servicer from and against any penalty, fine or damages that may result from the Owner’s decision to wait for any period of time up to ten (10) Business Days before providing Servicer with direction as to the course of action to be taken as permitted in the second immediately preceding sentence. In addition, except in accordance with the PennyMac Property Preservation Program, notwithstanding the foregoing, the Servicer may not waive any Prepayment Penalty or portion thereof required by the terms of the related Mortgage Note unless (i) the Servicer determines that such waiver would maximize recovery of Liquidation Proceeds for such Non-Agency Mortgage Loan, taking into account the value of such Prepayment Penalty and such Non-Agency Mortgage Loan, and the waiver of such Prepayment Penalty is standard and customary in servicing similar Non-Agency Mortgage Loans (including the waiver of a Prepayment Penalty in connection with a refinancing of the Mortgage Loan related to a default or a reasonably foreseeable default) or (ii) the enforceability thereof is limited (1) by bankruptcy, insolvency, moratorium, receivership or other similar laws relating to creditor’s rights or (2) due to acceleration in connection with a foreclosure or other involuntary payment, or (iii) in the Servicer’s reasonable judgment, (1) the waiver of such prepayment penalty relates to a default or a reasonably foreseeable default, (2) such waiver would maximize recovery of total proceeds taking into account the value of such Prepayment Penalty and such Mortgage Loan and (3) such waiver is standard and customary in servicing similar mortgage loans similar to such Non-Agency Mortgage Loan (including any waiver of a prepayment penalty in connection with a refinancing of a Non-Agency Mortgage Loan that is related to a default or a reasonably foreseeable default). In no event will the Servicer waive a Prepayment Penalty in connection with a refinancing of a Non-Agency Mortgage Loan that is not related to a default or a reasonably foreseeable default. In servicing and administering the Non-Agency Mortgage Loans, the Servicer shall employ procedures (including collection procedures) and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account, where such procedures do not conflict with the requirements of this Agreement, and the Owner’s reliance on the Servicer. In addition, the Servicer shall retain adequate personnel to effect such servicing and administration of the Non-Agency Mortgage Loans. Servicer shall have no obligation to collect a Prepayment Penalty with respect to a Non-Agency Mortgage Loan unless the Servicer is provided with such information electronically; provided, however, that the Servicer shall compare the Notice of Inbound Transfer provided by the Owner and any electronic data regarding the Non-Agency Mortgage Loans provided by the previous servicer of such Non-Agency Mortgage Loans and provide the Owner with prompt written notice of any discrepancies with respect to information regarding Prepayment Penalties.
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The Owner may sell and transfer, in whole or in part, some or all of the Non-Agency Mortgage Loans at any time and from time to time (including, without limitation, in connection with a Private Securitization Transaction or a Public Securitization Transaction). Upon such execution, the Servicer shall mark its books and records to reflect the ownership of the Non-Agency Mortgage Loans by such transferee.
The Servicer shall notify MERS of the ownership interest of Owner in each MOM Loan. At any time during the term of this Agreement, Owner may direct the Servicer to cause any MOM Loan to be deactivated from the MERS System.
The Servicing File maintained by the Servicer pursuant to this Agreement shall be appropriately marked and identified in the Servicer’s computer system to clearly reflect the ownership of the related Non-Agency Mortgage Loan by the Owner. The Servicer shall release from its custody the contents of any Servicing File maintained by it only in accordance with this Agreement.
The Servicer shall be responsible for the actions of any vendors which the Servicer utilizes to carry out its obligations hereunder. The Owner shall promptly reimburse the Servicer for any fees paid to such vendors by the Servicer.
The Servicer shall maintain adequate capacity to service the Non-Agency Mortgage Loans, as well as other mortgage loans that it may service (including mortgage loans held by other entities managed by the PennyMac REIT Manager or any of its Affiliates).
Section 4.02 | Liquidation of Mortgage Loans. |
In the event that any payment due under any Non-Agency Mortgage Loan and not postponed pursuant to Section 4.01 is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Non-Agency Mortgage Loan and such failure continues beyond any applicable grace period, the Servicer shall take such action as the Servicer shall determine reasonably to be in the best interest of the Owner in accordance with Accepted Servicing Practices. In the event that any payment due under any Non-Agency Mortgage Loan is not postponed pursuant to Section 4.01 and remains delinquent for a period of ninety (90) days or any other default continues for a period of ninety (90) days beyond the expiration of any grace or cure period (or such other period as is required by law in the jurisdiction where the related Mortgaged Property is located) or earlier as determined by the Servicer, the Servicer is granted authority to effect Foreclosure Commencement in accordance with and subject to Exhibit 10 hereto and Accepted Servicing Practices. In such connection, the Servicer shall, acting in accordance with Accepted Servicing Practices, advance on behalf of the Owner such funds as are necessary and proper in connection with any foreclosure or towards the restoration or preservation of any Mortgaged Property securing a Non-Agency Mortgage Loan. Notwithstanding anything herein to the contrary, no Servicing Advance shall be required to be made hereunder with respect to a Non-Agency Mortgage Loan if such Servicing Advance would, if made, constitute a Nonrecoverable Advance. The determination by the Servicer that it has made a Nonrecoverable Advance with respect to a Non-Agency Mortgage Loan or that any proposed Servicing Advance with respect to a Non-Agency Mortgage Loan would constitute a
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Nonrecoverable Advance shall be evidenced by an Officers’ Certificate of the Servicer, delivered to the Owner, which details the reasons for such determination.
The Servicer acknowledges and agrees that it shall take and initiate any legal actions with respect to any with respect to a Non-Agency Mortgage Loans and related REO Properties, including, without limitation, any foreclosure actions, acceptance of deeds in lieu of foreclosure, and any collection actions with respect to such Non-Agency Mortgage Loans or related REO Properties on behalf of the Owner, but only in the name of the Servicer or its nominee and without reference to the Owner. Except as otherwise required by law or with the consent of the Owner, under no circumstances shall any such action be taken in the name of, or with any reference to, the Owner. The Servicer shall provide prior written notice to the Owner, if the Servicer is required by Applicable Law to take any legal actions with respect to the Non-Agency Mortgage Loans or related REO Properties in the name of, or with reference to, the Owner.
Section 4.03 | Collection of Mortgage Loan Payments; Payment Clearing Account. |
Continuously from the related Inbound Transfer Date until the principal and interest on all Mortgage Loans are paid in full (unless otherwise provided herein), the Servicer shall proceed diligently to collect all payments due under each of the Non-Agency Mortgage Loans when the same shall become due and payable and shall take special care in ascertaining and estimating Escrow Payments, to the extent applicable, and all other charges that will become due and payable with respect to the Non-Agency Mortgage Loans and each related Mortgaged Property, to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Notwithstanding anything herein to the contrary, with respect to the Non-Agency Mortgage Loans, the Servicer shall not be required to institute or join in litigation with respect to collection of any payment (whether under a Mortgage, Mortgage Note, PMI Policy or otherwise or against any public or governmental authority with respect to a taking or condemnation) if in its reasonable judgment it believes that it will be unable to enforce the provision of the Mortgage or other instrument pursuant to which payment is required. Further, the Servicer shall take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, flood insurance premiums, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in the Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable.
The Servicer shall establish and maintain a Payment Clearing Account into which it shall deposit on a daily basis all payments received in respect of mortgage loans serviced by the Servicer (whether or not serviced pursuant to this Agreement). Not later than the second Business Day following the receipt of a payment in respect of a Non-Agency Mortgage Loan subject to this Agreement, the Servicer shall withdraw the amount of such payment from the Payment Clearing Account and shall immediately deposit (1) in the Custodial Account, the portion of such payment required to be deposited therein pursuant to Section 4.04, and (2) in the Escrow Account, the portion of such payment required to be deposited therein pursuant to Section 4.06.
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Section 4.04 | Establishment of and Deposits to Custodial Account. |
The Servicer shall establish one or more Custodial Accounts, in the form of time deposit or demand accounts titled in the name of “PNMAC Loan Svc LLC ITF [description of applicable owners or investors]” or titled in another reasonable manner indicating that such account is held in a custodial capacity. Each Custodial Account shall be established with a Qualified Depository acceptable to the Owner as a Special Deposit Account. Any funds deposited in the Custodial Account shall at all times be fully insured to the full extent permitted by the FDIC and any amounts therein may be invested in Eligible Investments. The creation of any Custodial Account shall be evidenced by a certification in the form of Exhibit 2 hereto, in the case of an account established with the Servicer (provided the Servicer qualifies as a Qualified Depository). A copy of such certification or letter agreement shall be furnished to the Owner upon request. The Servicer shall segregate and hold all funds in the Custodial Account separate and apart from the Servicer’s own funds and general assets.
With respect to the Non-Agency Mortgage Loans, the Servicer shall deposit in the Custodial Account and retain therein the following collections received by the Servicer, together with any payments made by the Servicer subsequent to the Inbound Transfer Date pursuant to this Agreement:
(i)all payments on account of principal on such Mortgage Loans, including all Principal Prepayments;
(ii)all payments on account of interest on the related Mortgage adjusted to the Mortgage Loan Remittance Rate;
(iii)all related Liquidation Proceeds and any amount received with respect to the related REO Property;
(iv)all related Insurance Proceeds including amounts required to be deposited pursuant to Section 4.10 (other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with Section 4.14), and Section 4.11;
(v)all Condemnation Proceeds affecting any related Mortgaged Property that are not applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with Section 4.14;
(vi)any amount required to be deposited in the Custodial Account pursuant to Section 4.15 or 4.19;
(vii)any Prepayment Penalties received with respect to any Non-Agency Mortgage Loan; and
(viii)any amounts required to be deposited by the Servicer pursuant to Section 4.11 in connection with the deductible clause in any blanket hazard insurance policy. Such deposit shall be made from Servicer’s own funds, without reimbursement therefor.
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The foregoing requirements for deposit into the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, Ancillary Income and Prepayment Penalties need not be deposited by the Servicer into the Custodial Account. Any interest paid by the depository institution on funds deposited in the Custodial Account and relating to any Distressed Whole Loan shall accrue to the benefit of the Servicer and the Servicer may retain any such interest.
Section 4.05 | Permitted Withdrawals From Custodial Account. |
Subject to Section 5.01, the Servicer shall be entitled to withdraw funds from the Custodial Account for the following purposes:
(i)to make payments to the Owner (or as otherwise directed by the Owner in writing) in the amounts and in the manner provided in Section 5.01;
(ii)to fund any Liquidity Reserve Account or any Litigation Reserve Account as and to the extent required by Section 4.17;
(iii)following the liquidation of a Non-Agency Mortgage Loan, to reimburse itself for (a) any unpaid Servicing Advances to the extent recoverable from Liquidation Proceeds, Insurance Proceeds or other amounts received with respect to the related Non-Agency Mortgage Loan plus (b) related unreimbursed Nonrecoverable Advances made by the Servicer in accordance with this Agreement;
(iv)to invest funds in Eligible Investments in accordance with Section 4.09;
(v)to withdraw funds deposited in the Custodial Account in error;
(vi)to pay to itself any interest earned on funds deposited in the Custodial Account and relating to any Distressed Whole Loan (all such interest to be withdrawn monthly not later than each Remittance Date); and
(vii)to clear and terminate the Custodial Account upon the termination of the Servicing Agreement.
The Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to subclause (iii) above.
Section 4.06 | Establishment of and Deposits to Escrow Account. |
The Servicer shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts titled in the name of “PNMAC Loan Svc LLC ttee and/or bailee for [description of applicable owners or investors]” or titled in another reasonable manner indicating that such account is held in a custodial capacity. Each Escrow Account shall be established with a Qualified Depository as a Special Deposit Account. Funds deposited in the Escrow Accounts may be drawn on by the Servicer in accordance with Section 4.07. The creation of any Escrow Account shall be evidenced by a certification in the form of Exhibit 4 hereto, in the
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case of an account established with the Servicer (provided the Servicer qualifies as a Qualified Depository). A copy of such certification shall be furnished to the Owner on or prior to the execution of this Agreement. The Servicer shall segregate and hold all funds in any Escrow Account separate and apart from the Servicer’s own funds and general assets.
With respect to the Non-Agency Mortgage Loans, the Servicer shall deposit in the Escrow Account or Accounts and retain therein the following collections received by the Servicer:
(i)all related Escrow Payments collected on account of the Non-Agency Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement; and
(ii)all amounts representing related Insurance Proceeds or Condemnation Proceeds which are to be applied to the restoration or repair of any related Mortgaged Property.
The Servicer shall make withdrawals from the Escrow Account only to effect such payments as are required under this Agreement, as set forth in Section 4.07. Any interest paid on funds deposited in the Escrow Account by the depository institution and relating to any Distressed Whole Loan shall accrue to the benefit of the Servicer. To the extent required by law, the Servicer shall be responsible to pay from its own funds interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may be non interest bearing or that interest paid thereon is insufficient for such purposes.
Section 4.07 | Permitted Withdrawals From Escrow Account. |
With respect to the Non-Agency Mortgage Loans, withdrawals from the Escrow Account or Accounts may be made by the Servicer only:
(i)to effect timely payments of ground rents, taxes, assessments, water rates, mortgage insurance premiums, condominium charges, flood insurance, fire and hazard insurance, premiums or other items constituting related Escrow Payments for the related Mortgage;
(ii)to reimburse the Servicer for any Servicing Advance made by the Servicer pursuant to Section 4.08 with respect to a Non-Agency Mortgage Loan, but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder;
(iii)to refund to any related Mortgagor any funds found to be in excess of the amounts required under the terms of the related Mortgage Loan or applicable federal or state law or judicial or administrative ruling;
(iv)for transfer to the Custodial Account in accordance with the terms of the related Mortgage and Mortgage Note or this Agreement;
(v)for application to restoration or repair of the related Mortgaged Property in accordance with the procedures outlined in Section 4.14;
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(vi)to pay the Servicer, or any Mortgagors to the extent required by law, any interest due on the funds deposited in the Escrow Account and relating to any Distressed Whole Loan or to pay the Owner, or any Mortgagors to the extent required by law, any interest paid on the funds deposited in the Escrow Account and relating to any Mortgage Loan other than a Distressed Whole Loan;
(vii)to reimburse itself for any amounts deposited in the Escrow Account in error; and
(viii)to clear and terminate the Escrow Account on the termination of this Agreement.
Section 4.08 | Payment of Taxes, Insurance and Other Charges. |
With respect to each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan requiring Escrow Payments to be made by the related Mortgagor, the Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of PMI Policy premiums, flood insurance, and fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges (including renewal premiums) and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the related Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Servicer in amounts sufficient for such purposes, as allowed under the terms of the related Mortgage.
To the extent that any Non-Agency Mortgage Loan is a First Lien Mortgage Loan that does not provide for Escrow Payments, the Servicer shall determine that any such payments are made by the related Mortgagor when due. With respect to each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan requiring Escrow Payments to be made by the related Mortgagor, subject to Accepted Servicing Practices, the Servicer assumes full responsibility for the payment of all such bills and shall effect payments of all such bills irrespective of the Mortgagor’s faithful performance in the payment of same or the making of the Escrow Payments and shall make Servicing Advances from its own funds to effect such payments within the time period required to avoid penalties and interest and avoid the loss of the related Mortgaged Property by foreclosure from a tax or other lien. Notwithstanding the foregoing, if Servicer reasonably determines that such Servicing Advance would be a Nonrecoverable Advance, Servicer shall have no obligation to make such Servicing Advance. Solely with respect to Non-Agency Mortgage Loans that require Escrow Payments, if Servicer fails to make a Servicing Advance with respect to any payment prior to the date on which late payment penalties or costs related to protecting the lien accrue, the Servicer shall pay any such penalties or costs which accrued.
Section 4.09 | Protection of Accounts. |
The Servicer may transfer the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account to a different Qualified Depository from time to time. Such transfer shall be made only upon obtaining consent of the Owner, which shall not
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be unreasonably withheld. The Servicer shall notify the Owner in writing of any such transfer fifteen (15) Business Days prior to such transfer.
Amounts on deposit in the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account may at the option of the Servicer be invested in Eligible Investments. Any such Eligible Investment shall mature no later than one day prior to the Remittance Date in each month; provided, however, that if such Eligible Investment is an obligation of a Qualified Depository (other than the Servicer) that maintains the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account, then such Eligible Investment may mature on the related Remittance Date. Any such Eligible Investment shall be made in the name of the Servicer in trust for the benefit of the Owner. All income on or gain realized from any such Eligible Investment shall be for the benefit of the Servicer and may be withdrawn at any time by the Servicer. Any losses incurred in respect of any such investment shall be deposited in the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account, by the Servicer out of its own funds immediately as realized with no right to reimbursement.
Section 4.10 | Maintenance of Hazard Insurance. |
The Servicer shall cause to be maintained for each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan, hazard insurance (with extended coverage as is customary in the area where the Mortgaged Property is located) such that all buildings upon the related Mortgaged Property are insured by a generally acceptable insurer acceptable under the Fannie Mae Guides against loss by fire, hazards of extended coverage and such other hazards as are required to be insured pursuant to the Fannie Mae Guides, in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements securing such Mortgage Loan and (ii) the greater of (a) the outstanding principal balance of such Mortgage Loan or (b) an amount such that the proceeds thereof shall be sufficient to prevent the related Mortgagor or the loss payee from becoming a co-insurer (or, in the case of any related REO Property, the fair market value of such REO Property).
With respect to the Non-Agency Mortgage Loans, if required by the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, each such Mortgage Loan is, and shall continue to be, covered by a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier acceptable under the Fannie Mae Guides in an amount representing coverage not less than the least of (i) the aggregate unpaid principal balance of such Mortgage Loan (or, in the case of a related REO Property, the fair market value of such REO Property), (ii) maximum amount of insurance which is available under the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended (regardless of whether the area in which such Mortgaged Property is located is participating in such program), or (iii) the full replacement value of the improvements which are part of such Mortgaged Property. If a related Mortgaged Property is located in a special flood hazard area and is not covered by flood insurance or is covered in an amount less than the amount required by the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, the Servicer shall notify the related Mortgagor that the Mortgagor must obtain such flood insurance coverage, and if such Mortgagor fails to obtain the required flood insurance coverage within forty-five (45) days after such notification, the
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Servicer shall immediately force place the required flood insurance on such Mortgagor’s behalf. Notwithstanding the foregoing, Servicer shall have no liability to Owner or any third party for any penalties or fines imposed based on Servicer’s failure to timely notify the Director of FEMA and the flood insurance provider related to a servicing transfer if Servicer is not provided with flood insurance information; provided that, the Servicer shall have promptly provided Owner with notice of such missing flood insurance information. Notwithstanding the foregoing, the Servicer shall maintain a blanket insurance policy in sufficient amounts to cover any uninsured loss due to any gap in Mortgagor-provided coverage.
If a Non-Agency Mortgage Loan that is a First Lien Mortgage Loan is secured by a unit in a condominium project, the Servicer shall verify that the coverage required of the homeowners’ association, including hazard, flood, liability, and fidelity coverage, is being maintained in accordance with then current Fannie Mae requirements, and secure from the homeowners’ association its agreement to notify the Servicer promptly of any change in the insurance coverage or of any condemnation or casualty loss that may have a material effect on the value of the related Mortgaged Property as security.
The Servicer shall cause to be maintained on each Mortgaged Property securing a Non-Agency Mortgage Loan such other or additional insurance as may be required pursuant to such Applicable Laws and regulations as shall at any time be in force and as shall require such additional insurance, or pursuant to the requirements of any private mortgage guaranty insurer, or as may be required to conform with Accepted Servicing Practices.
In the event that the Owner or the Servicer shall determine that the Mortgaged Property securing a Non-Agency Mortgage Loan should be insured against loss or damage by hazards and risks not covered by the insurance required to be maintained by the Mortgagor pursuant to the terms of the Mortgage, the Servicer shall in accordance with the Fannie Mae Guides make commercially reasonable efforts to communicate and consult with the Mortgagor with respect to the need for such insurance and bring to the Mortgagor’s attention the desirability of protection of the Mortgaged Property.
All policies required hereunder shall name the Servicer and its successors and assigns as a mortgagee and loss payee and shall be endorsed with non contributory standard or New York mortgagee clauses which shall provide for at least thirty (30) days prior written notice of any cancellation, reduction in amount or material change in coverage.
In all such cases, the Servicer shall not interfere with the Mortgagor’s freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Servicer shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of A:VI or better under Best’s Key Rating Guides, are acceptable under the Fannie Mae Guides and are licensed to do business in the jurisdiction in which the Mortgaged Property is located. The Servicer shall determine that such policies provide sufficient risk coverage and amounts as required pursuant to the Fannie Mae Guides, that they insure the property owner, and that they properly describe the property address. The Servicer shall furnish to the Mortgagor a formal notice of expiration of any such insurance in sufficient time for the Mortgagor to arrange for renewal coverage by the expiration date; provided, however, that in the event that no such notice is furnished by the Servicer, the Servicer shall ensure that replacement
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insurance policies are in place in the required coverages and the Servicer shall be solely liable for any losses in the event coverage is not provided.
Pursuant to Section 4.04, any amounts collected by the Servicer under any such policies (other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the related Mortgaged Property, or property acquired in liquidation of the Mortgage Loan, or to be released to the Mortgagor, in accordance with the Servicer’s normal servicing procedures as specified in Section 4.14) shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 4.05.
Section 4.11 | Maintenance of Mortgage Impairment Insurance Policy. |
In the event that the Servicer shall obtain and maintain a blanket policy insuring against losses arising from flood, fire and hazards covered under extended coverage on all of the Non-Agency Mortgage Loans, then, to the extent such policy provides coverage in an amount equal to the amount required pursuant to Section 4.10 and otherwise complies with all other requirements of Section 4.10, it shall conclusively be deemed to have satisfied its obligations as set forth in Section 4.10. Any amounts collected by the Servicer under any such policy relating to a Non-Agency Mortgage Loan shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 4.05. Such policy may contain a deductible clause, in which case, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with Section 4.10, and there shall have been a loss which would have been covered by such policy, the Servicer shall deposit in the Custodial Account at the time of such loss the amount not otherwise payable under the blanket policy because of such deductible clause, such amount to be deposited from the Servicer’s funds, without reimbursement therefor. The Servicer may seek reimbursement from the Owner for the costs and premiums associated with obtaining and maintaining any such blanket policy.
Section 4.12 | Maintenance of Fidelity Bond and Errors and Omissions Insurance. |
The Servicer shall maintain with responsible companies that would meet the requirements of Fannie Mae, at its own expense, a blanket Fidelity Bond and an Errors and Omissions Insurance Policy, with broad coverage on all officers, employees or other persons acting in any capacity requiring such persons to handle funds, money, documents or papers relating to the Mortgage Loans (“Servicer Employees”). Any such Fidelity Bond and Errors and Omissions Insurance Policy shall be in the form of the Mortgage Banker’s Blanket Bond and shall protect and insure the Servicer against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such Servicer Employees. Such Fidelity Bond and Errors and Omissions Insurance Policy also shall protect and insure the Servicer against losses in connection with the failure to maintain any insurance policies required pursuant to this agreement and the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Section 4.12 requiring such Fidelity Bond and Errors and Omissions Insurance Policy shall diminish or relieve the Servicer from its duties and obligations as set forth in this Agreement. Any such Fidelity Bond and Errors and Omissions Insurance Policy shall comply with the applicable requirements from time to time of Fannie Mae. Upon request, the Servicer shall cause to be delivered to the Owner a certified true copy of such Fidelity Bond and
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Errors and Omissions Insurance Policy and shall obtain a statement from the surety and insurer that such Fidelity Bond and Errors and Omissions Insurance Policy shall in no event be terminated or materially modified without thirty (30) days’ prior written notice to the Owner.
Section 4.13 | Inspections. |
The Servicer shall order an inspection of the Mortgaged Property securing a Non-Agency Mortgage Loan when such Mortgage Loan becomes 45 days delinquent and every 30 days thereafter so long as such Mortgage Loan remains delinquent to assure itself that the value of the Mortgaged Property is being preserved, provided that the Servicer shall be required to take such action only if it determines that the proceeds to the Owner (after giving effect to the recovery of the Servicer’s out-of-pocket expenses) from payment on, or disposition of, the related Mortgage Loan or REO Property would be increased as a result of the taking of such action. The Servicer shall document on its servicing system each such inspection. The costs of such inspections shall be treated as Servicing Advances for which the Servicer shall be entitled to full reimbursement for in accordance with Section 4.05(iv).
Section 4.14 | Restoration of Mortgaged Property. |
With respect to the Non-Agency Mortgage Loans, the Servicer need not obtain the approval of the Owner prior to releasing any Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied to the restoration or repair of the Mortgaged Property if such release is in accordance with Accepted Servicing Practices and the terms of this Agreement. At a minimum, the Servicer shall comply with the following conditions in connection with any such release of such Insurance Proceeds or Condemnation Proceeds:
(i)the Servicer shall receive satisfactory independent verification of completion in all material respects of repairs and issuance of any required approvals with respect thereto;
(ii)the Servicer shall take all steps necessary to preserve the priority of the lien of the Mortgage, including, but not limited to requiring waivers with respect to mechanics’ and materialmen’s liens;
(iii)the Servicer shall verify that the Mortgage Loan is not in default; and
(iv)pending repairs or restoration, the Servicer shall place the Insurance Proceeds or Condemnation Proceeds in the Escrow Account.
If the Owner is named as an additional loss payee, the Servicer is hereby empowered to endorse any loss draft issued in respect of such a claim in the name of the Owner.
Section 4.15 | Title, Management and Disposition of REO Property. |
In the event that title to any Mortgaged Property securing a Non-Agency Mortgage Loan is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the Owner or its designee, which may include Servicer on behalf of the Owner, or in the event the Servicer is not authorized or permitted to hold title to real property in the state
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where the REO Property is located, or would be adversely affected under the “doing business” or tax laws of such state by so holding title, the deed or certificate of sale shall be taken in the name of such Person(s) as shall be consistent with an Opinion of Counsel obtained by Servicer from an attorney duly licensed to practice law in the state where the REO Property is located. The Person or Persons holding such title other than the Owner shall acknowledge in writing that such title is being held as nominee for the Owner. Where title is acquired by the acceptance of a deed in lieu of foreclosure, the Owner shall pay to the Servicer a Deed in Lieu Fee.
Upon approval by Owner, the Servicer shall manage, conserve, protect and operate each REO Property related to a Non-Agency Mortgage Loan for the Owner either for the purpose of its prompt disposition and sale or its rental. The Servicer, either itself or through an agent selected by the Servicer, shall manage, conserve, protect and operate such REO Property in accordance with Accepted Servicing Practices and in the same manner that similar property in the same locality as such REO Property is managed. The Servicer shall attempt to sell or rent the same on such terms and conditions as the Servicer deems to be in the best interest of the Owner in accordance with Accepted Servicing Practices. The Servicer shall provide the Owner on a monthly basis with a report on the status of each REO Property related to a Non-Agency Mortgage Loan.
The Servicer shall also maintain on each REO Property related to a Non-Agency Mortgage Loan fire and hazard insurance with extended coverage in an amount which is at least equal to the maximum insurable value of the improvements which are a part of such property, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, flood insurance in the amount required in Section 4.10 hereof, provided that the Servicer shall be required to maintain such insurance only if it determines that the proceeds to the Owner (after giving effect to the recovery of the Servicer’s out-of-pocket expenses) from payment on, or disposition of, the related REO Property would be increased as a result of the maintenance of such insurance. Such costs to maintain appropriate insurance coverage shall be treated as Servicing Advances for which the Servicer shall be entitled to full reimbursement in accordance with Section 4.05(iv). In addition, for the sale of each REO Property related to a Non-Agency Mortgage Loan, Owner shall pay to Servicer the Liquidation Fee.
The disposition of each REO Property related to a Non-Agency Mortgage Loan shall be carried out by the Servicer at such price, and upon such terms and conditions, as the Servicer deems to be in the best interests of the Owner in accordance with Accepted Servicing Practices. The proceeds of sale of such REO Property shall be promptly deposited in the Custodial Account pursuant to the terms of this Agreement but not later than the second Business Day following receipt thereof. As soon as practical thereafter, the expenses of such sale shall be paid and the Servicer shall reimburse itself for any related unreimbursed Servicing Advances and unpaid Servicing Fees made pursuant to this Section.
With respect to each REO Property related to a Non-Agency Mortgage Loan, the Servicer shall segregate and hold all funds collected and received in connection with the operation of the REO Property in the Custodial Account. The Servicer shall cause to be deposited on a daily basis in each Custodial Account all revenues received by Servicer (such revenues being those received by Servicer within two Business Days prior to actual deposit into the Escrow Account) with respect to the conservation and disposition of the related REO Property. Any advances made to maintain
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appropriate insurance coverage shall be treated as Servicing Advances for which the Servicer shall be entitled to full reimbursement in accordance with Section 4.05(iv).
With respect to all REO Properties managed by the Servicer that are subject to rental agreements, the Servicer shall be entitled to collect on a monthly basis any applicable REO Property Rental Fees, REO Property Management Fees and related fees as set forth on Exhibit 9, net of Owner’s monthly cost to directly employ and compensate any personnel that help facilitate the Servicer’s management of such REO Properties.
The Servicer shall furnish to the Owner on a monthly basis the Servicer’s standard REO report on REO Property then managed by the Servicer with respect to the Non-Agency Mortgage Loans.
Section 4.16 | Costs and Expenses. |
With respect to the Non-Agency Mortgage Loans, Owner will be responsible for all losses including but not limited to unrecoverable interest, “out-of-pocket” costs and expenses from either the Mortgagor or Owner that are normal and customary that occur as the result of normal business activity associated with owning the loans.
Section 4.17 | Liquidity and Litigation Reserves. |
(a)Liquidity Reserve. The Servicer, in its discretion, may establish a liquidity reserve (the “Liquidity Reserve”) from which to fund Servicing Advances (including litigation costs and expenses (including attorneys’ fees)), P&I Advances and Interest Shortfall with respect to the Mortgage Loans. If the Servicer elects to establish a Liquidity Reserve it shall establish a Liquidity Reserve Account at a Qualified Depository. The Liquidity Reserve Account shall be held in trust for the benefit of the Owner and shall be established and maintained for the sole purpose of holding and distributing the Liquidity Reserve funds. The Servicer may fund the Liquidity Reserve with such portion of distributions on the Mortgage Loans (but such portion shall nonetheless be deemed to have been distributed to Owner) as it deems appropriate, in the exercise of its reasonable discretion, or otherwise request Owner to fund such Liquidity Reserve, in which case Owner shall fund such Liquidity Reserve as so requested. At the termination of this Agreement, all remaining funds held in the Liquidity Reserve shall be distributed to the Owner. Amounts on deposit in the Liquidity Reserve Account shall be invested in Eligible Investments, shall not be used to pay costs or expenses other than Servicing Advances (including litigation costs and expenses (including attorneys’ fees)), P&I Advances and Interest Shortfall, and shall be used to pay such amounts only in any month in which the distributions on the Mortgage Loans received during that month are insufficient to provide sufficient cash to pay all such amounts due and payable during that month. No funds from any other source (other than interest or earnings on the funds held in the Liquidity Reserve Account) shall be commingled in the Liquidity Reserve Account. Amounts on deposit in the Liquidity Reserve Account (including interest and earnings thereon) shall be used and may be withdrawn and disbursed only in accordance with the provisions of this paragraph. The Servicer shall be authorized and directed to withdraw funds from the Liquidity Reserve Account only to make disbursements in accordance with this Agreement and not for any other purpose. Notwithstanding anything in this Section 4.17(a) to the contrary, it is expressly understood that the Servicer’s failure to establish or require the Owner to establish or fund a Liquidity Reserve shall
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not preclude the Servicer from seeking reimbursement from the Owner for Servicing Advances (including litigation costs and expenses (including attorneys’ fees)), P&I Advances and Interest Shortfall, all of which remain the obligations of the Owner.
(b)Litigation Reserve. Without prejudice to its rights under Section 4.17(a), the Servicer, in its discretion, may establish a litigation reserve (the “Litigation Reserve”) from which to fund litigation costs and expenses (including attorneys’ fees) that constitute Servicing Advances with respect to the Mortgage Loans. If the Servicer elects to establish a Litigation Reserve it shall establish a Litigation Reserve Account at a Qualified Depository. The Litigation Reserve Account shall be held in trust for the benefit of the Owner and shall be established and maintained for the sole purpose of holding and distributing the Litigation Reserve funds. The Servicer may fund the Litigation Reserve with such portion of distributions on the Mortgage Loans (but such portion shall nonetheless be deemed to have been distributed to Owner) as it deems appropriate, in the exercise of its reasonable discretion, or otherwise request Owner to fund such Litigation Reserve, in which case Owner shall fund such Liquidity Reserve as so requested. At the termination of this Agreement, all remaining funds held in the Litigation Reserve shall be distributed to the Owner. Amounts on deposit in the Litigation Reserve Account shall be invested in Eligible Investments, shall not be used to pay costs or expenses other than litigation costs and expenses that constitute Servicing Advances, and shall be used to pay such litigation costs and expenses only in any month in which distributions on the Mortgage Loans received during that month are insufficient to provide sufficient cash to pay all Servicing Advances due and payable (without prepayment) during that month with respect to the Mortgage Loans. No funds from any other source (other than interest or earnings on the funds held in the Litigation Reserve Account) shall be commingled in the Litigation Reserve Account. Amounts on deposit in the Litigation Reserve Account (including interest and earnings thereon) shall be used and may be withdrawn and disbursed only in accordance with the provisions of this paragraph. The Servicer shall be authorized and directed to withdraw funds from the Litigation Reserve Account only to make disbursements in accordance with this Agreement and not for any other purpose.
(c)For the avoidance of doubt, references under this Section 4.17 to “Mortgage Loans” shall be deemed to include both Agency Mortgage Loans and Non-Agency Mortgage Loans; provided, however, that to the extent there is any conflict between the actions permitted to be taken by the Servicer under this Section 4.17 and the actions permitted to be taken by the Servicer pursuant to the requirements of the applicable Guide, the requirements of the applicable Guide shall control.
Section 4.18 | Transfers of Mortgaged Properties. |
The Servicer shall enforce any “due-on-sale” provision contained in any Mortgage or Mortgage Note under any Non-Agency Mortgage Loan and deny assumption by the Person to whom the related Mortgaged Property has been or is about to be sold whether by absolute conveyance or by contract of sale, and whether or not the related Mortgagor remains liable on such Mortgage and Mortgage Note. When the related Mortgaged Property has been conveyed by the Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance, exercise its rights to accelerate the maturity of such Mortgage Loan under the “due-on-sale” clause applicable thereto; provided, however, that the Servicer shall not exercise such rights if prohibited by law from doing so.
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If the Servicer reasonably believes it is unable under Applicable Law to enforce such “due-on-sale” clause, the Servicer, shall, to the extent permitted by Applicable Law, enter into (i) an assumption and modification agreement with the Person to whom such property has been conveyed, pursuant to which such Person becomes liable under the related Mortgage Note and the original Mortgagor remains liable thereon or (ii) in the event the Servicer is unable under Applicable Law to require that the original Mortgagor remain liable under the Mortgage Note and the Servicer has the prior consent of the primary mortgage guarantee insurer, a substitution of liability agreement with the purchaser of the Mortgaged Property pursuant to which the original Mortgagor is released from liability and the purchaser of the Mortgaged Property is substituted as Mortgagor and becomes liable under the Mortgage Note. If an assumption fee is collected by the Servicer for entering into an assumption agreement, such fee will be retained by the Servicer as additional servicing compensation. In connection with any such assumption, neither the Mortgage Interest Rate borne by the related Mortgage Note, the term of the Mortgage Loan nor the outstanding principal amount of the Mortgage Loan shall be changed. Where an assumption is allowed pursuant to this Section 4.18, the Servicer, with the prior written consent of the insurer under the PMI Policy or LPMI Policy, if any, is authorized to enter into a substitution of liability agreement with the Person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note. Any such substitution of liability agreement shall be in lieu of an assumption agreement. The Servicer shall notify the Owner that any such substitution of liability or assumption agreement has been completed by forwarding to the Owner, or its designee, the original of any such substitution of liability or assumption agreement, which document shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting a part thereof.
To the extent that any Non-Agency Mortgage Loan is assumable, the Servicer shall inquire diligently into the creditworthiness of the proposed transferee, and shall follow Accepted Servicing Practices and the underwriting practices and procedures of prudent mortgage lenders in the respective states where the related Mortgaged Properties are located including but not limited to Servicer conducting a review of the credit and financial capacity of the individual receiving the property, and may approve the assumption if it believes the recipient is capable of assuming the mortgage obligations. If the credit of the proposed transferee does not satisfy the relevant underwriting criteria and the transfer of ownership actually occurs, the Servicer diligently shall, to the extent permitted by the Mortgage or the Mortgage Note and by Applicable Law, accelerate the maturity of the Non-Agency Mortgage Loan.
The Servicer shall be required to take any action otherwise required by this Section 4.18 only if it determines that the proceeds to the Owner (after giving effect to the recovery of the Servicer’s out-of-pocket expenses) from payment on, or disposition of the related Mortgage Loan or REO Property would be increased as a result of the taking of such action.
Section 4.19 | Satisfaction of Mortgages and Release of Mortgage Files. |
Upon the payment in full of any Non-Agency Mortgage Loan, or the receipt by the Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Servicer shall notify the Owner in the Monthly Remittance Advice as provided in Section 5.02,
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and may request the release of any Mortgage Loan Documents from the Owner in accordance with this Section 4.19. The Servicer shall obtain discharge of the related Mortgage Loan as of record within any related time limit required by Applicable Law (unless prevented from complying as a result of the failure of the local recording office to comply with its obligations on a timely basis).
In connection with any instrument of satisfaction or deed of reconveyance with respect to a Non-Agency Mortgage Loan, the Servicer shall be entitled to a reconveyance fee. Such reconveyance fee shall only be reimbursable to the Servicer by the Owner to the extent the reconveyance fee is uncollectible from the related Mortgagor based on the terms of the security instrument or in the Servicer’s reasonable opinion that such fee is not allowable by statute.
Upon receipt of such request, the Owner or its designee shall within five (5) Business Days release or cause to be released the related Mortgage Loan Documents to Servicer and Servicer shall prepare and process any satisfaction or release. If the Owner or its designee or the Custodian does not release the related Mortgage Loan Documents to Servicer within five (5) Business Days of receipt of request to do so, Servicer may retain a third party to complete the reconveyance and charge the Owner the actual cost of services provided by such third party. Except as set forth in this paragraph, Servicer shall have no liability for third party delays that may result in assessed penalties.
If the Servicer satisfies or releases a Mortgage securing a Non-Agency Mortgage Loan without first having obtained payment in full of the indebtedness secured by the Mortgage (or such lesser amount in connection with a discounted payoff accepted by the Servicer with respect to a defaulted Mortgage Loan) or should the Servicer otherwise prejudice any rights the Owner may have under the mortgage instruments, the Servicer shall deposit the shortfall amount of the paid indebtedness in the Custodial Account (unless such shortfall is $500 or less, in which case no deposit shall be required) within five (5) Business Days of receipt of such demand by the Owner.
The Servicer shall cause the Fidelity Bond and Errors and Omissions Insurance Policy required under Section 4.12 to insure the Servicer against any loss it may sustain with respect to any Non-Agency Mortgage Loan not satisfied in accordance with the procedures set forth herein.
Section 4.20 | Notification of Adjustments. |
With respect to each Non-Agency Mortgage Loan that is an Adjustable-Rate Mortgage Loan, the Servicer shall adjust the Mortgage Interest Rate on the related Interest Rate Adjustment Date in compliance with the requirements of Applicable Law and the related Mortgage and Mortgage Note. If, pursuant to the terms of the related Mortgage Note, another Index is selected for determining the Mortgage Interest Rate because the original Index is no longer available, the same Index will be used with respect to each Mortgage Note which requires a new Index to be selected provided that such selection does not conflict with the terms of the related Mortgage Note. The Servicer shall execute and deliver any and all necessary notices required under Applicable Law and the terms of the related Mortgage Note and Mortgage regarding the Mortgage Interest Rate and the Monthly Payment adjustments. The Servicer shall promptly deliver to the Owner such notifications and any additional applicable data regarding such adjustments and the methods used to calculate and implement such adjustments. Upon the discovery by the Servicer or the Owner that the Servicer has failed to adjust a Mortgage Interest Rate or a Monthly Payment
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pursuant to the terms of the related Mortgage Note and Mortgage related to a Non-Agency Mortgage Loan, the Servicer shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused the Owner thereby without reimbursement therefor.
Section 4.21 | Recordation of Assignments of Mortgage. |
Except in connection with Accepted Servicing Practices for defaulted Mortgage Loans, the Servicer shall not be responsible for the preparation or recording of the Assignments of Mortgage relating to the Non-Agency Mortgage Loans to the Owner, or any other party; provided, however, that in the event the Servicer agrees (which agreement shall be in Servicer’s sole discretion) to record any mortgage assignment, any expense, including the fees of third party service providers, incurred by the Servicer in connection with the preparation and recordation of Assignments of Mortgage shall be reimbursable by the Owner, or, if not reimbursed by the Owner, advanced or paid as a Servicing Advance.
Section 4.22 | [Reserved]. |
Section 4.23 | Credit Reporting. |
With respect to the Non-Agency Mortgage Loans, the Servicer shall fully furnish, in accordance with the Fair Credit Reporting Act and its implementing regulations, accurate and complete information (e.g. favorable and unfavorable) on the Mortgagor credit files to Equifax, Experian and Trans Union Credit Information Company (or their respective successors) on a monthly basis and in accordance with applicable federal, state and local laws.
Section 4.24 | Superior Liens. |
With respect to the Non-Agency Mortgage Loans, if the Servicer is notified that any superior lienholder has accelerated or intends to accelerate the obligations secured by the superior lien, or has declared or intends to declare a default under the superior mortgage or the promissory note secured thereby, or has filed or intends to file an election to have the related Mortgaged Property sold or foreclosed, the Servicer shall take whatever actions are necessary to protect the interests of the Owner, and/or to preserve the security of the related Mortgage Loan, subject to any requirements applicable to real estate mortgage investment conduits pursuant to the Code. The Servicer shall make a Servicing Advance of the funds necessary to cure such default or reinstate such superior lien if the Servicer determines that such Servicing Advance is in the best interests of the Owner and would be in accordance with Accepted Servicing Practices. The Servicer shall not make such a Servicing Advance except to the extent that it determines that such advance would not be a Nonrecoverable Advance from Liquidation Proceeds on the related Mortgage Loan. The Servicer shall thereafter take such action as is necessary to recover the amount so advanced.
If a Non-Agency Mortgage Loan is identified on the Notice of Inbound Transfer as a Second Lien Mortgage Loan, then the Servicer may consent to the refinancing of the prior senior lien on the related Mortgaged Property, provided that the following requirements are met:
1.the resulting CLTV of such Second Lien is no higher than its CLTV prior to such refinancing; and
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2.the interest rate, or, in the case of an adjustable-rate existing senior lien, the maximum interest rate, for the loan evidencing the refinanced senior lien is no more than 2.0% (or such higher rate that the Servicer determines to be in the Owner’s best interest) higher than the interest rate or the maximum interest rate, as the case may be, on the loan evidencing the existing senior lien immediately prior to the date of such refinancing; and
3.the loan evidencing the refinanced senior lien is not subject to the possibility of negative amortization.
Section 4.25 | Successors in Interest; Permitted Assignees. |
Unless the context requires otherwise, all references to “Servicer” in this Agreement shall be deemed to include such Servicer’s successors in interest or permitted assignees or designees. Further, it is expressly understood by Owner and Servicer that, with respect to any Agency Mortgage Loan serviced hereunder, (i) the Servicer is acting solely in the capacity of a subservicer and has no right or interest in or to the related Servicing Rights, and (ii) any references to the Inbound Transfer Date or the Outbound Transfer Date, or any “transfer” of servicing in connection therewith, relates only to the date on which the Servicer commences or terminates its subservicing of such Agency Mortgage Loan and does not reflect, suggest or entail any actual transfer of the related Servicing Rights or servicing responsibilities (as opposed to the physical servicing activities).
Section 4.26 | Tax and Flood Service Contracts. |
The Servicer, at the Owner’s expense, shall cause each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan and is transferred to the Servicer for servicing to be covered (to the extent not already covered) by a Tax Service Contract and/or Flood Service Contract, by (a) a Tax Service Contract and/or (b) a Flood Zone Service Contract. If any Non-Agency Mortgage Loan is missing a required Tax Service Contract or if any Non-Agency Mortgage Loan is missing a required Flood Zone Service Contract at the time of the Inbound Transfer Date, Servicer shall place such Tax Service Contract or Flood Zone Service Contract, as applicable, and shall be entitled to the fee associated with acquiring such contracts as set forth in Exhibit 9.
Section 4.27 | Maintenance of PMI Policies and LPMI Policies; Collections Thereunder. |
The Servicer shall maintain in full force and effect, a PMI Policy, issued by a Qualified Insurer, with respect to each Non-Agency Mortgage Loan for which such coverage is required, provided that the Servicer’s obligations to pay premiums in respect of any such Policy shall terminate if the Servicer determines that the related insurer is unwilling or unable to make all payments due under such policy. Such coverage shall be maintained until the LTV Ratio or CLTV, as applicable, of the related Non-Agency Mortgage Loan is reduced to that amount for which Fannie Mae would no longer require such insurance. The Servicer will not cancel or refuse to renew any PMI Policy in effect on the related Inbound Transfer Date that is required to be kept in force under this Agreement with respect to a Non-Agency Mortgage Loan unless a replacement PMI Policy or LPMI Policy for such cancelled or non-renewed policy is obtained from and maintained with a Qualified Insurer. The Servicer shall not take any action which would result in
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non-coverage under any applicable PMI Policy or LPMI Policy of any loss which, but for the actions of the Servicer, would have been covered thereunder. In connection with any assumption or substitution agreement entered into or to be entered into pursuant to Section 4.18 with respect to a Non-Agency Mortgage Loan, the Servicer shall promptly notify the insurer under the related PMI Policy or LPMI Policy, if any, of such assumption or substitution of liability in accordance with the terms of such policy and shall take all actions which may be required by such insurer as a condition to the continuation of coverage under the PMI Policy or LPMI Policy. If such PMI Policy is terminated as a result of such assumption or substitution of liability, the Servicer shall obtain a replacement PMI Policy as provided above.
In connection with its activities as servicer with respect to the Non-Agency Mortgage Loans, the Servicer agrees to prepare and present, on behalf of itself, and the Owner, claims to the insurer under any PMI Policy or LPMI Policy in a timely fashion in accordance with the terms of such policies and, in this regard, to take such action as shall be necessary to permit recovery under any PMI Policy or LPMI Policy respecting a defaulted Non-Agency Mortgage Loan. Pursuant to Section 4.04, any amounts collected by the Servicer under any PMI Policy or LPMI Policy shall be deposited in the related Custodial Account, subject to withdrawal pursuant to Section 4.05.
Section 4.28 | Reliability of Information/Exceptional Expenses. |
The Servicer may rely on all data and materials relating to the Non-Agency Mortgage Loans supplied to it by the Owner or the Owner’s designee(s) and the authenticity and accuracy of such data and materials, including any signatures contained therein. The Servicer shall not be obligated to conduct an independent investigation of any data materials or audit of any data, materials or Mortgage File, and may rely on the authenticity and accuracy of such data and materials as provided, including any signatures contained therein and shall not be held accountable for data integrity, missing information or missing documents that prevent the boarding of a Non-Agency Mortgage Loan to the Servicer’s mortgage loan administration system. The Servicer shall deliver notification to the Owner of any material data deficiencies discovered by the Servicer. If such error was identified prior to the Inbound Transfer Date, the Owner shall have the ability to correct such errors or provide missing data at no additional cost to Servicer. Should the Owner decline to provide such data corrections or provide such missing data, Servicer shall be entitled to charge the Owner a manual data backfill fee as set forth on Exhibit 9. If such error was identified after the Inbound Transfer Date and such error was not the result of Servicer’s negligence, the Servicer shall provide the Owner with a written cost estimate to correct such errors, and upon the Owner’s approval, which approval should not be unreasonably withheld, the Owner shall reimburse the Servicer for all documented costs and expenses incurred by the Servicer, including but not limited to, costs and expenses resulting from the Owner’s actions, instructions or any failure by the Owner to provide the Servicer complete, accurate and timely Mortgage Loan information.
Section 4.29 | Escrow Obligations. |
In connection with impounded Non-Agency Mortgage Loans, the Owner shall (i) cause all taxes and assessments with respect to which the related tax bill is due within thirty (30) days following the related Inbound Transfer Date to be paid prior to such Inbound Transfer Date, and (b) cause all hazard, flood, earthquake, PMI Policy and other insurance premiums that are due on
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or prior to the thirtieth (30th) day following such Inbound Transfer Date to be paid on or prior to such Inbound Transfer Date. The Owner shall be responsible for any losses including but not limited to tax penalties (including any loss of discount for which any related Mortgagor or any third party for the benefit of the related Mortgagor has a legal claim) for the current tax due period or for any tax period that ends no more than twelve (12) months earlier than the date of the last paid installment of the Non-Agency Mortgage Loan, as well as for its advances to pay the delinquent taxes themselves in connection with any Non-Agency Mortgage Loan for which the Owner failed to pay taxes as required by this Section 4.29 as the result of an action or inaction of a previous servicer.
Section 4.30 | No Obligation to Advance Delinquent Payments. |
The Servicer shall have no obligation to advance amounts constituting delinquent principal and interest payments on any Non-Agency Mortgage Loan.
Section 4.31 | MERS Transfers. |
The Servicer shall comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Non-Agency Mortgage Loans that are MERS Mortgage Loans for as long as such Non-Agency Mortgage Loans are registered with MERS.
To the extent the Owner requests the Servicer to register or transfer a Non-Agency Mortgage Loan with Mortgage Electronic Registration System, Inc., the Owner shall promptly transfer or cause to be transferred to Servicer the required mortgage loan information. For such services, the Owner agrees to pay the Servicer the fee set forth on Exhibit 9 upon the boarding or release of such Non-Agency Mortgage Loan on the Servicer’s mortgage loan administration system.
ARTICLE V
PAYMENTS; REPORTS
Section 5.01 | Remittances. |
On each Remittance Date, the Servicer shall remit by wire transfer of immediately available funds to the Owner (or as otherwise directed in writing by the Owner) (i) with respect to the Agency Mortgage Loans, subject to the requirements of the applicable Guide, all amounts on deposit in the custodial accounts maintained with respect to the Agency Mortgage Loans (net of amounts required to remain on deposit therein or paid to or for the benefit of the related Agency pursuant to the applicable Guide) and (ii) with respect to the Non-Agency Mortgage Loans, all amounts on deposit in the Custodial Account related to the Due Period (net of charges against or withdrawals from the Custodial Account pursuant to Section 4.05). The Servicer shall remit to the Owner (or as otherwise directed in writing by the Owner) all Principal Prepayments with respect to the Non-Agency Mortgage Loans, in full or in part, on the Remittance Date pursuant to Section 4.05.
With respect to any remittance received by the Owner after the day on which such payment was due, the Servicer shall pay to the Owner interest on any such late payment at an annual rate equal to the Prime Rate, adjusted as of the date of each change, plus one percentage point, but in
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no event greater than the maximum amount permitted by Applicable Law. Such interest shall be remitted to the Owner by the Servicer on the date such late payment is made and shall cover the period commencing with the day such payment was due and ending with the Business Day on which such payment is made, both inclusive. The payment by the Servicer of any such interest shall not be deemed an extension of time for payment or a waiver of any Event of Default.
All remittances made to the Owner pursuant to this Section 5.01 are to be made in accordance with the wire transfer instructions provided by Owner.
Section 5.02 | Reports to the Owner. |
Not later than the twentieth (20th) calendar day of each month or, if the 20th day is not a Business Day, the next succeeding Business Day, the Servicer shall furnish to the Owner standard monthly reports as set forth on Exhibit 1 attached hereto or in a format mutually agreed upon (which shall be provided in Excel format). For all purposes of this Agreement, delinquency status shall be determined in accordance with standard MBA methodology, as is appropriate, as determined by the Owner for the applicable Mortgage Loan type and set forth in the related Notice of Inbound Transfer.
Not less frequently than quarterly, commencing in the second calendar quarter following the calendar quarter in which this Agreement is executed and delivered, the Servicer shall deliver to the Owner a reasonably detailed report regarding the Servicer’s financial results. Not less frequently than annually, commencing in the calendar year following the year in which this Agreement is executed and delivered, the Servicer shall deliver to the Owner relevant market data on management and servicing fees.
Section 5.03 | Tax Reporting. |
In addition, on or before March 15 of each calendar year, the Servicer shall furnish to each Person who was an Owner (or subsequent owner of a Mortgage Loans subject to this Agreement) at any time during such calendar year an annual statement in accordance with the requirements of applicable federal income tax law as to the aggregate of remittances for the applicable portion of such year.
Such obligation of the Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Servicer pursuant to any requirements of the Code as from time to time are in force.
The Servicer shall prepare and file any and all tax returns, information statements or other filings required to be delivered to any governmental taxing authority or to the Owner pursuant to any Applicable Law with respect to the Mortgage Loans and the transactions contemplated hereby. In addition, the Servicer shall provide the Owner with such information concerning the Mortgage Loans as is necessary for the Owner to prepare its federal income tax return as the Owner may reasonably request from time to time and which is reasonably available to the Servicer.
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Section 5.04 | Cost of Funds. |
With respect to any Servicing Advances made by Servicer from its own funds under the terms of this Agreement, the Servicer shall be entitled to collect from the Owner monthly for the Cost of Funds on such Servicing Advances.
ARTICLE VI
RECORDS, INFORMATION AND COMPLIANCE DOCUMENTS
Section 6.01 | Possession of Servicing Files. |
The contents of each Servicing File related to a Non-Agency Mortgage Loan are and shall be held in trust by the Servicer for the benefit of the Owner as the owner thereof. The Servicer shall maintain in the Servicing File a hard or electronic copy, if available, of each Mortgage Loan Document received by the Owner or its designee and the originals or copies of documents not delivered to the Owner in the Servicer’s possession received during the term of this Agreement. The possession of the Servicing File by the Servicer is at the will of the Owner for the sole purpose of servicing the related Non-Agency Mortgage Loan, pursuant to this Agreement, and such retention and possession by the Servicer is in its capacity as Servicer only and at the election of the Owner. The Servicer shall release its custody of the contents of any Servicing File only in accordance with written instructions from the Owner, unless such release is required as incidental to the Servicer’s servicing of the Non-Agency Mortgage Loans pursuant to this Agreement.
The Servicer shall be responsible for maintaining, and shall maintain, a complete set of books and records for each Non-Agency Mortgage Loan which shall be marked clearly to reflect the ownership of each Non-Agency Mortgage Loan by the Owner. In particular, the Servicer shall maintain in its possession, available for inspection by the Owner, and shall deliver to the Owner if so directed by the Owner, upon written demand, evidence of compliance with all federal, state and local laws, rules and regulations, and requirements of Fannie Mae, including but not limited to documentation as to the method used in determining the applicability of the provisions of the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, to the related Mortgaged Property, documentation evidencing insurance coverage and eligibility of any condominium project for approval by Fannie Mae and periodic inspection reports as required by Section 4.13, as applicable.
The Servicer shall keep at its servicing office books and records in which, subject to such reasonable regulations as it may prescribe, the Servicer shall note transfers of Mortgage Loans.
Section 6.02 | Annual Statement as to Compliance. |
(a)So long as any Mortgage Loans are being serviced hereunder, or were serviced hereunder during the prior calendar year, the Servicer shall, at its own expense, deliver to the Owner, on or before March 28th of each year (but in no event later than the next to the last Business Day of such month), a statement of compliance addressed to the Owner and signed by a Servicing Officer, to the effect that (i) a review of the Servicer’s servicing activities during the immediately preceding calendar year (or applicable portion thereof) and of its performance under the servicing provisions of this Agreement during such period has been made under such officer’s supervision, and (ii) to the best of such officer’s knowledge, based on such review, the Servicer has fulfilled all
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of its servicing obligations under this Agreement in all material respects throughout such calendar year (or applicable portion thereof) or, if there has been a failure to fulfill any such obligation in any material respect, specifically identifying each such failure known to such officer, the nature and the status thereof.
Section 6.03 | Annual Independent Public Accountants’ Servicing Report. |
(a)So long as any Mortgage Loans are being serviced hereunder, or were serviced hereunder during the prior calendar year, the Servicer shall, at its own expense, deliver to the Owner, on or before March 28th of each year (but in no event later than the next to the last Business Day of such month), either (A) a report of a registered public accounting firm stating that (i) it has obtained a letter of representation regarding certain matters from the management of the Servicer which includes an assertion that the Servicer has complied with certain minimum residential mortgage loan servicing standards, identified in the Uniform Single Attestation Program for Mortgage Bankers established by the Mortgage Bankers Association of America, with respect to the servicing of residential mortgage loans during the most recently completed fiscal year and (ii) on the basis of an examination conducted by such firm in accordance with standards established by the American Institute of Certified Public Accountants, such representation is fairly stated in all material respects, subject to such exceptions and other qualifications that may be appropriate, or (B) both (i) an assessment of compliance by the Servicer with the applicable Servicing Criteria during the immediately preceding calendar year (in lieu of the annual statement of compliance in Section 6.02 which shall not be required if Servicer provides the assessment of compliance as set forth in this Section 6.03(B), and (ii) a report by a registered public accounting firm that attests to and reports on the assessment of compliance provided in the clause (B)(i) above, which attestation shall be in accordance with Rule 1-02(a)(3) and Rule 2-02(g) of Regulation S-X under the Securities Act and the Securities Exchange Act. In rendering any report to be provided hereunder such firm may rely, as to matters relating to the direct servicing of residential mortgage loans by Subservicers, upon comparable reports of firms of independent certified public accountants rendered on the basis of examinations conducted in accordance with the same standards (rendered within one year of such report) with respect to those Subservicers.
Section 6.04 | Provision of Information. |
The Servicer shall furnish to the Owner all reports required hereunder, and such other periodic, special, or other reports or information, whether or not provided for herein, as shall be necessary, reasonable, or appropriate with respect to the Owner or the purposes of this Agreement to the extent such reports or information are readily accessible to the Servicer without undue expense. All such reports or information shall be provided by and in accordance with all reasonable instructions and directions which the Owner may give and to the extent the Servicer incurs any material cost or expense related to this Section 6.04 not otherwise required to be incurred pursuant to this Agreement, such expense shall be at the sole cost and expense of the Owner.
Section 6.05 | Right to Examine Servicer Records. |
The Owner shall have the right during the term of this Agreement to examine and audit any and all of the books, records, or other information of the Servicer, whether held by the Servicer
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or by another on its behalf, with respect to or concerning this Agreement or the Mortgage Loans, during normal business hours, upon reasonable advance notice and at the sole cost and expense of the Owner; provided, however, that unless otherwise required by law, the Servicer shall not be required to provide access to such information if the provision thereof would violate any law or legal obligation of the Servicer, or would compromise the Servicer’s information disclosure and security policies, including the legal right to privacy of any Mortgagor.
Section 6.06 | Compliance with Gramm-Leach-Bliley Act of 1999. |
With respect to each Mortgage Loan and the related Mortgagor, each party shall comply with Title V of the Gramm-Leach-Bliley Act of 1999 and all applicable regulations and guidelines promulgated thereunder, and shall provide all notices required of the party thereunder.
Section 6.07 | [Reserved]. |
Section 6.08 | Financial Statements; Servicing Facilities. |
In connection with marketing the Mortgage Loans or a proposed Reconstitution, the Owner shall make available to a prospective purchaser audited financial statements of the consolidated group that includes the Servicer for the most recently completed three fiscal years for which such statements are available, as well as a “Consolidated Statement of Condition” at the end of the last two fiscal years for which such statements are available covered by any “Consolidated Statement of Operations.” The Servicer also shall make available any comparable interim statements to the extent any such statements have been prepared by or on behalf of the corporate group that includes the Servicer (and are available upon request to the public at large). The Servicer shall furnish to the Owner or a prospective purchaser copies of the statements specified above.
The Servicer shall make available to the Owner or any prospective purchaser a knowledgeable representative for the purpose of answering questions respecting recent developments affecting the Servicer or the financial statements of the corporate group that includes the Servicer, and to permit any prospective purchaser (upon reasonable notice) to inspect the Servicer’s servicing facilities (no more than 6 times per year unless mutually agreed to between the parties) for the purpose of satisfying such prospective purchaser that the Servicer has the ability to service the Mortgage Loans as provided in this Agreement provided that such access is necessary, reasonable, or appropriate with respect to the Owner or the purposes of this Agreement to the extent such access or information are readily accessible to the Servicer without undue expense.
Section 6.09 | Use of Subservicers. |
It shall not be necessary for the Servicer to seek the consent of the Owner to the utilization of any Subservicer, including an Affiliate acting as a Subservicer; provided, however, that the Servicer delivers any notices or obtains any consents or approvals otherwise required by the applicable Guide prior to utilizing any such Subservicer. The Servicer shall be responsible for obtaining from each Subservicer and delivering to the Owner any servicer compliance statement required to be delivered by such Subservicer under Section 6.02 and any assessment of compliance and attestation required to be delivered by such Subservicer under Section 6.03.
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ARTICLE VII
SERVICING COMPENSATION
Section 7.01Servicing Compensation.
As consideration for servicing the Mortgage Loans, the Owner shall pay the Servicer the applicable Servicing Fee and Other Fees the Servicer is entitled to each month. The obligation of the Owner to pay the Servicing Fee and Other Fees with regard to the Mortgage Loans shall be irrespective of Monthly Payments collected by the Servicer on the Mortgage Loans (but this shall not be construed to limit the effect of any provision hereof, including Exhibit 9, for the calculation of any fee by reference to one or more specified amounts collected on or in respect of the Mortgage Loans). Notwithstanding anything in this Agreement to the contrary, the Servicer shall not be entitled to collect more than one of any of the following Other Fees within any eighteen (18) month period: Liquidation Fee, Reperformance Fee and Modification Fee; provided, however, that in the event the Servicer would otherwise be entitled to collect more than one of such Other Fees during any eighteen (18) month period, the Servicer shall be entitled to collect the highest of such Other Fees, net of any other such Other Fees paid during the applicable eighteen (18) month period.
The Servicer shall deliver to the Owner on the tenth (10th) calendar day of each month or, if the 10th day is not a Business Day, the next succeeding Business Day, an invoice setting forth the Servicing Fees and Other Fees, including accrued and unpaid Servicing Fees and Other Fees, with respect to the Mortgage Loans serviced by the Servicer during the preceding calendar month, and the Owner shall pay such invoice via wire transfer (in accordance with written instructions to be provided by the Servicer) no later than the last day of the calendar month in which such invoice was delivered. With respect to amounts due to the Servicer that remain unpaid after the Remittance Date pursuant to this Section, interest shall accrue at an annual rate equal to the Prime Rate, adjusted as of the date of each change, plus one percentage point, but in no event greater than the maximum amount permitted by Applicable Law. Such interest shall accrue from and including the day following the Business Day on which such payment was due to and including the Business Day when such payment is made and shall be payable on the date when such payment is so made. The Servicer shall be entitled to deduct such unpaid amounts due to Servicer on the Remittance Date following the Remittance Date that such amounts were due if Owner has not already made payment.
Additional servicing compensation in the form of Ancillary Income shall be retained by the Servicer.
The Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement thereof except as specifically provided for herein.
Notwithstanding anything set forth in this section related to Ancillary Income, the Servicer shall not collect from the Mortgagor, pass through as an advance or as a liquidation expense any charges other than bona fide fees, which fees must be in compliance with local law. Servicer cannot add on a processing, or review fee or any additional fee, mark up or otherwise directly make a profit on or from services or activities rendered by a third party or affiliate (examples include but not limited to: letters and notices, force placed insurance, BPOs, appraisals,
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inspections, property preservation costs). The Servicer may collect any third party fees which are charged in accordance with Accepted Servicing Practices. In no event shall Servicer retain the Prepayment Penalties.
In the event of a dispute arising from any act or omission by the Servicer or the Owner hereunder during the course of this Agreement, the Servicer and the Owner shall use reasonable efforts to cooperate with each other in good faith to resolve such dispute within a time period that is reasonable under the circumstances surrounding the dispute. Except in the case of a monetary error, the Owner and the Servicer shall use reasonable efforts to cooperate with each other in good faith to resolve the dispute within thirty (30) days of a formal notice from either party. In the case of a monetary error, the party holding the amounts due the other party shall use reasonable efforts to submit the amount in error within ten (10) Business Days following the discovery of the error. With respect to amounts due a party after the tenth (10th) Business Day following the discovery of the error, interest shall be accrue on such late payment at an annual rate equal to the federal funds rate as is publicly announced from time to time, plus three hundred basis points (3.00%), but in no event greater than the maximum amount permitted by Applicable Law. Such interest shall accrue from and including the day following the Business Day on which such payment was due to and including the Business Day when such late payment is made and shall be payable on the date when such late payment is so made.
Notwithstanding anything to the contrary contained herein, upon the written request (a “Fee Negotiation Request”) of the Owner or the Servicer following a determination by the Owner or the Servicer that the rates of compensation payable to the Servicer hereunder differ materially from market rates of compensation for services comparable to those provided hereunder, which request includes a proposal for revised rates of compensation hereunder, the parties hereto shall negotiate in good faith to amend the provisions of this Agreement relating to the compensation of the Servicer in order to cause such compensation to be materially consistent with market rates of compensation for services comparable to those provided hereunder (a “Fee Amendment”); provided, however, that no such request shall be made until the second anniversary of the effective date of this Agreement, after which time each party may make such request (i) once with respect to fees to be paid during the remainder of the Initial Term, which request shall be made prior to the expiration of the Initial Term, and (ii) once with respect to fees to be paid during any Automatic Renewal Term, which request shall be made at least 210 days prior to the start of such Automatic Renewal Term. If the parties are unable to reach agreement on the terms of a Fee Amendment within thirty (30) days of the date of delivery of the relevant Fee Negotiation Request, then the terms of such Fee Amendment shall be determined by final and binding arbitration as described below.
All disputes, differences and controversies of the Owner or the Servicer relating to a Fee Amendment (individually, a “Dispute” and, collectively, “Disputes”) shall be resolved by final and binding arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules, subject to the following provisions:
(a)Following the delivery of a written demand for arbitration by either the Owner or the Servicer, each party shall choose one (1) arbitrator within ten (10) Business Days after the date of such written demand and the two chosen arbitrators shall mutually, within ten (10) Business Days after selection select a third (3rd) arbitrator (each, an “Arbitrator” and together, the
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“Arbitrators”), each of whom shall be a retired judge selected from a roster of arbitrators provided by the AAA. If the third (3rd) Arbitrator is not selected within fifteen (15) Business Days after delivery of the written demand for arbitration (or such other time period as the Owner and the Servicer may agree), the Owner and the Servicer shall promptly request that the commercial panel of the AAA select an independent Arbitrator meeting such criteria.
(b)The rules of arbitration shall be the Commercial Rules of the American Arbitration Association; provided, however, that notwithstanding any provisions of the Commercial Arbitration Rules to the contrary, unless otherwise mutually agreed to by the Owner and the Servicer, the sole discovery available to each party shall be its right to conduct up to two (2) non-expert depositions of no more than three (3) hours of testimony each.
(c)The Arbitrators shall render a decision by majority decision within three (3) months after the date of appointment, unless the Owner and the Servicer agree to extend such time. The decision shall be final and binding upon the Owner and the Servicer; provided, however, that such decision shall not restrict either the Owner or the Servicer from terminating this Agreement pursuant to the terms hereof.
(d)Each party shall pay its own expenses in connection with the resolution of Disputes, including attorneys’ fees, unless determined otherwise by the Arbitrator.
(e)The Owner and the Servicer agree that the existence, conduct and content of any arbitration pursuant to this Section 7.01 shall be kept confidential and neither the Owner nor the Servicer shall disclose to any Person any information about such arbitration, except in connection with such arbitration or as may be required by law or by any regulatory authority (or any exchange on which such party’s securities are listed) or for financial reporting purposes in such party’s financial statements.
ARTICLE VIII
TERMINATION
Section 8.01 | Termination. |
(a)Subject to Section 3.03 hereof, this Agreement shall continue in full force and effect until terminated in accordance with the provisions of this paragraph. This Agreement shall have an initial term of five years from the date hereof (the “Initial Term”). After the Initial Term, this Agreement shall be deemed renewed automatically every 18 months for an additional 18 month period (an “Automatic Renewal Term”) unless the Owner or the Servicer terminates this Agreement upon the expiration of the Initial Term or any Automatic Renewal Term and upon at least one hundred and eighty (180) days’ prior written notice to the Owner or the Servicer, as applicable. If (i) either the MBS Agreement or the MSR Recapture Agreement is terminated by the Owner without cause as provided in each such agreement or (ii) the Management Agreement is terminated by PennyMac REIT without cause as provided in such agreement, the Servicer shall have the right to terminate this Agreement without cause upon notice to the Owner. If (i) either of the MBS Agreement or the MSR Recapture Agreement is terminated by PennyMac Loan Services without cause or (ii) the Management Agreement is terminated by PennyMac REIT Manager as
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provided in such agreement, the Owner shall have the right to terminate this Agreement without cause upon notice to the Servicer. This Agreement shall also terminate:
(i)in whole with respect to all of the Mortgage Loans and REO Properties, without the payment of any Service Release Fee or other termination fee, upon the earlier of (A) the termination of the Servicer at the election of the Owner following an Event of Default pursuant to Section 11.01 or (B) the termination of the Management Agreement;
(ii)in whole with respect to all of the Mortgage Loans and REO Properties, at the election of the Servicer, if, after thirty (30) days’ written notice thereof by Servicer, (A) the Owner fails to remit any compensation due to the Servicer within the time periods set forth in this Agreement or (B) the Owner fails to perform any material obligations of the Owner hereunder;
(iii)in part with respect to one or more individual Mortgage Loans, at the election of the Owner, in connection with a Reconstitution involving such Mortgage Loans, subject to the payment of the applicable Service Release Fees;
(iv)in part with respect to an individual Mortgage Loan at the election of the Owner, and subject to the payment of the applicable Service Release Fee, if (a) such Mortgage Loan becomes delinquent for a period of one hundred and twenty (120) days or more (a “Delinquent Mortgage Loan”) or (B) the Mortgaged Property securing such Mortgage Loan becomes an REO Property; provided, however, upon such termination, the Owner shall pay to the Servicer any related unpaid Servicing Fee, any related outstanding and unreimbursed Servicing Advances and any other outstanding and unreimbursed fees and costs of the Servicer relating to such Delinquent Mortgage Loan or REO Property for which the Servicer would be entitled to reimbursement from the Owner;
(v)in whole, at the election of the Owner, if the Servicer in its capacity as “Servicer” under the MSR Recapture Agreement fails to duly observe or perform in any material respect any covenant or agreement on the part of the Servicer set forth in the MSR Recapture Agreement that continues unremedied for a period of thirty (30) days after the date on which notice of such failure, requiring the same to be remedied, is given to the Servicer by the “MSR Owner” under the MSR Recapture Agreement; provided, however, that, with respect to any such failure that is susceptible to cure but not curable within such 30-day period, the Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as the Servicer has commenced to cure such failure within the initial 30-day period, the Servicer is diligently pursuing a full cure and the Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner; and
(vi)in whole, at the election of the Servicer, if the “MSR Owner” under the MSR Recapture Agreement fails to duly observe or perform in any material respect any covenant or agreement on the part of such “MSR Owner” set forth in
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the MSR Recapture Agreement that continues unremedied for a period of thirty (30) days after the date on which notice of such failure, requiring the same to be remedied, is given to such “MSR Owner” by the Servicer in its capacity as “Servicer” under the MSR Recapture Agreement; provided, however, that, with respect to any such failure that is susceptible to cure but not curable within such 30-day period, such “MSR Owner” shall have an additional cure period of thirty (30) days to effect such cure so long as such “MSR Owner” has commenced to cure such failure within the initial 30-day period, such “MSR Owner” is diligently pursuing a full cure and such “MSR Owner” has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Servicer.
(b)In the event that the Servicer’s duties, responsibilities and liabilities under this Agreement are terminated pursuant to Section 8.01(a), the Servicer shall discharge such duties and responsibilities during the period from the date it acquires notice or knowledge of such termination until the Outbound Transfer Date, with the same degree of diligence and prudence which it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of its successor. Following any such termination, the Owner shall act diligently to appoint a successor servicer. No termination pursuant to Section 8.01(a) shall become effective until a successor servicer is appointed by the Owner. No termination pursuant to Section 8.01(a) shall limit any indemnification obligations of the Servicer, which obligations shall survive such termination.
Section 8.02 | Outbound Transfer of Servicing. |
On each Outbound Transfer Date or upon any termination of the Servicer as Servicer pursuant to Section 8.01 or resignation of the Servicer permitted under Section 9.03, the Owner or a successor servicer appointed by the Owner, shall assume all servicing responsibilities related to, and the Servicer shall cease all servicing responsibilities related to the Mortgage Loans. Any successor servicer shall have the right to negotiate a new Servicing Fee with the Owner.
Owner shall provide the Servicer not less than twenty (20) days’ prior written notice of the Outbound Transfer Date. Any Mortgage Loan service released by the Servicer shall be released on actual balances as of the Outbound Transfer Date. Upon receipt of such notification from Owner the Servicer shall, at its sole cost and expense, take such steps as may be necessary or appropriate to effectuate and evidence the transfer of the servicing of the related Mortgage Loans to the successor servicer, including but not limited to the following:
(a)Notice to Mortgagors. The Servicer shall mail to the Mortgagor of each related Mortgage Loan a letter advising such Mortgagor of the transfer of the servicing of the related Mortgage Loan to the Owner, or its designee, in accordance with RESPA; provided, however, such letters shall be in the form mutually agreed upon by the Owner and the Servicer prior to a pending transfer.
(b)Mortgage Loans in Foreclosure. The servicing with respect to Mortgage Loans in foreclosure on or before the related Outbound Transfer Date shall not be transferred from the Servicer to the Owner or the successor servicer, as the case may be, and such Mortgage Loans shall continue to be serviced by the Servicer pursuant to the terms of this Agreement. However,
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if the Owner so elects, the Owner may waive the provisions of this paragraph (a) and accept transfer of servicing of such Mortgage Loans and all amounts received by the Servicer thereunder.
(c)Servicing Advances. Subject to the limitations set forth in the definition of “Nonrecoverable Advances”, the Servicer shall be entitled to be reimbursed for all unreimbursed Servicing Advances and any other advances made by the Servicer pursuant to this Agreement with respect to any Mortgage Loan on the related Outbound Transfer Date, but only if the successor servicer after the related Outbound Transfer Date is not the Servicer or an Affiliate. In addition, the Owner shall cause the Servicer to be reimbursed for any accrued and unpaid Servicing Fees, unpaid Ancillary Income, Other Fees and for any trailing expenses representing Servicing Advances for which invoices are received by the Servicer after the Outbound Transfer Date. The Owner shall cause the Servicer to be reimbursed for such trailing expenses within five (5) Business Days of receipt of such invoice.
Anything to the contrary in this Section 8.02(c) notwithstanding, in the event that Servicer is terminated for cause as a result of the occurrence of an Event of Default under this Agreement, the payments required in this Section 8.02(c) shall be made in the amounts and at the times otherwise provided in this Agreement.
(d)Notice to Taxing Authorities and Insurance Companies. The Servicer shall transmit to the applicable taxing authorities and insurance companies (including primary mortgage insurance policy insurers, if applicable) and/or agents, notification of the transfer of the servicing to the Owner, or its designee, and instructions to deliver all notices, tax bills and insurance statements, as the case may be, to the Owner from and after the related Outbound Transfer Date.
(e)Delivery of Servicing Records. The Servicer shall forward to the Owner, or its designee, all servicing records and the Servicing File in the Servicer’s possession relating to each related Mortgage Loan.
(f)Escrow Payments. The Servicer shall provide the Owner, or its designee, with immediately available funds by wire transfer in the amount of the net Escrow Payments and suspense balances and all loss draft balances associated with the related Mortgage Loans. The Servicer shall also provide the Owner with an accounting statement of Escrow Payments and suspense balances and loss draft balances sufficient to enable the Owner to reconcile the amount of such payment with the accounts of the Mortgage Loans. Additionally, the Servicer shall wire transfer to the Owner the amount of any agency, trustee or prepaid Mortgage Loan payments and all other similar amounts held by the Servicer.
(g)Payoffs and Assumptions. The Servicer shall provide to the Owner, or its designee, copies of all assumption and payoff statements generated by the Servicer on the related Mortgage Loans from the related Cut-off Date to the related Outbound Transfer Date.
(h)Mortgage Payments Received Prior to the Related Outbound Transfer Date. Prior to the related Outbound Transfer Date all payments received by the Servicer on each related Mortgage Loan shall be properly applied to the account of the particular Mortgagor.
(i)Mortgage Payments Received After Outbound Transfer Date. The amount of any related Monthly Payments received by the Servicer after the related Outbound Transfer Date shall
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be forwarded to the Owner or its designee within two (2) Business Days after the date of receipt. The Servicer shall notify the Owner or its designee of the particulars of the payment, which notification requirement shall be satisfied if the Servicer forwards with its payment sufficient information to permit appropriate processing of the payment by the Owner or its designee. The Servicer shall assume full responsibility for the necessary and appropriate legal application of such Monthly Payments received by the Servicer after the related Outbound Transfer Date with respect to related Mortgage Loans then in foreclosure or bankruptcy; provided, however, that for purposes of this Agreement, necessary and appropriate legal application of such Monthly Payments shall include, but not be limited to, endorsement of a Monthly Payment to the Owner with the particulars of the payment such as the account number, dollar amount, date received and any special Mortgagor application instructions and the Servicer shall comply with the foregoing requirements with respect to all Monthly Payments received by it.
(j)Misapplied Payments. Misapplied payments shall be processed as follows:
(i)All parties shall cooperate in correcting misapplication errors;
(ii)The party receiving notice of a misapplied payment occurring prior to the related Outbound Transfer Date and discovered after the related Outbound Transfer Date shall immediately notify the other party;
(iii)If a misapplied payment which occurred prior to the related Outbound Transfer Date cannot be identified and said misapplied payment has resulted in a shortage in a Custodial Account or Escrow Account, and such misapplied payment was the direct result of the Servicer’s error, the Servicer shall be liable for the amount of such shortage. In such case, the Servicer shall reimburse the Owner for the amount of such shortage within thirty (30) days after receipt of written demand therefor from the Owner;
(iv)If a misapplied payment which occurred prior to the related Outbound Transfer Date has created an improper Purchase Price as the result of an inaccurate outstanding principal balance and such misapplied payment was the direct result of the Servicer’s error, a check shall be issued to the party shorted by the improper payment application within thirty (30) days after notice thereof by the other party; and
(v)Any check issued under the provisions of this Section 8.02(j) shall be accompanied by a statement indicating the Owner Mortgage Loan identification number and an explanation of the allocation of any such payments.
(k)Books and Records. The Servicer shall cause the books, records and accounts with respect to the related Mortgage Loans to be in accordance with all Accepted Servicing Practices on the related Outbound Transfer Date.
Without limiting the foregoing, the Servicer shall comply with all of the provisions of this Agreement to effect a complete transfer of the servicing with respect to the related Mortgage Loans on the related Outbound Transfer Date. This Agreement shall terminate with respect to the related
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Mortgage Loans on the related Outbound Transfer Date, except that Articles VI, VIII, IX, and XII, and Sections 13.14, 13.15, 13.16, 13.17 and 13.18 shall survive such termination.
ARTICLE IX
INDEMNIFICATION AND ASSIGNMENT AND
OTHER MATTERS RELATED TO SERVICER
Section 9.01 | Indemnification. |
(a)The Servicer agrees to indemnify and hold the Owner and any successor servicer harmless from any liability, claim, loss or damage (including, without limitation, any reasonable legal fees, judgments or expenses relating to such liability, claim, loss or damage) to the Owner directly or indirectly resulting from the Servicer’s failure:
(i)to observe and perform any or all of the Servicer’s duties, obligations, covenants, agreements, warranties or representations contained in this Agreement; or
(ii)to comply with all applicable requirements with respect to the servicing of the Mortgage Loans as set forth herein.
The Servicer immediately shall notify the Owner if a claim is made by a third party with respect to this Agreement. For purposes of this Section 9.01(a), “Owner” shall mean the Person then acting as the Owner under this Agreement and any and all Persons who previously were “Owners” under this Agreement.
(b)The Owner agrees to indemnify and hold the Servicer harmless from any liability, claim, loss or damage (including without limitation, any reasonable legal fees, judgments or expenses relating to such liability, claim, loss or damage) to the Servicer (a) directly or indirectly resulting from the Owner’s failure to observe and perform any or all of the Owner’s duties, obligations, covenants, agreements, warranties or representations contained in this Agreement or (b) directly resulting from the Servicer taking any legal actions with respect to any Mortgage Loans and/or REO Properties in the name of the Servicer and without reference to the Owner, or (c) any act or omission on the part of any prior servicer or (d) directly resulting from any third party act or omission which occurred in connection with the origination, processing, funding or servicing of a mortgage loan (unless such third party was hired by Servicer); but, in each case set forth in clauses (a) - (d) above, only to the extent such loss does not result from the Servicer’s own gross negligence, bad faith or willful misconduct or failure of the Servicer (i) to observe and perform any or all of Servicer’s duties, obligations, covenants, agreements, warranties or representations contained in this Agreement; or (ii) to comply with all applicable requirements with respect to the servicing of the Mortgage Loans as set forth herein.
(c)If the indemnification provided for herein is unavailable or insufficient to hold harmless the indemnified party, then the indemnifying party agrees that it shall contribute to the amount paid or payable by such indemnified party as a result of any claims, losses, damages or liabilities uncured by such indemnified party in such proportion as is appropriate to reflect the relative fault of such indemnified party on the one hand and the indemnifying party on the other.
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(d)The indemnifications provided for in this Section shall survive the termination of Servicing Agreement or the termination of any party to this Agreement.
Section 9.02 | Limitation on Liability of Servicer and Others. |
Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be under any liability to the Owner for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment, provided, however, that this provision shall not protect the Servicer or any such person against any breach of warranties or representations made herein, its own grossly negligent actions, or failure to perform its obligations in compliance with any standard of care set forth in this Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of this Agreement. The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to service the Mortgage Loans in accordance with this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Servicer may undertake any such action which it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto. In such event, the Servicer shall be entitled to reimbursement from the Owner of the reasonable legal expenses and costs of such action.
Section 9.03 | Limitation on Resignation and Assignment by Servicer. |
The Owner has entered into this Agreement with the Servicer and subsequent purchasers will purchase the Mortgage Loans in reliance upon the independent status of the Servicer, and the representations as to the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing, and the continuance thereof. The Servicer shall not assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion hereof (except as provided in the next succeeding paragraph or Section 6.09) or sell or otherwise dispose of all or substantially all of its property or assets without the prior written consent of the Owner, which consent shall be granted or withheld in the reasonable discretion of the Owner.
Subject to the terms and provisions of the Freddie Mac Guide, the Servicer may, without the consent of the Owner, retain third party contractors to perform certain servicing and loan administration functions, including without limitation, hazard insurance administration, tax payment and administration, flood certification and administration, collection services and similar functions; provided, however, that the retention of such contractors by Servicer shall not limit the obligation of the Servicer to service the Mortgage Loans pursuant to the terms and conditions of this Agreement.
The Servicer shall not resign from the obligations and duties hereby imposed on it except by mutual consent of the Servicer and the Owner or upon the determination that its duties hereunder are no longer permissible under Applicable Law and such incapacity cannot be cured by the Servicer. Any such determination permitting the resignation of the Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Owner which Opinion of
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Counsel shall be in form and substance acceptable to the Owner. No such resignation shall become effective until a successor shall have assumed the Servicer’s responsibilities and obligations hereunder in the manner provided in Section 8.02.
Section 9.04 | Assignment by Owner. |
Subject to the terms and provisions if Freddie Mac Guide, the Owner shall have the right, to assign, in whole or in part, its interest under this Agreement with respect to some or all of the Mortgage Loans, and designate any Person to exercise all or any of the rights of the Owner hereunder.
Section 9.05 | Merger or Consolidation of the Servicer. |
The Servicer will keep in full effect its existence, rights and franchises as a limited partnership under the laws of the state of its filing except as permitted herein, 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. Subject to the terms and provisions of the Freddie Mac Guide, any Person into which the Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation (including by means of the sale of all or substantially all of the Servicer’s assets to such Person) to which the Servicer shall be a party, or any Person succeeding to the substantially all of the servicing business (whether alone or together with one or more other businesses of the Servicer), shall be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
Section 9.06 | Additional Activities of the Servicer. |
Subject to the restrictions set forth in the MBS Agreement, the Servicer and its Affiliates shall be entitled to engage in any business or transaction of any kind or nature, including the issuance of mortgage-backed securities and performing monitoring, administrative or servicing activities of any kind for the benefit of any other Person, including (i) acting as servicer or subservicer of residential mortgage loans for government-sponsored entities and other government-related entities under arrangements not governed by this Agreement and (ii) acting as a servicer or subservicer for distressed residential mortgage loans, and otherwise conducting special servicing activities relating to residential mortgage loans or real estate acquired in respect thereof, for itself or other Persons. The preceding statement shall not be construed to limit the effect of any express restriction or limitation that may be set forth in another provision of this Agreement.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
Section 10.01 | Representations and Warranties of the Owner. |
(a)As of the date hereof and on each date on which a Mortgage Loan becomes subject to the terms of this Agreement, the Owner represents and warrants to, and covenants and agrees with, the Servicer as follows:
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(i)Due Organization and Good Standing. The Owner is duly organized, validly existing and in good standing as a limited partnership 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.
(ii)No Violation of Organizational Documents or Agreements. The execution and delivery of this Agreement by the Owner, and the performance and compliance with the terms of this Agreement by the 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.
(iii)Full Power and Authority. The 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.
(iv)Binding Obligation. This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid, legal and binding obligation of the 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.
(v)No Violation of Law, Regulation or Order. The 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.
(vi)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.
(vii)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
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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.
(b)The representations and warranties of the Owner set forth in Section 10.02(a) shall survive the execution and delivery of this Agreement and each date on which a Mortgage Loan becomes subject to the terms of this Agreement. Upon discovery by the Owner of any breach of any of the foregoing representations and warranties, the Owner shall give prompt written notice thereof to the Servicer.
Section 10.02 | Representations and Warranties of the Servicer. |
(a)As of the date hereof, on each date on which a Mortgage Loan becomes subject to the terms of this Agreement and at all times while Mortgage Loans are serviced by Servicer hereunder, the Servicer represents and warrants to, and covenants and agrees with, the Owner as follows:
(i)Due Organization and Good Standing. The Servicer is duly organized, validly existing and in good standing 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, and the Servicer is in compliance with the laws of each state or other jurisdiction in which any Mortgaged Property is located to the extent necessary to perform its obligations under this Agreement.
(ii)No Violation of Organizational Documents or Agreements. The execution and delivery of this Agreement by the Servicer, and the performance and compliance with the terms of this Agreement by the Servicer, will not violate the Servicer’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 Servicer is a party or which is applicable to it or any of its assets.
(iii)Full Power and Authority. The Servicer 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.
(iv)Binding Obligation. This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid, legal and binding obligation of the Servicer, enforceable against the Servicer 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.
(v)No Violation of Law, Regulation or Order. The Servicer is not in violation of, and its execution and delivery of this Agreement and its performance and
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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 Servicer’s knowledge, any order, regulation or demand of any federal, state or local governmental or regulatory authority, which violation, in the Servicer’s good faith and reasonable judgment, is likely to affect materially and adversely either the ability of the Servicer to perform its obligations under this Agreement or the financial condition of the Servicer.
(vi)No Material Litigation. No litigation is pending or, to the best of the Servicer’s knowledge, threatened against the Servicer that, if determined adversely to the Servicer, would prohibit the Servicer from entering into this Agreement or that, individually or in the aggregate, in the Servicer’s good faith and reasonable judgment, is likely to materially and adversely affect either the ability of the Servicer to perform its obligations under this Agreement or the financial condition of the Servicer.
(vii)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 Servicer of or compliance by the Servicer 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 Servicer under this Agreement.
(viii)Ordinary Course of Business. The consummation of the transactions contemplated by this Agreement are in the ordinary course of business of the Servicer.
(ix)Able to Perform. The Servicer 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.
(x)Fidelity Bond and Errors and Omissions Coverage. The Fidelity Bond and an Errors and Omissions Insurance Policy required pursuant to Section 4.12 of this Agreement are in effect.
(xi)No Untrue or Misleading Information. No statement, report or other document relating to the Servicer furnished or to be furnished by the Servicer pursuant to this Agreement or in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained therein not misleading.
(xii)MERS Membership. The Servicer is a member of MERS in good standing.
(b)The representations and warranties of the Servicer set forth in Section 10.02(a) shall survive the execution and delivery of this Agreement and each date on which a Mortgage Loan becomes subject to the terms of this Agreement. Upon discovery by the Servicer of any breach of
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any of the foregoing representations and warranties, the Servicer shall give prompt written notice thereof to the Owner.
ARTICLE XI
DEFAULT
Section 11.01 | Events of Default. |
(a)The following shall constitute an Event of Default under this Agreement on the part of the Servicer:
(i)any failure by the Servicer to remit to the Owner (or as otherwise directed by the Owner) any payment required to be made under the terms of this Agreement which continues unremedied for a period of five (5) Business Days after the date upon which notice of such failure is given to the Servicer, requiring the same to be remedied, shall have been given to the Servicer by the Owner; or
(ii)the failure by the Servicer duly to observe or perform in any material respect any other covenant or agreement on the part of the Servicer set forth in this Agreement that continues unremedied for a period of thirty (30) days (except that such number of days shall be fifteen (15) in the case of a failure to pay any premium for any insurance policy under this Agreement) after the date on which notice of such failure, requiring the same to be remedied, is given to the 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 or 15-day period, the Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as the Servicer has commenced to cure such failure within the initial 30-day period, the Servicer is diligently pursuing a full cure and the Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner; or
(iii)any breach of any representation or warranty on the part of the Servicer set forth in this Agreement that continues unremedied 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 the 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, the Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as the Servicer has commenced to cure such failure within the initial 30-day period, the Servicer is diligently pursuing a full cure and the Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner; or
(iv)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
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been entered against the Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or
(v)the 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 the Servicer or of or relating to all or substantially all of its property; or
(vi)the 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; or
(vii)the 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, that Servicer transfers the affected Mortgaged Properties to one or more Subservicers that satisfy the licensing requirements for the jurisdiction where such Mortgaged Properties are located; the prior consent of Freddie Mac shall be required prior to any such transfer with respect to Freddie Mac Mortgage Loans, which consent may be granted or denied in Freddie Mac’s sole and absolute discretion.
(viii)without the prior consent of the Owner or as expressly permitted or required by the other provisions of this Agreement, the 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 the Servicer sells or otherwise disposes of all or substantially all of its property or assets; or
(ix)the Servicer or any Subservicer fails to deliver any information, report, certification, accountants’ letter or other material when and as required under Section 4.02, Section 4.03 or Section 4.06 and such failure continues unremedied for three Business Days after receipt by the Servicer and (if applicable) such Subservicer of written notice of such failure from the Owner.
In each and every such case, so long as an Event of Default shall not have been remedied, in addition to whatsoever rights the Owner may have at law or equity to damages, including injunctive relief and specific performance, the Owner, by notice in writing to the Servicer, may terminate without compensation all the rights and obligations of the Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof.
(b)In case one or more Events of Default by Servicer occur and shall not have been remedied, the Owner, by notice in writing to 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 Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, by notice in writing to the Servicer and
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without payment of any Service Release Fees or other compensation; provided, however, that the 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 Servicing Fees, Servicing Advances or otherwise and such amounts shall be due and payable at the times and in the manner as if the Servicer were not terminated. Upon receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the successor appointed pursuant to Section 8.02. Upon written request from the Owner, the 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 initially provided to the 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 the Servicer’s sole expense or as otherwise provided under Accepted Servicing Practices. The Servicer agrees to cooperate with the Owner and such successor in effecting the termination of the Servicer’s responsibilities and rights hereunder, including, without limitation, the transfer to such successor for administration by it of all cash amounts which shall at the time be credited by the Servicer to the Custodial Account or Escrow Account or thereafter received with respect to the Mortgage Loans.
Section 11.02 | Waiver of Defaults. |
The Owner may waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such 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 XII
RECONSTITUTIONS
Section 12.01 | Cooperation of Servicer with a Reconstitution. |
(a)The Servicer and the 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, without recourse, to:
(i)Fannie Mae or Freddie Mac in one or more Whole Loan Transfers;
(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.
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(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, the Servicer shall:
(i)upon request of the Owner, service the Mortgage Loans included in such Reconstitution pursuant to a security servicing agreement or other agreement;
(ii)if the Servicer will continue servicing the Mortgage Loans included in the Reconstitution, provide as applicable:
(A)information pertaining to the Servicer of the type and scope customarily included in offering documents for residential 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 the 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 the Servicer Information; provided, however, Owner shall indemnify and hold harmless 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 public officials or officers of 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 the Servicer will continue servicing the Mortgage Loans included in the Reconstitution, to negotiate and execute one or more custodial agreements among the Owner, the 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 the Servicer, in either case for the purpose of pooling the Mortgage Loans with other Mortgage Loans for resale or securitization; and
(iv) if the Servicer will continue servicing 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
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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 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 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. The 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 the 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 12.01(b), to execute, deliver and satisfy all conditions set forth in any indemnity agreement required by the Owner or any such participant; provided that the Servicer is given an opportunity to review and reasonably negotiate in good faith provisions of such indemnity.
(c)Any execution of a security servicing agreement or reconstitution agreement by the Servicer shall be conditioned on the Servicer receiving the Servicing Fee or such other servicing fee acceptable to 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 serviced 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, in the event that the Servicer is the servicer with respect to a Reconstitution, the Owner agrees that in such Reconstitution any servicing performance termination triggers shall be substantially similar to those contained in this Agreement or otherwise subject to approval by the Servicer in its reasonable discretion.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 | 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
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upon the delivery or mailing thereof, as the case may be, sent by registered or certified mail, return receipt requested:
If to the Owner:
PennyMac Corp.
Attn: Chief Financial Officer
3043 Townsgate Road
Westlake Village, CA 91361
With a copy to:
PennyMac Corp.
Attn: Chief Legal Officer
3043 Townsgate Road
Westlake Village, CA 91361
If to the Servicer:
PennyMac Loan Services, LLC
Attn: Senior Managing Director, Chief Servicing Officer
3043 Townsgate Road
Westlake Village, CA 91361
With a copy to:
PennyMac Loan Services, LLC
Attn: Chief Legal Officer
3043 Townsgate Road
Westlake Village, CA 91361
Section 13.02 | Amendment. |
Neither this Agreement, nor any terms hereof, may be amended, supplemented or modified except in an instrument in writing executed by the parties hereto.
Section 13.03 | Entire Agreement. |
This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof.
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Section 13.04 | Binding Effect; Beneficiaries. |
The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. Except as set forth in Section 9.04, no provision of this Agreement is intended or shall be construed to give to any Person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Notwithstanding the foregoing, each Agency is expressly made a third-party beneficiary of this Agreement and no term or provision (including any defined terms in such provision) may be amended or modified without the prior consent of such Agency as determined in its sole and absolute discretion..
Section 13.05 | Headings. |
The section and subsection headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the interpretation of any provisions hereof.
Section 13.06 | Further Assurances. |
The Servicer agrees to execute and deliver such instruments and take such further actions as the Owner may, from time to time, reasonably request in order to effectuate the purposes and to carry out the terms of this Agreement.
Section 13.07 | Governing Law. |
This Agreement shall be construed in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in such State, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. The parties hereto intend that the provisions of Section 5-1401 of the New York General Obligations Law shall apply to this Agreement.
Section 13.08 | 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 the Servicer shall be rendered by it as an independent contractor and not as an agent of the Owner. The 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 13.09 | Severability of Provisions. |
If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be held invalid for any reason whatsoever, then such covenants, agreements, provisions or terms 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.
70
Section 13.10 | No Waiver; Cumulative Remedies. |
No failure to exercise and no delay in exercising, on the part of a party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Section 13.11 | Recordation of Assignments of Mortgage. |
To the extent permitted by Applicable Law, each of the Assignments of Mortgage is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the Mortgaged Properties are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Owner or the Owner’s designee.
Section 13.12 | Exhibits. |
The exhibits to this Agreement are hereby incorporated and made a part hereof and form integral parts of this Agreement.
Section 13.13 | Counterparts. |
This Agreement may be executed by the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
Section 13.14 | Trademarks. |
The Owner and the 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 the Owner and the Servicer as approved or endorsed by the other parties to this Agreement or their Affiliates.
Section 13.15 | Confidentiality of Information. |
If, during the term of this Agreement, the Owner requests that the Servicer provide to the Owner non-public, confidential information related to the Servicer and other affiliates of the Servicer (collectively, “Parent”), and if Parent, in its sole discretion agrees to provide this information, the parties agree that they shall enter into a confidentiality agreement in form and substance mutually agreeable to the parties prior to the release of such information (which obligation shall not be assigned by the Owner).
71
Section 13.16 | WAIVER OF TRIAL BY JURY. |
EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
Section 13.17 | 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 13.18 | SUBMISSION TO JURISDICTION; WAIVERS. |
EACH OF THE OWNER AND THE SERVICER HEREBY IRREVOCABLY (I) 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 JURISDICTION OF ANY NEW YORK STATE AND FEDERAL COURTS SITTING IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY WITH RESPECT TO MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT; (II) AGREES THAT ALL CLAIMS WITH RESPECT TO ANY ACTION OR PROCEEDING REGARDING SUCH MATTERS MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURTS; (III) WAIVES, TO THE FULLEST POSSIBLE EXTENT, WITH RESPECT TO SUCH COURTS, THE DEFENSE OF AN INCONVENIENT FORUM; (IV) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (V) WAIVES TO THE EXTENT PERMITTED BY APPLICABLE LAW ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATING TO OR ARISING OUT OF THIS AGREEMENT.
[SIGNATURES APPEAR ON NEXT PAGE]
72
IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first above written.
| PENNYMAC CORP., a Delaware corporation | ||
| | | |
| (Owner) | | |
| | | |
| By: | /s/ Daniel S. Perotti | |
| | Name: | Daniel S. Perotti |
| | Title: | Senior Managing Director and |
| | | Chief Financial Officer |
| | | |
| PENNYMAC LOAN SERVICES, LLC, a Delaware limited | ||
| | | |
| (Servicer) | | |
| | | |
| | | |
| By: | /s/ Steve Bailey | |
| | Name: | Steve Bailey |
| | Title: | Senior Managing Director and |
| | | Chief Servicing Officer |
Signature Page to Flow Servicing Agreement (PMC/PLS)
EXHIBIT 1
MONTHLY REPORTS
Remittance
Delinquency
Inventory Flow
Exh. 1-1
EXHIBIT 2
CUSTODIAL ACCOUNT CERTIFICATION
_______ __, 20__
As Servicer under the Flow Servicing Agreement, dated June 1, 2022 (the “Servicing Agreement”), we hereby certify that the Servicer has established the account described below as a Custodial Account (as such term is defined in the Servicing Agreement) pursuant to Section 4.04 of the Servicing Agreement. The Custodial Account shall be a Special Deposit Account as such term is defined in the Servicing Agreement.
Title of Account: | [______], in trust for [_______________] |
| |
Account Number: | |
| |
Address of office or branch of the Servicer at which Account is maintained: | |
| |
| |
| |
| |
| PennyMac Loan Services, LLC, as Servicer |
| |
| By: |
| Name: |
| Title: |
| Date: |
Exh. 2-1
EXHIBIT 3
RESERVED
Exh. 3-1
EXHIBIT 4
ESCROW ACCOUNT CERTIFICATION
_________ ___, 20__
As Servicer under the Flow Servicing Agreement, dated June 1, 2022 (the “Servicing Agreement”), we hereby certify that the Servicer has established the account described below as an Escrow Account pursuant to Section 4.06 of the Agreement. The Escrow Account shall be a Special Deposit Account as such term is defined in the Servicing Agreement.
Title of Account: | [______], in trust for [___________] |
| |
Account Number: | |
| |
Address of office or branch of the Servicer at which Account is maintained: | |
| |
| |
| |
| |
| PennyMac Loan Services, LLC, |
| |
| By: |
| Name: |
| Title: |
| Date: |
Exh. 4-1
EXHIBIT 5
RESERVED
Exh. 5-1
EXHIBIT 6
FORM OF OFFICER’S CERTIFICATE
I, ____________________, hereby certify that I am the duly elected [______________],of PennyMac Loan Services, LLC, a Delaware limited liability company (the “Company”) and further as follows:
1.Attached hereto as Exhibit 1 is a true, correct and complete copy of the Certificate of Formation of the Company which is in full force and effect on the date hereof and which has been in effect without amendment, waiver, rescission or modification.
2.Attached hereto as Exhibit 2 is an original certificate of good standing of the Company issued within ten days of the date hereof, and no event has occurred since the date thereof which would impair such standing.
3.Attached hereto as Exhibit 3 is a true, correct and complete copy of the resolutions of the [______] of the Company authorizing the Company to execute and deliver the Flow Servicing Agreement, dated June 1, 2022 (the “Servicing Agreement”), between the Company and PennyMac Corp. (the “Owner”), and such resolutions are in effect on the date hereof.
4.Each person listed on Exhibit 4 attached hereto who, as an officer or representative of the Company, signed (a) the Servicing Agreement, and (b) any other document delivered or on the date hereof in connection with any purchase described in the agreements set forth above was, at the respective times of such signing and delivery, and is now, a duly elected or appointed, qualified and acting officer or representative of the Company, who holds the office set forth opposite his or her name on Exhibit 4, and the signatures of such persons appearing on such documents are their genuine signatures.
Exh. 6-1
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the Company.
Date: | | | | |
| | | | |
| | By: | PennyMac Loan Services, LLC | |
| | | Name: | |
| | | Title: | |
I, ________________________, an [Assistant] Secretary of the Company, hereby certify that ____________ is the duly elected, qualified and acting [Vice] President of the Company and that the signature appearing above is [her] [his] genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Date: | | | | |
| | | | |
| | By: | PennyMac Loan Services, LLC | |
[Seal] | | | Name: | |
| | | Title: | |
Exh. 6-2
EXHIBIT 4 to
Company’s Officer’s Certificate
NAME | | TITLE | | SIGNATURE |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Exh. 6-3
EXHIBIT 7
MORTGAGE LOAN DOCUMENTS
The following documents shall constitute the Mortgage Loan Documents with respect to each Mortgage Loan:
(a)the original Mortgage Note bearing all intervening endorsements, endorsed “Pay to the order of _________, without recourse” and signed in the name of the last endorsee (the “Last Endorsee”) by an authorized officer. To the extent that there is no room on the face of the Mortgage Notes for endorsements, the endorsement may be contained on an allonge, if state law so allows and the Custodian is so advised by the Owner that state law so allows. If the Mortgage Loan was acquired by the Seller in a merger, the endorsement must be by “[Last Endorsee], successor by merger to [name of predecessor]”. If the Mortgage Loan was acquired or originated by the Last Endorsee while doing business under another name, the endorsement must be by “[Last Endorsee], formerly known as [previous name]”; the original of any guarantee executed in connection with the Mortgage Note;
(b)the original Mortgage with evidence of recording thereon. If in connection with any Mortgage Loan, the Owner cannot deliver or cause to be delivered the original Mortgage with evidence of recording thereon because of a delay caused by the public recording office where such Mortgage has been delivered for recordation or because such Mortgage has been lost or because such public recording office retains the original recorded Mortgage, the Seller shall deliver or cause to be delivered to the Custodian, a photocopy of such Mortgage, together with (i) in the case of a delay caused by the public recording office, an Officer’s Certificate of the Seller (or certified by the title company, escrow agent, or closing attorney) stating that such Mortgage has been dispatched to the appropriate public recording office for recordation and that the original recorded Mortgage or a copy of such Mortgage certified by such public recording office to be a true and complete copy of the original recorded Mortgage will be promptly delivered to the Custodian upon receipt thereof by the Seller; or (ii) in the case of a Mortgage where a public recording office retains the original recorded Mortgage or in the case where a Mortgage is lost after recordation in a public recording office, a copy of such Mortgage certified by such public recording office to be a true and complete copy of the original recorded Mortgage; the originals of all assumption, modification, consolidation or extension agreements, if any, with evidence of recording thereon;
(c)the original Assignment of Mortgage for each Mortgage Loan, in form and substance acceptable for recording. The Assignment of Mortgage must be duly recorded only if recordation is either necessary under Applicable Law or commonly required by private institutional mortgage investors in the area where the Mortgaged Property is located or on direction of the Owner as provided in this Agreement. If the Assignment of Mortgage is to be recorded, the Mortgage shall be assigned to the Owner or as directed by the Owner. If the Assignment of Mortgage is not to be recorded, the Assignment of Mortgage shall be delivered in blank. If the Mortgage Loan was acquired by the Seller in a merger, the Assignment of Mortgage must be made by “[Seller], successor by merger to [name of
Exh. 7-1
predecessor]”. If the Mortgage Loan was acquired or originated by the Seller while doing business under another name, the Assignment of Mortgage must be by “[Seller], formerly known as [previous name]”;
(d)the originals of all intervening assignments of mortgage (if any) evidencing a complete chain of assignment from the Originator to the Last Endorsee with evidence of recording thereon, or if any such intervening assignment has not been returned from the applicable recording office or has been lost or if such public recording office retains the original recorded assignments of mortgage, the Seller shall deliver or cause to be delivered to the Custodian, a photocopy of such intervening assignment, together with (i) in the case of a delay caused by the public recording office, an Officers Certificate of the Seller (or certified by the title company, escrow agent, or closing attorney) stating that such intervening assignment of mortgage has been dispatched to the appropriate public recording office for recordation and that such original recorded intervening assignment of mortgage or a copy of such intervening assignment of mortgage certified by the appropriate public recording office to be a true and complete copy of the original recorded intervening assignment of mortgage will be promptly delivered to the Custodian upon receipt thereof by the Seller; or (ii) in the case of an intervening assignment where a public recording office retains the original recorded intervening assignment or in the case where an intervening assignment is lost after recordation in a public recording office, a copy of such intervening assignment certified by such public recording office to be a true and complete copy of the original recorded intervening assignment;
(e)The original mortgagee policy of title insurance or, in the event such original title policy is unavailable, a certified true copy of the related policy binder or commitment for title certified to be true and complete by the title insurance company (provided, that the original mortgagee policy of title insurance shall be added when available);
(f)original powers of attorney, if applicable, or, if in connection with any Mortgage Loan, the Seller cannot deliver or cause to be delivered the original power of attorney with evidence of recording thereon, if applicable, because of a delay caused by the public recording office, the Seller shall deliver or cause to be delivered to the Custodian, a photocopy of such power of attorney, together with an Officer’s Certificate of the Seller (or certified by the title company, escrow agent, or closing attorney) stating that such power of attorney has been dispatched to the appropriate public recording office for recordation and that the original recorded power of attorney or a copy of such power of attorney certified by such public recording office to be a true and complete copy of the original recorded power of attorney will be promptly delivered to the Custodian upon receipt thereof by the Seller; and
(g)security agreement, chattel mortgage or equivalent document executed in connection with the Mortgage.
Exh. 7-2
The following documents, together with the Mortgage Loan Documents, shall constitute the Mortgage File with respect to each Mortgage Loan:
(a)The original hazard insurance policy and, if required by law, flood insurance policy.
(b)Residential loan application.
(c)Mortgage Loan closing statement.
(d)Verification of employment and income except for Mortgage Loans originated under a Limited Documentation Program.
(e)Verification of acceptable evidence of source and amount of down payment.
(f)Credit report on the Mortgagor.
(g)Residential appraisal report, if available.
(h)Photograph of the Mortgaged Property.
(i)Survey of the Mortgaged Property, if any.
(j)Copy of each instrument necessary to complete identification of any exception set forth in the exception schedule in the title policy, i.e., map or plat, restrictions, easements, sewer agreements, home association declarations, etc.
(k)All required disclosure statements.
(l)If available, termite report, structural engineer’s report, water potability and septic certification.
(m)Sales contract, if applicable.
(n)Tax receipts, insurance premium receipts, ledger sheets, payment history from date of origination, insurance claim files, correspondence, current and historical computerized data files, and all other processing, underwriting and closing papers and records which are customarily contained in a mortgage loan file and which are required to document the Mortgage Loan or to service the Mortgage Loan.
(o)Amortization schedule, if applicable.
Exh. 7-3
EXHIBIT 8
FORM OF LIMITED POWER OF ATTORNEY
PennyMac Corp., a corporation organized under the laws of Delaware and having its principal place of business at 3043 Townsgate Road, Westlake Village, CA 91361, as Owner (hereinafter called “Owner”) hereby appoints PennyMac Loan Services, LLC. (hereinafter called the “Servicer”), as its true and lawful attorney in fact to act in the name, place and stead of Owner solely for the purposes set forth below.
The said attorney in fact is hereby authorized and empowered, solely with respect to the Mortgage Loans and REO Properties, as defined in, and subject to the terms of, the Flow Servicing Agreement, between the Servicer and Owner, dated June 1, 2022 (the “Servicing Agreement”), as follows:
1.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.
2.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.
3.To endorse any checks or other instruments received by the Servicer and made payable to Owner.
4.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.
5.To do any other act or complete any other document that arises in the normal course of servicing of all Mortgage Loans and REO Properties, as defined in, and subject to the terms of the Servicing Agreement.
Exh. 8-1
This Limited Power of Attorney shall expire on _____ __, 20__.
[NAME] | | | |
Dated: | | , 20__ | |
| | | |
Witness: | | By: | |
Name: | | | |
Title: | | | |
| | | |
Name: | | | |
| | | |
Name: | | | |
Exh. 8-2
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
Exh. 9-1
(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)if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 90 days or more, and no bankruptcy proceeding is pending by or against the Mortgagor and no foreclosure proceeding has been initiated, $90.00;
(iv)if, as of the first day of the relevant month, such Mortgage Loan is not delinquent, or is delinquent by less than 30 days, and a bankruptcy proceeding is pending by or against the Mortgagor, $85.00;
(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, $85.00;
(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, $95.00; or
(vii)if, as of the first day of the relevant month, the Mortgaged Property has become an REO Property, $75.00.
SUPPLEMENTAL SERVICING FEES
With respect to each Mortgage Loan that is a Distressed Whole Loan, the Supplemental Servicing Fee shall be $25.00.
Exh. 9-2
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:
Third Party Loans
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
Exh. 9-3
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, $40.00.
COVID-19 Fees – Notwithstanding anything in this Agreement to the contrary, as of the Effective Date, in consideration for the Servicer waiving the Additional Servicing Fees with respect to any Third Party Loan that is delinquent as a result of a COVID-19 related forbearance, the Servicer shall be entitled to the following COVID-19 Fees, as applicable, for each such Third Party Loan:
(a)A one-time “Forbearance Set Up Fee” of $25;
(b) | A “Forbearance Monitoring Fee” of $12 per month; and |
(c) | A fee of $125 for each subsequent modification characterized as a “repayment plan,” $275 for each modification characterized as a “payment deferral,” or $675 for each modification characterized as a streamline “flex modification” and $1,650 for each modification characterized as a full documentation “flex modification.” |
The parties understand and agree that the Servicer’s waiver of the Additional Servicing Fees as described above shall only apply during the term of any COVID-19 related forbearance or extension thereto. If a Mortgage Loan (a) remains delinquent when the forbearance plan or extension thereto expires, or (b) becomes delinquent again after the end of a COVID-19 related forbearance or extension thereto and such new delinquency is not as a result of another COVID-19 related forbearance, then the Additional Servicing Fees shall subsequently apply. If a Mortgage Loan has more than one COVID-19 related forbearance, all of the COVID-19 Fees above shall apply to each such COVID-19 related forbearance.
If the Servicer effects a forbearance or a modification that results in any incentive payment to the Servicer or the Owner from Fannie Mae, Freddie Mac or any other third party or entity, the Servicer shall pass through to the Owner the amount of such incentive payment.
Distressed Whole Loans
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: $1,750.00 in connection with the disposition of a Mortgage Loan (including the sale of the related Mortgage Note), $1,750.00 in connection with either the disposition of an REO Property or a Mortgaged Property through a foreclosure sale, or $1,000.00 in connection with a full payoff or $1,750.00 in connection with a 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.
Exh. 9-4
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 Exhibit 12 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: $1,750.00 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: (a) $1,750.00 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 (b) $750.00 if the modification is classified by the Servicer (acting in accordance with Accepted Servicing Practices) as a streamlined 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, $1,750.00.
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
Exh. 9-5
market-based pricing and terms that are consistent with the pricing and terms offered by the Servicer to unaffiliated third parties on a retail basis. The amount of the compensation and the pricing and terms offered by the Servicer shall be subject to review by the Owner and the Servicer from time to time to reflect market rates. The Owner shall reimburse the Servicer for any out of pocket expenses that the Servicer incurs in connection with any such origination, including title fees, legal fees and closing costs.
Exh. 9-6
Exh. 10-1
Prepayment Penalties | No authority is granted to Servicer to negotiate reduction of prepayment penalties without Owner approval unless the mortgage loan is accelerated in which case Servicer may waive in accordance with the Fannie Mae Servicing Guide Part I, Chapter 203.05. This clause excludes the waiving of pre-payment penalties/early closure fees extending more than 36 months from Mortgage Loan origination date. |
Waiver of Fees | Authority is granted to Servicer to waive any fee that it is entitled to receive as Ancillary Income without Owner’s consent. Servicer shall be entitled to waive late charges based on Servicer’s policies and procedures. |
Subordination Requests | Servicer may approve a request to subordinate a second mortgage in favor of a refinanced loan if: 1.) The new loan to value of the refinanced loan is equal to or less than the original LTV of the first mortgage (no cash-out refinancing allowed unless substantiated through a new appraisal to reflect increased value), and 2.) The loan has had no delinquencies in past 12 months, and 3.) The new senior lien is not a HELOC, Land Contract, Recapture Lien, Texas A6, Cal Vet, Bond with recapture Taxes, All Inclusive Trust Deed, Option ARM, Flex 100, or Reverse Mortgage. Without Owner’s approval, Servicer MAY NOT approve a subordination request if any of the following conditions exist: 1.) The first lien amount increases and the first lien LTV increases; or 2.) Any senior lien is a private party; or 3.)The new senior lien has the potential for negative amortization. Owner shall review the subordination request prior to final approval if the request has any of the MAY NOT conditions listed above. |
Partial Release, Acquisitions, Easement | Authority is granted to Servicer to approve requests for Partial Release, Acquisitions, and Easements in accordance with the standards specified in the Fannie Mae Servicing Guide. |
Exh. 10-2
Lien Releases | Authority is granted to Servicer to approve full lien releases upon full payoff of the loan without the prior approval of Owner. Full lien releases to be completed in compliance with Applicable Law, and penalties for non-compliance accrue to Servicer. Servicer shall not be responsible for penalties as a result of third party delays if Servicer has timely processed a lien release pursuant to Applicable Law. |
Assumptions | Authority is granted to Servicer to negotiate Simple Assumptions according to the Fannie Mae Servicing Guide Part III, Chapter 4. Qualified Assumption requests will be referred to Owner for approval. |
Foreclosure Approval | Authority is granted to Servicer to proceed with foreclosure using prudent servicing guidelines. |
Property Evaluations (BPO’s)/Drive-By Appraisal | Authority is granted to Servicer to order a brokers price opinion (BPO) or drive-by appraisal using prudent servicing guidelines. The cost of the BPO or drive-by appraisal shall be passed on to the borrower if the BPO or drive-by appraisal is related to a borrower requested forbearance plan as reasonably determined by Servicer. |
Impact Analysis | Authority is granted to Servicer to complete an impact analysis using prudent servicing guidelines. |
REO Marketing | Authority is granted to Servicer to follow Servicer’s current guidelines to make REO marketing decisions. |
Property Preservation | Authority is granted to Servicer to use Fannie Mae Property Preservation guidelines as outlined in the Fannie Mae Servicing Guide for loans owned by Owner and following internal state guidelines. |
Bidding Instruction | Owner approval is required on bidding instructions. |
Short Term Forbearance – Written agreement to reduce or suspend payments not to exceed 6 months | Authority is granted to Servicer to permit forbearance or allow for suspension of monthly payments up to 90 days, if the mortgagor is in default or Servicer determines that default is imminent and granting such forbearance is in the best interest of Owner. Mortgagor must be current as to all fees and costs prior to any forbearance plan. Owner approval is required to permit forbearance or allow for suspension of monthly payments of 91 days or more. |
Exh. 10-3
Exh. 10-4
Exh. 10-5
EXHIBIT 11
SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE
The assessment of compliance to be delivered under the Agreement shall address, at a minimum, the criteria identified as below as “Applicable Servicing Criteria,” as identified by a mark in the column titled “Applicable Servicing Criteria.”
Servicing Criteria | Applicable | |
|---|---|---|
Reference | Criteria | |
| General Servicing Considerations | |
1122(d)(1)(i) | Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. | X |
1122(d)(1)(ii) | If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party’s performance and compliance with such servicing activities. | X |
1122(d)(1)(iii) | Any requirements in the transaction agreements to maintain a back-up servicer for the mortgage loans are maintained. | |
1122(d)(1)(iv) | A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements. | X |
| Cash Collection and Administration | |
1122(d)(2)(i) | Payments on mortgage loans are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements. | X |
1122(d)(2)(ii) | Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel. | X |
1122(d)(2)(iii) | Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements. | X |
1122(d)(2)(iv) | The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction agreements. | X |
1122(d)(2)(v) | Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, “federally insured depository institution” with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act. | X |
1122(d)(2)(vi) | Unissued checks are safeguarded so as to prevent unauthorized access. | X |
1122(d)(2)(vii) | Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements. | X |
| Investor Remittances and Reporting | |
1122(d)(3)(i) | Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors’ or the trustee’s records as to the total unpaid principal balance and number of mortgage loans serviced by the Regulation AB Servicer. | X |
Exh. 11-1
| Servicing Criteria | Applicable |
Reference | Criteria | |
1122(d)(3)(ii) | Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements. | X |
1122(d)(3)(iii) | Disbursements made to an investor are posted within two business days to the Regulation AB Servicer’s investor records, or such other number of days specified in the transaction agreements. | X |
1122(d)(3)(iv) | Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank statements. | X |
| Pool Asset Administration | |
1122(d)(4)(i) | Collateral or security on mortgage loans is maintained as required by the transaction agreements or related mortgage loan documents. | X |
1122(d)(4)(ii) | Mortgage loan and related documents are safeguarded as required by the transaction agreements | X |
1122(d)(4)(iii) | Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements. | X |
1122(d)(4)(iv) | Payments on mortgage loans, including any payoffs, made in accordance with the related mortgage loan documents are posted to the Regulation AB Servicer’s obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related mortgage loan documents. | X |
1122(d)(4)(v) | The Regulation AB Servicer’s records regarding the mortgage loans agree with the Regulation AB Servicer’s records with respect to an obligor’s unpaid principal balance. | X |
1122(d)(4)(vi) | Changes with respect to the terms or status of an obligor’s mortgage loans (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents. | X |
1122(d)(4)(vii) | Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements. | X |
1122(d)(4)(viii) | Records documenting collection efforts are maintained during the period a mortgage loan is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity’s activities in monitoring delinquent mortgage loans including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment). | X |
1122(d)(4)(ix) | Adjustments to interest rates or rates of return for mortgage loans with variable rates are computed based on the related mortgage loan documents. | X |
1122(d)(4)(x) | Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor’s mortgage loan documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable mortgage loan documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related mortgage loans, or such other number of days specified in the transaction agreements. | X |
1122(d)(4)(xi) | Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements. | X |
1122(d)(4)(xii) | Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer’s funds and not charged to the obligor, unless the late payment was due to the obligor’s error or omission. | X |
1122(d)(4)(xiii) | Disbursements made on behalf of an obligor are posted within two business days to the obligor’s records maintained by the servicer, or such other number of days specified in the transaction agreements. | X |
1122(d)(4)(xiv) | Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements. | X |
1122(d)(4)(xv) | Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the transaction agreements. | |
Exh. 11-2
EXHIBIT 12
PROPERTY MANAGEMENT SERVICES
For purposes of this Servicing Agreement, REO Property Management Services may include:
1. | LEASING SERVICES. |
a. | Market Rental Property; |
b. | Show Rental Property; |
c. | Qualify Tenant; |
d. | Lease Property; |
e. | Coordinate Move-In; |
f. | Manage Security Deposit; and |
g. | Perform Move-Out Inspection. |
2. | PROPERTY MANAGEMENT SERVICES. |
a. | Collect Rent; |
b. | Manage Evictions; |
c. | Respond to Tenant Inquiries; |
d. | Maintain Property; |
e. | Perform Routine Maintenance; and |
f. | Manage Unit Turnover. |
3. | ASSET MANAGEMENT SERVICES |
a. | Initial and On-Going Property Preservation Services; |
b. | Remediation Services; |
c. | Utilities and Home Owner Association Management; |
d. | Code Violations Management and Mitigation; |
e. | Property Tax Management Services; |
f. | Legal Eviction Program Management; |
g. | Provision of Cash-For-Relocation Program Management; |
h. | Valuation Services; |
Exh. 12-1
i. | Authorization of Repairs and Improvements; and |
j. | Property and Casualty Insurance Services. |
4. | RENOVATION SERVICES |
a. | Provision of Renovation Services; |
b. | Initial Property Screening Assessment; |
c. | Renovation Estimate Assessment; |
d. | Property Onboarding Assessment; |
e. | Scope of Work; |
f. | Final Scope of Work; |
g. | Management of Change Orders; and |
h. | Inspection for Turnover to Leasing. |
5. | PROPERTY PRESERVATION AND INSPECTION SERVICES |
a. | Provision of Property Preservation and Inspection Services; |
b. | Communications to Owner of Property Conditions, Preservation Activities and Repairs at Properties; |
c. | Document Retention; |
d. | Property Occupancy Inspection; |
e. | Other Inspections As Needed and As Determined By Servicer; |
f. | Lawn Maintenance; |
g. | Pool Maintenance; |
h. | Debris and Hazard Removal; |
i. | Discoloration Remediation; |
j. | Health and Life Safety Issue Remediation; Miscellaneous Preservation Activities; |
k. | Code Violation Management and Mitigation; |
l. | Management of Utilities and Home Owner Association; |
m. | Marketing Signs. |
Exh. 12-2
6.INSURANCE SERVICES
a. | Standard Property and Casualty Insurance Services; and |
b. | Claims Management and Loss Mitigation Services. |
Exh. 12-3
Exhibit 10.5
EXECUTION VERSION
===================================================================
PNMAC GMSR ISSUER TRUST,
as Issuer
and
CITIBANK, N.A.,
as Indenture Trustee, Calculation Agent, Paying Agent and Securities Intermediary
and
PENNYMAC LOAN SERVICES, LLC,
as Servicer and Administrator
and
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC,
as Administrative Agent
and
PENTALPHA SURVEILLANCE LLC,
as Credit Manager
________
AMENDMENT NO. 2
Dated as of June 9, 2022
to the
Third Amended and Restated Base Indenture
Dated as of April 1, 2020
===================================
This Amendment No. 2 (this “Amendment”) to the Existing Base Indenture (as defined below) is entered into as of June 9, 2022, by and among PNMAC GMSR ISSUER TRUST, a statutory trust organized under the laws of the State of Delaware (the “Issuer”), CITIBANK, N.A. (“Citibank”), a national banking association, in its capacity as Indenture Trustee (the “Indenture Trustee”), and as Calculation Agent, Paying Agent and Securities Intermediary (in each case, as defined herein), PENNYMAC LOAN SERVICES, LLC, a limited liability company organized under the laws of the State of Delaware (“PLS”), as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), and CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (“CSFB”), a Delaware limited liability company, as an administrative agent (the “Administrative Agent”), and consented and agreed to by Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as a buyer, and Citibank, N.A. (“Citi Buyer” and together with CSCIB, the “Buyers” and each, a “Buyer”), as a buyer. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Existing Base Indenture.
W I T N E S S E T H:
WHEREAS, the Issuer, Citibank, as Indenture Trustee, as calculation agent (in such capacity, the “Calculation Agent”), as paying agent (in such capacity, the “Paying Agent”) and as securities intermediary (in such capacity, the “Securities Intermediary”), the Administrator, the Servicer, the Administrative Agent and the Credit Manager are parties to that certain Third Amended and Restated Base Indenture, dated as of April 1, 2020 (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented, or otherwise modified from time to time, the “Existing Base Indenture”);
WHEREAS, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent have agreed, subject to the terms and conditions of this Amendment, that the Existing Base Indenture be amended to reflect certain agreed upon revisions to the terms of the Existing Base Indenture;
WHEREAS, pursuant to Section 12.1(b) of the Existing Base Indenture, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent (in its sole and absolute discretion) may amend the Existing Base Indenture for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of the Existing Base Indenture, without the consent of any of the Noteholders or any other Person, upon (i) delivery of an Issuer Tax Opinion, (ii) delivery to the Indenture Trustee of an Officer’s Certificate to the effect that the Issuer reasonably believes that such amendment could not have a material Adverse Effect on any Outstanding Notes and is not reasonably expected to have a material Adverse Effect at any time in the future, and (iii) each Note Rating Agency currently rating the Outstanding Notes confirms in writing to the Indenture Trustee that such amendment will not cause a Ratings Effect on any Outstanding Notes;
WHEREAS, pursuant to Section 12.3 of the Existing Base Indenture, the Issuer shall also deliver to the Indenture Trustee an Opinion of Counsel stating that the execution of such amendment to the Existing Base Indenture is authorized and permitted by the Existing Base Indenture and that all conditions precedent thereto have been satisfied (the “Authorization
- 2 -
Opinion”), and pursuant to Section 1.3 of the Existing Base Indenture, the Issuer will furnish to the Indenture Trustee (1) an Officer’s Certificate stating that all conditions precedent, if any, provided for in the Existing Base Indenture relating to the proposed action have been complied with and (2) except as provided below, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with; and
WHEREAS, pursuant to Section 11.1 of the Trust Agreement, prior to the execution of any amendment to any Transaction Documents to which the Trust is a party, the Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by the Trust Agreement and that all conditions precedent have been met.
NOW THEREFORE, in consideration of the premises and mutual agreements herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent hereby agree as follows:
SECTION 1. Amendments to the Existing Base Indenture.
(a)Section 1.1 of the Existing Base Indenture is hereby amended by adding the following definitions in proper alphabetical order:
SPIA Deposit Reinstatement Notice: As defined in the PC Repurchase Agreement.
SPIA Deposit Suspension Notice: As defined in the PC Repurchase Agreement.
(b)Section 3.2(a) is hereby amended by adding the following sentence as the last sentence of such subsection:
To the extent a SPIA Deposit Suspension Notice has been delivered and not subsequently superseded by a SPIA Deposit Reinstatement Notice pursuant to the PC Repurchase Agreement, the Administrator shall not be required to deliver information with respect to the SPIA VFN in connection with any Interim Payment Date Report.
(c)Section 3.3(d) is hereby amended by deleting in its entirety and replacing it with the following:
(d) Annual Lien Opinion. Within one hundred (100) days after the end of each fiscal year of the Administrator, beginning with the fiscal year ending on December 31, 2016, the Administrator shall deliver to the Indenture Trustee an Opinion of Counsel from outside counsel to the effect that, subject to Ginnie Mae Requirements, (i) the Indenture Trustee has a perfected security interest in the Participation Certificates attributable to the Designated PCs identified in an exhibit to such opinion as Designated PCs, and that, based on a review of UCC search reports (copies of which shall be attached thereto) and review of other certifications and other materials, (x) there are no UCC-1 filings indicating an Adverse Claim with respect to such Participation Certificates that has not been released, (y) either (A) stating that, from the date of the previous annual
- 3 -
lien opinion until the date of the opinion for the current fiscal year, in the opinion of such counsel, such action has been taken with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the perfected security interest of the Indenture Trustee in the Participation Certificates or (B) stating that in the opinion of such counsel no such action was necessary to maintain such lien and security interest and (z) stating any actions that, in the opinion of such counsel, will need to be taken with respect to the execution and filing of any financing statements and continuation statements in order to maintain the perfected security interest of the Indenture Trustee in the Participation Certificate through April 10 in the following year, and(ii) the Issuer has a perfected security interest in the Repurchase Assets under the PC Repurchase Agreement, and that, based on a review of UCC search reports (copies of which shall be attached thereto) and review of other certifications and other materials, (x) there are no UCC-1 filings indicating an Adverse Claim with respect to such Repurchase Assets that has not been released, (y) either (A) stating that, from the date of the previous annual lien opinion until the date of the opinion for the current fiscal year, in the opinion of such counsel, such action has been taken with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the perfected security interest of the Issuer in the Repurchase Assets or (B) stating that in the opinion of such counsel no such action was necessary to maintain such lien and security interest and (z) stating any actions that, in the opinion of such counsel, will need to be taken with respect to the execution and filing of any financing statements and continuation statements in order to maintain the perfected security interest of the Issuer in the Repurchase Assets through April 10 in the following year.
SECTION 2. Consent. Each of the Issuer, the Indenture Trustee, the Administrator, the Servicer, the Administrative Agent, CSCIB, as a Buyer under the Series 2016-MSRVF1 Repurchase Agreement and the Series 2020-SPIADVF1 Repurchase Agreement, and Citi Buyer, as a Buyer under the Series 2016-MSRVF1 Repurchase Agreement and the Series 2020-SPIADVF1 Repurchase Agreement hereby consents to this Amendment.
SECTION 3.Authorization and Direction. The Indenture Trustee is hereby authorized and directed to execute Amendment No. 1 to the Amended and Restated PC Repurchase Agreement, dated as of June 9, 2022, by and among the Issuer, the Indenture Trustee, PLS, the Guarantor, the Administrative Agent, and consented to by Credit Suisse AG, Cayman Islands Branch and Citibank, N.A., collectively, as buyers of 100% of the Variable Funding Notes.
SECTION 4. Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon the latest to occur of the following:
(a)the execution and delivery of this Amendment by all parties hereto;
(b)prior notice to each Note Rating Agency that is presently rating any Outstanding Notes and each Note Rating Agency currently rating the Outstanding Notes confirms in writing to the Indenture Trustee that this Amendment will not cause a Ratings Effect on any Outstanding Notes;
(c)the delivery of an Authorization Opinion;
- 4 -
(d)the delivery of an Issuer Tax Opinion;
(e)the Administrative Agent shall have provided its prior written consent to this Amendment;
(f)the Issuer shall have furnished to the Indenture Trustee (1) an Officer’s Certificate stating that all conditions precedent, if any, provided for in the Existing Base Indenture relating to the proposed action have been complied with and (2) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with; and
(g)the delivery of an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by the Trust Agreement and that all conditions precedent have been met;
SECTION 5. No Default; Representations and Warranties. PLS and the Issuer each hereby represents and warrants to the Indenture Trustee and the Administrative Agent that as of the date hereof it is in compliance with all the terms and provisions set forth in the Existing Base Indenture on its part to be observed or performed and remains bound by the terms thereof, and that no Event of Default has occurred or is continuing on the date hereof, and hereby confirms and reaffirms the representations and warranties contained in Section 9.1 of the Existing Base Indenture.
SECTION 6. Single Agreement. Except as expressly amended and modified by this Amendment, all of the terms and conditions of the Existing Base Indenture remain in full force and effect and are hereby reaffirmed.
SECTION 7. Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
SECTION 8. 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 9. GOVERNING LAW. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF, WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
- 5 -
SECTION 10. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention.
SECTION 11. Owner Trustee Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Amendment is executed and delivered by Wilmington Savings Fund Society, FSB (“WSFS”), not individually or personally but solely in its capacity as Owner Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it thereunder, (b) each of the representations, warranties, undertakings, obligations and agreements herein made on the part of the Issuer is made and intended not as personal representations, warranties, undertakings, obligations and agreements by WSFS but is made and intended for the purpose of binding only, and is binding only on, the Issuer, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant or obligation of the Issuer, either expressed or implied, contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has not made and will not make any investigation as to the accuracy or completeness of any representations or warranties made by the Issuer in this Amendment or any related document delivered pursuant hereto and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness, indemnities or expenses of the Issuer, or be liable for the performance, breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer or by WSFS as Owner Trustee on behalf of the Issuer under this Amendment or any other related documents, as to all of which recourse shall be had solely to the assets of the Issuer.
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.
| PNMAC GMSR ISSUER TRUST, as Issuer | |
| | |
| By: Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as Owner Trustee | |
| | |
| | |
| By: | /s/ Mary Emily Pagano |
| Name: | Mary Emily Pagano |
| Title: | Assistant Vice President |
[PNMAC GMSR ISSUER TRUST – Amendment No. 2 to Third A&R Base Indenture]
| CITIBANK, N.A., as Indenture Trustee, Calculation Agent, Paying Agent and Securities Intermediary and not in its individual capacity | |
| | |
| | |
| By: | /s/ Valerie Delgado |
| Name: | Valerie Delgado |
| Title: | Senior Trust Officer |
[PNMAC GMSR ISSUER TRUST – Amendment No. 2 to Third A&R Base Indenture]
| PENNYMAC LOAN SERVICES, LLC, as Servicer and as Administrator | |
| | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR ISSUER TRUST – Amendment No. 2 to Third A&R Base Indenture]
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
| Consented and Agreed to By: | |
| | |
| CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Buyer | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Authorized Signatory |
| By: | /s/ Margaret D. Dellafera |
| Name: | Margaret D. Dellafera |
| Title: | Authorized Signatory |
[PNMAC GMSR ISSUER TRUST – Amendment No. 2 to Third A&R Base Indenture]
| Consented and Agreed to By: | |
| | |
| CITIBANK, N.A., as a Buyer | |
| | |
| By: | /s/ Arunthathi Theivakumaran |
| Name: | Arunthathi Theivakumaran |
| Title: | Vice President |
[PNMAC GMSR ISSUER TRUST – Amendment No. 2 to Third A&R Base Indenture]
Exhibit 10.6
EXECUTION COPY
JOINT AMENDMENT NO. 7 TO SERIES 2016-MSRVF1 INDENTURE
SUPPLEMENT AND AMENDMENT NO. 5 TO SERIES 2020-SPIADVF1 INDENTURE
SUPPLEMENT
This Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and Amendment No. 5 to Series 2020-SPIADVF1 Indenture Supplement is dated as of June 8, 2022 (this “Amendment”), by and among PNMAC GMSR ISSUER TRUST, as issuer (the “Issuer”), CITIBANK, N.A. (“Citibank”), as indenture trustee (in such capacity, the “Indenture Trustee”), calculation agent (in such capacity, the “Calculation Agent”), paying agent (in such capacity, the “Paying Agent”), and securities intermediary (in such capacity, the “Securities Intermediary”), PENNYMAC LOAN SERVICES, LLC (“PLS”), as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), and CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as administrative agent (the “Administrative Agent”) and noteholder (the “Noteholder”) for the benefit of the Repo Buyers (as defined below), and is consented to by CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CSCIB”) and CITIBANK, N.A. (“Citi Buyer”) (each a “Repo Buyer” and together, the “Repo Buyers”), the buyers of 100% of the Variable Funding Notes.
RECITALS
WHEREAS, the Issuer, the Indenture Trustee, the Calculation Agent, the Paying Agent, the Securities Intermediary, the Administrator, the Servicer and the Administrative Agent are parties to that certain Third Amended and Restated Indenture, dated as of April 1, 2020 (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), the provisions of which are incorporated, as modified by that certain (i) Amended and Restated Series 2016-MSRVF1 Indenture Supplement, dated as of February 28, 2018 (as amended by Amendment No. 1, dated as of August 10, 2018, Amendment No. 2, dated as of April 24, 2020, Amendment No. 3, dated as of August 25, 2020, Amendment No. 4, dated as of April 1, 2021, Amendment No. 5, dated as of July 30, 2021, and Amendment No. 6, dated as of February 10, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Indenture Supplement”); and (ii) Series 2020-SPIADVF1 Indenture Supplement, dated as of April 1, 2021 (as amended by Amendment No. 1, dated as of August 25, 2020, Amendment No. 2, dated as of April 1, 2021, Amendment No. 3, dated as of July 30, 2021, and Amendment No. 4, dated as of February 10, 2022, as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Indenture Supplement” and together with Series 2016-MSRVF1 Indenture Supplement, the “Indenture Supplements”) and together with the Base Indenture, the “Indenture”), among the Issuer, Citibank, the Servicer, the Administrator and the Administrative Agent. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Indenture;
WHEREAS, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent (in its capacity as Administrative Agent and Noteholder) have agreed,
subject to the terms and conditions of this Amendment, that the Indenture Supplements be amended to reflect certain agreed upon revisions to the terms of the Indenture Supplements;
WHEREAS, pursuant to Section 12.2 of the Base Indenture, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent, with prior notice to each Note Rating Agency and the consent of the Majority Noteholders of each Series materially and adversely affected by such amendment, by Act of said Noteholders delivered to the Issuer, the Administrator, the Servicer, the Administrative Agent and the Indenture Trustee, upon delivery of an Issuer Tax Opinion (unless the Noteholders unanimously consent to waive such opinion), for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, any Indenture Supplement;
WHEREAS, pursuant to Section 12.3 of the Base Indenture, in executing or accepting the additional trusts created by any amendment or Indenture Supplement of the Base Indenture permitted by Article XII or the modifications thereby of the trusts created by the Base Indenture, the Indenture Trustee will be entitled to receive, and (subject to Section 11.1 of the Base Indenture) will be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment or Indenture Supplement is authorized and permitted by the Base Indenture and that all conditions precedent thereto have been satisfied (the “Authorization Opinion”); provided, that no such Authorization Opinion shall be required in connection with any amendment or Indenture Supplement consented to by all Noteholders if all of the Noteholders have directed the Indenture Trustee in writing to execute such amendment or Indenture Supplement;
WHEREAS, pursuant to Section 1.3 of the Base Indenture, the Issuer shall deliver an Officer’s Certificate stating that all conditions precedent, if any, provided for in the Base Indenture relating to a proposed action have been complied with and that the Issuer reasonably believes that this Amendment will not have a material Adverse Effect, and shall also furnish to the Indenture Trustee an opinion of counsel stating that in the opinion of such counsel all conditions precedent to a proposed action, if any, have been complied with (unless 100% of the Noteholders have consented to the related amendment, modification or action and all of the Noteholders have directed the Indenture Trustee in writing to execute such amendment or supplement, or with respect or with respect to any other modification or action, directed the Indenture Trustee in writing to permit such modification or action without receiving such certificate or opinion);
WHEREAS, pursuant to Section 11.1 of the Trust Agreement, prior to the execution of any amendment to any Transaction Documents to which the Trust is a party, the Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by the Trust Agreement and that all conditions precedent have been met;
WHEREAS, pursuant to Section 4.1(a)(iii) of the Trust Agreement, the consent of each of the Owners (as defined in the Trust Agreement) (unless an Event of Default has occurred and is continuing), the Administrative Agent and the Series Required Noteholders of all Variable Funding Notes is required for the amendment or other change to any Transaction Document in
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circumstances where the consent of any Noteholder or the Administrative Agent is required (other than an amendment or supplement to the Base Indenture pursuant to Section 12.1 thereof);
WHEREAS, (i) the Series 2016-MSRVF1 Note (the “Series 2016-MSRVF1 Note”), was issued to PLS pursuant to the terms of the Series 2016-MSRVF1 Indenture Supplement, and was purchased by CSCIB and Citi Buyer under the Amended and Restated Master Repurchase Agreement, dated as of July 30, 2021, by and among the Administrative Agent, CSCIB, as a Repo Buyer, Citi, as a Repo Buyer and PLS, as seller (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Repurchase Agreement”), pursuant to which PLS sold all of rights, title and interest in the Series 2016-MSRVF1 Note to CSCIB and Citi Buyer as Repo Buyers, and transferred the Series 2016-MSRVF1 Note to the Administrative Agent as “Noteholder” for the benefit of the Repo Buyers, and (ii) the Series 2020-SPIADVF1 Note (the “Series 2020-SPIADVF1 Note”), was issued to PLS pursuant to the terms of the Series 2020-SPIADVF1 Indenture Supplement, and was purchased by CSCIB and Citi Buyer under the Amended and Restated Master Repurchase Agreement, dated as of July 30, 2021, by and among the Administrative Agent, CSCIB, as a Repo Buyer, Citi Buyer, as a Repo Buyer and PLS, as seller (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Repurchase Agreement” and together with the Series 2016-MSRVF1 Repurchase Agreement, the “Repurchase Agreements”), pursuant to which PLS sold all of rights, title and interest in the Series 2020-SPIADVF1 Note to CSCIB and Citi Buyer as Repo Buyers, and transferred the Series 2020-SPIADVF1 Note to the Administrative Agent as “Noteholder” for the benefit of the Repo Buyers;
WHEREAS, pursuant to each Indenture Supplement, with respect to the related VFN Note, any Action provided by the Base Indenture or such Indenture Supplement to be given or taken by a Noteholder shall be taken by CSCIB and Citi Buyer, as buyers of each related VFN Note under each related Repurchase Agreement, and therefore CSCIB and Citi Buyer are collectively 100% of the VFN Noteholders of the Outstanding Notes and therefore are the Series Required Noteholder of all Variable Funding Notes;
WHEREAS, pursuant to either Section 10(a) or Section 9(a) of each Indenture Supplement, as applicable, relating to the Amendment thereof, the Issuer, the Indenture Trustee, the Administrator, the Servicer, the Administrative Agent, and 100% of the Noteholder of such Series, at any time and from time to time, may amend any of the provisions of, any Indenture Supplement;
WHEREAS, as of the date hereof, Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note are rated by the Note Rating Agency.
NOW, THEREFORE, the Issuer, Indenture Trustee, the Administrator, the Servicer and the Administrative Agent hereby agree, in consideration of the amendments, agreements and other provisions herein contained and of certain other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged by the parties hereto, that the Indenture Supplements are hereby amended as follows:
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Section 1.Amendment to the Indenture Supplements. Each Indenture Supplement, unless otherwise noted, is amended as follows. Any reference to “Series [__]” in this Amendment shall be a reference to the related Series of VFN Note issued pursuant to such Indenture Supplement and “Section [__]” shall be a reference to the related Section of such Indenture Supplement (by way of example, for purposes of the Series 2016-MSRVF1 Indenture Supplement, each reference to “Series [__]” shall mean a reference to “Series 2016-MSRVF1” and “Section [__]” shall mean a reference to a corresponding Section in the Series 2016-MSRVF1 Indenture Supplement).
(a)Section 2 of each Indenture Supplement is hereby amended by deleting the definition of “Maximum VFN Principal Balance” in its entirety and replacing it with the following:
“Maximum VFN Principal Balance” means, for the Series [__] Notes, $2,000,000,000, or (i) such other amount, calculated pursuant to a written agreement between the Administrator and the Administrative Agent or (ii) such lesser amount designated by the Administrator in accordance with the terms of the Base Indenture.
Section 2.Replacement of Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note.
(a)The parties hereto acknowledge and agree that the Series 2016-MSRVF1 Note No. 2 and the Series 2020-SPIADVF1 Note No. 2, each dated as of June 30, 2021 with a Maximum VFN Principal Balance of $1,000,000,000 (the “Outstanding Notes”), are (1) hereby deemed cancelled and for all purposes no longer outstanding under the Indenture and applicable law and (2) replaced by Series 2016-MSRVF1 Note No. 3 and Series 2020-SPIADVF1 Note No. 3, each to be dated as of the date hereof with a Maximum VFN Principal Balance of $2,000,000,000 (the “Replacement Notes”).
(b)The Noteholder shall promptly deliver the Outstanding Notes to the Indenture Trustee for cancellation and hereby consents to the issuance of the Replacement Notes.
Section 3.Note Rating Agency. As of the date hereof and prior to the execution of this Amendment, the Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note, including the related Replacement Notes, are rated by the Note Rating Agency.
Section 4.Waiver of Issuer Tax Opinion and Authorization Opinion. Pursuant to Section 12.2 of the Base Indenture, the Noteholder of the Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note hereby waives and instructs the Administrative Agent and the Indenture Trustee to waive the provisions of Section 12.2 of the Base Indenture which require delivery of an Issuer Tax Opinion with respect to this Amendment. Pursuant to Section 12.3 of the Base Indenture, the Noteholder of the Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note hereby waives and instructs the Administrative Agent and the Indenture Trustee to waive the provisions of Section 12.3 of the Base Indenture which requires delivery of an Authorization Opinion with respect to this Amendment.
Section 5.Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon (i) the execution and delivery of this Amendment by all parties hereto, (ii)
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the delivery of an Opinion of Counsel pursuant to Section 11.1 of the Trust Agreement, and (iii) prior notice to the Note Rating Agency pursuant to Section 12.2 of the Base Indenture. The execution of this Amendment by the Company, the Administrative Agent and CSCIB shall serve as notice to the Owner Trustee of their consent hereto, pursuant to Section 4.1 of the Trust Agreement.
Section 6.Consent and Acknowledgment. By execution of this Amendment, each of CSCIB and Citi Buyer, in its capacity as Repo Buyers, hereby consents to this Amendment. The Repo Buyers certify that together they own 100% of the Outstanding Variable Funding Notes. In addition, each Repo Buyer certifies as to itself that (i) it is authorized to execute and deliver this consent and such power has not been granted or assigned to any other person, (ii) the Person executing this Indenture Supplement on behalf of such Repo Buyer is duly authorized to do so, (iii) the Indenture Trustee may conclusively rely upon such consent and certifications, (iv) the execution of this Amendment by the Administrative Agent as Noteholder on behalf of the Repo Buyers should be considered an “Act” by the Noteholder pursuant to Section 1.5 of the Base Indenture and (v) it acknowledges and agrees that the amendments effected by this Amendment shall become effective on the date hereof. The Repo Buyers hereby instruct the Indenture Trustee to execute this Amendment, thereby waiving the requirement for delivery of the Authorization Opinion, the Officer’s Certificate and the Issuer Tax Opinion pursuant to Sections 1.3, 12.2 and 12.3 of the Base Indenture.
Section 7.Authorization and Direction. The Indenture Trustee is hereby authorized and directed to execute (i) that certain Fifth Amended and Restated Acknowledgment Agreement, dated as of June 8, 2022, among the Indenture Trustee, PLS and Ginnie Mae (the “Acknowledgment Agreement”), (ii) that certain Amendment No. 1 to the Third Amended and Restated Base Indenture, dated as of June 8, 2022, by and among the Issuer, Citibank, N.A., as Indenture Trustee, Calculation Agent, Paying Agent and Securities Intermediary, PLS, as Administrator and Servicer, and the Administrative Agent, and (iii) any other documents related to the issuance of the Series 2022-GT1 Term Notes.
Section 8.Representations and Warranties. The Issuer hereby represents and warrants to the Indenture Trustee, the Administrative Agent and the Repo Buyers that as of the date hereof it is in compliance with all the terms and provisions set forth in the Indenture on its part to be observed or performed remains bound by the terms thereof, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 9.1 of the Base Indenture.
Section 9.Limited Effect. Except as expressly amended and modified by this Amendment, the Indenture shall continue to be, and shall remain, in full force and effect in accordance with its terms and the execution of this Amendment.
Section 10.No Recourse. It is expressly understood and agreed by the parties hereto that (a) this Amendment is executed and delivered by Wilmington Savings Fund Society, FSB (“WSFS”), not individually or personally but solely in its capacity as Owner Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it thereunder, (b) each of the representations, warranties, undertakings, obligations and agreements herein made on the part of the Issuer is made and intended not as personal representations,
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warranties, undertakings, obligations and agreements by WSFS but is made and intended for the purpose of binding only, and is binding only on, the Issuer, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant or obligation of the Issuer, either expressed or implied, contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has not made and will not make any investigation as to the accuracy or completeness of any representations or warranties made by the Issuer in this Amendment or any related document delivered pursuant hereto and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness, indemnities or expenses of the Issuer, or be liable for the performance, breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer or by WSFS as Owner Trustee on behalf of the Issuer under this Amendment or any other related documents, as to all of which recourse shall be had solely to the assets of the Issuer.
Section 11.Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
Section 12.GOVERNING LAW. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF (WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention, including DocuSign.
Section 14.Entire Agreement. The Indenture, as amended by this Amendment, constitutes the entire agreement among the parties hereto with respect to the subject matter
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hereof, and fully supersedes any prior or contemporaneous agreements relating to such subject matter.
Section 15.Recitals. The recitals and statements contained in this Amendment shall be taken as the statements of the Issuer, and the Indenture Trustee does not assume any responsibility for their correctness. The Indenture Trustee does not make any representation as to the validity or sufficiency of this Amendment (except as may be made with respect to the validity of its own obligations hereunder.) In entering into this Amendment, the Indenture Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct of, or affecting the liability of or affording protection to it.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.
| PNMAC GMSR ISSUER TRUST, as Issuer | |
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| By: Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as Owner Trustee | |
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| By: | /s/ Mary Emily Pagano |
| Name: | Mary Emily Pagano |
| Title: | Assistant Vice President |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| PENNYMAC LOAN SERVICES, LLC, as Servicer and as Administrator | |
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| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| CITIBANK, N.A., as Indenture Trustee, and not in its individual capacity | |
| | |
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| By: | /s/ Valerie Delgado |
| Name: | Valerie Delgado |
| Title: | Senior Trust Officer |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent | |
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| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| CREDIT SUISSE FIRST BOSTON | |
| MORTGAGE CAPITAL LLC, solely in its capacity as Administrative Agent on behalf of Credit Suisse AG, Cayman Islands Branch and Citibank, N.A. | |
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| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| CONSENTED TO BY: | |
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| CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Repo Buyer | |
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| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Authorized Signatory |
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| By: | /s/ Margaret D. Dellafera |
| Name: | Margaret D. Dellafera |
| Title: | Authorized Signatory |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
| CONSENTED TO BY: | |
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| CITIBANK, N.A., as a Repo Buyer | |
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| By: | /s/ Arunthathi Theivakumaran |
| Name: | Arunthathi Theivakumaran |
| Title: | Vice President |
[PNMAC GMSR Issuer Trust – Joint Amendment No. 7 to Series 2016-MSRVF1 Indenture Supplement and No. 5 to Series 2020-SPIADVF1 Indenture Supplement]
Exhibit 10.7
EXECUTION VERSION
OMNIBUS AMENDMENT NO. 1 TO THE REPURCHASE AGREEMENTS
This Omnibus Amendment No. 1 to the Repurchase Agreements (as defined below) is entered into as of June 8, 2022 (this “Amendment”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (the “Administrative Agent”), CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CSCIB” or a “Buyer”), CITIBANK, N.A. (“Citibank”), as a buyer (a “Buyer” and together with CSCIB, the “Buyers”), and PENNYMAC LOAN SERVICES, LLC (“PLS” or the “Seller”) and acknowledged by PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC, as guarantor (the “Guarantor”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Repurchase Agreements (as defined below).
W I T N E S S E T H:
WHEREAS, the Administrative Agent, the Buyers and the Seller are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of July 30, 2021 (as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Repurchase Agreement”) and that certain Amended and Restated Master Repurchase Agreement, dated as of July 30, 2021 (as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Repurchase Agreement” and together with Series 2016-MSRVF1 Repurchase Agreement, the “Repurchase Agreements”);
WHEREAS, the Administrative Agent, the Buyers and the Seller have agreed, subject to the terms and conditions of this Amendment, that the Repurchase Agreements be amended to reflect the certain agreed upon revisions to the terms of the Repurchase Agreements;
WHEREAS, the Guarantor is party to that certain Second Amended and Restated Guaranty (as amended, restated, supplemented or otherwise modified from time to time, the “VFN Repo Guaranty”), dated as of July 30, 2021, by the Guarantor in favor of the Buyers;
WHEREAS, as a condition precedent to amending the Repurchase Agreements, the Buyers have required the Guarantor to ratify and affirm the VFN Repo Guaranty on the date hereof;
WHEREAS, PNMAC GMSR Issuer Trust, as issuer (the “Issuer”), Citibank, N.A., as indenture trustee (in such capacity, the “Indenture Trustee”), as calculation agent (in such capacity, the “Calculation Agent”), as paying agent (in such capacity, the “Paying Agent”) and as securities intermediary (in such capacity, the “Securities Intermediary”), the PLS, as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), the Administrative Agent and Pentalpha Surveillance LLC, as credit manager, are parties to that certain Third Amended and Restated Base Indenture, dated as of April 1, 2020 (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), as supplemented by the Amended and Restated Series 2016-MSRVF1 Indenture Supplement, dated as February 28, 2018 (as amended by Amendment No. 1, dated as of August 10, 2018, Amendment No. 2, dated as of April 24, 2020, Amendment No. 3, dated as of August 25, 2020, Amendment No. 4, dated as of
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April 1, 2021, Amendment No. 5, dated as of July 30, 2021, Amendment No. 6, dated as of February 10, 2022, and Amendment No. 7, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Indenture Supplement”), and by the Series 2020-SPIADVF1 Indenture Supplement, dated April 1, 2020 (as amended by Amendment No. 1, dated as of August 25, 2020, Amendment No. 2, dated as of April 1, 2021, Amendment No. 3, dated as of July 30, 2021, Amendment No. 4, dated as of February 10, 2022, and Amendment No. 5, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Indenture Supplement”);
WHEREAS, pursuant to Section 10.3(e)(iii) of the Base Indenture, so long as any Note is Outstanding and until all obligations have been paid in full, PLS shall not consent to any amendment, modification or waiver of any term or condition of any Transaction Document, without the prior written consent of the Administrative Agent; and
WHEREAS, the Repurchase Agreements are Transaction Documents.
NOW THEREFORE, the Administrative Agent, the Buyers and the Seller hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Repurchase Agreements are hereby amended as follows:
SECTION 1.Amendment to the Repurchase Agreements.
Each Repurchase Agreement, unless otherwise noted, is amended as follows. Any reference to “Series [__]” in this Amendment shall be a reference to the related Series of VFN Note issued pursuant to such Repurchase Agreement (by way of example, for purposes of the Series 2016-MSRVF1 Repurchase Agreement, each reference to “Series [__]” shall mean a reference to “Series 2016-MSRVF1”).
(a)The Recitals of each Repurchase Agreement are hereby amended by deleting the fourth Recital in its entirety and replacing it with the following:
WHEREAS, in connection with the restatement and amendment of the Original Agreement, CSCIB and PLS will agree to return and cancel the Original Note in exchange for a single replacement note (such note, and any subsequent replacement thereof in accordance with the Series [__] Indenture Supplement, the “Note”) issued pursuant to the Series [__] Indenture Supplement;
SECTION 2.Reaffirmation of VFN Repo Guaranty. The Guarantor hereby ratifies and affirms all of the terms, covenants, conditions and obligations of the VFN Repo Guaranty and acknowledges and agrees that the term “Obligations” as used in the VFN Repo Guaranty shall apply to all of the Obligations of the Seller to the Buyer under each Repurchase Agreement and the related Program Agreements, as amended hereby.
SECTION 3.Conditions Precedent. This Amendment shall become effective as of the date hereof upon receipt of this Amendment by the Administrative Agent on behalf of the Buyers, executed and delivered by the duly authorized officers of the Administrative Agent, the Buyers and the Seller.
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SECTION 4.Representations and Warranties. The Seller hereby represents and warrants to the Administrative Agent and the Buyers that it is in compliance with all the terms and provisions set forth in each Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Article III of each Repurchase Agreement.
SECTION 5.Limited Effect. Except as expressly amended and modified by this Amendment, each Repurchase Agreement 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 in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Amendment. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention, including DocuSign.
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. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF (WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURES FOLLOW.]
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.
| CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent | |
| | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
| CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Buyer | |
| | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Authorized Signatory |
| | |
| | |
| By: | /s/ Margaret Dellafera |
| Name: | Margaret Dellafera |
| Title: | Authorized Signatory |
| | |
[PNMAC GMSR Issuer Trust – Omnibus Amendment No. 1 to A&R Series 2016-MSRVF1 Master Repurchase Agreement and A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
PENNYMAC LOAN SERVICES, LLC, as Seller | ||
| | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR Issuer Trust – Omnibus Amendment No. 1 to A&R Series 2016-MSRVF1 Master Repurchase Agreement and A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
| PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC, as Guarantor | |
| | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR Issuer Trust – Omnibus Amendment No. 1 to A&R Series 2016-MSRVF1 Master Repurchase Agreement and A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
| CITIBANK, N.A., as a Buyer | |
| | |
| | |
| By: | /s/ Arunthathi Theivakumaran |
| Name: | Arunthathi Theivakumaran |
| Title: | Vice President |
[PNMAC GMSR Issuer Trust – Omnibus Amendment No. 1 to A&R Series 2016-MSRVF1 Master Repurchase Agreement and A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
Exhibit 10.8
EXECUTION VERSION
AMENDMENT NO. 2 TO THE SERIES 2020-SPIADVF1 REPURCHASE AGREEMENT
This Amendment No. 2 to the Series 2020-SPIADVF1 Repurchase Agreement (as defined below), is entered into as of June 9, 2022 (this “Amendment”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (the “Administrative Agent”), CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CSCIB” or a “Buyer”), CITIBANK, N.A. (“Citibank”), as a buyer (a “Buyer” and together with CSCIB, the “Buyers”), and PENNYMAC LOAN SERVICES, LLC (“PLS” or the “Seller”) and acknowledged by PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC, as guarantor (the “Guarantor”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Series 2020-SPIADVF1 Repurchase Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Administrative Agent, the Buyers and the Seller are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of July 30, 2021 (as amended by Amendment No. 1, dated as of June 8, 2022, this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Repurchase Agreement”);
WHEREAS, the Administrative Agent, the Buyers and the Seller have agreed, subject to the terms and conditions of this Amendment, that the Series 2020-SPIADVF1 Repurchase Agreement be amended to reflect the certain agreed upon revisions to the terms of the Series 2020-SPIADVF1 Repurchase Agreement;
WHEREAS, the Guarantor is party to that certain Second Amended and Restated Guaranty (as amended, restated, supplemented or otherwise modified from time to time, the “VFN Repo Guaranty”), dated as of July 30, 2021, by the Guarantor in favor of the Buyers;
WHEREAS, as a condition precedent to amending the Series 2020-SPIADVF1 Repurchase Agreement, the Buyers have required the Guarantor to ratify and affirm the VFN Repo Guaranty on the date hereof;
WHEREAS, PNMAC GMSR Issuer Trust, as issuer (the “Issuer”), Citibank, N.A., as indenture trustee (in such capacity, the “Indenture Trustee”), as calculation agent (in such capacity, the “Calculation Agent”), as paying agent (in such capacity, the “Paying Agent”) and as securities intermediary (in such capacity, the “Securities Intermediary”), the PLS, as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), the Administrative Agent and Pentalpha Surveillance LLC, as credit manager, are parties to that certain Third Amended and Restated Base Indenture, dated as of April 1, 2020 (as amended by Amendment No. 1, dated as of June 8, 2022, Amendment No. 2, dated as of June 9, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), as supplemented by the Series 2020-SPIADVF1 Indenture Supplement, dated April 1, 2020 (as amended by Amendment No. 1, dated as of August 25, 2020, Amendment No. 2, dated as of April 1, 2021, Amendment No. 3, dated as of July 30, 2021, Amendment No. 4, dated as of February 10, 2022, Amendment No. 5, dated as of June 8, 2022, and as may be further
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amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Indenture Supplement”);
WHEREAS, pursuant to Section 10.3(e)(iii) of the Base Indenture, so long as any Note is Outstanding and until all obligations have been paid in full, PLS shall not consent to any amendment, modification or waiver of any term or condition of any Transaction Document, without the prior written consent of the Administrative Agent; and
WHEREAS, the Series 2020-SPIADVF1 Repurchase Agreement is a Transaction Document.
NOW THEREFORE, the Administrative Agent, the Buyers and the Seller hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Series 2020-SPIADVF1 Repurchase Agreement is hereby amended as follows:
SECTION 1.Amendments to the Series 2020-SPIADVF1 Repurchase Agreement.
(a)Section 1.01 of the Series 2020-SPIADVF1 Repurchase Agreement is hereby amended by deleting the definition of “SPIADVF1 Funding Conditions” in its entirety and replacing it with the following:
“SPIADVF1 Funding Conditions” with respect to the Series 2020-SPIADVF1 Notes and any Funding Date, the following conditions:
(i) the Advance Verification Agent Report immediately preceding such Funding Date has been delivered in accordance with Section 3.3(g)(2) of the Base Indenture; and
(ii) to the extent the Advance Verification Agent Report delivered immediately preceding such Funding Date contains any exceptions noted therein, such exceptions have been waived by the Administrative Agent in its sole discretion.
(iii) solely with respect to funding of MBS Advances, Seller shall not have submitted an Appendix XI-01A Request for Pass-Through Assistance Related to COVID-19 and Repayment Agreement.
(iv) to the extent Seller has previously submitted a SPIA Deposit Suspension Notice, Seller has subsequently submitted a SPIA Deposit Reinstatement Notice and such notice has been consented to by the Administrative Agent.
(b)Section 1.01 of the Series 2020-SPIADVF1 Repurchase Agreement is hereby amended by adding the following definitions in proper alphabetical order:
“SPIA Deposit Reinstatement Notice” has the meaning assigned to such term in the PC Repurchase Agreement.
“SPIA Deposit Suspension Notice” has the meaning assigned to such term in the PC Repurchase Agreement.
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SECTION 2.Reaffirmation of VFN Repo Guaranty. The Guarantor hereby ratifies and affirms all of the terms, covenants, conditions and obligations of the VFN Repo Guaranty and acknowledges and agrees that the term “Obligations” as used in the VFN Repo Guaranty shall apply to all of the Obligations of the Seller to the Buyer under the Series 2020-SPIADVF1 Repurchase Agreement and the related Program Agreements, as amended hereby.
SECTION 3.Conditions Precedent. This Amendment shall become effective as of the date hereof upon receipt of this Amendment by the Administrative Agent on behalf of the Buyers, executed and delivered by the duly authorized officers of the Administrative Agent, the Buyers and the Seller.
SECTION 4.Representations and Warranties. The Seller hereby represents and warrants to the Administrative Agent and the Buyers that it is in compliance with all the terms and provisions set forth in the Series 2020-SPIADVF1 Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Article III of the Series 2020-SPIADVF1 Repurchase Agreement.
SECTION 5.Limited Effect. Except as expressly amended and modified by this Amendment, the Series 2020-SPIADVF1 Repurchase Agreement 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 in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Amendment. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention, including DocuSign.
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. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL
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BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF (WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURES FOLLOW.]
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent | ||
| | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
| CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Buyer | |
| | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Authorized Signatory |
| | |
| | |
| By: | /s/ Margaret Dellafera |
| Name: | Margaret Dellafera |
| Title: | Authorized Signatory |
| | |
[PNMAC GMSR Issuer Trust –Amendment No. 2 to A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
PENNYMAC LOAN SERVICES, LLC, as Seller | ||
| | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR Issuer Trust –Amendment No. 2 to A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
| PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC, as Guarantor | |
| | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[PNMAC GMSR Issuer Trust –Amendment No. 2 to A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
| CITIBANK, N.A., as a Buyer | |
| | |
| | |
| By: | /s/ Arunthathi Theivakumaran |
| Name: | Arunthathi Theivakumaran |
| Title: | Vice President |
[PNMAC GMSR Issuer Trust –Amendment No. 2 to A&R Series 2020-SPIADVF1 Master Repurchase Agreement]
Exhibit 10.9
EXECUTION VERSION
AMENDMENT NO. 1 TO PC REPURCHASE AGREEMENT
This Amendment No. 1 (this “Amendment”) to the PC Repurchase Agreement (defined below), is entered into on June 9, 2022, by and among PNMAC GMSR ISSUER TRUST (the “Buyer”), PENNYMAC LOAN SERVICES, LLC (“PLS” or the “Seller”), and PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC (the “Guarantor”), and is consented to by CITIBANK, N.A. (“Citibank”), as indenture trustee (the “Indenture Trustee”), CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as administrative agent and as noteholder of 100% of the Series 2016-MSRVF1 Note and the Series 2020-SPIADVF1 Note on behalf of VFN Buyers, and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CSCIB”) and CITIBANK, N.A. (“Citi Buyer”), collectively, as buyers of the 100% of the Variable Funding Notes (the “VFN Buyers”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the PC Repurchase Agreement.
W I T N E S S E T H:
WHEREAS, the Buyer, the Seller and the Guarantor have entered into that certain Amended and Restated Master Repurchase Agreement, dated as of April 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “PC Repurchase Agreement”);
WHEREAS, the Guarantor is party to that certain Guaranty (as amended, restated, supplemented or otherwise modified from time to time, the “Guaranty”), dated as of December 19, 2016, by the Guarantor in favor of the Buyer;
WHEREAS, the Buyer, the Seller and the Guarantor have agreed, subject to the terms of this Amendment, that the PC Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the PC Repurchase Agreement;
WHEREAS, as a condition precedent to amending the PC Repurchase Agreement, the Buyer has required the Guarantor to ratify and affirm the Guaranty on the date hereof;
WHEREAS, the Issuer, Citibank, as Indenture Trustee, as calculation agent (in such capacity, the “Calculation Agent”), as paying agent (in such capacity, the “Paying Agent”) and as securities intermediary (in such capacity, the “Securities Intermediary”), PLS, as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), Credit Suisse First Boston Mortgage Capital LLC, as administrative agent (in such capacity, the “Administrative Agent”) and the Credit Manager are parties to that certain Third Amended and Restated Base Indenture, dated as of April 1, 2020 (as amended by Amendment No. 1, dated as of June 8, 2022, Amendment No. 2, dated as of June 9, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), as supplemented by (i) the Amended and Restated Series 2016-MSRVF1 Indenture Supplement, dated as of December 19, 2016 (as amended by Amendment No. 1, dated as of August 10, 2018, Amendment No. 2, dated as of April 24, 2020, Amendment No. 3, dated as of August 25, 2020, Amendment No. 4, dated as of April 1, 2021, Amendment No. 5, dated as of July 30, 2021, Amendment No. 6, February 10, 2022, Amendment No. 7, dated as of June 8, 2022, and as may
be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Indenture Supplement”), by and among the Issuer, the Indenture Trustee, the Calculation Agent, the Paying Agent, the Securities Intermediary, the Administrator, the Servicer and the Administrative Agent, (ii) the Series 2020-SPIADVF1 Indenture Supplement, dated as of July 30, 2021 (as amended by Amendment No. 1, dated as of August 25, 2020, Amendment No. 2, dated as of April 1, 2021, Amendment No. 3, dated as of July 30, 2021, Amendment No. 4, dated as of February 10, 2022, Amendment No. 5, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Indenture Supplement), by and among the Issuer, the Indenture Trustee, the Calculation Agent, the Paying Agent, the Securities Intermediary, the Administrator, the Servicer and the Administrative Agent, (iii) the Amended and Restated Series 2016-MBSADV1 Indenture Supplement, dated as of July 30, 2021 (as amended by Amendment No. 1, dated as of February 10, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MBSADV1 Indenture Supplement”), by and among the Issuer, the Indenture Trustee, the Calculation Agent, the Paying Agent, the Securities Intermediary, the Administrator, the Servicer and the Administrative Agent, and (iv) the Series 2021-MBSADV1 Indenture Supplement, dated as of July 30, 2021 (as amended by Amendment No. 1, dated as of February 10, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2021-MBSADV1 Indenture Supplement”), by and among the Issuer, the Indenture Trustee, the Calculation Agent, the Paying Agent, the Securities Intermediary, the Administrator, the Servicer and the Administrative Agent;
WHEREAS, there are currently four (4) Outstanding Series of Notes, (i) the Series 2016-MSRVF1 Note (the “Series 2016-MSRVF1 Note”), which was issued to PLS pursuant to the terms of that certain Series 2016-MSRVF1 Indenture Supplement, and which was financed by CSCIB and Citi Buyer under the Amended and Restated Series 2016-MSRVF1 Master Repurchase Agreement, dated as of July 30, 2021, by and among the Administrative Agent, CSCIB, as a buyer, Citi Buyer, as a buyer, and PLS, as seller (as amended by Amendment No. 1, dated as of June 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2016-MSRVF1 Repurchase Agreement”), pursuant to which PLS sold all of rights, title and interest in the Series 2016-MSRVF1 Note to CSCIB and Citi Buyer, (ii) the Series 2020-SPIADVF1 Note (the “Series 2020-SPIADVF1 Note”), which was issued to PLS pursuant to the terms of that certain Series 2020-SPIADVF1 Indenture Supplement, and which was financed by CSCIB and Citi Buyer under the Amended and Restated Series 2020-SPIADVF1 Repurchase Agreement, dated as of July 30, 2021, by and among the Administrative Agent, PLS, CSCIB and Citi Buyer (as amended by Amendment No. 1, dated as of June 8, 2022, Amendment No. 2, dated as of June 9, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2020-SPIADVF1 Repurchase Agreement”), (iii) the Series 2016-MBSADV1 Notes (the “Series 2016-MBSADV1 Note”), which was issued pursuant to that certain Series 2016-MBSADV1 Indenture Supplement and purchased by CSCIB under the Series 2016-MBSADV1 Note Purchase Agreement, dated as of December 19, 2016 (the “Series 2016-MBSADV1 Note Purchase Agreement”), by and among the Issuer, the administrative Agent, and CSCIB, as purchaser, and (iv) the Series 20201-MBSADV1 Notes (the “Series 2021-MBSADV1 Note”), which was issued pursuant to that certain Series 2021-MBSADV1 Indenture Supplement and purchased by Citi Buyer under the Series 2021-MBSADV1 Note Purchase Agreement, dated as of July 30, 2021 (the “Series 2021-
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MBSADV1 Note Purchase Agreement”), by and among the Issuer, the Administrative Agent and Citi Buyer, as purchaser;
WHEREAS, pursuant to Section 10.15 of the PC Repurchase Agreement, any provision providing for the exercise of any action or discretion by Buyer shall be exercised by the Indenture Trustee at the written direction of either 100% of the VFN Noteholders or the Majority Noteholders of all Outstanding Notes;
WHEREAS, pursuant to Section 10.3(e)(iii) of the Base Indenture, so long as any Note is Outstanding and until all obligations have been paid in full, PLS shall not consent to any amendment, modification or waiver of any term or condition of any Transaction Document, without the prior written consent of the Administrative Agent; and
WHEREAS, (i) pursuant to the Series 2016-MSRVF1 Indenture Supplement, with respect to the Series 2016-MSRVF1 Note, any Action provided by the Base Indenture or the Series 2016-MSRVF1 Indenture Supplement to be given or taken by a Noteholder shall be taken by the Administrative Agent as noteholder of Series 2016-MSRVF1 Note on behalf of VFN Buyers of the Series 2016-MSRVF1 Note under the Series 2016-MSRVF1 Repurchase Agreement, (ii) pursuant to the Series 2020-SPIADVF1 Indenture Supplement, with respect to the Series 2020-SPIADVF1 Note, any Action provided by the Base Indenture or the Series 2020-SPIADVF1 Indenture Supplement to be given or taken by a Noteholder shall be taken by the Administrative Agent as noteholder of Series 2020-SPIADVF1 Note on behalf of VFN Buyers of the Series 2020-SPIADVF1 Note under the Series 2020-SPIADVF1 Repurchase Agreement, (iii) pursuant to the terms of the Series 2016-MBSADV1 Note Purchase Agreement, CSCIB is the purchaser of the Series 2016-MBSADV1 Note, and (iv) pursuant to the terms of the Series 2021-MBSADV1 Note Purchase Agreement, Citi Buyer is the purchaser of the Series 2021-MBSADV1 Note Purchase Agreement and therefore, the Administrative Agent, as noteholder of 100% of Series 2016-MSRVF1 Note and Series 2020-SPIADVF1 Note on behalf of the VFN Buyers, CSCIB, as noteholder of Series 2016-MBSADV1 Notes, and Citi Buyer, as noteholder of Series 2021-MBSADV1 Notes, are collectively 100% of the VFN Noteholders.
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 is hereby acknowledged, the Seller, the Buyer and the Guarantor agree as follows:
SECTION 1. Amendments to PC Repurchase Agreement.
(i)Section 1.01 of the PC Repurchase Agreement is hereby amended by deleting the definition of “Required Reserve Amount” in its entirety and replacing it with the following:
“Required Reserve Amount” means, with respect to any MRA Payment Date, the amounts estimated to be due and owing by Seller pursuant Sections 2.03, 2.04 or 2.05; provided, that with respect to any Advance Reimbursement Amounts and Section 2.03, so long as (a) no Event of Default has occurred hereunder or (b) no Event of Default (as defined in the Series 2016-MSRVF1 Repurchase Agreement or Series 2020 SPIADVF1 Repurchase Agreement, as applicable) has occurred under the Series 2016-MSR VF1
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Repurchase Agreement or the Series 2020-SPIADVF1 Repurchase Agreement, such amount shall be:
(i)with respect to any MBS Advance Reimbursement Amounts, 100% of all MBS Advance Reimbursement Amounts until the Advance Reimbursement Balance with respect to such amounts has been reduced to zero; and
(ii)with respect to Servicing Advance Reimbursement Amount, 100% of all Servicing Advance Reimbursement Amounts until the Advance Reimbursement Balance with respect to such amounts has been reduced to zero;
provided, however, with respect to clause (i) and (ii) above, such amount will be 0% of MBS Advance Reimbursement Amounts and Servicing Advance Reimbursement Amounts so long as the outstanding “Purchase Price” as defined in the Series 2020-SPIADVF1 Repurchase Agreement is $0 and Seller has provided an electronic notice to the Administrative Agent (the “SPIA Deposit Suspension Notice”) that it has no current intention to access funds under the Series 2020-SPIADVF1 Repurchase Agreement, and thereafter the Seller shall not be required to cause any MBS Advance Reimbursement Amounts or Servicing Advance Reimbursement Amounts to be deposited into the Dedicated Account pursuant to this definition or Section 6.12; provided, further, that if the Seller submits an electronic notice to the Administrative Agent of its intent to access funds under the Series 2020-SPIADVF1 Repurchase Agreement (an “SPIA Deposit Reinstatement Notice”), upon consent of the Administrative Agent, Seller shall be required to deposit MBS Advance Reimbursement Amounts and Servicing Advance Reimbursement Amounts into the Dedicated Account in accordance with this definition and Section 6.12.
(ii)Section 1.01 of the PC Repurchase Agreement is hereby amended by adding the definitions of “SPIA Deposit Reinstatement Notice” and “SPIA Deposit Suspension Notice” in proper alphabetical order:
“SPIA Deposit Reinstatement Notice” has the meaning set forth in the definition of “Required Reserve Amount.”
“SPIA Deposit Suspension Notice” has the meaning set forth in the definition of “Required Reserve Amount.”
SECTION 2. Consent. Each of the Noteholder, the Indenture Trustee and the Administrative Agent hereby consent to this Amendment. The Administrative Agent and the VFN Buyers hereby certify that they, collectively, (i) hold 100% of the Variable Funding Notes, (ii) have the authority to deliver this certification and the directions included herein to the Indenture Trustee, and (iii) have not granted or assigned such power to any other person. The Indenture Trustee may conclusively rely upon this certification.
SECTION 3. Reaffirmation of Guaranty. The Guarantor hereby ratifies and affirms all of the terms, covenants, conditions and obligations of the Guaranty and acknowledges and agrees that the term “Obligations” as used in the Guaranty shall apply to all of the Obligations of Seller
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to Issuer under the PC Repurchase Agreement and the related Program Agreements, as amended hereby.
SECTION 4. Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon (i) the execution and delivery of this Amendment by all parties hereto and (ii) the fulfilment of the conditions required by Section 4 of Amendment No. 2 to the Base Indenture.
SECTION 5. No Default; Representations and Warranties. To induce Buyer to provide the amendments set forth herein, Seller hereby represents, warrants and covenants that:
(a)no Event of Default has occurred and is continuing on the date hereof; and
(b)Seller’s representations and warranties contained in the PC Repurchase Agreement are true and correct in all material respects and such representations and warranties are remade as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case, they were true, correct and complete in all material respects on and as of such earlier date.
SECTION 6. Single Agreement. Except as expressly amended and modified by this Amendment, all of the terms and conditions of the PC Repurchase Agreement remain in full force and effect and are hereby reaffirmed.
SECTION 7. Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
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. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF, WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 9. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by
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facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Amendment. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention, including DocuSign.
SECTION 10.Owner Trustee Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Amendment is executed and delivered by Wilmington Savings Fund Society, FSB (“WSFS”), not individually or personally but solely in its capacity as Owner Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it thereunder, (b) each of the representations, warranties, undertakings, obligations and agreements herein made on the part of the Issuer is made and intended not as personal representations, warranties, undertakings, obligations and agreements by WSFS but is made and intended for the purpose of binding only, and is binding only on, the Issuer, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant or obligation of the Issuer, either expressed or implied, contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has not made and will not make any investigation as to the accuracy or completeness of any representations or warranties made by the Issuer in this Amendment or any related document delivered pursuant hereto and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness, indemnities or expenses of the Issuer, or be liable for the performance, breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer or by WSFS as Owner Trustee on behalf of the Issuer under this Amendment or any other related documents, as to all of which recourse shall be had solely to the assets of the Issuer.
[Signatures appear on the following page]
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IN WITNESS WHEREOF, Buyer, Seller and Guarantor have caused their names to be signed to this Amendment No. 1 to the PC Repurchase Agreement by their respective officers thereunto duly authorized as to the date first above written.
| PNMAC GMSR ISSUER TRUST, as Buyer | |
| | |
| By: Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as Owner Trustee | |
| | |
| By: | /s/ Mary Emily Pagano |
| Name: | Mary Emily Pagano |
| Title: | Assistant Vice President |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
| PENNYMAC LOAN SERVICES, LLC, as Seller | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
| PRIVATE NATIONAL MORTGAGE ACCEPTANCE COMPANY, LLC, as Guarantor | |
| | |
| By: | /s/ Pamela Marsh |
| Name: | Pamela Marsh |
| Title: | Senior Managing Director and Treasurer |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
| CONSENTED AND AGREED TO BY: | |
| | |
| CITIBANK, N.A., as Indenture Trustee and not in its individual capacity | |
| | |
| By: | /s/ Valerie Delgado |
| Name: | Valerie Delgado |
| Title: | Senior Trust Officer |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
| CONSENTED AND AGREED TO BY: | |
| | |
| CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a VFN Buyer and noteholder of Series 2016-MBSADV1 Note | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Authorized Signatory |
| | |
| | |
| By: | /s/ Margaret D. Dellafera |
| Name: | Margaret D. Dellafera |
| Title: | Authorized Signatory |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
| CONSENTED AND AGREED TO BY: | |
| | |
| CITIBANK, N.A., as a VFN Buyer and as noteholder of Series 2021-MBSADV1 Note | |
| | |
| By: | /s/ Arunthathi Theivakumaran |
| Name: | Arunthathi Theivakumaran |
| Title: | Vice President |
| | Citibank, N.A. |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
| CONSENTED AND AGREED TO BY: | |
| | |
| CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, | |
| | |
| By: | /s/ Dominic Obaditch |
| Name: | Dominic Obaditch |
| Title: | Vice President |
[CS-PLS – GMSR - Amendment No. 1 to A&R PC Repurchase Agreement]
Exhibit 31.1
CERTIFICATION
I, David A. Spector, 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. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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 5, 2022 | | ||||
| | ||||
By: | /s/ David A. Spector | | | ||
| David A. Spector | | |||
| Chairman and Chief Executive Officer (Principal Executive Officer) | | |||
Exhibit 31.2
CERTIFICATION
I, Daniel S. Perotti, 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)) 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. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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 5, 2022 | | ||||
| | ||||
By: | /s/ Daniel S. Perotti | | | ||
| Daniel S. Perotti | | |||
| Senior Managing Director and Chief Financial Officer (Principal 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, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Spector, 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. |
Date: August 5, 2022 | | ||||
| | ||||
By: | /s/ David A. Spector | | | ||
| David A. Spector | | |||
| Chairman and Chief Executive Officer (Principal Executive Officer) | | |||
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, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel S. Perotti, 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. |
Date: August 5, 2022 | | ||
| | ||
By: | /s/ Daniel S. Perotti | | |
| Daniel S. Perotti | | |
| Senior Managing Director and Chief Financial Officer (Principal Financial Officer) | | |
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.