UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
Or
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o |
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: 001-34416
PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)
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Maryland |
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27-0186273 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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3043 Townsgate Road, Westlake Village, California |
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91361 |
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(Address of principal executive offices) |
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(Zip Code) |
(818) 224-7442
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer |
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x |
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Accelerated filer |
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o |
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Non-accelerated filer |
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o (Do not check if a smaller reporting company) |
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Smaller reporting company |
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o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class |
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Outstanding at August 4, 2016 |
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Common Shares of Beneficial Interest, $0.01 par value |
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67,655,441 |
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
June 30, 2016
TABLE OF CONTENTS
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Item 1. |
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10 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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56 |
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57 |
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59 |
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81 |
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87 |
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87 |
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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations |
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90 |
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96 |
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Item 3. |
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98 |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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99 |
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Item 3. |
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99 |
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Item 4. |
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Item 5. |
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99 |
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Item 6. |
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100 |
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SPECIAL NOTE REGARDING FO RWARD-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:
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projections of our revenues, income, earnings per share, capital structure or other financial items; |
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· |
descriptions of our plans or objectives for future operations, products or services; |
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· |
forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and |
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· |
descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues. |
Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
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changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks; |
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· |
volatility in our industry, the debt or equity markets, the general economy or the real estate finance and real estate markets specifically, whether the result of market events or otherwise; |
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events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts; |
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changes in general business, economic, market, employment and political conditions, or in consumer confidence and spending habits from those expected; |
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declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market; |
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the availability of, and level of competition for, attractive risk-adjusted investment opportunities in mortgage loans and mortgage-related assets that satisfy our investment objectives; |
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the inherent difficulty in winning bids to acquire mortgage loans, and our success in doing so; |
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the concentration of credit risks to which we are exposed; |
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the degree and nature of our competition; |
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our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities; |
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changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates; |
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the availability, terms and deployment of short-term and long-term capital; |
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the adequacy of our cash reserves and working capital; |
1
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our ability to maintain the desire d relationship between our financing and the interest rates and maturities of our assets; |
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the timing and amount of cash flows, if any, from our investments; |
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unanticipated increases or volatility in financing and other costs, including a rise in interest rates; |
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the performance, financial condition and liquidity of borrowers; |
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the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards; |
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incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties; |
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our indemnification and repurchase obligations in connection with mortgage loans we purchase and later sell or securitize; |
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the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest; |
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increased rates of delinquency, default and/or decreased recovery rates on our investments; |
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our ability to foreclose on our investments in a timely manner or at all; |
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increased prepayments of the mortgages and other loans underlying our mortgage-backed securities (“MBS”) or relating to our mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) and other investments; |
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the degree to which our hedging strategies may or may not protect us from interest rate volatility; |
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the effect of the accuracy of or changes in the estimates we make about uncertainties, contingencies and asset and liability valuations when measuring and reporting upon our financial condition and results of operations; |
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our failure to maintain appropriate internal controls over financial reporting; |
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technologies for loans and our ability to mitigate security risks and cyber intrusions; |
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our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business; |
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our ability to detect misconduct and fraud; |
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our ability to comply with various federal, state and local laws and regulations that govern our business; |
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developments in the secondary markets for our mortgage loan products; |
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legislative and regulatory changes that impact the mortgage loan industry or housing market; |
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changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as the Government National Mortgage Association (“Ginnie Mae”), the Federal Housing Administration (the “FHA”) or the Veterans Administration (the “VA”), the U.S. Department of Agriculture (“USDA”), or government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies”), or such changes that increase the cost of doing business with such entities; |
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the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations and regulatory agencies, and any other legislative and regulatory changes that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies; |
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the Consumer Financial Protection Bureau (“CFPB”) and its issued and future rules and the enforcement thereof; |
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changes in government support of homeownership; |
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changes in government or government-sponsored home affordability programs; |
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limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 (the “Investment Company Act”) and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries (“TRSs”) for U.S. federal income tax purposes, as applicable, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules; |
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changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of REITs, or the exclusions from registration as an investment company); |
2
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the effect of public opinion on our reputation; |
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the occurrence of natural disasters or other events or circumstances that could impact our operations; and |
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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.
3
PART I. FINANCI AL INFORMATION
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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June 30, |
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December 31, |
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2016 |
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2015 |
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(in thousands, except share amounts) |
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ASSETS |
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Cash |
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$ |
95,705 |
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$ |
58,108 |
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Short-term investments |
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16,877 |
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41,865 |
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Mortgage-backed securities at fair value pledged to creditors |
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531,612 |
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322,473 |
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Mortgage loans acquired for sale at fair value (includes $1,441,956 and $1,268,455 pledged to creditors, respectively) |
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1,461,029 |
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1,283,795 |
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Mortgage loans at fair value (includes $2,016,889 and $2,201,513 pledged to creditors, respectively) |
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2,035,997 |
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2,555,788 |
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Excess servicing spread purchased from PennyMac Financial Services, Inc. at fair value pledged to secure note payable to PennyMac Financial Services, Inc. |
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294,551 |
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412,425 |
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Derivative assets |
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35,007 |
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10,085 |
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Real estate acquired in settlement of loans (includes $216,143 and $283,343 pledged to creditors, respectively) |
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299,458 |
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341,846 |
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Real estate held for investment |
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20,662 |
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8,796 |
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Mortgage servicing rights pledged to creditors (includes $57,977 and $66,584 carried at fair value, respectively) |
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471,458 |
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459,741 |
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Servicing advances |
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74,090 |
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88,010 |
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Deposits securing credit risk transfer agreements (includes $292,632 pledged to creditors at June 30, 2016) |
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338,812 |
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147,000 |
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Due from PennyMac Financial Services, Inc. |
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12,375 |
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8,806 |
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Other |
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79,929 |
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|
88,186 |
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Total assets |
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$ |
5,767,562 |
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$ |
5,826,924 |
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LIABILITIES |
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Assets sold under agreements to repurchase |
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$ |
3,275,691 |
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$ |
3,128,780 |
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Mortgage loan participation and sale agreements |
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|
96,335 |
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— |
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Federal Home Loan Bank advances |
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— |
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183,000 |
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Notes payable |
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|
163,976 |
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236,015 |
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Asset-backed financing of a variable interest entity at fair value |
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325,939 |
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247,690 |
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Exchangeable senior notes |
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245,564 |
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|
245,054 |
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Note payable to PennyMac Financial Services, Inc. |
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150,000 |
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150,000 |
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Interest-only security payable at fair value |
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|
1,663 |
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— |
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Derivative liabilities |
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3,894 |
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|
3,157 |
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Accounts payable and accrued liabilities |
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|
75,587 |
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|
64,474 |
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Due to PennyMac Financial Services, Inc. |
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22,054 |
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18,965 |
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Income taxes payable |
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|
26,774 |
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33,505 |
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Liability for losses under representations and warranties |
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19,258 |
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20,171 |
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Total liabilities |
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4,406,735 |
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4,330,811 |
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SHAREHOLDERS’ EQUITY |
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Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 67,723,293 and 73,767,435 common shares |
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|
677 |
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|
738 |
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Additional paid-in capital |
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1,389,962 |
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1,469,722 |
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(Accumulated deficit) retained earnings |
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(29,812 |
) |
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25,653 |
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Total shareholders’ equity |
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1,360,827 |
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|
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1,496,113 |
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Total liabilities and shareholders’ equity |
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$ |
5,767,562 |
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$ |
5,826,924 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and liabilities (the assets of each VIE can only be used to settle liabilities of that VIE):
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June 30, |
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December 31, |
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2016 |
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2015 |
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(in thousands) |
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ASSETS |
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Mortgage loans at fair value |
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$ |
427,091 |
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$ |
455,394 |
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Derivative assets |
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— |
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|
|
593 |
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Deposits securing credit risk transfer agreements |
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|
338,812 |
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|
147,000 |
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Other assets - interest receivable |
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|
1,322 |
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|
|
1,447 |
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$ |
767,225 |
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$ |
604,434 |
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LIABILITIES |
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Asset-backed financing at fair value |
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$ |
325,939 |
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$ |
247,690 |
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Interest-only security payable at fair value |
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|
1,663 |
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|
|
— |
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Derivative liabilities |
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|
199 |
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|
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— |
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Accounts payable and accrued liabilities—interest payable |
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|
925 |
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|
724 |
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$ |
328,726 |
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$ |
248,414 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Quarter ended June 30, |
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Six months ended June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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(in thousands, except per share amounts) |
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Net investment income |
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Interest income: |
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From nonaffiliates |
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$ |
46,053 |
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$ |
39,515 |
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$ |
93,404 |
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$ |
76,448 |
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From PennyMac Financial Services, Inc. |
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|
5,713 |
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|
|
5,818 |
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|
12,728 |
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|
9,570 |
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|
|
|
|
51,766 |
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|
|
45,333 |
|
|
|
106,132 |
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|
86,018 |
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Interest expense: |
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To nonaffiliates |
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34,371 |
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|
|
29,206 |
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|
64,773 |
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|
|
54,952 |
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To PennyMac Financial Services, Inc. |
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|
2,222 |
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|
|
533 |
|
|
|
3,824 |
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|
533 |
|
|
|
|
|
36,593 |
|
|
|
29,739 |
|
|
|
68,597 |
|
|
|
55,485 |
|
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Net interest income |
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|
15,173 |
|
|
|
15,594 |
|
|
|
37,535 |
|
|
|
30,533 |
|
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Net gain on mortgage loans acquired for sale |
|
|
24,226 |
|
|
|
11,175 |
|
|
|
39,275 |
|
|
|
21,335 |
|
|
Mortgage loan origination fees |
|
|
8,519 |
|
|
|
7,279 |
|
|
|
15,420 |
|
|
|
12,566 |
|
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Net (loss) gain on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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From nonaffiliates |
|
|
337 |
|
|
|
14,025 |
|
|
|
14,066 |
|
|
|
23,719 |
|
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From PennyMac Financial Services, Inc. |
|
|
(15,824 |
) |
|
|
8,589 |
|
|
|
(33,451 |
) |
|
|
2,342 |
|
|
|
|
|
(15,487 |
) |
|
|
22,614 |
|
|
|
(19,385 |
) |
|
|
26,061 |
|
|
Net mortgage loan servicing fees |
|
|
15,691 |
|
|
|
13,017 |
|
|
|
31,245 |
|
|
|
21,019 |
|
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Results of real estate acquired in settlement of loans |
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(2,565 |
) |
|
|
(1,806 |
) |
|
|
(8,601 |
) |
|
|
(7,638 |
) |
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Other |
|
|
2,061 |
|
|
|
1,892 |
|
|
|
4,345 |
|
|
|
3,546 |
|
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Net investment income |
|
|
47,618 |
|
|
|
69,765 |
|
|
|
99,834 |
|
|
|
107,422 |
|
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Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earned by PennyMac Financial Services, Inc.: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment fees |
|
|
19,111 |
|
|
|
15,333 |
|
|
|
32,046 |
|
|
|
28,199 |
|
|
Mortgage loan servicing fees |
|
|
16,427 |
|
|
|
12,136 |
|
|
|
27,880 |
|
|
|
22,806 |
|
|
Management fees |
|
|
5,199 |
|
|
|
5,779 |
|
|
|
10,551 |
|
|
|
12,782 |
|
|
Mortgage loan collection and liquidation |
|
|
4,290 |
|
|
|
3,182 |
|
|
|
6,504 |
|
|
|
4,627 |
|
|
Professional services |
|
|
2,011 |
|
|
|
1,662 |
|
|
|
4,304 |
|
|
|
3,490 |
|
|
Compensation |
|
|
2,224 |
|
|
|
1,389 |
|
|
|
3,513 |
|
|
|
4,198 |
|
|
Other |
|
|
6,515 |
|
|
|
5,196 |
|
|
|
12,151 |
|
|
|
10,052 |
|
|
Total expenses |
|
|
55,777 |
|
|
|
44,677 |
|
|
|
96,949 |
|
|
|
86,154 |
|
|
(Loss) income before benefit from income taxes |
|
|
(8,159 |
) |
|
|
25,088 |
|
|
|
2,885 |
|
|
|
21,268 |
|
|
Benefit from income taxes |
|
|
(2,892 |
) |
|
|
(2,983 |
) |
|
|
(6,344 |
) |
|
|
(14,311 |
) |
|
Net (loss) income |
|
$ |
(5,267 |
) |
|
$ |
28,071 |
|
|
$ |
9,229 |
|
|
$ |
35,579 |
|
|
(Loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.08 |
) |
|
$ |
0.37 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
Diluted |
|
$ |
(0.08 |
) |
|
$ |
0.36 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
68,446 |
|
|
|
74,683 |
|
|
|
70,165 |
|
|
|
74,618 |
|
|
Diluted |
|
|
68,446 |
|
|
|
83,480 |
|
|
|
70,165 |
|
|
|
74,997 |
|
|
Dividends declared per share |
|
$ |
0.47 |
|
|
$ |
0.61 |
|
|
$ |
0.94 |
|
|
$ |
1.22 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
|
|
|
Common shares |
|
|
(Accumulated |
|
|
|
|
|
||||||||||
|
|
|
Number |
|
|
|
|
|
|
Additional |
|
|
deficit) |
|
|
|
|
|
|||
|
|
|
of |
|
|
Par |
|
|
paid-in |
|
|
Retained |
|
|
|
|
|
||||
|
|
|
shares |
|
|
value |
|
|
capital |
|
|
earnings |
|
|
Total |
|
|||||
|
|
|
(in thousands, except per share amounts) |
|
|||||||||||||||||
|
Balance at December 31, 2014 |
|
|
74,510 |
|
|
$ |
745 |
|
|
$ |
1,479,699 |
|
|
$ |
97,728 |
|
|
$ |
1,578,172 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35,579 |
|
|
|
35,579 |
|
|
Share-based compensation |
|
|
302 |
|
|
|
3 |
|
|
|
3,682 |
|
|
|
— |
|
|
|
3,685 |
|
|
Common share dividends, $1.22 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(92,147 |
) |
|
|
(92,147 |
) |
|
Issuance of common shares |
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
Balance at June 30, 2015 |
|
|
74,812 |
|
|
$ |
748 |
|
|
$ |
1,483,389 |
|
|
$ |
41,160 |
|
|
$ |
1,525,297 |
|
|
Balance at December 31, 2015 |
|
|
73,767 |
|
|
$ |
738 |
|
|
$ |
1,469,722 |
|
|
$ |
25,653 |
|
|
$ |
1,496,113 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,229 |
|
|
|
9,229 |
|
|
Share-based compensation |
|
|
298 |
|
|
|
3 |
|
|
|
3,010 |
|
|
|
— |
|
|
|
3,013 |
|
|
Common share dividends, $0.94 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(64,694 |
) |
|
|
(64,694 |
) |
|
Repurchase of common shares |
|
|
(6,342 |
) |
|
|
(64 |
) |
|
|
(82,770 |
) |
|
|
— |
|
|
|
(82,834 |
) |
|
Balance at June 30, 2016 |
|
|
67,723 |
|
|
$ |
677 |
|
|
$ |
1,389,962 |
|
|
$ |
(29,812 |
) |
|
$ |
1,360,827 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
PENNYM AC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Six months ended June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,229 |
|
|
$ |
35,579 |
|
|
Adjustments to reconcile net income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
Accrual of unearned discounts and amortization of premiums on mortgage-backed securities, mortgage loans at fair value, and asset-backed financing of a variable interest entity |
|
|
(1,086 |
) |
|
|
(119 |
) |
|
Capitalization of interest on mortgage loans at fair value |
|
|
(39,715 |
) |
|
|
(20,130 |
) |
|
Capitalization of interest on excess servicing spread |
|
|
(12,728 |
) |
|
|
(9,570 |
) |
|
Amortization of debt issuance costs |
|
|
6,472 |
|
|
|
5,401 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
(39,275 |
) |
|
|
(21,335 |
) |
|
Net loss (gain) on investments |
|
|
19,385 |
|
|
|
(26,061 |
) |
|
Change in fair value, amortization and impairment of mortgage servicing rights |
|
|
29,656 |
|
|
|
27,497 |
|
|
Results of real estate acquired in settlement of loans |
|
|
8,601 |
|
|
|
7,638 |
|
|
Share-based compensation expense |
|
|
3,013 |
|
|
|
3,685 |
|
|
Purchase of mortgage loans acquired for sale at fair value from nonaffiliates |
|
|
(25,461,808 |
) |
|
|
(20,820,811 |
) |
|
Purchase of mortgage loans acquired for sale at fair value from PennyMac Financial Services, Inc. |
|
|
(8,139 |
) |
|
|
(10,828 |
) |
|
Repurchase of mortgage loans subject to representation and warranties |
|
|
(6,654 |
) |
|
|
(12,972 |
) |
|
Sale and repayment of mortgage loans acquired for sale at fair value to nonaffiliates |
|
|
8,465,753 |
|
|
|
5,707,641 |
|
|
Sale of mortgage loans acquired for sale to PennyMac Financial Services, Inc. |
|
|
16,790,189 |
|
|
|
13,523,345 |
|
|
Decrease (increase) in servicing advances |
|
|
12,277 |
|
|
|
(8,870 |
) |
|
Increase in due from PennyMac Financial Services, Inc. |
|
|
(2,688 |
) |
|
|
(2,541 |
) |
|
Decrease (increase) in other assets |
|
|
39,774 |
|
|
|
(24,223 |
) |
|
Increase in accounts payable and accrued liabilities |
|
|
14,084 |
|
|
|
8,440 |
|
|
Increase (decrease) in due to PennyMac Financial Services, Inc. |
|
|
2,032 |
|
|
|
(7,469 |
) |
|
Decrease in income taxes payable |
|
|
(6,731 |
) |
|
|
(14,710 |
) |
|
Net cash used in operating activities |
|
|
(178,359 |
) |
|
|
(1,660,413 |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Net decrease in short-term investments |
|
|
24,988 |
|
|
|
107,483 |
|
|
Purchase of mortgage-backed securities at fair value |
|
|
(249,925 |
) |
|
|
(25,129 |
) |
|
Sale and repayment of mortgage-backed securities at fair value |
|
|
49,141 |
|
|
|
39,744 |
|
|
Purchase of mortgage loans at fair value |
|
|
— |
|
|
|
(241,981 |
) |
|
Sale and repayment of mortgage loans at fair value |
|
|
458,466 |
|
|
|
147,465 |
|
|
Purchase of excess servicing spread from PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
(187,287 |
) |
|
Repayment of excess servicing spread by PennyMac Financial Services, Inc. |
|
|
38,281 |
|
|
|
31,083 |
|
|
Sale of excess servicing spread to PennyMac Financial Services, Inc. |
|
|
59,045 |
|
|
|
— |
|
|
Net settlement of derivative financial instruments |
|
|
(2,793 |
) |
|
|
(10,554 |
) |
|
Sale of real estate acquired in settlement of loans |
|
|
135,573 |
|
|
|
128,097 |
|
|
Purchase of mortgage servicing rights |
|
|
(2,602 |
) |
|
|
— |
|
|
Sale of mortgage servicing rights |
|
|
106 |
|
|
|
376 |
|
|
Deposit of cash securing credit risk transfer agreements |
|
|
(192,737 |
) |
|
|
— |
|
|
Distribution from credit risk transfer agreements |
|
|
7,320 |
|
|
|
— |
|
|
Increase in margin deposits and restricted cash |
|
|
(16,769 |
) |
|
|
(36,003 |
) |
|
Purchase of Federal Home Loan Bank capital stock |
|
|
(225 |
) |
|
|
— |
|
|
Redemption of Federal Home Loan Bank capital stock |
|
|
7,320 |
|
|
|
— |
|
|
Net cash provided by (used in) investing activities |
|
|
315,189 |
|
|
|
(46,706 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Six months ended June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
|
27,426,511 |
|
|
|
22,834,050 |
|
|
Repurchase of assets sold under agreements to repurchase |
|
|
(27,279,985 |
) |
|
|
(22,062,255 |
) |
|
Sale of mortgage loan participation certificates |
|
|
3,166,373 |
|
|
|
2,440,045 |
|
|
Repayment of mortgage loan participation certificates |
|
|
(3,070,038 |
) |
|
|
(2,389,653 |
) |
|
Issuance of credit risk transfer financing |
|
|
— |
|
|
|
649,120 |
|
|
Federal Home Loan Bank advances |
|
|
28,000 |
|
|
|
138,400 |
|
|
Repayment of Federal Home Loan Bank advances |
|
|
(211,000 |
) |
|
|
— |
|
|
Advance under notes payable |
|
|
69,282 |
|
|
|
192,352 |
|
|
Repayment under notes payable |
|
|
(141,386 |
) |
|
|
— |
|
|
Advance under notes payable to PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
71,072 |
|
|
Repayment under notes payable to PennyMac Financial Services, Inc. |
|
|
— |
|
|
|
(18,546 |
) |
|
Issuance of asset-backed financing of a variable interest entity at fair value |
|
|
99,499 |
|
|
|
— |
|
|
Repayment of asset-backed financing of a variable interest entity at fair value |
|
|
(30,479 |
) |
|
|
(11,331 |
) |
|
Payment of debt issuance costs |
|
|
(5,512 |
) |
|
|
(5,176 |
) |
|
Issuance of common shares |
|
|
— |
|
|
|
8 |
|
|
Repurchase of common shares |
|
|
(82,834 |
) |
|
|
— |
|
|
Payment of contingent underwriting fees payable |
|
|
— |
|
|
|
(688 |
) |
|
Payment of dividends |
|
|
(67,664 |
) |
|
|
(91,967 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(99,233 |
) |
|
|
1,745,431 |
|
|
Net increase in cash |
|
|
37,597 |
|
|
|
38,312 |
|
|
Cash at beginning of period |
|
|
58,108 |
|
|
|
76,386 |
|
|
Cash at end of period |
|
$ |
95,705 |
|
|
$ |
114,698 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization and Basis of Presentation
PennyMac Mortgage Investment Trust (“PMT” or the “Company”) was organized in Maryland on May 18, 2009, and commenced operations on August 4, 2009, when it completed its initial offerings of common shares of beneficial interest (“common shares”). The Company is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests primarily in residential mortgage-related assets.
The Company operates in two segments, correspondent production and investment activities:
|
|
· |
The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of mortgage-backed securities (“MBS”), using the services of PNMAC Capital Management, LLC (“PCM” or the “Manager”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”). |
Most of the mortgage loans the Company has acquired in its correspondent production activities have been eligible for sale to government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or through government agencies such as the Government National Mortgage Association (“Ginnie Mae”). Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”
|
|
· |
The investment activities segment represents the Company’s investments in mortgage-related assets, which include MBS, distressed mortgage loans, excess servicing spread (“ESS”), credit risk transfer agreements (“CRT Agreements”), real estate acquired in settlement of loans (“REO”), real estate held for investment, mortgage servicing rights (“MSRs”), and small balance commercial real estate loans. |
The Company believes that it qualifies, and has elected to be taxed, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with its taxable period ended on December 31, 2009. To maintain its tax status as a REIT, the Company has to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.
The Company conducts substantially all of its operations and makes substantially all of its investments through its subsidiary, PennyMac Operating Partnership, L.P. (the “Operating Partnership”), and the Operating Partnership’s subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner, and the Company is the sole limited partner, of the Operating Partnership.
The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. The interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations that may be anticipated for the full year. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires the Manager to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
Note 2—Concentration of Risks
As discussed in Note 1— Organization and Basis of Presentation above, PMT’s operations and investing activities are centered in residential mortgage-related assets, a substantial portion of which are distressed at acquisition. The mortgage loans at fair value not acquired for sale or held in a variable interest entity (“VIE”) are generally purchased at discounts reflecting their distressed state or perceived higher risk of default, as well as a greater likelihood of collateral documentation deficiencies.
10
Due to the nature of the Company’s investments, PMT is exposed, to a greater extent than traditional mortgage investors, to the risks that borrowers may be in economic distress and/or may have become unemployed, bankrupt or otherwise unable or unwilling to make payments when due, and to the effects of fluctuations in t he residential real estate market on the performance of its investments. Factors influencing these risks include, but are not limited to:
|
|
· |
changes in the overall economy, unemployment rates and residential real estate values in the markets where the properties securing the Company’s mortgage loans are located; |
|
|
· |
PCM’s ability to identify and PLS’ ability to execute optimal resolutions of certain mortgage loans; |
|
|
· |
the accuracy of valuation information obtained during the Company’s due diligence activities; |
|
|
· |
PCM’s ability to effectively model, and to develop appropriate model inputs that properly anticipate, future outcomes; |
|
|
· |
the level of government support for resolution of certain mortgage loans and the effect of current and future proposed and enacted legislative and regulatory changes on the Company’s ability to effect cures or resolutions to distressed mortgage loans; and |
|
|
· |
regulatory, judicial and legislative support of the foreclosure process, and the resulting effect on the Company’s ability to acquire and liquidate the real estate securing its portfolio of distressed mortgage loans in a timely manner or at all. |
Due to these uncertainties, there can be no assurance that risk management activities identified and executed on PMT’s behalf will prevent significant losses arising from the Company’s investments in real estate-related assets.
A substantial portion of the distressed mortgage loans and REO purchased by the Company in prior years has been acquired from or through one or more subsidiaries of Citigroup Inc., as presented in the following summary:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Mortgage loans at fair value |
|
$ |
616,018 |
|
|
$ |
855,691 |
|
|
REO |
|
|
60,009 |
|
|
|
88,088 |
|
|
|
|
$ |
676,027 |
|
|
$ |
943,779 |
|
|
Total carrying value of mortgage loans at fair value and REO |
|
$ |
2,335,455 |
|
|
$ |
2,897,634 |
|
Note 3—Transactions with Related Parties
Operating Activities
Correspondent Production Activities
Following is a summary of correspondent production activity between the Company and PLS:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Fulfillment fees earned by PLS |
|
$ |
19,111 |
|
|
$ |
15,333 |
|
|
$ |
32,046 |
|
|
$ |
28,199 |
|
|
Unpaid principal balance (“UPB”) of mortgage loans fulfilled by PLS |
|
$ |
5,174,020 |
|
|
$ |
3,579,078 |
|
|
$ |
8,433,383 |
|
|
$ |
6,469,210 |
|
|
Sourcing fees received from PLS included in Net gain on mortgage loans acquired for sale |
|
$ |
2,824 |
|
|
$ |
2,427 |
|
|
$ |
4,773 |
|
|
$ |
3,848 |
|
|
UPB of mortgage loans sold to PLS |
|
$ |
9,409,399 |
|
|
$ |
8,082,764 |
|
|
$ |
15,905,121 |
|
|
$ |
12,818,138 |
|
|
Purchases of mortgage loans acquired for sale at fair value from PLS |
|
$ |
3,424 |
|
|
$ |
2,423 |
|
|
$ |
8,139 |
|
|
$ |
10,828 |
|
|
Tax service fee paid to PLS included in Other expense |
|
$ |
1,464 |
|
|
$ |
1,113 |
|
|
$ |
2,471 |
|
|
$ |
2,002 |
|
|
Mortgage banking and warehouse services fees paid to PLS included in Mortgage loan servicing fees |
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
— |
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Mortgage loans included in Mortgage loans acquired for sale at fair value pending sale to PLS |
|
$ |
619,008 |
|
|
$ |
669,288 |
|
11
Mortgage Loan Servicing Activities
Following is a summary of mortgage loan servicing fees earned by PLS and MSR recapture income earned from PLS:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
$ |
79 |
|
|
$ |
42 |
|
|
$ |
135 |
|
|
$ |
68 |
|
|
Activity-based |
|
|
172 |
|
|
|
59 |
|
|
|
287 |
|
|
|
90 |
|
|
|
|
|
251 |
|
|
|
101 |
|
|
|
422 |
|
|
|
158 |
|
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
2,908 |
|
|
|
4,183 |
|
|
|
6,267 |
|
|
|
8,215 |
|
|
Activity-based |
|
|
8,518 |
|
|
|
3,093 |
|
|
|
11,967 |
|
|
|
5,987 |
|
|
|
|
|
11,426 |
|
|
|
7,276 |
|
|
|
18,234 |
|
|
|
14,202 |
|
|
Mortgage loans held in VIE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
51 |
|
|
|
27 |
|
|
|
92 |
|
|
|
57 |
|
|
Activity-based |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
51 |
|
|
|
27 |
|
|
|
92 |
|
|
|
57 |
|
|
MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
4,583 |
|
|
|
4,627 |
|
|
|
8,927 |
|
|
|
8,253 |
|
|
Activity-based |
|
|
116 |
|
|
|
105 |
|
|
|
205 |
|
|
|
136 |
|
|
|
|
|
4,699 |
|
|
|
4,732 |
|
|
|
9,132 |
|
|
|
8,389 |
|
|
|
|
$ |
16,427 |
|
|
$ |
12,136 |
|
|
$ |
27,880 |
|
|
$ |
22,806 |
|
|
MSR recapture income recognized included in Net mortgage loan servicing fees |
|
$ |
311 |
|
|
$ |
— |
|
|
$ |
440 |
|
|
$ |
— |
|
|
Average investment in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
1,422,945 |
|
|
$ |
1,014,883 |
|
|
$ |
1,170,720 |
|
|
$ |
887,660 |
|
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
|
$ |
1,791,429 |
|
|
$ |
2,295,807 |
|
|
$ |
1,925,605 |
|
|
$ |
2,303,080 |
|
|
Mortgage loans held in a VIE |
|
$ |
437,542 |
|
|
$ |
504,309 |
|
|
$ |
446,013 |
|
|
$ |
514,879 |
|
|
Average mortgage loan servicing portfolio |
|
$ |
45,647,524 |
|
|
$ |
35,742,835 |
|
|
$ |
44,531,795 |
|
|
$ |
35,215,677 |
|
Management Fees
Following is a summary of the base management and performance incentive fees payable to PCM recorded by the Company:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Base management |
|
$ |
5,199 |
|
|
$ |
5,709 |
|
|
$ |
10,551 |
|
|
$ |
11,439 |
|
|
Performance incentive |
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
1,343 |
|
|
|
|
$ |
5,199 |
|
|
$ |
5,779 |
|
|
$ |
10,551 |
|
|
$ |
12,782 |
|
12
Expense Reimbursement and Amounts Payable to and Receivable from PFSI
The Company reimburses PCM and its affiliates for other expenses, including common overhead expenses incurred on its behalf by PCM and its affiliates, in accordance with the terms of its management agreement as summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Reimbursement of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common overhead incurred by PCM and its affiliates (1) |
|
$ |
2,435 |
|
|
$ |
2,702 |
|
|
$ |
4,996 |
|
|
$ |
5,431 |
|
|
Expenses (reimbursements) incurred on the Company’s behalf |
|
|
(169 |
) |
|
|
83 |
|
|
|
(114 |
) |
|
|
462 |
|
|
|
|
$ |
2,266 |
|
|
$ |
2,785 |
|
|
$ |
4,882 |
|
|
$ |
5,893 |
|
|
Payments and settlements during the year (2) |
|
$ |
28,952 |
|
|
$ |
24,114 |
|
|
$ |
56,613 |
|
|
$ |
46,866 |
|
|
(1) |
For the quarter ended June 30, 2015, in accordance with the terms of the Company’s management agreement, PCM provided the Company a discretionary waiver of $700,000 of overhead expenses that otherwise would have been allocable to the Company. On December 15, 2015, the Operating Partnership amended its management agreement to provide that the overhead costs and expenses incurred by PFSI in any quarter and reimbursable by the Operating Partnership is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of the month preceding quarter end, divided by four. |
|
(2) |
Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PFSI for operating, investment and financing activities itemized in this Note. |
Amounts receivable and payable to PFSI are summarized below:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Receivable from PFSI: |
|
|
|
|
|
|
|
|
|
MSR recapture receivable |
|
$ |
605 |
|
|
$ |
781 |
|
|
Other |
|
|
11,770 |
|
|
|
8,025 |
|
|
|
|
$ |
12,375 |
|
|
$ |
8,806 |
|
|
Payable to PFSI: |
|
|
|
|
|
|
|
|
|
Servicing fees |
|
$ |
9,154 |
|
|
$ |
3,682 |
|
|
Management fees |
|
|
5,200 |
|
|
|
5,670 |
|
|
Correspondent production fees |
|
|
2,567 |
|
|
|
2,729 |
|
|
Interest on Note payable to PFSI |
|
|
1,042 |
|
|
|
412 |
|
|
Conditional Reimbursement |
|
|
900 |
|
|
|
900 |
|
|
Allocated expenses |
|
|
847 |
|
|
|
390 |
|
|
Fulfillment fees |
|
|
1,890 |
|
|
|
1,082 |
|
|
Expenses paid by PFSI on PMT’s behalf |
|
|
454 |
|
|
|
4,100 |
|
|
|
|
$ |
22,054 |
|
|
$ |
18,965 |
|
Investing Activities
On February 29, 2016, the Company and PLS terminated that certain master spread acquisition and MSR servicing agreement that the parties entered into effective February 1, 2013 (the “2/1/13 Spread Acquisition Agreement”) and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, PLS reacquired from the Company all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by PLS to the Company under the 2/1/13 Spread Acquisition Agreement and then subject to such 2/1/13 Spread Acquisition Agreement. On February 29, 2016, PLS also reacquired from the Company all of its right, title and interest in and to all of the Freddie Mac ESS previously sold to the Company by PLS. During the six months ended June 30, 2016, the amount of ESS sold by the Company to PLS under these reacquisitions was $59.0 million.
13
Following is a summary of investing activities between the Company and PFSI:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
ESS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
$ |
— |
|
|
$ |
140,875 |
|
|
$ |
— |
|
|
$ |
187,287 |
|
|
Received pursuant to a recapture agreement |
|
$ |
1,690 |
|
|
$ |
1,319 |
|
|
$ |
3,601 |
|
|
$ |
2,565 |
|
|
Repayments and sales |
|
$ |
17,400 |
|
|
$ |
18,352 |
|
|
$ |
97,326 |
|
|
$ |
31,083 |
|
|
Interest income |
|
$ |
5,713 |
|
|
$ |
5,818 |
|
|
$ |
12,728 |
|
|
$ |
9,570 |
|
|
Net loss included in Net (loss) gain on investments : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation changes |
|
$ |
(17,428 |
) |
|
$ |
7,133 |
|
|
$ |
(36,877 |
) |
|
$ |
(403 |
) |
|
Recapture income |
|
|
1,604 |
|
|
|
1,456 |
|
|
|
3,426 |
|
|
|
2,745 |
|
|
|
|
$ |
(15,824 |
) |
|
$ |
8,589 |
|
|
$ |
(33,451 |
) |
|
$ |
2,342 |
|
Financing Activities
PFSI held 75,000 of the Company’s common shares at both June 30, 2016 and December 31, 2015.
Note Payable to PLS
PLS is a party to a repurchase agreement between it and Credit Suisse First Boston Mortgage Capital LLC (“CSFB”) (the “MSR Repo”), pursuant to which PLS finances Ginnie Mae MSRs and servicing advance receivables and pledges to CSFB all of its rights and interests in any Ginnie Mae MSRs it owns or acquires, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and PLS.
In connection with the MSR Repo described above, the Company, through a wholly-owned subsidiary, entered into an underlying loan and security agreement with PLS, dated as of April 30, 2015, pursuant to which the Company may borrow up to $150 million from PLS for the purpose of financing its investment in ESS (the “Underlying LSA”). The principal amount of the borrowings under the Underlying LSA is based upon a percentage of the market value of the ESS pledged to PLS, subject to the $150 million sublimit described above. Pursuant to the Underlying LSA, the Company granted to PLS a security interest in all of its right, title and interest in, to and under the ESS pledged to secure the borrowings, and PLS, in turn, re-pledged such ESS to CSFB under the MSR Repo.
The Company agreed with PLS in connection with the Underlying LSA that the Company is required to repay PLS the principal amount of borrowings plus accrued interest to the date of such repayment, and PLS, in turn, is required to repay CSFB the corresponding amount under the MSR Repo. Interest accrues on the Company’s note relating to the Underlying LSA at a rate based on CSFB’s cost of funds under the MSR Repo. The Company was also required to pay PLS a fee for the structuring of the Underlying LSA in an amount equal to the portion of the corresponding fee paid by PLS to CSFB under the MSR Repo and allocable to the $150 million relating to the ESS financing. As of June 30, 2016 and December 31, 2015, the outstanding borrowings on the Underlying LSA totaled $150 million.
Conditional Reimbursement and Contingent Underwriting Fees
In connection with its initial public offering of common shares on August 4, 2009 (“IPO”), the Company conditionally agreed to reimburse PCM up to $2.9 million for underwriting fees paid to the IPO underwriters by PCM on the Company’s behalf (the “Conditional Reimbursement”). Also in connection with its IPO, the Company agreed to pay the IPO underwriters up to $5.9 million in contingent underwriting fees.
Following is a summary of financing activities between the Company and PFSI:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Note payable—Interest expense |
|
$ |
2,222 |
|
|
$ |
533 |
|
|
$ |
3,824 |
|
|
$ |
533 |
|
|
Conditional Reimbursements paid to PCM |
|
$ |
— |
|
|
$ |
73 |
|
|
$ |
— |
|
|
$ |
230 |
|
14
The Company grants restricted share units which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.
Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing net income, reduced by income attributable to the participating securities, by the weighted-average common shares outstanding during the period.
Diluted earnings per share is determined by dividing net income attributable to diluted shareholders, which adds back to net income the interest expense, net of applicable income taxes, on the Company’s exchangeable senior notes (the “Exchangeable Notes”), by the weighted-average common shares outstanding, assuming all potentially dilutive securities were issued. In periods in which the Company records a loss, potentially dilutive securities are excluded from the diluted loss per share calculation, as their effect on loss per share is anti-dilutive.
The following table summarizes the basic and diluted earnings per share calculations:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands except per share amounts) |
|
|||||||||||||
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(5,267 |
) |
|
$ |
28,071 |
|
|
$ |
9,229 |
|
|
$ |
35,579 |
|
|
Effect of participating securities—share-based compensation awards |
|
|
(307 |
) |
|
|
(438 |
) |
|
|
(718 |
) |
|
|
(1,015 |
) |
|
Net (loss) income attributable to common shareholders |
|
$ |
(5,574 |
) |
|
$ |
27,633 |
|
|
$ |
8,511 |
|
|
$ |
34,564 |
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders |
|
$ |
(5,574 |
) |
|
$ |
27,633 |
|
|
$ |
8,511 |
|
|
$ |
34,564 |
|
|
Effect of participating securities—share-based compensation awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest on Exchangeable Notes, net of income taxes |
|
|
— |
|
|
|
2,121 |
|
|
|
— |
|
|
|
— |
|
|
Net (loss) income attributable to diluted shareholders |
|
$ |
(5,574 |
) |
|
$ |
29,754 |
|
|
$ |
8,511 |
|
|
$ |
34,564 |
|
|
Weighted-average basic shares outstanding |
|
|
68,446 |
|
|
|
74,683 |
|
|
|
70,165 |
|
|
|
74,618 |
|
|
Potentially dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable under share-based compensation plan |
|
|
— |
|
|
|
330 |
|
|
|
— |
|
|
|
— |
|
|
Shares issuable pursuant to exchange of the Exchangeable Notes |
|
|
— |
|
|
|
8,467 |
|
|
|
— |
|
|
|
379 |
|
|
Diluted weighted-average number of shares outstanding |
|
|
68,446 |
|
|
|
83,480 |
|
|
|
70,165 |
|
|
|
74,997 |
|
|
Basic (loss) earnings per share |
|
$ |
(0.08 |
) |
|
$ |
0.37 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
Diluted (loss) earnings per share |
|
$ |
(0.08 |
) |
|
$ |
0.36 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
15
Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included or excluded that may differ in certain circumstances. The following table summarizes the common shares excluded from the diluted earnings per share calculation for the periods as inclusion of such shares would have been antidilutive:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Shares issuable under share-based compensation awards |
|
|
766 |
|
|
|
— |
|
|
|
766 |
|
|
|
— |
|
|
Shares issuable pursuant to exchange of the Exchangeable Notes |
|
|
8,467 |
|
|
|
— |
|
|
|
8,467 |
|
|
|
8,467 |
|
Note 5—Loan Sales and Variable Interest Entities
The Company is a variable interest holder in various special purpose entities that relate to its mortgage loan transfer and financing activities. These entities are classified as VIEs for accounting purposes. The Company has segregated its involvement with VIEs between those VIEs which the Company does not consolidate and those VIEs which the Company consolidates.
Unconsolidated VIEs with Continuing Involvement
The following table summarizes cash flows between the Company and transferees in transfers of mortgage loans that are accounted for as sales where the Company maintains continuing involvement with the mortgage loans, as well as UPB information at period end:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales |
|
$ |
5,231,974 |
|
|
$ |
3,063,397 |
|
|
$ |
8,465,753 |
|
|
$ |
5,707,641 |
|
|
Mortgage loan servicing fees received (1) |
|
$ |
29,179 |
|
|
$ |
22,738 |
|
|
$ |
56,755 |
|
|
$ |
44,641 |
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
UPB of mortgage loans outstanding |
|
$ |
47,087,431 |
|
|
$ |
42,300,338 |
|
|
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
30-89 days delinquent |
|
$ |
192,175 |
|
|
$ |
175,599 |
|
|
90 or more days delinquent: |
|
|
|
|
|
|
|
|
|
Not in foreclosure or bankruptcy |
|
|
39,377 |
|
|
|
38,669 |
|
|
In foreclosure or bankruptcy |
|
|
44,267 |
|
|
|
31,386 |
|
|
|
|
|
83,644 |
|
|
|
70,055 |
|
|
|
|
$ |
275,819 |
|
|
$ |
245,654 |
|
|
(1) |
Net of guarantee fees. |
Consolidated VIEs
Credit Risk Transfer Agreements
The Company, through its wholly-owned subsidiary, PennyMac Corp. (“PMC”), entered into CRT Agreements with Fannie Mae, pursuant to which PMC, through subsidiary trust entities, sells pools of mortgage loans into Fannie Mae-guaranteed securitizations while retaining a portion of the credit risk underlying such mortgage loans in exchange for a portion of the contractual guarantee fee normally charged by Fannie Mae. The mortgage loans subject to the CRT Agreements are transferred by PMC to subsidiary trust entities which sell the mortgage loans into Fannie Mae mortgage loan securitizations and issue the credit guarantees to Fannie Mae. Transfers of mortgage loans subject to CRT Agreements receive sale accounting treatment upon fulfillment of the criteria for sale recognition contained in the Transfers and Servicing topic of the FASB’s ASC.
The Manager has concluded that the Company’s subsidiary trust entities are VIEs and the Company is the primary beneficiary of the VIEs as it is the holder of the primary beneficial interests which absorb the variability of the trusts’ results of operations.
16
Consolidation of the VIEs results in the inclusion on the Company’s consolidated balance sheet of the cash pledged to fulfill the guarantee obligation and a credit derivative comprised of the fair values of the credit guarantees an d the Company’s right to the related guarantee fees. The pledged cash represents the Company’s maximum contractual exposure to claims under its credit guarantee, is the sole source of settlement of losses under the CRT Agreements and is included in Deposit s securing credit risk transfer agreements on the consolidated balance sheet. Gains and losses on net derivatives related to CRT Agreements, including realized gains received, are included in Net (loss) gain on investments in the consolidated statements of operations.
Following is a summary of the CRT Agreements:
|
|
|
Quarter Ended June 30, 2016 |
|
|
Six Months Ended June 30, 2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
During the period: |
|
|
|
|
|
|
|
|
|
UPB of mortgage loans transferred and sold under CRT Agreements |
|
$ |
3,162,746 |
|
|
$ |
5,084,744 |
|
|
Deposits of cash securing CRT Agreements |
|
$ |
126,031 |
|
|
$ |
192,737 |
|
|
Gains (losses) recognized on CRT Agreements included in Net (loss) gain on investments |
|
|
|
|
|
|
|
|
|
Realized |
|
$ |
3,859 |
|
|
$ |
6,395 |
|
|
Resulting from valuation changes |
|
|
3,905 |
|
|
|
(2,774 |
) |
|
|
|
$ |
7,764 |
|
|
$ |
3,621 |
|
|
Payments made to settle losses |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
UPB of mortgage loans subject to credit guarantee obligation |
|
$ |
8,976,961 |
|
|
$ |
4,546,265 |
|
|
Delinquency status (in UPB): |
|
|
|
|
|
|
|
|
|
Current—89 days delinquent |
|
$ |
8,976,093 |
|
|
$ |
4,546,265 |
|
|
90 or more days delinquent |
|
$ |
868 |
|
|
$ |
— |
|
|
Carrying value of CRT Agreements: |
|
|
|
|
|
|
|
|
|
Net derivative included in Derivative assets |
|
$ |
— |
|
|
$ |
593 |
|
|
Deposits securing credit risk transfer agreements |
|
$ |
338,812 |
|
|
$ |
147,000 |
|
|
Interest-only security payable at fair value |
|
$ |
1,663 |
|
|
$ |
— |
|
|
Net derivative included in Derivative liabilities |
|
$ |
199 |
|
|
$ |
— |
|
Jumbo Mortgage Loan Financing
On September 30, 2013, the Company completed a securitization transaction in which PMT Loan Trust 2013-J1, a VIE, issued $537.0 million in UPB of certificates backed by fixed-rate prime jumbo mortgage loans, at a 3.9% weighted yield. The Company retained $366.8 million in fair value of such certificates. During the year ended December 31, 2015 and six months ended June 30, 2016, the Company sold an additional $111.0 million and $100.6 million in UPB of those certificates, respectively, which reduced the fair value of the certificates retained by the Company to $101.2 million as of June 30, 2016.
The VIE is consolidated by the Company as the Manager determined that PMT is the primary beneficiary of the VIE as it had the power, through PLS, in its role as servicer of the mortgage loans, to direct the activities of the VIE that most significantly impact its economic performance and the retained subordinated and residual interest trust certificates expose the Company to losses that could potentially be significant to the VIE.
Note 6—Netting of Financial Instruments
The Company uses derivative financial instruments to manage exposure to interest rate risk created by its MBS, interest rate lock commitments (“IRLCs”), mortgage loans acquired for sale at fair value, mortgage loans at fair value held in VIE, ESS and MSRs. All derivative financial instruments are recorded on the consolidated balance sheets at fair value. The Company has elected to net derivative asset and liability positions, and cash collateral obtained (or posted) from (or to) its counterparties when subject to a legally enforceable master netting arrangement. The derivative financial instruments that are not subject to master netting arrangements are IRLCs and the net derivatives related to CRT Agreements. As of June 30, 2016 and December 31, 2015, the Company did not enter into reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.
17
Offsetting of Derivative Assets
Following is a summary of net derivative assets. As discussed above, all derivatives with the exception of IRLCs and CRT Agreements are subject to master netting arrangements.
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
|
|
Gross amounts of recognized assets |
|
|
Gross amounts offset in the consolidated balance sheet |
|
|
Net amounts of assets presented in the consolidated balance sheet |
|
|
Gross amounts of recognized assets |
|
|
Gross amounts offset in the consolidated balance sheet |
|
|
Net amounts of assets presented in the consolidated balance sheet |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
$ |
16,803 |
|
|
$ |
— |
|
|
$ |
16,803 |
|
|
$ |
4,983 |
|
|
$ |
— |
|
|
$ |
4,983 |
|
|
CRT Agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
593 |
|
|
|
— |
|
|
|
593 |
|
|
|
|
|
16,803 |
|
|
|
— |
|
|
|
16,803 |
|
|
|
5,576 |
|
|
|
— |
|
|
|
5,576 |
|
|
Subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS put options |
|
|
593 |
|
|
|
— |
|
|
|
593 |
|
|
|
93 |
|
|
|
— |
|
|
|
93 |
|
|
Forward purchase contracts |
|
|
35,768 |
|
|
|
— |
|
|
|
35,768 |
|
|
|
2,444 |
|
|
|
— |
|
|
|
2,444 |
|
|
Forward sale contracts |
|
|
43 |
|
|
|
— |
|
|
|
43 |
|
|
|
2,604 |
|
|
|
— |
|
|
|
2,604 |
|
|
Put options on interest rate futures |
|
|
453 |
|
|
|
— |
|
|
|
453 |
|
|
|
1,512 |
|
|
|
— |
|
|
|
1,512 |
|
|
Call options on interest rate futures |
|
|
3,379 |
|
|
|
— |
|
|
|
3,379 |
|
|
|
1,156 |
|
|
|
— |
|
|
|
1,156 |
|
|
Netting |
|
|
— |
|
|
|
(22,032 |
) |
|
|
(22,032 |
) |
|
|
— |
|
|
|
(3,300 |
) |
|
|
(3,300 |
) |
|
|
|
|
40,236 |
|
|
|
(22,032 |
) |
|
|
18,204 |
|
|
|
7,809 |
|
|
|
(3,300 |
) |
|
|
4,509 |
|
|
|
|
$ |
57,039 |
|
|
$ |
(22,032 |
) |
|
$ |
35,007 |
|
|
$ |
13,385 |
|
|
$ |
(3,300 |
) |
|
$ |
10,085 |
|
Derivative Assets and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
|
|
|
|
|
Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
||||||||||
|
|
|
Net amount of assets presented in the consolidated balance sheet |
|
|
Financial instruments |
|
|
Cash collateral received |
|
|
Net amount |
|
|
Net amount of assets presented in the consolidated balance sheet |
|
|
Financial instruments |
|
|
Cash collateral received |
|
|
Net amount |
|
||||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
|
Interest rate lock commitments |
|
$ |
16,803 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,803 |
|
|
$ |
4,983 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,983 |
|
|
Fannie Mae Capital Markets |
|
|
12,439 |
|
|
|
— |
|
|
|
— |
|
|
|
12,439 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Jefferies Group LLC |
|
|
3,015 |
|
|
|
— |
|
|
|
— |
|
|
|
3,015 |
|
|
|
541 |
|
|
|
— |
|
|
|
— |
|
|
|
541 |
|
|
RJ O’Brien & Associates, LLC |
|
|
867 |
|
|
|
— |
|
|
|
— |
|
|
|
867 |
|
|
|
1,672 |
|
|
|
— |
|
|
|
— |
|
|
|
1,672 |
|
|
Morgan Stanley Bank, N.A. |
|
|
863 |
|
|
|
— |
|
|
|
— |
|
|
|
863 |
|
|
|
464 |
|
|
|
— |
|
|
|
— |
|
|
|
464 |
|
|
Royal Bank of Canada |
|
|
397 |
|
|
|
— |
|
|
|
— |
|
|
|
397 |
|
|
|
400 |
|
|
|
— |
|
|
|
— |
|
|
|
400 |
|
|
Nomura Securities International, Inc. |
|
|
274 |
|
|
|
— |
|
|
|
— |
|
|
|
274 |
|
|
|
119 |
|
|
|
— |
|
|
|
— |
|
|
|
119 |
|
|
Barclays Capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
796 |
|
|
|
— |
|
|
|
— |
|
|
|
796 |
|
|
Ally Financial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
Other |
|
|
349 |
|
|
|
— |
|
|
|
— |
|
|
|
349 |
|
|
|
901 |
|
|
|
— |
|
|
|
— |
|
|
|
901 |
|
|
|
|
$ |
35,007 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
35,007 |
|
|
$ |
10,085 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,085 |
|
18
Offsetting of Derivative Liabilities and Financial Liabilities
Following is a summary of net derivative liabilities and assets sold under agreements to repurchase. As discussed above, all derivative liabilities with the exception of IRLCs and CRT Agreements are subject to master netting arrangements. Assets sold under agreements to repurchase do not qualify for setoff accounting.
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
|
|
Gross amounts of recognized liabilities |
|
|
Gross amounts offset in the consolidated balance sheet |
|
|
Net amounts of liabilities presented in the consolidated balance sheet |
|
|
Gross amounts of recognized liabilities |
|
|
Gross amounts offset in the consolidated balance sheet |
|
|
Net amounts of liabilities presented in the consolidated balance sheet |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Derivative liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
$ |
45 |
|
|
$ |
— |
|
|
$ |
45 |
|
|
$ |
337 |
|
|
$ |
— |
|
|
$ |
337 |
|
|
CRT Agreements |
|
|
199 |
|
|
|
— |
|
|
|
199 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
244 |
|
|
|
— |
|
|
|
244 |
|
|
|
337 |
|
|
|
— |
|
|
|
337 |
|
|
Subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
|
|
3,774 |
|
|
|
— |
|
|
|
3,774 |
|
|
Forward sales contracts |
|
|
35,466 |
|
|
|
— |
|
|
|
35,466 |
|
|
|
2,680 |
|
|
|
— |
|
|
|
2,680 |
|
|
Put options on interest rate futures |
|
|
79 |
|
|
|
— |
|
|
|
79 |
|
|
|
39 |
|
|
|
— |
|
|
|
39 |
|
|
Call options on interest rate futures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
305 |
|
|
|
— |
|
|
|
305 |
|
|
Netting |
|
|
— |
|
|
|
(31,914 |
) |
|
|
(31,914 |
) |
|
|
— |
|
|
|
(3,978 |
) |
|
|
(3,978 |
) |
|
|
|
|
35,564 |
|
|
|
(31,914 |
) |
|
|
3,650 |
|
|
|
6,798 |
|
|
|
(3,978 |
) |
|
|
2,820 |
|
|
|
|
|
35,808 |
|
|
|
(31,914 |
) |
|
|
3,894 |
|
|
|
7,135 |
|
|
|
(3,978 |
) |
|
|
3,157 |
|
|
Assets sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB |
|
|
3,276,854 |
|
|
|
— |
|
|
|
3,276,854 |
|
|
|
3,130,328 |
|
|
|
— |
|
|
|
3,130,328 |
|
|
Unamortized debt issuance costs |
|
|
(1,163 |
) |
|
|
— |
|
|
|
(1,163 |
) |
|
|
(1,548 |
) |
|
|
— |
|
|
|
(1,548 |
) |
|
|
|
|
3,275,691 |
|
|
|
— |
|
|
|
3,275,691 |
|
|
|
3,128,780 |
|
|
|
— |
|
|
|
3,128,780 |
|
|
|
|
$ |
3,311,499 |
|
|
$ |
(31,914 |
) |
|
$ |
3,279,585 |
|
|
$ |
3,135,915 |
|
|
$ |
(3,978 |
) |
|
$ |
3,131,937 |
|
19
Derivative Liabilities, Financ ial Liabilities and Collateral Pledged 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 qualifying for setoff accounting. All assets sold under agreements to repurchase represent sufficient collateral or exceed the liability amount recorded on the consolidated balance sheet.
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
|
|
|
|
|
Gross amounts not offset in the consolidated balance sheet |
|
|
|
|
|
||||||||||
|
|
|
Net amount of liabilities presented in the consolidated balance sheet |
|
|
Financial instruments |
|
|
Cash collateral pledged |
|
|
Net amount |
|
|
Net amount of liabilities presented in the consolidated balance sheet |
|
|
Financial instruments |
|
|
Cash collateral pledged |
|
|
Net amount |
|
||||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
|
Interest rate lock commitments |
|
$ |
45 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45 |
|
|
$ |
337 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
337 |
|
|
CRT Agreements |
|
|
199 |
|
|
|
— |
|
|
|
— |
|
|
|
199 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Credit Suisse First Boston Mortgage Capital LLC |
|
|
972,451 |
|
|
|
(972,003 |
) |
|
|
— |
|
|
|
448 |
|
|
|
893,947 |
|
|
|
(893,854 |
) |
|
|
— |
|
|
|
93 |
|
|
Bank of America, N.A. |
|
|
677,186 |
|
|
|
(676,971 |
) |
|
|
— |
|
|
|
215 |
|
|
|
538,755 |
|
|
|
(538,515 |
) |
|
|
— |
|
|
|
240 |
|
|
Citibank |
|
|
559,029 |
|
|
|
(558,346 |
) |
|
|
— |
|
|
|
683 |
|
|
|
817,089 |
|
|
|
(816,699 |
) |
|
|
— |
|
|
|
390 |
|
|
JPMorgan Chase & Co. |
|
|
488,624 |
|
|
|
(488,624 |
) |
|
|
— |
|
|
|
— |
|
|
|
467,427 |
|
|
|
(467,145 |
) |
|
|
— |
|
|
|
282 |
|
|
Morgan Stanley Bank, N.A. |
|
|
208,488 |
|
|
|
(208,488 |
) |
|
|
— |
|
|
|
— |
|
|
|
214,086 |
|
|
|
(214,086 |
) |
|
|
— |
|
|
|
— |
|
|
Daiwa Capital Markets |
|
|
207,908 |
|
|
|
(207,908 |
) |
|
|
— |
|
|
|
— |
|
|
|
165,480 |
|
|
|
(165,480 |
) |
|
|
— |
|
|
|
— |
|
|
Wells Fargo, N.A. |
|
|
66,458 |
|
|
|
(66,384 |
) |
|
|
— |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Capital |
|
|
50,528 |
|
|
|
(50,528 |
) |
|
|
— |
|
|
|
— |
|
|
|
24,346 |
|
|
|
(24,346 |
) |
|
|
— |
|
|
|
— |
|
|
BNP Paribas |
|
|
47,602 |
|
|
|
(47,602 |
) |
|
|
— |
|
|
|
— |
|
|
|
10,203 |
|
|
|
(10,203 |
) |
|
|
— |
|
|
|
— |
|
|
Bank of Oklahoma |
|
|
646 |
|
|
|
— |
|
|
|
— |
|
|
|
646 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Raymond James and Associates |
|
|
340 |
|
|
|
— |
|
|
|
— |
|
|
|
340 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Deutsche Bank |
|
|
263 |
|
|
|
— |
|
|
|
— |
|
|
|
263 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Goldman Sachs |
|
|
197 |
|
|
|
— |
|
|
|
— |
|
|
|
197 |
|
|
|
819 |
|
|
|
— |
|
|
|
— |
|
|
|
819 |
|
|
Fannie Mae Capital Markets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
924 |
|
|
|
— |
|
|
|
— |
|
|
|
924 |
|
|
Other |
|
|
784 |
|
|
|
— |
|
|
|
— |
|
|
|
784 |
|
|
|
72 |
|
|
|
— |
|
|
|
— |
|
|
|
72 |
|
|
Unamortized debt issuance costs |
|
|
(1,163 |
) |
|
|
1,163 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,548 |
) |
|
|
1,548 |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
3,279,585 |
|
|
$ |
(3,275,691 |
) |
|
$ |
— |
|
|
$ |
3,894 |
|
|
$ |
3,131,937 |
|
|
$ |
(3,128,780 |
) |
|
$ |
— |
|
|
$ |
3,157 |
|
Note 7—Fair Value
The Company’s consolidated financial statements include assets and liabilities that are measured based on their fair values. Measurement at fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Manager has elected to carry the item at its fair value as discussed in the following paragraphs.
The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:
|
|
· |
Level 1—Quoted prices in active markets for identical financial statement items. |
|
|
· |
Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a financial statement item and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar financial statement items, interest rates, prepayment speeds, credit risk and other inputs. |
20
As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value financial statement items, the Manager 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 financial statement items and their fair values. Likewise, due to the general illiquidity of some of these financial statement items, subsequent transactions may be at values significantly different from those reported.
Fair Value Accounting Elections
The Manager identified all of the Company’s non-cash financial assets and MSRs relating to loans with initial interest rates of more than 4.5%, to be accounted for at fair value. The Manager has elected to account for these financial statement items at fair value so such changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance.
The Manager has also identified the Company’s CRT financing and asset-backed financing of a VIE to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of mortgage loans at fair value collateralizing these financings.
For assets sold under agreements to repurchase and the Exchangeable Notes, the Manager has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.
21
Financial Statement Items Measured at Fair Value on a Recurring Basis
Following is a summary of financial statement items that are measured at fair value on a recurring basis:
|
|
|
June 30, 2016 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
16,877 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,877 |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
531,612 |
|
|
|
— |
|
|
|
531,612 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
— |
|
|
|
1,461,029 |
|
|
|
— |
|
|
|
1,461,029 |
|
|
Mortgage loans at fair value |
|
|
— |
|
|
|
427,091 |
|
|
|
1,608,906 |
|
|
|
2,035,997 |
|
|
Excess servicing spread purchased from PFSI |
|
|
— |
|
|
|
— |
|
|
|
294,551 |
|
|
|
294,551 |
|
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
|
— |
|
|
|
— |
|
|
|
16,803 |
|
|
|
16,803 |
|
|
MBS put options |
|
|
— |
|
|
|
593 |
|
|
|
— |
|
|
|
593 |
|
|
Forward purchase contracts |
|
|
— |
|
|
|
35,768 |
|
|
|
— |
|
|
|
35,768 |
|
|
Forward sales contracts |
|
|
— |
|
|
|
43 |
|
|
|
— |
|
|
|
43 |
|
|
Put options on interest rate futures |
|
|
453 |
|
|
|
— |
|
|
|
— |
|
|
|
453 |
|
|
Call options on interest rate futures |
|
|
3,379 |
|
|
|
— |
|
|
|
— |
|
|
|
3,379 |
|
|
Total derivative assets before netting |
|
|
3,832 |
|
|
|
36,404 |
|
|
|
16,803 |
|
|
|
57,039 |
|
|
Netting |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,032 |
) |
|
Total derivative assets after netting |
|
|
3,832 |
|
|
|
36,404 |
|
|
|
16,803 |
|
|
|
35,007 |
|
|
Mortgage servicing rights at fair value |
|
|
— |
|
|
|
— |
|
|
|
57,977 |
|
|
|
57,977 |
|
|
|
|
$ |
20,709 |
|
|
$ |
2,456,136 |
|
|
$ |
1,978,237 |
|
|
$ |
4,433,050 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
$ |
— |
|
|
$ |
325,939 |
|
|
$ |
— |
|
|
$ |
325,939 |
|
|
Interest-only security payable at fair value |
|
|
— |
|
|
|
— |
|
|
|
1,663 |
|
|
|
1,663 |
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
|
— |
|
|
|
— |
|
|
|
45 |
|
|
|
45 |
|
|
CRT Agreements |
|
|
— |
|
|
|
— |
|
|
|
199 |
|
|
|
199 |
|
|
Put options on interest rate futures |
|
|
79 |
|
|
|
— |
|
|
|
— |
|
|
|
79 |
|
|
Forward purchase contracts |
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
|
Forward sales contracts |
|
|
— |
|
|
|
35,466 |
|
|
|
— |
|
|
|
35,466 |
|
|
Total derivative liabilities before netting |
|
|
79 |
|
|
|
35,485 |
|
|
|
244 |
|
|
|
35,808 |
|
|
Netting |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,914 |
) |
|
Total derivative liabilities after netting |
|
|
79 |
|
|
|
35,485 |
|
|
|
244 |
|
|
|
3,894 |
|
|
|
|
$ |
79 |
|
|
$ |
361,424 |
|
|
$ |
1,907 |
|
|
$ |
331,496 |
|
22
|
|
|
December 31, 2015 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
41,865 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
41,865 |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
322,473 |
|
|
|
— |
|
|
|
322,473 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
— |
|
|
|
1,283,795 |
|
|
|
— |
|
|
|
1,283,795 |
|
|
Mortgage loans at fair value |
|
|
— |
|
|
|
455,394 |
|
|
|
2,100,394 |
|
|
|
2,555,788 |
|
|
Excess servicing spread purchased from PFSI |
|
|
— |
|
|
|
— |
|
|
|
412,425 |
|
|
|
412,425 |
|
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
|
— |
|
|
|
— |
|
|
|
4,983 |
|
|
|
4,983 |
|
|
CRT Agreements |
|
|
— |
|
|
|
— |
|
|
|
593 |
|
|
|
593 |
|
|
MBS put options |
|
|
— |
|
|
|
93 |
|
|
|
— |
|
|
|
93 |
|
|
Forward purchase contracts |
|
|
— |
|
|
|
2,444 |
|
|
|
— |
|
|
|
2,444 |
|
|
Forward sales contracts |
|
|
— |
|
|
|
2,604 |
|
|
|
— |
|
|
|
2,604 |
|
|
Put options on interest rate futures |
|
|
1,512 |
|
|
|
— |
|
|
|
— |
|
|
|
1,512 |
|
|
Call options on interest rate futures |
|
|
1,156 |
|
|
|
— |
|
|
|
— |
|
|
|
1,156 |
|
|
Total derivative assets |
|
|
2,668 |
|
|
|
5,141 |
|
|
|
5,576 |
|
|
|
13,385 |
|
|
Netting |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,300 |
) |
|
Total derivative assets after netting |
|
|
2,668 |
|
|
|
5,141 |
|
|
|
5,576 |
|
|
|
10,085 |
|
|
Mortgage servicing rights at fair value |
|
|
— |
|
|
|
— |
|
|
|
66,584 |
|
|
|
66,584 |
|
|
|
|
$ |
44,533 |
|
|
$ |
2,066,803 |
|
|
$ |
2,584,979 |
|
|
$ |
4,693,015 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of the VIE at fair value |
|
$ |
— |
|
|
$ |
247,690 |
|
|
$ |
— |
|
|
$ |
247,690 |
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
|
— |
|
|
|
— |
|
|
|
337 |
|
|
|
337 |
|
|
Put options on interest rate futures |
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
Call options on interest rate futures |
|
|
305 |
|
|
|
— |
|
|
|
— |
|
|
|
305 |
|
|
Forward purchase contracts |
|
|
— |
|
|
|
3,774 |
|
|
|
— |
|
|
|
3,774 |
|
|
Forward sales contracts |
|
|
— |
|
|
|
2,680 |
|
|
|
— |
|
|
|
2,680 |
|
|
Total derivative liabilities |
|
|
344 |
|
|
|
6,454 |
|
|
|
337 |
|
|
|
7,135 |
|
|
Netting |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,978 |
) |
|
Total derivative liabilities after netting |
|
|
344 |
|
|
|
6,454 |
|
|
|
337 |
|
|
|
3,157 |
|
|
|
|
$ |
344 |
|
|
$ |
254,144 |
|
|
$ |
337 |
|
|
$ |
250,847 |
|
23
The following is a summary of changes in items measured using Level 3 inputs on a recurring basis:
|
|
|
Quarter ended June 30, 2016 |
|
|||||||||||||||||||||||||
|
|
|
Mortgage |
|
|
Excess |
|
|
Interest |
|
|
|
|
|
|
Mortgage |
|
|
Interest- only |
|
|
|
|
|
|||||
|
|
|
loans |
|
|
servicing |
|
|
rate lock |
|
|
CRT |
|
|
servicing |
|
|
security |
|
|
|
|
|
||||||
|
|
|
at fair value |
|
|
spread |
|
|
commitments (1) |
|
|
Agreements (1) |
|
|
rights |
|
|
payable |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance, March 31, 2016 |
|
$ |
2,047,563 |
|
|
$ |
321,976 |
|
|
$ |
9,335 |
|
|
$ |
(4,218 |
) |
|
$ |
61,071 |
|
|
$ |
675 |
|
|
$ |
2,436,402 |
|
|
Purchases and issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,454 |
|
|
|
1,454 |
|
|
Repayments and sales |
|
|
(387,661 |
) |
|
|
(17,400 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(405,061 |
) |
|
Capitalization of interest |
|
|
16,421 |
|
|
|
5,713 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,134 |
|
|
ESS received pursuant to a recapture agreement with PFSI |
|
|
— |
|
|
|
1,690 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,690 |
|
|
Interest rate lock commitments issued, net |
|
|
— |
|
|
|
— |
|
|
|
17,036 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,036 |
|
|
Servicing received as proceeds from sales of mortgage loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,847 |
|
|
|
— |
|
|
|
1,847 |
|
|
Proceeds from CRT Agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,859 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,859 |
) |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument- specific credit risk |
|
|
(22,287 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,287 |
) |
|
Other factors |
|
|
8,824 |
|
|
|
(17,428 |
) |
|
|
27,076 |
|
|
|
7,878 |
|
|
|
(4,941 |
) |
|
|
(466 |
) |
|
|
20,943 |
|
|
|
|
|
(13,463 |
) |
|
|
(17,428 |
) |
|
|
27,076 |
|
|
|
7,878 |
|
|
|
(4,941 |
) |
|
|
(466 |
) |
|
|
(1,344 |
) |
|
Transfers of mortgage loans to REO and real estate held for investment |
|
|
(53,954 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(53,954 |
) |
|
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
|
— |
|
|
|
— |
|
|
|
(36,690 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(36,690 |
) |
|
Balance, June 30, 2016 |
|
$ |
1,608,906 |
|
|
$ |
294,551 |
|
|
$ |
16,757 |
|
|
$ |
(199 |
) |
|
$ |
57,977 |
|
|
$ |
1,663 |
|
|
$ |
1,979,655 |
|
|
Changes in fair value recognized during the period relating to assets still held at June 30, 2016 |
|
$ |
(5,335 |
) |
|
$ |
(17,428 |
) |
|
$ |
16,757 |
|
|
$ |
7,878 |
|
|
$ |
(4,941 |
) |
|
|
(466 |
) |
|
$ |
(3,535 |
) |
|
(1) |
For the purpose of this table, the IRLC and CRT Agreement asset and liability positions are shown net. |
24
|
|
|
Quarter ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Mortgage |
|
|
Excess |
|
|
Interest |
|
|
Mortgage |
|
|
|
|
|
||||
|
|
|
loans |
|
|
servicing |
|
|
rate lock |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
at fair value |
|
|
spread |
|
|
commitments (1) |
|
|
rights |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Balance, March 31, 2015 |
|
$ |
2,343,382 |
|
|
$ |
222,309 |
|
|
$ |
8,214 |
|
|
$ |
49,448 |
|
|
$ |
2,623,353 |
|
|
Purchases |
|
|
— |
|
|
|
140,874 |
|
|
|
— |
|
|
|
— |
|
|
|
140,874 |
|
|
Repayments and sales |
|
|
(68,190 |
) |
|
|
(18,352 |
) |
|
|
— |
|
|
|
— |
|
|
|
(86,542 |
) |
|
Capitalization of interest |
|
|
9,922 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,922 |
|
|
Accrual of interest |
|
|
— |
|
|
|
5,819 |
|
|
|
— |
|
|
|
— |
|
|
|
5,819 |
|
|
ESS received pursuant to a recapture agreement with PFSI |
|
|
— |
|
|
|
1,319 |
|
|
|
— |
|
|
|
— |
|
|
|
1,319 |
|
|
Interest rate lock commitments issued, net |
|
|
— |
|
|
|
— |
|
|
|
11,683 |
|
|
|
— |
|
|
|
11,683 |
|
|
Servicing received as proceeds from sales of mortgage loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,588 |
|
|
|
1,588 |
|
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
7,489 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,489 |
|
|
Other factors |
|
|
22,579 |
|
|
|
7,133 |
|
|
|
(23,411 |
) |
|
|
6,307 |
|
|
|
12,608 |
|
|
|
|
|
30,068 |
|
|
|
7,133 |
|
|
|
(23,411 |
) |
|
|
6,307 |
|
|
|
20,097 |
|
|
Transfers of mortgage loans to REO |
|
|
(68,238 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(68,238 |
) |
|
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
|
— |
|
|
|
— |
|
|
|
3,247 |
|
|
|
— |
|
|
|
3,247 |
|
|
Balance, June 31, 2015 |
|
$ |
2,246,944 |
|
|
$ |
359,102 |
|
|
$ |
(267 |
) |
|
$ |
57,343 |
|
|
$ |
2,663,122 |
|
|
Changes in fair value recognized during the period relating to assets still held at June 30, 2015 |
|
$ |
32,807 |
|
|
$ |
7,133 |
|
|
$ |
(267 |
) |
|
$ |
6,307 |
|
|
$ |
45,980 |
|
(1) For the purpose of this table, the IRLC asset and liability positions are shown net.
25
|
|
|
Six months ended June 30, 2016 |
|
|||||||||||||||||||||||||
|
|
|
Mortgage |
|
|
Excess |
|
|
Interest |
|
|
|
|
|
|
Mortgage |
|
|
Interest- only |
|
|
|
|
|
|||||
|
|
|
loans |
|
|
servicing |
|
|
rate lock |
|
|
CRT |
|
|
servicing |
|
|
security |
|
|
|
|
|
||||||
|
|
|
at fair value |
|
|
spread |
|
|
commitments (1) |
|
|
Agreements (1) |
|
|
rights |
|
|
payable |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance, December 31, 2015 |
|
$ |
2,100,394 |
|
|
$ |
412,425 |
|
|
$ |
4,646 |
|
|
$ |
593 |
|
|
$ |
66,584 |
|
|
$ |
— |
|
|
$ |
2,584,642 |
|
|
Purchases and issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
682 |
|
|
|
2,602 |
|
|
|
2,136 |
|
|
|
5,420 |
|
|
Repayments and sales |
|
|
(419,726 |
) |
|
|
(97,326 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(517,052 |
) |
|
Capitalization of interest |
|
|
39,715 |
|
|
|
12,728 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,443 |
|
|
ESS received pursuant to a recapture agreement with PFSI |
|
|
— |
|
|
|
3,601 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,601 |
|
|
Interest rate lock commitments issued, net |
|
|
— |
|
|
|
— |
|
|
|
27,733 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,733 |
|
|
Servicing received as proceeds from sales of mortgage loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,147 |
|
|
|
— |
|
|
|
5,147 |
|
|
Proceeds from CRT Agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,395 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,395 |
) |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument- specific credit risk |
|
|
(19,004 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,004 |
) |
|
Other factors |
|
|
19,936 |
|
|
|
(36,877 |
) |
|
|
47,742 |
|
|
|
4,921 |
|
|
|
(16,356 |
) |
|
|
(473 |
) |
|
|
18,893 |
|
|
|
|
|
932 |
|
|
|
(36,877 |
) |
|
|
47,742 |
|
|
|
4,921 |
|
|
|
(16,356 |
) |
|
|
(473 |
) |
|
|
(111 |
) |
|
Transfers of mortgage loans to REO and real estate held for investment |
|
|
(112,409 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(112,409 |
) |
|
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
|
— |
|
|
|
— |
|
|
|
(63,364 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(63,364 |
) |
|
Balance, June 30, 2016 |
|
$ |
1,608,906 |
|
|
$ |
294,551 |
|
|
$ |
16,757 |
|
|
$ |
(199 |
) |
|
$ |
57,977 |
|
|
$ |
1,663 |
|
|
$ |
1,979,655 |
|
|
Changes in fair value recognized during the period relating to assets still held at June 30, 2016 |
|
$ |
654 |
|
|
$ |
(29,667 |
) |
|
$ |
16,757 |
|
|
$ |
4,921 |
|
|
$ |
(16,356 |
) |
|
|
(473 |
) |
|
$ |
(24,164 |
) |
|
(1) |
For the purpose of this table, the IRLC and CRT Agreement asset and liability positions are shown net. |
26
|
|
|
Six months ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Mortgage |
|
|
Excess |
|
|
Interest |
|
|
Mortgage |
|
|
|
|
|
||||
|
|
|
loans |
|
|
servicing |
|
|
rate lock |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
at fair value |
|
|
spread |
|
|
commitments (1) |
|
|
rights |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Balance, December 31, 2014 |
|
$ |
2,199,583 |
|
|
$ |
191,166 |
|
|
$ |
5,661 |
|
|
$ |
57,358 |
|
|
$ |
2,453,768 |
|
|
Purchases |
|
|
241,981 |
|
|
|
187,287 |
|
|
|
— |
|
|
|
— |
|
|
|
429,268 |
|
|
Repayments and sales |
|
|
(114,070 |
) |
|
|
(31,083 |
) |
|
|
— |
|
|
|
— |
|
|
|
(145,153 |
) |
|
Capitalization of interest |
|
|
20,130 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,130 |
|
|
Accrual of interest |
|
|
— |
|
|
|
9,570 |
|
|
|
— |
|
|
|
— |
|
|
|
9,570 |
|
|
ESS received pursuant to a recapture agreement with PFSI |
|
|
— |
|
|
|
2,565 |
|
|
|
— |
|
|
|
— |
|
|
|
2,565 |
|
|
Interest rate lock commitments issued, net |
|
|
— |
|
|
|
— |
|
|
|
31,083 |
|
|
|
— |
|
|
|
31,083 |
|
|
Servicing received as proceeds from sales of mortgage loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,495 |
|
|
|
3,495 |
|
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
19,057 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,057 |
|
|
Other factors |
|
|
28,196 |
|
|
|
(403 |
) |
|
|
(23,399 |
) |
|
|
(3,510 |
) |
|
|
884 |
|
|
|
|
|
47,253 |
|
|
|
(403 |
) |
|
|
(23,399 |
) |
|
|
(3,510 |
) |
|
|
19,941 |
|
|
Transfers of mortgage loans to REO |
|
|
(147,933 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(147,933 |
) |
|
Transfers of interest rate lock commitments to mortgage loans acquired for sale |
|
|
— |
|
|
|
— |
|
|
|
(13,612 |
) |
|
|
— |
|
|
|
(13,612 |
) |
|
Balance, June 31, 2015 |
|
$ |
2,246,944 |
|
|
$ |
359,102 |
|
|
$ |
(267 |
) |
|
$ |
57,343 |
|
|
$ |
2,663,122 |
|
|
Changes in fair value recognized during the period relating to assets still held at June 30, 2015 |
|
$ |
54,574 |
|
|
$ |
(403 |
) |
|
$ |
(267 |
) |
|
$ |
(3,510 |
) |
|
$ |
50,394 |
|
(1) For the purpose of this table, the IRLC asset and liability positions are shown net.
27
Following are the fair values and related p rincipal amounts due upon maturity of mortgage loans accounted for under the fair value option (including mortgage loans acquired for sale, mortgage loans at fair value and mortgage loans held in a consolidated VIE):
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
|
|
Fair value |
|
|
Principal amount due upon maturity |
|
|
Difference |
|
|
Fair value |
|
|
Principal amount due upon maturity |
|
|
Difference |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current through 89 days delinquent |
|
$ |
1,460,326 |
|
|
$ |
1,388,201 |
|
|
$ |
72,125 |
|
|
$ |
1,283,275 |
|
|
$ |
1,235,433 |
|
|
$ |
47,842 |
|
|
90 or more days delinquent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
|
415 |
|
|
|
461 |
|
|
|
(46 |
) |
|
|
304 |
|
|
|
333 |
|
|
|
(29 |
) |
|
In foreclosure |
|
|
288 |
|
|
|
338 |
|
|
|
(50 |
) |
|
|
216 |
|
|
|
253 |
|
|
|
(37 |
) |
|
|
|
|
703 |
|
|
|
799 |
|
|
|
(96 |
) |
|
|
520 |
|
|
|
586 |
|
|
|
(66 |
) |
|
|
|
$ |
1,461,029 |
|
|
$ |
1,389,000 |
|
|
$ |
72,029 |
|
|
$ |
1,283,795 |
|
|
$ |
1,236,019 |
|
|
$ |
47,776 |
|
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held in a consolidated VIE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current through 89 days delinquent |
|
$ |
427,091 |
|
|
$ |
416,195 |
|
|
$ |
10,896 |
|
|
$ |
455,394 |
|
|
$ |
454,935 |
|
|
$ |
459 |
|
|
90 or more days delinquent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
In foreclosure |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
427,091 |
|
|
|
416,195 |
|
|
|
10,896 |
|
|
|
455,394 |
|
|
|
454,935 |
|
|
|
459 |
|
|
Other mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current through 89 days delinquent |
|
|
656,762 |
|
|
|
873,422 |
|
|
|
(216,660 |
) |
|
|
877,438 |
|
|
|
1,134,560 |
|
|
|
(257,122 |
) |
|
90 or more days delinquent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
|
363,328 |
|
|
|
510,475 |
|
|
|
(147,147 |
) |
|
|
459,060 |
|
|
|
640,343 |
|
|
|
(181,283 |
) |
|
In foreclosure |
|
|
588,816 |
|
|
|
803,754 |
|
|
|
(214,938 |
) |
|
|
763,896 |
|
|
|
1,062,205 |
|
|
|
(298,309 |
) |
|
|
|
|
952,144 |
|
|
|
1,314,229 |
|
|
|
(362,085 |
) |
|
|
1,222,956 |
|
|
|
1,702,548 |
|
|
|
(479,592 |
) |
|
|
|
|
1,608,906 |
|
|
|
2,187,651 |
|
|
|
(578,745 |
) |
|
|
2,100,394 |
|
|
|
2,837,108 |
|
|
|
(736,714 |
) |
|
|
|
$ |
2,035,997 |
|
|
$ |
2,603,846 |
|
|
$ |
(567,849 |
) |
|
$ |
2,555,788 |
|
|
$ |
3,292,043 |
|
|
$ |
(736,255 |
) |
Following are the changes in fair value included in current period income by consolidated statement of operations line item for financial statement items accounted for under the fair value option:
|
|
|
Quarter ended June 30, 2016 |
|
|||||||||||||||||
|
|
|
Net gain on |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
||
|
|
|
mortgage |
|
|
|
|
|
|
|
|
|
|
mortgage |
|
|
|
|
|
||
|
|
|
loans |
|
|
Net |
|
|
Net gain |
|
|
loan |
|
|
|
|
|
||||
|
|
|
acquired |
|
|
interest |
|
|
on |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
for sale |
|
|
income |
|
|
investments |
|
|
fees |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
(750 |
) |
|
|
4,332 |
|
|
|
— |
|
|
|
3,582 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
47,003 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,003 |
|
|
Mortgage loans at fair value |
|
|
— |
|
|
|
865 |
|
|
|
(13,511 |
) |
|
|
— |
|
|
|
(12,646 |
) |
|
ESS at fair value |
|
|
— |
|
|
|
— |
|
|
|
(17,428 |
) |
|
|
— |
|
|
|
(17,428 |
) |
|
MSRs at fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,941 |
) |
|
|
(4,941 |
) |
|
|
|
$ |
47,003 |
|
|
$ |
115 |
|
|
$ |
(26,607 |
) |
|
$ |
(4,941 |
) |
|
$ |
15,570 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
$ |
— |
|
|
$ |
(781 |
) |
|
$ |
890 |
|
|
$ |
— |
|
|
$ |
109 |
|
|
|
|
$ |
— |
|
|
$ |
(781 |
) |
|
$ |
890 |
|
|
$ |
— |
|
|
$ |
109 |
|
28
|
|
|
Quarter ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Net gain on |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
||
|
|
|
mortgage |
|
|
|
|
|
|
|
|
|
|
mortgage |
|
|
|
|
|
||
|
|
|
loans |
|
|
Net |
|
|
Net gain |
|
|
loan |
|
|
|
|
|
||||
|
|
|
acquired |
|
|
interest |
|
|
on |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
for sale |
|
|
income |
|
|
investments |
|
|
fees |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
(23 |
) |
|
|
(6,702 |
) |
|
|
— |
|
|
|
(6,725 |
) |
|
Mortgage loans acquired for sale at fair value |
|
|
(5,017 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,017 |
) |
|
Mortgage loans at fair value |
|
|
— |
|
|
|
(310 |
) |
|
|
17,991 |
|
|
|
— |
|
|
|
17,681 |
|
|
ESS at fair value |
|
|
— |
|
|
|
— |
|
|
|
8,589 |
|
|
|
— |
|
|
|
8,589 |
|
|
MSRs at fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,306 |
|
|
|
6,306 |
|
|
|
|
$ |
(5,017 |
) |
|
$ |
(333 |
) |
|
$ |
19,878 |
|
|
$ |
6,306 |
|
|
$ |
20,834 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
$ |
— |
|
|
$ |
51 |
|
|
$ |
3,991 |
|
|
$ |
— |
|
|
$ |
4,042 |
|
|
|
|
$ |
— |
|
|
$ |
51 |
|
|
$ |
3,991 |
|
|
$ |
— |
|
|
$ |
4,042 |
|
|
|
|
Six months ended June 30, 2016 |
|
|||||||||||||||||
|
|
|
Net gain on |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
||
|
|
|
mortgage |
|
|
|
|
|
|
|
|
|
|
mortgage |
|
|
|
|
|
||
|
|
|
loans |
|
|
Net |
|
|
Net gain |
|
|
loan |
|
|
|
|
|
||||
|
|
|
acquired |
|
|
interest |
|
|
on |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
for sale |
|
|
income |
|
|
investments |
|
|
fees |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
(738 |
) |
|
|
9,431 |
|
|
|
— |
|
|
|
8,693 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
89,008 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
89,008 |
|
|
Mortgage loans at fair value |
|
|
— |
|
|
|
2,094 |
|
|
|
9,279 |
|
|
|
— |
|
|
|
11,373 |
|
|
ESS at fair value |
|
|
— |
|
|
|
— |
|
|
|
(36,877 |
) |
|
|
— |
|
|
|
(36,877 |
) |
|
MSRs at fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,356 |
) |
|
|
(16,356 |
) |
|
|
|
$ |
89,008 |
|
|
$ |
1,356 |
|
|
$ |
(18,167 |
) |
|
$ |
(16,356 |
) |
|
$ |
55,841 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
$ |
— |
|
|
$ |
536 |
|
|
$ |
(8,963 |
) |
|
$ |
— |
|
|
$ |
(8,427 |
) |
|
|
|
$ |
— |
|
|
$ |
536 |
|
|
$ |
(8,963 |
) |
|
$ |
— |
|
|
$ |
(8,427 |
) |
|
|
|
Six months ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Net gain on |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
||
|
|
|
mortgage |
|
|
|
|
|
|
|
|
|
|
mortgage |
|
|
|
|
|
||
|
|
|
loans |
|
|
Net |
|
|
Net gain |
|
|
loan |
|
|
|
|
|
||||
|
|
|
acquired |
|
|
interest |
|
|
on |
|
|
servicing |
|
|
|
|
|
||||
|
|
|
for sale |
|
|
income |
|
|
investments |
|
|
fees |
|
|
Total |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Mortgage-backed securities at fair value |
|
|
— |
|
|
|
63 |
|
|
|
(5,186 |
) |
|
|
— |
|
|
|
(5,123 |
) |
|
Mortgage loans acquired for sale at fair value |
|
|
18,064 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,064 |
|
|
Mortgage loans at fair value |
|
|
— |
|
|
|
179 |
|
|
|
36,977 |
|
|
|
— |
|
|
|
37,156 |
|
|
ESS at fair value |
|
|
— |
|
|
|
— |
|
|
|
2,342 |
|
|
|
— |
|
|
|
2,342 |
|
|
MSRs at fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,510 |
) |
|
|
(3,510 |
) |
|
|
|
$ |
18,064 |
|
|
$ |
242 |
|
|
$ |
34,133 |
|
|
$ |
(3,510 |
) |
|
$ |
48,929 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value |
|
$ |
— |
|
|
$ |
(122 |
) |
|
$ |
3,222 |
|
|
$ |
— |
|
|
$ |
3,100 |
|
|
|
|
$ |
— |
|
|
$ |
(122 |
) |
|
$ |
3,222 |
|
|
$ |
— |
|
|
$ |
3,100 |
|
29
Financial Statement Items Measured at Fair Value on a Nonrecurring Basis
Following is a summary of financial statement items that were re-measured at fair value on a nonrecurring basis during the periods presented:
|
|
|
June 30, 2016 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Real estate acquired in settlement of loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
136,062 |
|
|
$ |
136,062 |
|
|
MSRs at lower of amortized cost or fair value |
|
|
— |
|
|
|
— |
|
|
|
332,354 |
|
|
|
332,354 |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
468,416 |
|
|
$ |
468,416 |
|
|
|
|
December 31, 2015 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Real estate acquired in settlement of loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
173,662 |
|
|
$ |
173,662 |
|
|
MSRs at lower of amortized cost or fair value |
|
|
— |
|
|
|
— |
|
|
|
145,187 |
|
|
|
145,187 |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
318,849 |
|
|
$ |
318,849 |
|
The following table summarizes the fair value changes recognized during the period on assets held at period end that were measured at fair value on a nonrecurring basis:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Real estate asset acquired in settlement of loans |
|
$ |
(5,836 |
) |
|
$ |
(6,491 |
) |
|
$ |
(11,106 |
) |
|
$ |
(13,800 |
) |
|
MSRs at lower of amortized cost or fair value |
|
|
(23,170 |
) |
|
|
7,082 |
|
|
|
(40,876 |
) |
|
|
703 |
|
|
|
|
$ |
(29,006 |
) |
|
$ |
591 |
|
|
$ |
(51,982 |
) |
|
$ |
(13,097 |
) |
Real Estate Acquired in Settlement of Loans
The Company evaluates its REO for impairment with reference to the respective properties’ fair values less cost to sell on a nonrecurring basis. The initial carrying value of the REO is measured at cost as indicated by the purchase price in the case of purchased REO or as measured by the fair value of the mortgage loan immediately before REO acquisition in the case of acquisition in settlement of a loan. REO may be subsequently revalued due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s value may not be supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of income.
Mortgage Servicing Rights at Lower of Amortized Cost or Fair Value
The Company evaluates its MSRs at lower of amortized cost or fair value for impairment with reference to the asset’s fair value. For purposes of performing its MSR impairment evaluation, the Company stratifies its MSRs at lower of amortized cost or fair value based on the interest rates borne by the mortgage loans underlying the MSRs. Mortgage loans are grouped into pools with 50 basis point interest rate ranges for fixed-rate mortgage loans with interest rates between 3.0% and 4.5% and a single pool for mortgage loans with interest rates below 3.0%. MSRs relating to adjustable rate mortgage loans with initial interest rates of 4.5% or less are evaluated in a single pool. If the fair value of MSRs in any of the interest rate pools is below the amortized cost of the MSRs, those MSRs are impaired.
When MSRs are impaired, the impairment is recognized in current-period results of operations and the carrying value of the MSRs is adjusted using a valuation allowance. If the fair value of the MSRs subsequently increases, the increase in fair value is recognized in current period results of operations only to the extent of the valuation allowance for the respective impairment stratum.
The Manager periodically reviews the various impairment strata to determine whether the fair value of the impaired MSRs in a given stratum is likely to recover. When the Manager deems recovery of fair value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.
30
Fair Value of Financial Instruments Carried a t Amortized Cost
The Company’s Cash as well as certain of its borrowings are carried at amortized cost. Cash is measured using a “Level 1” fair value input. The Company’s assets sold under agreements to repurchase and mortgage loan participation and sale agreement are classified as “Level 3” fair value financial statement items due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values.
The Manager has concluded that the fair values of Cash , Assets sold under agreements to repurchase , Mortgage loan participation and sale agreements , Federal Home Loan Bank advances and Notes payable approximate the agreements’ carrying values due to the immediate realizability of Cash at its carrying amount and to the borrowing agreements’ short terms and variable interest rates.
The Exchangeable Notes are carried at amortized cost. The fair value of the Exchangeable Notes at June 30, 2016 and December 31, 2015 was $236.1 million and $230.0 million, respectively. The fair value of the Exchangeable Notes is estimated using a broker indication of value. The Company has classified the Exchangeable Notes as “Level 3” fair value financial statement items as of June 30, 2016 due to the lack of current market activity.
Valuation Techniques and Inputs
Most of the Company’s assets, its Derivative liabilities , the Asset-backed financing of a VIE and the Interest-only security payable are carried at fair value with changes in fair value recognized in current period results of operations. A substantial portion of these items are “Level 3” fair value financial statement items which require the use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value financial statement items, the Manager has assigned responsibility for estimating fair value of these items to specialized staff and subjects the valuation process to significant executive management oversight. The Manager’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value financial statement items other than IRLCs and maintaining its valuation policies and procedures.
With respect to the Company’s “Level 3” fair value financial statement items, the FAV group reports to PCM’s valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company’s non-IRLC “Level 3” fair value financial statement items, including the models’ performance versus actual results, and reports those results to PCM’s valuation committee. PCM’s valuation committee includes PFSI’s chief executive, financial, operating, risk, business development and asset/liability management officers.
The FAV group is responsible for reporting to PCM’s valuation committee on a monthly basis on the changes in the valuation of the financial statement items, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.
The fair value of the Company’s IRLCs is developed by the Manager’s Capital Markets Risk Management staff and is reviewed by the Manager’s Capital Markets Operations group.
The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value financial statement items:
Mortgage-Backed Securities
The Company’s MBS include Agency and senior non-agency MBS. The Company categorizes its current holdings of MBS as “Level 2” fair value financial statement items. Fair value of these MBS is established based on quoted market prices for the Company’s MBS or similar securities. Changes in the fair value of MBS are included in Net (loss) gain on investments in the consolidated statements of operations.
Mortgage Loans
Fair value of mortgage loans is estimated based on whether the mortgage loans are saleable into active markets:
31
|
|
fair values of mortgage loans acquir ed for sale at fair value are established using their quoted market or contracted price or market price equivalent. For the mortgage loans at fair value held in a VIE, the fair values of all of the individual securities issued by the securitization trust a re used to derive a fair value for the mortgage loans. The Company obtains indications of fair value from nonaffiliated brokers based on comparable securities and validates the brokers’ indications of fair value using pricing models and inputs the Manager believes are similar to the models and inputs used by other market participants. |
|
|
· |
Mortgage loans that are not saleable into active markets, comprised of mortgage loans at fair value held outside the VIE are categorized as “Level 3” fair value financial statement items and their fair values are estimated using a discounted cash flow approach. Inputs to the discounted cash flow model include current interest rates, loan amount, payment status, property type, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds, loss severities and contracted selling price where applicable. |
The valuation process includes the computation by stratum of the mortgage loans’ fair values and a review for reasonableness of various measures such as weighted average life, projected prepayment and default speeds, and projected default and loss percentages. The FAV group computes the effect on the valuation of changes in inputs such as interest rates, home prices, and delinquency status to assess the reasonableness of changes in the mortgage loan valuation.
Changes in fair value attributable to changes in instrument-specific credit risk are measured by the effect on fair value of the change in the respective mortgage loan’s delinquency status and performance history at period-end from the later of the beginning of the period or acquisition date.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage loans at fair value are discount rate, home price projections, voluntary prepayment speeds and default speeds. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds. Changes in the fair value of mortgage loans at fair value are included in Net (loss) gain on investments in the consolidated statements of operations.
Following is a quantitative summary of key inputs used in the valuation of mortgage loans at fair value:
|
Key inputs |
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
Discount rate |
|
|
|
|
|
|
|
|
|
Range |
|
2.5% – 15.0% |
|
|
2.5% – 15.0% |
|
||
|
Weighted average |
|
|
6.7% |
|
|
|
7.1% |
|
|
Twelve-month projected housing price index change |
|
|
|
|
|
|
|
|
|
Range |
|
2.7% – 5.2% |
|
|
1.5% – 5.1% |
|
||
|
Weighted average |
|
|
4.0% |
|
|
|
3.6% |
|
|
Prepayment speed (1) |
|
|
|
|
|
|
|
|
|
Range |
|
0.1% – 13.7% |
|
|
0.1% – 9.6% |
|
||
|
Weighted average |
|
|
3.9% |
|
|
|
3.7% |
|
|
Total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
Range |
|
0.7% – 25.4% |
|
|
0.5% – 27.2% |
|
||
|
Weighted average |
|
|
19.0% |
|
|
|
19.6% |
|
|
(1) |
Prepayment speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”). |
|
(2) |
Total prepayment speed is measured using Life Total CPR. |
Excess Servicing Spread Purchased from PFSI
The Company categorizes ESS as a “Level 3” fair value financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS. The key inputs used in the estimation of the fair value of ESS include prepayment speed and discount rate. Significant changes to those inputs in isolation may result in a significant change in the ESS fair value measurement. Changes in these key inputs are not necessarily directly related.
ESS is generally subject to loss in fair value when interest rates decrease. Decreasing mortgage rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the mortgage loans underlying the ESS, thereby reducing the cash flows expected to accrue to ESS. Reductions in the fair value of ESS affect results of operations primarily through change in fair value. Changes in the fair value of ESS are included in Net (loss) gain on investments in the consolidated statements of operations.
32
Following are the key inputs used in determining the fair value of ESS:
|
Key inputs |
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
UPB of underlying mortgage loans (in thousands) |
|
$ |
36,151,940 |
|
|
$51,966,405 |
|
|
|
Average servicing fee rate (in basis points) |
|
|
34 |
|
|
|
32 |
|
|
Average ESS rate (in basis points) |
|
|
19 |
|
|
|
17 |
|
|
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
Range |
|
4.7% – 5.9% |
|
|
4.8% - 6.5% |
|
||
|
Weighted average |
|
|
5.5% |
|
|
|
5.7% |
|
|
Life (in years) |
|
|
|
|
|
|
|
|
|
Range |
|
1.6 - 8.9 |
|
|
1.4 - 9.0 |
|
||
|
Weighted average |
|
6.2 |
|
|
|
6.9 |
|
|
|
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
Range |
|
6.8% – 37.3% |
|
|
5.2% - 52.4% |
|
||
|
Weighted average |
|
|
12.5% |
|
|
|
9.6% |
|
|
(1) |
Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”) curve for purposes of discounting cash flows relating to ESS. |
|
(2) |
Prepayment speed is measured using Life Total CPR. |
Derivative Financial Instruments
Interest Rate Lock Commitments
The Company categorizes IRLCs as a “Level 3” fair value financial statement item. The Company estimates the fair value of 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 mortgage loans and the probability that the mortgage loan will be purchased under the commitment as a percentage of the commitments it has made (the “pull-through rate”).
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the fair value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, may result in a significant change in fair value. 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 value, but increase the pull-through rate for mortgage loan principal and interest payment cash flows that have decreased in fair value. Changes in fair value of IRLCs are included in Net gains on mortgage loans acquired for sale at fair value in the consolidated statements of operations.
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
|
Key inputs |
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
Pull-through rate |
|
|
|
|
|
|
|
|
|
Range |
|
74.9% – 100.0% |
|
|
60.2% - 100.0% |
|
||
|
Weighted average |
|
88.0% |
|
|
|
92.4% |
|
|
|
MSR value expressed as: |
|
|
|
|
|
|
|
|
|
Servicing fee multiple |
|
|
|
|
|
|
|
|
|
Range |
|
1.8 - 5.7 |
|
|
2.1 - 6.2 |
|
||
|
Weighted average |
|
4.5 |
|
|
|
4.9 |
|
|
|
Percentage of UPB |
|
|
|
|
|
|
|
|
|
Range |
|
0.0% – 1.4% |
|
|
0.5% - 3.8% |
|
||
|
Weighted average |
|
|
1.1% |
|
|
|
1.2% |
|
Hedging Derivatives
The Company estimates the fair value of commitments to sell mortgage loans based on quoted MBS prices. These derivative financial instruments are categorized by the Company as “Level 1” fair value financial statement items for those based on exchange traded market prices or as “Level 2” fair value financial statement items for those based on observable interest rate volatilities in the
33
MBS market. Changes in the fair value of hedging derivatives are included in Net gains on mortgage loans acquired for sale at fair value , Net (loss) gain on investments , or Net mortgage loan servicing fees , as applicable, in the consolidated statements of operations.
Real Estate Acquired in Settlement of Loans
REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value financial statement item. Fair value of REO is established by using a current estimate of fair value from a broker’s price opinion or a full appraisal, or the price given in a current contract of sale.
REO fair values are reviewed by the Manager’s staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the fair values received. PCM’s staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers will order an additional appraisal to determine the fair value. Changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of operations.
Mortgage Servicing Rights
MSRs are categorized as “Level 3” fair value financial statement items. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spread, prepayment and default rates of the underlying mortgage loans, and annual per-loan cost to service mortgage 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 necessarily directly related. Changes in the fair value of MSRs are included in Net mortgage loan servicing fees in the consolidated statements of operations.
MSRs are generally subject to loss in fair value when mortgage interest rates decrease. Decreasing mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the underlying mortgage loans, thereby reducing the cash flows expected to accrue to the MSRs. Reductions in the fair value of MSRs affect income primarily through change in fair value and change in impairment. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of the underlying mortgage loans.
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:
|
|
|
Quarter ended June 30, |
|
|||||||||||||
|
|
|
2016 |
|
|
2015 |
|
||||||||||
|
|
|
Amortized cost |
|
|
Fair value |
|
|
Amortized cost |
|
|
Fair value |
|
||||
|
|
|
(MSR recognized and UPB of underlying mortgage loan amounts in thousands) |
|
|||||||||||||
|
MSR recognized |
|
$ |
58,262 |
|
|
$ |
1,847 |
|
|
$ |
30,587 |
|
|
$ |
1,589 |
|
|
Key inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of underlying mortgage loans |
|
$ |
4,846,994 |
|
|
$ |
200,495 |
|
|
$ |
3,346,010 |
|
|
$ |
176,404 |
|
|
Weighted-average annual servicing fee rate (in basis points) |
|
25 |
|
|
25 |
|
|
25 |
|
|
25 |
|
||||
|
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
7.2% – 12.6% |
|
|
7.2% – 7.6% |
|
|
6.5% –13.0% |
|
|
9.0% – 16.3% |
|
||||
|
Weighted average |
|
|
7.4% |
|
|
7.3 |
|
|
|
8.1% |
|
|
|
10.1% |
|
|
|
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
1.5 - 12.2 |
|
|
2.0 - 9.3 |
|
|
2.6 – 7.3 |
|
|
2.3 – 7.3 |
|
||||
|
Weighted average |
|
|
7.6 |
|
|
6.0 |
|
|
|
6.7 |
|
|
|
6.8 |
|
|
|
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
3.4% – 47.4% |
|
|
7.3% – 38.0% |
|
|
7.6% – 28.6% |
|
|
8.3% – 34.2% |
|
||||
|
Weighted average |
|
|
9.4% |
|
|
|
14.2% |
|
|
|
8.3% |
|
|
|
10.6% |
|
|
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
$68 – $79 |
|
|
$68 – $79 |
|
|
$62 – $62 |
|
|
$62 – $62 |
|
||||
|
Weighted average |
|
$76 |
|
|
$74 |
|
|
$62 |
|
|
$62 |
|
||||
|
(1) |
The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans. |
|
(2) |
Prepayment speed is measured using Life Total CPR. |
34
|
|
|
Six months ended June 30, |
|
|||||||||||||
|
|
|
2016 |
|
|
2015 |
|
||||||||||
|
|
|
Amortized cost |
|
|
Fair value |
|
|
Amortized cost |
|
|
Fair value |
|
||||
|
|
|
(MSR recognized and UPB of underlying mortgage loan amounts in thousands) |
|
|||||||||||||
|
MSR recognized |
|
$ |
91,124 |
|
|
$ |
5,147 |
|
|
$ |
56,141 |
|
|
$ |
3,495 |
|
|
Key inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of underlying mortgage loans |
|
$ |
7,606,539 |
|
|
$ |
527,519 |
|
|
$ |
5,628,766 |
|
|
$ |
400,057 |
|
|
Weighted-average annual servicing fee rate (in basis points) |
|
|
25 |
|
|
|
26 |
|
|
26 |
|
|
26 |
|
||
|
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
7.2% – 12.6% |
|
|
7.2% – 7.6% |
|
|
6.5% –17.5% |
|
|
9.0% – 16.3% |
|
||||
|
Weighted average |
|
|
7.3% |
|
|
|
7.3% |
|
|
|
8.3% |
|
|
|
10.6% |
|
|
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
1.4 - 12.3 |
|
|
2.0 - 9.4 |
|
|
1.3 – 7.7 |
|
|
2.3 – 7.3 |
|
||||
|
Weighted average |
|
|
7.4 |
|
|
|
5.7 |
|
|
|
6.6 |
|
|
|
6.3 |
|
|
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
3.4% – 49.2% |
|
|
7.2% – 38.0% |
|
|
7.6% – 51.0% |
|
|
8.3% – 34.2% |
|
||||
|
Weighted average |
|
|
9.8% |
|
|
|
15.1% |
|
|
|
8.7% |
|
|
|
12.3% |
|
|
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
$68 – $79 |
|
|
$68 – $79 |
|
|
$62 – $134 |
|
|
$62 – $62 |
|
||||
|
Weighted average |
|
$73 |
|
|
$71 |
|
|
$63 |
|
|
$62 |
|
||||
|
(1) |
The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans. |
|
(2) |
Prepayment speed is measured using Life Total CPR. |
35
Following is a quan titative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
|
|
Amortized cost |
|
|
Fair value |
|
|
Amortized cost |
|
|
Fair value |
|
||||
|
|
|
(Carrying value, UPB of underlying mortgage loans and effect on fair value amounts in thousands) |
|
|||||||||||||
|
Carrying value |
|
$ |
413,481 |
|
|
$ |
57,977 |
|
|
$ |
393,157 |
|
|
$ |
66,584 |
|
|
Key inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of underlying mortgage loans |
|
$ |
40,590,719 |
|
|
$ |
6,496,712 |
|
|
$ |
35,841,654 |
|
|
$ |
6,458,684 |
|
|
Weighted-average annual servicing fee rate (in basis points) |
|
|
25 |
|
|
|
25 |
|
|
|
26 |
|
|
|
25 |
|
|
Weighted-average note interest rate |
|
|
3.9% |
|
|
|
4.7% |
|
|
|
3.9% |
|
|
|
4.7% |
|
|
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
7.6% – 13.1% |
|
|
7.6% – 12.6% |
|
|
7.2% – 10.7% |
|
|
7.2% – 10.2% |
|
||||
|
Weighted average |
|
|
7.6% |
|
|
7.6 |
|
|
|
7.3% |
|
|
|
7.2% |
|
|
|
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% adverse change |
|
$(6,312) |
|
|
$(854) |
|
|
$(6,411) |
|
|
$(944) |
|
||||
|
10% adverse change |
|
$(12,441) |
|
|
$(1,683) |
|
|
$(12,635) |
|
|
$(1,862) |
|
||||
|
20% adverse change |
|
$(24,175) |
|
|
$(3,271) |
|
|
$(24,553) |
|
|
$(3,621) |
|
||||
|
Weighted average life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
3.0 - 6.8 |
|
|
3.2 - 5.7 |
|
|
1.3 - 7.7 |
|
|
2.5 - 6.1 |
|
||||
|
Weighted average |
|
6.5 |
|
|
5.7 |
|
|
|
7.2 |
|
|
|
6.1 |
|
||
|
Prepayment speed (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
8.7% – 26.8% |
|
|
8.3% – 21.9% |
|
|
8.1% – 51.5% |
|
|
9.2% – 32.5% |
|
||||
|
Weighted average |
|
|
10.8% |
|
|
|
14.3% |
|
|
|
9.6% |
|
|
|
13.2% |
|
|
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% adverse change |
|
$(9,341) |
|
|
$(1,739) |
|
|
$(8,159) |
|
|
$(1,793) |
|
||||
|
10% adverse change |
|
$(18,315) |
|
|
$(3,395) |
|
|
$(16,024) |
|
|
$(3,502) |
|
||||
|
20% adverse change |
|
$(35,243) |
|
|
$(6,475) |
|
|
$(30,938) |
|
|
$(6,692) |
|
||||
|
Annual per-loan cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
$77 – $78 |
|
|
$77 – $78 |
|
|
$68 – $68 |
|
|
$68 – $68 |
|
||||
|
Weighted average |
|
$78 |
|
|
|
$78 |
|
|
$68 |
|
|
$68 |
|
|||
|
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% adverse change |
|
$(3,334) |
|
|
$(519) |
|
|
$(2,742) |
|
|
$(470) |
|
||||
|
10% adverse change |
|
$(6,669) |
|
|
$(1,038) |
|
|
$(5,484) |
|
|
$(940) |
|
||||
|
20% adverse change |
|
$(13,337) |
|
|
$(2,076) |
|
|
$(10,968) |
|
|
$(1,880) |
|
||||
|
(1) |
The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs. |
|
(2) |
For MSRs carried at fair value, an adverse change in one of the above-mentioned key inputs is expected to result in a reduction in fair value which will be recognized in results of operations. For MSRs carried at lower of amortized cost or fair value, an adverse change in one of the above-mentioned key inputs may result in recognition of MSR impairment. The extent of the recognized MSR impairment will depend on the relationship of fair value to the carrying value of such MSRs. |
|
(3) |
Prepayment speed is measured using Life Total CPR. |
The preceding sensitivity analyses are limited in that they were performed at a particular point in time; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in the inputs in relation to other inputs; are subject to the accuracy of various models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such scenarios, including operational adjustments made by the Manager to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts.
Securities Sold Under Agreements to Repurchase
Fair value of securities sold under agreements to repurchase is based on the accrued cost of the agreements, which approximates the fair values of the agreements, due to the short maturities of such agreements.
36
Note 8—Mortgage Loans Acquired for Sale at Fair Value
Mortgage loans acquired for sale at fair value is comprised of recently originated mortgage loans purchased by the Company for resale. Following is a summary of the distribution of the Company’s mortgage loans acquired for sale at fair value:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
Loan type |
|
Fair value |
|
|
Unpaid principal balance |
|
|
Fair value |
|
|
Unpaid principal balance |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Conventional: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency-eligible |
|
$ |
816,248 |
|
|
$ |
776,828 |
|
|
$ |
540,947 |
|
|
$ |
525,192 |
|
|
Jumbo |
|
|
8,088 |
|
|
|
8,009 |
|
|
|
54,613 |
|
|
|
54,096 |
|
|
Held for sale to PLS — Government insured or guaranteed |
|
|
619,008 |
|
|
|
585,919 |
|
|
|
669,288 |
|
|
|
637,666 |
|
|
Commercial real estate |
|
|
12,132 |
|
|
|
12,263 |
|
|
|
14,590 |
|
|
|
14,461 |
|
|
Mortgage loans repurchased pursuant to representations and warranties |
|
|
5,553 |
|
|
|
5,980 |
|
|
|
4,357 |
|
|
|
4,604 |
|
|
|
|
$ |
1,461,029 |
|
|
$ |
1,388,999 |
|
|
$ |
1,283,795 |
|
|
$ |
1,236,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans pledged to secure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
1,341,459 |
|
|
|
|
|
|
$ |
1,204,462 |
|
|
|
|
|
|
Mortgage loan participation and sale agreements |
|
$ |
100,497 |
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
Federal Home Loan Bank (“FHLB”) advances |
|
$ |
— |
|
|
|
|
|
|
$ |
63,993 |
|
|
|
|
|
The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed mortgage loans. The Company transfers government-insured or guaranteed mortgage loans that it purchases from correspondent lenders to PLS, which is a Ginnie Mae-approved issuer, and earns a sourcing fee of three basis points on the UPB plus interest earned during the period it holds each such mortgage loan.
Note 9—Derivative Financial Instruments
The Company enters into CRT Agreements whereby it retains a portion of the credit risk relating to mortgage loans it sells into Fannie Mae guaranteed securitizations in exchange for a portion of the contractual guarantee fee related to such securitizations. The fair values of the credit guarantees and the Company’s right to the related guarantee fee are accounted for as a derivative financial instrument. IRLCs are generated in the normal course of business when the Company commits to purchase mortgage loans acquired for sale. The Company’s remaining derivative financial instrument transactions are in support of its interest rate risk management activities.
The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in interest rates. To manage the price risk resulting from interest rate risk, the Company uses 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 the Company’s MBS, inventory of mortgage loans acquired for sale, mortgage loans held by VIE, ESS, IRLCs and MSRs. The Company records all derivative financial instruments at fair value and records changes in fair value in current period results of operations.
The Company is exposed to price risk relative to the IRLCs it issues to correspondent lenders and to the mortgage loans it purchases as a result of issuing the IRLCs. The Company bears price risk from the time an IRLC is issued to a correspondent lender to the time the purchased mortgage loan is sold. The Company is exposed to loss if mortgage interest rates increase, because interest rate increases generally cause the fair value of the purchase commitment or mortgage loan acquired for sale to decrease.
37
The Company had the following derivative assets and liabilities and related margin deposits recorded within Derivative assets and Derivative liabilities on the consolidated balance shee ts:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
Fair value |
|
||||||||||
|
|
|
Notional |
|
|
Derivative |
|
|
Derivative |
|
|
Notional |
|
|
Derivative |
|
|
Derivative |
|
||||||
|
Instrument |
|
amount |
|
|
assets |
|
|
liabilities |
|
|
amount |
|
|
assets |
|
|
liabilities |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
|
1,658,813 |
|
|
$ |
16,803 |
|
|
$ |
45 |
|
|
|
970,067 |
|
|
$ |
4,983 |
|
|
$ |
337 |
|
|
Used for hedging purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward sale contracts |
|
|
4,347,526 |
|
|
|
43 |
|
|
|
35,466 |
|
|
|
2,450,642 |
|
|
|
2,604 |
|
|
|
2,680 |
|
|
Forward purchase contracts |
|
|
4,190,349 |
|
|
|
35,768 |
|
|
|
19 |
|
|
|
2,469,550 |
|
|
|
2,444 |
|
|
|
3,774 |
|
|
MBS call options |
|
|
1,525,000 |
|
|
|
593 |
|
|
|
— |
|
|
|
375,000 |
|
|
|
93 |
|
|
|
— |
|
|
Swap futures |
|
|
12,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Eurodollar future sales contracts |
|
|
1,543,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1,755,000 |
|
|
|
— |
|
|
|
— |
|
|
Call options on interest rate futures |
|
|
525,000 |
|
|
|
3,379 |
|
|
|
— |
|
|
|
50,000 |
|
|
|
1,156 |
|
|
|
305 |
|
|
Put options on interest rate futures |
|
|
425,000 |
|
|
|
453 |
|
|
|
79 |
|
|
|
1,600,000 |
|
|
|
1,512 |
|
|
|
39 |
|
|
CRT Agreements |
|
|
8,976,961 |
|
|
|
— |
|
|
|
199 |
|
|
|
4,546,265 |
|
|
|
593 |
|
|
|
— |
|
|
Total derivative instruments before netting |
|
|
|
|
|
|
57,039 |
|
|
|
35,808 |
|
|
|
|
|
|
|
13,385 |
|
|
|
7,135 |
|
|
Netting |
|
|
|
|
|
|
(22,032 |
) |
|
|
(31,914 |
) |
|
|
|
|
|
|
(3,300 |
) |
|
|
(3,978 |
) |
|
|
|
|
|
|
|
$ |
35,007 |
|
|
$ |
3,894 |
|
|
|
|
|
|
$ |
10,085 |
|
|
$ |
3,157 |
|
|
Margin deposits with derivatives counterparties |
|
|
|
|
|
$ |
9,882 |
|
|
|
|
|
|
|
|
|
|
$ |
678 |
|
|
|
|
|
The following tables summarize the notional amount activity for derivatives arising from CRT Agreements and derivative contracts used to hedge the Company’s MBS, inventory of mortgage loans acquired for sale, mortgage loans at fair value held in a VIE, IRLCs and MSRs.
|
|
|
Quarter ended June 30, 2016 |
|
|||||||||||||
|
|
|
Balance, |
|
|
|
|
|
|
|
|
|
|
Balance, |
|
||
|
|
|
beginning |
|
|
|
|
|
|
Dispositions/ |
|
|
end |
|
|||
|
Instrument |
|
of period |
|
|
Additions |
|
|
expirations |
|
|
of period |
|
||||
|
|
(in thousands) |
|
||||||||||||||
|
Forward sales contracts |
|
|
3,466,697 |
|
|
|
21,138,542 |
|
|
|
(20,257,713 |
) |
|
|
4,347,526 |
|
|
Forward purchase contracts |
|
|
2,981,134 |
|
|
|
15,361,702 |
|
|
|
(14,152,487 |
) |
|
|
4,190,349 |
|
|
MBS call options |
|
|
425,000 |
|
|
|
1,975,000 |
|
|
|
(875,000 |
) |
|
|
1,525,000 |
|
|
Swap futures |
|
|
12,500 |
|
|
|
12,500 |
|
|
|
(12,500 |
) |
|
|
12,500 |
|
|
Eurodollar future sale contracts |
|
|
1,734,000 |
|
|
|
— |
|
|
|
(191,000 |
) |
|
|
1,543,000 |
|
|
Call options on interest rate futures |
|
|
1,250,000 |
|
|
|
275,000 |
|
|
|
(1,000,000 |
) |
|
|
525,000 |
|
|
Put options on interest rate futures |
|
|
1,525,000 |
|
|
|
550,000 |
|
|
|
(1,650,000 |
) |
|
|
425,000 |
|
|
CRT Agreements |
|
|
5,931,409 |
|
|
|
3,162,746 |
|
|
|
(117,194 |
) |
|
|
8,976,961 |
|
|
|
|
Quarter ended June 30, 2015 |
|
|||||||||||||
|
|
|
Balance, |
|
|
|
|
|
|
|
|
|
|
Balance, |
|
||
|
|
|
beginning |
|
|
|
|
|
|
Dispositions/ |
|
|
end |
|
|||
|
Instrument |
|
of period |
|
|
Additions |
|
|
expirations |
|
|
of period |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Forward sales contracts |
|
|
2,958,492 |
|
|
|
14,047,534 |
|
|
|
(13,753,740 |
) |
|
|
3,252,286 |
|
|
Forward purchase contracts |
|
|
2,132,616 |
|
|
|
9,885,504 |
|
|
|
(9,754,498 |
) |
|
|
2,263,622 |
|
|
MBS put option |
|
|
190,000 |
|
|
|
587,500 |
|
|
|
(410,000 |
) |
|
|
367,500 |
|
|
MBS call option |
|
|
— |
|
|
|
140,000 |
|
|
|
(100,000 |
) |
|
|
40,000 |
|
|
Eurodollar future sale contracts |
|
|
6,355,000 |
|
|
|
185,000 |
|
|
|
(556,000 |
) |
|
|
5,984,000 |
|
|
Treasury future sale contracts |
|
|
85,000 |
|
|
|
65,000 |
|
|
|
(110,000 |
) |
|
|
40,000 |
|
|
Call options on interest rate futures |
|
|
1,165,000 |
|
|
|
1,635,000 |
|
|
|
(1,665,000 |
) |
|
|
1,135,000 |
|
|
Put options on interest rate futures |
|
|
1,020,000 |
|
|
|
1,548,000 |
|
|
|
(1,295,000 |
) |
|
|
1,273,000 |
|
|
CRT Agreements |
|
|
— |
|
|
|
740,153 |
|
|
|
— |
|
|
|
740,153 |
|
38
|
|
|
Six months ended June 30, 2016 |
|
|||||||||||||
|
|
|
Balance, |
|
|
|
|
|
|
|
|
|
|
Balance, |
|
||
|
|
|
beginning |
|
|
|
|
|
|
Dispositions/ |
|
|
end |
|
|||
|
Instrument |
|
of period |
|
|
Additions |
|
|
expirations |
|
|
of period |
|
||||
|
|
(in thousands) |
|
||||||||||||||
|
Forward sales contracts |
|
|
2,450,642 |
|
|
|
35,292,415 |
|
|
|
(33,395,531 |
) |
|
|
4,347,526 |
|
|
Forward purchase contracts |
|
|
2,469,550 |
|
|
|
25,430,142 |
|
|
|
(23,709,343 |
) |
|
|
4,190,349 |
|
|
MBS call options |
|
|
375,000 |
|
|
|
2,725,000 |
|
|
|
(1,575,000 |
) |
|
|
1,525,000 |
|
|
Swap futures |
|
|
— |
|
|
|
25,000 |
|
|
|
(12,500 |
) |
|
|
12,500 |
|
|
Eurodollar future sale contracts |
|
|
1,755,000 |
|
|
|
80,000 |
|
|
|
(292,000 |
) |
|
|
1,543,000 |
|
|
Call options on interest rate futures |
|
|
50,000 |
|
|
|
1,575,000 |
|
|
|
(1,100,000 |
) |
|
|
525,000 |
|
|
Put options on interest rate futures |
|
|
1,600,000 |
|
|
|
2,600,000 |
|
|
|
(3,775,000 |
) |
|
|
425,000 |
|
|
CRT Agreements |
|
|
4,546,265 |
|
|
|
5,084,744 |
|
|
|
(654,048 |
) |
|
|
8,976,961 |
|
|
|
|
Six months ended June 30, 2015 |
|
|||||||||||||
|
|
|
Balance, |
|
|
|
|
|
|
|
|
|
|
Balance, |
|
||
|
|
|
beginning |
|
|
|
|
|
|
Dispositions/ |
|
|
end |
|
|||
|
Instrument |
|
of period |
|
|
Additions |
|
|
expirations |
|
|
of period |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Forward sales contracts |
|
|
1,601,283 |
|
|
|
23,877,061 |
|
|
|
(22,226,058 |
) |
|
|
3,252,286 |
|
|
Forward purchase contracts |
|
|
1,100,700 |
|
|
|
16,933,180 |
|
|
|
(15,770,258 |
) |
|
|
2,263,622 |
|
|
MBS put option |
|
|
340,000 |
|
|
|
992,500 |
|
|
|
(965,000 |
) |
|
|
367,500 |
|
|
MBS call option |
|
|
— |
|
|
|
140,000 |
|
|
|
(100,000 |
) |
|
|
40,000 |
|
|
Eurodollar future sale contracts |
|
|
7,426,000 |
|
|
|
285,000 |
|
|
|
(1,727,000 |
) |
|
|
5,984,000 |
|
|
Eurodollar future purchase contracts |
|
|
800,000 |
|
|
|
— |
|
|
|
(800,000 |
) |
|
|
— |
|
|
Treasury future sale contracts |
|
|
85,000 |
|
|
|
161,500 |
|
|
|
(206,500 |
) |
|
|
40,000 |
|
|
Call options on interest rate futures |
|
|
1,030,000 |
|
|
|
2,275,000 |
|
|
|
(2,170,000 |
) |
|
|
1,135,000 |
|
|
Put options on interest rate futures |
|
|
275,000 |
|
|
|
2,668,000 |
|
|
|
(1,670,000 |
) |
|
|
1,273,000 |
|
|
CRT Agreements |
|
|
— |
|
|
|
740,153 |
|
|
|
— |
|
|
|
740,153 |
|
Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
|
|
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
Income statement line |
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
|
|
(in thousands) |
|
|||||||||||||
|
Interest rate lock commitments |
|
Net gain on mortgage loans acquired for sale |
|
$ |
44,112 |
|
|
$ |
(11,728 |
) |
|
$ |
75,475 |
|
|
$ |
7,684 |
|
|
Hedged item: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments and mortgage loans acquired for sale |
|
Net gain on mortgage loans acquired for sale |
|
$ |
(29,210 |
) |
|
$ |
25,566 |
|
|
$ |
(59,882 |
) |
|
$ |
10,455 |
|
|
Mortgage servicing rights |
|
Net loan servicing fees |
|
$ |
27,433 |
|
|
$ |
(16,270 |
) |
|
$ |
57,394 |
|
|
$ |
(5,193 |
) |
|
Fixed-rate assets and LIBOR- indexed repurchase agreements |
|
Net gain on investments |
|
$ |
862 |
|
|
$ |
(1,255 |
) |
|
$ |
698 |
|
|
$ |
(11,294 |
) |
|
CRT agreements |
|
Net gain on investments |
|
$ |
7,764 |
|
|
$ |
— |
|
|
$ |
3,621 |
|
|
$ |
— |
|
Note 10—Mortgage Loans at Fair Value
Mortgage loans at fair value are comprised of mortgage loans that are not acquired for sale and, to the extent they are not held in a VIE securing an asset-backed financing, may be sold at a later date pursuant to a management determination that such a sale represents the most advantageous liquidation strategy for the identified mortgage loan.
39
Following is a summary of the distribution of the Company’s mortga ge loans at fair value:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
Loan type |
|
Fair value |
|
|
Unpaid principal balance |
|
|
Fair value |
|
|
Unpaid principal balance |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Distressed mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming mortgage loans |
|
$ |
952,144 |
|
|
$ |
1,314,229 |
|
|
$ |
1,222,956 |
|
|
$ |
1,702,548 |
|
|
Performing mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate |
|
|
313,064 |
|
|
|
413,063 |
|
|
|
417,658 |
|
|
|
535,610 |
|
|
Interest rate step-up |
|
|
233,925 |
|
|
|
333,517 |
|
|
|
299,569 |
|
|
|
412,749 |
|
|
Adjustable-rate/hybrid |
|
|
109,773 |
|
|
|
126,842 |
|
|
|
160,051 |
|
|
|
185,997 |
|
|
Balloon |
|
|
— |
|
|
|
— |
|
|
|
160 |
|
|
|
204 |
|
|
|
|
|
656,762 |
|
|
|
873,422 |
|
|
|
877,438 |
|
|
|
1,134,560 |
|
|
Fixed interest rate jumbo mortgage loans held in a VIE |
|
|
427,091 |
|
|
|
416,195 |
|
|
|
455,394 |
|
|
|
454,935 |
|
|
|
|
$ |
2,035,997 |
|
|
$ |
2,603,846 |
|
|
$ |
2,555,788 |
|
|
$ |
3,292,043 |
|
|
Mortgage loans at fair value pledged to secure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
1,589,798 |
|
|
|
|
|
|
$ |
2,067,341 |
|
|
|
|
|
|
Asset-backed financing of a VIE at fair value and FHLB advances |
|
$ |
427,091 |
|
|
|
|
|
|
$ |
455,394 |
|
|
|
|
|
Following is a summary of certain concentrations of credit risk in the portfolio of distressed mortgage loans at fair value:
|
Concentration |
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(percentages are of fair value) |
|
|||||
|
Portion of mortgage loans originated between 2005 and 2007 |
|
|
71% |
|
|
|
72% |
|
|
Percentage of fair value of mortgage loans with unpaid-principal balance-to-current-property-value in excess of 100% |
|
|
42% |
|
|
|
48% |
|
|
States contributing 5% or more of mortgage loans |
|
New York California New Jersey Florida Massachusetts |
|
|
California New York New Jersey Florida |
|
||
Note 11—Real Estate Acquired in Settlement of Loans
Following is a summary of financial information relating to REO:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Balance at beginning of period |
|
$ |
327,212 |
|
|
$ |
317,536 |
|
|
$ |
341,846 |
|
|
$ |
303,228 |
|
|
Transfers from mortgage loans at fair value and advances |
|
|
53,558 |
|
|
|
71,961 |
|
|
|
114,052 |
|
|
|
158,078 |
|
|
Transfer of real estate acquired in settlement of mortgage loans to real estate held for investment |
|
|
(8,082 |
) |
|
|
(1,292 |
) |
|
|
(12,266 |
) |
|
|
(1,293 |
) |
|
Results of REO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation adjustments, net |
|
|
(7,283 |
) |
|
|
(6,606 |
) |
|
|
(17,928 |
) |
|
|
(18,006 |
) |
|
Gain on sale, net |
|
|
4,718 |
|
|
|
4,800 |
|
|
|
9,327 |
|
|
|
10,368 |
|
|
|
|
|
(2,565 |
) |
|
|
(1,806 |
) |
|
|
(8,601 |
) |
|
|
(7,638 |
) |
|
Proceeds from sales |
|
|
(70,665 |
) |
|
|
(62,121 |
) |
|
|
(135,573 |
) |
|
|
(128,097 |
) |
|
Balance at end of period |
|
$ |
299,458 |
|
|
$ |
324,278 |
|
|
$ |
299,458 |
|
|
$ |
324,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO pledged to secure assets sold under agreements to repurchase |
|
$ |
50,126 |
|
|
$ |
55,420 |
|
|
|
|
|
|
|
|
|
|
REO held in a consolidated subsidiary whose stock is pledged to secure financings of such properties |
|
$ |
166,017 |
|
|
$ |
147,631 |
|
|
|
|
|
|
|
|
|
40
Note 12—Mortgage Servicing Rights
Carried at Fair Value:
Following is a summary of MSRs carried at fair value:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Balance at beginning of period |
|
$ |
61,071 |
|
|
$ |
49,448 |
|
|
$ |
66,584 |
|
|
$ |
57,358 |
|
|
Purchases |
|
|
— |
|
|
|
— |
|
|
|
2,602 |
|
|
|
— |
|
|
MSRs resulting from mortgage loan sales |
|
|
1,847 |
|
|
|
1,589 |
|
|
|
5,147 |
|
|
|
3,495 |
|
|
Changes in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs used in valuation model (1) |
|
|
(2,508 |
) |
|
|
8,088 |
|
|
|
(11,460 |
) |
|
|
(107 |
) |
|
Other changes in fair value (2) |
|
|
(2,433 |
) |
|
|
(1,782 |
) |
|
|
(4,896 |
) |
|
|
(3,403 |
) |
|
|
|
|
(4,941 |
) |
|
|
6,306 |
|
|
|
(16,356 |
) |
|
|
(3,510 |
) |
|
Balance at period end |
|
$ |
57,977 |
|
|
$ |
57,343 |
|
|
$ |
57,977 |
|
|
$ |
57,343 |
|
|
MSRs pledged to secure notes payable at period end |
|
$ |
57,977 |
|
|
$ |
57,343 |
|
|
|
|
|
|
|
|
|
|
(1) |
Principally reflects changes in pricing spread (discount rate) and prepayment speed inputs, primarily due to changes in market interest rates. |
|
(2) |
Represents changes due to realization of expected cash flows. |
Carried at Lower of Amortized Cost or Fair Value:
Following is a summary of MSRs carried at lower of amortized cost or fair value:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
422,676 |
|
|
$ |
323,806 |
|
|
$ |
404,101 |
|
|
$ |
308,137 |
|
|
MSRs resulting from mortgage loan sales |
|
|
58,262 |
|
|
|
30,587 |
|
|
|
91,124 |
|
|
|
56,141 |
|
|
Amortization |
|
|
(15,531 |
) |
|
|
(9,988 |
) |
|
|
(29,818 |
) |
|
|
(19,580 |
) |
|
Sales |
|
|
(106 |
) |
|
|
— |
|
|
|
(106 |
) |
|
|
(293 |
) |
|
Balance at end of period |
|
|
465,301 |
|
|
|
344,405 |
|
|
|
465,301 |
|
|
|
344,405 |
|
|
Valuation Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
(28,650 |
) |
|
|
(14,093 |
) |
|
|
(10,944 |
) |
|
|
(7,714 |
) |
|
Additions |
|
|
(23,170 |
) |
|
|
7,082 |
|
|
|
(40,876 |
) |
|
|
703 |
|
|
Balance at end of period |
|
|
(51,820 |
) |
|
|
(7,011 |
) |
|
|
(51,820 |
) |
|
|
(7,011 |
) |
|
MSRs, net |
|
$ |
413,481 |
|
|
$ |
337,394 |
|
|
$ |
413,481 |
|
|
$ |
337,394 |
|
|
Fair value at beginning of period |
|
$ |
405,635 |
|
|
$ |
327,703 |
|
|
$ |
424,154 |
|
|
$ |
322,230 |
|
|
Fair value at period end |
|
$ |
417,094 |
|
|
$ |
362,908 |
|
|
|
|
|
|
|
|
|
|
MSRs pledged to secure notes payable at period end |
|
$ |
413,481 |
|
|
$ |
337,394 |
|
|
|
|
|
|
|
|
|
41
The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost. This estimate was developed with the inputs used in the June 30, 2016 valuation of MSRs. The inputs underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.
|
|
|
Estimated MSR |
|
|
|
12 months ended June 30, |
|
amortization |
|
|
|
|
|
(in thousands) |
|
|
|
2017 |
|
$ |
63,951 |
|
|
2018 |
|
|
54,865 |
|
|
2019 |
|
|
48,042 |
|
|
2020 |
|
|
42,175 |
|
|
2021 |
|
|
37,231 |
|
|
Thereafter |
|
|
219,037 |
|
|
Total |
|
$ |
465,301 |
|
Servicing fees relating to MSRs are recorded in Net mortgage loan servicing fees on the Company’s consolidated statements of operations and are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Contractually-specified servicing fees |
|
$ |
29,991 |
|
|
$ |
24,490 |
|
|
$ |
57,770 |
|
|
$ |
46,077 |
|
Note 13—Assets Sold Under Agreements to Repurchase
Following is a summary of financial information relating to assets sold under agreements to repurchase:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate (1) |
|
|
2.17 |
% |
|
|
2.25 |
% |
|
|
2.19 |
% |
|
|
2.25 |
% |
|
Average balance |
|
$ |
3,268,774 |
|
|
$ |
3,172,806 |
|
|
$ |
3,033,038 |
|
|
$ |
3,061,923 |
|
|
Total interest expense |
|
$ |
22,056 |
|
|
$ |
20,208 |
|
|
$ |
42,468 |
|
|
$ |
39,120 |
|
|
Maximum daily amount outstanding |
|
$ |
4,331,706 |
|
|
$ |
3,511,918 |
|
|
$ |
4,402,724 |
|
|
$ |
3,842,167 |
|
|
(1) |
Excludes the effect of amortization of debt issuance costs of $2.2 million and $4.3 million for the quarter and six months ended June 30, 2016, respectively, and $2.2 million and $4.9 million for the quarter and six months ended June 30, 2015, respectively. |
42
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Carrying value: |
|
|
|
|
|
|
|
|
|
Amount outstanding |
|
$ |
3,276,854 |
|
|
$ |
3,130,328 |
|
|
Unamortized debt issuance costs |
|
|
(1,163 |
) |
|
|
(1,548 |
) |
|
|
|
$ |
3,275,691 |
|
|
$ |
3,128,780 |
|
|
Weighted-average interest rate |
|
|
2.26 |
% |
|
|
2.33 |
% |
|
Available borrowing capacity: |
|
|
|
|
|
|
|
|
|
Committed |
|
$ |
488,906 |
|
|
$ |
231,913 |
|
|
Uncommitted |
|
|
895,213 |
|
|
|
661,756 |
|
|
|
|
$ |
1,384,119 |
|
|
$ |
893,669 |
|
|
Margin deposits placed with counterparties included in Other assets |
|
$ |
8,320 |
|
|
$ |
7,268 |
|
|
Fair value of assets securing agreements to repurchase: |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
531,612 |
|
|
$ |
313,753 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
1,341,459 |
|
|
|
1,204,462 |
|
|
Mortgage loans at fair value |
|
|
1,589,798 |
|
|
|
2,067,341 |
|
|
Real estate acquired in settlement of loans |
|
|
216,143 |
|
|
|
283,343 |
|
|
Restricted cash on credit risk transfer agreements |
|
|
292,632 |
|
|
|
— |
|
|
|
|
$ |
3,971,644 |
|
|
$ |
3,868,899 |
|
Following is a summary of maturities of outstanding assets sold under agreements to repurchase by facility maturity date:
|
Remaining Maturity at June 30, 2016 |
|
Contractual balance |
|
|
|
|
|
(in thousands) |
|
|
|
Within 30 days |
|
$ |
340,352 |
|
|
Over 30 to 90 days |
|
|
438,615 |
|
|
Over 90 days to 180 days |
|
|
809,278 |
|
|
Over 180 days to 1 year |
|
|
1,436,236 |
|
|
Over 1 year to 2 years |
|
|
252,373 |
|
|
|
|
$ |
3,276,854 |
|
|
Weighted average maturity (in months) |
|
|
7 |
|
The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the fair value (as determined by the applicable lender) of the assets securing those agreements decreases. Margin deposits are included in Other assets in the consolidated balance sheets.
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) and maturity information relating to the Company’s assets sold under agreements to repurchase is summarized by counterparty below as of June 30, 2016:
Mortgage loans acquired for sale, Mortgage loans and REO sold under agreements to repurchase
|
|
|
|
|
|
|
Weighted-average |
|
|
|
Counterparty |
|
Amount at risk |
|
|
repurchase agreement maturity |
|
Facility maturity |
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Citibank, N.A. |
|
$ |
327,363 |
|
|
August 6, 2016 |
|
October 20, 2016 |
|
Credit Suisse First Boston Mortgage Capital LLC |
|
$ |
158,462 |
|
|
September 21, 2016 |
|
March 30, 2017 |
|
JPMorgan Chase & Co. |
|
$ |
131,702 |
|
|
- |
|
January 26, 2017 |
|
Bank of America, N.A. |
|
$ |
37,040 |
|
|
September 22, 2016 |
|
March 28, 2017 |
|
Morgan Stanley |
|
$ |
14,924 |
|
|
August 22, 2016 |
|
December 16, 2016 |
|
Barclays Capital |
|
$ |
3,879 |
|
|
September 13, 2016 |
|
September 13, 2016 |
43
Securities sold under agreements to repurchase
|
Counterparty |
|
Amount at risk |
|
|
Weighted average maturity |
|
|
|
|
(in thousands) |
|
|
|
|
|
Bank of America, N.A. |
|
$ |
10,415 |
|
|
August 10, 2016 |
|
Daiwa Capital Markets America Inc. |
|
$ |
10,582 |
|
|
August 9, 2016 |
|
JPMorgan Chase & Co. |
|
$ |
3,449 |
|
|
July 28, 2016 |
|
Wells Fargo, N.A. |
|
$ |
3,070 |
|
|
July 17, 2016 |
CRT Agreements
|
Counterparty |
|
Amount at risk |
|
|
Weighted average maturity |
|
|
|
|
(in thousands) |
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
38,630 |
|
|
July 22, 2016 |
|
Bank of America, N.A. |
|
$ |
30,102 |
|
|
July 15, 2016 |
|
BNP Paribas Corporate & Institutional Banking |
|
$ |
18,103 |
|
|
July 14, 2016 |
The following is a summary of the tangible net worth, as defined in the respective borrowing agreements, and minimum required amounts for the Company and certain of its subsidiaries at June 30, 2016 to comply with the debt covenants contained in the borrowing agreements:
|
|
|
Tangible net worth as of June 30, 2016 |
|
|||||
|
|
|
|
|
|
|
Minimum |
|
|
|
Entity |
|
Balance |
|
|
required |
|
||
|
|
|
(in thousands) |
|
|||||
|
PennyMac Mortgage Investment Trust |
|
$ |
1,360,827 |
|
|
$ |
860,000 |
|
|
Operating Partnership |
|
$ |
1,401,552 |
|
|
$ |
700,000 |
|
|
PennyMac Holdings, LLC |
|
$ |
784,290 |
|
|
$ |
250,000 |
|
|
PennyMac Corp. |
|
$ |
401,634 |
|
|
$ |
150,000 |
|
Note 14—Mortgage Loan Participation and Sale Agreements
Two of the borrowing facilities secured by mortgage loans acquired for sale are in the form of mortgage loan participation and sale agreements. Participation certificates, each of which represents an undivided beneficial ownership interest in a pool of mortgage loans that have been pooled with Fannie Mae or Freddie Mac, are sold to the lender pending the securitization of such mortgage loans and the sale of the resulting security. A commitment between the Company and a nonaffiliate to sell such security is also assigned to the lender at the time a participation certificate is sold.
The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount that is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender.
44
Mortgage loan participation and sale agreements are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate (1) |
|
|
1.69 |
% |
|
|
1.43 |
% |
|
|
1.68 |
% |
|
|
1.43 |
% |
|
Average balance |
|
$ |
70,701 |
|
|
$ |
60,363 |
|
|
$ |
69,649 |
|
|
$ |
52,001 |
|
|
Total interest expense |
|
$ |
333 |
|
|
$ |
266 |
|
|
$ |
661 |
|
|
$ |
473 |
|
|
Maximum daily amount outstanding |
|
$ |
96,335 |
|
|
$ |
148,032 |
|
|
$ |
97,672 |
|
|
$ |
148,032 |
|
|
(1) |
Excludes the effect of amortization of debt issuance costs of $31,000 and $68,000 for the quarter and six months ended June 30, 2016, respectively, and $47,000 and $99,000 for the quarter and six months ended June 30, 2015, respectively. |
|
|
|
June 30, 2016 |
|
|
|
|
|
(dollars in thousands) |
|
|
|
Carrying value: |
|
|
|
|
|
Amount outstanding |
|
$ |
96,335 |
|
|
Unamortized debt issuance costs |
|
|
— |
|
|
|
|
$ |
96,335 |
|
|
Weighted-average interest rate |
|
|
1.72 |
% |
|
Mortgage loans acquired for sale pledged to secure mortgage loan participation and sale agreements |
|
$ |
100,497 |
|
Note 15—Federal Home Loan Bank Advances
In June 2015, the Company entered into a collateral, pledge, and security agreement with the Federal Home Loan Bank of Des Moines with no specified termination date. The Company was able to request advances up to a maximum of $400.0 million.
On January 12, 2016, the Federal Housing Finance Agency (“FHFA”) issued a final rule establishing new requirements for membership in the Federal Home Loan Banks. The final rule excludes captive insurance companies such as the Company’s insurance subsidiary, Copper Insurance, LLC, from membership.
For captive insurance companies that became members since the rule was proposed in 2014, including Copper Insurance, LLC, membership must be terminated within one year, and no additional advances may be made. Accordingly, the Company has repaid all of the advances outstanding as of June 30, 2016.
The FHLB advances are summarized below:
|
|
|
Six Months Ended June 30, 2016 |
|
|
|
|
|
(dollars in thousands) |
|
|
|
During the period: |
|
|
|
|
|
Weighted-average interest rate |
|
|
0.49 |
% |
|
Average balance |
|
$ |
49,019 |
|
|
Total interest expense |
|
$ |
122 |
|
|
Maximum daily amount outstanding |
|
$ |
201,130 |
|
|
|
|
December 31, 2015 |
|
|
|
|
|
(dollars in thousands) |
|
|
|
Carrying value |
|
$ |
183,000 |
|
|
Weighted-average interest rate |
|
|
0.30 |
% |
|
Fair value of assets securing FHLB advances: |
|
|
|
|
|
Mortgage-backed securities |
|
$ |
8,720 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
63,993 |
|
|
Mortgage loans at fair value |
|
|
134,172 |
|
|
|
|
$ |
206,885 |
|
45
On March 31, 2015, the Company, through PMC, entered into a Loan and Security Agreement with Citibank, N.A., pursuant to which PMC may finance certain of its MSRs relating to mortgage loans pooled into Freddie Mac MBS in an aggregate loan amount not to exceed $125 million. The note matures on October 20, 2016.
On September 14, 2015, the Company, through PMC, entered into a Loan and Security Agreement with Barclays Bank PLC (“Barclays”), pursuant to which PMC may finance certain of its MSRs relating to mortgage loans pooled into Fannie Mae MBS in an aggregate loan amount not to exceed $200 million. The note matures on September 13, 2016, subject to a wind down period of up to one year following such maturity date.
Following is a summary of financial information relating to the notes payable:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate (1) |
|
|
4.63 |
% |
|
|
4.18 |
% |
|
|
4.65 |
% |
|
|
4.18 |
% |
|
Average balance |
|
$ |
188,330 |
|
|
$ |
104,797 |
|
|
$ |
200,973 |
|
|
$ |
52,981 |
|
|
Total interest expense |
|
$ |
2,991 |
|
|
$ |
994 |
|
|
$ |
6,334 |
|
|
$ |
994 |
|
|
Maximum daily amount outstanding |
|
$ |
211,103 |
|
|
$ |
192,352 |
|
|
$ |
234,476 |
|
|
$ |
192,352 |
|
|
(1) |
Excludes the effect of amortization of debt issuance costs of $788,000 and $1.6 million for the quarter and six months ended June 30, 2016, respectively, and $354,000 for the quarter and six months ended June 30, 2015, respectively. |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Carrying value: |
|
|
|
|
|
|
|
|
|
Amount outstanding |
|
$ |
164,003 |
|
|
$ |
236,107 |
|
|
Unamortized debt issuance costs |
|
|
(27 |
) |
|
|
(92 |
) |
|
|
|
$ |
163,976 |
|
|
$ |
236,015 |
|
|
Weighted-average interest rate |
|
|
4.32 |
% |
|
|
4.53 |
% |
|
MSRs pledged to secure notes payable |
|
$ |
471,458 |
|
|
$ |
459,741 |
|
Note 17—Asset-Backed Financing of a Variable Interest Entity at Fair Value
Following is a summary of financial information relating to the asset-backed financing of a VIE:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value |
|
$ |
334,233 |
|
|
$ |
159,236 |
|
|
$ |
325,112 |
|
|
$ |
162,361 |
|
|
Interest expense |
|
$ |
3,606 |
|
|
$ |
1,301 |
|
|
$ |
4,958 |
|
|
$ |
2,885 |
|
|
Weighted-average effective interest rate |
|
|
3.34 |
% |
|
|
3.23 |
% |
|
|
3.34 |
% |
|
|
3.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||
|
Carrying value |
|
$ |
325,939 |
|
|
$ |
247,690 |
|
|
|
|
|
|
|
|
|
|
UPB |
|
$ |
317,305 |
|
|
$ |
248,284 |
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
3.50 |
% |
|
|
3.50 |
% |
|
|
|
|
|
|
|
|
The asset-backed financing of a VIE is a non-recourse liability and secured solely by the assets of a consolidated VIE and not by any other assets of the Company. The assets of the VIE are the only source of funds for repayment of the certificates.
Note 18—Exchangeable Senior Notes
PMC issued in a private offering $250 million aggregate principal amount of the Exchangeable Notes due May 1, 2020. The Exchangeable Notes bear interest at a rate of 5.375% per year, payable semiannually. The Exchangeable Notes are exchangeable into common shares of the Company at a rate of 33.8667 common shares per $1,000 principal amount of the Exchangeable Notes as of
46
June 30, 2016, which is an increase over the initial exchange rate of 3 3.5149. The increase in the calculated exchange rate was the result of quarterly cash dividends exceeding the quarterly dividend threshold amount of $0.57 per share in prior reporting periods, as provided in the related indenture.
Following is financial information relating to the Exchangeable Notes:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average UPB |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
Interest expense (1) |
|
$ |
3,616 |
|
|
$ |
3,601 |
|
|
$ |
7,228 |
|
|
$ |
7,198 |
|
|
(1) |
Total interest expense includes amortization of debt issuance costs of $257,000 and $509,000 for the quarter and six months ended June 30, 2016, respectively, and $242,000 and $481,000 for the quarter and six months ended June 30, 2015, respectively. |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Carrying value: |
|
|
|
|
|
|
|
|
|
UPB |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
Unamortized debt issuance costs |
|
|
(4,436 |
) |
|
|
(4,946 |
) |
|
|
|
$ |
245,564 |
|
|
$ |
245,054 |
|
Note 19—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Balance, beginning of period |
|
$ |
18,712 |
|
|
$ |
15,379 |
|
|
$ |
20,171 |
|
|
$ |
14,242 |
|
|
Provision for losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
|
650 |
|
|
|
1,419 |
|
|
|
1,221 |
|
|
|
2,344 |
|
|
Adjustment to previously recorded amount due to change in estimate |
|
|
— |
|
|
|
— |
|
|
|
(1,724 |
) |
|
|
— |
|
|
Losses incurred |
|
|
(104 |
) |
|
|
(84 |
) |
|
|
(410 |
) |
|
|
(102 |
) |
|
Recoveries |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
230 |
|
|
Balance, end of period |
|
$ |
19,258 |
|
|
$ |
16,714 |
|
|
$ |
19,258 |
|
|
$ |
16,714 |
|
|
UPB of mortgage loans subject to representations and warranties at period end |
|
$ |
46,339,653 |
|
|
$ |
37,431,575 |
|
|
|
|
|
|
|
|
|
Note 20—Commitments and Contingencies
Litigation
From time to time, the Company may be involved in various proceedings, claims and legal actions arising in the ordinary course of business. As of June 30, 2016, the Company was not involved in any such proceedings, claims or legal actions that in management’s view would reasonably be likely to have a material adverse effect on the Company.
Mortgage Loan Commitments
The following table summarizes the Company’s outstanding contractual loan commitments:
|
|
|
June 30, 2016 |
|
|
|
|
|
(in thousands) |
|
|
|
Commitments to purchase mortgage loans acquired for sale |
|
$ |
1,658,813 |
|
|
|
|
|
|
|
47
Common Share Repurchases
During August 2015, the Company’s board of trustees authorized a common share repurchase program under which the Company may repurchase up to $150 million of its outstanding common shares. During February 2016, the Company’s board of trustees approved an increase to its share repurchase program pursuant to which the Company is now authorized to repurchase up to $200 million of its common shares. During the quarter and six months ended June 30, 2016, the Company repurchased 1.2 million and 6.3 million common shares at a cost of $18.4 million and $82.8 million, respectively, for a cumulative total of 7.4 million common shares repurchased at a cost of $99.2 million under the program. The repurchased common shares were canceled upon settlement of the repurchase transactions and returned to the authorized but unissued share pool.
Common Share Issuances
The Company has entered into an ATM Equity Offering Sales Agreement SM . During the six months ended June 30, 2016 and 2015, the Company did not sell any common shares under the agreement.
At June 30, 2016, the Company had approximately $106.9 million of common shares available for issuance under its ATM Equity Offering Sales Agreement SM .
Note 22—Net Interest Income
Net interest income is summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From nonaffiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
— |
|
|
$ |
82 |
|
|
$ |
377 |
|
|
$ |
302 |
|
|
Mortgage-backed securities |
|
|
2,756 |
|
|
|
2,505 |
|
|
|
5,468 |
|
|
|
5,139 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
13,596 |
|
|
|
10,315 |
|
|
|
22,860 |
|
|
|
17,416 |
|
|
Mortgage loans at fair value |
|
|
23,042 |
|
|
|
22,171 |
|
|
|
52,228 |
|
|
|
43,725 |
|
|
Mortgage loans at fair value held by a VIE |
|
|
4,951 |
|
|
|
4,429 |
|
|
|
10,480 |
|
|
|
9,842 |
|
|
Other |
|
|
1,708 |
|
|
|
13 |
|
|
|
1,991 |
|
|
|
24 |
|
|
|
|
|
46,053 |
|
|
|
39,515 |
|
|
|
93,404 |
|
|
|
76,448 |
|
|
From PFSI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESS purchased from PFSI, at fair value |
|
|
5,713 |
|
|
|
5,818 |
|
|
|
12,728 |
|
|
|
9,570 |
|
|
|
|
|
51,766 |
|
|
|
45,333 |
|
|
|
106,132 |
|
|
|
86,018 |
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To nonaffiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
|
22,056 |
|
|
|
20,208 |
|
|
|
42,468 |
|
|
|
39,120 |
|
|
Mortgage loan participation and sale agreements |
|
|
333 |
|
|
|
266 |
|
|
|
661 |
|
|
|
473 |
|
|
FHLB advances |
|
|
— |
|
|
|
2 |
|
|
|
122 |
|
|
|
2 |
|
|
Notes payable |
|
|
2,991 |
|
|
|
994 |
|
|
|
6,334 |
|
|
|
994 |
|
|
Asset-backed financings of VIEs at fair value (1) |
|
|
3,606 |
|
|
|
2,414 |
|
|
|
4,958 |
|
|
|
3,997 |
|
|
Exchangeable Notes |
|
|
3,616 |
|
|
|
3,601 |
|
|
|
7,228 |
|
|
|
7,198 |
|
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
1,589 |
|
|
|
1,291 |
|
|
|
2,561 |
|
|
|
2,464 |
|
|
Placement fees on mortgage loan impound deposits |
|
|
180 |
|
|
|
430 |
|
|
|
441 |
|
|
|
704 |
|
|
|
|
|
34,371 |
|
|
|
29,206 |
|
|
|
64,773 |
|
|
|
54,952 |
|
|
To PFSI—Note payable |
|
|
2,222 |
|
|
|
533 |
|
|
|
3,824 |
|
|
|
533 |
|
|
|
|
|
36,593 |
|
|
|
29,739 |
|
|
|
68,597 |
|
|
|
55,485 |
|
|
Net interest income |
|
$ |
15,173 |
|
|
$ |
15,594 |
|
|
$ |
37,535 |
|
|
$ |
30,533 |
|
|
(1) |
The results for the quarter and six months ended June 30, 2015 include interest expense from Asset-backed financing of a VIE at fair value and CRT Agreements financing at fair value. |
48
Note 23—Net Gain on Mortgage Loans Acquired for Sale
Net gain on mortgage loans acquired for sale is summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Cash loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
(18,461 |
) |
|
$ |
(51,218 |
) |
|
$ |
(21,480 |
) |
|
$ |
(58,762 |
) |
|
Hedging activities |
|
|
(29,118 |
) |
|
|
18,713 |
|
|
|
(61,694 |
) |
|
|
6,186 |
|
|
|
|
|
(47,579 |
) |
|
|
(32,505 |
) |
|
|
(83,174 |
) |
|
|
(52,576 |
) |
|
Non cash gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
|
|
60,109 |
|
|
|
32,176 |
|
|
|
96,271 |
|
|
|
59,636 |
|
|
Provision for losses relating to representations and warranties provided in mortgage loan sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loans sales |
|
|
(650 |
) |
|
|
(1,419 |
) |
|
|
(1,221 |
) |
|
|
(2,344 |
) |
|
Adjustment to previously recorded amount due to change in estimate |
|
|
— |
|
|
|
— |
|
|
|
1,724 |
|
|
|
— |
|
|
Change in fair value during the period of financial instruments held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
|
7,423 |
|
|
|
(8,481 |
) |
|
|
12,111 |
|
|
|
(5,927 |
) |
|
Mortgage loans |
|
|
5,015 |
|
|
|
14,551 |
|
|
|
11,752 |
|
|
|
18,277 |
|
|
Hedging derivatives |
|
|
(92 |
) |
|
|
6,853 |
|
|
|
1,812 |
|
|
|
4,269 |
|
|
|
|
|
12,346 |
|
|
|
12,923 |
|
|
|
25,675 |
|
|
|
16,619 |
|
|
|
|
$ |
24,226 |
|
|
$ |
11,175 |
|
|
$ |
39,275 |
|
|
$ |
21,335 |
|
Note 24—Net (Loss) Gain on Investments
Net (loss) gain on investments is summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Net (loss) gain on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
4,332 |
|
|
$ |
(6,702 |
) |
|
$ |
9,431 |
|
|
$ |
(5,186 |
) |
|
Mortgage loans at fair value |
|
|
(13,463 |
) |
|
|
30,068 |
|
|
|
932 |
|
|
|
47,254 |
|
|
Mortgage loans held in a VIE |
|
|
(48 |
) |
|
|
(12,077 |
) |
|
|
8,347 |
|
|
|
(10,277 |
) |
|
CRT Agreements |
|
|
7,764 |
|
|
|
— |
|
|
|
3,621 |
|
|
|
— |
|
|
Asset-backed financing of a VIE at fair value |
|
|
890 |
|
|
|
3,991 |
|
|
|
(8,963 |
) |
|
|
3,222 |
|
|
Hedging derivatives |
|
|
862 |
|
|
|
(1,255 |
) |
|
|
698 |
|
|
|
(11,294 |
) |
|
|
|
|
337 |
|
|
|
14,025 |
|
|
|
14,066 |
|
|
|
23,719 |
|
|
From PFSI—ESS |
|
|
(15,824 |
) |
|
|
8,589 |
|
|
|
(33,451 |
) |
|
|
2,342 |
|
|
|
|
$ |
(15,487 |
) |
|
$ |
22,614 |
|
|
$ |
(19,385 |
) |
|
$ |
26,061 |
|
49
Note 25—Net Mortgage Loan Servicing Fees
Net mortgage loan servicing fees are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Servicing fees (1) |
|
$ |
31,578 |
|
|
$ |
25,887 |
|
|
$ |
60,450 |
|
|
$ |
48,516 |
|
|
MSR recapture fee from PFSI |
|
|
311 |
|
|
|
— |
|
|
|
440 |
|
|
|
— |
|
|
Effect of MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
(15,531 |
) |
|
|
(9,988 |
) |
|
|
(29,818 |
) |
|
|
(19,580 |
) |
|
Provision for impairment |
|
|
(23,170 |
) |
|
|
7,082 |
|
|
|
(40,876 |
) |
|
|
703 |
|
|
Gain on sale |
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
|
|
83 |
|
|
Carried at fair value—change in fair value |
|
|
(4,941 |
) |
|
|
6,306 |
|
|
|
(16,356 |
) |
|
|
(3,510 |
) |
|
Gains on hedging derivatives |
|
|
27,433 |
|
|
|
(16,270 |
) |
|
|
57,394 |
|
|
|
(5,193 |
) |
|
|
|
|
(16,198 |
) |
|
|
(12,870 |
) |
|
|
(29,645 |
) |
|
|
(27,497 |
) |
|
Net mortgage loan servicing fees |
|
$ |
15,691 |
|
|
$ |
13,017 |
|
|
$ |
31,245 |
|
|
$ |
21,019 |
|
|
Average servicing portfolio |
|
$ |
45,647,524 |
|
|
$ |
35,742,835 |
|
|
$ |
44,531,795 |
|
|
$ |
35,215,677 |
|
|
(1) |
Includes contractually specified servicing and ancillary fees. |
Note 26—Share-Based Compensation Plans
As of June 30, 2016 and 2015, the Company had one share-based compensation plan. The Company recognized compensation expense of $2.0 million and $3.0 million for the quarter and six months ended June 30, 2016, respectively, and $1.1 million and $3.7 million for the quarter and six months ended June 30, 2015, respectively. The Company granted 330,076 restricted share units with a grant date fair value of $6.3 million during the quarter and six months ended June 30, 2016 and 294,684 restricted share units with a grant date fair value of $6.3 million during the quarter and six months ended June 30, 2015. The 2016 grant includes 112,079 performance-based awards. The Company had vestings of 222,533 and 298,581 restricted share units during the quarter and six months ended June 30, 2016, respectively, and 226,700 and 301,763 restricted share units during the quarter and six months ended June 30, 2015, respectively.
Note 27—Other Expenses
Other expenses are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Common overhead allocation from PFSI (1) |
|
$ |
2,434 |
|
|
$ |
2,546 |
|
|
$ |
4,996 |
|
|
$ |
4,937 |
|
|
Mortgage loan origination |
|
|
1,557 |
|
|
|
1,176 |
|
|
|
2,678 |
|
|
|
2,129 |
|
|
Real estate held for investment |
|
|
930 |
|
|
|
— |
|
|
|
1,487 |
|
|
|
— |
|
|
Technology |
|
|
332 |
|
|
|
311 |
|
|
|
766 |
|
|
|
603 |
|
|
Insurance |
|
|
316 |
|
|
|
302 |
|
|
|
634 |
|
|
|
675 |
|
|
Other |
|
|
946 |
|
|
|
861 |
|
|
|
1,590 |
|
|
|
1,708 |
|
|
|
|
$ |
6,515 |
|
|
$ |
5,196 |
|
|
$ |
12,151 |
|
|
$ |
10,052 |
|
|
(1) |
For the quarter ended June 30, 2015, in accordance with the terms of the Company’s management agreement, PCM provided the Company a discretionary waiver of $700,000 of overhead expenses that otherwise would have been allocable to the Company. On December 15, 2015, the Operating Partnership amended its management agreement to provide that the overhead costs and expenses incurred by PFSI in any quarter and reimbursable by the Operating Partnership is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of the month preceding quarter end, divided by four. |
Note 28—Income Taxes
The Company’s effective tax rate was 35.4% and (219.8)% for the quarter and six months ended June 30, 2016 and (11.9)% and (67.3)% for the quarter and six months ended June 30, 2015, respectively. The Company’s taxable REIT subsidiary recognized tax
50
benefits of $3.7 million and $6.1 million on losses of $9.3 million and $15.3 million while the Company reported a consolidated pretax loss of $8.2 million and pretax income of $2.9 million for the quarter and six months en ded June 30, 2016, respectively. For the same periods in 2015, the taxable REIT subsidiary recognized tax benefits of $1.1 million and $12.9 million on losses of $2.6 million and $31.3 million while the Company reported a consolidated pretax income of $25. 1 million and $21.3 million, respectively. The relative values between the tax benefit at the taxable REIT subsidiary and the Company’s consolidated pretax income drive the fluctuation in the effective tax rate. The primary difference between the Company’s effective tax rate and the statutory tax rate is due to non-taxable REIT income resulting from the dividends paid deduction.
In general, cash dividends declared by the Company will be considered ordinary income to shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or a return of capital.
Note 29—Segments and Related Information
Financial highlights by operating segment are summarized below:
|
|
|
Correspondent |
|
|
Investment |
|
|
|
|
|
||
|
Quarter ended June 30, 2016 |
|
production |
|
|
activities |
|
|
Total |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
13,415 |
|
|
$ |
38,351 |
|
|
$ |
51,766 |
|
|
Interest expense |
|
|
(7,951 |
) |
|
|
(28,642 |
) |
|
|
(36,593 |
) |
|
|
|
|
5,464 |
|
|
|
9,709 |
|
|
|
15,173 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
24,226 |
|
|
|
— |
|
|
|
24,226 |
|
|
Net loss on investments |
|
|
— |
|
|
|
(15,487 |
) |
|
|
(15,487 |
) |
|
Net mortgage loan servicing fees |
|
|
— |
|
|
|
15,691 |
|
|
|
15,691 |
|
|
Other income (loss) |
|
|
8,535 |
|
|
|
(520 |
) |
|
|
8,015 |
|
|
|
|
|
38,225 |
|
|
|
9,393 |
|
|
|
47,618 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
|
19,710 |
|
|
|
21,027 |
|
|
|
40,737 |
|
|
Other |
|
|
2,082 |
|
|
|
12,958 |
|
|
|
15,040 |
|
|
|
|
|
21,792 |
|
|
|
33,985 |
|
|
|
55,777 |
|
|
Pre-tax income (loss) |
|
$ |
16,433 |
|
|
$ |
(24,592 |
) |
|
$ |
(8,159 |
) |
|
Total assets at period end |
|
$ |
1,492,171 |
|
|
$ |
4,275,391 |
|
|
$ |
5,767,562 |
|
|
|
|
Correspondent |
|
|
Investment |
|
|
|
|
|
||
|
Quarter ended June 30, 2015 |
|
production |
|
|
activities |
|
|
Total |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
8,997 |
|
|
$ |
36,336 |
|
|
$ |
45,333 |
|
|
Interest expense |
|
|
(4,763 |
) |
|
|
(24,976 |
) |
|
|
(29,739 |
) |
|
|
|
|
4,234 |
|
|
|
11,360 |
|
|
|
15,594 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
11,175 |
|
|
|
— |
|
|
|
11,175 |
|
|
Net gain on investments |
|
|
— |
|
|
|
22,614 |
|
|
|
22,614 |
|
|
Net mortgage loan servicing fees |
|
|
— |
|
|
|
13,017 |
|
|
|
13,017 |
|
|
Other income |
|
|
7,352 |
|
|
|
13 |
|
|
|
7,365 |
|
|
|
|
|
22,761 |
|
|
|
47,004 |
|
|
|
69,765 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
|
15,785 |
|
|
|
17,463 |
|
|
|
33,248 |
|
|
Other |
|
|
1,754 |
|
|
|
9,675 |
|
|
|
11,429 |
|
|
|
|
|
17,539 |
|
|
|
27,138 |
|
|
|
44,677 |
|
|
Pre-tax income |
|
$ |
5,222 |
|
|
$ |
19,866 |
|
|
$ |
25,088 |
|
|
Total assets at period end |
|
$ |
2,243,570 |
|
|
$ |
4,433,804 |
|
|
$ |
6,677,374 |
|
51
|
|
|
Correspondent |
|
|
Investment |
|
|
|
|
|
||
|
Six months ended June 30, 2016 |
|
production |
|
|
activities |
|
|
Total |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
22,439 |
|
|
$ |
83,693 |
|
|
$ |
106,132 |
|
|
Interest expense |
|
|
(13,070 |
) |
|
|
(55,527 |
) |
|
|
(68,597 |
) |
|
|
|
|
9,369 |
|
|
|
28,166 |
|
|
|
37,535 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
39,275 |
|
|
|
— |
|
|
|
39,275 |
|
|
Net loss on investments |
|
|
— |
|
|
|
(19,385 |
) |
|
|
(19,385 |
) |
|
Net mortgage loan servicing fees |
|
|
— |
|
|
|
31,245 |
|
|
|
31,245 |
|
|
Other income (loss) |
|
|
15,373 |
|
|
|
(4,209 |
) |
|
|
11,164 |
|
|
|
|
|
64,017 |
|
|
|
35,817 |
|
|
|
99,834 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
|
33,064 |
|
|
|
37,413 |
|
|
|
70,477 |
|
|
Other |
|
|
3,609 |
|
|
|
22,863 |
|
|
|
26,472 |
|
|
|
|
|
36,673 |
|
|
|
60,276 |
|
|
|
96,949 |
|
|
Pre-tax income (loss) |
|
$ |
27,344 |
|
|
$ |
(24,459 |
) |
|
$ |
2,885 |
|
|
Total assets at period end |
|
$ |
1,492,171 |
|
|
$ |
4,275,391 |
|
|
$ |
5,767,562 |
|
|
|
|
Correspondent |
|
|
Investment |
|
|
|
|
|
||
|
Six months ended June 30, 2015 |
|
production |
|
|
activities |
|
|
Total |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
16,109 |
|
|
$ |
69,909 |
|
|
$ |
86,018 |
|
|
Interest expense |
|
|
(8,583 |
) |
|
|
(46,902 |
) |
|
|
(55,485 |
) |
|
|
|
|
7,526 |
|
|
|
23,007 |
|
|
|
30,533 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
21,335 |
|
|
|
— |
|
|
|
21,335 |
|
|
Net gain on investments |
|
|
— |
|
|
|
26,061 |
|
|
|
26,061 |
|
|
Net mortgage loan servicing fees |
|
|
— |
|
|
|
21,019 |
|
|
|
21,019 |
|
|
Other income (loss) |
|
|
12,703 |
|
|
|
(4,229 |
) |
|
|
8,474 |
|
|
|
|
|
41,564 |
|
|
|
65,858 |
|
|
|
107,422 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment, servicing and management fees payable to PFSI |
|
|
28,956 |
|
|
|
34,831 |
|
|
|
63,787 |
|
|
Other |
|
|
2,938 |
|
|
|
19,429 |
|
|
|
22,367 |
|
|
|
|
|
31,894 |
|
|
|
54,260 |
|
|
|
86,154 |
|
|
Pre-tax income |
|
$ |
9,670 |
|
|
$ |
11,598 |
|
|
$ |
21,268 |
|
|
Total assets at period end |
|
$ |
2,243,570 |
|
|
$ |
4,433,804 |
|
|
$ |
6,677,374 |
|
52
Note 30—Supplemental Cash Flow Information
|
|
|
Six months ended June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash paid for interest |
|
$ |
76,198 |
|
|
$ |
53,449 |
|
|
Income taxes paid, net |
|
$ |
388 |
|
|
$ |
401 |
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
Receipt of MSRs as proceeds from sales of mortgage loans |
|
$ |
96,271 |
|
|
$ |
59,636 |
|
|
Transfer of mortgage loans and advances to real estate acquired in settlement of loans |
|
$ |
114,052 |
|
|
$ |
158,078 |
|
|
Transfer of real estate acquired in settlement of mortgage loans to real estate held for investment |
|
$ |
12,266 |
|
|
$ |
1,548 |
|
|
Receipt of ESS pursuant to recapture agreement with PFSI |
|
$ |
3,601 |
|
|
$ |
2,565 |
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Transfer of mortgage loans at fair value financed under agreements to repurchase to REO financed under agreements to repurchase |
|
$ |
15,191 |
|
|
$ |
24,972 |
|
|
Dividends payable |
|
$ |
32,082 |
|
|
$ |
46,074 |
|
Note 31—Regulatory Capital and Liquidity Requirements
PMC is a seller-servicer for Fannie Mae and Freddie Mac. The Company is required to comply with the following minimum capital and liquidity eligibility requirements to remain in good standing with each Agency:
|
|
· |
A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential mortgage loans serviced; |
|
|
· |
A tangible net worth/total assets ratio greater than or equal to 6%; and |
|
|
· |
Liquidity equal to or exceeding 3.5 basis points multiplied by the aggregate UPB of all mortgages secured by 1-4 unit residential properties serviced for Freddie Mac and Fannie Mae (“Agency Mortgage Servicing”) plus 200 basis points multiplied by the sum of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that exceeds 6% of Agency Mortgage Servicing. |
Such Agencies’ capital and liquidity requirements, the calculations of which are defined by each entity, are summarized below:
|
|
|
June 30, 2016 |
|
|||||||||||||||||||||
|
|
|
Net Worth (1) |
|
|
Tangible Net Worth / Total Assets Ratio (1) |
|
|
Liquidity (1) |
|
|||||||||||||||
|
Agency |
|
Actual |
|
|
Required |
|
|
Actual |
|
|
Required |
|
|
Actual |
|
|
Required |
|
||||||
|
|
|
(in thousands) |
|
|
(in thousands) |
|
|
(in thousands) |
|
|||||||||||||||
|
Fannie Mae |
|
$ |
402,793 |
|
|
$ |
120,219 |
|
|
|
13 |
% |
|
|
6 |
% |
|
$ |
67,636 |
|
|
$ |
16,481 |
|
|
Freddie Mac |
|
$ |
402,793 |
|
|
$ |
120,219 |
|
|
|
13 |
% |
|
|
6 |
% |
|
$ |
67,636 |
|
|
$ |
16,481 |
|
|
(1) |
Calculated in compliance with the respective Agency’s requirements. |
Noncompliance with the respective Agency’s capital and liquidity requirements can result in the respective Agency taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the respective Agency.
Note 32—Recently Issued Accounting Pronouncements
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted ASU 2015-02 effective January 1, 2016. The adoption of ASU 2015-02 had no effect on the Company’s consolidated financial statements.
53
On January 5, 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option, the presentation and disclosure requirements for financial instruments, and the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.
ASU 2016-01 requires that:
|
|
· |
All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings. |
|
|
· |
When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The accumulated gains and losses due to these changes will be reclassified from accumulated other comprehensive income to earnings if the financial liability is settled before maturity. |
|
|
· |
For financial instruments measured at amortized cost, public business entities will be required to use the exit price when measuring the fair value of financial instruments for disclosure purposes. |
|
|
· |
Financial assets and financial liabilities shall be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or fair value) and form of financial asset (e.g., loans, securities). |
|
|
· |
Public business entities will no longer be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost. |
|
|
· |
Entities will have to assess the realizability of a deferred tax asset related to a debt security classified as available for sale in combination with the entity’s other deferred tax assets. |
The classification and measurement guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income is permitted and can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. The Company is currently assessing the potential effect that the adoption of ASU 2016-01 will have on its consolidated financial statements.
In March of 2016, The FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including:
|
|
· |
Modifies the accounting for income taxes relating to share-based payments. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) will be recognized as income tax expense or benefit in the consolidated statement of operations. The tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. An entity will recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Under current GAAP, excess tax benefits are recognized in additional paid-in capital; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the consolidated statement of operations in the period they reduce income taxes payable. |
|
|
· |
Changes the classification of excess tax benefits on the consolidated statement of cash flows. In the consolidated statement of cash flows, excess tax benefits will be classified along with other income tax cash flows as an operating activity. Under current GAAP, excess tax benefits are separated from other income tax cash flows and classified as a financing activity. |
|
|
· |
Changes the requirement to estimate the number of awards that are expected to vest. Under ASC 2016-09, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest as presently required or account for forfeitures when they occur. Under current GAAP, accruals of compensation cost are based on the number of awards that are expected to vest. |
54
|
|
· |
Establishes GAAP for the classification of employee taxes paid when an employer withholds shares for tax withholding purposes. Cash paid by an employer when directly withholding shares for tax- withholding purposes should be classified as a financing activity. This guidance establishes GAAP related to the classification of withholding taxes in the statement of cash flows as there is no such guidance under current GAAP. |
ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. The Company is currently assessing the potential effect that the adoption of ASU 2016-09 will have on its consolidated financial statements.
55
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and the related notes of PennyMac Mortgage Investment Trust (“PMT”) included within this Quarterly Report on Form 10-Q.
Statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.
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 PMT.
Our Company
We are a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We have pursued this objective largely by investing in distressed mortgage assets and acquiring, pooling and selling newly originated prime credit quality residential mortgage loans (“correspondent production”) and retaining the mortgage servicing rights (“MSRs”). We have also invested in excess servicing spread (“ESS”) on MSRs acquired by PennyMac Loan Services, LLC (“PLS”). In 2015, we began investing in credit risk transfer agreements (“CRT Agreements”) on certain of the mortgage loans acquired through our correspondent production activity.
We are externally managed by PNMAC Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on, residential mortgage loans. Most of our mortgage loan portfolio is serviced by PLS.
We have invested in distressed mortgage loans through direct acquisitions of mortgage loan portfolios from institutions such as banks and mortgage companies. A substantial portion of the nonperforming mortgage loans we have purchased has been acquired from or through one or more subsidiaries of Citigroup Inc.
We seek to maximize the value of the distressed mortgage loans that we acquired using means that are appropriate for the particular loan, including both proprietary and nonproprietary loan modification programs, special servicing and other initiatives focused on avoiding foreclosure, when possible. When we are unable to effect a cure for a mortgage loan delinquency, our objective is timely acquisition and/or liquidation of the property securing the mortgage loan through the use, in part, of short sales and deed-in-lieu of foreclosure programs. During the quarter and six months ended June 30, 2016, we did not acquire distressed mortgage loans and we received proceeds from liquidation, payoffs, paydowns and sales from our portfolio of mortgage loans and real estate acquired in settlement of loans (“REO”) totaling $481.3 million and $594.0 million, respectively. During the quarter and six months ended June 30, 2015, we acquired distressed mortgage loans with fair values totaling zero and $242.0 million and we received proceeds from liquidation, payoffs, paydowns and sales from our portfolio of mortgage loans and REO totaling $150.0 million and $275.6 million, respectively.
During the quarter and six months ended June 30, 2016, we purchased newly originated prime credit quality loans with fair values totaling $15.3 billion and $25.5 billion, respectively, as compared to $12.5 billion and $20.8 billion for the same periods in 2015, in furtherance of our correspondent production business. To the extent that we purchase mortgage loans that are insured by the U.S. Department of Housing and Urban Development (“HUD”) through the Federal Housing Administration (the “FHA”), or insured or guaranteed by the Veterans Administration (the “VA”) or U.S. Department of Agriculture (“USDA”), we and PLS have agreed that PLS will fulfill and purchase such mortgage loans, as PLS is a Ginnie Mae-approved issuer and we are not. This arrangement has enabled us to compete with other correspondent lenders that purchase both government and conventional mortgage loans. We receive a sourcing fee from PLS of three basis points on the unpaid principal balance (“UPB”) of each mortgage loan that we sell to PLS under such arrangement, and earn interest income on the mortgage loan for the period we hold the mortgage loan prior to the sale to PLS. During the quarter and six months ended June 30, 2016, we received sourcing fees totaling $2.8 million and $4.8 million,
56
respectively, relating to $9.4 billion and $15.9 billion in UPB of mortgage loan s at fair value that we sold to PLS, as compared to $2.4 million and $3.8 million relating to $8.1 billion and $12.8 billion in UPB of loans that we sold to PLS for the same periods in 2015.
During the quarter and six months ended June 30, 2016, we received MSRs with fair values at initial recognition totaling $60.1 million and $96.3 million, respectively, compared to $32.2 million and $59.6 million for the same periods in 2015.
We believe that Ginnie Mae ESS is an attractive long-term investment that allows us to leverage the mortgage loan servicing and origination capabilities of PLS and ESS can act as a hedge for us against the interest-rate sensitivity of other assets, such as MBS or the inventory of our correspondent production business. During the quarter and six months ended June 30, 2016, we did not purchase any ESS from PFSI. We received $1.7 million and $3.6 million, respectively, pursuant to a recapture agreement with PFSI, compared to purchases of $140.9 million and $187.3 million and receipt of $1.3 million and $2.6 million of ESS pursuant to such recapture agreement for the same periods in 2015.
We believe that CRT Agreements are an attractive long-term investment that can produce attractive risk-adjusted returns through our own mortgage production while aligning with Fannie Mae’s strategic goal to attract private capital investment in GSE credit risk. We believe there is significant potential for deploying additional capital into front-end credit risk transfer and MSRs that result from our correspondent production activities as we redeploy capital from the liquidation of distressed whole loans. During the quarter and six months ended June 30, 2016, we made investments in CRT Agreements totaling $126.0 million and $192.7 million, respectively.
We supplement these activities through our participation in other mortgage-related activities, including:
|
|
· |
Acquisition of REIT-eligible mortgage-backed or mortgage-related securities. We purchased MBS and Agency debt securities with fair values totaling $199.2 million and $249.9 million during the quarter and six months ended June 30, 2016, respectively, as compared to zero and $25.1 million for the same periods in 2015. |
|
|
· |
Acquisition of small balance (typically under $10 million) commercial real estate loans. During the quarter and six months ended June 30, 2016, we acquired $1.3 million and $6.1 million in fair value of small balance commercial real estate loans. |
|
|
· |
To the extent that we transfer correspondent production loans into private label securitizations, retention of a portion of the securities created in the securitization transaction. Our private label securitization is accounted for as a financing arrangement. Sales of securities included in the securitization are treated as issuances of debt. During the six months ended June 30, 2016, we issued $99.5 million in fair value of such securities. |
Our board of trustees has authorized a repurchase program under which we may repurchase up to $200 million of our outstanding common shares. During the quarter and six months ended June 30, 2016, we repurchased 1.2 million and 6.3 million common shares at a cost of $18.4 million and $82.8 million, respectively, for a cumulative total of 7.4 million common shares repurchased at a cost of $99.2 million under the program. The repurchased common shares were canceled upon settlement of the repurchase transactions and returned to the authorized but unissued share pool.
We believe that we qualify to be taxed as a REIT. We believe that we will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet certain asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification. A portion of our activities, including our correspondent production business, is conducted in our TRS, which is subject to corporate federal and state income taxes. Accordingly, we have made a provision for income taxes with respect to the operations of our TRS. We expect that the effective rate for the provision for income taxes may be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to us as a REIT.
Observations on Current Market Conditions
Our business is affected by macroeconomic conditions in the United States, including economic growth, unemployment rates, the residential housing market and interest rate levels and expectations. The U.S. economy continues to grow, as reflected in recent economic data. During the second quarter of 2016, U.S. real gross domestic product expanded at an annual rate of 1.2%, compared to 2.6% for the second quarter of 2015 and 0.8% for the first quarter of 2016. The national seasonally adjusted unemployment rate was 4.9% at June 30, 2016, 5.0% at March 31, 2016 and 5.3% at June 30, 2015. Delinquency rates on residential real estate loans remain elevated compared to historical rates, but have been steadily declining. As reported by the Federal Reserve Bank, during the first quarter of 2016, the delinquency rate on residential real estate loans held by commercial banks was 4.8%, a reduction from 6.2% during the first quarter of 2015.
57
Residential real estate activity appears to be expanding. The seasonally adjusted annual rate of existing home sales for June 2016 was 3.0% higher than for June 2015, and the national median existi ng home price for all housing types was $247,700, a 4.8% increase from June 2015 (Source: National Association of Realtors®). On a national level, foreclosure filings during the quarter ended June 30, 2016 decreased by 14% as compared to the quarter ended June 30, 2015. However, foreclosure activity is expected to remain above historical average levels through 2016 and beyond.
Changes in fixed-rate residential mortgage loan interest rates generally follow changes in long-term U.S. Treasury yields. Thirty-year fixed mortgage interest rates ranged from a low of 3.48% to a high of 3.66% during the second quarter of 2016 while during the second quarter of 2015, thirty-year fixed mortgage interest rates ranged from a low of 3.65% to a high of 4.04% (Source: Freddie Mac’s Weekly Primary Mortgage Market Survey). Interest rates generally declined in the second quarter of 2016 and generally increased in the second quarter of 2015. This impacted MSR and other interest rate sensitive asset valuations and production activity.
Mortgage lenders originated an estimated $510 billion of home loans during the second quarter of 2016, up 4.1% from the second quarter of 2015. Total mortgage originations are forecast to be somewhat higher in 2016 versus 2015, with current industry estimates for 2016 averaging $1.8 trillion (Source: average of Fannie Mae, Freddie Mac and Mortgage Bankers Association forecasts).
We believe that there is significant long-term market opportunity to invest in GSE CRT Agreements on certain of the loans acquired through our correspondent production activity. CRT Agreements align with the Federal Housing Finance Agency’s (“FHFA”) desire to reduce taxpayer risk by transferring some of the credit risk from Fannie Mae and Freddie Mac to private sector participants. FHFA, in its capacity as conservator of Fannie Mae and Freddie Mac, has included in its 2016 scorecard for both GSEs a target to transfer credit risk on at least 90% of the UPB of newly acquired single-family mortgages in certain loan categories. Those loan categories include non-Home Affordable Refinance Program, fixed-rate terms greater than 20 years, and loan-to-value ratios above 60%. This continues the trend of increasing the volume of loans subject to CRT Agreements. For example, FHFA required each GSE to share the risk on at least $30 billion in UPB in 2013, $90 billion in 2014, and $120 billion for Freddie Mac and $150 million for Fannie Mae in 2015. In addition, under the 2016 scorecard, the GSEs have been directed to work with FHFA to conduct an analysis and assessment of front-end CRT Agreements, such as our CRT Agreements, and to take appropriate steps to continue them. In front-end CRT Agreements, a lender or aggregator retains a portion of the credit risk associated with the loans they sell to Fannie Mae or Freddie Mac through an arrangement entered into prior to the delivery of the loans to the GSE.
We believe there is long-term market opportunity for the production of non-Agency jumbo mortgage loans. However, most new jumbo mortgage loans are either being originated or purchased by banks, and the current market for jumbo mortgage loan securitizations is limited, as evidenced by weak demand and inconsistent pricing observed throughout 2015 and the first half of 2016. Prime jumbo securitizations totaled $0.9 billion in UPB in the second quarter of 2016, a decrease from $2.8 billion in the second quarter of 2015. During the six months ended June 30, 2016, we produced approximately $13 million in UPB of jumbo loans compared to $91 million in UPB of jumbo loans produced during the six months ended June 30, 2015.
Our Manager expects to see a continued supply of distressed whole loans; however, we believe the pricing for recent transactions has been less attractive for buyers. We are transitioning away from distressed whole loans to correspondent-related investments such as CRT and MSRs, and we continue to monitor the market to assess best execution opportunities for our existing distressed portfolio investments.
58
The following is a summary of our key performance measures:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
|
Net investment income |
|
$ |
47,618 |
|
|
$ |
69,765 |
|
|
$ |
99,834 |
|
|
$ |
107,422 |
|
|
Expenses |
|
|
(55,777 |
) |
|
|
(44,677 |
) |
|
|
(96,949 |
) |
|
|
(86,154 |
) |
|
Benefit from income taxes |
|
|
2,892 |
|
|
|
2,983 |
|
|
|
6,344 |
|
|
|
14,311 |
|
|
Net (loss) income |
|
$ |
(5,267 |
) |
|
$ |
28,071 |
|
|
$ |
9,229 |
|
|
$ |
35,579 |
|
|
Pre-tax income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production |
|
$ |
16,433 |
|
|
$ |
5,222 |
|
|
$ |
27,344 |
|
|
$ |
9,670 |
|
|
Investment activities |
|
|
(24,592 |
) |
|
$ |
19,866 |
|
|
|
(24,459 |
) |
|
|
11,598 |
|
|
|
|
$ |
(8,159 |
) |
|
$ |
25,088 |
|
|
$ |
2,885 |
|
|
$ |
21,268 |
|
|
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.08 |
) |
|
$ |
0.37 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
Diluted |
|
$ |
(0.08 |
) |
|
$ |
0.36 |
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
Dividends per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared and paid |
|
$ |
0.47 |
|
|
$ |
0.61 |
|
|
$ |
0.94 |
|
|
$ |
1.22 |
|
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans and REO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
241,981 |
|
|
Cash proceeds from liquidation activities |
|
$ |
481,266 |
|
|
$ |
149,990 |
|
|
$ |
594,039 |
|
|
$ |
275,562 |
|
|
MBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
$ |
199,223 |
|
|
$ |
— |
|
|
$ |
249,925 |
|
|
$ |
25,129 |
|
|
Cash proceeds from repayment and sales |
|
$ |
35,293 |
|
|
$ |
21,942 |
|
|
$ |
49,141 |
|
|
$ |
39,744 |
|
|
ESS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases from PFSI |
|
$ |
— |
|
|
$ |
140,875 |
|
|
$ |
— |
|
|
$ |
187,287 |
|
|
Cash proceeds from repayment and sales |
|
$ |
17,400 |
|
|
$ |
18,352 |
|
|
$ |
97,326 |
|
|
$ |
31,083 |
|
|
CRT Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash deposited |
|
$ |
126,031 |
|
|
$ |
— |
|
|
$ |
192,737 |
|
|
$ |
— |
|
|
Distributions received |
|
$ |
4,614 |
|
|
$ |
— |
|
|
$ |
7,320 |
|
|
$ |
— |
|
|
Per share closing prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
16.23 |
|
|
$ |
21.76 |
|
|
$ |
16.23 |
|
|
$ |
22.99 |
|
|
Low |
|
$ |
13.07 |
|
|
$ |
17.43 |
|
|
$ |
11.21 |
|
|
$ |
17.43 |
|
|
At period end |
|
$ |
16.23 |
|
|
$ |
17.43 |
|
|
$ |
16.23 |
|
|
$ |
17.43 |
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
Total assets (in thousands) |
|
$ |
5,767,562 |
|
|
$ |
5,826,924 |
|
|
Book value per share |
|
$ |
20.09 |
|
|
$ |
20.28 |
|
During the quarter and six months ended June 30, 2016, we recorded a net loss of $5.3 million, or $(0.08) per diluted share, and net income of $9.2 million, or $0.12 per diluted share, respectively. Our net income for the quarter and six months ended June 30, 2016 reflects net interest income of $15.2 million and $37.5 million, supplemented by $15.7 million and $31.2 million of net mortgage loan servicing fees, respectively. During the quarter and six months ended June 30, 2016, we purchased $15.3 billion and $25.5 billion, respectively, in fair value of newly originated mortgage loans. We recognized net gains on such loans totaling approximately $24.2 million and $39.3 million, respectively, including $60.1 million and $96.3 million of MSRs retained upon sale of such loans, respectively. At June 30, 2016, we held mortgage loans acquired for sale with fair values totaling $1.5 billion, $619.0 million of which were pending sale to PLS.
During the quarter and six months ended June 30, 2015, we recorded net income of $28.1 million, or $0.36 per diluted share, and $35.6 million, or $0.46 per diluted share, respectively. Our net income for the quarter and six months ended June 30, 2015 reflects net interest income of $15.6 million and $30.5 million, respectively, supplemented by net gains on our investments in financial instruments totaling $22.6 million and $26.1 million and net mortgage loan servicing fees of $13.0 million and $21.0 million, respectively. During the quarter and six months ended June 30, 2015, we purchased $12.5 billion and $20.8 billion, respectively, in fair value of newly originated
59
mortgage loans. We recognized gains on such loans totaling approximately $11.2 million and $21.3 million, respectively, including $32.2 million and $59.6 million of MSRs retained upon securitization or sale of such loans, respectivel y.
Our net income decreased during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, primarily due to a decrease in pretax income in our investment activities segment of $44.5 million and $36.1 million from pretax income of $19.9 million and $11.6 million to a pretax loss of $24.6 million and $24.5 million, respectively. During the quarter and six months ended June 30, 2016, our investment activities segment recognized net investment income totaling $9.4 million and $35.8 million, respectively, a decrease of $37.6 million and $30.0 million from $47.0 million and $65.9 million during the same periods in 2015, primarily due to losses from our investments in ESS and mortgage loans at fair value which reflects the effects of increased prepayment expectations in the portfolios of MSRs underlying our investments in ESS and of the effect of our expectations of longer liquidation periods and lower home price appreciation for certain of our nonperforming loans. Longer liquidation periods increase our expectations of liquidation costs, which reduce our cash flow expectations from the mortgage loans, and decrease the present value of the expected cash flows.
In our correspondent production activities, our net investment income increased during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, by $15.5 million and $22.5 million from $22.8 million and $41.6 million to $38.2 million and $64.0 million, respectively. We received proceeds of $5.2 billion and $8.5 billion from the sale of mortgage loans to nonaffiliates and issued $6.0 billion and $9.8 billion of IRLCs relating to Agency and jumbo mortgage loans in the quarter and six months ended June 30, 2016, respectively, an increase of $1.5 billion and $1.9 billion from the same periods in 2015. Our net gain on mortgage loans acquired for sale increased due to both the increase in mortgage loan volume and higher margins, both of which were driven by an increased market size and larger customer base.
During the quarter and six months ended June 30, 2016, we recorded net investment income of $47.6 million and $99.8 million, respectively, comprised primarily of $24.2 million and $39.3 million of net gain on mortgage loans acquired for sale, $15.2 million and $37.5 million of net interest income, $15.7 million and $31.2 million of net loan servicing fees, and $8.5 million and $15.4 million of loan origination fees, partially offset by $2.6 million and $8.6 million of losses from results of REO and $15.5 million and $19.4 million of net loss on investments. During the quarter and six months ended June 30, 2015, we recorded net investment income of $69.8 million and $107.4 million, respectively, comprised primarily of $11.2 million and $21.3 million of net gain on mortgage loans acquired for sale, net interest income of $15.6 million and $30.5 million, $13.0 million and $21.0 million of net loan servicing fees, $7.3 million and $12.6 million of loan origination fees, and $22.6 million and $26.1 million of net gain on investments, partially offset by $1.8 million and $7.6 million of losses from results of REO.
Net investment income includes non-cash fair value adjustments and the fair value of assets created and liabilities incurred in mortgage loan sale transactions. Because we have elected to record our financial assets (comprised of MBS, mortgage loans acquired for sale at fair value, mortgage loans at fair value, and ESS), a portion of our MSRs and our asset-backed financing at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value. Net investment income also includes non-cash fair value adjustments related to IRLCs, CRT Agreements and the related derivatives we use to hedge certain of our investments and liabilities and non-cash interest income arising from capitalization of delinquent interest on mortgage loans upon completion of the modification of such loans and accrual of unearned discounts relating to mortgage loans held in a VIE.
60
The amounts of non-cash income (loss) items included in net investment income are as follow s:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of interest pursuant to mortgage loan modifications |
|
$ |
16,421 |
|
|
$ |
9,921 |
|
|
$ |
39,715 |
|
|
$ |
20,130 |
|
|
Accrual of unearned discounts and amortization of premiums on MBS, mortgage loans and asset-backed financing |
|
|
(4,974 |
) |
|
|
(283 |
) |
|
|
1,086 |
|
|
|
119 |
|
|
|
|
|
11,447 |
|
|
|
9,638 |
|
|
|
40,801 |
|
|
|
20,249 |
|
|
Net gain on mortgage loans acquired for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
|
|
60,109 |
|
|
|
32,176 |
|
|
|
96,271 |
|
|
|
59,636 |
|
|
Provision for losses relating to representations and warranties provided in mortgage loan sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loans sales |
|
|
(650 |
) |
|
|
(1,419 |
) |
|
|
(1,221 |
) |
|
|
(2,344 |
) |
|
Adjustment to previously recorded amount due to chance in estimate |
|
|
— |
|
|
|
— |
|
|
|
1,724 |
|
|
|
— |
|
|
Change in fair value during the period of financial instruments held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
|
7,423 |
|
|
|
(8,481 |
) |
|
|
12,111 |
|
|
|
(5,927 |
) |
|
Mortgage loans acquired for sale |
|
|
5,015 |
|
|
|
14,551 |
|
|
|
11,752 |
|
|
|
18,277 |
|
|
Hedging derivatives |
|
|
(92 |
) |
|
|
6,853 |
|
|
|
1,812 |
|
|
|
4,269 |
|
|
|
|
|
71,805 |
|
|
|
43,680 |
|
|
|
122,449 |
|
|
|
73,911 |
|
|
Net gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
3,713 |
|
|
|
(4,288 |
) |
|
|
7,433 |
|
|
|
(3,179 |
) |
|
Non Agency |
|
|
619 |
|
|
|
(2,414 |
) |
|
|
1,998 |
|
|
|
(2,007 |
) |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
(14,275 |
) |
|
|
27,175 |
|
|
|
(1,427 |
) |
|
|
42,602 |
|
|
at fair value held in a variable interest entity |
|
|
(48 |
) |
|
|
(12,077 |
) |
|
|
8,347 |
|
|
|
(10,277 |
) |
|
ESS |
|
|
(15,824 |
) |
|
|
8,589 |
|
|
|
(33,451 |
) |
|
|
2,342 |
|
|
CRT Agreements |
|
|
3,905 |
|
|
|
— |
|
|
|
(2,774 |
) |
|
|
— |
|
|
Asset-backed financing of a VIE |
|
|
890 |
|
|
|
3,991 |
|
|
|
(8,963 |
) |
|
|
3,222 |
|
|
|
|
|
(21,020 |
) |
|
|
20,976 |
|
|
|
(28,837 |
) |
|
|
32,703 |
|
|
Net loan servicing fees—MSR valuation adjustments |
|
|
(25,678 |
) |
|
|
15,170 |
|
|
|
(52,336 |
) |
|
|
596 |
|
|
|
|
$ |
36,554 |
|
|
$ |
89,464 |
|
|
$ |
82,077 |
|
|
$ |
127,459 |
|
|
Net investment income |
|
$ |
47,618 |
|
|
$ |
69,765 |
|
|
$ |
99,834 |
|
|
$ |
107,422 |
|
|
Non-cash items as a percentage of net investment income |
|
|
77 |
% |
|
|
128 |
% |
|
|
82 |
% |
|
|
119 |
% |
Cash is generated when mortgage loan investments are monetized through payoffs, paydowns or sales, when payments of principal and interest occur on such mortgage loans, generally after they are modified, or when the property securing a mortgage loan that has been settled through acquisition of the property securing the mortgage loan has been sold. We receive proceeds on the sale of mortgage loans acquired for sale that include both cash and our estimate of the fair value of MSRs and we recognize a liability for potential losses relating to representations and warranties created in the mortgage loan sales transactions. We receive cash related to MSRs in the form of mortgage loan servicing fees and we pay cash relating to our provision for representations and warranties when we repurchase mortgage loans from investors. Cash flows relating to hedging instruments are generally produced when the instruments mature or when we effectively cancel the transactions through an offsetting trade.
61
The following table illustrates the proceeds received during the period from dispositions and paydowns of distressed mortgage loan investments and REO, net gain in fair value that we accumulated over the period during which we owned mortgage l oan investments and REO liquidated during the period, and additional net gain realized upon liquidation of such assets:
|
|
|
Quarter ended June 30, |
|
|||||||||||||||||||||
|
|
|
2016 |
|
|
2015 |
|
||||||||||||||||||
|
|
|
Proceeds |
|
|
Accumulated gains (losses) (1) |
|
|
Gain on liquidation (2) |
|
|
Proceeds |
|
|
Accumulated gains (1) |
|
|
Gain on liquidation (2) |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Mortgage loans |
|
$ |
43,360 |
|
|
$ |
4,813 |
|
|
$ |
1,208 |
|
|
$ |
66,535 |
|
|
$ |
7,108 |
|
|
$ |
2,893 |
|
|
REO |
|
|
70,666 |
|
|
|
(348 |
) |
|
|
4,718 |
|
|
|
62,122 |
|
|
|
2,089 |
|
|
|
4,800 |
|
|
|
|
|
114,026 |
|
|
|
4,465 |
|
|
|
5,926 |
|
|
|
128,657 |
|
|
|
9,197 |
|
|
|
7,693 |
|
|
Performing mortgage loan sale |
|
|
344,302 |
|
|
|
59,812 |
|
|
|
(396 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
458,328 |
|
|
$ |
64,277 |
|
|
$ |
5,530 |
|
|
$ |
128,657 |
|
|
$ |
9,197 |
|
|
$ |
7,693 |
|
|
|
|
Six months ended June 30, |
|
|||||||||||||||||||||
|
|
|
2016 |
|
|
2015 |
|
||||||||||||||||||
|
|
|
Proceeds |
|
|
Accumulated gains (1) |
|
|
Gain on liquidation (2) |
|
|
Proceeds |
|
|
Accumulated gains (1) |
|
|
Gain on liquidation (2) |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Mortgage loans |
|
$ |
74,916 |
|
|
$ |
8,079 |
|
|
$ |
2,748 |
|
|
$ |
112,440 |
|
|
$ |
12,729 |
|
|
$ |
4,651 |
|
|
REO |
|
|
135,573 |
|
|
|
1,239 |
|
|
|
9,327 |
|
|
|
128,098 |
|
|
|
3,051 |
|
|
|
10,368 |
|
|
|
|
|
210,489 |
|
|
|
9,318 |
|
|
|
12,075 |
|
|
|
240,538 |
|
|
|
15,780 |
|
|
|
15,019 |
|
|
Performing mortgage loan sale |
|
|
344,302 |
|
|
|
59,812 |
|
|
|
(396 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
554,791 |
|
|
$ |
69,130 |
|
|
$ |
11,679 |
|
|
$ |
240,538 |
|
|
$ |
15,780 |
|
|
$ |
15,019 |
|
|
(1) |
Represents valuation gains and losses recognized during the period we held the respective asset but excludes the gain or loss recorded upon sale or repayment of the respective asset. |
|
(2) |
Represents the gain or loss recognized upon sale or repayment of the respective asset. |
The amounts included in accumulated gains and gains on liquidation do not include the cost of managing the liquidated assets which may be substantial depending on the collection status of the mortgage loan at acquisition and on our success in working with the borrower to resolve the distress in the mortgage loan. Accumulated gains include the amount of accumulated valuation gains and losses recognized throughout the holding period and, in the case of REO, include estimated direct transaction costs to be incurred in the sale of the property. Accordingly, the preceding amounts do not represent periodic earnings on a cash basis and the amount of gain will have accumulated over varying periods depending on the holding periods for individual assets.
The primary expenses incurred at a loan level in managing our portfolio of distressed assets are servicing and activity fees. From the time of acquisition of the distressed assets through their deboarding dates, we incurred servicing and activity fees of $20.9 million and $24.7 million for assets liquidated during the quarter and six months ended June 30, 2016, respectively, as compared to $4.4 million and $10.1 million during the same periods in 2015. Servicing and activity fees for the quarter and six months ended June 30, 2016 include $5.1 million relating to the sale of performing mortgage loans.
62
Net interest income is summarized below:
|
|
|
Quarter ended June 30, 2016 |
|
|||||||||||||||||
|
|
|
Interest income/expense |
|
|
|
|
|
|
Annualized |
|
||||||||||
|
|
|
|
|
|
|
Discount/ |
|
|
|
|
|
|
Average |
|
|
interest |
|
|||
|
|
|
Coupon |
|
|
fees (1) |
|
|
Total |
|
|
balance |
|
|
yield/cost % |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
13,596 |
|
|
$ |
— |
|
|
$ |
13,596 |
|
|
$ |
1,422,945 |
|
|
|
3.78 |
% |
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,903 |
|
|
|
0.00 |
% |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
2,823 |
|
|
|
(587 |
) |
|
|
2,236 |
|
|
|
349,951 |
|
|
|
2.53 |
% |
|
Non-Agency prime jumbo |
|
|
684 |
|
|
|
(164 |
) |
|
|
520 |
|
|
|
78,102 |
|
|
|
2.63 |
% |
|
|
|
|
3,507 |
|
|
|
(751 |
) |
|
|
2,756 |
|
|
|
428,053 |
|
|
|
2.55 |
% |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
23,042 |
|
|
|
— |
|
|
|
23,042 |
|
|
|
1,791,429 |
|
|
|
5.09 |
% |
|
at fair value held by variable interest entity |
|
|
4,086 |
|
|
|
865 |
|
|
|
4,951 |
|
|
|
437,542 |
|
|
|
4.48 |
% |
|
|
|
|
27,128 |
|
|
|
865 |
|
|
|
27,993 |
|
|
|
2,228,971 |
|
|
|
4.97 |
% |
|
ESS from PFSI |
|
|
5,713 |
|
|
|
— |
|
|
|
5,713 |
|
|
|
318,065 |
|
|
|
7.11 |
% |
|
Total investment activities |
|
|
36,348 |
|
|
|
114 |
|
|
|
36,462 |
|
|
|
3,000,992 |
|
|
|
4.81 |
% |
|
Other |
|
|
1,708 |
|
|
|
— |
|
|
|
1,708 |
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
51,652 |
|
|
$ |
114 |
|
|
$ |
51,766 |
|
|
$ |
4,423,937 |
|
|
|
4.63 |
% |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
19,860 |
|
|
$ |
2,196 |
|
|
$ |
22,056 |
|
|
$ |
3,268,774 |
|
|
|
2.67 |
% |
|
Mortgage loan participation and sale agreements |
|
|
302 |
|
|
|
31 |
|
|
|
333 |
|
|
|
70,701 |
|
|
|
1.86 |
% |
|
Notes payable |
|
|
2,203 |
|
|
|
788 |
|
|
|
2,991 |
|
|
|
188,330 |
|
|
|
6.28 |
% |
|
Asset-backed financings of a VIE at fair value |
|
|
2,825 |
|
|
|
781 |
|
|
|
3,606 |
|
|
|
334,233 |
|
|
|
4.27 |
% |
|
Exchangeable Notes |
|
|
3,359 |
|
|
|
257 |
|
|
|
3,616 |
|
|
|
250,000 |
|
|
|
5.72 |
% |
|
Note payable to PFSI |
|
|
1,894 |
|
|
|
328 |
|
|
|
2,222 |
|
|
|
150,000 |
|
|
|
5.86 |
% |
|
|
|
|
30,443 |
|
|
|
4,381 |
|
|
|
34,824 |
|
|
|
4,262,038 |
|
|
|
3.23 |
% |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
1,589 |
|
|
|
— |
|
|
|
1,589 |
|
|
|
— |
|
|
|
|
|
|
Interest on mortgage loan impound deposits |
|
|
180 |
|
|
|
— |
|
|
|
180 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
32,212 |
|
|
|
4,381 |
|
|
|
36,593 |
|
|
|
4,262,038 |
|
|
|
3.40 |
% |
|
Net interest income |
|
$ |
19,440 |
|
|
$ |
(4,267 |
) |
|
$ |
15,173 |
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.37 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.23 |
% |
|
(1) |
Amounts in this column represent amortization of premium and accrual of unearned discounts for assets and amortization of debt issuance costs for liabilities. |
63
|
|
|
Quarter ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Interest income/expense |
|
|
|
|
|
|
Annualized |
|
||||||||||
|
|
|
|
|
|
|
Discount/ |
|
|
|
|
|
|
Average |
|
|
interest |
|
|||
|
|
|
Coupon |
|
|
fees (1) |
|
|
Total |
|
|
balance |
|
|
yield/cost % |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
10,315 |
|
|
$ |
— |
|
|
$ |
10,315 |
|
|
$ |
1,014,883 |
|
|
|
4.02 |
% |
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
82 |
|
|
|
— |
|
|
|
82 |
|
|
|
46,542 |
|
|
|
0.70 |
% |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
1,545 |
|
|
|
(4 |
) |
|
|
1,541 |
|
|
|
185,932 |
|
|
|
3.28 |
% |
|
Non-Agency prime jumbo |
|
|
983 |
|
|
|
(19 |
) |
|
|
964 |
|
|
|
117,694 |
|
|
|
3.24 |
% |
|
|
|
|
2,528 |
|
|
|
(23 |
) |
|
|
2,505 |
|
|
|
303,626 |
|
|
|
3.26 |
% |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
22,171 |
|
|
|
— |
|
|
|
22,171 |
|
|
|
2,295,807 |
|
|
|
3.82 |
% |
|
at fair value held by variable interest entity |
|
|
4,739 |
|
|
|
(310 |
) |
|
|
4,429 |
|
|
|
504,309 |
|
|
|
3.47 |
% |
|
|
|
|
26,910 |
|
|
|
(310 |
) |
|
|
26,600 |
|
|
|
2,800,116 |
|
|
|
3.76 |
% |
|
ESS from PFSI |
|
|
5,818 |
|
|
|
— |
|
|
|
5,818 |
|
|
|
311,579 |
|
|
|
7.39 |
% |
|
Total investment activities |
|
|
35,338 |
|
|
|
(333 |
) |
|
|
35,005 |
|
|
|
3,461,863 |
|
|
|
4.00 |
% |
|
Other |
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
45,666 |
|
|
$ |
(333 |
) |
|
$ |
45,333 |
|
|
$ |
4,476,746 |
|
|
|
4.01 |
% |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
18,032 |
|
|
$ |
2,176 |
|
|
$ |
20,208 |
|
|
$ |
3,171,653 |
|
|
|
2.52 |
% |
|
Mortgage loan participation and sale agreements |
|
|
219 |
|
|
|
47 |
|
|
|
266 |
|
|
|
60,363 |
|
|
|
1.74 |
% |
|
Federal Home Loan Bank advances |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
1,154 |
|
|
|
0.69 |
% |
|
Notes payable |
|
|
641 |
|
|
|
353 |
|
|
|
994 |
|
|
|
104,797 |
|
|
|
3.75 |
% |
|
Asset-backed financings of VIEs at fair value |
|
|
2,466 |
|
|
|
(52 |
) |
|
|
2,414 |
|
|
|
159,236 |
|
|
|
6.00 |
% |
|
Exchangeable Notes |
|
|
3,359 |
|
|
|
242 |
|
|
|
3,601 |
|
|
|
250,000 |
|
|
|
5.70 |
% |
|
Note payable to PFSI |
|
|
— |
|
|
|
533 |
|
|
|
533 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
24,719 |
|
|
|
3,299 |
|
|
|
28,018 |
|
|
|
3,747,203 |
|
|
|
2.96 |
% |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
1,291 |
|
|
|
— |
|
|
|
1,291 |
|
|
|
— |
|
|
|
|
|
|
Interest on mortgage loan impound deposits |
|
|
430 |
|
|
|
— |
|
|
|
430 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
26,440 |
|
|
|
3,299 |
|
|
|
29,739 |
|
|
|
3,747,203 |
|
|
|
3.14 |
% |
|
Net interest income |
|
$ |
19,226 |
|
|
$ |
(3,632 |
) |
|
$ |
15,594 |
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.39 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.87 |
% |
|
(1) |
Amounts in this column represent amortization of premium and accrual of unearned discounts for assets and amortization of debt issuance costs for liabilities. |
64
|
|
|
Six months ended June 30, 2016 |
|
|||||||||||||||||
|
|
|
Interest income/expense |
|
|
|
|
|
|
Annualized |
|
||||||||||
|
|
|
|
|
|
|
Discount/ |
|
|
|
|
|
|
Average |
|
|
interest |
|
|||
|
|
|
Coupon |
|
|
fees (1) |
|
|
Total |
|
|
balance |
|
|
yield/cost % |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
22,860 |
|
|
$ |
— |
|
|
$ |
22,860 |
|
|
$ |
1,170,720 |
|
|
|
3.88 |
% |
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
377 |
|
|
|
— |
|
|
|
377 |
|
|
|
36,546 |
|
|
|
2.05 |
% |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
4,709 |
|
|
|
(581 |
) |
|
|
4,128 |
|
|
|
289,627 |
|
|
|
2.83 |
% |
|
Non-Agency prime jumbo |
|
|
1,497 |
|
|
|
(157 |
) |
|
|
1,340 |
|
|
|
87,030 |
|
|
|
3.06 |
% |
|
|
|
|
6,206 |
|
|
|
(738 |
) |
|
|
5,468 |
|
|
|
376,657 |
|
|
|
2.89 |
% |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
52,228 |
|
|
|
— |
|
|
|
52,228 |
|
|
|
1,925,605 |
|
|
|
5.39 |
% |
|
at fair value held by variable interest entity |
|
|
8,386 |
|
|
|
2,094 |
|
|
|
10,480 |
|
|
|
446,013 |
|
|
|
4.67 |
% |
|
|
|
|
60,614 |
|
|
|
2,094 |
|
|
|
62,708 |
|
|
|
2,371,618 |
|
|
|
5.26 |
% |
|
ESS from PFSI |
|
|
12,728 |
|
|
|
— |
|
|
|
12,728 |
|
|
|
348,669 |
|
|
|
7.26 |
% |
|
Total investment activities |
|
|
79,925 |
|
|
|
1,356 |
|
|
|
81,281 |
|
|
|
3,133,490 |
|
|
|
5.16 |
% |
|
Other |
|
|
1,991 |
|
|
|
— |
|
|
|
1,991 |
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
104,776 |
|
|
$ |
1,356 |
|
|
$ |
106,132 |
|
|
$ |
4,304,210 |
|
|
|
4.90 |
% |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
38,185 |
|
|
$ |
4,283 |
|
|
$ |
42,468 |
|
|
$ |
3,033,038 |
|
|
|
2.78 |
% |
|
Mortgage loan participation and sale agreements |
|
|
593 |
|
|
|
68 |
|
|
|
661 |
|
|
|
69,649 |
|
|
|
1.89 |
% |
|
Federal Home Loan Bank advances |
|
|
122 |
|
|
|
— |
|
|
|
122 |
|
|
|
49,019 |
|
|
|
0.50 |
% |
|
Notes payable |
|
|
4,722 |
|
|
|
1,612 |
|
|
|
6,334 |
|
|
|
200,973 |
|
|
|
6.27 |
% |
|
Asset-backed financings of a VIE at fair value |
|
|
5,494 |
|
|
|
(536 |
) |
|
|
4,958 |
|
|
|
325,112 |
|
|
|
3.03 |
% |
|
Exchangeable Notes |
|
|
6,719 |
|
|
|
509 |
|
|
|
7,228 |
|
|
|
250,000 |
|
|
|
5.75 |
% |
|
Note payable to PFSI |
|
|
3,160 |
|
|
664 |
|
|
|
3,824 |
|
|
|
150,000 |
|
|
|
5.07 |
% |
|
|
|
|
|
58,995 |
|
|
|
6,600 |
|
|
|
65,595 |
|
|
|
4,077,791 |
|
|
|
3.20 |
% |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
2,561 |
|
|
|
— |
|
|
|
2,561 |
|
|
|
— |
|
|
|
|
|
|
Interest on mortgage loan impound deposits |
|
|
441 |
|
|
|
— |
|
|
|
441 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
61,997 |
|
|
|
6,600 |
|
|
|
68,597 |
|
|
|
4,077,791 |
|
|
|
3.35 |
% |
|
Net interest income |
|
$ |
42,779 |
|
|
$ |
(5,244 |
) |
|
$ |
37,535 |
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.73 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.56 |
% |
|
(1) |
Amounts in this column represent amortization of premium and accrual of unearned discounts for assets and amortization of debt issuance costs for liabilities. |
65
|
|
|
Six months ended June 30, 2015 |
|
|||||||||||||||||
|
|
|
Interest income/expense |
|
|
|
|
|
|
Annualized |
|
||||||||||
|
|
|
|
|
|
|
Discount/ |
|
|
|
|
|
|
Average |
|
|
interest |
|
|||
|
|
|
Coupon |
|
|
fees (1) |
|
|
Total |
|
|
balance |
|
|
yield/cost % |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
17,416 |
|
|
$ |
— |
|
|
$ |
17,416 |
|
|
$ |
887,660 |
|
|
|
3.90 |
% |
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
302 |
|
|
|
— |
|
|
|
302 |
|
|
|
67,961 |
|
|
|
0.88 |
% |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
3,161 |
|
|
|
58 |
|
|
|
3,219 |
|
|
|
190,207 |
|
|
|
3.37 |
% |
|
Non-Agency prime jumbo |
|
|
1,915 |
|
|
|
5 |
|
|
|
1,920 |
|
|
|
115,204 |
|
|
|
3.31 |
% |
|
|
|
|
5,076 |
|
|
|
63 |
|
|
|
5,139 |
|
|
|
305,411 |
|
|
|
3.35 |
% |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
43,725 |
|
|
|
— |
|
|
|
43,725 |
|
|
|
2,303,080 |
|
|
|
3.78 |
% |
|
at fair value held by variable interest entity |
|
|
9,663 |
|
|
|
179 |
|
|
|
9,842 |
|
|
|
514,879 |
|
|
|
3.80 |
% |
|
|
|
|
53,388 |
|
|
|
179 |
|
|
|
53,567 |
|
|
|
2,817,959 |
|
|
|
3.78 |
% |
|
ESS from PFSI |
|
|
9,570 |
|
|
|
— |
|
|
|
9,570 |
|
|
|
255,899 |
|
|
|
7.44 |
% |
|
Total investment activities |
|
|
68,336 |
|
|
|
242 |
|
|
|
68,578 |
|
|
|
3,447,230 |
|
|
|
3.96 |
% |
|
Other |
|
|
24 |
|
|
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
85,776 |
|
|
$ |
242 |
|
|
$ |
86,018 |
|
|
$ |
4,334,890 |
|
|
|
3.95 |
% |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
$ |
34,653 |
|
|
$ |
4,467 |
|
|
$ |
39,120 |
|
|
$ |
3,061,346 |
|
|
|
2.54 |
% |
|
Mortgage loan participation and sale agreements |
|
|
374 |
|
|
|
99 |
|
|
|
473 |
|
|
|
52,001 |
|
|
|
1.81 |
% |
|
Federal Home Loan Bank advances |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
577 |
|
|
|
0.69 |
% |
|
Notes payable |
|
|
641 |
|
|
|
353 |
|
|
|
994 |
|
|
|
52,981 |
|
|
|
3.73 |
% |
|
Asset-backed financings of VIEs at fair value |
|
|
3,876 |
|
|
|
121 |
|
|
|
3,997 |
|
|
|
162,361 |
|
|
|
4.90 |
% |
|
Exchangeable Notes |
|
|
6,718 |
|
|
|
480 |
|
|
|
7,198 |
|
|
|
250,000 |
|
|
|
5.73 |
% |
|
Note payable to PFSI |
|
|
— |
|
|
|
533 |
|
|
|
533 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
46,264 |
|
|
|
6,053 |
|
|
|
52,317 |
|
|
|
3,579,266 |
|
|
|
2.91 |
% |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
2,464 |
|
|
|
— |
|
|
|
2,464 |
|
|
|
— |
|
|
|
|
|
|
Interest on mortgage loan impound deposits |
|
|
704 |
|
|
|
— |
|
|
|
704 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
49,432 |
|
|
|
6,053 |
|
|
|
55,485 |
|
|
|
3,579,266 |
|
|
|
3.08 |
% |
|
Net interest income |
|
$ |
36,344 |
|
|
$ |
(5,811 |
) |
|
$ |
30,533 |
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.40 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.86 |
% |
|
(1) |
Amounts in this column represent amortization of premium and accrual of unearned discounts for assets and amortization of debt issuance costs for liabilities. |
66
The effects of changes in the yields and costs and composition of our investments on our interest income are summarized below:
|
|
|
Quarter ended June 30, 2016 vs. Quarter ended June 30, 2015 |
|
|
Six months ended June 30, 2016 vs. Six months ended June 30, 2015 |
|
||||||||||||||||||
|
|
|
Increase (decrease) due to changes in |
|
|
Increase (decrease) due to changes in |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
||
|
|
|
Rate |
|
|
Volume |
|
|
change |
|
|
Rate |
|
|
Volume |
|
|
change |
|
||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
(772 |
) |
|
$ |
4,053 |
|
|
$ |
3,281 |
|
|
$ |
(178 |
) |
|
$ |
5,622 |
|
|
$ |
5,444 |
|
|
Investment activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
(82 |
) |
|
|
(82 |
) |
|
|
313 |
|
|
|
(238 |
) |
|
|
75 |
|
|
Mortgage -backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
(417 |
) |
|
|
1,112 |
|
|
|
695 |
|
|
|
(587 |
) |
|
|
1,496 |
|
|
|
909 |
|
|
Non-Agency prime jumbo |
|
|
(159 |
) |
|
|
(285 |
) |
|
|
(444 |
) |
|
|
(145 |
) |
|
|
(435 |
) |
|
|
(580 |
) |
|
|
|
|
(576 |
) |
|
|
827 |
|
|
|
251 |
|
|
|
(732 |
) |
|
|
1,061 |
|
|
|
329 |
|
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
6,386 |
|
|
|
(5,515 |
) |
|
|
871 |
|
|
|
16,491 |
|
|
|
(7,988 |
) |
|
|
8,503 |
|
|
at fair value held by variable interest entity |
|
|
1,162 |
|
|
|
(640 |
) |
|
|
522 |
|
|
|
2,052 |
|
|
|
(1,414 |
) |
|
|
638 |
|
|
Total mortgage loans |
|
|
7,548 |
|
|
|
(6,155 |
) |
|
|
1,393 |
|
|
|
18,543 |
|
|
|
(9,402 |
) |
|
|
9,141 |
|
|
ESS from PFSI |
|
|
(224 |
) |
|
|
119 |
|
|
|
(105 |
) |
|
|
(285 |
) |
|
|
3,443 |
|
|
|
3,158 |
|
|
Total investment activities |
|
|
6,748 |
|
|
|
(5,291 |
) |
|
|
1,457 |
|
|
|
17,839 |
|
|
|
(5,136 |
) |
|
|
12,703 |
|
|
Other |
|
|
— |
|
|
|
1,695 |
|
|
|
1,695 |
|
|
|
— |
|
|
|
1,967 |
|
|
|
1,967 |
|
|
|
|
|
5,976 |
|
|
|
457 |
|
|
|
6,433 |
|
|
|
17,661 |
|
|
|
2,453 |
|
|
|
20,114 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
|
1,217 |
|
|
|
631 |
|
|
|
1,848 |
|
|
|
3,695 |
|
|
|
(347 |
) |
|
|
3,348 |
|
|
Mortgage loan participation and sale agreement |
|
|
19 |
|
|
|
48 |
|
|
|
67 |
|
|
|
19 |
|
|
|
169 |
|
|
|
188 |
|
|
FHLB advances |
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
121 |
|
|
|
120 |
|
|
Asset backed secured financing of VIEs at fair value |
|
|
520 |
|
|
|
672 |
|
|
|
1,192 |
|
|
|
(476 |
) |
|
|
1,437 |
|
|
|
961 |
|
|
Exchangeable Notes |
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
|
|
30 |
|
|
|
— |
|
|
|
30 |
|
|
Notes payable |
|
|
915 |
|
|
|
1,082 |
|
|
|
1,997 |
|
|
|
1,034 |
|
|
|
4,306 |
|
|
|
5,340 |
|
|
Note payable to PFSI |
|
|
— |
|
|
|
1,689 |
|
|
|
1,689 |
|
|
|
— |
|
|
|
3,291 |
|
|
|
3,291 |
|
|
|
|
|
2,686 |
|
|
|
4,120 |
|
|
|
6,806 |
|
|
|
4,301 |
|
|
|
8,977 |
|
|
|
13,278 |
|
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
|
— |
|
|
|
298 |
|
|
|
298 |
|
|
|
— |
|
|
|
97 |
|
|
|
97 |
|
|
Interest on mortgage loan impound deposits |
|
|
— |
|
|
|
(250 |
) |
|
|
(250 |
) |
|
|
— |
|
|
|
(263 |
) |
|
|
(263 |
) |
|
|
|
|
2,686 |
|
|
|
4,168 |
|
|
|
6,854 |
|
|
|
4,301 |
|
|
|
8,811 |
|
|
|
13,112 |
|
|
Net interest income |
|
$ |
3,290 |
|
|
$ |
(3,711 |
) |
|
$ |
(421 |
) |
|
$ |
13,360 |
|
|
$ |
(6,358 |
) |
|
$ |
7,002 |
|
During the quarter and six months ended June 30, 2016, we earned net interest income of $15.2 million and $37.5 million, respectively, as compared to $15.6 million and $30.5 million for the quarter and six months ended June 30, 2015, respectively. The decrease in net interest income between quarters was due to a modest decrease in average interest earning assets, partially offset by an increase in the yield of mortgage loans at fair value. The increase in net interest income for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 was primarily due to an increase in capitalized interest pursuant to mortgage loan modifications.
During the quarter and six months ended June 30, 2016, we recognized interest income on mortgage loans at fair value and mortgage loans at fair value held by VIEs totaling $28.0 million and $62.7 million, respectively, including $16.4 million and $39.7 million of interest capitalized pursuant to loan modifications, which compares to $26.6 million and $53.6 million, including $9.9 million and $20.1 million of interest capitalized pursuant to loan modifications in the quarter and six months ended June 30, 2015, respectively. The increase in interest income was primarily the result of an increase in yields on our mortgage loans at fair value from 3.76% and 3.78% during the quarter and six months ended June 30, 2015 to 4.97% and 5.26% during the quarter and six months ended June 30, 2016, respectively, which was mostly due to an increase in interest capitalized from mortgage loan modifications. Capitalized interest contributed 2.95% and 3.38% to our interest yield on mortgage loans at fair value during the quarter and six months ended June 30, 2016, as compared to 1.42% and 1.44% during the quarter and six months ended June 30, 2015, respectively.
67
At June 30, 2016, approximately 59% of the fair value of our distressed mortgage loan portfolio was nonperforming, as compared to 66% at June 30, 2015. We do not accrue interest on nonperforming mortgage loans and generally do not recognize revenues during the period we hold REO. We calculate the yield on our mortgage loan portfolio based on the portfolio’s average fair value, which most closely reflects our investment in the mortgage loans. Accordingly, the yield we realize is substantially higher t han would be recorded based on the mortgage loans’ UPBs and performance status as we generally have purchased our distressed mortgage loans at substantial discounts to their UPB.
Nonperforming mortgage loans and REO generally take longer than performing mortgage loans to generate cash flow due to the time required to work with borrowers to resolve payment issues through our modification programs, and to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to assist borrowers in curing defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. As a participant in the Home Affordable Modification Program (“HAMP”) of the U.S. Department of the Treasury and HUD, we are required to comply with the process specified by the HAMP program before liquidating a mortgage loan, and this may extend the resolution process. At June 30, 2016, we held $952.1 million in fair value of nonperforming mortgage loans and $299.5 million in carrying value of REO, as compared to $1.2 billion in fair value of nonperforming mortgage loans and $341.8 million in carrying value of REO at December 31, 2015.
During the quarter and six months ended June 30, 2016, we incurred interest expense totaling $36.6 million and $68.6 million, respectively, as compared to $29.7 million and $55.5 million during the quarter and six months ended June 30, 2015, respectively. Our interest cost on interest bearing liabilities was 3.23% and 3.20% for the quarter and six months ended June 30, 2016 and 2.96% and 2.91% for the quarter and six months ended June 30, 2015, respectively. The increase in interest expense reflects higher borrowing costs associated with funding investments in MSRs and ESS in the quarter and six months ended June 30, 2016, as compared to the quarter and six months ended June 30, 2015.
68
Net Gain on Mortgage Loans Acquired for Sale
Our net gain on mortgage loans acquired for sale is summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Cash loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
(18,461 |
) |
|
$ |
(51,218 |
) |
|
$ |
(21,480 |
) |
|
$ |
(58,762 |
) |
|
Hedging activities |
|
|
(29,118 |
) |
|
|
18,713 |
|
|
|
(61,694 |
) |
|
|
6,186 |
|
|
|
|
|
(47,579 |
) |
|
|
(32,505 |
) |
|
|
(83,174 |
) |
|
|
(52,576 |
) |
|
Non cash gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of MSRs in mortgage loan sale transactions |
|
|
60,109 |
|
|
|
32,176 |
|
|
|
96,271 |
|
|
|
59,636 |
|
|
Provision for losses relating to representations and warranties provided in mortgage loan sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
|
(650 |
) |
|
|
(1,419 |
) |
|
|
(1,221 |
) |
|
|
(2,344 |
) |
|
Adjustment to previously recorded amount due to change in estimate |
|
|
— |
|
|
|
— |
|
|
|
1,724 |
|
|
|
— |
|
|
Change in fair value during the period of financial instruments held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
|
7,423 |
|
|
|
(8,481 |
) |
|
|
12,111 |
|
|
|
(5,927 |
) |
|
Mortgage loans |
|
|
5,015 |
|
|
|
14,551 |
|
|
|
11,752 |
|
|
|
18,277 |
|
|
Hedging derivatives |
|
|
(92 |
) |
|
|
6,853 |
|
|
|
1,812 |
|
|
|
4,269 |
|
|
|
|
|
12,346 |
|
|
|
12,923 |
|
|
|
25,675 |
|
|
|
16,619 |
|
|
|
|
$ |
24,226 |
|
|
$ |
11,175 |
|
|
$ |
39,275 |
|
|
$ |
21,335 |
|
|
Purchases of mortgage loans acquired for sale to nonaffiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fair value |
|
$ |
5,356,013 |
|
|
$ |
3,693,398 |
|
|
$ |
8,729,745 |
|
|
$ |
6,681,133 |
|
|
UPB |
|
$ |
5,174,019 |
|
|
$ |
3,579,078 |
|
|
$ |
8,433,382 |
|
|
$ |
6,469,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|||||
|
Fair value of mortgage loans acquired for sale held at period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional mortgage loans |
|
$ |
824,336 |
|
|
$ |
595,560 |
|
|
|
|
|
|
|
|
|
|
Government-insured or guaranteed mortgage loans acquired for sale to PFSI |
|
|
619,008 |
|
|
|
669,288 |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
|
|
12,132 |
|
|
|
14,590 |
|
|
|
|
|
|
|
|
|
|
Mortgage loans repurchased pursuant to representations and warranties |
|
|
5,553 |
|
|
|
4,357 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,461,029 |
|
|
$ |
1,283,795 |
|
|
|
|
|
|
|
|
|
Our net gain on mortgage loans acquired for sale includes both cash and non-cash elements. We receive proceeds on sale that include both cash and our estimate of the fair value of MSRs. We also recognize a liability for potential losses relating to representations and warranties created in the loan sales transactions.
The increase in gain on mortgage loans acquired for sale during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015 was due to an increase in mortgage loan volume and higher margins, both of which were driven by an increased market size and larger customer base.
Provision for Losses on Representations and Warranties
We provide for our estimate of the future losses that we may be required to incur as a result of our breach of representations and warranties to the purchasers. Our agreements with the purchasers include representations and warranties related to the mortgage loans we sell. The representations and warranties require adherence to purchaser and issuer origination and underwriting guidelines,
69
including but not limited to the validity of the lien securing the mortgage loan, property eligibility, borrower credit, income and asset requiremen ts, and compliance with applicable federal, state and local law.
In the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or insurer. In such cases, we bear any subsequent credit loss on the mortgage loans. Our credit loss may be reduced by any recourse we have to correspondent lenders that, in turn, had sold such mortgage 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 lender.
The method we use to estimate the liability for representations and warranties is a function of estimated future defaults, mortgage loan repurchase rates, the potential severity of loss in the event of defaults and the probability of reimbursement by the correspondent mortgage loan seller. We establish a liability at the time mortgage loans are sold and review our liability estimate on a periodic basis.
Following is a summary of the indemnification and repurchase activity and UPB of mortgage loans subject to representations and warranties:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
(UPB of mortgage loans) |
|
|||||||||||||
|
Indemnification activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans indemnified by PMT at beginning of period |
|
$ |
5,239 |
|
|
$ |
4,008 |
|
|
$ |
5,566 |
|
|
$ |
3,644 |
|
|
New indemnifications |
|
|
— |
|
|
|
1,582 |
|
|
|
— |
|
|
|
1,946 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnified mortgage loans repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Indemnified mortgage loans repaid or refinanced |
|
|
— |
|
|
|
199 |
|
|
|
327 |
|
|
|
199 |
|
|
Mortgage loans indemnified by PMT at end of period |
|
$ |
5,239 |
|
|
$ |
5,391 |
|
|
$ |
5,239 |
|
|
$ |
5,391 |
|
|
Deposits received from correspondent lenders collateralizing prospective indemnification losses |
|
$ |
645 |
|
|
$ |
972 |
|
|
$ |
645 |
|
|
$ |
972 |
|
|
Repurchase activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of mortgage loans repurchased by PMT |
|
$ |
2,808 |
|
|
$ |
5,264 |
|
|
$ |
6,350 |
|
|
$ |
13,096 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of mortgage loans repurchased by correspondent lenders |
|
|
3,561 |
|
|
|
5,986 |
|
|
|
3,269 |
|
|
|
11,084 |
|
|
UPB of mortgage loans repaid by borrowers |
|
|
19 |
|
|
|
— |
|
|
|
1,678 |
|
|
|
— |
|
|
UPB of mortgage loans repurchased by PMT with losses chargeable to liability for representations and warranties |
|
$ |
(772 |
) |
|
$ |
(722 |
) |
|
$ |
1,403 |
|
|
$ |
2,012 |
|
|
Net losses (recoveries) charged (credited) to liability for representations and warranties |
|
$ |
104 |
|
|
$ |
84 |
|
|
$ |
410 |
|
|
$ |
(128 |
) |
|
At end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB of mortgage loans subject to representations and warranties |
|
$ |
46,339,653 |
|
|
$ |
37,431,575 |
|
|
|
|
|
|
|
|
|
|
Liability for representations and warranties |
|
$ |
19,258 |
|
|
$ |
16,714 |
|
|
|
|
|
|
|
|
|
During the quarter and six months ended June 30, 2016, we repurchased mortgage loans with UPBs totaling $2.8 million and $6.4 million and recorded net losses charged to the liability for representations and warranties of $104,000 and $410,000, respectively, as compared to repurchases of $5.3 million and $13.1 million and net losses of $84,000 and net recoveries of $128,000 during the same periods in 2015. The losses we have recorded to date have been moderated by our ability to in turn recover most of the losses inherent in the repurchased mortgage loans from the selling correspondent lenders. As the outstanding balance of mortgage loans we purchase and sell subject to representations and warranties increases and the mortgage loans sold season, we expect the level of repurchase activity and associated losses to increase.
The level of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any
70
losses inherent in the repurchased mortgage loan from the selling correspondent lender and other external conditions that may cha nge over the lives of the underlying mortgage loans. We may be required to incur losses related to such representations and warranties for several quarters after the mortgage loans are sold or liquidated.
As economic fundamentals change, and as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent lenders’ ability or willingness to fulfill their recourse obligations to us, the level of repurchase activity and ensuing losses will change, and we may be required to record adjustments to our recorded liability for losses on representations and warranties which may be material to our financial condition and results of operations. Such adjustments are included as a component of our Net gains on mortgage loans acquired for sale at fair value . We recorded a $1.7 million reduction to previously recorded liabilities for representations and warranties during the six months ended June 30, 2016 due to our experience with the class of mortgages subject to the adjustment.
Loan Origination Fees
Loan origination fees represent fees we charge correspondent lenders relating to our purchase of mortgage loans from those lenders. The increase in fees during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015 is reflective of the increase in the volume of mortgage loans we purchased during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015.
Net (Loss) Gain on Investments
Net (loss) gain on investments is summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Net (loss) gain on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
4,332 |
|
|
$ |
(6,702 |
) |
|
$ |
9,431 |
|
|
$ |
(5,186 |
) |
|
Mortgage loans at fair value |
|
|
(13,463 |
) |
|
|
30,068 |
|
|
|
932 |
|
|
|
47,254 |
|
|
Mortgage loans held in a VIE |
|
|
(48 |
) |
|
|
(12,077 |
) |
|
|
8,347 |
|
|
|
(10,277 |
) |
|
CRT Agreements |
|
|
7,764 |
|
|
|
— |
|
|
|
3,621 |
|
|
|
— |
|
|
Asset-backed financings of a VIE at fair value |
|
|
890 |
|
|
|
3,991 |
|
|
|
(8,963 |
) |
|
|
3,222 |
|
|
Hedging derivatives |
|
|
862 |
|
|
|
(1,255 |
) |
|
|
698 |
|
|
|
(11,294 |
) |
|
|
|
|
337 |
|
|
|
14,025 |
|
|
|
14,066 |
|
|
|
23,719 |
|
|
From PFSI—ESS |
|
|
(15,824 |
) |
|
|
8,589 |
|
|
|
(33,451 |
) |
|
|
2,342 |
|
|
|
|
$ |
(15,487 |
) |
|
$ |
22,614 |
|
|
$ |
(19,385 |
) |
|
$ |
26,061 |
|
The decrease in net gain on investments during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, was caused by losses in our interest rate sensitive investments, primarily our ESS, due to the effect of decreasing mortgage interest rates during the first half of 2016; and losses in our credit-sensitive investments, primarily our mortgage loans at fair value, which reflects the reduced cash flow expectations relating to certain of our nonperforming loans during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015. The reduced cash flow expectations largely result from expectations for longer liquidation periods with the attendant increased collection costs during the collection period and a reduced present value of the expected liquidation proceeds as well as lower expected home price appreciation for certain mortgage loans. These reduced gains were partially offset by gains in our MBS from the effect of decreasing interest rates during the first half of 2016, reduced hedging costs during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, and gains from our CRT Agreements.
Mortgage-Backed Securities
During the quarter and six months ended June 30, 2016, we recognized net valuation gains on MBS of $4.3 million and $9.4 million, respectively, as compared to net valuation losses of $6.7 million and $5.2 million for the quarter and six months ended June 30, 2015, respectively. The gains we recorded reflect the effects of decreasing mortgage interest rates during the first half of 2016, which favorably impacts the fair value of our investment in MBS.
71
We recognized fair value losses relating to our investment in ESS totaling $15.8 million and $33.5 million for the quarter and six months ended June 30, 2016, respectively, as compared to fair value gains of $8.6 million and $2.3 million for the quarter and six months ended June 30, 2015, respectively. Mortgage interest rates declined during the first half of 2016 causing our estimate of future prepayments to increase as compared to the same periods in 2015, resulting in a decrease in fair value. The effect of this decrease in fair value was compounded by growth in our investment in ESS as our average investment in ESS increased from $311.6 million and $255.9 million for the quarter and six months ended June 30, 2015, respectively, to $318.1 million and $348.3 million for the quarter and six months ended June 30, 2016.
Mortgage Loans at Fair Value – Distressed Mortgage Loans
Net gains on our investment in distressed mortgage loans at fair value are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Valuation changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans |
|
$ |
(8,356 |
) |
|
$ |
3,308 |
|
|
$ |
(3,472 |
) |
|
$ |
16,068 |
|
|
Nonperforming loans |
|
|
(5,919 |
) |
|
|
23,867 |
|
|
|
2,044 |
|
|
|
26,534 |
|
|
|
|
|
(14,275 |
) |
|
|
27,175 |
|
|
|
(1,428 |
) |
|
|
42,602 |
|
|
Gain on payoffs |
|
|
1,208 |
|
|
|
2,628 |
|
|
|
2,757 |
|
|
|
4,671 |
|
|
(Loss) gain on sales |
|
|
(396 |
) |
|
|
265 |
|
|
|
(397 |
) |
|
|
(19 |
) |
|
|
|
$ |
(13,463 |
) |
|
$ |
30,068 |
|
|
$ |
932 |
|
|
$ |
47,254 |
|
|
Average portfolio balance |
|
$ |
1,791,429 |
|
|
$ |
2,295,807 |
|
|
$ |
1,925,605 |
|
|
$ |
2,303,080 |
|
|
Number of mortgage loans relating to gain recognized on payoffs |
|
|
138 |
|
|
|
331 |
|
|
|
244 |
|
|
|
482 |
|
|
UPB of mortgage loans relating to gain recognized on payoffs |
|
$ |
43,645 |
|
|
$ |
70,677 |
|
|
$ |
69,918 |
|
|
$ |
120,565 |
|
|
Number of mortgage loans relating to loss recognized on sales |
|
|
1,552 |
|
|
|
8 |
|
|
|
1,552 |
|
|
|
39 |
|
|
UPB of mortgage loans relating to loss recognized on sales |
|
$ |
419,435 |
|
|
$ |
1,005 |
|
|
$ |
418,935 |
|
|
$ |
3,154 |
|
Because we have elected to record our mortgage loans at fair value, a substantial portion of the income we record with respect to such mortgage loans results from changes in fair value. Valuation changes amounted to losses of $14.3 million and $1.4 million in the quarter and six months ended June 30, 2016, respectively, as compared to gains of $27.2 million and $42.6 million for the same periods in 2015. Cash is generated when mortgage loans are monetized through payoffs or sales, when payments of principal and interest occur on such loans, generally after they are modified, or when the property securing a mortgage loan that has been settled through acquisition of the property has been sold.
The valuation changes on performing mortgage loans reflect the effects of capitalization of delinquent interest on loans we modify. When we capitalize interest in a loan modification, we increase the carrying value of the mortgage loan, and the interest income we recognize is offset by a valuation loss of corresponding magnitude. Changes in other inputs may result in further valuation changes to the mortgage loan, and subsequent performance of a modified mortgage loan will impact its future value. During the quarter and six months ended June 30, 2016, we capitalized interest totaling $16.4 million and $39.7 million, respectively, as compared to $9.9 million and $20.1 million for the quarter and six months ended June 30, 2015.
During the quarter and six months ended June 30, 2016, our gains from performing mortgage loans decreased as significantly more interest was capitalized as compared to the same periods in 2015, resulting in reduced gains on such mortgage loans. Implementing long-term, sustainable loan modification is one means by which we endeavor to increase the fair value of the distressed mortgage loans which we have typically purchased at discounts to their UPB.
Gains on nonperforming mortgage loans decreased during the quarter and six months ended June 30, 2016 as compared to the same periods in 2015 as our expectations of future cash flows relating to certain of these mortgage loans decreased due to our expectations of longer liquidation periods and related ongoing collection and carrying costs than originally anticipated.
We recognize valuation gains to reflect the commitment price of the mortgage loans subject to the sale at the time we enter into the commitment to sell such mortgage loans. Therefore, the computation of the valuation gains includes the expected proceeds from
72
pending mortgage loan sales at period end and the gain recognized on sale of mortgage loans reflects the difference between proceeds from sale of the mortgage loans and the commitment price of sale.
There can be no assurance that sale of mortgage loans at fair value will continue to be a reliable means of liquidating reperforming mortgage assets in the future. We continue to monitor and explore the market for mortgage loan sales or securitizations backed by reperforming and modified mortgage loans as a means of recovering our investment in such mortgage loans.
Absent sale or securitization of reperforming and modified mortgage loans, and unlike liquidation of a defaulted mortgage loan, we expect that recovery of our investment in a performing modified mortgage loan will take place generally over a period of several years, during which we earn and collect interest income on such mortgage loan. Our current expectation is that we will receive cash on modified mortgage loans through monthly borrower payments, incentive payments earned pursuant to HAMP, payoffs or acquisition of the property securing the mortgage loans and liquidation of the property in the event the borrower subsequently defaults. Due to the recent addition of new modification programs, both through HAMP and proprietary programs, trends in default performance are difficult to discern.
Large-scale refinancing of modified mortgage loans is not expected to occur for an extended period. Borrowers who have recently modified their mortgage loans typically have credit profiles that do not qualify them for refinancing or have mortgage loans on properties whose loan-to-value ratios exceed current underwriting guidelines for new mortgage loans. Further, modified mortgage loans require a period of acceptable borrower performance, generally 12 months of timely mortgage payments, for consideration in most Agency refinance programs.
The following tables present a summary of mortgage loan modifications completed:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||||||||||||||||||
|
Modification type (1) |
|
Number of loans |
|
|
Balance of loans (2) |
|
|
Number of loans |
|
|
Balance of loans (2) |
|
|
Number of loans |
|
|
Balance of loans (2) |
|
|
Number of loans |
|
|
Balance of loans (2) |
|
||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
|
Rate reduction |
|
|
174 |
|
|
$ |
46,869 |
|
|
|
129 |
|
|
$ |
33,588 |
|
|
|
393 |
|
|
$ |
103,798 |
|
|
|
278 |
|
|
$ |
67,266 |
|
|
Term extension |
|
|
271 |
|
|
$ |
73,484 |
|
|
|
168 |
|
|
$ |
42,791 |
|
|
|
606 |
|
|
$ |
166,274 |
|
|
|
337 |
|
|
$ |
83,475 |
|
|
Capitalization of interest and fees |
|
|
295 |
|
|
$ |
80,237 |
|
|
|
208 |
|
|
$ |
54,733 |
|
|
|
647 |
|
|
$ |
177,967 |
|
|
|
404 |
|
|
$ |
100,986 |
|
|
Principal forbearance |
|
|
101 |
|
|
$ |
28,100 |
|
|
|
52 |
|
|
$ |
16,484 |
|
|
|
192 |
|
|
$ |
56,995 |
|
|
|
96 |
|
|
$ |
29,629 |
|
|
Principal reduction |
|
|
177 |
|
|
$ |
52,021 |
|
|
|
100 |
|
|
$ |
25,854 |
|
|
|
386 |
|
|
$ |
112,830 |
|
|
|
198 |
|
|
$ |
49,545 |
|
|
Total (1) |
|
|
295 |
|
|
$ |
80,237 |
|
|
|
208 |
|
|
$ |
54,733 |
|
|
|
647 |
|
|
$ |
177,967 |
|
|
|
404 |
|
|
$ |
100,986 |
|
|
Defaults of mortgage loans modified in the prior year period |
|
|
|
|
|
$ |
2,469 |
|
|
|
|
|
|
$ |
4,611 |
|
|
|
|
|
|
$ |
7,236 |
|
|
|
|
|
|
$ |
17,849 |
|
|
As a percentage of balance of loans before modification |
|
|
|
|
|
|
6 |
% |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
14 |
% |
|
|
|
|
|
|
9 |
% |
|
Defaults during the period of mortgage loans modified since acquisitions (3) |
|
|
|
|
|
$ |
14,675 |
|
|
|
|
|
|
$ |
12,216 |
|
|
|
|
|
|
$ |
51,363 |
|
|
|
|
|
|
$ |
48,632 |
|
|
As a percentage of balance of loans before modification |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
3 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
10 |
% |
|
Repayments and sales of mortgage loans modified in the prior year period |
|
|
|
|
|
$ |
417 |
|
|
|
|
|
|
$ |
1,467 |
|
|
|
|
|
|
$ |
25,643 |
|
|
|
|
|
|
$ |
2,907 |
|
|
As a percentage of balance of loans before modification |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
26 |
% |
|
|
|
|
|
|
1 |
% |
|
(1) |
Modification type categories are not mutually exclusive and a modification of a single loan may be counted in multiple categories. The total number of modifications noted in the table is therefore lower than the sum of all of the categories. |
|
(2) |
Before modification. |
|
(3) |
Represents defaults of mortgage loans during the period that have been modified by us at any point since acquisition. |
73
The following table summarizes the average effect of the modifications noted above to the terms of the loans modified:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||||||||||||||||||
|
|
|
Before |
|
|
After |
|
|
Before |
|
|
After |
|
|
Before |
|
|
After |
|
|
Before |
|
|
After |
|
||||||||
|
Category |
|
modification |
|
|
modification |
|
|
modification |
|
|
modification |
|
|
modification |
|
|
modification |
|
|
modification |
|
|
modification |
|
||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
|
Loan balance |
|
$ |
272 |
|
|
$ |
290 |
|
|
$ |
263 |
|
|
$ |
278 |
|
|
$ |
275 |
|
|
$ |
293 |
|
|
$ |
250 |
|
|
$ |
262 |
|
|
Remaining term (months) |
|
|
342 |
|
|
|
450 |
|
|
|
334 |
|
|
|
426 |
|
|
|
334 |
|
|
|
449 |
|
|
|
326 |
|
|
|
426 |
|
|
Interest rate |
|
|
4.62 |
% |
|
|
3.42 |
% |
|
|
4.94 |
% |
|
|
3.39 |
% |
|
|
4.80 |
% |
|
|
3.60 |
% |
|
|
5.20 |
% |
|
|
3.45 |
% |
|
Forbeared principal |
|
$ |
17 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
17 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
11 |
|
Net Mortgage Loan Servicing Fees
Our correspondent production activity is the primary source of our mortgage loan servicing portfolio. When we sell mortgage loans, we generally enter into a contract to service the mortgage loans and recognize the fair value of such contracts as MSRs. Under these contracts, we are required to perform mortgage loan servicing functions in exchange for fees and the right to other compensation. The servicing functions, which are performed on our behalf by PLS, typically include, among other responsibilities, collecting and remitting mortgage loan payments; responding to borrower inquiries; accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions.
Net loan servicing fees are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Servicing fees (1) |
|
$ |
31,578 |
|
|
$ |
25,887 |
|
|
$ |
60,450 |
|
|
$ |
48,516 |
|
|
MSR recapture fee from PFSI |
|
|
311 |
|
|
|
— |
|
|
|
440 |
|
|
|
— |
|
|
Effect of MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
(15,531 |
) |
|
|
(9,988 |
) |
|
|
(29,818 |
) |
|
|
(19,580 |
) |
|
(Provision for) reversal of impairment |
|
|
(23,170 |
) |
|
|
7,082 |
|
|
|
(40,876 |
) |
|
|
703 |
|
|
Gain on sale |
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
|
|
83 |
|
|
Carried at fair value—change in fair value |
|
|
(4,941 |
) |
|
|
6,306 |
|
|
|
(16,356 |
) |
|
|
(3,510 |
) |
|
Gains (losses) on hedging derivatives |
|
|
27,433 |
|
|
|
(16,270 |
) |
|
|
57,394 |
|
|
|
(5,193 |
) |
|
|
|
|
(16,198 |
) |
|
|
(12,870 |
) |
|
|
(29,645 |
) |
|
|
(27,497 |
) |
|
Net loan servicing fees |
|
$ |
15,691 |
|
|
$ |
13,017 |
|
|
$ |
31,245 |
|
|
$ |
21,019 |
|
|
Average servicing portfolio |
|
$ |
45,647,524 |
|
|
$ |
35,742,835 |
|
|
$ |
44,531,795 |
|
|
$ |
35,215,677 |
|
|
(1) |
Includes contractually specified servicing and ancillary fees, net of guarantee fees. |
Net loan servicing fees increased $2.7 million, or 21%, and $10.2 million, or 49%, during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015. The increase was primarily due to a $5.7 million, or 22%, and an $11.9 million, or 25%, increase in servicing fees for the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015, partially offset by a $3.3 million and $2.1 million increase in the effect of MSRs on net loan servicing fees.
The increase in servicing fees is attributable to a 28% and a 26% increase in the average size of our servicing portfolio measured in UPB for the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015. The increase in the effect of MSRs on net loan servicing fees was primarily a result of an increase in amortization and changes in fair value from the realization of cash flows that result from the growth in our average servicing portfolios and an increase in the provision for impairment as a result of the effect of a reduction in interest rates on the expected life of the mortgage loans subject to MSRs during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, partially offset by an increase in gains from hedging derivatives.
We have entered into an MSR recapture agreement that requires PLS to transfer to us the MSRs with respect to new mortgage loans originated in refinancing transactions where PLS refinances a mortgage loan for which we previously held the MSRs. PLS is generally required to transfer MSRs relating to such mortgage loans (or, under certain circumstances, other mortgage loans) that have an aggregate unpaid principal balance that is not less than 30% of the aggregate unpaid principal balance of all the loans so originated. Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, PLS may, at its option,
74
settle in cash with us in an amount equal to such fair market value in place of transferring such MSRs. We recognized MSR recapture income during the quarter and six months ended June 30, 2016 of $311,000 and $440,000, respectively, and we did not recognize MSR recapture income during the quarter and six months ended June 30, 2015.
Amortization, impairment and changes in fair value of MSRs have a significant effect on net mortgage loan servicing fees, driven primarily by our monthly re-estimation of the fair value of MSRs. As our investment in MSRs grows, we expect that the effect of amortization, impairment and changes in fair value will have an increasing influence on our net income.
We have identified two classes of MSRs: originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% and MSRs backed by mortgage loans with initial interest rates of more than 4.5%. Our accounting for MSRs is based on the class of MSRs. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method. Originated MSRs backed by mortgage loans with initial interest rates of more than 4.5% are accounted for at fair value with changes in fair value recorded in current period income.
Our MSRs are summarized by the basis on which we account for the assets as presented below:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
MSRs carried at fair value |
|
$ |
57,977 |
|
|
$ |
66,584 |
|
|
MSR carried at lower of amortized cost or fair value: |
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
465,301 |
|
|
$ |
404,101 |
|
|
Valuation allowance |
|
|
(51,820 |
) |
|
|
(10,944 |
) |
|
Carrying value |
|
$ |
413,481 |
|
|
$ |
393,157 |
|
|
Fair value |
|
$ |
417,094 |
|
|
$ |
424,154 |
|
|
Total MSR: |
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
471,458 |
|
|
$ |
459,741 |
|
|
Fair value |
|
$ |
475,071 |
|
|
$ |
490,738 |
|
|
UPB of mortgage loans underlying MSRs |
|
$ |
47,087,431 |
|
|
$ |
42,300,338 |
|
|
Average servicing fee rate (in basis points) |
|
|
|
|
|
|
|
|
|
MSRs carried at lower of amortized cost or fair value |
|
|
25 |
|
|
|
26 |
|
|
MSRs carried at fair value |
|
|
25 |
|
|
|
25 |
|
|
Average note interest rate |
|
|
|
|
|
|
|
|
|
MSRs carried at lower of amortized cost or fair value |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
MSRs carried at fair value |
|
|
4.7 |
% |
|
|
4.7 |
% |
Results of Real Estate Acquired in Settlement of Loans
Results of REO includes the gains or losses we record upon sale of the properties as well as valuation adjustments we record during the period we hold those properties. During the quarter and six months ended June 30, 2016, we recorded net losses of $2.6 million and $8.6 million, respectively, as compared to $1.8 million and $7.6 million for the same periods in 2015, respectively, in Results of real estate acquired in settlement of loans.
75
Results of REO are summarized below:
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of REO |
$ |
70,665 |
|
|
$ |
62,121 |
|
|
$ |
135,573 |
|
|
$ |
128,097 |
|
|
Results of real estate acquired in settlement of loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation adjustments, net |
|
(7,283 |
) |
|
|
(6,606 |
) |
|
|
(17,928 |
) |
|
|
(18,006 |
) |
|
Gain on sale, net |
|
4,718 |
|
|
|
4,800 |
|
|
|
9,327 |
|
|
|
10,368 |
|
|
|
$ |
(2,565 |
) |
|
$ |
(1,806 |
) |
|
$ |
(8,601 |
) |
|
$ |
(7,638 |
) |
|
Number of properties sold |
|
416 |
|
|
|
359 |
|
|
|
792 |
|
|
|
845 |
|
|
Average carrying value of REO |
$ |
309,217 |
|
|
$ |
317,324 |
|
|
$ |
323,342 |
|
|
$ |
314,489 |
|
|
Period end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
$ |
299,458 |
|
|
$ |
325,822 |
|
|
|
|
|
|
|
|
|
|
Number of properties in inventory |
|
1,324 |
|
|
|
1,681 |
|
|
|
|
|
|
|
|
|
Our expenses are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Expenses payable to PFSI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan fulfillment fees |
|
$ |
19,111 |
|
|
$ |
15,333 |
|
|
$ |
32,046 |
|
|
$ |
28,199 |
|
|
Mortgage loan servicing fees |
|
|
16,427 |
|
|
|
12,136 |
|
|
|
27,880 |
|
|
|
22,806 |
|
|
Management fees |
|
|
5,199 |
|
|
|
5,779 |
|
|
|
10,551 |
|
|
|
12,782 |
|
|
Mortgage loan collection and liquidation |
|
|
4,290 |
|
|
|
3,182 |
|
|
|
6,504 |
|
|
|
4,627 |
|
|
Professional services |
|
|
2,011 |
|
|
|
1,662 |
|
|
|
4,304 |
|
|
|
3,490 |
|
|
Compensation |
|
|
2,224 |
|
|
|
1,389 |
|
|
|
3,513 |
|
|
|
4,198 |
|
|
Other (1) |
|
|
6,515 |
|
|
|
5,196 |
|
|
|
12,151 |
|
|
|
10,052 |
|
|
|
|
$ |
55,777 |
|
|
$ |
44,677 |
|
|
$ |
96,949 |
|
|
$ |
86,154 |
|
|
(1) |
For the quarter ended June 30, 2015, in accordance with the terms of our management agreement, PCM provided to us a discretionary waiver of $700,000 of overhead expenses that otherwise would have been allocable to us. On December 15, 2015, the Operating Partnership amended its management agreement to provide that the overhead costs and expenses incurred by PFSI in any quarter and reimbursable by the Operating Partnership is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) our shareholders’ equity (as defined in the management agreement) as of the last day of the month preceding quarter end, divided by four. |
Expenses increased $11.1 million, or 25%, and $10.8 million, or 13%, during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015, primarily due to higher mortgage loan fulfillment fees from an increase in the volume of Agency-eligible mortgage loans we purchased in our correspondent production activities, higher mortgage loan servicing fees reflecting higher activity-based servicing fees relating to mortgage loan sales and liquidations, and higher mortgage loan collection and liquidation expenses from increased litigation and other foreclosure costs on distressed mortgage loans.
Mortgage Loan Fulfillment Fees
Mortgage loan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of mortgage loans. The fee is calculated as a percentage of the UPB of the mortgage loans purchased. Mortgage loan fulfillment fees and related fulfillment volume are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Fulfillment fee expense |
|
$ |
19,111 |
|
|
$ |
15,333 |
|
|
$ |
32,046 |
|
|
$ |
28,199 |
|
|
UPB of mortgage loans fulfilled by PLS |
|
$ |
5,174,019 |
|
|
$ |
3,579,078 |
|
|
$ |
8,433,383 |
|
|
$ |
6,469,210 |
|
|
Average fulfillment fee rate (in basis points) |
|
|
37 |
|
|
|
43 |
|
|
|
38 |
|
|
|
44 |
|
76
The increase in loan fulfillment fees of $3.8 million during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015 is primarily due to an increase in the volume of Agency-eligible mortgage loans we purchased in our correspondent production activities, partially offset by a decrease in the average fulfillment fee rate charged by PFSI due to contractual discretionary reductions in the fulfillment fee by PFSI to facilitate our successful completion of certain mortgage loan sale transactions.
Mortgage Loan Servicing Fees
Mortgage loan servicing fees increased by $4.3 million and $5.1 million during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015. We incur mortgage loan servicing fees primarily in support of our investment in mortgage loans at fair value and our mortgage loan servicing portfolio. The increase in mortgage loan servicing fees reflects the increase in activity-based fees on distressed mortgage loans of $5.4 million and $6.0 million during the quarter and six months ended June 30, 2016, respectively, as compared to the same period in 2015. These increases were partially offset by a decrease in our average investment in distressed mortgage loans at fair value of $504.4 million and $377.5 million during the quarter and six months ended June 30, 2016, respectively, as compared to the same period in 2015.
Mortgage loan servicing fees payable to PLS are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Mortgage loan servicing fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
$ |
79 |
|
|
$ |
42 |
|
|
$ |
135 |
|
|
$ |
68 |
|
|
Activity-based |
|
|
172 |
|
|
|
59 |
|
|
|
287 |
|
|
|
90 |
|
|
|
|
|
251 |
|
|
|
101 |
|
|
|
422 |
|
|
|
158 |
|
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
2,908 |
|
|
|
4,183 |
|
|
|
6,267 |
|
|
|
8,215 |
|
|
Activity-based |
|
|
8,518 |
|
|
|
3,093 |
|
|
|
11,967 |
|
|
|
5,987 |
|
|
|
|
|
11,426 |
|
|
|
7,276 |
|
|
|
18,234 |
|
|
|
14,202 |
|
|
Mortgage loans held in VIE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
51 |
|
|
|
27 |
|
|
|
92 |
|
|
|
57 |
|
|
Activity-based |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
51 |
|
|
|
27 |
|
|
|
92 |
|
|
|
57 |
|
|
MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
4,583 |
|
|
|
4,627 |
|
|
|
8,927 |
|
|
|
8,253 |
|
|
Activity-based |
|
|
116 |
|
|
|
105 |
|
|
|
205 |
|
|
|
136 |
|
|
|
|
|
4,699 |
|
|
|
4,732 |
|
|
|
9,132 |
|
|
|
8,389 |
|
|
|
|
$ |
16,427 |
|
|
$ |
12,136 |
|
|
$ |
27,880 |
|
|
$ |
22,806 |
|
|
Average investment in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value |
|
$ |
1,422,945 |
|
|
$ |
1,014,883 |
|
|
$ |
1,170,720 |
|
|
$ |
887,660 |
|
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed mortgage loans |
|
$ |
1,791,429 |
|
|
$ |
2,295,807 |
|
|
$ |
1,925,605 |
|
|
$ |
2,303,080 |
|
|
Mortgage loans held in a VIE |
|
$ |
437,542 |
|
|
$ |
504,309 |
|
|
$ |
446,013 |
|
|
$ |
514,879 |
|
|
Average mortgage loan servicing portfolio |
|
$ |
45,647,524 |
|
|
$ |
35,742,835 |
|
|
$ |
44,531,795 |
|
|
$ |
35,215,677 |
|
Management Fees
The components of our management fee payable to PCM are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Base |
|
$ |
5,199 |
|
|
$ |
5,709 |
|
|
$ |
10,551 |
|
|
$ |
11,439 |
|
|
Performance incentive |
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
1,343 |
|
|
|
|
$ |
5,199 |
|
|
$ |
5,779 |
|
|
$ |
10,551 |
|
|
$ |
12,782 |
|
77
Management fees decreased by $580,000 and $2.2 million during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015, primarily due to the decrease in our shareholders’ equity, which is the basis for the calculation of our base management fee, as a result of our share repurchases and dividend distributions.
We expect our management fees to fluctuate in the future based on: (1) changes in our shareholders’ equity with respect to our base management fee; and (2) the level of our profitability in excess of the return thresholds specified in our management agreement with respect to the performance incentive fee.
Professional Services
Professional service expense increased $349,000 and $814,000 during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015, primarily due to an increase in expenses for audit fees and tax compliance consulting costs.
Mortgage loan collection and liquidation
Mortgage loan collection and liquidation expenses increased $1.1 million and $1.9 million during the quarter and six months ended June 30, 2016, respectively, as compared to the same periods in 2015, due to increased legal and other foreclosure costs on distressed mortgage loans. As distressed mortgage loans continue to season, we expect to incur increased costs related to the ongoing preservation of our interests in such mortgage loans.
Compensation
Compensation expense increased by $835,000 during the quarter ended June 30, 2016, as compared to the same period in 2015, primarily due to increased share-based compensation expense, reflecting the effects of the grant of awards under our share-based compensation plan during February 2016. Compensation expense decreased $685,000 during the six months ended June 30, 2016, as compared to the same period in 2015, primarily due to decreased share-based compensation expense, reflecting the effects of our decreasing share price on the portion of our restricted share unit grants that are accounted for using variable accounting.
Other Expenses
Other expenses are summarized below:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Common overhead allocation from PFSI (1) |
|
$ |
2,434 |
|
|
$ |
2,546 |
|
|
$ |
4,996 |
|
|
$ |
4,937 |
|
|
Mortgage loan origination |
|
|
1,557 |
|
|
|
1,176 |
|
|
|
2,678 |
|
|
|
2,129 |
|
|
Real estate held for investment |
|
|
930 |
|
|
|
— |
|
|
|
1,487 |
|
|
|
— |
|
|
Technology |
|
|
332 |
|
|
|
311 |
|
|
|
766 |
|
|
|
603 |
|
|
Insurance |
|
|
316 |
|
|
|
302 |
|
|
|
634 |
|
|
|
675 |
|
|
Other |
|
|
946 |
|
|
|
861 |
|
|
|
1,590 |
|
|
|
1,708 |
|
|
|
|
$ |
6,515 |
|
|
$ |
5,196 |
|
|
$ |
12,151 |
|
|
$ |
10,052 |
|
|
(1) |
For the quarter ended June 30, 2015, in accordance with the terms of our management agreement, PCM provided to us a discretionary waiver of $700,000 of overhead expenses that otherwise would have been allocable to us. On December 15, 2015, the Operating Partnership amended its management agreement to provide that the overhead costs and expenses incurred by PFSI in any quarter and reimbursable by the Operating Partnership is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) our shareholders’ equity (as defined in the management agreement) as of the last day of the month preceding quarter end, divided by four. |
Other expenses increased during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, by $1.3 million and $2.1 million, respectively, primarily due to higher expenses incurred in the management of our real estate held for investment and higher loan origination expenses, reflecting increased mortgage loan production volume.
78
We have elected to treat PMC as a taxable REIT subsidiary (“TRS”). Income from a TRS is only included as a component of REIT taxable income to the extent that the TRS makes dividend distributions of income to the REIT. No such dividend distributions have been made to date. A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for PMC is included in the accompanying consolidated statements of operations.
Our effective tax rate was 35.4% and (219.8)% for the quarter and six months ended June 30, 2016 and (11.9)% and (67.3)% for the quarter and six months ended June 30, 2015, respectively. Our taxable REIT subsidiary recognized tax benefits of $3.7 million and $6.1 million on losses of $9.3 million and $15.3 million while our consolidated pretax loss was $8.2 million and pretax income was $2.9 million for the quarter and six months ended June 30, 2016, respectively. For the same periods in 2015, the taxable REIT subsidiary recognized a tax benefit of $1.1 million and $12.9 million on losses of $2.6 million and $31.3 million while our reported consolidated pretax income was $25.1 million and $21.3 million, respectively. The relative values between the tax benefit at the taxable REIT subsidiary and our consolidated pretax income drive the fluctuation in the effective tax rate. The primary difference between our effective tax rate and the statutory tax rate is due to non-taxable REIT income resulting from the dividends paid deduction.
In general, cash dividends declared by us will be considered ordinary income to shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or as return of capital.
Following is a summary of key balance sheet items as of the dates presented:
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Assets |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
95,705 |
|
|
$ |
58,108 |
|
|
Investments: |
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
16,877 |
|
|
|
41,865 |
|
|
Mortgage-backed securities |
|
|
531,612 |
|
|
|
322,473 |
|
|
Mortgage loans acquired for sale at fair value |
|
|
1,461,029 |
|
|
|
1,283,795 |
|
|
Mortgage loans at fair value |
|
|
2,035,997 |
|
|
|
2,555,788 |
|
|
ESS |
|
|
294,551 |
|
|
|
412,425 |
|
|
Derivative assets |
|
|
35,007 |
|
|
|
10,085 |
|
|
Real estate acquired in settlement of loans |
|
|
299,458 |
|
|
|
341,846 |
|
|
Real estate held for investment |
|
|
20,662 |
|
|
|
8,796 |
|
|
MSRs |
|
|
471,458 |
|
|
|
459,741 |
|
|
|
|
|
5,166,651 |
|
|
|
5,436,814 |
|
|
Deposits securing CRT Agreements |
|
|
338,812 |
|
|
|
147,000 |
|
|
Other |
|
|
166,394 |
|
|
|
185,002 |
|
|
Total assets |
|
$ |
5,767,562 |
|
|
$ |
5,826,924 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Borrowings: |
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase and mortgage loan participation and sale agreement |
|
$ |
3,372,026 |
|
|
$ |
3,128,780 |
|
|
FHLB advances |
|
|
— |
|
|
|
183,000 |
|
|
Notes payable |
|
|
163,976 |
|
|
|
236,015 |
|
|
Asset-backed financing of a VIE at fair value |
|
|
325,939 |
|
|
|
247,690 |
|
|
Exchangeable Notes |
|
|
245,564 |
|
|
|
245,054 |
|
|
Note payable to PFSI |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
4,257,505 |
|
|
|
4,190,539 |
|
|
Other |
|
|
149,230 |
|
|
|
140,272 |
|
|
Total liabilities |
|
|
4,406,735 |
|
|
|
4,330,811 |
|
|
Shareholders’ equity |
|
|
1,360,827 |
|
|
|
1,496,113 |
|
|
Total liabilities and shareholders’ equity |
|
$ |
5,767,562 |
|
|
$ |
5,826,924 |
|
79
Total assets decreased by approximately $59.4 million, or 1%, during the period from December 31, 2015 through June 30, 2016, primarily due to a $519.8 million decrease in mortgage loans at fair value, a $117.9 million decrease in ESS, and a $42.4 million decrease in REO, partially offset by a $177.2 million increase in mortgage loans acquired for sale at fair value, a $209.1 million increase in MBS, a $191.8 million increase in deposits securing CRT Agreements and a $12.6 million increase in cash and short-term investments.
Our asset acquisitions are summarized below.
Correspondent Production
Following is a summary of our correspondent production acquisitions at fair value:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Correspondent mortgage loan purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-insured or guaranteed |
|
$ |
9,956,586 |
|
|
$ |
8,761,085 |
|
|
$ |
16,732,075 |
|
|
$ |
14,139,919 |
|
|
Agency-eligible |
|
|
5,353,197 |
|
|
|
3,666,578 |
|
|
|
8,720,051 |
|
|
|
6,593,996 |
|
|
Jumbo |
|
|
2,815 |
|
|
|
26,820 |
|
|
|
9,694 |
|
|
|
87,137 |
|
|
Commercial mortgage loans |
|
|
1,346 |
|
|
|
— |
|
|
|
6,061 |
|
|
|
— |
|
|
|
|
$ |
15,313,944 |
|
|
$ |
12,454,483 |
|
|
$ |
25,467,881 |
|
|
$ |
20,821,052 |
|
|
UPB of correspondent mortgage loan purchases |
|
$ |
14,608,669 |
|
|
$ |
11,895,426 |
|
|
$ |
24,295,892 |
|
|
$ |
19,895,426 |
|
|
Gain on mortgage loans acquired for sale |
|
$ |
24,226 |
|
|
$ |
11,175 |
|
|
$ |
39,275 |
|
|
$ |
21,335 |
|
|
Fair value of correspondent loans in inventory at period end pending sale to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFSI |
|
$ |
619,008 |
|
|
$ |
830,330 |
|
|
|
|
|
|
|
|
|
|
Non-affiliates |
|
|
842,021 |
|
|
|
1,383,544 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,461,029 |
|
|
$ |
2,213,874 |
|
|
|
|
|
|
|
|
|
During the quarter and six months ended June 30, 2016, we purchased for sale $15.3 billion and $25.5 billion in fair value of correspondent production loans, respectively, as compared to $12.5 billion and $20.8 billion in fair value of correspondent production loans during the quarter and six months ended June 30, 2015, respectively. The increase in correspondent purchases during the quarter and six months ended June 30, 2016, as compared to the same periods in 2015, is a result of a favorable interest rate environment and continued growth in our correspondent production seller network.
Our ability to continue the expansion of our correspondent production business is subject to, among other factors, our ability to source additional mortgage loan volume, our ability to obtain additional inventory financing and our ability to fund the portion of the mortgage loans not financed, either through cash flows from business activities or the raising of additional equity capital. There can be no assurance that we will be successful in increasing our borrowing capacity or in obtaining the additional equity capital necessary or that we will be able to identify additional sources of mortgage loans.
Investment Portfolio
Following is a summary of our acquisitions of mortgage-related investments other than correspondent production acquisitions as shown in the preceding table:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
MBS |
|
$ |
199,223 |
|
|
$ |
— |
|
|
$ |
249,925 |
|
|
$ |
25,129 |
|
|
Distressed mortgage loans—nonperforming (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
241,981 |
|
|
Deposits of restricted cash relating to CRT Agreements |
|
|
126,031 |
|
|
|
— |
|
|
|
192,737 |
|
|
|
— |
|
|
MSRs received in mortgage loan sales |
|
|
60,109 |
|
|
|
32,176 |
|
|
|
96,271 |
|
|
|
59,636 |
|
|
ESS purchased from PFSI |
|
|
— |
|
|
|
140,875 |
|
|
|
— |
|
|
|
187,287 |
|
|
|
|
$ |
385,363 |
|
|
$ |
173,051 |
|
|
$ |
538,933 |
|
|
$ |
514,033 |
|
80
|
(1) |
Performance status as of the date of acquisition. |
Our acquisitions during the quarter and six months ended June 30, 2016 and 2015 were financed through the use of a combination of proceeds from liquidations of existing investments and borrowings. We continue to identify additional means of increasing our investment portfolio through cash flow from our business activities, existing investments, borrowings, and transactions that minimize current cash outlays. However, we expect that, over time, our ability to continue our investment activities portfolio growth will depend on our ability to raise additional equity capital.
Investment Portfolio Composition
Mortgage-Backed Securities
Following is a summary of our Agency and non-Agency prime jumbo MBS holdings:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||||||||||||||||
|
|
|
Fair |
|
|
|
|
|
|
Life |
|
|
|
|
|
|
Market |
|
|
Fair |
|
|
|
|
|
|
Life |
|
|
|
|
|
|
Market |
|
||||||
|
|
|
value |
|
|
Principal |
|
|
(in years) |
|
|
Coupon |
|
|
yield |
|
|
value |
|
|
Principal |
|
|
(in years) |
|
|
Coupon |
|
|
yield |
|
||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||
|
Agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
$ |
146,250 |
|
|
$ |
138,577 |
|
|
|
4.9 |
|
|
|
3.5 |
% |
|
|
2.1 |
% |
|
$ |
154,697 |
|
|
$ |
150,099 |
|
|
|
7.4 |
|
|
|
3.5 |
% |
|
|
3.0 |
% |
|
Fannie Mae |
|
|
317,558 |
|
|
|
300,476 |
|
|
|
4.7 |
|
|
|
3.5 |
% |
|
|
2.1 |
% |
|
|
70,453 |
|
|
|
68,215 |
|
|
|
7.4 |
|
|
|
3.5 |
% |
|
|
3.0 |
% |
|
|
|
|
463,808 |
|
|
|
439,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,150 |
|
|
|
218,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency prime jumbo |
|
|
67,804 |
|
|
|
66,183 |
|
|
|
2.6 |
|
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
97,323 |
|
|
|
98,337 |
|
|
|
4.9 |
|
|
|
3.5 |
% |
|
|
3.6 |
% |
|
|
|
$ |
531,612 |
|
|
$ |
505,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
322,473 |
|
|
$ |
316,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distressed Mortgage Loans
The relationship of the fair value of our distressed mortgage loans at fair value to the underlying real estate collateral is summarized below:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
|
|
Loan |
|
|
Collateral |
|
|
Loan |
|
|
Collateral |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans |
|
$ |
656,762 |
|
|
$ |
873,422 |
|
|
$ |
877,438 |
|
|
$ |
1,134,560 |
|
|
Nonperforming loans |
|
|
952,144 |
|
|
|
1,314,229 |
|
|
|
1,222,956 |
|
|
|
1,702,548 |
|
|
|
|
$ |
1,608,906 |
|
|
$ |
2,187,651 |
|
|
$ |
2,100,394 |
|
|
$ |
2,837,108 |
|
The collateral values presented above do not represent our assessment of the amount of future cash flows to be realized from the mortgage loans and/or underlying collateral. Future cash flows will be influenced by, among other considerations, our asset disposition strategies with respect to individual loans, the costs and expenses we incur in the disposition process, changes in borrower performance and the underlying collateral values. Ultimate realization in a disposition of these assets will be net of any servicing advances held on the balance sheet in relation to these investments.
The collateral values summarized above are estimated and may change over time due to various factors including our level of access to the properties securing the loans, changes in the real estate market or the condition of individual properties. The collateral values presented do not include any costs that would typically be incurred in obtaining the property in settlement of the mortgage loan, readying the property for sale, holding the property while it is being marketed or in the sale of a property.
81
Following is a summary of the distribution of our mortgage loans at fair value (exclud ing mortgage loans acquired for sale at fair value and mortgage loans at fair value held by a VIE):
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Loan type |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Fixed |
|
$ |
313,064 |
|
|
|
48 |
% |
|
|
4.17 |
% |
|
$ |
360,762 |
|
|
|
38 |
% |
|
|
5.56 |
% |
|
$ |
417,658 |
|
|
|
48 |
% |
|
|
4.35 |
% |
|
$ |
481,325 |
|
|
|
39 |
% |
|
|
5.62 |
% |
|
ARM/Hybrid |
|
|
109,773 |
|
|
|
17 |
% |
|
|
3.51 |
% |
|
|
544,029 |
|
|
|
57 |
% |
|
|
4.87 |
% |
|
|
160,051 |
|
|
|
18 |
% |
|
|
3.33 |
% |
|
|
696,802 |
|
|
|
57 |
% |
|
|
4.80 |
% |
|
Interest rate step-up |
|
|
233,925 |
|
|
|
35 |
% |
|
|
2.47 |
% |
|
|
47,352 |
|
|
|
5 |
% |
|
|
2.29 |
% |
|
|
299,569 |
|
|
|
34 |
% |
|
|
2.28 |
% |
|
|
44,829 |
|
|
|
4 |
% |
|
|
2.25 |
% |
|
Balloon |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0 |
% |
|
|
— |
|
|
|
160 |
|
|
|
0 |
% |
|
|
1.97 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Lien position |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||||||||||
|
1st lien |
|
$ |
656,000 |
|
|
|
100 |
% |
|
|
3.42 |
% |
|
$ |
952,008 |
|
|
|
100 |
% |
|
|
4.97 |
% |
|
$ |
876,748 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,816 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
2nd lien |
|
|
762 |
|
|
|
0 |
% |
|
|
4.08 |
% |
|
|
135 |
|
|
|
0 |
% |
|
|
8.56 |
% |
|
|
690 |
|
|
|
0 |
% |
|
|
4.28 |
% |
|
|
140 |
|
|
|
0 |
% |
|
|
8.47 |
% |
|
Unsecured |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.01 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Occupancy |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Owner occupied |
|
$ |
515,710 |
|
|
|
79 |
% |
|
|
3.49 |
% |
|
$ |
512,350 |
|
|
|
54 |
% |
|
|
4.96 |
% |
|
$ |
685,801 |
|
|
|
78 |
% |
|
|
3.49 |
% |
|
$ |
666,257 |
|
|
|
55 |
% |
|
|
4.99 |
% |
|
Investment property |
|
|
139,797 |
|
|
|
21 |
% |
|
|
3.19 |
% |
|
|
439,108 |
|
|
|
46 |
% |
|
|
5.00 |
% |
|
|
188,659 |
|
|
|
22 |
% |
|
|
3.20 |
% |
|
|
555,531 |
|
|
|
45 |
% |
|
|
5.03 |
% |
|
Other |
|
|
1,255 |
|
|
|
0 |
% |
|
|
4.07 |
% |
|
|
686 |
|
|
|
0 |
% |
|
|
6.07 |
% |
|
|
2,978 |
|
|
|
0 |
% |
|
|
4.17 |
% |
|
|
1,168 |
|
|
|
0 |
% |
|
|
5.69 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Loan age |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Less than 12 months |
|
$ |
29 |
|
|
|
0 |
% |
|
|
1.98 |
% |
|
$ |
— |
|
|
|
0 |
% |
|
|
0 |
% |
|
$ |
55 |
|
|
|
0 |
% |
|
|
3.18 |
% |
|
$ |
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
12 - 35 months |
|
|
21,193 |
|
|
|
3 |
% |
|
|
4.29 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
1.09 |
% |
|
|
24,331 |
|
|
|
3 |
% |
|
|
4.24 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
36 - 59 months |
|
|
1,393 |
|
|
|
0 |
% |
|
|
4.08 |
% |
|
|
91 |
|
|
|
0 |
% |
|
|
3.57 |
% |
|
|
4,131 |
|
|
|
0 |
% |
|
|
3.22 |
% |
|
|
2,083 |
|
|
|
0 |
% |
|
|
3.43 |
% |
|
60 months or more |
|
|
634,146 |
|
|
|
97 |
% |
|
|
3.40 |
% |
|
|
952,053 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
|
848,921 |
|
|
|
97 |
% |
|
|
3.41 |
% |
|
|
1,220,873 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
82
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
Origination |
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
FICO score |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Less than 600 |
|
$ |
158,886 |
|
|
|
24 |
% |
|
|
3.68 |
% |
|
$ |
161,616 |
|
|
|
17 |
% |
|
|
4.87 |
% |
|
$ |
200,856 |
|
|
|
23 |
% |
|
|
3.77 |
% |
|
$ |
203,493 |
|
|
|
17 |
% |
|
|
5.01 |
% |
|
600-649 |
|
|
129,890 |
|
|
|
20 |
% |
|
|
3.48 |
% |
|
|
178,243 |
|
|
|
19 |
% |
|
|
4.81 |
% |
|
|
158,654 |
|
|
|
18 |
% |
|
|
3.58 |
% |
|
|
237,879 |
|
|
|
19 |
% |
|
|
4.88 |
% |
|
650-699 |
|
|
164,063 |
|
|
|
25 |
% |
|
|
3.28 |
% |
|
|
293,424 |
|
|
|
31 |
% |
|
|
5.02 |
% |
|
|
216,648 |
|
|
|
25 |
% |
|
|
3.33 |
% |
|
|
370,178 |
|
|
|
30 |
% |
|
|
5.03 |
% |
|
700-749 |
|
|
144,106 |
|
|
|
22 |
% |
|
|
3.25 |
% |
|
|
237,141 |
|
|
|
25 |
% |
|
|
5.12 |
% |
|
|
210,329 |
|
|
|
24 |
% |
|
|
3.15 |
% |
|
|
301,417 |
|
|
|
25 |
% |
|
|
5.09 |
% |
|
750 or greater |
|
|
59,817 |
|
|
|
9 |
% |
|
|
3.43 |
% |
|
|
81,720 |
|
|
|
8 |
% |
|
|
5.04 |
% |
|
|
90,951 |
|
|
|
10 |
% |
|
|
3.24 |
% |
|
|
109,989 |
|
|
|
9 |
% |
|
|
5.06 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Current loan-to-value (1) |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Less than 80% |
|
$ |
225,085 |
|
|
|
34 |
% |
|
|
4.07 |
% |
|
$ |
281,945 |
|
|
|
30 |
% |
|
|
5.14 |
% |
|
$ |
250,154 |
|
|
|
29 |
% |
|
|
4.09 |
% |
|
$ |
309,945 |
|
|
|
25 |
% |
|
|
5.07 |
% |
|
80% - 99.99% |
|
|
156,747 |
|
|
|
24 |
% |
|
|
3.60 |
% |
|
|
269,082 |
|
|
|
28 |
% |
|
|
4.86 |
% |
|
|
225,574 |
|
|
|
26 |
% |
|
|
3.53 |
% |
|
|
317,076 |
|
|
|
26 |
% |
|
|
4.91 |
% |
|
100% - 119.99% |
|
|
124,075 |
|
|
|
19 |
% |
|
|
3.23 |
% |
|
|
206,969 |
|
|
|
22 |
% |
|
|
4.93 |
% |
|
|
190,336 |
|
|
|
22 |
% |
|
|
3.26 |
% |
|
|
291,866 |
|
|
|
24 |
% |
|
|
5.07 |
% |
|
120% or greater |
|
|
150,855 |
|
|
|
23 |
% |
|
|
2.83 |
% |
|
|
194,146 |
|
|
|
20 |
% |
|
|
4.99 |
% |
|
|
211,374 |
|
|
|
23 |
% |
|
|
2.97 |
% |
|
|
304,069 |
|
|
|
25 |
% |
|
|
5.00 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
(1) |
Current loan-to-value is calculated based on the unpaid principal balance of the mortgage loan and our estimate of the value of the mortgaged property. |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
Geographic |
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
distribution |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
California |
|
$ |
173,264 |
|
|
|
26 |
% |
|
|
3.36 |
% |
|
$ |
146,354 |
|
|
|
15 |
% |
|
|
3.98 |
% |
|
$ |
260,103 |
|
|
|
30 |
% |
|
|
3.20 |
% |
|
$ |
201,717 |
|
|
|
16 |
% |
|
|
4.06 |
% |
|
New York |
|
|
85,338 |
|
|
|
13 |
% |
|
|
3.09 |
% |
|
|
252,381 |
|
|
|
27 |
% |
|
|
5.55 |
% |
|
|
99,081 |
|
|
|
11 |
% |
|
|
3.07 |
% |
|
|
293,277 |
|
|
|
24 |
% |
|
|
5.58 |
% |
|
Florida |
|
|
44,474 |
|
|
|
7 |
% |
|
|
3.06 |
% |
|
|
101,544 |
|
|
|
11 |
% |
|
|
5.25 |
% |
|
|
61,999 |
|
|
|
7 |
% |
|
|
3.15 |
% |
|
|
126,705 |
|
|
|
10 |
% |
|
|
5.43 |
% |
|
New Jersey |
|
|
39,140 |
|
|
|
6 |
% |
|
|
2.83 |
% |
|
|
131,695 |
|
|
|
14 |
% |
|
|
5.11 |
% |
|
|
47,939 |
|
|
|
5 |
% |
|
|
2.84 |
% |
|
|
167,020 |
|
|
|
14 |
% |
|
|
5.25 |
% |
|
Other |
|
|
314,546 |
|
|
|
48 |
% |
|
|
3.86 |
% |
|
|
320,170 |
|
|
|
33 |
% |
|
|
5.02 |
% |
|
|
408,316 |
|
|
|
47 |
% |
|
|
4.08 |
% |
|
|
434,237 |
|
|
|
36 |
% |
|
|
4.86 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
Performing loans |
|
|
Nonperforming loans |
|
|
Performing loans |
|
|
Nonperforming loans |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
||||
|
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
|
Fair |
|
|
% |
|
|
note |
|
||||||||||||
|
Payment status |
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
|
value |
|
|
total |
|
|
rate |
|
||||||||||||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Current |
|
$ |
512,553 |
|
|
|
78 |
% |
|
|
3.38 |
% |
|
$ |
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
$ |
691,925 |
|
|
|
79 |
% |
|
|
3.34 |
% |
|
$ |
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
30 days delinquent |
|
|
100,301 |
|
|
|
15 |
% |
|
|
3.52 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
131,098 |
|
|
|
15 |
% |
|
|
3.73 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
60 days delinquent |
|
|
43,908 |
|
|
|
7 |
% |
|
|
3.67 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
54,415 |
|
|
|
6 |
% |
|
|
3.78 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
90 days or more delinquent |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
363,328 |
|
|
|
38 |
% |
|
|
4.46 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
459,060 |
|
|
|
38 |
% |
|
|
4.48 |
% |
|
In foreclosure |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
588,816 |
|
|
|
62 |
% |
|
|
5.31 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
0.00 |
% |
|
|
763,896 |
|
|
|
62 |
% |
|
|
5.33 |
% |
|
|
|
$ |
656,762 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
952,144 |
|
|
|
100 |
% |
|
|
4.98 |
% |
|
$ |
877,438 |
|
|
|
100 |
% |
|
|
3.43 |
% |
|
$ |
1,222,956 |
|
|
|
100 |
% |
|
|
5.01 |
% |
We believe that our current fair value estimates are representative of fair value at the reporting date. However, the market for distressed mortgage assets is illiquid with a limited number of participants. Furthermore, our business strategy is to enhance value
83
during the per iod in which the loans are held. Therefore, any resulting appreciation or depreciation in the fair value of the loans is recorded during such holding period and ultimately realized at the end of the holding period.
Following is a comparison of the key inputs we use in the valuation of our mortgage loans at fair value using “Level 3” fair value inputs:
|
Key inputs |
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
Discount rate |
|
|
|
|
|
|
|
|
|
Range |
|
2.5% – 15.0% |
|
|
2.5% – 15.0% |
|
||
|
Weighted average |
|
|
6.7% |
|
|
|
7.1% |
|
|
Twelve-month projected housing price index change |
|
|
|
|
|
|
|
|
|
Range |
|
2.7% – 5.2% |
|
|
1.5% – 5.1% |
|
||
|
Weighted average |
|
|
4.0% |
|
|
|
3.6% |
|
|
Prepayment speed (1) |
|
|
|
|
|
|
|
|
|
Range |
|
0.1% – 13.7% |
|
|
0.1% – 9.6% |
|
||
|
Weighted average |
|
|
3.9% |
|
|
|
3.7% |
|
|
Total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
Range |
|
0.7% – 25.4% |
|
|
0.5% – 27.2% |
|
||
|
Weighted average |
|
|
19.0% |
|
|
|
19.6% |
|
|
(1) |
Prepayment speed is measured using Life Voluntary CPR. |
|
(2) |
Total prepayment speed is measured using Life Total CPR. |
We monitor and value our investments in pools of distressed mortgage loans by payment status of the loans. Most of the measures we use to value and monitor the loan portfolio, such as projected prepayment and default speeds and discount rates, are applied or output at the pool level. The characteristics of the individual loans, such as loan size, loan-to-value ratio and current delinquency status, can vary widely within a pool.
The weighted average discount rate used in the valuation of mortgage loans at fair value decreased from 7.1% at December 31, 2015 to 6.7% at June 30, 2016 as lower estimates of recoveries in the resolution of the distressed portfolios reduced yield expectations.
The weighted average twelve-month projected housing price index change used in the valuation of our portfolio of mortgage loans at fair value increased from 3.6% at December 31, 2015 to 4.0% at June 30, 2016, due to improved forecasts for real estate price appreciation in the geographic areas in which our portfolio of mortgage loans is concentrated.
The weighted average total prepayment speed used in the valuation of our portfolio of mortgage loans at fair value decreased from 19.6% at December 31, 2015 to 19.0% at June 30, 2016 due to our projections of longer liquidation periods for certain of our mortgage loans.
Real Estate Acquired in Settlement of Loans
Following is a summary of our REO by property type:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
Property type |
|
Carrying value |
|
|
% total |
|
|
Carrying value |
|
|
% total |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
1 - 4 dwelling units |
|
$ |
219,868 |
|
|
|
73 |
% |
|
$ |
249,340 |
|
|
|
73 |
% |
|
Planned unit development |
|
|
47,511 |
|
|
|
16 |
% |
|
|
54,404 |
|
|
|
16 |
% |
|
Condominium/Townhome/Co-op |
|
|
31,595 |
|
|
|
11 |
% |
|
|
35,593 |
|
|
|
10 |
% |
|
5+ dwelling units |
|
|
484 |
|
|
|
0 |
% |
|
|
2,509 |
|
|
|
1 |
% |
|
|
|
$ |
299,458 |
|
|
|
100 |
% |
|
$ |
341,846 |
|
|
|
100 |
% |
84
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
Geographic distribution |
|
Carrying value |
|
|
% total |
|
|
Carrying value |
|
|
% total |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
California |
|
$ |
61,852 |
|
|
|
21 |
% |
|
$ |
76,222 |
|
|
|
22 |
% |
|
New Jersey |
|
|
46,370 |
|
|
|
16 |
% |
|
|
36,394 |
|
|
|
11 |
% |
|
New York |
|
|
40,473 |
|
|
|
14 |
% |
|
|
27,300 |
|
|
|
8 |
% |
|
Florida |
|
|
39,739 |
|
|
|
13 |
% |
|
|
58,924 |
|
|
|
17 |
% |
|
Maryland |
|
|
19,737 |
|
|
|
7 |
% |
|
|
30,763 |
|
|
|
9 |
% |
|
Illinois |
|
|
16,292 |
|
|
|
5 |
% |
|
|
21,029 |
|
|
|
6 |
% |
|
Other |
|
|
74,995 |
|
|
|
25 |
% |
|
|
91,214 |
|
|
|
27 |
% |
|
|
|
$ |
299,458 |
|
|
|
100 |
% |
|
$ |
341,846 |
|
|
|
100 |
% |
Following is a summary of the status of our portfolio of acquisitions by quarter acquired for the periods in which we made acquisitions:
|
|
|
Acquisitions for the quarter ended |
|
|||||||||||||||||||||||||||||
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
|
June 30, 2014 |
|
|
March 31, 2014 |
|
||||||||||||||||||||
|
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
||||||||
|
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
||||||||
|
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
|
UPB |
|
$ |
310.2 |
|
|
$ |
255.9 |
|
|
$ |
330.8 |
|
|
$ |
263.9 |
|
|
$ |
37.9 |
|
|
$ |
27.9 |
|
|
$ |
439.0 |
|
|
$ |
276.9 |
|
|
Pool factor (1) |
|
|
1.00 |
|
|
|
0.82 |
|
|
|
1.00 |
|
|
|
0.80 |
|
|
|
1.00 |
|
|
|
0.74 |
|
|
|
1.00 |
|
|
|
0.63 |
|
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1.8 |
% |
|
|
23.8 |
% |
|
|
1.6 |
% |
|
|
34.7 |
% |
|
|
0.7 |
% |
|
|
43.7 |
% |
|
|
6.2 |
% |
|
|
16.3 |
% |
|
30 days |
|
|
0.3 |
% |
|
|
1.4 |
% |
|
|
1.6 |
% |
|
|
4.8 |
% |
|
|
0.6 |
% |
|
|
4.2 |
% |
|
|
0.7 |
% |
|
|
3.4 |
% |
|
60 days |
|
|
0.1 |
% |
|
|
1.6 |
% |
|
|
7.1 |
% |
|
|
2.5 |
% |
|
|
1.4 |
% |
|
|
3.4 |
% |
|
|
0.7 |
% |
|
|
1.1 |
% |
|
over 90 days |
|
|
66.7 |
% |
|
|
22.0 |
% |
|
|
52.7 |
% |
|
|
19.1 |
% |
|
|
59.0 |
% |
|
|
18.2 |
% |
|
|
37.5 |
% |
|
|
17.5 |
% |
|
In foreclosure |
|
|
31.1 |
% |
|
|
34.7 |
% |
|
|
36.9 |
% |
|
|
28.2 |
% |
|
|
38.2 |
% |
|
|
13.6 |
% |
|
|
53.8 |
% |
|
|
44.3 |
% |
|
REO |
|
|
0.0 |
% |
|
|
16.5 |
% |
|
|
0.0 |
% |
|
|
10.7 |
% |
|
|
0.0 |
% |
|
|
16.9 |
% |
|
|
1.1 |
% |
|
|
17.4 |
% |
|
(1) |
Ratio of UPB remaining to UPB at acquisition. |
|
|
|
Acquisitions for the quarter ended |
|
|||||||||||||||||||||||||||||
|
|
|
December 31, 2013 |
|
|
September 30, 2013 |
|
|
June 30, 2013 |
|
|
March 31, 2013 |
|
||||||||||||||||||||
|
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
||||||||
|
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
||||||||
|
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
|
UPB |
|
$ |
507.3 |
|
|
$ |
323.8 |
|
|
$ |
929.5 |
|
|
$ |
460.8 |
|
|
$ |
397.3 |
|
|
$ |
195.1 |
|
|
$ |
366.2 |
|
|
$ |
120.2 |
|
|
Pool factor (1) |
|
|
1.00 |
|
|
|
0.64 |
|
|
|
1.00 |
|
|
|
0.50 |
|
|
|
1.00 |
|
|
|
0.49 |
|
|
|
1.00 |
|
|
|
0.33 |
|
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1.4 |
% |
|
|
13.5 |
% |
|
|
0.8 |
% |
|
|
19.5 |
% |
|
|
4.8 |
% |
|
|
29.0 |
% |
|
|
1.6 |
% |
|
|
39.0 |
% |
|
30 days |
|
|
0.2 |
% |
|
|
2.0 |
% |
|
|
0.3 |
% |
|
|
3.4 |
% |
|
|
7.4 |
% |
|
|
7.4 |
% |
|
|
1.5 |
% |
|
|
11.2 |
% |
|
60 days |
|
|
0.0 |
% |
|
|
0.8 |
% |
|
|
0.7 |
% |
|
|
2.2 |
% |
|
|
7.6 |
% |
|
|
5.7 |
% |
|
|
3.5 |
% |
|
|
5.0 |
% |
|
over 90 days |
|
|
38.3 |
% |
|
|
20.2 |
% |
|
|
58.6 |
% |
|
|
20.3 |
% |
|
|
45.3 |
% |
|
|
17.3 |
% |
|
|
82.2 |
% |
|
|
19.6 |
% |
|
In foreclosure |
|
|
60.0 |
% |
|
|
40.9 |
% |
|
|
39.6 |
% |
|
|
31.3 |
% |
|
|
34.9 |
% |
|
|
22.8 |
% |
|
|
11.2 |
% |
|
|
13.5 |
% |
|
REO |
|
|
0.0 |
% |
|
|
22.6 |
% |
|
|
0.0 |
% |
|
|
23.3 |
% |
|
|
0.0 |
% |
|
|
17.8 |
% |
|
|
0.0 |
% |
|
|
11.6 |
% |
|
(1) |
Ratio of UPB remaining to UPB at acquisition. |
85
|
|
|
Acquisitions for the quarter ended |
|
|||||||||||||||||||||||||||||
|
|
|
December 31, 2012 |
|
|
September 30, 2012 |
|
|
June 30, 2012 |
|
|
December 31, 2011 |
|
||||||||||||||||||||
|
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
||||||||
|
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
||||||||
|
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
|
Unpaid principal balance |
|
$ |
290.3 |
|
|
$ |
102.6 |
|
|
$ |
357.2 |
|
|
$ |
105.4 |
|
|
$ |
402.5 |
|
|
$ |
93.5 |
|
|
$ |
49.0 |
|
|
$ |
18.5 |
|
|
Pool factor (1) |
|
|
1.00 |
|
|
|
0.35 |
|
|
|
1.00 |
|
|
|
0.30 |
|
|
|
1.00 |
|
|
|
0.23 |
|
|
|
1.00 |
|
|
|
0.38 |
|
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
3.1 |
% |
|
|
35.8 |
% |
|
|
0.0 |
% |
|
|
23.8 |
% |
|
|
45.0 |
% |
|
|
35.3 |
% |
|
|
0.2 |
% |
|
|
40.2 |
% |
|
30 days |
|
|
1.3 |
% |
|
|
8.6 |
% |
|
|
0.0 |
% |
|
|
2.4 |
% |
|
|
4.0 |
% |
|
|
10.4 |
% |
|
|
0.1 |
% |
|
|
4.9 |
% |
|
60 days |
|
|
5.4 |
% |
|
|
4.2 |
% |
|
|
0.1 |
% |
|
|
1.4 |
% |
|
|
4.3 |
% |
|
|
4.5 |
% |
|
|
0.2 |
% |
|
|
0.7 |
% |
|
over 90 days |
|
|
57.8 |
% |
|
|
18.9 |
% |
|
|
49.1 |
% |
|
|
19.2 |
% |
|
|
31.3 |
% |
|
|
21.8 |
% |
|
|
70.4 |
% |
|
|
23.5 |
% |
|
In foreclosure |
|
|
32.4 |
% |
|
|
16.0 |
% |
|
|
50.8 |
% |
|
|
31.4 |
% |
|
|
15.3 |
% |
|
|
21.7 |
% |
|
|
29.0 |
% |
|
|
21.5 |
% |
|
REO |
|
|
0.0 |
% |
|
|
16.5 |
% |
|
|
0.0 |
% |
|
|
21.9 |
% |
|
|
0.1 |
% |
|
|
6.2 |
% |
|
|
0.0 |
% |
|
|
9.2 |
% |
|
(1) |
Ratio of UPB remaining to UPB at acquisition. |
|
|
|
Acquisitions for the quarter ended |
|
|||||||||||||||||||||||||||||
|
|
|
September 30, 2011 |
|
|
June 30, 2011 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
||||||||||||||||||||
|
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
||||||||
|
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
||||||||
|
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
|
Unpaid principal balance |
|
$ |
542.6 |
|
|
$ |
97.3 |
|
|
$ |
259.8 |
|
|
$ |
58.8 |
|
|
$ |
515.1 |
|
|
$ |
108.8 |
|
|
$ |
277.8 |
|
|
$ |
37.7 |
|
|
Pool factor (1) |
|
|
1.00 |
|
|
|
0.18 |
|
|
|
1.00 |
|
|
|
0.23 |
|
|
|
1.00 |
|
|
|
0.21 |
|
|
|
1.00 |
|
|
|
0.14 |
|
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
0.6 |
% |
|
|
28.8 |
% |
|
|
11.5 |
% |
|
|
29.4 |
% |
|
|
2.0 |
% |
|
|
25.6 |
% |
|
|
5.0 |
% |
|
|
36.9 |
% |
|
30 days |
|
|
1.3 |
% |
|
|
8.0 |
% |
|
|
6.5 |
% |
|
|
7.9 |
% |
|
|
1.9 |
% |
|
|
4.5 |
% |
|
|
4.0 |
% |
|
|
11.7 |
% |
|
60 days |
|
|
2.0 |
% |
|
|
2.5 |
% |
|
|
5.2 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
2.6 |
% |
|
|
5.1 |
% |
|
|
3.2 |
% |
|
over 90 days |
|
|
22.6 |
% |
|
|
19.1 |
% |
|
|
31.2 |
% |
|
|
21.8 |
% |
|
|
25.9 |
% |
|
|
18.8 |
% |
|
|
26.8 |
% |
|
|
14.6 |
% |
|
In foreclosure |
|
|
73.0 |
% |
|
|
26.8 |
% |
|
|
43.9 |
% |
|
|
25.3 |
% |
|
|
66.3 |
% |
|
|
34.7 |
% |
|
|
59.1 |
% |
|
|
17.7 |
% |
|
REO |
|
|
0.4 |
% |
|
|
14.8 |
% |
|
|
1.7 |
% |
|
|
11.8 |
% |
|
|
0.0 |
% |
|
|
13.8 |
% |
|
|
0.0 |
% |
|
|
16.0 |
% |
|
(1) |
Ratio of UPB remaining to UPB at acquisition. |
|
|
|
Acquisitions for the quarter ended |
|
|||||||||||||||||||||
|
|
|
September 30, 2010 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|||||||||||||||
|
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
|
At |
|
|
June 30, |
|
||||||
|
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
|
purchase |
|
|
2016 |
|
||||||
|
|
|
(dollars in millions) |
|
|||||||||||||||||||||
|
Unpaid principal balance |
|
$ |
146.2 |
|
|
$ |
16.4 |
|
|
$ |
195.5 |
|
|
$ |
23.4 |
|
|
$ |
182.7 |
|
|
$ |
24.5 |
|
|
Pool factor (1) |
|
|
1.00 |
|
|
|
0.11 |
|
|
|
1.00 |
|
|
|
0.12 |
|
|
|
1.00 |
|
|
|
0.13 |
|
|
Collection status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1.2 |
% |
|
|
36.9 |
% |
|
|
5.1 |
% |
|
|
27.8 |
% |
|
|
6.2 |
% |
|
|
26.3 |
% |
|
30 days |
|
|
0.4 |
% |
|
|
12.8 |
% |
|
|
2.0 |
% |
|
|
12.4 |
% |
|
|
1.6 |
% |
|
|
13.6 |
% |
|
60 days |
|
|
1.3 |
% |
|
|
5.4 |
% |
|
|
4.1 |
% |
|
|
1.6 |
% |
|
|
5.8 |
% |
|
|
3.6 |
% |
|
over 90 days |
|
|
38.2 |
% |
|
|
16.4 |
% |
|
|
42.8 |
% |
|
|
17.0 |
% |
|
|
37.8 |
% |
|
|
20.1 |
% |
|
In foreclosure |
|
|
58.9 |
% |
|
|
19.2 |
% |
|
|
45.9 |
% |
|
|
33.9 |
% |
|
|
46.4 |
% |
|
|
21.1 |
% |
|
REO |
|
|
0.0 |
% |
|
|
9.3 |
% |
|
|
0.0 |
% |
|
|
7.3 |
% |
|
|
2.3 |
% |
|
|
15.3 |
% |
|
(1) |
Ratio of UPB remaining to UPB at acquisition. |
86
Our cash flows for the six months ended June 30, 2016 and 2015 are summarized below:
|
|
|
Quarter ended June 30, |
|
|
|
|
|
|||||
|
|
|
2016 |
|
|
2015 |
|
|
Change |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Operating activities |
|
$ |
(178,359 |
) |
|
$ |
(1,660,413 |
) |
|
$ |
1,482,054 |
|
|
Investing activities |
|
|
315,189 |
|
|
|
(46,706 |
) |
|
|
361,895 |
|
|
Financing activities |
|
|
(99,233 |
) |
|
|
1,745,431 |
|
|
|
(1,844,664 |
) |
|
Net cash flows |
|
$ |
37,597 |
|
|
$ |
38,312 |
|
|
$ |
(715 |
) |
Our cash flows resulted in a net increase in cash of $37.6 million during the six months ended June 30, 2016, as discussed below.
Operating activities
Cash used by operating activities totaled $178.4 million during the six months ended June 30, 2016, as compared to cash used by operating activities of $1.7 billion during the six months ended June 30, 2015. The decrease in cash flows used by operating activities is primarily due to the slower growth of our inventory of mortgage loans acquired for sale during the six months ended June 30, 2016, as compared to the same period in 2015.
Investing activities
Net cash provided by our investing activities was $315.2 million for the six months ended June 30, 2016, as compared to cash used by investing activities of $46.7 million for the six months ended June 30, 2015. The increase in cash flows from investing activities reflects higher investment acquisitions during the first quarter of 2015 from the purchase of distressed mortgage loans and ESS of $429.3, as compared to no acquisitions of distressed mortgage loans or ESS during the same period in 2016, and a higher realization of proceeds from sales and repayments on our investments, which exceeded our investment in CRT Agreements, during the six months ended June 30, 2016, as compared to the same period in 2015. We realized cash inflows from repayments of MBS, sales and repayments of mortgage loans, repayment of ESS, and sales of REO totaling $681.5 million. We used cash to purchase MBS of $249.9 million and increased deposits of cash collateral securing CRT Agreements transactions by $192.7 million.
Our investing activities have included the purchase of long-term assets which are not presently cash flowing or are at risk of interruption of cash flows in the near future. Furthermore, much of the investment income we recognize is in the form of valuation adjustments we record recognizing our estimates of the net appreciation in value of the assets as we work with borrowers to either modify their loans or acquire the property securing their loans in settlement thereof. Accordingly, the cash associated with a substantial portion of our revenues is often realized as part of the proceeds of the liquidation of the assets, either through payoff or sale of the mortgage loan or through acquisition and subsequent sale of the property securing the mortgage loans, many months after we record the revenues.
Financing activities
Net cash used by financing activities was $99.2 million for the six months ended June 30, 2016, as compared to cash provided of $1.7 billion for the six months ended June 30, 2015. During the six months ended June 30, 2016, we (i) financed lower amounts of assets sold under agreements to repurchase from a lower balance of mortgage loans at fair value; (ii) repaid all outstanding debt obligations with the Federal Home Loan Bank; and (iii) repurchased common shares under our share repurchase program. As discussed below in Liquidity and Capital Resources , our Manager continues to evaluate and pursue additional sources of financing that may be required to provide us with future investing capacity.
We do not raise equity or enter into borrowings for the purpose of financing the payment of dividends. We believe that our cash flows from the liquidation of our investments, which include accumulated gains recorded during the periods we hold those investments, along with our cash earnings, are adequate to fund our operating expenses and dividend payment requirements. However, we manage our liquidity in the aggregate and are reinvesting our cash flows in new investments as well as using such cash to fund our dividend requirements.
Liquidity and Capital Resources
Our liquidity reflects our ability to meet our current obligations (including the purchase of loans from correspondent lenders, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make
87
investments as our Manager identifies them, pursue our share repurchase program an d make distributions to our shareholders. We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.
We expect our primary sources of liquidity to be proceeds from liquidations from our investment portfolio, including distressed assets, cash earnings on our investments, cash flows from business activities, and proceeds from borrowings and/or additional equity offerings. We believe that our liquidity is sufficient to meet our current liquidity needs.
We do not expect repayments from contractual cash flows from our investments to be a primary source of liquidity as the majority of our investments are distressed assets that are nonperforming. Our portfolio of distressed mortgage loans was acquired with the expectation that the majority of the cash flows associated with these investments would result from liquidation of the property securing the loan, rather than from scheduled principal and interest payments. Our mortgage loans acquired for sale are generally held for fifteen days or less and, therefore, are not expected to generate significant cash flows from principal repayments.
Our current leverage strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We have made collateralized borrowings in the form of sales of assets under agreements to repurchase, mortgage loan participation and sale agreements and notes payable. We also previously made collateralized borrowings in the form of borrowings under forward purchase agreements and advances from the Federal Home Loan Bank of Des Moines. To the extent available to us, we expect in the future to obtain long-term financing for assets with estimated future lives of more than one year; this may include term financing and securitization of performing (including newly purchased jumbo mortgage loans), nonperforming and/or reperforming mortgage loans.
We will continue to finance most of our assets on a short-term basis until long-term financing becomes more available. Our short-term financings will be primarily in the form of agreements to repurchase and other secured lending and structured finance facilities, pending the ultimate disposition of the assets, whether through sale, securitization or liquidation. Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to renew these facilities in advance of maturity in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.
Our repurchase agreements represent the sales of assets together with agreements for us to buy back the assets at a later date. Following is a summary of the activities in our repurchase agreements financing:
|
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
Assets sold under agreements to repurchase |
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Average balance outstanding |
|
$ |
3,268,774 |
|
|
$ |
3,172,806 |
|
|
$ |
3,033,038 |
|
|
$ |
3,061,923 |
|
|
Maximum daily balance outstanding |
|
$ |
4,331,706 |
|
|
$ |
3,511,918 |
|
|
$ |
4,402,724 |
|
|
$ |
3,842,167 |
|
|
Ending balance |
|
$ |
3,275,691 |
|
|
$ |
3,500,569 |
|
|
|
|
|
|
|
|
|
The difference between the maximum and average daily amounts outstanding is primarily due to increasing volume and the timing of loan purchases and sales in our correspondent acquisition business. The total facility size of our assets sold under agreements to repurchase was approximately $4.5 billion at June 30, 2016.
As of June 30, 2016 and December 31, 2015, we financed our investments in MBS, mortgage loans acquired for sale at fair value, mortgage loans at fair value, mortgage loans at fair value held by a VIE, MSRs, ESS, REO and deposits securing CRT Agreements with sales under agreements to repurchase, notes payable, asset-backed financing and a mortgage loan participation and sale agreement. We also financed certain of our investments as of December 31, 2015 with FHLB advances, as follows:
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Assets financed |
|
$ |
5,265,241 |
|
|
$ |
5,231,476 |
|
|
Total assets in classes of assets financed |
|
$ |
5,432,917 |
|
|
$ |
5,376,068 |
|
|
Secured borrowings (1) |
|
$ |
4,013,104 |
|
|
$ |
3,947,033 |
|
|
Percentage of invested assets pledged |
|
|
97 |
% |
|
|
97 |
% |
|
Advance rate against pledged assets |
|
|
76 |
% |
|
|
75 |
% |
|
Leverage ratio (2) |
|
3.13x |
|
|
2.81x |
|
||
|
|
(1) |
Excludes the effect of unamortized debt issuance costs. |
|
|
(2) |
All borrowings divided by shareholders’ equity at period end. |
88
As discussed above, all of our repurchase agreements, notes payable, and mortgage loan participation and sale agreement have short-term maturities:
|
|
· |
The transactions relating to mortgage loans and REO under agreements to repurchase generally provide for terms of approximately one year and, in one instance, two years. |
|
|
· |
The transactions relating to mortgage loans under mortgage loan participation and sale agreement provide for terms of approximately one year. |
|
|
· |
The transactions relating to assets under notes payable provide for terms of approximately one year. |
As of June 30, 2016, leverage on MSRs and ESS continues to be limited in availability due to the requirement of each Agency that its rights and interest in the MSRs remain senior to those of any lender extending credit. As we continue to aggregate MSRs and ESS, the limited availability of financing could place stress on our capital and liquidity positions or require us to forego attractive investment opportunities.
Our debt financing agreements require us and certain of our subsidiaries to comply with various financial covenants. As of the filing of this Report, these financial covenants include the following:
|
|
· |
profitability at the Company for at least one (1) of the previous two consecutive fiscal quarters, as of the end of each fiscal quarter, and over the prior six month period measured at each calendar quarter end, and at the Company and our Operating Partnership over the prior three (3) calendar quarters; |
|
|
· |
a minimum of $40 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $40 million in unrestricted cash and cash equivalents among our Operating Partnership and its consolidated subsidiaries; a minimum of $25 million in unrestricted cash and cash equivalents between PMC and PMH; and a minimum of $10 million in unrestricted cash and cash equivalents at each of PMC and PMH; |
|
|
· |
a minimum tangible net worth for the Company of $860 million; a minimum tangible net worth for our Operating Partnership of $700 million; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $150 million; |
|
|
· |
a maximum ratio of total liabilities to tangible net worth of less than 10:1 for PMC and PMH and 5:1 for the Company and our Operating Partnership; and |
|
|
· |
at least two warehouse or repurchase facilities that finance amounts and assets similar to those being financed under our existing debt financing agreements. |
Although these financial covenants limit the amount of indebtedness we may incur and impact 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.
PLS is also subject to various financial covenants, both as a borrower under its own financing arrangements and as our servicer under certain of our debt financing agreements. The most significant of these financial covenants currently include the following:
|
|
· |
positive net income during each calendar quarter; |
|
|
· |
a minimum in unrestricted cash and cash equivalents of $20 million; |
|
|
· |
a minimum tangible net worth of $200 million; and |
|
|
· |
a maximum ratio of total liabilities to tangible net worth of 10:1. |
In addition to the financial covenants imposed upon us and PLS under our debt financing agreements, effective December 31, 2015, each of the Agencies has implemented new minimum financial eligibility requirements for Agency mortgage sellers/servicers and MBS issuers, as applicable. These minimum financial eligibility requirements are intended to set a minimum level of capital needed to adequately absorb potential losses and a minimum amount of liquidity needed to service Agency mortgage loans and MBS and cover the associated financial obligations and risks. Currently, we and/or PLS as our servicer, as applicable, are required to comply with the following minimum financial eligibility requirements:
|
|
· |
A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential mortgage loans serviced. |
|
|
· |
A tangible net worth/total assets ratio greater than or equal to 6%. |
89
|
|
· |
In the case of PLS, liquidity equal to the greater of $1.0 million or 0.10% (10 basis points) of its outstanding Ginnie Mae single-family securities, which must be met with cash and cash equivalents. |
|
|
· |
In the case of PLS, net worth equal to $2.5 million plus 0.35% (35 basis points) of its outstanding Ginnie Mae single-family obligations. |
Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement, although in some instances we may agree with the lender upon certain thresholds (in dollar amounts or percentages based on the market value of the assets) that must be exceeded before a margin deficit will arise. 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 Manager continues to explore a variety of additional means of financing our continued growth, including debt financing through bank warehouse lines of credit, additional repurchase agreements, term financing, securitization transactions and additional equity offerings. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements and Guarantees
As of June 30, 2016, we have not entered into any off-balance sheet arrangements or guarantees of off-balance sheet obligations.
Contractual Obligations
As of June 30, 2016, we had contractual obligations aggregating to $6.2 billion comprised of borrowings, interest expense on long term debt from our Exchangeable Notes and asset-backed financing of a VIE, and commitments to purchase mortgage loans from correspondent lenders. Payment obligations under these agreements, including expected interest payments on financing agreements, are summarized below:
|
|
|
Payments due by period |
|
|||||||||||||||||
|
Contractual obligations |
|
Total |
|
|
Less than 1 year |
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
More than 5 years |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Commitments to purchase mortgage loans from correspondent lenders |
|
$ |
1,658,813 |
|
|
$ |
1,658,813 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Assets sold under agreements to repurchase |
|
|
3,276,854 |
|
|
|
3,276,854 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Mortgage loan participation and sale agreements |
|
|
96,335 |
|
|
|
96,335 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Notes payable |
|
|
164,003 |
|
|
|
164,003 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Note payable to PFSI |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Asset-backed financing of a VIE |
|
|
325,939 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
325,939 |
|
|
Exchangeable Notes |
|
|
250,000 |
|
|
|
— |
|
|
|
— |
|
|
|
250,000 |
|
|
|
— |
|
|
Interest expense on long term debt |
|
|
233,571 |
|
|
|
24,754 |
|
|
|
48,742 |
|
|
|
34,216 |
|
|
|
125,859 |
|
|
Total |
|
$ |
6,155,515 |
|
|
$ |
5,370,759 |
|
|
$ |
48,742 |
|
|
$ |
284,216 |
|
|
$ |
451,798 |
|
90
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanc ed by the counterparty and accrued interest) relating to our debt financing is summarized by counterparty below as of June 30, 2016:
|
Counterparty |
|
Amount at risk |
|
|
|
|
|
(in thousands) |
|
|
|
Citibank, N.A. |
|
$ |
327,363 |
|
|
JPMorgan Chase & Co. |
|
|
173,781 |
|
|
Credit Suisse First Boston Mortgage Capital LLC |
|
|
158,462 |
|
|
Bank of America, N.A. |
|
|
77,557 |
|
|
Daiwa Capital Markets America Inc. |
|
|
18,103 |
|
|
Morgan Stanley Bank, N.A. |
|
|
14,924 |
|
|
BNP Paribas Corporate & Institutional Banking |
|
|
10,582 |
|
|
Barclays Bank PLC |
|
|
3,879 |
|
|
Wells Fargo, N.A. |
|
|
3,070 |
|
|
|
|
$ |
787,721 |
|
Management Agreement. We are externally managed and advised by our Manager pursuant to a management agreement, which was amended and restated effective February 1, 2013. Our management agreement requires our Manager to oversee our business affairs in conformity with the investment policies that are approved and monitored by our board of trustees. Our Manager is responsible for our day-to-day management and will perform such services and activities related to our assets and operations as may be appropriate.
Pursuant to our management agreement, our Manager collects a base management fee and may collect a performance incentive fee, both payable quarterly and in arrears. The term of our management agreement expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
The base management fee is calculated at a defined annualized percentage of “shareholders’ equity.” Our “shareholders’ equity” is defined as the sum of the net proceeds from any issuances of our equity securities since our inception (weighted for the time outstanding during the measurement period); plus our retained earnings at the end of the quarter; less any amount that we pay for repurchases of our common shares (weighted for the time held during the measurement period); and excluding one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between our Manager and our independent trustees and approval by a majority of our independent trustees.
Pursuant to the terms of our amended and restated management agreement, the base management fee is equal to the sum of (i) 1.5% per annum of shareholders’ equity up to $2 billion, (ii) 1.375% per annum of shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per annum of shareholders’ equity in excess of $5 billion. The base management fee is paid in cash.
The performance incentive fee is calculated at a defined annualized percentage of the amount by which “net income,” on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.” For the purpose of determining the amount of the performance incentive fee, “net income” is defined as net income or loss computed in accordance with GAAP and certain other non-cash charges determined after discussions between our Manager and our independent trustees and approval by a majority of our independent trustees. For this purpose, “equity” is the weighted average of the issue price per common share of all of our public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four-quarter period.
The performance incentive fee is calculated quarterly and escalates as net income (stated as a percentage of return on equity) increases over certain thresholds. On each calculation date, the threshold amounts represent a stated return on equity, plus or minus a “high watermark” adjustment. The performance fee payable for any quarter is equal to: (a) 10% of the amount by which net income for the quarter exceeds (i) an 8% return on equity plus the high watermark, up to (ii) a 12% return on equity; plus (b) 15% of the amount by which net income for the quarter exceeds (i) a 12% return on equity plus the high watermark, up to (ii) a 16% return on equity; plus (c) 20% of the amount by which net income for the quarter exceeds a 16% return on equity plus the high watermark.
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 Fannie Mae MBS Yield (the target yield) for such quarter. The “high watermark” starts at zero and is adjusted quarterly. 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 our Manager to earn a performance incentive fee are adjusted cumulatively based on the performance of our 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
91
amount, and a performance incentive fee is earned. The performance incentive fee may be paid in cash or in our common shares (subject to a limit of no more than 50% paid in common shares), at our option.
Our Manager is entitled to reimbursement of its organizational and operating expenses, including third-party expenses, incurred on our behalf. Pursuant to the terms of our management agreement, our Manager is entitled to grant discretionary waivers of certain overhead expenses that otherwise would be allocable to us. On December 15, 2015, the Operating Partnership amended its management agreement to provide that the overhead costs and expenses incurred by PFSI in any quarter and reimbursable by the Operating Partnership is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of the month preceding quarter end, divided by four.
Our Manager may also be entitled to a termination fee under certain circumstances. Specifically, the termination fee is payable for (1) our termination of our management agreement without cause, (2) our Manager’s termination of our management agreement upon a default by us in the performance of any material term of the agreement that has continued uncured for a period of 30 days after receipt of written notice thereof or (3) our Manager’s termination of the agreement after the termination by us without cause (excluding a non-renewal) of our MBWS agreement, our MSR recapture agreement, or our servicing agreement (each as described and/or defined below). The termination fee is equal to three times the sum of (a) the average annual base management fee and (b) the average annual (or, if the period is less than 24 months, annualized) performance incentive fee, in each case earned by our Manager during the 24-month period before termination.
Our management agreement also provides that, prior to the undertaking by our Manager or its affiliates of any new investment opportunity or any other business opportunity requiring a source of capital with respect to which our Manager or its affiliates will earn a management, advisory, consulting or similar fee, our Manager shall present to us such new opportunity and the material terms on which our Manager proposes to provide services to us before pursuing such opportunity with third parties.
Servicing Agreement . We have entered into a loan servicing agreement with PLS, pursuant to which PLS provides servicing for our portfolio of residential mortgage loans. The loan servicing provided by PLS includes collecting principal, interest and escrow account payments, if any, with respect to mortgage loans, as well as managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications, foreclosures and short sales. PLS also engages in certain loan origination activities that include refinancing mortgage loans and financings that facilitate sales of real estate owned properties, or REOs. The term of our servicing agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
The base servicing fees for distressed whole loans are calculated based on a monthly per-loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or whether the underlying mortgaged property has become REO. Presently, the base servicing fee rates for distressed whole loans range from $30 per month for current loans up to $125 per month for loans that are in foreclosure. The base servicing fee rate for REO is $75 per month. To the extent that we rent our REO under our REO rental program, we pay PLS an REO rental fee of $30 per month per REO, an REO property lease renewal fee of $100 per lease renewal, and a property management fee in an amount equal to PLS’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 PLS provides property management services directly. We are also required to reimburse PLS for certain third party vendor fees.
The base servicing fees for loans subserviced by PLS on our behalf are also calculated through a monthly per-loan dollar amount, with the actual dollar amount for each loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fees for loans subserviced on our behalf are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate mortgage loans. To the extent that these loans become delinquent, PLS is entitled to an additional servicing fee per loan falling within a range of $10 to $55 per month and based on the delinquency, bankruptcy and foreclosure status of the loan or $75 per month if the underlying mortgaged property becomes REO. PLS is also entitled to customary ancillary income and certain market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, and assumption, modification and origination fees.
In addition, because we do not have any employees or infrastructure, PLS is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement. For these services, PLS receives a supplemental servicing fee of $25 per month for each distressed whole loan. PLS is entitled to reimbursement for all customary, bona fide reasonable and necessary out-of-pocket expenses incurred by PLS in connection with the performance of its servicing obligations.
Except as otherwise provided in our MSR recapture agreement, when PLS effects a refinancing of a loan on our behalf and not through a third-party lender and the resulting loan is readily saleable, or PLS originates a loan to facilitate the disposition of the real
92
esta te acquired by us in settlement of a loan, PLS is entitled to receive from us market-based fees and compensation consistent with pricing and terms PLS offers unaffiliated third parties on a retail basis.
To the extent that PLS participates in HAMP (or other similar mortgage loan modification programs), PLS is entitled to retain any incentive payments made to it and to which it is entitled under HAMP, provided that, with respect to any incentive payments paid to PLS in connection with a mortgage loan modification for which we previously paid PLS a modification fee, PLS is required to reimburse us an amount equal to the incentive payments.
Mortgage Banking and Warehouse Services Agreement . We have also entered into a mortgage banking and warehouse services agreement (the “MBWS agreement”), pursuant to which PLS provides us with certain mortgage banking services, including fulfillment and disposition-related services, with respect to loans acquired by us from correspondent lenders, and certain warehouse lending services, including fulfillment and administrative services, with respect to loans financed by us for our warehouse lending clients. The term of our MBWS agreement expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
Under our MBWS agreement, PLS has agreed to provide the mortgage banking services exclusively for our benefit, and PLS and its affiliates are prohibited from providing such services for any other third party. However, such exclusivity and prohibition shall not apply, and certain other duties instead will be imposed upon PLS, if we are unable to purchase or finance mortgage loans as contemplated under our MBWS agreement for any reason.
In consideration for the mortgage banking services provided by PLS with respect to our acquisition of mortgage loans, PLS is entitled to a fulfillment fee based on the type of mortgage loan that we acquire and equal to a percentage of the unpaid principal balance of such mortgage loan. Presently, the applicable percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans sold in accordance with the Ginnie Mae Mortgage-Backed Securities Guide, and (iii) 0.50% for all other mortgage loans not contemplated above; provided, however, that PLS may, in its sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage was funded.
We do not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under our MBWS agreement, PLS currently purchases loans saleable in accordance with the Ginnie Mae Mortgage-Backed Securities Guide “as is” and without recourse of any kind from us at cost, plus accrued interest and a sourcing fee of three basis points in each case on the UPB of the loan, less an administrative fee we collect from the correspondent seller.
In the event that we purchase mortgage loans with a total UPB in any month greater than $2.5 billion and less than $5 billion, PLS has agreed to discount the amount of such fulfillment fees by reimbursing us an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion and less than or equal to $5 billion, and (iii) the percentage of the total UPB relating to mortgage loans for which we paid fulfillment fees in such month. In the event we purchase mortgage loans with a total UPB in any month greater than $5 billion, PLS has agreed to further discount the amount of fulfillment fees by reimbursing us an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion, and (iii) the percentage of total UPB relating to mortgage loans for which we paid fulfillment fees in such month.
In consideration for the mortgage banking services provided by PLS with respect to our acquisition of mortgage loans under PLS’s early purchase program, PLS is entitled to fees accruing (i) at a rate equal to $1,500 per annum, and (ii) in the amount of $35 for each mortgage loan that we acquire thereunder. In consideration for the warehouse services provided by PLS with respect to mortgage loans that we finance for our warehouse lending clients, with respect to each facility, PLS is entitled to fees accruing (i) at a rate equal to $40,000 per annum for each of the first twenty (20) warehouse lending facilities active in any month and $10,000 per annum for each additional warehouse lending facility active in any month, and (ii) in the amount of $50 with respect to each mortgage loan that we finance thereunder. Where we have entered into both an early purchase agreement and a warehouse lending agreement with the same client, PLS shall only be entitled, with respect to any mortgage loan that becomes subject to both such agreements, the applicable warehouse lending fees.
Notwithstanding any provision of our MBWS agreement to the contrary, if it becomes reasonably necessary or advisable for PLS to engage in additional services in connection with post-breach or post-default resolution activities for the purposes of a correspondent agreement, a warehouse agreement or a re-warehouse agreement, then we have generally agreed with PLS to negotiate in good faith for additional compensation and reimbursement of expenses to be paid to PLS for the performance of such additional services.
MSR Recapture Agreement . Effective February 1, 2013, we entered into an MSR recapture agreement with PLS. Pursuant to the terms of our MSR recapture agreement, if PLS refinances through its consumer direct lending business loans for which we previously held the MSRs, PLS is generally required to transfer and convey to us, without cost to us, the MSRs with respect to new mortgage
93
loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have an aggregate unpaid principal balance that is not less than 30% of the total UPB of all su ch loans so originated. Where the fair market value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, PLS may, at its option, wire cash to us in an amount equal to the fair market value of the MSRs in lieu of transferr ing such MSRs. The term of our MSR recapture agreement expires, unless terminated earlier in accordance with the terms of the agreement, on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated in accordance with the terms of the agreement.
Spread Acquisition and MSR Servicing Agreements . Effective February 1, 2013, we entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which we may acquire from PLS the rights to receive certain ESS arising from MSRs acquired by PLS from banks and other third-party financial institutions. PLS is generally required to service or subservice the related mortgage loans for the applicable agency or investor. To date, we have only used the 2/1/13 Spread Acquisition Agreement for the purpose of acquiring ESS relating to Fannie Mae MSRs. The terms of each transaction under the 2/1/13 Spread Acquisition Agreement are subject to the specific terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.
To the extent PLS refinances any of the mortgage loans relating to the ESS we have acquired, the 2/1/13 Spread Acquisition Agreement contains recapture provisions requiring that PLS transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, PLS may, at its option, wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
On December 19, 2014, we entered into a second master spread acquisition and MSR servicing agreement with PLS (the “12/19/14 Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to purchase ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.
To the extent PLS refinances any of the mortgage loans relating to the ESS we have acquired, the 12/19/14 Spread Acquisition Agreement also contains recapture provisions requiring that PLS transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, PLS may, at its option, wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
On February 29, 2016, the parties terminated the 2/1/13 Spread Acquisition Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, PLS reacquired from us all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by PLS to us and then subject to such 2/1/13 Spread Acquisition Agreement. On February 29, 2016, PLS also reacquired from us all of its right, title and interest in and to all of the Freddie Mac ESS previously sold by PLS to us and then subject to such 12/19/14 Spread Acquisition Agreement. The 12/19/14 Spread Acquisition Agreement remains in full force and effect.
On April 30, 2015, we amended and restated a third master spread acquisition and MSR servicing agreement with PLS (the “4/30/15 Spread Acquisition Agreement”). The terms of the 4/30/15 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement and the 12/19/14 Spread Acquisition Agreement, except that we only intend to purchase ESS relating to Ginnie Mae MSRs under the 4/30/15 Spread Acquisition Agreement.
To the extent PLS refinances any of the mortgage loans relating to the ESS we have acquired, the 4/30/15 Spread Acquisition Agreement also contains recapture provisions requiring that PLS transfer to us, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 4/30/15 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, PLS 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 equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the 4/30/15 Spread Acquisition Agreement contains provisions that require PLS 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, PLS may, at its option, wire cash to us in an amount equal to such fair market value in lieu of transferring such ESS.
In connection with our entry into the 4/30/15 Spread Acquisition Agreement, we were also required to amend and restate the terms of a Security and Subordination Agreement (the “Security Agreement”) with CSFB. Under the terms of the Security Agreement, we pledged to CSFB our rights under the 4/30/15 Spread Acquisition Agreement and our interest in any ESS purchased thereunder. The Security Agreement is required as a result of a separate repurchase agreement between PLS and CSFB (the “MSR Repo”),
94
pursuant to which PLS finances Ginnie Mae MSRs and servicing advance receivables and pledges to CSFB all of its rights and interests in any Ginnie Mae MSRs it owns or acquires, and a separate acknowledgement agreement with respect th ereto, by and among Ginnie Mae, CSFB and PLS. As a condition to permitting PLS to transfer to us the ESS relating to a portion of those pledged Ginnie Mae MSRs, CSFB requires such transfer to be subject to CSFB’s continuing lien on the ESS, the pledge and acknowledgement of which were effected pursuant to the Security Agreement. CSFB’s lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 4/30/15 Spread Acquisition Agreement and the terms of the ackn owledgement agreement.
The Security Agreement contains representations, warranties and covenants by us that are substantially similar to those contained in our other financing arrangements with CSFB. The Security Agreement also permits CSFB to liquidate our ESS along with the related MSRs to the extent there exists an event of default under the MSR Repo, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of our credit facilities, that would require PLS to either (i) repay in full the outstanding loan amount under the MSR Repo or (ii) repurchase the ESS from us at fair market value. To the extent PLS is unable to repay the loan under the MSR Repo or repurchase our ESS, an event of default would exist under the MSR Repo, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event our ESS is liquidated as a result of certain actions or inactions of PLS, we generally would be entitled to seek indemnity under the 4/30/15 Spread Acquisition Agreement.
Note Payable to PLS . In connection with the MSR Repo and the Security Agreement described above, we entered into an underlying loan and security agreement with PLS, dated as of April 30, 2015, pursuant to which we may borrow up to $150 million from PLS for the purpose of financing our investment in ESS (the “Underlying LSA”). In order to secure our borrowings, we pledge our ESS to PLS under the Underlying LSA, and PLS, in turn, re-pledges such ESS to CSFB under the MSR Repo.
The principal amount of the borrowings under the Underlying LSA is based upon a percentage of the market value of the ESS pledged to PLS, subject to the $150 million sublimit described above. Pursuant to the Underlying LSA, we granted to PLS a security interest in all of our right, title and interest in, to and under the ESS pledged to secure the borrowings.
We have agreed with PLS in connection with the Underlying LSA that we are required to repay PLS the principal amount of borrowings plus accrued interest to the date of such repayment, and PLS, in turn, is required to repay CSFB the corresponding amount under the MSR Repo. Interest accrues on our note relating to the Underlying LSA at a rate based on CSFB’s cost of funds under the MSR Repo. We were also required to pay PLS a fee for the structuring of the Underlying LSA in an amount equal to the portion of the corresponding fee paid by PLS to CSFB and allocable to the increase in the maximum loan amount under the MSR Repo resulting from the ESS financing.
Loan Purchase Agreements . We have entered into a mortgage loan purchase agreement and a flow commercial mortgage loan purchase agreement with our Servicer. Currently, we use the mortgage loan purchase agreement for the purpose of acquiring prime jumbo residential mortgage loans originated by our Servicer through its consumer direct lending channel. We use the flow commercial mortgage loan purchase agreement for the purpose of acquiring small balance commercial mortgage loans, including multifamily mortgage loans, originated by our Servicer as part of our commercial lending business. Each of the loan purchase agreements contains customary terms and provisions, including representations and warranties, covenants, repurchase remedies and indemnities. The purchase prices we pay our Servicer for such loans are market-based.
Commercial Mortgage Servicing Oversight Agreement . We have also entered into a commercial mortgage servicing oversight agreement with PLS that governs its oversight of the master and/or special servicing performed by third party servicers in connection with certain commercial mortgage loans we acquire. For the oversight services performed under this agreement, we are required to pay PLS a fee equal to 5 basis points per annum based on the UPB of the related commercial mortgage loans for which it provides oversight servicing.
Reimbursement Agreement . In connection with the initial public offering of our common shares on August 4, 2009 (the “IPO”), we entered into an agreement with PCM pursuant to which we agreed to reimburse PCM for the $2.9 million payment that it made to the underwriters for the IPO (the “Conditional Reimbursement”) if we satisfied certain performance measures over a specified period of time. Effective February 1, 2013, we amended the terms of the reimbursement agreement to provide for the reimbursement of PCM of the Conditional Reimbursement if we are required to pay PCM performance incentive fees under our management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12-month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million. The reimbursement agreement also provides for the payment to the IPO underwriters of the payment that we agreed to make to them at the time of the IPO if we satisfied certain performance measures over a specified period of time. As PCM earns performance incentive fees under our management agreement, the IPO underwriters will be paid at a rate of $20 of payments for every $100 of performance incentive fees earned by PCM. The payment to the underwriters is subject to a maximum reimbursement in any particular 12-month period of $2.0 million and the maximum amount that may be paid under the agreement is $5.9 million.
95
In the event the termination fee is payable to our Manager under our management agreement and our Manager and the underwriters have not rec eived the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.
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 real estate risk, credit risk, interest rate risk, prepayment risk, inflation risk and market value risk. Our primary trading asset is our inventory of mortgage loans acquired for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated mortgage loans. Our other market-risk assets are a substantial portion of our investments and are comprised of distressed mortgage nonperforming loans and MSRs. We believe that the fair values of MSRs also respond primarily to changes in the market interest rates for comparable mortgage loans. We believe that the fair values of our investment in distressed mortgage loans respond primarily to changes in the fair value of the real estate securing such loans.
Mortgage Loans at Fair Value
The following table summarizes the estimated change in fair value of our portfolio of distressed mortgage loans (comprised of mortgage loans at fair value, excluding mortgage loans at fair value held by VIE) as of June 30, 2016, given several hypothetical (instantaneous) changes in home values from those used in estimating fair value:
|
Property value shift in % |
|
|
-15% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+15% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
|
1,430,619 |
|
|
|
1,484,236 |
|
|
|
1,533,443 |
|
|
|
1,619,020 |
|
|
|
1,655,658 |
|
|
|
1,688,554 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
(147,636 |
) |
|
$ |
(94,019 |
) |
|
$ |
(44,812 |
) |
|
$ |
40,765 |
|
|
$ |
77,403 |
|
|
$ |
110,300 |
|
|
% |
|
|
(9.4 |
)% |
|
|
(6.0 |
)% |
|
|
(2.8 |
)% |
|
|
2.6 |
% |
|
|
4.9 |
% |
|
|
7.0 |
% |
The following table summarizes the estimated change in fair value of our mortgage loans at fair value held by VIE as of June 30, 2016, net of the effect of changes in fair value of the related asset-backed financing of the VIE at fair value, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:
|
Interest rate shift in basis points |
|
-200 |
|
|
-100 |
|
|
-50 |
|
|
50 |
|
|
100 |
|
|
200 |
|
||||||
|
|
|
(dollar in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
438,965 |
|
|
$ |
438,461 |
|
|
$ |
437,488 |
|
|
$ |
433,536 |
|
|
$ |
430,046 |
|
|
$ |
421,025 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
3,044 |
|
|
$ |
2,540 |
|
|
$ |
1,567 |
|
|
$ |
(2,385 |
) |
|
$ |
(5,875 |
) |
|
$ |
(14,986 |
) |
|
% |
|
|
0.7 |
% |
|
|
0.6 |
% |
|
|
0.4 |
% |
|
|
(0.6 |
)% |
|
|
(1.4 |
)% |
|
|
(3.4 |
)% |
Mortgage Servicing Rights
The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of June 30, 2016, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
|
Pricing spread shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
444,346 |
|
|
$ |
430,303 |
|
|
$ |
423,599 |
|
|
$ |
410,782 |
|
|
$ |
404,653 |
|
|
$ |
392,920 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
27,252 |
|
|
$ |
13,209 |
|
|
$ |
6,504 |
|
|
$ |
(6,312 |
) |
|
$ |
(12,441 |
) |
|
$ |
(24,175 |
) |
|
% |
|
|
6.5 |
% |
|
|
3.2 |
% |
|
|
1.6 |
% |
|
|
(1.5 |
)% |
|
|
(3.0 |
)% |
|
|
(5.8 |
)% |
|
Prepayment speed shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
458,603 |
|
|
$ |
436,969 |
|
|
$ |
426,825 |
|
|
$ |
407,753 |
|
|
$ |
398,779 |
|
|
$ |
381,851 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
41,508 |
|
|
$ |
19,874 |
|
|
$ |
9,731 |
|
|
$ |
(9,341 |
) |
|
$ |
(18,315 |
) |
|
$ |
(35,243 |
) |
|
% |
|
|
10.0 |
% |
|
|
4.8 |
% |
|
|
2.3 |
% |
|
|
(2.2 |
)% |
|
|
(4.4 |
)% |
|
|
(8.4 |
)% |
96
|
Per-loan servicing cost shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
430,431 |
|
|
$ |
423,763 |
|
|
$ |
420,429 |
|
|
$ |
413,760 |
|
|
$ |
410,426 |
|
|
$ |
403,757 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
13,337 |
|
|
$ |
6,669 |
|
|
$ |
3,334 |
|
|
$ |
(3,334 |
) |
|
$ |
(6,669 |
) |
|
$ |
(13,337 |
) |
|
% |
|
|
3.2 |
% |
|
|
1.6 |
% |
|
|
0.8 |
% |
|
|
(0.8 |
)% |
|
|
(1.6 |
)% |
|
|
(3.2 |
)% |
The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value option method as of June 30, 2016, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
|
Pricing spread shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
61,665 |
|
|
$ |
59,763 |
|
|
$ |
58,856 |
|
|
$ |
57,121 |
|
|
$ |
56,292 |
|
|
$ |
54,705 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
3,689 |
|
|
$ |
1,788 |
|
|
$ |
880 |
|
|
$ |
(854 |
) |
|
$ |
(1,683 |
) |
|
$ |
(3,271 |
) |
|
% |
|
|
6.4 |
% |
|
|
3.1 |
% |
|
|
1.5 |
% |
|
|
(1.5 |
)% |
|
|
(2.9 |
)% |
|
|
(5.6 |
)% |
|
Prepayment speed shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
65,897 |
|
|
$ |
61,730 |
|
|
$ |
59,805 |
|
|
$ |
56,236 |
|
|
$ |
54,581 |
|
|
$ |
51,501 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
7,922 |
|
|
$ |
3,754 |
|
|
$ |
1,829 |
|
|
$ |
(1,739 |
) |
|
$ |
(3,395 |
) |
|
$ |
(6,475 |
) |
|
% |
|
|
13.7 |
% |
|
|
6.5 |
% |
|
|
3.2 |
% |
|
|
(3.0 |
)% |
|
|
(5.9 |
)% |
|
|
(11.2 |
)% |
|
Per-loan servicing cost shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
60,051 |
|
|
$ |
59,014 |
|
|
$ |
58,495 |
|
|
$ |
57,457 |
|
|
$ |
56,938 |
|
|
$ |
55,900 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
2,076 |
|
|
$ |
1,038 |
|
|
$ |
519 |
|
|
$ |
(519 |
) |
|
$ |
(1,038 |
) |
|
$ |
(2,076 |
) |
|
% |
|
|
3.6 |
% |
|
|
1.8 |
% |
|
|
0.9 |
% |
|
|
(0.9 |
)% |
|
|
(1.8 |
)% |
|
|
(3.6 |
)% |
Excess servicing spread
The following tables summarize the estimated change in fair value of our ESS as of June 30, 2016, given several shifts in pricing spreads and prepayment speed:
|
Pricing spread shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
309,154 |
|
|
$ |
301,676 |
|
|
$ |
298,071 |
|
|
$ |
294,551 |
|
|
$ |
287,757 |
|
|
$ |
281,272 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
14,602 |
|
|
$ |
7,125 |
|
|
$ |
3,520 |
|
|
$ |
(3,437 |
) |
|
$ |
(6,794 |
) |
|
$ |
(13,280 |
) |
|
% |
|
|
5.0 |
% |
|
|
2.4 |
% |
|
|
1.2 |
% |
|
|
(1.2 |
)% |
|
|
(2.3 |
)% |
|
|
(4.5 |
)% |
|
Prepayment speed shift in % |
|
|
-20% |
|
|
|
-10% |
|
|
|
-5% |
|
|
|
+5% |
|
|
|
+10% |
|
|
|
+20% |
|
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Fair value |
|
$ |
328,642 |
|
|
$ |
310,782 |
|
|
$ |
302,476 |
|
|
$ |
286,983 |
|
|
$ |
279,751 |
|
|
$ |
266,211 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
34,091 |
|
|
$ |
16,231 |
|
|
$ |
7,925 |
|
|
$ |
(7,568 |
) |
|
$ |
(14,800 |
) |
|
$ |
(28,340 |
) |
|
% |
|
|
11.6 |
% |
|
|
5.5 |
% |
|
|
2.7 |
% |
|
|
(2.6 |
)% |
|
|
(5.0 |
)% |
|
|
(9.6 |
)% |
97
Item 3. Quantitative and Qualitat ive Disclosures About Market Risk
In response to this Item 3, the information set forth on pages 97 through 98 is incorporated herein by reference.
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 (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 Rules 13a-15 and 15d-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.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
98
From time to time, we may be involved in various legal proceedings, claims and actions arising in the ordinary course of business. As of June 30, 2016, we were not involved in any such legal proceedings, claims or actions that management believes would be reasonably likely to have a material adverse effect on us.
There are no material changes from the risk factors set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter or nine months ended June 30, 2016.
The following table provides information about our common share repurchases during the quarter ended June 30, 2016:
|
Period |
|
Total number of shares purchased |
|
|
Average price paid per Share |
|
|
Total number of shares purchased as part of publicly announced plans or programs (a) |
|
|
Amount available for future share repurchases under the plans or programs (a) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
January 1, 2016 – January 31, 2016 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
183,662 |
|
|
February 1, 2016 – February 29, 2016 |
|
|
3,257,479 |
|
|
$ |
11.90 |
|
|
|
3,257,479 |
|
|
$ |
144,884 |
|
|
March 1, 2016 – March 31, 2016 |
|
|
1,898,906 |
|
|
$ |
13.53 |
|
|
|
1,898,906 |
|
|
$ |
119,191 |
|
|
April 1, 2016 – April 30, 2016 |
|
|
100,000 |
|
|
$ |
13.68 |
|
|
|
100,000 |
|
|
$ |
117,823 |
|
|
May 1, 2016 – May 31, 2016 |
|
|
282,999 |
|
|
$ |
14.91 |
|
|
|
282,999 |
|
|
$ |
113,604 |
|
|
June 1, 2016 – June 30, 2016 |
|
|
802,520 |
|
|
$ |
15.92 |
|
|
|
802,520 |
|
|
$ |
100,828 |
|
|
|
|
|
6,341,904 |
|
|
$ |
13.06 |
|
|
|
6,341,904 |
|
|
$ |
100,828 |
|
|
(a) |
In August 2015, our board of trustees approved a share repurchase program pursuant to which we are authorized to repurchase up to $150 million of our common shares. In February 2016, our board of trustees approved an increase to our share repurchase program pursuant to which we are now authorized to repurchase up to $200 million of our common shares. Under the program, we have discretion to determine the dollar amount of common shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. The program does not have an expiration date. Amounts presented reflect balances as of the end of the applicable period. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
None
99
|
Exhibit Number
|
Exhibit Description
|
|
|
|
|
3.1 |
Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). |
|
|
|
|
3.2 |
Amended and Restated Bylaws of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on August 13, 2013). |
|
|
|
|
4.1 |
Specimen Common Share Certificate of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). |
|
|
|
|
4.2 |
Indenture for Senior Debt Securities, dated as of April 30, 2013, among PennyMac Corp., PennyMac Mortgage Investment Trust and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on April 30, 2013). |
|
|
|
|
4.3 |
First Supplemental Indenture, dated as of April 30, 2013, among PennyMac Corp., PennyMac Mortgage Investment Trust and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on April 30, 2013). |
|
|
|
|
4.4 |
Form of 5.375% Exchangeable Senior Notes due 2020 (included in Exhibit 4.3). |
|
|
|
|
10.1 |
Amended and Restated Limited Partnership Agreement of PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). |
|
|
|
|
10.2 |
Registration Rights Agreement, dated as of August 4, 2009, among PennyMac Mortgage Investment Trust, Stanford L. Kurland, David A. Spector, BlackRock Holdco II, Inc., Highfields Capital Investments LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). |
|
|
|
|
10.3 |
Amended and Restated Underwriting Fee Reimbursement Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 1.6 of the Company’s Current Report on Form 8-K filed on February 7, 2013). |
|
|
|
|
10.4 |
Amended and Restated Management Agreement, dated as of February 1, 2013, among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on February 7, 2013). |
|
|
|
|
10.5 |
Amendment Number One to Amended and Restated Management Agreement, dated as of December 15, 2015, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
|
|
|
|
|
10.6 |
Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.14 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013). |
|
|
|
|
10.7 |
Amendment No. 1 to Second Amended and Restated Flow Servicing Agreement, dated as of November 14, 2013, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 20, 2013). |
|
|
|
|
10.8 |
Amendment No. 2 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2014, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). |
|
|
|
|
10.9 |
Amendment No. 3 to Second Amended and Restated Flow Servicing Agreement, dated as of December 11, 2014, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014). |
|
|
|
|
10.10 |
Amendment No. 4 to Second Amended and Restated Flow Servicing Agreement, dated as of March 31, 2015, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.9 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015). |
|
|
|
|
10.11 |
Amendment No. 5 to Second Amended and Restated Flow Servicing Agreement, dated as of September 1, 2015, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015). |
|
|
|
100
|
Exhibit Number
|
Exhibit Description
|
|
Amendment No. 6 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2016, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC. |
|
|
|
|
|
10.13† |
PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). |
|
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10.14† |
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the Company’s Registration Statement on Form S-11, filed with the SEC on July 24, 2009). |
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10.15† |
Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.14 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016). |
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10.16† |
Form of Performance Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.15 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016). |
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10.17 |
Master Repurchase Agreement, dated as of December 9, 2010, among PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC, and PennyMac Loan Services, LLC, and Citibank, N.A. (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on December 15, 2010). |
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10.18 |
Amendment Number One to the Master Repurchase Agreement, dated as of February 25, 2011, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on March 3, 2011). |
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10.19 |
Amendment Number Two to the Master Repurchase Agreement, dated as of December 8, 2011, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011). |
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10.20 |
Amendment Number Three to the Master Repurchase Agreement, dated as of February 24, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.30 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). |
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10.21 |
Amendment Number Four to the Master Repurchase Agreement, dated as of April 13, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.32 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012). |
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10.22 |
Amendment Number Five to the Master Repurchase Agreement, dated as of April 20, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.33 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012). |
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10.23 |
Amendment Number Six to the Master Repurchase Agreement, dated as of May 31, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on June 5, 2012). |
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10.24 |
Amendment Number Seven to the Master Repurchase Agreement, dated as of November 13, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012). |
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10.25 |
Amendment Number Eight to the Master Repurchase Agreement, dated as of December 31, 2012, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.40 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012). |
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10.26 |
Amendment Number Nine to the Master Repurchase Agreement, dated as of March 12, 2013, by and among Citibank, N.A. and PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on March 13, 2013). |
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101
102
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Exhibit Number
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Exhibit Description
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Amended and Restated Master Repurchase Agreement, dated as of March 31, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Operating Partnership, L.P. and PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on April 6, 2016). |
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10.44 |
Master Repurchase Agreement, dated as of May 24, 2012, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on
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10.45 |
Amendment Number One to the Master Repurchase Agreement, dated as of October 15, 2012, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on October 16, 2012). |
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10.46 |
Amendment Number Two to the Master Repurchase Agreement, dated as of November 13, 2012, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.62 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012). |
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10.47 |
Amendment Number Three to the Master Repurchase Agreement, dated as of December 31, 2012, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.72 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013). |
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10.48 |
Amendment Number Four to the Master Repurchase Agreement, dated as of May 23, 2013, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.77 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013). |
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10.49 |
Amendment Number Five to the Master Repurchase Agreement, dated as of June 25, 2013, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.78 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013). |
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10.50 |
Amendment Number Six to the Master Repurchase Agreement, dated as of July 25, 2013, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on July 31, 2013). |
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10.51 |
Amendment Number Seven to the Master Repurchase Agreement, dated as of February 5, 2014, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.52 |
Amendment Number Eight to the Master Repurchase Agreement, dated as of July 24, 2014, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.86 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). |
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10.53 |
Amendment Number Nine to the Master Repurchase Agreement, dated as of August 7, 2014, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.87 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). |
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10.54 |
Amendment Number Ten to the Master Repurchase Agreement, dated as of September 8, 2014, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.88 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). |
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10.55 |
Amendment Number Eleven to the Master Repurchase Agreement, dated as of July 6, 2015, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.89 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.56 |
Amendment Number Twelve to the Master Repurchase Agreement, dated as of September 7, 2015, among Citibank, N.A., PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.96 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015). |
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10.57 |
Amendment Number Thirteen to Master Repurchase Agreement, dated as of October 22, 2015, among PennyMac Corp., PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 28, 2015). |
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10.58 |
Amendment Number Fourteen to Master Repurchase Agreement, dated as of December 2, 2015, among PennyMac Corp., PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.106 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.59 |
Amendment Number Fifteen to Master Repurchase Agreement, dated as of July 25, 2016, among PennyMac Corp., PennyMac Loan Services, LLC and Citibank, N.A. |
103
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Exhibit Number
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Exhibit Description
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10.60 |
Guaranty, dated as of May 24, 2012, by PennyMac Mortgage Investment Trust in favor of Citibank, N.A. (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on May 30, 2012). |
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10.61 |
Guaranty, dated as of September 28, 2012, by PennyMac Mortgage Investment Trust in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on October 3, 2012). |
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10.62 |
Master Repurchase Agreement, dated as of November 20, 2012, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on November 26, 2012). |
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10.63 |
Amendment Number One to the Master Repurchase Agreement, dated as of August 20, 2013, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.96 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013). |
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10.64 |
Amendment Number Two to the Master Repurchase Agreement, dated as of August 26, 2013, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.97 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013). |
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10.65 |
Amendment Number Three to the Master Repurchase Agreement, dated as of November 14, 2013, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.95 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013). |
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10.66 |
Amendment Number Four to the Master Repurchase Agreement, dated as of December 19, 2013, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.96 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013). |
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10.67 |
Amendment Number Five to the Master Repurchase Agreement, dated as of December 18, 2014, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.101 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014). |
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10.68 |
Amendment Number Six to the Master Repurchase Agreement, dated as of July 27, 2015, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 30, 2015). |
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10.69 |
Amendment Number Seven to the Master Repurchase Agreement, dated as of December 17, 2015, among PennyMac Corp., Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.125 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.70 |
Guaranty, dated as of November 20, 2012, by PennyMac Mortgage Investment Trust in favor of Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on November 26, 2012). |
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10.71 |
Mortgage Banking and Warehouse Services Agreement, dated as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.3 of the Company’s Current Report on Form 8-K filed on February 7, 2013). |
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10.72 |
Amendment No. 1 to Mortgage Banking and Warehouse Services Agreement, dated as of March 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.85 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013). |
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10.73 |
Amendment No. 2 to Mortgage Banking and Warehouse Services Agreement, dated as of August 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on August 19, 2013). |
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10.74 |
Amendment No. 3 to Mortgage Banking and Warehouse Services Agreement, dated as of December 15, 2015, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December 18, 2015). |
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10.75 |
MSR Recapture Agreement, dated as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.4 of the Company’s Current Report on Form 8-K filed on February 7, 2013). |
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10.76 |
Amendment No. 1 to MSR Recapture Agreement, dated as of August 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.103 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013). |
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104
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Exhibit Number
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Exhibit Description
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Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of April 30, 2015, between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 6, 2015). |
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10.78 |
Amendment No. 1 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of August 26, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.129 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015). |
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10.79 |
Amendment No. 2 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of November 10, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.143 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.80 |
Second Amended and Restated Security and Subordination Agreement, dated as of November 10, 2015, between PennyMac Holdings, LLC and Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.145 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.81 |
Master Spread Acquisition and MSR Servicing Agreement, dated as of December 19, 2014, by and between PennyMac Loan Services, LLC, PennyMac Holdings, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 24, 2014). |
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10.82 |
Amendment No 1. to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, by and between PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.122 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015). |
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10.83 |
Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 23, 2011, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.84 |
Amendment No. 1 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of August 17, 2012, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.85 |
Amendment No. 2 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of October 29, 2012, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.86 |
Amendment No. 3 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 5, 2012, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.87 |
Amendment No. 4 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of January 3, 2013, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.88 |
Amendment No. 5 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 28, 2013, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.89 |
Amendment No. 6 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of January 2, 2014, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.90 |
Amendment No. 7 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of January 31, 2014, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed on February 6, 2014). |
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10.91 |
Amendment No. 8 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 27, 2014, among Bank of America, N.A., PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.130 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). |
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105
106
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Exhibit Number
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Exhibit Description
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Amendment No. 1 to Loan and Security Agreement, dated as of October 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.159 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015). |
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10.110 |
Amendment No. 2 to Loan and Security Agreement, dated as of November 10, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.173 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.111 |
Amendment No. 3 to Loan and Security Agreement, dated as of December 15, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.174 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.112 |
Amendment No. 4 to Loan and Security Agreement, dated as of January 28, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.175 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.113 |
Amendment No. 5 to Loan and Security Agreement, dated as of March 31, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC. |
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10.114 |
Guaranty, dated as of April 30, 2015, by PennyMac Mortgage Investment Trust in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on May 6, 2015). |
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10.115 |
Amended and Restated Guaranty, dated as of November 10, 2015, by PennyMac Mortgage Investment Trust in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.177 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.116 |
Advances, Pledge and Security Agreement, dated as of June 16, 2014, between PMT Insurance, LLC and the Federal Home Loan Bank of Des Moines (incorporated by reference to Exhibit 10.150 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.117 |
Affiliate Collateral Pledge and Security Agreement, dated as of May 26, 2015, by and among PennyMac Securities Holding, LLC, PMT Insurance, LLC, and the Federal Home Loan Bank of Des Moines (incorporated by reference to Exhibit 10.151 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.118 |
Affiliate Collateral Pledge and Security Agreement, dated as of May 26, 2015, by and among PennyMac Corp., PMT Insurance, LLC, and the Federal Home Loan Bank of Des Moines (incorporated by reference to Exhibit 10.152 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.119 |
Affiliate Collateral Pledge and Security Agreement, dated as of May 26, 2015, by and among PennyMac Holdings, LLC, PMT Insurance, LLC, and the Federal Home Loan Bank of Des Moines (incorporated by reference to Exhibit 10.153 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.120 |
Guaranty, dated as of April 9, 2015, by PennyMac Mortgage Investment Trust in favor of Federal Home Loan Bank of Des Moines (incorporated by reference to Exhibit 10.154 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
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10.121 |
Mortgage Loan Purchase Agreement, dated as of September 25, 2012, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.183 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.122 |
Flow Sale Agreement, dated as of June 16, 2015, by and between PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.155 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
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10.123 |
Master Repurchase Agreement, dated as of September 14, 2015, among Barclays Bank PLC, PennyMac Corp., PennyMac Loan Services, LLC and PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 18, 2015). |
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10.124 |
Mortgage Loan Participation Purchase and Sale Agreement, dated as of September 14, 2015, among PennyMac Corp., PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 18, 2015). |
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10.125 |
Amended and Restated Loan and Security Agreement, dated as of January 22, 2016, by and among PennyMac Corp., PennyMac Holdings, LLC, PennyMac Mortgage Investment Trust and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 28, 2016). |
107
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Exhibit Number
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Exhibit Description
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10.126 |
Master Spread Acquisition and MSR Servicing Agreement, dated as of January 22, 2016, by and between PennyMac Corp. and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 28, 2016). |
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10.127 |
Amended and Restated Flow Commercial Mortgage Loan Purchase Agreement, dated as of June 1, 2016, by and between PennyMac Loan Services, LLC and PennyMac Corp. |
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10.128 |
Servicing Agreement, dated as of July 13, 2015, between PennyMac Corp., PennyMac Holdings, LLC, any other parties signing this Agreement as an owner of Mortgage Loans as listed in Schedule I and any New Owners, PennyMac Loan Services, LLC, and Midland Loan Services, a division of PNC Bank, National Association (incorporated by reference to Exhibit 10.191 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015). |
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10.129 |
Amended and Restated Commercial Mortgage Service Oversight Agreement, dated as of June 1, 2016, among PennyMac Corp., PennyMac Holdings, LLC, and PennyMac Loan Services, LLC. |
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31.1 |
Certification of Stanford L. Kurland pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification of Anne D. McCallion pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1** |
Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2** |
Certification of Anne D. McCallion pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 |
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, (ii) the Consolidated Statements of Income for the quarters ended June 30, 2016 and 2015, (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the quarters ended June 30, 2016 and 2015, (iv) the Consolidated Statements of Cash Flows for the quarters ended June 30, 2016 and 2015, and (v) the Notes to the Consolidated Financial Statements. |
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** |
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. |
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† |
Indicates management contract or compensatory plan or arrangement. |
108
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.
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Pennymac Mortgage Investment Trust (Registrant) |
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Dated: August 5, 2016 |
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By: |
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/s/ Stanford L. Kurland |
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Stanford L. Kurland |
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Chairman of the Board and Chief Executive Officer |
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Dated: August 5, 2016 |
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By: |
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/s/ Anne D. McCallion |
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Anne D. McCallion |
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Chief Financial Officer |
109
Exhibit 10.12
AMENDMENT NO. 6
TO SECOND AMENDED AND RESTATED
FLOW SERVICING AGREEMENT
Amendment No. 6 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2016 (the "Amendment"), by and between PennyMac Loan Services, LLC, a Delaware limited liability company (the "Servicer"), and PennyMac Operating Partnership, L.P., Delaware limited partnership (the "Owner").
RECITALS
WHEREAS, the Servicer and the Owner are parties to that certain Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013 (the "Existing Servicing Agreement" and, as amended by this Amendment, the "Servicing Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Servicing Agreement.
WHEREAS, the Servicer and the Owner have agreed, subject to the terms and conditions of this Amendment, that the Existing Servicing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Servicing Agreement.
NOW, THEREFORE, in consideration of the mutual premises and mutual obligations set forth herein, the Servicer and the Owner hereby agree that the Existing Servicing Agreement is hereby amended as follows:
SECTION 1. Exhibits .
1.1 Exhibit 9 of the Existing Servicing Agreement is hereby amended by deleting it in its entirety and replacing it with the form attached hereto as Exhibit A.
2.1 Exhibit 11 is hereby added to the Existing Servicing Agreement in the form attached hereto as Exhibit B.
SECTION 2. Conditions Precedent . This Amendment shall become effective as of the date first set forth above (the "Amendment Effective Date"), subject to the satisfaction of the following conditions precedent:
2.1 Delivered Documents . On or prior to the Amendment Effective Date, each party shall have received the following documents, each of which shall be satisfactory to such party in form and substance:
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a) |
this Amendment, executed and delivered by duly authorized officers of the Servicer and the Owner; and |
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b) |
such other documents as such party or counsel to such party may reasonably request. |
2.2 Representations and Warranties . On or prior to the Amendment Effective Date, each party shall be in compliance in all material respects with all the terms and provisions set forth in the Existing Servicing Agreement on its part to be observed or performed.
SECTION 3. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Servicing Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.
SECTION 4. GOVERNING LAW . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 5. Counterparts . This Amendment may be executed in one or more counterparts and by different parties hereto on separate counterparts, each of which, when so executed, shall constitute one and the same agreement.
SECTION 6. Conflicts . The parties hereto agree that in the event there is any conflict between the terms of this Amendment, and the terms of the Existing Servicing Agreement, the provisions of this Amendment shall control.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.
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The Servicer: |
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PENNYMAC LOAN SERVICES, LLC |
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By: |
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/s/ Anne D. McCallion |
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Name: |
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Anne D. McCallion |
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Title: |
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Senior Managing Director and Chief Financial Officer |
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The Owner: |
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PENNYMAC OPERATING PARTNERSHIP, L.P. |
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By: |
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PennyMac GP OP, Inc., |
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its General Partner |
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By: |
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/s/ Andrew S. Chang |
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Name: |
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Andrew S. Chang |
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Title: |
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Senior Managing Director and Chief Business Development Officer |
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:
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(i.) |
if such Mortgage Loan is a Fixed-Rate Mortgage Loan, $7.50; or |
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(ii.) |
if such Mortgage Loan is an Adjustable-Rate Mortgage Loan, $8.50. |
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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:
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(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; |
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(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; |
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(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; |
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(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; |
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(v) |
if, as of the first day of the relevant month, a bankruptcy proceeding is pending by or against the Mortgagor, $45.00; |
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(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 |
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(vii) |
if, as of the first day of the relevant month, the Mortgaged Property has become an REO Property, $75.00. |
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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:
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(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; |
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(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; |
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(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; |
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(iv) |
if, as of the first day of the relevant month, such Mortgage Loan is not delinquent, or is delinquent by less than 30 days, and a bankruptcy proceeding is pending by or against the Mortgagor, $100.00; |
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(v) |
if, as of the first day of the relevant month, such Mortgage Loan is delinquent by 30 days or more, and a bankruptcy proceeding is pending by or against the Mortgagor, $100.00; |
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(vi) |
if, as of the first day of the relevant month, foreclosure proceedings have been commenced and the Mortgaged Property has not become an REO Property, $125.00; or |
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(vii) |
if, as of the first day of the relevant month, the Mortgaged Property has become an REO Property, $75.00. |
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SUPPLEMENTAL SERVICING FEES
With respect to each Mortgage Loan that is a Distressed Whole Loan, the Supplemental Servicing Fee shall be $25.00.
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THIRD PARTY LOANS AND DISTRESSED WHOLE LOANS
OTHER KEY PARAMETERS
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ANCILLARY INCOME AND OTHER FEES
The Servicer shall be entitled to all Ancillary Income and the following Other Fees in addition to the Servicing Fee:
Setup Fee : With respect to each Mortgage Loan, other than a Distressed Whole Loan, $10.00 if information is provided to Servicer in a format that enables electronic boarding or $25.00 if information is provided to Servicer in format that necessitates manual boarding. With respect to each Distressed Whole Loan, $15.00 if information is provided to Servicer in format that enables electronic boarding or $25.00 if information is provided to Servicer in format that necessitates manual boarding.
Service Release Fee : With respect to each Mortgage Loan, other than a Distressed Whole Loan, $25.00 if released on or prior to the first anniversary of boarding, $23.00 if released after the first anniversary of boarding and on or prior to the second anniversary of boarding, and $18.00 if released thereafter. With respect to each Distressed Whole Loan, $500.00 if released within one year of boarding, $40.00 if released within two years of boarding and $40.00 if released thereafter.
Deed in Lieu Fee : $500, unless the deed in lieu is completed under the U.S. Treasury's Home Affordable Foreclosure Alternatives initiative, in which case no Deed in Lieu Fee shall apply.
Liquidation Fee : 150 basis points of the gross proceeds received in connection with either the disposition of a Mortgage Loan (including the sale of the related Mortgage Note) or an REO Property or a full or discounted payoff accepted by the Servicer with respect to a Mortgage Loan, including a full or discounted payoff accepted in connection with the sale of the Mortgaged Property to a third party.
REO Property Lease Renewal Fee : $100 per lease renewed.
REO Property Rental Fee : $30 per month per REO Property.
REO Property Management Fee : Servicer's cost if property management services and/or any related software costs are outsourced to a third party property management firm or 9% of gross rental income if Servicer provides directly those property management services identified on Schedule [x] to the Agreement .
REO Property Tenant Paid Fees : Servicer may retain any tenant paid application fee or late rent fee.
REO Property Third-Party Vendor Fees : In the event Servicer provides property management services directly, Servicer may charge Owner the Servicer's cost for support services provided by any third-party vendor that arise out of Servicer’s property management services. Such fees may include, but are not limited to, related software, real estate broker marketing, eviction and inspection services, as well as leasing fees to the real estate broker.
Tax Service Contract : $75.00 per Mortgage Loan.
Flood Zone Service Contract : Servicer's cost.
MERS Fee : Servicer's cost.
Reperformance Fee : 150 basis points of the unpaid principal balance of the Mortgage Loan (as then in effect) if the Mortgage Loan is brought current (after having been delinquent for a period of 90 days or more) without any modification and remains current for a consecutive period of 12 months or is sold prior to the expiration of such 12 months.
Modification Fee : 150 basis points of the unpaid principal balance of the Mortgage Loan (as in effect immediately after the consummation of the modification) if the modification includes an interest rate reduction or is classified by the Servicer (acting in accordance with Accepted Servicing Practices) as a full modification; or, if the Servicer participates in the U.S. Treasury's Home Affordable Modification program (or other similar mortgage loan modification programs) and enters into a transaction involving the Mortgage Loan that results in the payment or retention of any incentive payment to the Servicer or Owner and the Servicer is not otherwise entitled to a Modification Fee as set forth above, 150 basis points of the unpaid principal balance of the Mortgage Loan (as in effect immediately after the consummation of the transaction).
If the Servicer enters into a transaction involving the Mortgage Loan under the U.S. Treasury Department's Home Affordable Modification program (or other similar mortgage loan modification programs) that results in any incentive payment to the Servicer or Owner and the Servicer has already collected a Modification Fee, the Servicer shall reimburse the Owner the amount of such incentive payments.
In the event the Servicer effects a refinancing of a Distressed Whole Loan on behalf of the Owner and not through a third party lender and the resulting Mortgage Loan is readily saleable, or the Servicer originates a Mortgage Loan to facilitate the disposition of REO Property, the Servicer shall be entitled to fees and other compensation in connection with such originations based on market-based pricing and terms that are consistent with the pricing and terms offered by the Servicer to unaffiliated third parties on a retail basis. The amount of the compensation and the pricing and terms offered by the Servicer shall be subject to review by the Owner and the Servicer from time to time to reflect market rates. The Owner shall reimburse the Servicer for any out of pocket expenses that the Servicer incurs in connection with any such origination, including title fees, legal fees and closing costs.
PROPERTY MANAGEMENT SERVICES
For purposes of this Servicing Agreement, REO Property Management Services may include:
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1. |
LEASING SERVICES . |
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Market Rental Property; |
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b. |
Show Rental Property; |
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c. |
Qualify Tenant; |
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d. |
Lease Property; |
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e. |
Coordinate Move-In; |
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f. |
Manage Security Deposit; and |
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g. |
Perform Move-Out Inspection. |
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2. |
PROPERTY MANAGEMENT SERVICES . |
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a. |
Collect Rent; |
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b. |
Manage Evictions; |
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c. |
Respond to Tenant Inquiries; |
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d. |
Maintain Property; |
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e. |
Perform Routine Maintenance; and |
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f. |
Manage Unit Turnover. |
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3. |
ASSET MANAGEMENT SERVICES |
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a. |
Initial and On-Going Property Preservation Services; |
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b. |
Remediation Services; |
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c. |
Utilities and Home Owner Association Management; |
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d. |
Code Violations Management and Mitigation; |
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e. |
Property Tax Management Services; |
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f. |
Legal Eviction Program Management; |
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g. |
Provision of Cash-For-Relocation Program Management; |
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h. |
Valuation Services; |
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i. |
Authorization of Repairs and Improvements; and |
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j. |
Property and Casualty Insurance Services . |
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a. |
Provision of Renovation Services; |
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b. |
Initial Property Screening Assessment; |
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c. |
Renovation Estimate Assessment; |
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d. |
Property Onboarding Assessment; |
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e. |
Scope of Work; |
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f. |
Final Scope of Work; |
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g. |
Management of Change Orders; and |
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h. |
Inspection for Turnover to Leasing. |
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5. |
PROPERTY PRESERVATION AND INSPECTION SERVICES |
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a. |
Provision of Property Preservation and Inspection Services; |
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b. |
Communications to Owner of Property Conditions, Preservation Activities and Repairs at Properties; |
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c. |
Document Retention; |
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d. |
Property Occupancy Inspection; |
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e. |
Other Inspections As Needed and As Determined By Servicer; |
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f. |
Lawn Maintenance; |
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g. |
Pool Maintenance; |
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h. |
Debris and Hazard Removal; |
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i. |
Discoloration Remediation; |
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j. |
Health and Life Safety Issue Remediation; Miscellaneous Preservation Activities; |
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k. |
Code Violation Management and Mitigation; |
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l. |
Management of Utilities and Home Owner Association; |
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m. |
Marketing Signs. |
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6. |
INSURANCE SERVICES |
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a. |
Standard Property and Casualty Insurance Services; and |
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b. |
Claims Management and Loss Mitigation Services. |
Exhibit 10.59
EXECUTION
AMENDMENT NUMBER FIFTEEN
to the
MASTER REPURCHASE AGREEMENT
among
PENNYMAC CORP.,
PENNYMAC LOAN SERVICES, LLC
and
CITIBANK, N.A.
This AMENDMENT NUMBER FIFTEEN (this “ Amendment Number Fifteen ”) is made this 25th day of July, 2016, among PENNYMAC CORP. (“ Seller ”), PENNYMAC LOAN SERVICES, LLC (“ Servicer ”) and CITIBANK, N.A. (“ Buyer ”), to the Master Repurchase Agreement, dated as of May 24, 2012, among Seller, Servicer and Buyer, as such agreement may be amended from time to time (the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.
RECITALS
WHEREAS, Seller has requested that Buyer agree to amend the Agreement as more specifically set forth herein; and
WHEREAS, as of the date hereof, Seller represents to Buyer that the Seller Parties are in full compliance with all of the terms and conditions of the Agreement and each other Program Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Program Document.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the mutual covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Amendment . Effective as of July 25, 2016 (the “ Amendment Effective Date ”):
(a) Section 2 of the Agreement is hereby amended by adding the definitions of “Par Margin Amount” and "Par Margin Percentage" in the appropriate alphabetical order as follows:
“ Par Margin Amount ” means, with respect to any Transaction, as of any date of determination, the amount obtained by application of the Par Margin Percentage to the Repurchase Price for such Transaction as of such date.
“ Par Margin Percentage ” shall have the meaning assigned thereto in the Pricing Side Letter.
(b) Section 6(a) of the Agreement is hereby amended by deleting the section in its entirety and replacing it with the following (bold added for emphasis):
If at any time either (i) the aggregate Market Value of all Purchased Loans subject to all Transactions is less than the aggregate MV Margin Amount for all such Transactions, or (ii) the aggregate unpaid principal balance of the Purchased Loans subject to all Transactions is less than the aggregate Par Margin Amount for all such Transactions, (either such event, a “ Margin Deficit ”), then Buyer may, by notice to Seller, require Seller in such Transactions to transfer to Buyer cash within the time period specified in clause (b) below, so that both (x) the cash and aggregate Market Value of the Purchased Loans will thereupon equal or exceed such aggregate MV Margin Amount and (y) the cash and unpaid principal balance of such Purchased Loans, will thereupon equal or exceed such aggregate Par Margin Amount (either such requirement, a “ Margin Call ”). Buyer shall deposit such cash into a non-interest bearing account until the next succeeding Repurchase Date. Notwithstanding the foregoing, Buyer may elect in its sole discretion to permit Seller to transfer to Buyer additional Eligible Loans (“ Additional Purchased Loans ”) for no additional consideration or a combination of cash and Additional Purchased Loans, to cure a Margin Deficit, in either case within the time period set forth in clause (b) below.
Section 2. Fees and Expenses . Seller agrees to pay to Buyer all reasonable out of pocket costs and expenses incurred by Buyer in connection with this Amendment Number Fifteen (including all reasonable fees and out of pocket costs and expenses of the Buyer’s legal counsel) in accordance with Sections 23 and 25 of the Agreement.
Section 3. Representations . Seller hereby represents to Buyer that as of the date hereof, Seller is in full compliance with all of the terms and conditions of the Agreement and each other Program Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Program Document.
Section 4. Binding Effect; Governing Law . This Amendment Number Fourteen shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT NUMBER FIFTEEN SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 5. Counterparts . This Amendment Number Fifteen may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.
Section 6. Limited Effect . Except as amended hereby, the Agreement shall continue in full force and effect in accordance with its terms. Reference to this Amendment Number Fifteen need not be made in the Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Agreement, any reference in any of such items to the Agreement being sufficient to refer to the Agreement as amended hereby.
IN WITNESS WHEREOF, Seller, Servicer and Buyer have caused this Amendment Number Fifteen to be executed and delivered by their duly authorized officers as of the Amendment Effective Date.
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PENNYMAC CORP. |
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(Seller) |
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By: |
/s/ |
Pamela Marsh |
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Name: |
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Pamela Marsh |
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Title: |
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Managing Director, Treasurer |
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PENNYMAC LOAN SERVICES, LLC, |
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(Servicer) |
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By: |
/s/ |
Pamela Marsh |
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Name: |
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Pamela Marsh |
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Title: |
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Managing Director, Treasurer |
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CITIBANK, N.A. |
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(Buyer) |
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By: |
/s/ |
Susan Mills |
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Name: |
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Susan Mills |
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Title: |
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Vice President Citibank, N.A. |
Amendment 15 to PMAC Agency MRA
Exhibit 10.106
EXECUTION COPY
AMENDMENT NUMBER THREE
to the
LOAN AND SECURITY AGREEMENT
among
PENNYMAC CORP.
and
CITIBANK, N.A.
This AMENDMENT NUMBER THREE (this “ Amendment Number Three ”) is made this 29th day of March, 2016, among PENNYMAC CORP. (“ Borrower ”) and CITIBANK, N.A. (“ Lender ”), to the Loan and Security Agreement, dated as of March 31, 2015, among Borrower and Lender, as such agreement may be amended from time to time (the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.
RECITALS
WHEREAS, Borrower and Lender have agreed to amend the Agreement as more specifically set forth herein; and
WHEREAS, as of the date hereof, Borrower represents to Lender that Borrower is in full compliance with all of the terms and conditions of the Agreement and each other Facility Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Facility Document.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the mutual covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Amendment . Effective as of March 29, 2016 (the “ Amendment Effective Date ”):
(a) Section 2.10 of the Agreement is hereby amended by adding the following language at the end of such section:
In connection with the extension of the Loan Repayment Date from March 29, 2016 to October 20, 2016, Borrower agrees to pay to Lender an additional commitment fee equal to $355,902.78 (the “ March 2016 Additional Commitment Fee ”). The March 2016 Additional Commitment Fee shall be payable in seven (7) installments, as follows:
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Monthly Installment Payment Date |
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Monthly Installment Payment Amount |
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April 1, 2016 |
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$50,843.25 |
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May 2, 2016 |
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$50,843.25 |
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June 1, 2016 |
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$50,843.25 |
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July 1, 2016 |
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$50,843.25 |
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August 1, 2016 |
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$50,843.25 |
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September 1, 2016 |
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$50,843.25 |
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October 3, 2016 |
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$50,843.28 |
The March 2016 Additional Commitment Fee shall be payable in immediately available funds, without deduction, set off or counterclaim. The March 2016 Additional Commitment Fee is and shall be deemed to be fully earned as of March 29, 2016 and non-refundable when paid . In the event that the Termination Date is accelerated to a date which is prior to the payment in full of all installments of the March 2016 Additional Commitment Fee, any unpaid installments of the March 2016 Additional Commitment Fee shall be payable on the Termination Date.
(b) Section 6.01 of the Agreement is hereby amended by adding new Sections 6.01(v), 6.01(w), 6.01(x) and 6.01(y) to the end thereof as follows:
(v) USA Patriot Act; OFAC . None of Borrower, or any of its Affiliates, is a Prohibited Person and Borrower is in full compliance with all applicable orders, rules, regulations and recommendations of OFAC. None of Borrower or any of its members, directors, executive officers, parents or Subsidiaries: (1) is subject to U.S. or multilateral economic or trade sanctions currently in force; (2) is owned or controlled by, or acts on behalf of, any governments, corporations, entities or
individuals that are subject to U.S. or multilateral economic or trade sanctions currently in force; (3) is a Prohibited Person or is otherwise named, identified or described on any blocked persons list, designated nationals list, denied persons list, entity list, debarred party list, unverified list, sanctions list or other list of individuals or entities with whom U.S. Persons may not conduct business, including but not limited to lists published or maintained by OFAC, lists published or maintained by the U.S. Department of Commerce, and lists published or maintained by the U.S. Department of State. Borrower has established an anti-money laundering compliance program as required by all applicable anti-money laundering laws and regulations, including, without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (the “ USA Patriot Act ”) (collectively, the “ Anti-Money Laundering Laws ”).
(w) Anti-Money Laundering . Borrower has complied with all applicable Anti-Money Laundering Laws, has conducted the requisite due diligence in connection with the acquisition of each Mortgage Loan for purposes of the Anti-Money Laundering Laws, and will maintain sufficient information to identify the applicable Mortgagor for purposes of the Anti-Money Laundering Laws; no Mortgage Loan is subject to nullification pursuant to the Executive Order 13224 or the regulations promulgated by OFAC (the “OFAC Regulations”) or in violation of the Executive Order or the OFAC Regulations, and no Mortgagor is subject to the provisions of the Executive Order or the OFAC Regulations or listed as a “blocked person” for purposes of the OFAC Regulations.
(x) Non-Exempt Person . Borrower is not an Non-Exempt Person.
(y) Anti-Money Laundering/International Trade Law Compliance . As of the date of this Agreement, and at all times until this Agreement has been terminated and all Obligations hereunder have been paid in full: (A) no Covered Entity (1) is a Sanctioned Person; (2) has any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law; (3) does business in or with, or derives any of its income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law; or (4) engages in any dealings or transactions prohibited by any Anti-Terrorism Law; (B) the proceeds of any Program Document will not be used to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Country or Sanctioned Person in violation of any law; (C) the funds used to pay Borrower or Lender are not derived from any unlawful activity; and (D) each Covered Entity is in compliance with, and no Covered Entity engages in any dealings or transactions prohibited by, any Requirements of Law, including but not limited to any Anti-Terrorism Laws. Borrower covenants and agrees that it shall immediately notify Lender in writing upon the occurrence of a Reportable Compliance Event.
(c) Section 7.01 of the Agreement is hereby amended by adding new Section 7.01(dd) to the end thereof as follows:
(dd) OFAC . At all times throughout the term of this Agreement, Borrower (a) shall be in full compliance with all applicable orders, rules, regulations and recommendations of OFAC and (b) shall not permit any Mortgage Loans to be maintained, insured, traded, or used (directly or indirectly) in violation of any United States statutes, rules or regulations, in a Prohibited Jurisdiction or by a Prohibited Person.
(d) Section 1.1 of Schedule I of the Agreement is hereby amended by adding the definitions of “Anti-Terrorism Laws,” “Covered Entity,” “Executive Order,” “Non-Exempt Person,” “OFAC,” “Prohibited Jurisdiction,” “Prohibited Person,” “Reportable Compliance Event,” “Sanctioned Country,” “Sanctioned Person” and “U.S. Person” in the appropriate alphabetical order as follows:
“ Anti-Terrorism Laws ” shall mean any Requirements of Law relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering or bribery, and any regulation, order, or directive promulgated, issued or enforced pursuant to such Requirements of Law, all as amended, supplemented or replaced from time to time.
“ Covered Entity ” shall mean (a) Borrower and each of its respective Subsidiaries, all owners of the foregoing and all brokers or other agents of Borrower acting in any capacity in connection with the Servicing Agreement and (b) each Person that, directly or indirectly, is in control of a Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the direct or indirect (x) ownership of, or power to vote, 25% or more of the issued and outstanding equity interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for such Person, or (y) power to direct or cause the direction of the management and policies of such Person whether by ownership of equity interests, contract or otherwise.
“ Executive Order ” shall mean Executive Order 13224 -- Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism.
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“ Non-Exempt Person ” shall mean any Person other than a Person who is either (a) a U.S. Person or (b) has provided for the relevant year such duly-executed form(s) or statement(s) which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (i) any income tax treaty between the United States and the country of residence of such Person, (ii) the Code, or (iii) any applicable rules or regulations in effect under clauses (a) or (b) above, permit the Servicer to make such payments free of any obligation or liability for withholding.
“ OFAC ” shall mean the Office of Foreign Assets Control of the United States Department of the Treasury.
“ Prohibited Jurisdiction ” shall mean any country or jurisdiction, from time to time, that is the subject of a prohibition order (or any similar order or directive), sanctions or restrictions promulgated or administered by any Governmental Authority of the United States.
“ Prohibited Person ” shall mean any Person:
(i) listed in the Annex to the Executive Order, or otherwise subject to the provisions of, the Executive Order;
(ii) that is owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order;
(iv) that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order;
(v) that is named as a “specially designated national and blocked person” on the most current list published by the OFAC at its official website, http://www.treas.gov.ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; or
(vi) that is an Affiliate of a Person listed above.
“ Reportable Compliance Event ” shall mean that any Covered Entity becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, or custodially detained in connection with any Anti-Terrorism Law or any predicate crime to any Anti-Terrorism Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations is in actual or probable violation of any Anti-Terrorism Law.
“ Sanctioned Country ” shall mean a country subject to a sanctions program maintained under any Anti-Terrorism Laws.
“ Sanctioned Person ” shall mean any individual person, group, regime, entity or thing listed or otherwise recognized as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any Anti-Terrorism Laws.
“ U.S. Person ” shall mean (1) a citizen or resident of the United States, (2) a corporation or partnership organized in or under the laws of the United States or any state thereof or the District of Columbia (other than a partnership that is not treated as a U.S. person under any applicable U.S. Department of Treasury Regulations), (3) an estate the income of which is includible in gross income for United States tax purposes, regardless of its source, or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more such U.S. persons have authority to control all substantial decisions of such trust. Notwithstanding the preceding sentence, to the extent provided in applicable U.S. Department of Treasury Regulations, certain trusts in existence on August 20, 1996, and treated as U.S. persons prior to such date that elect to continue to be so treated also will be considered U.S. persons.
(e) Section 1.1 of Schedule I of the Agreement is hereby amended by deleting the definition of “LIBO Base Rate” in its entirety and replacing it with the following:
“ LIBO Base Rate ” means the greater of (a) 1/16% (0.0625%), and (b) the rate determined daily by Lender on the basis of the “BBA’s Interest Settlement Rate” offered for one-month U.S. dollar deposits, as such rate appears on Bloomberg L.P.’s page
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“BBAM” as of 11:00 a.m. (London time) on such date provided that if such rate does not appear on Bloomberg L.P.’s page “BBAM” as of such time on such date, the rate for such date will be the rate determined by reference to the most recently published rate on Bloomberg L.P.’s page “BBAM”; provided further that if such rate is no longer set on Bloomberg L.P.’s page “BBAM”, the rate of such date will be determined by reference to such other comparable publicly available service publishing such rates as may be selected by Lender in its sole discretion, which rates have performed or are expected by Lender to perform in a manner substantially similar to the rate appearing on Bloomberg L.P.’s page “BBAM”, and which rate will be communicated to Borrower. Notwithstanding anything to the contrary herein, Lender shall have the sole discretion to re-set the LIBO Base Rate on a daily basis.
(f) Section 1.1 of Schedule I of the Agreement is hereby amended by deleting the definition of “Loan Repayment Date” in its entirety and replacing it with the following:
“ Loan Repayment Date ” means, the earlier to occur of (i) October 20, 2016, or (ii) such earlier date as may be notified by Lender in accordance with Section 8.02(a) .
Section 2. Fees and Expenses . Borrower agrees to pay to Lender all reasonable out of pocket costs and expenses incurred by Lender in connection with this Amendment Number Three (including all reasonable fees and out of pocket costs and expenses of the Lender’s legal counsel) in accordance with Section 3.03 of the Agreement.
Section 3. Representations . Borrower hereby represents to Lender that as of the date hereof, Borrower is in full compliance with all of the terms and conditions of the Agreement and each other Facility Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Facility Document.
Section 4. Binding Effect; Governing Law . This Amendment Number Three shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT NUMBER THREE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 5. Counterparts . This Amendment Number Three may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.
Section 6. Limited Effect . Except as amended hereby, the Agreement shall continue in full force and effect in accordance with its terms. Reference to this Amendment Number Three need not be made in the Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Agreement, any reference in any of such items to the Agreement being sufficient to refer to the Agreement as amended hereby.
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IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment Number Three to be executed and delivered by their duly authorized officers as of the Amendment Effective Date.
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PENNYMAC CORP., |
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as Borrower |
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By: |
/s/ |
Pamela Marsh |
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Name: |
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Pamela Marsh |
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Title: |
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Managing Director, Treasurer |
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CITIBANK, N.A., |
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as Lender |
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By: |
/s/ |
Susan Mills |
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Name: |
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Susan Mills |
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Title: |
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Vice President |
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Citibank, N.A. |
UNDERLYING ESS LSA EXECUTION
Exhibit10.113
AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT
(PARTICIPATION CERTIFICATES AND SERVICING)
This Amendment No. 5 to Loan and Security Agreement (this “ Amendment ”) is made as of March 31, 2016 by and among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (“ CS ”), PENNYMAC LOAN SERVICES, LLC (the “ Lender ”) and PENNYMAC HOLDINGS, LLC (the “ Borrower ”).
Lender and Borrower previously entered into a Loan and Security Agreement, dated as of April 30, 2015 (as amended by Amendment No. 1 to Loan and Security Agreement, dated as of October 30, 2015, Amendment No. 2 to Loan and Security Agreement, dated as of November 10, 2015, Amendment No. 3 to Loan and Security Agreement, dated as of December 15, 2015, and by Amendment No. 4 to Loan and Security Agreement, dated as of January 28, 2016 the “ Existing Agreement ”, and as further amended by this Amendment, the “ Agreement ”).
Lender, Borrower and CS have agreed, subject to the terms and conditions of this Amendment, that the Existing Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Agreement.
Accordingly, Lender, Borrower and CS hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Agreement is hereby amended as follows:
SECTION 1. Definitions . Section 1.01 of the Existing Agreement is hereby amended by deleting the definition of “ Termination Date ” in its entirety and replacing it with the following in its proper alphabetical order:
“Termination Date” means the earliest of (a) September 27, 2016; and (b) the Obligations having become immediately due and payable pursuant to Section 7.03 of the Loan Agreement.
SECTION 2. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:
2.1 Delivered Documents . On the Amendment Effective Date, Lender shall have received the following documents, each of which shall be satisfactory to Lender in form and substance:
(a) this Amendment, executed and delivered by the duly authorized officers of the Lender and Borrower; and
(b) such other documents as Lender or counsel to Lender may reasonably request.
SECTION 3. Representations and Warranties . Borrower hereby represents and warrants to Lender that Borrower is in compliance with all the terms and provisions set forth in the Agreement on its part to be observed or performed, and that no Event of Default under the Agreement has occurr e d or is continuing and hereby confirms and reaffirms the representations and warranties contained in Article III of the Agreement.
SECTION 4. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.
SECTION 5. Severability . Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.
SECTION 6. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment in Portable Document Format (PDF) or by facsimile shall be effective as delivery of a manually executed original counterpart of this Amendment.
SECTION 7. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or trustees as of the date first above written.
PENNYMAC HOLDINGS, LLC
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/s/ Pamela Marsh
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By: |
/s/ Pamela Marsh
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Exhibit 10.127
AMENDED & RESTATED
FLOW COMMERCIAL MORTGAGE LOAN PURCHASE AGREEMENT
This Amended and Restated Flow Commercial Mortgage Loan Purchase Agreement (the “ Agreement ”) is made and entered into as of June 1, 2016 by and between PennyMac Loan Services, LLC (the “ Seller ”) and PennyMac Corp. (the “ Purchaser ”).
WHEREAS, the Purchaser and the Seller previously entered into a Flow Commercial Mortgage Loan Purchase Agreement, dated as of December 1, 2015 (the “ Existing Purchase Agreement ”);
WHEREAS, the parties hereto have requested that the Existing Purchase Agreement be amended and restated, in its entirety, on the terms and subject to the conditions set forth herein;
WHEREAS, the Seller desires to sell, from time to time, to the Purchaser, and the Purchaser desires to purchase, from time to time, from the Seller, certain first-lien commercial mortgage loans (the “ Mortgage Loans ”) on a servicing released basis as described herein, and which shall be delivered individually on various dates as provided herein (each, a “ Closing Date ”);
WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or other security instrument creating a first lien on a commercial property or conventional multifamily housing with five residential units or more, as applicable; and
WHEREAS, the Purchaser and the Seller wish to prescribe the manner of the conveyance, transfer of servicing and control of the Mortgage Loans.
NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Purchaser and the Seller agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms.
Whenever used in this Agreement, the following words and phrases shall have the following meaning specified in this Article:
“ Advances ”: All recoverable Escrow Advances and Servicing Advances.
“ Anticipated Repayment Date ”: With respect to any Mortgage Loan that is identified in Schedule 1 to the Purchase Price and Terms Agreement as having a Revised Rate, the date upon which such Mortgage Loan commences accruing interest at such Revised Rate.
“ ARD Loan ”: Any Mortgage Loan the terms of which provide that if, after an Anticipated Repayment Date, the related Borrower has not prepaid such Mortgage Loan in full, any principal outstanding on that date will accrue interest at the Revised Rate rather than the Initial Rate.
“ Assignment ”: An assignment of an individual Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the assignment of the Mortgage and the sale or transfer of the Mortgage Loan from the Seller to the Purchaser, in substantially the form of Exhibit A .
“ Assignment of Leases, Rents and Profits ”: With respect to any Mortgaged Property, any assignment of leases, rents and profits or similar agreement executed by the Mortgagor, assigning to the mortgagee all of the income, rents and profits derived from the ownership, operation, leasing or disposition of all or a portion of such Mortgaged Property, in the form which was duly executed, acknowledged and delivered, as amended, modified, renewed or extended through the date hereof and from time to time hereafter.
“ Business Day ”: Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in the State of California are authorized or obligated by law or executed order to be closed.
“ Closing Date ” : The date or dates on which the Purchaser from time to time shall purchase, and the Seller from time to time shall sell, Mortgage Loans and the Servicing Rights related to such Mortgage Loans. T he Closing Date shall be the date designated as such in the related Purchase Price and Terms Agreement.
“ Code ”: The Internal Revenue Code of 1986, as amended from time to time, any successor statute thereto, and any temporary or final regulations of the United States Department of the Treasury promulgated pursuant thereto.
“ Collateral ”: With respect to a Mortgage Loan, the Mortgaged Property and any other collateral security for the obligation of the Mortgagor to repay such Mortgage Loan.
“ Cut-off Date ”: The date designated as such in the related Purchase Price and Terms Agreement.
“ Defect ”: Defined in Section 2.04 .
“ Endorsement ”: Endorsement of a Mortgage Note, without recourse, by the Seller.
“ Escrow Advances ”: Any amounts advanced by Seller, Purchaser or the third party servicer for either Seller or Purchaser for the purpose of effecting the payment of taxes, assessments and any insurance premiums relating to a Mortgaged Property.
“ Escrowed Funds ”: (i) Funds that are escrowed with Seller by a Mortgagor under the Mortgage Loan Documents on account of real estate taxes, insurance premiums, insurance proceeds, repairs, improvements, tenant security deposits, reserves or other purpose relating to the Mortgage Loan, (ii) funds that are advanced by Seller into an escrow or other account established pursuant to a Mortgage Loan Document for any of the foregoing purposes, and (iii) funds that are held by Seller in a suspense account or in any other account which funds have not been applied to the Mortgage Loan, including, without limitation, adequate protection payments and cash collateral held by Seller.
“ Freddie Mac ” means the Federal Home Loan Mortgage Corporation or any successor thereto.
“ Freddie Mac SBL Loan ” means a small balance Mortgage Loan providing financing for the acquisition or refinance of conventional multifamily housing with five residential units or more and eligible for delivery to Freddie Mac under the terms of the Guide.
“ Guide ” means any and all applicable rules, regulations, requirements and guidelines of Freddie Mac, as the same may be amended from time to time, including without limitation the Freddie Mac Multifamily Seller/Servicer Guide and the SBL Addendum.
“ Hazard Insurance Policy ”: Defined in Section 3.02(xv) .
“ Initial Rate ”: The stated Mortgage Rate with respect to an ARD Loan or a Freddie Mac SBL Loan which is a Hybrid ARM under the Guide as of the Cut-off Date.
“ Liability Insurance Policy ”: Defined in Section 3.02(xvi) .
“ Loan Amount ”: The principal balance of the Mortgage Loan on the Cut-off Date.
“ Mortgage ”: The mortgage, deed of trust or other instrument securing a Mortgage Note, which creates an unsubordinated first lien on the fee simple estate in the real property securing the Mortgage Note.
“ Mortgage Loan ” : An individual mortgage loan, including but not limited to the Mortgage Loan Documents and all documents included in the Submitted Mortgage File, and any and all rights, benefits, proceeds and obligations arising therefrom or in connection therewith, and which is the subject of this Agreement.
“ Mortgage Loan Documents :” All instruments and documents executed in connection with a Mortgage Loan, including the Mortgage Note and the Mortgage and any environmental indemnities and guaranties.
“ Mortgage Loan Information ”: The Mortgage Loan information set forth on Schedule 1 to each Purchase Price and Terms Agreement with respect to each Mortgage Loan.
“ Mortgage Note ”: The promissory note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage.
“ Mortgaged Property ” : With respect to a Mortgage Loan, the underlying real property securing repayment of a Mortgage Note, consisting of a fee simple estate.
“ Mortgage Rate ”: With respect to each Mortgage Loan, the annual rate at which interest accrues on such Mortgage Loan (in the absence of a default), as set forth in the related Note from time to time.
“ Mortgagor ”: The obligor on a Mortgage Note.
“ Person ” : Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, incorporated organization or government or any agency or political subdivision thereof.
“ Purchase Price ” : Defined in Section 2.01(b) .
“ Purchase Premium ” : The amount by which the Purchase Price for a Mortgage Loan or pool of Mortgage Loans exceeds the Loan Amount of such Mortgage Loan as of the applicable Cut-off Date. A Purchase Premium will exist for any Mortgage Loan for which the Purchase Price Percentage exceeds one hundred percent (100%).
“ Purchase Price and Terms Agreement ”: With respect to each Mortgage Loan, an agreement, in the form attached hereto as Exhibit B , by and between the Seller and the Purchaser. For Freddie Mac SBL Loans, the alternative form of Schedule 3 in Exhibit B shall be used.
“ Purchase Price Percentage ”: As defined in Section 2.01(d) hereof.
“ REMIC Provisions ”: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Section 860A through 860G of subchapter M of chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to time.
“ Revised Rate ”: With respect to those Mortgage Loans identified on Schedule 1 to the Purchase Priece and Terms Agreement as having a revised rate, the increased interest rate after the Anticipated Repayment Date (in the absence of a default) for each applicable Mortgage Loan, as calculated and as set forth in the related Mortgage Loan.
“ SBL Addendum ” means the Small Balance Loan Addendum to the Freddie Mac Multifamily Seller/Servicer Guide.
“ SBL Repurchase Period ” means, with respect to Freddie Mac SBL Loans, the same time period that Purchaser’s SBL Repurchase Obligations remain in effect as set forth in the Guide, including for the avoidance of doubt any applicable Limited Extended Repurchase Period as defined in the Guide.
“ SBL Repurchase Obligations ” means, with respect to Freddie Mac SBL Loans, the obligations of Purchaser to repurchase a Freddie Mac SBL Loan from Freddie Mac under the terms and conditions set forth in the Guide.
“ SBL Securitization ” means, with respect to Freddie Mac SBL Loans, the sale by Freddie Mac of the Freddie Mac SBL Loan to a real estate mortgage investment conduit trust that will issue securities backed by the Freddie Mac SBL Loans under the terms and conditions set forth in the Guide and the REMIC Provisions.
“ Servicing Advances ”: All customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance by Seller, Purchaser or a third party servicer for either Seller or Purchaser that do not constitute Escrow Advances incurred in the performance by Seller, Purchaser or a third party servicer for either Seller or Purchaser of its servicing obligations, including but not limited to, the cost (including reasonable attorneys’ fees and disbursements), related to (i) the preservation, restoration and protection of the Mortgaged Property, (ii) any enforcement or judicial proceedings, and (iii) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage (including default management and similar services, appraisal services and real estate broker services).
“ Servicing Rights ” : Any and all of the following: (a) any and all rights to service the Mortgage Loans; (b) any payments or other monies received for servicing the Mortgage Loans; (c) any late fees, penalties or similar payments with respect to the Mortgage Loans; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights thereunder; (e) Escrowed Funds or other similar payments with respect to the Mortgage Loans and any amounts actually collected with respect thereto; (f) all accounts and other rights to payment related to any of the property described in this paragraph; and
(g) any and all documents, files, records, servicing files, servicing documents, servicing records, data tapes, computer records, or other information pertaining to the Mortgage Loans or pertaining to the past, present or prospective servicing of the Mortgage Loans.
“ Submitted Mortgage File ”: The Mortgage Loan Documents and any other documents, instruments and agreements required by the Purchaser and pertaining to a particular Mortgage Loan as specified on Schedule 2 to the applicable Purchase Price and Terms Agreement.
ARTICLE II
SALE AND CONVEYANCE OF MORTGAGE LOANS;
POSSESSION OF SUBMITTED MORTGAGE FILES;
BOOKS AND RECORDS;
DELIVERY OF MORTGAGE LOAN DOCUMENTS
Section 2.01 Sale and Conveyance of Mortgage Loans; Delivery of Mortgage Loan Documents .
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(c) |
The fact that the Purchaser has conducted or has failed to conduct any partial or complete examination of the Submitted Mortgage Files and other due diligence for the Mortgage Loans shall not affect the Purchaser’s rights to demand repurchase or other relief as provided herein or affect the Seller’s obligations with respect thereto. |
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(f) |
The following shall be conditions precedent to the obligation of the Purchaser to pay the Purchase Price to the Seller: |
(1) The Seller shall deliver to the Purchaser the Submitted Mortgage File, as well as such other documentation requested by the Purchaser;
(2) The Seller shall execute and deliver to the Purchaser an Endorsement without recourse with respect to each of the Mortgage Notes; and
(3) The Seller shall execute, acknowledge and deliver to the Purchaser an Assignment with respect to each of the Mortgages ;
(4) The Seller shall prepare and deliver to the Purchaser a UCC ‑3 assignment statement with respect to each of the UCC-1 financing statements (if any) previously filed with respect to the Mortgage Loans, naming the Purchaser as assignee of secured party; and
(5) The Seller shall have notified each Mortgagor under each Mortgage Loan that all rights under such Mortgage Loan have been transferred to the Purchaser, and that all future payments with respect to such Mortgage Loan are to be made directly to the Purchaser, and the address to which such payments are to be made at the Purchaser, pursuant to a written notice in form and substance satisfactory to Purchaser (and Seller shall provide Purchaser with copies of each such written notice sent to each such Mortgagor, which written notice shall have been sent to each Mortgagor via both regular mail, and certified mail return receipt requested).
Section 2.02 Possession of Submitted Mortgage Files .
Upon each Closing Date, the ownership of each Mortgage Loan, including the Mortgage Loan Documents and the contents of the related Submitted Mortgage File and all rights, benefits, payments, proceeds and obligations arising therefrom or in connection therewith, shall be vested in the Purchaser, and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or which come into the possession of the Seller shall immediately vest in the Purchaser.
Section 2.03 Examination of Submitted Mortgage Files .
As provided in
Section 2.01(b)
above, the Seller shall make the related Submitted
Mortgage File with respect to each Mortgage Loan available for examination by the Purchaser via secure electronic transmission
. Such examination of the Submitted
Mortgage Files may be made by the Purchaser or its designee at any reasonable time before the related Closing Date.
The fact that the Purchaser or its designee has conducted or has failed to conduct any partial or complete examination of the Submitted Mortgage Files shall not impair in any way the Purchaser’s (or any of its successor’s) rights to demand repurchase, substitution or other relief as provided in this Agreement, provided, however, that the Purchaser (or any of its successors) may not, following the related Closing Date, demand repurchase, substitution or other relief with respect to a Mortgage Loan based on a breach of a representation or warranty set forth in
Section 3.02
that is disclosed as to such Mortgage Loan in the applicable Purchase Price and Terms Agreement.
Section 2.04 Defective Documents .
If the Purchaser finds any document or documents constituting a part of a Submitted Mortgage File which was delivered or which was to be delivered by the Seller to the Purchaser (including documents in the Submitted Mortgage File which were received by the Seller from its borrower) to be defective or missing in any material respect (a “ Defect ”), the Purchaser shall so notify the Seller within sixty (60) days of discovery by the Purchaser of the Defect. If the Seller finds a Defect, the Seller shall promptly so notify the Purchaser. The Seller shall have a period of forty (40) days following receipt of written demand for correction or cure from the Purchaser within which to correct or cure any such Defect after the Seller is notified of same. If the Defect is capable of cure, but is not reasonably expected to be cured within such forty (40) day period, the Seller may, by written notice to the Purchaser, request additional time within which to effect correction or cure. The Purchaser shall have no obligation to grant any such extension of time for correction or cure. If the Purchaser does grant such an extension of time, the Seller shall have such additional time for correction or cure as is expressly granted in writing by the Purchaser. The Seller hereby covenants and agrees that, if the Defect is not corrected or cured within the applicable cure period described above, the Seller will, upon the expiration of such cure period, repurchase the related Mortgage Loan in the manner set forth in Section 3.03 . Discovery by the Purchaser or the Seller of the possible existence of fraud in connection with a Mortgage Loan shall not constitute a Defect, but shall be governed by the provisions of Sections 3.02(iv) and 3.03 .
Section 2.05 Payments Received by Seller Following the Closing Date .
Without limiting
Sections 2.02
or
2.04
above, should the Seller receive any monthly payments of principal and interest
or payments of any other sums in connection with or
owing with respect to any of the Mortgage Loans following the applicable Closing Date, Seller shall promptly (and in any event within two (2) Business Days)
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remit all such payments and sums to Purchaser.
Section 2.06 Assignment of Non-Seller Originated Loans .
On the applicable Closing Date, Seller shall also be deemed to have assigned, conveyed and transferred to Purchaser all of Seller’s right, title and interest in all purchase agreements under which Seller acquired any non-Seller originated Mortgage Loan sold on such Closing Date. If requested by Purchaser, Seller shall execute and deliver to Purchaser such additional assignments of the loan purchase agreements with respect to the non-Seller originated Mortgage Loans as Purchaser shall reasonably request.
Section 2.07 Refinance of Mortgage Loans .
Seller shall not, without the prior written consent of Purchaser, refinance any Mortgage Loan prior to the date that is sixty (60) days prior to the maturity date of such Mortgage Loan. In connection with the refinance of any such Mortgage Loan, Seller shall give to Purchaser a right to participate in or purchase such Mortgage Loan on terms that are reasonably acceptable to both Seller and Purchaser (it being understood that Purchaser is not, hereby, committing to any such participation or purchase of any such refinanced Mortgage Loan).
Section 2.08 Substitution of Trustees .
Seller shall cooperate fully with Purchaser, and take all actions reasonably requested by Purchaser, in causing and effectuating the substitution of new trustees designated by Purchaser for the existing trustees under any or all of the Mortgages, as required by Purchaser in its sole discretion; which actions shall include, without limitation, completing and obtaining the necessary information and signatures on substitution of trustee forms acceptable to Purchaser, and to otherwise cooperate fully in the transfer of the trustee position under each Mortgage designated by Purchaser to the new trustee designated by Purchaser.
Section 2.09 Repayment of Purchase Premium .
Seller agrees that as to any Mortgage Loan that is repaid in full within one year of the Closing Date, Seller shall repay to Purchaser the Purchase Premium paid by Purchaser with respect to each such Mortgage Loan.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER;
REPURCHASE; REVIEW OF MORTGAGE LOANS
Section 3.01 Representations and Warranties of the Seller .
The Seller represents, warrants and covenants to the Purchaser that as of each Closing Date:
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Due Organization . The Seller is, and as of the date of the origination of each Mortgage Loan that Seller originated was, an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all licenses necessary to carry on its business now being conducted and is licensed, qualified and in good standing under the laws of each state where a Mortgaged Property is located or is otherwise exempt under applicable law from such qualification or is otherwise not required under applicable law to effect such qualification; no demand for such qualification has been made upon the Seller by any state having jurisdiction and in any event the Seller is or will be in compliance with the laws of any such state to the extent necessary to insure the enforceability of each Mortgage Loan; |
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Purchaser), the Assignments and the Endorsements constitute legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, subject to applicable bankruptcy, reorganization, receivership, conservatorship, insolvency, moratorium and other laws relating to or affecting creditors ’ rights generally or the rights of creditors of banks and to the general principles of equity (whether such enforceability is considered in a proceeding in equity or at law); |
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No Conflict . None of the execution and delivery of this Agreement, the origination of the Mortgage Loans by the Seller, the sale of the Mortgage Loans, the consummation of the transactions contemplated hereby, or the fulfillment of or compliance with the terms and conditions of this Agreement, will conflict with or result in a breach of any of the terms, conditions or provisions of the Seller’s charter or bylaws or any legal restriction or any agreement or instrument to which the Seller is now a party or by which it is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Seller or its property is subject; |
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Ability to Perform . The Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement; |
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(v) |
No Material Default . The Seller is not in material default under any agreement, contract, instrument or indenture of any nature whatsoever to which the Seller is a party or by which it is bound, which default would have a material effect on the ability of the Seller to perform under this Agreement, nor to the best of Seller’s knowledge, has any event occurred which with notice would constitute a default under any such agreement, contract, instrument or indenture and have a material adverse effect on the ability of the Seller to perform its obligations under this Agreement; |
Section 3.02 Representations and Warranties as to Individual Mortgage Loans .
With respect to each Mortgage Loan other than a Freddie Mac SBL Loan, the Seller hereby makes the representations and warranties set forth on Exhibit C-1 to the Purchaser as of the related Closing Date. With respect to each Freddie Mac SBL Loan, the Seller hereby makes the representations and warranties set forth on Exhibit C-2 to the Purchaser as of the related Closing Date. To the extent that any of the representations and warranties set forth on Exhibit C-2 is inconsistent with the requirements of the Guide, the Guide shall control and such representation or warranty shall be interpreted to be given meaning consistent with the terms of the Guide.
Section 3.03 Repurchase .
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(c) |
The Seller hereby covenants and agrees that if any such failure or breach of representation or warranty is not corrected or cured within the applicable cure period, the Seller will, within five (5) days after demand to do so by the Purchaser, repurchase the affected Mortgage Loan in the manner specified in Sections 3.03(d), (e) and (f) . |
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(d) |
The repurchase price will be equal to the sum of: |
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(i) |
the original purchase price of the affected Mortgage Loan less any amounts received by Purchaser with respect to such Mortgage Loan on or prior to the date of repurchase; plus |
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(ii) |
all accrued interest on such Mortgage Loan from the date to which interest was last paid through and including the date of repurchase; plus |
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(iii) |
all other amounts payable under the Mortgage Loan Documents for such Mortgage Loan through the time of repurchase; plus |
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(iv) |
Purchaser’s reasonable and customary out-of-pocket expenses incurred by Purchaser in transferring such Mortgage Loan back to Seller (as reasonably approved by Seller); plus |
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(v) |
all unreimbursed Advances made by Purchaser or any servicer of the related Mortgage Loan for the Purchaser, other than Seller. |
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(e) |
Any repurchase shall be accomplished by delivery to the Purchaser, in immediately available funds, of the amount of the repurchase price. |
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If Seller is required to repurchase a Mortgage Loan which is cross-collateralized with one or more Mortgage Loans, the Seller shall be required to repurchase all such Mortgage Loans. |
Section 3.04 Non-Solicitation .
The Seller agrees that it shall not solicit any Mortgagors, and with respect to Freddie Mac SBL Loans, any sponsors related to the Mortgage Loans (in writing or otherwise) to refinance any of the Mortgage Loans; provided, however, that (1) mass advertising or mailings (such as placing advertisements on television, on radio, in magazines or in newspapers or including messages in billing statements) that is not exclusively directed towards the Mortgagors, or (2) a solicitation for business from the Seller, its parent or affiliated companies to a Mortgagor that does not derive from a full or partial list of the Mortgagors shall not constitute “solicitation” and shall not violate this covenant. For the avoidance of doubt, the Seller and Purchaser are each free to solicit the Mortgagors and, with respect to Freddie Mac SBL Loans, any sponsors related to the Mortgage Loans for loan products to finance properties other than the Mortgaged Properties.
ARTICLE IV
THE SELLER
Section 4.01 Indemnification; Third Party Claims .
Without limiting Section 3.03 hereof, but subject to the limitations set forth below, the Seller agrees to indemnify and hold harmless the Purchaser against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may incur or sustain in any way related to any acts or omissions by Seller occurring with respect to any of the Mortgage Loans prior to the related Closing Date, including without limitation any lender liability claims and other claims based on the alleged wrongful actions of Seller (collectively, “ Claims ”). The Seller shall immediately assume the defense of any such Claim and pay all expenses in connection therewith, including counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against it or the Purchaser in respect of such Claim. Nothing contained herein shall prohibit the Purchaser, at Seller’ s expense, from retaining its own counsel to assist in such proceedings or to observe such proceedings.
Section 4.02 Merger or Consolidation of the Seller .
The Seller will keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans and to perform its duties under this Agreement.
Any person into which the Seller may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation (including, without limitation, by means of the sale of all or substantially all of the Seller’s assets to such Person) to which the Seller shall be a party, or any Person succeeding to the business of the Seller, shall be obligated to perform Seller’s obligations under this Agreement, anything herein to the contrary notwithstanding.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01 Governing Law .
This Agreement shall be governed by and construed in accordance with the laws of the State of California.
Section 5.02 Notices .
Any notices or other communications permitted or required hereunder shall be in writing and shall be deemed conclusively to have been given if personally delivered, sent by courier with delivery against signature therefor, mailed by registered mail, postage prepaid, and return receipt requested or transmitted by telecopier and confirmed by a similar writing mailed or sent by courier as provided above, to (i) in the case of the Seller, PennyMac Loan Services, LLC, 36 Discovery, Suite 220, Irvine, CA 92618, Attention: Steve Skolnik or such other address as may hereafter be furnished to the Seller in writing by the Purchaser, and (ii) in the case of the Purchaser, PennyMac Corp., 6101 Condor Drive, Moorpark, CA 93021, Attention: Andrew Chang, or such other address as may hereafter be furnished to the Purchaser in writing by the Seller.
Section 5.03 Severability of Provisions .
If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, the invalidity of any such covenant, agreement, provision or term of this Agreement shall in no way affect the validity or enforceability of the other provisions of this Agreement.
Section 5.04 Exhibits .
The exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.
Section 5.05 General Interpretive Principles .
For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
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the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; |
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(ii) |
accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; |
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(iii) |
references herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement, unless the context shall otherwise require; |
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(iv) |
a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; |
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(v) |
the words “herein”, “hereof”, “ hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; and |
Section 5.06 Waivers and Amendments, Non-contractual Remedies; Preservation of Remedies .
This Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived, only by a written instrument signed by authorized representatives of the parties or, in the case of a waiver, by an authorized representative of the party waiving compliance. No such written instrument shall be effective unless it expressly recites that it is intended to amend, supersede, cancel, renew or extend this Agreement or to waive compliance with one or more of the terms hereof, as the case may be. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. Except as otherwise provided for herein, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.
Section 5.07 Captions .
All section titles or captions contained in this Agreement or in any Schedule or Exhibit annexed hereto or referred to herein are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement.
Section 5.08 Counterparts .
This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.
Section 5.09 Entire Agreement .
This Agreement (including the Schedules and Exhibits annexed hereto or referred to herein) between the parties hereto contain the entire agreement between the parties with respect to the transactions contemplated hereby and supersede all prior agreements, written or oral, with respect thereto.
Section 5.10 Further Assurances .
Each party hereto shall take such additional action as may be reasonably necessary to effectuate this Agreement and the transactions contemplated hereby. The Seller will promptly and duly execute and deliver to the Purchaser such documents and assurances and take such further action as the Purchaser may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of the Purchaser.
Section 5.11 Jurisdiction; Venue .
The parties hereby agree that any controversy arising under or in relation to this Agreement shall be shall be tried and litigated only in the state and federal courts located in the Counties of Los Angeles or Orange, State of California. The parties hereby irrevocably consent to jurisdiction, and venue of such courts for any such litigation and waive any other venue to which they might be entitled.
Section 5.12 Mutual Drafters; Interpretation .
This Agreement is the product of negotiation between the Purchaser and the Seller. Accordingly, this Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender.
Section 5.13 Attorneys’ Fees .
In the event any party to this Agreement shall be required to commence any proceeding against any other party pursuant to this Agreement, the party prevailing in such action or proceeding shall be entitled to recover from the other party, or parties, the prevailing party’s reasonable attorneys’ fees and costs including, without limitation, all witness fees and associated expenses, including matters on appeal, whether or not the proceeding or action proceeds to judgment. Except as may be otherwise provided herein, each of the parties to this Agreement will bear their own attorneys’ fees incurred in the negotiation and preparation of this Agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first set forth above .
“Seller:”
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PENNYMAC LOAN SERVICES, LLC |
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/s/ Steven F. Skolnik |
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Steven F. Skolnik |
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Managing Director, Commercial Lending |
“Purchaser:”
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PENNYMAC CORP. |
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By: |
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/s/ Vandad Fartaj |
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Vandad Fartaj |
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Senior Managing Director and |
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Chief Investment Officer |
List of Exhibits and Schedules:
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Form of Assignment |
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Form of Purchase Price and Terms Agreement |
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Exhibit C |
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Representations and Warranties |
EXHIBIT A
FORM OF ASSIGNMENT
WHEN RECORDED MAIL TO:
PennyMac Corp.
6101 Condor Drive
Moorpark, CA 93021
Attention:
Loan no.:
Escrow no.:
CORPORATION ASSIGNMENT OF DEED OF TRUST
FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to all beneficial interest under that certain Deed of Trust dated , executed by Trustors, to , Trustee as per Deed of Trust and recorded on as Instrument No. in book , page , of Official Records in the County Recorder’s office County, describing land therein as:
“AS DESCRIBED ON SAID RECORDED DEED OF TRUST REFERRED TO HEREIN”
TOGETHER with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Deed of Trust.
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By: |
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Name: |
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Title: |
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ACKNOWLEDGMENT
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STATE OF CALIFORNIA |
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COUNTY OF |
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On , before me, , a Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature
FORM OF PURCHASE PRICE AND TERMS AGREEMENT
THIS PURCHASE PRICE AND TERMS AGREEMENT, dated as of ______________, 20__ (this “Purchase Price and Terms Agreement”), is hereby executed by and between PennyMac Loan Services, LLC , as seller and interim servicer (the “ Seller ”), and PennyMac Corp., as purchaser (the “ Purchaser ”) under this Purchase Price and Terms Agreement and the Flow Commercial Mortgage Loan Purchase Agreement, dated as of December 1, 2015 (the “ MLPA ”), all the provisions of which are incorporated herein and shall be a part of this Purchase Price and Terms Agreement as if set forth herein in full (this Purchase Price and Terms Agreement together with the MLPA so incorporated, the “ Agreement ”).
PRELIMINARY STATEMENT
The Purchaser has agreed to purchase from the Seller and the Seller has agreed to sell to the Purchaser, on a servicing released basis and without recourse, a Mortgage Loan , as described in, and having a Loan Amount as described in, the Schedule attached hereto as Schedule 1 .
In consideration of the premises and the mutual agreements hereinafter set forth, and intending to be legally bound, the Purchaser and the Seller agree hereby as follows:
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MLPA; Designation. |
The Seller and the Purchaser acknowledge that the MLPA prescribes certain obligations of the Seller and the Purchaser with respect to the Mortgage Loan. The Seller and the Purchaser each agree to observe and perform such prescribed duties, responsibilities and obligations, and acknowledge that the MLPA is and shall be a part of this Agreement to the same extent as if set forth herein in full.
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Defined Terms. |
In addition to the definitions set forth in Article I of the MLPA, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article in regard to the Mortgage Loans being sold pursuant to this Purchase Price and Terms Agreement.
Mortgage Loan: ____________________________
Purchase Price Percentage: _____%
Purchase Price ( Purchase Price Percentage x Loan Amount): $________
Accrued Interest: $_______
The Seller, simultaneously with the execution and delivery of this Purchase Price and Terms Agreement, does hereby agree, as provided in the MLPA, to absolutely sell, transfer and assign, without recourse, except as set forth in the MLPA, to the Purchaser the ownership interest comprising all of the right, title and interest of the Seller in and to the Mortgage Loan identified on Schedule 1 hereto on a servicing released basis and all principal, interest and other proceeds of any kind received with respect to such Mortgage Loan, including but not limited to proceeds derived from the conversion, voluntary or involuntary, of any of such assets into cash or other liquidated property.
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Wire Instructions. |
A. Distributions that may be made to Purchaser by wire transfer pursuant to the MLPA shall be made in accordance with the following wire instructions:
Bank: _____________________
ABA Number: ________________
Account Name: ________________
Account Number: ________________
Reference: ________________
Attn: ________________
or in accordance with such other instructions as may hereafter be furnished to the Seller in writing by the Purchaser, provided that such instructions have been received by the Seller prior to the date the distribution in question is made.
B. The Purchase Price for the Mortgage Loans will be wire transferred by Purchaser to the Seller in accordance with the following wire transfer instructions:
Bank: _____________________
ABA Number: ________________
Account Name: ________________
Account Number: ________________
Reference: ________________
Attn: ________________
or in accordance with such other instructions as may hereafter be furnished to the Purchaser in writing by the Seller, provided that such instructions have been received by the Purchaser prior to the related Closing Date.
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Counterparts. |
This Purchase Price and Terms Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument.
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Governing Law. |
This Purchase Price and Terms Agreement shall be governed by and construed in accordance with the laws of the State of California and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.
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Amendment. |
This Purchase Price and Terms Agreement may be amended from time to time by the Seller and the Purchaser by written agreement signed by the Seller and the Purchaser.
[Signature Page Follows]
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed to this Purchase Price and Terms Agreement by their respective officers thereunto duly authorized as of the day and year first above written.
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PENNYMAC LOAN SERVICES, LLC |
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TO THE PURCHASE PRICE AND TERMS AGREEMENT
TO THE PURCHASE PRICE AND TERMS AGREEMENT
CONTENTS OF SUBMITTED MORTGAGE LOAN FILE
SCHEDULE 3
(STANDARD MORTGAGE LOANS)
TO THE PURCHASE PRICE AND TERMS AGREEMENT
EXCEPTIONS
TITLE EXCEPTIONS
SCHEDULE 3
(FREDDIE MAC SBL LOANS)
TO THE PURCHASE PRICE AND TERMS AGREEMENT
Refer to Exceptions listed in the Commitment each as defined in the Guide.
EXHIBIT C -1
STANDARD REPRESENTATIONS AND WARRANTIES
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Whole Loan; Ownership of Mortgage Loans . Except with respect to a Mortgage Loan that is part of a loan combination identified as such on Schedule 3 to the applicable Purchase Price and Terms Agreement, each Mortgage Loan is a whole loan and not a participation interest in a Mortgage Loan. At the time of the sale, transfer and assignment to Purchaser, no Mortgage Note or Mortgage was subject to any assignment (other than assignments to the Seller), participation or pledge, and the Seller had good title to, and was the sole owner of, each Mortgage Loan free and clear of any and all liens, charges, pledges, encumbrances, participations, any other ownership interests on, in or to such Mortgage Loan other than any servicing rights appointment or similar agreement. Seller has full right and authority to sell, assign and transfer each Mortgage Loan, and the assignment to Purchaser constitutes a legal, valid and binding assignment of such Mortgage Loan free and clear of any and all liens, pledges, charges or security interests of any nature encumbering such Mortgage Loan. |
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Loan Document Status . Each related Mortgage Note, Mortgage, Assignment of Leases, Rents and Profits (if a separate instrument), guaranty and other agreement executed by or on behalf of the related Mortgagor, guarantor or other obligor in connection with such Mortgage Loan is the legal, valid and binding obligation of the related Mortgagor, guarantor or other obligor (subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency or market value limit deficiency legislation), as applicable, and is enforceable in accordance with its terms, except (i) as such enforcement may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (ii) that certain provisions in such Mortgage Loan Documents (including, without limitation, provisions requiring the payment of default interest, late fees or prepayment/yield maintenance fees, charges and/or premiums) are, or may be, further limited or rendered unenforceable by or under applicable law, but (subject to the limitations set forth in clause (i) above) such limitations or unenforceability will not render such Mortgage Loan Documents invalid as a whole or materially interfere with the mortgagee's realization of the principal benefits and/or security provided thereby (clauses (i) and (ii) collectively, the “Standard Qualifications”). |
Except as set forth in the immediately preceding sentences, there is no valid offset, defense, counterclaim or right of rescission available to the related Mortgagor with respect to any of the related Mortgage Notes, Mortgages or other Mortgage Loan Documents, including, without limitation, any such valid offset, defense, counterclaim or right based on intentional fraud by Seller in connection with the origination of the Mortgage Loan, that would deny the mortgagee the principal benefits intended to be provided by the Mortgage Note, Mortgage or other Mortgage Loan Documents.
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Mortgage Provisions . The Mortgage Loan Documents for each Mortgage Loan contain provisions that render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or, if applicable, non-judicial foreclosure subject to the limitations set forth in the Standard Qualifications. |
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Mortgage Status; Waivers and Modifications . Since origination and except by written instruments set forth in the related Submitted Mortgage File or as otherwise provided in the related Mortgage Loan documents (a) the material terms of such Mortgage, Mortgage Note, Mortgage Loan guaranty, and related Mortgage Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect; (b) no related Mortgaged Property or any portion thereof has been released from the lien of the related Mortgage in any manner which materially interferes with the security intended to be provided by such Mortgage or the use or operation of the remaining portion of such Mortgaged Property; and (c) neither the related Mortgagor nor the related guarantor has been released from its material obligations under the Mortgage Loan. With respect to each Mortgage Loan, except as contained in a written document included in the Submitted Mortgage File, there have been no modifications, amendments or waivers, that could be reasonably expected to have a material adverse effect on such Mortgage Loan. |
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Lien; Valid Assignment . Subject to the Standard Qualifications, each Assignment and assignment of Assignment of Leases, Rents and Profits to the Purchaser constitutes a legal, valid and binding assignment to the Purchaser. Each related Mortgage and Assignment of Leases, Rents and Profits is freely assignable without the consent of the related Mortgagor. Each related Mortgage is a legal, valid and enforceable first lien on the related Mortgagor's fee or leasehold interest in the Mortgaged Property in the principal amount of such Mortgage Loan or allocated loan amount (subject only to Permitted Encumbrances (as defined below) and the title exceptions to paragraph (6) set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement (each such title exception, a “Title Exception”)), except as the enforcement thereof may be limited by the Standard Qualifications. Such Mortgaged Property (subject to and excepting |
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Permitted Encumbrances and the Title Exceptions) as of origination was, and as of the Cut-off Date, to the Seller's knowledge, is free and clear of any recorded mechanics' liens, recorded materialmen's liens and other recorded encumbrances which are prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender's title insurance policy (as described below), and, to the Seller's knowledge and subject to the rights of tenants (as tenants only) (subject to and excepting Permitted Encumbrances and the Title Exceptions), no rights exist which under law could give rise to any such lien or encumbrance that would be prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender's title insurance policy (as described below). Notwithstanding anything herein to the contrary, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of Uniform Commercial Code (“UCC”) financing statements is required in order to effect such perfection. |
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Permitted Liens; Title Insurance . Each Mortgaged Property securing a Mortgage Loan is covered by an American Land Title Association loan title insurance policy or a comparable form of loan title insurance policy approved for use in the applicable jurisdiction (or, if such policy is yet to be issued, by a pro forma policy, a preliminary title policy with escrow instructions or a “marked up” commitment, in each case binding on the title insurer) (the “Title Policy”) in the original principal amount of such Mortgage Loan (or with respect to a Mortgage Loan secured by multiple properties, an amount equal to at least the allocated loan amount with respect to the Title Policy for each such property) after all advances of principal (including any advances held in escrow or reserves), that insures for the benefit of the owner of the indebtedness secured by the Mortgage, the first priority lien of the Mortgage, which lien is subject only to (a) the lien of current real property taxes, water charges, sewer rents and assessments not yet due and payable; (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record; (c) the exceptions (general and specific) and exclusions set forth in such Title Policy; (d) other matters to which like properties are commonly subject; (e) the rights of tenants (as tenants only) under leases (including subleases) pertaining to the related Mortgaged Property and condominium declarations; and (f) if the related Mortgage Loan is cross-collateralized and cross-defaulted with another Mortgage Loan (each a “Crossed Mortgage Loan”), the lien of the Mortgage for another Mortgage Loan that is cross-collateralized and cross-defaulted with such Crossed Mortgage Loan, provided that none of which items (a) through (f), individually or in the aggregate, materially and adversely interferes with the value or current use of the Mortgaged Property or the security intended to be provided by such Mortgage or the Mortgagor's ability to pay its obligations when they become due (collectively, the “Permitted Encumbrances”). Except as contemplated by clause (f) of the preceding sentence, none of the Permitted Encumbrances are mortgage liens that are senior to or coordinate and co-equal with the lien of the related Mortgage. Such Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) is in full force and effect, all premiums thereon have been paid and no claims have been made by the Seller thereunder and no claims have been paid thereunder. Neither the Seller, nor to the Seller's knowledge, any other holder of the Mortgage Loan, has done, by act or omission, anything that would materially impair the coverage under such Title Policy. |
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Junior Liens . It being understood that B notes secured by the same Mortgage as a Mortgage Loan are not subordinate mortgages or junior liens, except for any Crossed Mortgage Loan, there are, as of origination, and to the Seller's knowledge, as of the Cut-off Date, no subordinate mortgages or junior liens securing the payment of money encumbering the related Mortgaged Property (other than Permitted Encumbrances and the Title Exceptions, taxes and assessments, mechanics and materialmen's liens (which are the subject of the representation in paragraph (5) above), and equipment and other personal property financing). Except as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, the Seller has no knowledge of any mezzanine debt secured directly by interests in the related Mortgagor. |
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8. |
Assignment of Leases, Rents and Profits . There exists as part of the related Submitted Mortgage File an Assignment of Leases, Rents and Profits (either as a separate instrument or incorporated into the related Mortgage). Subject to the Permitted Encumbrances and the Title Exceptions, each related Assignment of Leases, Rents and Profits creates a valid first-priority collateral assignment of, or a valid first-priority lien or security interest in, rents and certain rights under the related lease or leases, subject only to a license granted to the related Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the related leased property, except as the enforcement thereof may be limited by the Standard Qualifications. The related Mortgage or related Assignment of Leases, Rents and Profits, subject to applicable law, provides that, upon an event of default under the Mortgage Loan, a receiver is permitted to be appointed for the collection of rents or for the related mortgagee to enter into possession to collect the rents or for rents to be paid directly to the mortgagee. |
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9. |
UCC Filings . If the related Mortgaged Property is operated as a hospitality property, the Seller has filed and/or recorded or caused to be filed and/or recorded (or, if not filed and/or recorded, have been submitted in proper form for filing and/or recording), UCC financing statements in the appropriate public filing and/or recording offices necessary at the time of the origination of the Mortgage Loan to perfect a valid security interest in all items of physical personal property reasonably |
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necessary to operate such Mortgaged Property owned by such Mortgagor and located on the related Mortgaged Property (other than any non-material personal property, any personal property subject to a purchase money security interest, a sale and leaseback financing arrangement as permitted under the terms of the related Mortgage Loan documents or any other personal property leases applicable to such personal property), to the extent perfection may be effected pursuant to applicable law by recording or filing, as the case may be. Subject to the Standard Qualifications, each related Mortgage (or equivalent document) creates a valid and enforceable lien and security interest on the items of personalty described above. No representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC financing statements are required in order to effect such perfection. |
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10. |
Condition of Property . Seller or the originator of the Mortgage Loan inspected or caused to be inspected each related Mortgaged Property within six months of origination of the Mortgage Loan and within twelve months of the Cut-off Date. |
An engineering report or property condition assessment was prepared in connection with the origination of each Mortgage Loan no more than twelve months prior to the Cut-off Date. To the Seller's knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable mortgage loans, as of the Closing Date, each related Mortgaged Property was free and clear of any material damage (other than (i) any damage or deficiency that is estimated to cost less than $50,000 to repair, (ii) any deferred maintenance for which escrows were established at origination and (iii) any damage fully covered by insurance) that would affect materially and adversely the use or value of such Mortgaged Property as security for the Mortgage Loan.
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11. |
Taxes and Assessments . All taxes, governmental assessments and other outstanding governmental charges (including, without limitation, water and sewage charges), or installments thereof, that could be a lien on the related Mortgaged Property that would be of equal or superior priority to the lien of the Mortgage and that prior to the Cut-off Date have become delinquent in respect of each related Mortgaged Property have been paid, or an escrow of funds has been established in an amount sufficient to cover such payments and reasonably estimated interest and penalties, if any, thereon. For purposes of this representation and warranty, real estate taxes and governmental assessments and other outstanding governmental charges and installments thereof shall not be considered delinquent until the earlier of (a) the date on which interest and/or penalties would first be payable thereon and (b) the date on which enforcement action is entitled to be taken by the related taxing authority. |
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12. |
Condemnation . As of the date of origination and to the Seller's knowledge as of the Cut-off Date, there is no proceeding pending, and, to the Seller's knowledge as of the date of origination and as of the Cut-off Date, there is no proceeding threatened, for the total or partial condemnation of such Mortgaged Property that would have a material adverse effect on the value, use or operation of the Mortgaged Property. |
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13. |
Actions Concerning Mortgage Loan . As of the date of origination and to the Seller's knowledge as of the Cut-off Date, there was no pending or filed action, suit or proceeding, arbitration or governmental investigation involving any Mortgagor, guarantor, or Mortgagor's interest in the Mortgaged Property, an adverse outcome of which would reasonably be expected to materially and adversely affect (a) such Mortgagor's title to the Mortgaged Property, (b) the validity or enforceability of the Mortgage, (c) such Mortgagor's ability to perform under the related Mortgage Loan, (d) such guarantor's ability to perform under the related guaranty, (e) the principal benefit of the security intended to be provided by the Mortgage Loan documents or (f) the current principal use of the Mortgaged Property. |
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14. |
Escrow Deposits . All escrow deposits and payments required to be escrowed with lender pursuant to each Mortgage Loan are in the possession, or under the control, of the Seller or its servicer, and there are no deficiencies (subject to any applicable grace or cure periods) in connection therewith, and all such escrows and deposits (or the right thereto) that are required to be escrowed with lender under the related Mortgage Loan Documents are being conveyed by the Seller to Purchaser or its servicer. |
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15. |
No Holdbacks . The Loan Amount as of the Cut-off Date of the Mortgage Loan set forth on Exhibit A to the Applicable Purchase Price and Terms Agreement has been fully disbursed as of the Closing Date and there is no requirement for future advances thereunder (except in those cases where the full amount of the Mortgage Loan has been disbursed but a portion thereof is being held in escrow or reserve accounts pending the satisfaction of certain conditions relating to leasing, repairs or other matters with respect to the related Mortgaged Property, the Mortgagor or other considerations determined by Seller to merit such holdback). |
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16. |
Insurance . Each related Mortgaged Property is, and is required pursuant to the related Mortgage to be, insured by a property insurance policy providing coverage for loss in accordance with coverage found under a “special cause of loss |
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form” or “all risk form” that includes replacement cost valuation issued by an insurer meeting the requirements of the related Mortgage Loan Documents and having a claims-paying or financial strength rating of any one of the following: (i) at least “A-:VIII” from A.M. Best Company, (ii) at least “A3” (or the equivalent) from Moody's Investors Service, Inc. or (iii) at least “A-” from Standard & Poor's Ratings Services (collectively the “Insurance Rating Requirements”), in an amount (subject to a customary deductible) not less than the lesser of (1) the original principal balance of the Mortgage Loan and (2) the full insurable value on a replacement cost basis of the improvements, furniture, furnishings, fixtures and equipment owned by the borrower and included in the Mortgaged Property (with no deduction for physical depreciation), but, in any event, not less than the amount necessary or containing such endorsements as are necessary to avoid the operation of any coinsurance provisions with respect to the related Mortgaged Property. |
Each related Mortgaged Property is also covered, and required to be covered pursuant to the related Mortgage Loan Documents, by business interruption or rental loss insurance which (subject to a customary deductible) covers a period of not less than 12 months (or with respect to each Mortgage Loan on a single asset with a principal balance of $50 million or more, 18 months).
If any material part of the improvements, exclusive of a parking lot, located on a Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the related Mortgagor is required to maintain insurance in the maximum amount available under the National Flood Insurance Program.
If the Mortgaged Property is located within 25 miles of the coast of the Gulf of Mexico or the Atlantic coast of Florida, Georgia, South Carolina or North Carolina, the related Mortgagor is required to maintain coverage for windstorm and/or windstorm related perils and/or “named storms” issued by an insurer meeting the Insurance Rating Requirements or endorsement covering damage from windstorm and/or windstorm related perils and/or named storms.
The Mortgaged Property is covered, and required to be covered pursuant to the related Mortgage Loan Documents, by a commercial general liability insurance policy issued by an insurer meeting the Insurance Rating Requirements including coverage for property damage, contractual damage and personal injury (including bodily injury and death) in amounts as are generally required by the Seller for loans originated for securitization, and in any event not less than $1 million per occurrence and $2 million in the aggregate.
An architectural or engineering consultant has performed an analysis of each of the Mortgaged Properties located in seismic zones 3 or 4 in order to evaluate the structural and seismic condition of such property, for the sole purpose of assessing either the scenario expected limit (“SEL”) or the probable maximum loss (“PML”) for the Mortgaged Property in the event of an earthquake. In such instance, the SEL or PML, as applicable, was based on a 475-year return period, an exposure period of 50 years and a 10% probability of exceedance. If the resulting report concluded that the SEL or PML, as applicable, would exceed 20% of the amount of the replacement costs of the improvements, earthquake insurance on such Mortgaged Property was obtained by an insurer rated at least “A:VIII” by A.M. Best Company or “A3” (or the equivalent) from Moody's Investors Service, Inc. or “A-” by Standard & Poor's Ratings Services in an amount not less than 100% of the SEL or PML, as applicable.
The Mortgage Loan Documents require insurance proceeds in respect of a property loss to be applied either (a) to the repair or restoration of all or part of the related Mortgaged Property, with respect to all property losses in excess of 5% of the then outstanding principal amount of the related Mortgage Loan (or Loan Combination, if applicable), the lender (or a trustee appointed by it) having the right to hold and disburse such proceeds as the repair or restoration progresses, or (b) to the payment of the outstanding principal balance of such Mortgage Loan (or Loan Combination, if applicable) together with any accrued interest thereon.
All premiums on all insurance policies referred to in this section required to be paid as of the Cutoff Date have been paid, and such insurance policies name the lender under the Mortgage Loan and its successors and assigns as a loss payee under a mortgagee endorsement clause or, in the case of the general liability insurance policy, as named or additional insured. Such insurance policies will inure to the benefit of the Trustee (or, in the case of a Mortgage Loan that is a Non-Serviced Mortgage Loan, the applicable Other Trustee). Each related Mortgage Loan obligates the related Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do so, authorizes the lender to maintain such insurance at the Mortgagor's cost and expense and to charge such Mortgagor for related premiums. All such insurance policies (other than commercial liability policies) require at least 10 days' prior notice to the lender of termination or cancellation arising because of nonpayment of a premium and at least 30 days' prior notice to the lender of termination or cancellation (or such lesser period, not less than 10 days, as may be required by applicable law) arising for any reason other than non-payment of a premium and no such notice has been received by Seller.
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17. |
Access; Utilities; Separate Tax Lots . Each Mortgaged Property (a) is located on or adjacent to a public road and has direct legal access to such road, or has access via an irrevocable easement or irrevocable right of way permitting ingress and egress to/from a public road, (b) is served by or has uninhibited access rights to public or private water and sewer (or well and septic) and all required utilities, all of which are appropriate for the current use of the Mortgaged Property, and (c) constitutes one or more separate tax parcels which do not include any property which is not part of the Mortgaged Property or is subject to an endorsement under the related Title Policy insuring the Mortgaged Property, or in certain cases, an application has been, or will be, made to the applicable governing authority for creation of separate tax lots, in which case the Mortgage Loan requires the Mortgagor to escrow an amount sufficient to pay taxes for the existing tax parcel of which the Mortgaged Property is a part until the separate tax lots are created. |
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18. |
No Encroachments . To Seller's knowledge based solely on surveys obtained in connection with origination and the lender's Title Policy (or, if such policy is not yet issued, a pro forma title policy, a preliminary title policy with escrow instructions or a “marked up” commitment) obtained in connection with the origination of each Mortgage Loan, all material improvements that were included for the purpose of determining the appraised value of the related Mortgaged Property at the time of the origination of such Mortgage Loan are within the boundaries of the related Mortgaged Property, except encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No improvements on adjoining parcels encroach onto the related Mortgaged Property except for encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No improvements encroach upon any easements except for encroachments the removal of which would not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements obtained with respect to the Title Policy. |
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19. |
No Contingent Interest or Equity Participation . No Mortgage Loan has a shared appreciation feature, any other contingent interest feature or a negative amortization feature (except that an ARD Loan may provide for the accrual of the portion of interest in excess of the rate in effect prior to the Anticipated Repayment Date) or an equity participation by Seller. |
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20. |
REMIC . The Mortgage Loan is a “qualified mortgage” within the meaning of Code Section 860G(a)(3) (but determined without regard to the rule in the U.S. Department of Treasury Regulations (the “Treasury Regulations”) Section 1.860G-2(f)(2) that treats certain defective mortgage loans as qualified mortgages), and, accordingly, (A) the issue price of the Mortgage Loan to the related Mortgagor at origination did not exceed the non-contingent principal amount of the Mortgage Loan and (B) either: (a) such Mortgage Loan is secured by an interest in real property (including buildings and structural components thereof, but excluding personal property) having a fair market value (i) at the date the Mortgage Loan was originated at least equal to 80% of the adjusted issue price of the Mortgage Loan (or Loan Combination, as applicable) on such date or (ii) at the Closing Date at least equal to 80% of the adjusted issue price of the Mortgage Loan (or Loan Combination, as applicable) on such date, provided that for purposes hereof, the fair market value of the real property interest must first be reduced by (A) the amount of any lien on the real property interest that is senior to the Mortgage Loan and (B) a proportionate amount of any lien that is in parity with the Mortgage Loan; or (b) substantially all of the proceeds of such Mortgage Loan were used to acquire, improve or protect the real property which served as the only security for such Mortgage Loan (other than a recourse feature or other third-party credit enhancement within the meaning of Section 1.860G-2(a)(1)(ii) of the Treasury Regulations). If the Mortgage Loan was “significantly modified” prior to the Closing Date so as to result in a taxable exchange under Section 1001 of the Code, it either (x) was modified as a result of the default or reasonably foreseeable default of such Mortgage Loan or (y) satisfies the provisions of either sub-clause (B)(a)(i) above (substituting the date of the last such modification for the date the Mortgage Loan was originated) or sub-clause (B)(a)(ii), including the proviso thereto. Any prepayment premium and yield maintenance charges applicable to the Mortgage Loan constitute “customary prepayment penalties” within the meaning of Section 1.860G-1(b)(2) of the Treasury Regulations. All terms used in this paragraph shall have the same meanings as set forth in the related Treasury Regulations. |
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21. |
Compliance with Usury Laws . The Mortgage Rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of such Mortgage Loan complied as of the date of origination with, or was exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury. |
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22. |
Authorized to do Business . To the extent required under applicable law, as of the Cut-off Date or as of the date that such entity held the Mortgage Note, each holder of the Mortgage Note was authorized to transact and do business in the jurisdiction in which each related Mortgaged Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of such Mortgage Loan by the Purchaser. |
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23. |
Trustee under Deed of Trust . With respect to each Mortgage which is a deed of trust, as of the date of origination and, to the Seller's knowledge, as of the Closing Date, a trustee, duly qualified under applicable law to serve as such, currently so serves and is named in the deed of trust or has been substituted in accordance with the Mortgage and applicable law or may be substituted in accordance with the Mortgage and applicable law by the related mortgagee. |
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24. |
Local Law Compliance . To the Seller's knowledge, based upon any of a letter from any governmental authorities, a legal opinion, an architect's letter, a zoning consultant's report, an endorsement to the related Title Policy, or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily or, if applicable, manufactured housing community mortgage loans intended for securitization, with respect to the improvements located on or forming part of each Mortgaged Property securing a Mortgage Loan as of the date of origination of such Mortgage Loan and as of the Cut-off Date, there are no material violations of applicable zoning ordinances, building codes and land laws (collectively “Zoning Regulations”) other than those which (i) constitute a legal non-conforming use or structure, as to which as the Mortgaged Property may be restored or repaired to the full extent necessary to maintain the use of the structure immediately prior to a casualty or the inability to restore or repair to the full extent necessary to maintain the use or structure immediately prior to the casualty would not materially and adversely affect the use or operation of the Mortgaged Property, (ii) are insured by the Title Policy or other insurance policy, (iii) are insured by law and ordinance insurance coverage in amounts customarily required by the Seller for loans originated for securitization that provides coverage for additional costs to rebuild and/or repair the property to current Zoning Regulations or (iv) would not have a material adverse effect on the Mortgage Loan. The terms of the Mortgage Loan Documents require the Mortgagor to comply in all material respects with all applicable governmental regulations, zoning and building laws. |
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25. |
Licenses and Permits . Each Mortgagor covenants in the Mortgage Loan Documents that it shall keep all material licenses, permits and applicable governmental authorizations necessary for its operation of the Mortgaged Property in full force and effect, and to the Seller's knowledge based upon a letter from any government authorities or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily or, if applicable, manufactured housing community mortgage loans intended for securitization, all such material licenses, permits and applicable governmental authorizations are in effect. The Mortgage Loan requires the related Mortgagor to be qualified to do business in the jurisdiction in which the related Mortgaged Property is located. |
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26. |
Recourse Obligations . The Mortgage Loan Documents for each Mortgage Loan provide that (a) the related Mortgagor and at least one individual or entity shall be fully liable for actual losses, liabilities, costs and damages arising from certain acts of the related Mortgagor and/or its principals specified in the related Mortgage Loan Documents, which acts generally include the following: (i) acts of fraud or intentional material misrepresentation, (ii) misapplication or misappropriation of rents, insurance proceeds or condemnation awards, (iii) intentional material physical waste of the Mortgaged Property, and (iv) any breach of the environmental covenants contained in the related Mortgage Loan Documents, and (b) the Mortgage Loan shall become full recourse to the related Mortgagor and at least one individual or entity, if the related Mortgagor files a voluntary petition under federal or state bankruptcy or insolvency law. |
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27. |
Mortgage Releases . The terms of the related Mortgage or related Mortgage Loan Documents do not provide for release of any material portion of the Mortgaged Property from the lien of the Mortgage except (a) a partial release, accompanied by principal repayment, or partial Defeasance (as defined in paragraph (32)), of not less than a specified percentage at least equal to the lesser of (i) 110% of the related allocated loan amount of such portion of the Mortgaged Property and (ii) the outstanding principal balance of the Mortgage Loan, (b) upon payment in full of such Mortgage Loan, (c) upon a Defeasance (as defined in paragraph (32)), (d) releases of out-parcels that are unimproved or other portions of the Mortgaged Property which will not have a material adverse effect on the underwritten value of the Mortgaged Property and which were not afforded any value in the appraisal obtained at the origination of the Mortgage Loan and are not necessary for physical access to the Mortgaged Property or compliance with zoning requirements, or (e) as required pursuant to an order of condemnation. With respect to any partial release under the preceding clauses (a) or (d), either: (x) such release of collateral (i) would not constitute a “significant modification” of the subject Mortgage Loan within the meaning of Section 1.8600-2(b)(2) of the Treasury Regulations and (ii) would not cause the subject Mortgage Loan to fail to be a “qualified mortgage” within the meaning of Code Section 860G(a)(3)(A); or (y) the mortgagee or servicer can, in accordance with the related Mortgage Loan Documents, condition such release of collateral on the related Mortgagor's delivery of an opinion of tax counsel to the effect specified in the immediately preceding clause (x). For purposes of the preceding clause (x), if the fair market value of the real property constituting such Mortgaged Property after the release is not equal to at least 80% of the principal balance of the Mortgage Loan (or Loan Combination, as applicable) outstanding after the release, the Mortgagor is required to make a payment of principal in an amount not less than the amount required by the REMIC Provisions. |
In the case of any Mortgage Loan, in the event of a taking of any portion of a Mortgaged Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, the Mortgagor can be required to pay down the principal balance of the Mortgage Loan in an amount not less than the amount required by the REMIC Provisions and, to such extent, condemnation proceeds may not be required to be applied to the restoration of the Mortgaged Property or released to the Mortgagor, if, immediately after the release of such portion of the Mortgaged Property from the lien of the Mortgage (but taking into account the planned restoration) the fair market value of the real property constituting the remaining Mortgaged Property is not equal to at least 80% of the remaining principal balance of the Mortgage Loan (or Loan Combination, as applicable).
No Mortgage Loan that is secured by more than one Mortgaged Property or that is a Crossed Mortgage Loan permits the release of cross-collateralization of the related Mortgaged Properties or a portion thereof, including due to a partial condemnation, other than in compliance with the loan-to-value ratio and other requirements of the REMIC Provisions.
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28. |
Financial Reporting and Rent Rolls . Each Mortgage requires the Mortgagor to provide the owner or holder of the Mortgage with quarterly (other than for single-tenant properties) and annual operating statements, and quarterly (other than for single-tenant properties) rent rolls for properties that have leases contributing more than 5% of the in-place base rent and annual financial statements, which annual financial statements with respect to each Mortgage Loan with more than one Mortgagor are in the form of an annual combined balance sheet of the Mortgagor entities (and no other entities), together with the related combined statements of operations, members' capital and cash flows, including a combining balance sheet and statement of income for the Mortgaged Properties on a combined basis. |
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29. |
Acts of Terrorism Exclusion . With respect to each Mortgage Loan over $20 million, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) do not specifically exclude Acts of Terrorism, as defined in the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 and the Terrorism Risk Insurance Program Reauthorization Act of 2015 (collectively referred to as “TRIA”), from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each other Mortgage Loan, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) did not, as of the date of origination of the Mortgage Loan, and, to Seller's knowledge, do not, as of the Cutoff Date, specifically exclude Acts of Terrorism, as defined in TRIA, from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each Mortgage Loan, the related Mortgage Loan Documents do not expressly waive or prohibit the mortgagee from requiring coverage for Acts of Terrorism, as defined in TRIA, or damages related thereto except to the extent that any right to require such coverage may be limited by commercial availability on commercially reasonable terms, or as otherwise indicated on Schedule 3 to the applicable Purchase Price and Terms Agreement; provided, however, that if TRIA or a similar or subsequent statute is not in effect, then, provided that terrorism insurance is commercially available, the Mortgagor under each Mortgage Loan is required to carry terrorism insurance, but in such event the Mortgagor shall not be required to spend on terrorism insurance coverage more than two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the related Mortgage Loan Documents (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance) at such time, and if the cost of terrorism insurance exceeds such amount, the Mortgagor is required to purchase the maximum amount of terrorism insurance available with funds equal to such amount. |
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30. |
Due on Sale or Encumbrance . Subject to specific exceptions set forth below, each Mortgage Loan contains a “due on sale” or other such provision for the acceleration of the payment of the unpaid principal balance of such Mortgage Loan if, without the consent of the holder of the Mortgage (which consent, in some cases, may not be unreasonably withheld) and/or complying with the requirements of the related Mortgage Loan Documents (which provide for transfers without the consent of the lender which are customarily acceptable to the Seller lending on the security of property comparable to the related Mortgaged Property, including, without limitation, transfers of worn-out or obsolete furnishings, fixtures, or equipment promptly replaced with property of equivalent value and functionality and transfers by leases entered into in accordance with the Mortgage Loan Documents), (a) the related Mortgaged Property, or any equity interest of greater than 50% in the related Mortgagor, is directly or indirectly pledged, transferred or sold, other than as related to (i) family and estate planning transfers or transfers upon death or legal incapacity, (ii) transfers to certain affiliates as defined in the related Mortgage Loan Documents, (iii) transfers of less than, or other than, a controlling interest in the related Mortgagor, (iv) transfers to another holder of direct or indirect equity in the Mortgagor, a specific Person designated in the related Mortgage Loan Documents or a Person satisfying specific criteria identified in the related Mortgage Loan Documents, such as a qualified equityholder, (v) transfers of stock or similar equity units in publicly traded companies or (vi) a substitution or release of collateral within the parameters of paragraphs (27) and (32) herein or the exceptions thereto set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, or (vii) by reason of any mezzanine debt that |
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existed at the origination of the related Mortgage Loan as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement , or future permitted mezzanine debt in each case as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement or (b) the related Mortgaged Property is encumbered with a subordinate lien or security interest against the related Mortgaged Property, other than (i) any Companion Loan or any subordinate debt that existed at origination and is permitted under the related Mortgage Loan Documents, (ii) purchase money security interests, (iii) any Crossed Mortgage Loan as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement, or (iv) Permitted Encumbrances. The Mortgage or other Mortgage Loan Documents provide that to the extent any Rating Agency fees are incurred in connection with the review of and consent to any transfer or encumbrance, the Mortgagor is responsible for such payment along with all other reasonable fees and expenses incurred by the Mortgagee relative to such transfer or encumbrance. |
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31. |
Single-Purpose Entity . Each Mortgage Loan requires the Mortgagor to be a Single-Purpose Entity for at least as long as the Mortgage Loan is outstanding. Both the Mortgage Loan Documents and the organizational documents of the Mortgagor with respect to each Mortgage Loan with a Cut-off Date Loan Amount in excess of $5 million provide that the Mortgagor is a Single-Purpose Entity, and each Mortgage Loan with a Cut-off Date Loan Amount of $20 million or more has a counsel's opinion regarding non-consolidation of the Mortgagor. For this purpose, a “Single-Purpose Entity” shall mean an entity, other than an individual, whose organizational documents (or if the Mortgage Loan has a Cut-off Date Loan Amount equal to $5 million or less, its organizational documents or the related Mortgage Loan Documents) provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more of the Mortgaged Properties and prohibit it from engaging in any business unrelated to such Mortgaged Property or Properties, and whose organizational documents further provide, or which entity represented in the related Mortgage Loan Documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Mortgaged Property or Properties, or any indebtedness other than as permitted by the related Mortgage(s) or the other related Mortgage Loan Documents, that it has its own books and records and accounts separate and apart from those of any other person (other than a Mortgagor for a Crossed Mortgage Loan), and that it holds itself out as a legal entity, separate and apart from any other person or entity. |
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32. |
Defeasance . With respect to any Mortgage Loan that, pursuant to the Mortgage Loan Documents, can be defeased (a “Defeasance”), (i) the Mortgage Loan Documents provide for Defeasance as a unilateral right of the Mortgagor, subject to satisfaction of conditions specified in the Mortgage Loan Documents; (ii) the Mortgage Loan cannot be defeased within two years after the Closing Date; (iii) the Mortgagor is permitted to pledge only United States “government securities” within the meaning of Section 1.860G-2(a)(8)(ii) of the Treasury Regulations, the revenues from which will, in the case of a full Defeasance, be sufficient to make all scheduled payments under the Mortgage Loan when due, including the entire remaining principal balance on the maturity date (or on or after the first date on which payment may be made without payment of a yield maintenance charge or prepayment penalty) or, if the Mortgage Loan is an ARD Loan, the entire principal balance outstanding on the Anticipated Repayment Date, and if the Mortgage Loan permits partial releases of real property in connection with partial Defeasance, the revenues from the collateral will be sufficient to pay all such scheduled payments calculated on a principal amount equal to a specified percentage at least equal to the lesser of (a) 110% of the allocated loan amount for the real property to be released and (b) the outstanding principal balance of the Mortgage Loan; (iv) the Mortgagor is required to provide a certification from an independent certified public accountant that the collateral is sufficient to make all scheduled payments under the Mortgage Note as set forth in clause (iii) above; (v) if the Mortgagor would continue to own assets in addition to the Defeasance collateral, the portion of the Mortgage Loan secured by defeasance collateral is required to be assumed (or the mortgagee may require such assumption) by a Single-Purpose Entity; (vi) the Mortgagor is required to provide an opinion of counsel that the mortgagee has a perfected security interest in such collateral prior to any other claim or interest; and (vii) the Mortgagor is required to pay all rating agency fees associated with Defeasance (if rating confirmation is a specific condition precedent thereto) and all other reasonable expenses associated with Defeasance, including, but not limited to, accountant's fees and opinions of counsel. |
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33. |
Fixed Interest Rates . Each Mortgage Loan bears interest at a rate that remains fixed throughout the remaining term of such Mortgage Loan, except in the case of ARD Loans and situations where default interest is imposed. |
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34. |
Ground Leases . For purposes of the Agreement, a “Ground Lease” shall mean a lease creating a leasehold estate in real property where the fee owner as the ground lessor conveys for a term or terms of years its entire interest in the land, or with respect to air rights leases, the air, and buildings and other improvements, if any, comprising the premises demised under such lease to the ground lessee (who may, in certain circumstances, own the building and improvements on the land), subject to the reversionary interest of the ground lessor as fee owner and does not include industrial development agency (IDA) or similar leases for purposes of conferring a tax abatement or other benefit. |
With respect to any Mortgage Loan where the Mortgage Loan is secured by a leasehold estate under a Ground Lease in whole or in part, and the related Mortgage does not also encumber the related lessor's fee interest in such Mortgaged Property, based upon the terms of the Ground Lease and any estoppel or other agreement received from the ground lessor in favor of Seller, its successors and assigns, Seller represents and warrants that:
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a. |
The Ground Lease or a memorandum regarding such Ground Lease has been duly recorded or submitted for recordation in a form that is acceptable for recording in the applicable jurisdiction. The Ground Lease or an estoppel or other agreement received from the ground lessor permits the interest of the lessee to be encumbered by the related Mortgage and does not restrict the use of the related Mortgaged Property by such lessee, its successors or assigns in a manner that would materially adversely affect the security provided by the related Mortgage; |
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b. |
The lessor under such Ground Lease has agreed in a writing included in the related Submitted Mortgage File (or in such Ground Lease) that the Ground Lease may not be amended or modified, or canceled or terminated by agreement of lessor and lessee, without the prior written consent of the lender, and no such consent has been granted by the Seller since the origination of the Mortgage Loan except as reflected in any written instruments which are included in the related Submitted Mortgage File; |
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c. |
The Ground Lease has an original term (or an original term plus one or more optional renewal terms, which, under all circumstances, may be exercised, and will be enforceable, by either Mortgagor or the mortgagee) that extends not less than 20 years beyond the stated maturity of the related Mortgage Loan, or 10 years past the stated maturity if such Mortgage Loan fully amortizes by the stated maturity (or with respect to a Mortgage Loan that accrues on an actual 360 basis, substantially amortizes); |
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d. |
The Ground Lease either (i) is not subject to any liens or encumbrances superior to, or of equal priority with, the Mortgage, except for the related fee interest of the ground lessor and the Permitted Encumbrances, or (ii) is subject to a subordination, non-disturbance and attornment agreement to which the mortgagee on the lessor's fee interest in the Mortgaged Property is subject; |
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e. |
The Ground Lease does not place commercially unreasonable restrictions on the identity of the Mortgagee and the Ground Lease is assignable to the holder of the Mortgage Loan and its successors and assigns without the consent of the lessor thereunder, and in the event it is so assigned, it is further assignable by the holder of the Mortgage Loan and its successors and assigns without the consent of the lessor; |
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f. |
The Seller has not received any written notice of material default under or notice of termination of such Ground Lease. To the Seller's knowledge, there is no material default under such Ground Lease and no condition that, but for the passage of time or giving of notice, would result in a material default under the terms of such Ground Lease and to the Seller's knowledge, such Ground Lease is in full force and effect as of the Closing Date; |
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g. |
The Ground Lease or ancillary agreement between the lessor and the lessee requires the lessor to give to the lender written notice of any default, and provides that no notice of default or termination is effective against the lender unless such notice is given to the lender; |
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h. |
A lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under the Ground Lease through legal proceedings) to cure any default under the Ground Lease which is curable after the lender's receipt of notice of any default before the lessor may terminate the Ground Lease; |
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i. |
The Ground Lease does not impose any restrictions on subletting that would be viewed as commercially unreasonable by the Seller in connection with loans originated for securitization; |
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j. |
Under the terms of the Ground Lease, an estoppel or other agreement received from the ground lessor and the related Mortgage (taken together), any related insurance proceeds or the portion of the condemnation award allocable to the ground lessee's interest (other than (i) de minimis amounts for minor casualties or (ii) in respect of a total or substantially total loss or taking as addressed in clause (k) below) will be applied either to the repair or to restoration of all or part of the related Mortgaged Property with (so long as such proceeds are in excess of the threshold amount specified in the related Mortgage Loan Documents) the lender or a trustee appointed by it having the right to hold and disburse such proceeds as repair or restoration progresses, or to the payment of the outstanding principal balance of the Mortgage Loan, together with any accrued interest; |
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k. |
In the case of a total or substantially total taking or loss, under the terms of the Ground Lease, an estoppel or other agreement and the related Mortgage (taken together), any related insurance proceeds, or portion of the condemnation award allocable to ground lessee's interest in respect of a total or substantially total loss or taking of the related Mortgaged Property to the extent not applied to restoration, will be applied first to the payment of the outstanding principal balance of the Mortgage Loan, together with any accrued interest; and |
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l. |
Provided that the lender cures any defaults which are susceptible to being cured, the ground lessor has agreed to enter into a new lease with lender upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in a bankruptcy proceeding. |
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35. |
Servicing . The servicing and collection practices used by the Seller with respect to the Mortgage Loan have been, in all respects, legal and have met customary industry standards for servicing of commercial loans for conduit loan programs. |
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36. |
Origination and Underwriting . The origination practices of the Seller (or the related originator if the Seller was not the originator) with respect to each Mortgage Loan have been, in all material respects, legal and as of the date of its origination, such Mortgage Loan and the origination thereof complied in all material respects with, or was exempt from, all requirements of federal, state or local law relating to the origination of such Mortgage Loan; provided that such representation and warranty does not address or otherwise cover any matters with respect to federal, state or local law otherwise covered in this Exhibit C. |
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37. |
No Material Default; Payment Record . No Mortgage Loan has been more than 30 days delinquent, without giving effect to any grace or cure period, in making required payments since origination, and as of the date hereof, no Mortgage Loan is more than 30 days delinquent (beyond any applicable grace or cure period) in making required payments as of the Closing Date. To the Seller's knowledge, there is (a) no material default, breach, violation or event of acceleration existing under the related Mortgage Loan, or (b) no event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, which default, breach, violation or event of acceleration, in the case of either clause (a) or clause (b), materially and adversely affects the value of the Mortgage Loan or the value, use or operation of the related Mortgaged Property, provided, however, that this representation and warranty does not cover any default, breach, violation or event of acceleration that specifically pertains to or arises out of an exception scheduled to any other representation and warranty made by the Seller in this Exhibit C. No person other than the holder of such Mortgage Loan may declare any event of default under the Mortgage Loan or accelerate any indebtedness under the Mortgage Loan Documents. |
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38. |
Bankruptcy . As of the date of origination of the related Mortgage Loan and to the Seller's knowledge as of the Cut-off Date, no Mortgagor, guarantor or tenant occupying a single-tenant property is a debtor in state or federal bankruptcy, insolvency or similar proceeding. |
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39. |
Organization of Mortgagor . With respect to each Mortgage Loan, in reliance on certified copies of the organizational documents of the Mortgagor delivered by the Mortgagor in connection with the origination of such Mortgage Loan, the Mortgagor is an entity organized under the laws of a state of the United States of America, the District of Columbia or the Commonwealth of Puerto Rico. Except with respect to any Crossed Mortgage Loan, no Mortgage Loan has a Mortgagor that is an Affiliate of another Mortgagor. (An “Affiliate” for purposes of this paragraph (39) means, a Mortgagor that is under direct or indirect common ownership and control with another Mortgagor.) |
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40. |
Environmental Conditions . A Phase I environmental site assessment (or update of a previous Phase I and or Phase II site assessment) and, with respect to certain Mortgage Loans, a Phase II environmental site assessment (collectively, an “ESA”) meeting ASTM requirements conducted by a reputable environmental consultant in connection with such Mortgage Loan within 12 months prior to its origination date (or an update of a previous ESA was prepared), and such ESA either (i) did not identify the existence of recognized environmental conditions (as such term is defined in ASTM E1527-05 or its successor, hereinafter “Environmental Condition”) at the related Mortgaged Property or the need for further investigation with respect to any Environmental Condition that was identified, or (ii) if the existence of an Environmental Condition or need for further investigation was indicated in any such ESA, then at least one of the following statements is true: (A) an amount reasonably estimated by a reputable environmental consultant to be sufficient to cover the estimated cost to cure any material noncompliance with applicable environmental laws or the Environmental Condition has been escrowed by the related Mortgagor and is held or controlled by the related lender; (B) if the only Environmental Condition relates to the presence of asbestos-containing materials, radon in indoor air, lead based paint or lead in drinking water, and the only recommended action in the ESA is the institution of such a plan, an operations or maintenance plan has been required to be instituted by the related Mortgagor that can reasonably be expected to mitigate |
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the identified risk; (C) the Environmental Condition identified in the related environmental report was remediated or abated in all material respects prior to the date hereof, and, if and as appropriate, a no further action or closure letter was obtained from the applicable governmental regulatory authority (or the Environmental Condition affecting the related Mortgaged Property was otherwise listed by such governmental authority as “closed” or a reputable environmental consultant has concluded that no further action is required); (D) a secured creditor environmental policy or a pollution legal liability insurance policy that covers liability for the Environmental Condition was obtained from an insurer rated no less than A-(or the equivalent) by Moody's, S&P and/or Fitch; (E) a party not related to the Mortgagor was identified as the responsible party for such Environmental Condition and such responsible party has financial resources reasonably estimated to be adequate to address the situation; or (F) a party related to the Mortgagor having financial resources reasonably estimated to be adequate to address the situation is required to take action. To Seller's knowledge, except as set forth in the ESA, there is no Environmental Condition (as such term is defined in ASTM E1527-05 or its successor) at the related Mortgaged Property. |
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41. |
Appraisal . The Servicing File contains an appraisal of the related Mortgaged Property with an appraisal date within 6 months of the Mortgage Loan origination date, and within 12 months of the Closing Date. The appraisal is signed by an appraiser who is either a Member of the Appraisal Institute (“MAI”) and/or has been licensed and certified to prepare appraisals in the state where the Mortgaged Property is located. Each appraiser has represented in such appraisal or in a supplemental letter that the appraisal satisfies the requirements of the “Uniform Standards of Professional Appraisal Practice” as adopted by the Appraisal Standards Board of the Appraisal Foundation and has certified that such appraiser had no interest, direct or indirect, in the Mortgaged Property or the Mortgagor or in any loan made on the security thereof, and its compensation is not affected by the approval or disapproval of the Mortgage Loan. |
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42. |
Mortgage Loan Information . The Mortgage Loan Information pertaining to each Mortgage Loan which is set forth on Schedule 1 to the applicable Purchase Price and Terms Agreement is true and correct in all material respects as of the Cut-off Date and contains all information required by the Agreement to be contained therein. |
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43. |
Cross-Collateralization . No Mortgage Loan is cross-collateralized or cross-defaulted with any other mortgage loan, except as set forth on Schedule 3 to the applicable Purchase Price and Terms Agreement. |
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44. |
Advance of Funds by the Seller . After origination, no advance of funds has been made by Seller to the related Mortgagor other than in accordance with the Mortgage Loan Documents, and, to Seller's knowledge, no funds have been received from any person other than the related Mortgagor or an affiliate for, or on account of, payments due on the Mortgage Loan (other than as contemplated by the Mortgage Loan Documents, such as, by way of example and not in limitation of the foregoing, amounts paid by the tenant(s) into a lender-controlled lockbox if required or contemplated under the related lease or Mortgage Loan Documents). Neither Seller nor any affiliate thereof has any obligation to make any capital contribution to any Mortgagor under a Mortgage Loan, other than contributions made on or prior to the date hereof. |
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45. |
Compliance with Anti-Money Laundering Laws . Seller has complied in all material respects with all applicable anti-money laundering laws and regulations, including without limitation the USA Patriot Act of 2001 with respect to the origination of the Mortgage Loan, the failure to comply with which would have a material adverse effect on the Mortgage Loan. |
EXHIBIT C-2
REPRESENTATIONS AND WARRANTIES (FREDDIE MAC SBL LOANS)
For purposes of these representations and warranties, the phrase “to the knowledge of Seller” or “to Seller’s knowledge” will mean, except where otherwise expressly set forth below, the actual state of knowledge of Seller or any servicer acting on its behalf regarding the matters referred to, after Seller’s having conducted such inquiry and due diligence into such matters as would be customarily required by Freddie Mac’s underwriting standards represented in the Guide as modified by the SBL Addendum. Capitalized terms not otherwise defined in this Exhibit C-2 will have the meaning set forth in the Guide.
Seller represents and warrants, subject to the exceptions set forth in Schedule 1 to the Commitment, with respect to each Loan, that as of the Freddie Mac Funding Date, unless Freddie Mac specifies a different date, the following representations and warranties are true and correct in all material respects:
(1) Crossed Loan . Except with respect to any subordinate mortgage identified in Paragraph 2 , the Loan is not cross-collateralized or cross-defaulted with any other mortgage loan (“Crossed Loan”) not being transferred to Freddie Mac.
(2) Subordinate Loan . There are no subordinate loans encumbering the Property and Seller has no knowledge of any mezzanine debt related to the Property.
(3) Licenses, Permits and Authorization .
(a) As of the Origination Date, to Seller’s knowledge, based on Borrower’s representations and warranties in the Loan Documents, Borrower, commercial lessee and/or operator of the Property were in possession of all material licenses, permits, and authorizations required for use of the Property as it was then operated.
(b) Seller has not modified the provisions of the Loan Documents in which Borrower covenants that it will remain in material compliance with all material licenses, permits and other legal requirements necessary and required to conduct its business.
(4) Condition of Property . To Seller’s knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable loans, one of the following is applicable:
(a) the Property is free of any material damage that would materially and adversely affect the use or value of the Property as security for the Loan (other than normal wear and tear), or
(b) to the extent a prudent multifamily mortgage lender would so require, Seller has required a reserve, letter of credit, guaranty, insurance coverage or other mitigant with respect to the condition of the Property.
(5) Ground Leases . The Loan is not secured in whole or in part by Borrower’s interest as lessee under a ground lease of the Property without also being secured by the fee interest in the Property.
(6) Valid Lien .
(a) (i) Seller has not modified the Loan Documents in any manner that would negate or impair the validity or enforceability of the Mortgage or the creation of a valid and enforceable lien on the Property, subject to Permitted Encumbrances (defined below) and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (ii) Seller has no actual knowledge of any provision in the Loan Documents that would negate or impair the validity or enforceability of the Mortgage or the creation of a valid and enforceable lien on the Property, subject to Permitted Encumbrances and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) If the Loan is a Crossed Loan, the Mortgage encumbering the Property also secures one or more other Crossed Loans.
(c) Based on the Title Policy (defined below), the Property is free and clear of any mechanics’ and materialmen’s liens which are prior to or equal with the lien of the Mortgage, except those which are bonded over or for which an escrow has been established.
(d) A UCC financing statement has been filed and/or recorded (or sent for filing or recording) (or, in the case of fixtures, the Mortgage constitutes a fixture filing) in all places (if any) necessary at the time of origination of the Loan to perfect a valid security interest in the personal property owned by Borrower and reasonably necessary to operate the Property in its current use other than for any of the following:
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(i ) |
non-material personal property, |
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(ii) |
personal property subject to purchase money security interests, and |
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(iii ) |
personal property that is leased equipment, to the extent a security interest may be created by filing or recording. |
Notwithstanding the foregoing, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC financing statements are required in order to effect such perfection.
(e) Any security agreement or equivalent document related to and delivered in connection with the Loan establishes and creates a valid and enforceable lien on the physical personal property of Borrower reasonably necessary to the operation of the Property (other than on healthcare licenses or on payments to be made under Medicare, Medicaid or similar federal, state or local third party payor programs that are not assignable without governmental approval), subject to Permitted Encumbrances and except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(7) Title Insurance .
(a) The Property is covered by an ALTA lender’s title insurance policy (or its equivalent as set forth in the applicable jurisdiction) that evidences such title insurance policy (“Title Policy”), in the original principal amount of the Loan (or, in the case of a Crossed Loan, the allocated loan amount of the portions of the Property that are covered by the Title Policy).
(b) The Title Policy insures that the Mortgage is a valid first priority lien on the Property, subject only to Permitted Encumbrances.
(c) The Title Policy is in full force and effect and all premiums have been paid.
(d) No material claims have been made or paid under the Title Policy.
(e) Seller has not done, by act or omission, anything that would materially impair or diminish the coverage under the Title Policy, and has no knowledge of any such action or omission.
(f) Immediately following the transfer and assignment of the Loan to Freddie Mac, the Title Policy will inure to the benefit of Freddie Mac without the consent of or notice to the insurer of the Title Policy.
(g) Seller and its successors and assigns are the sole named insureds under the Title Policy.
(h) To Seller’s knowledge, the insurer of the Title Policy is qualified to do business in the jurisdiction in which the Property is located.
“Permitted Encumbrances” means:
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(i) |
the lien of current real property taxes, ground rents, water charges, sewer rents and assessments not yet delinquent, |
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(ii) |
covenants, conditions and restrictions, rights of way, easements and other matters of public record specifically identified in the Title Policy, none of which, individually or in the aggregate, materially interferes with any of the following: |
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(A) |
the current use of the Property, |
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(B) |
the security in the collateral intended to be provided by the lien of the Mortgage, |
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(C) |
Borrower’s ability to pay its obligations when they become due, or |
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(D) |
the value of the Property, |
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(iii) |
exceptions (general and specific) and exclusions set forth in the Title Policy, none of which, individually or in the aggregate, materially interferes with any of the following: |
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(A) |
the current use of the Property, |
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(B) |
the security in the collateral intended to be provided by the lien of the Mortgage, |
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(C) |
Borrower’s ability to pay its obligations when they become due, or |
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(D) |
the value of the Property, |
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(iv) |
the rights of tenants, as tenants only, under leases, including subleases, pertaining to the Property, |
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(v) |
other matters to which similar properties are commonly subject, none of which, individually or in the aggregate, materially interferes with any of the following: |
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(A ) |
the current use of the Property, |
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(B ) |
the security in the collateral intended to be provided by the lien of the Mortgage, |
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(C ) |
Borrower’s ability to pay its obligations when they become due, or |
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(D ) |
the value of the Property. |
(8) Zoning . Based upon the “Zoning Due Diligence” (defined below) one of the following is applicable to the Property:
(a) the improvements located on or forming part of the Property materially comply with applicable zoning laws and ordinances, or
(b) the improvements located on or forming part of the Property constitute a legal non-conforming use or structure; and one of the following is true:
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(i) |
the non-compliance does not materially and adversely affect the value of the Property, or |
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(ii) |
ordinance and law coverage is provided in amounts required by the Guide. |
The foregoing may be based upon one or more of the following (“Zoning Due Diligence”):
(a) a statement of full restoration by a zoning authority,
(b) copies of legislation or variance permitting full restoration of the Property,
(c) zoning information and/or a damage restoration statement in the appraisal for the Property,
(d) an opinion of counsel,
(e) other due diligence considered reasonable by prudent multifamily lenders in the lending area where the Property is located,
(f) ordinance and law coverage as required by the Guide.
(9) Environmental Conditions .
(a) As of the Origination Date, Borrower represented and warranted in all material respects that to its knowledge Borrower has not used, caused or permitted to exist (and will not use, cause or permit to exist) on the Property any “Hazardous Materials ”
(defined below) in any manner which violates federal, state or local laws, ordinances, regulations, orders, directives or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of hazardous materials or other environmental laws. The foregoing Borrower representation and warranty is subject to each of the following:
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(i) |
exceptions set forth in certain “Physical Risk Report(s)” (defined below), |
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(ii) |
Hazardous Materials that are commonly used in the operation and maintenance of properties of similar kind and nature to the Property, |
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(iii) |
Hazardous Materials that are commonly used in accordance with prudent management practices and applicable law, and |
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(iv) |
Hazardous Materials that are commonly used in a manner that does not result in any contamination of the Property that is not permitted by law. |
(b) Seller has not modified the provisions of the Loan Documents which require Borrower to comply, and to cause the Property to be in compliance, with all “Hazardous Materials Laws” (defined below) applicable to the Property.
(c) Seller has not modified the provisions of the Loan Documents which require Borrower (or an affiliate of Borrower) to indemnify, defend and hold lender and its successors and assigns harmless from and against losses, liabilities, damages, injuries, penalties, fines, expenses, and claims of any kind whatsoever (including attorneys’ fees and costs) paid, incurred or suffered by, or asserted against, any such party resulting from a breach of the foregoing representations or warranties given by Borrower in connection with the Loan.
(d) To the best of Seller’s knowledge, in reliance on the Physical Risk Reports prepared in connection with the origination of the Loan and except as set forth in such Physical Risk Reports, the Property is in material compliance with all applicable Hazardous Materials Laws, and to the best of Seller’s knowledge, no notice of violation of such laws has been issued by any governmental agency or authority, except, in all cases, as indicated in such Physical Risk Reports.
(e) Seller has not taken any action which would cause the Property not to be in compliance with all Hazardous Materials Laws.
“Hazardous Materials” means
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(i) |
petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives; flammable materials; radioactive materials; polychlorinated biphenyls (“ PCBs ”) and compounds containing them, |
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(ii) |
lead and lead-based paint, |
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(iii) |
asbestos or asbestos-containing materials in any form that is or could become friable, |
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(iv) |
underground or above-ground storage tanks that are not subject to a “no further action” letter from the regulatory authority in the related property jurisdiction, whether empty or containing any substance, |
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(v) |
any substance the presence of which on the Property is prohibited by any federal, state or local authority, |
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(vi) |
any substance that requires special handling and any other “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” by or within the meaning of any Hazardous Materials Law, or |
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(vii) |
any substance that is regulated in any way by or within the meaning of any Hazardous Materials Law. |
“Hazardous Materials Law” means:
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(i) |
any federal, state, and local law, ordinance and regulation and standard, rule, policy and other governmental requirement, administrative ruling and court judgment and decree in effect now or in the future and including all amendments, that relate to Hazardous Materials or the protection of human health or the environment and apply to Borrower or to the Property, and |
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(ii) |
Hazardous Materials Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, et. seq., and their state analogs. |
“Physical Risk Report” means a report by a physical risk consultant which includes information (i) regarding any environmental sampling results, (ii) from environmental data base searches, (iii) regarding Hazardous Materials evidenced by a physical inspection, and (iv) on any recognized environmental conditions noted on the Physical Risk Report – Form 1104 or similar form of report used in connection with the origination of the Loan, if available for the Property.
(10) Grace Period . Seller has not modified the Loan Documents to provide for a grace period with respect to delinquent monthly payments due under the Note or if Seller has modified the Loan Documents to provide for a grace period, such grace period is no longer than 10 days from the applicable payment date.
(11) Due on Encumbrance . Seller has not modified the provisions of the Loan Documents which prohibit Borrower from doing either of the following:
(a) mortgaging or otherwise encumbering the Property without the prior written consent of lender or the satisfaction of debt service coverage and other criteria specified in the Loan Documents, or
(b) carrying any additional indebtedness, except as set forth in the Loan Documents or in connection with trade debt and equipment financings incurred in the ordinary course of Borrower’s business.
(12) Carveouts to Non-Recourse .
(a) Seller has not modified the provisions of the Loan Documents which provide that:
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(i) |
Borrower will be liable to lender for any losses incurred by lender due to any of the following: |
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(A) |
the misapplication or misappropriation of rents (after a demand is made after an event of default), insurance proceeds or condemnation awards, |
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(B) |
any breach of the environmental covenants contained in the Loan Documents, or |
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(C) |
fraud by Borrower in connection with the application for or creation of the Loan or in connection with any request for any action or consent by lender. |
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(ii) |
The Loan will become full recourse in the event of a voluntary bankruptcy filing by Borrower. |
(13) Financial Statements . Seller has not modified the provisions of the Loan Documents which require that Borrower provide the owner or holder of the Loan with annual operating statements, rent rolls and related information and annual financial statements.
(14) Due on Sale .
(a) Seller has not modified the provisions of the Loan Documents which provide for the acceleration of the payment of the unpaid principal balance of the Loan if, without the consent of the holder of the Loan and/or in compliance with the requirements of the Loan Documents, the Property or a controlling interest in Borrower is directly or indirectly transferred or sold, except with respect to any of the following transfers:
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(i) |
transfers of certain interests in Borrower to any person or entity already holding direct or indirect interests in Borrower, their family members, affiliated companies and other estate planning related transfers that satisfy certain criteria specified in the Loan Documents, |
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(ii) |
transfers of less than a controlling interest in Borrower, |
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(iii) |
transfers of common stock in publicly traded companies, or |
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(iv) |
if the Property is a residential cooperative property, transfers of stock of Borrower in connection with the assignment of a proprietary lease for a unit in the Property by a tenant-shareholder of Borrower to another person or entity which by virtue of such transfer becomes a tenant-shareholder in Borrower. |
(b) Seller has not modified any provision of the Loan Documents which requires Borrower to pay all fees and expenses associated with securing the consent or approval of the holder of the Mortgage for all actions requiring such consent or approval under the Mortgage including the cost of counsel opinions relating to a real estate mortgage investment conduit (“REMIC”) or other securitization and tax issues.
(15) Assignment of Leases .
(a) Seller has not modified the provisions of the Mortgage which contain an Assignment of Leases that is part of the Mortgage.
(b) Based upon the Title Policy, the Assignment of Leases creates a valid present assignment of, or a valid first priority lien or security interest in, certain rights under the related lease or leases, subject only to a license granted to Borrower to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the leased Property, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
(c) Based upon the Title Policy, no person or entity other than Borrower owns any interest in any payments due under any lease that is superior to or of equal priority with lender’s interest.
(d) Seller has not modified the provisions of the Mortgage which provide for the appointment of a receiver for rents or allows the holder of the Mortgage to enter into possession to collect rents or provides for rents to be paid directly to the lender in the event of a default under the Loan or Mortgage.
(16) Insurance Proceeds and Condemnation Awards .
(a) Seller has not modified the provisions of the Loan Documents which provide that insurance proceeds and condemnation awards will be applied to one of the following:
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(i) |
restoration or repair of the Property, |
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(ii) |
restoration or repair of the Property, with any excess insurance proceeds or condemnation awards after restoration or repair being paid to Borrower, or |
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(iii) |
reduction of the principal amount of the Loan. |
(b) To Seller’s knowledge, there is no proceeding pending for the total or partial condemnation of the Property that would have a material adverse effect on the use or value of the Property.
(17) Customary Provisions .
(a) The Note or Mortgage for the Loan, together with applicable state law, contains customary and enforceable provisions so as to render the rights and remedies of the holder of the Note or Mortgage adequate for the practical realization against the Property of the principal benefits of the security in the collateral intended to be provided by the Note or the lien of the Mortgage, including realization by judicial or, if applicable, non-judicial foreclosure, except as the enforcement of the Mortgage may be limited by bankruptcy, insolvency, reorganization, moratorium, redemption or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) Borrower is not a debtor in, and the Property is not the subject of, any currently pending state or federal bankruptcy or insolvency proceeding, and, as of the Origination Date, no guarantor was a debtor in any state or federal bankruptcy or insolvency proceeding.
(18) Litigation . Based solely on the “Litigation Due Diligence”, to the knowledge of Seller, as of the Origination Date and taking into consideration any applicable reserve, letter of credit, guaranty, insurance coverage or other mitigant required in connection with the
underwriting of the Loan, there are no actions, suits or proceedings before any court, administrative agency or arbitrator concerning the Loan, Borrower or Property, an adverse outcome of which would reasonably be expected to materially and adversely affect any of the following:
(a) title to the Property or the validity or enforceability of the Mortgage,
(b) the value of the Property as security for the Loan,
(c) the use for which the Property was intended,
(d) Borrower’s ability to perform under the Loan.
The foregoing is based on one or both of the following (“Litigation Due Diligence”):
(x) information regarding litigation contained in the Borrower and Borrower Principal Certificate (Form 1115) delivered with respect to Borrower as part of the submission of the full underwriting package, or
(y) judgment lien search delivered as a part of the title insurance search.
(19) Escrow Deposits .
(a) Except as previously disbursed pursuant to the Loan Documents, all escrow deposits and payments relating to the Loan that are required to be deposited or paid, have been deposited or paid.
(b) All such escrow deposits that have not been disbursed pursuant to the Loan Documents are being conveyed by Seller to Freddie Mac and identified with appropriate detail.
(c) All escrow deposits and payments required pursuant to the Loan are in the possession, or under the control, of Seller or its servicer.
(20) Valid Assignment .
(a) Each assignment of the Mortgage from Seller to Freddie Mac is in recordable form and constitutes the legal, valid and binding assignment from Seller to Freddie Mac, except as enforcement may be limited by bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium or other laws relating to or affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
(b) Each Mortgage is freely assignable without the consent of Borrower.
(21) Qualification To Do Business . To the extent required under applicable law, Seller is and has at all required times been authorized to transact and do business in the jurisdiction in which the Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of the Loan.
(22) Ownership .
(a) Immediately prior to the transfer of the Loan to Freddie Mac, Seller had good title to, and was the sole owner of, the Loan.
(b) Seller has full right, power and authority to transfer and assign the Loan to Freddie Mac and has validly and effectively conveyed (or caused to be conveyed) to Freddie Mac all of Seller’s legal and beneficial interest in and to the Loan free and clear of any and all liens, pledges, charges, security interests and/or other encumbrances of any kind.
(23) Deed of Trust . If the Mortgage is a deed of trust, each of the following is true:
(a) A trustee, duly qualified under applicable law to serve as trustee, currently serves as trustee and is named in the deed of trust (or has been or may be substituted in accordance with applicable law by lender).
(b) Seller has not modified the deed of trust to provide for the payment of fees or expenses to the trustee by Seller, Freddie Mac or any transferee of Seller or Freddie Mac.
(24) Validity of Loan Documents, No Offset .
(a) Seller has not modified the Loan Documents in any manner that would cause the Note, Mortgage and other agreements that evidence or secure the Loan and were executed by or for the benefit of Borrower or any guarantor to not be enforceable in accordance with their terms, and Seller has no actual knowledge of any such unenforceability, in either case except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
(b) To Seller’s knowledge, there is no valid offset, defense, counterclaim, or right of rescission, abatement or diminution available to Borrower or any guarantor with respect to the Note, Mortgage or other agreement, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights or by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
(c) To Seller’s knowledge, no offset, defense, counterclaim or right of rescission, abatement or diminution has been asserted by Borrower or any guarantor.
(25) Compliance with Usury Laws . As of the Origination Date, the interest rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of the Loan was in compliance with, or was exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury.
(26) No Shared Appreciation . The Loan has no shared appreciation rights (it being understood that equity holdings, including without limitation, preferred equity holdings, will not be considered shared appreciation rights with respect to the Loan), any other contingent interest feature or a negative amortization feature.
(27) Whole Loan . The Loan is a whole loan and is not a participation interest in the Loan.
(28) Reserved .
(29) Full Disbursement . The proceeds of the Loan have been fully disbursed and there is no requirement for future advances.
(30) No Advances . No advance of funds has been made by Seller to Borrower (other than mezzanine debt and the acquisition of preferred equity interests by the preferred equity interest holder, as disclosed to Freddie Mac), and no advance of funds have, to Seller’s knowledge, been received (directly or indirectly) from any person or entity other than Borrower for or on account of payments due on the Loan.
(31) All Collateral Transferred . All collateral that secures the Loan is being transferred to Freddie Mac as part of the Loan (other than healthcare licenses, Medicare, Medicaid or similar federal, state or local third party payor programs, including housing assistance payments contracts, that are not transferable without governmental approval).
(32) Loan Status; Waivers and Modifications . All of the following are true and correct:
(a) the material terms of the Mortgage, Note and Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect,
(b) neither the Property nor any portion of the Property has been released from the lien of the Mortgage in any manner which materially interferes with the security intended to be provided by the Mortgage or the use, value or operation of the Property, and
(c) neither Borrower nor any guarantor has been released from its obligations under the Loan.
(33) Defaults .
(a) There exists no monetary default (other than payments due but not yet more than 30 days past due) or, to Seller’s knowledge, material non-monetary default, breach, violation or event of acceleration under the Loan.
(b) To Seller’s knowledge, there exists no event that, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration under the Loan; provided , however ,
that the representations and warranties set forth in this Paragraph 33(b) do not address or otherwise cover any default, breach, violation or event of acceleration that specifically pertains to any matter otherwise covered by any other representation or warranty made by Seller; and, provided , further , that a breach by Borrower of any representation or warranty contained in any Loan Document (each, a “ Borrower Representation ”) will not constitute a material non - monetary default, breach, violation or event of acceleration for purposes of this Paragraph 33(b) if the subject matter of such Borrower Representation is covered by any exception to any representation or warranty made by Seller in Exhibit F attached to the Commitment or Early Rate Lock Application.
(c) Since the Origination Date, except as set forth in the Final Delivery Package, Seller has not waived any material default, breach, violation or event of acceleration under any of the Loan Documents.
(d) Pursuant to the terms of the Loan Documents, no person or party other than the holder of the Note and Mortgage may declare an event of default or accelerate the indebtedness under the Loan Documents.
(34) Payments Current . No scheduled payment of principal and interest under any Loan was more than 30 days past due as of the date of this Certificate, and no Loan was more than 30 days delinquent in the twelve-month period immediately preceding the date of this Certificate.
(35) Qualified Loan . The Loan constitutes a “qualified mortgage” within the meaning of Section 860G(a)(3) of the Code (but without regard to the rule in Treasury Regulation Section 1.860G-2(f)(2) that treats a defective obligation as a “qualified mortgage” or any substantially similar successor provision). Any prepayment premiums and yield maintenance charges payable upon a voluntary prepayment under the terms of the Loan constitute “customary prepayment penalties” within the meaning of Treasury Regulation Section 1.860G-1(b)(2).
(36) Prepayment upon Condemnation . Seller has not modified the provisions of the Loan Documents which require that in the event of a taking of any portion of a Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, if, immediately after the release of such portion of the Property from the lien of the Mortgage (but taking into account any planned restoration), the ratio of (A) the unpaid principal balance of the Loan to (B) the fair market value of the Property constituting the remaining Property is greater than 125%, Borrower can be required to apply the award with respect to such taking to prepay the Loan in the amount required to prevent the SBL Securitization from failing to meet applicable federal income tax qualification requirements or subject the SBL Securitization to any tax (“REMIC Provisions”) and such amount may not, to such extent, be used to restore the Property or be released to Borrower.
(37) Releases of Property .
(a) The Loan does not require the lender to release all or any portion of the Property from the lien of the Mortgage, except as in compliance with the REMIC Provisions and one of the following:
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(i) |
upon payment in full of all amounts due under the Loan, |
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(ii) |
in connection with a full or partial defeasance pursuant to provisions in the Loan Documents, |
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(iii) |
unless such portion of the Property was not considered material for purposes of underwriting the Loan, was not included in the appraisal for the Property or does not generate income, |
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(iv) |
upon the payment of a release price at least equal to the allocated loan amount or, if none, the appraised value of the released parcel and any related prepayment, or |
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(v) |
with respect to any Crossed Loans or if the Loan is secured by multiple Properties, in connection with the release of any cross-collateralization pursuant to provisions in the Loan Documents. |
(b) With respect to clauses (iii), (iv) and (v) above, the Loan Documents provide that if the fair market value of the real property constituting the remaining Property immediately after the release of such portion of the Property from the lien of the Mortgage is not equal to at least 80% of the remaining principal amount of the Loan, Borrower can be required to prepay the Loan in the amount equal to or greater than the amount required by the REMIC Provisions.
(38) Origination and Servicing . The origination, servicing and collection practices used by Seller or, to Seller’s knowledge, any prior holder or servicer of the Loan have been in compliance with all applicable laws and regulations, and substantially in accordance with
the practices of prudent multifamily mortgage lenders with respect to similar mortgage loans and in compliance with the Guide in all material respects.
(39) Freddie Mac Eligible . The Loan was underwritten in accordance with the Guide, is eligible for SBL Securitization, and the representations, warranties, covenants and other obligations under Freddie Mac’s guidelines, including the Guide, are incorporated herein by reference in their entirety, except where Freddie Mac has expressly waived such requirements in writing respecting such Loan in the Commitment. Each Exception to the Representations and Warranties for each Loan is marked “X” in Schedule 1 to the Commitment and Seller has included a true and accurate description of each applicable Exception in the Commitment, along with any mitigants identified for that Exception. Seller represents and warrants that, if it identified additional Exception(s) for the Loan after the date of the Commitment, Seller documented those Exception(s) in an amendment to the Commitment that fully restated Schedule 1 of the Commitment and added the new Exception(s).
(40) Compliance with the Guide . Each Loan complies with the Guide in all material respects.
Exhibit 10.129
PENNYMAC CORP., as an Owner,
PENNYMAC HOLDINGS, LLC, as an Owner, and
PENNYMAC LOAN SERVICES, LLC
as Oversight Servicer,
______________________________________________
COMMERCIAL MORTGAGE SERVICING OVERSIGHT AGREEMENT
Dated as of June 1, 2016
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This Amended and Restated Commercial Mortgage Servicing Oversight Agreement (“Agreement”), is dated and effective as of June 1 , 2016 , among PENNYMAC CORP., as Owner, PENNYMAC HOLDINGS , LLC, as Owner, and PENNYMAC LOAN SERVICES, LLC, as PLS or Oversight Servicer.
PRELIMINARY STATEMENT
WHEREAS, the Owner and the Seller previously entered into a Commercial Mortgage Servicing Oversight Agreement, dated as of December 15, 2015 (the “ Existing Oversight Agreement ”);
WHEREAS, the parties hereto have requested that the Existing Oversight Agreement be amended and restated, in its entirety, on the terms and subject to the conditions set forth herein;
WHEREAS, Owner has entered a Servicing Agreement dated July 13, 2015 with Midland Loan Services, a Division of PNC Bank, National Association “(Midland”) and PLS, under which Owner engaged Midland to act as the Master Servicer of Mortgage Loans that the Owner acquires from time to time and as the Special Servicer with respect to certain Mortgage Loans, and engaged PLS to act as Special Servicer for certain other Mortgage Loans;
WHEREAS, Owner has requested that PLS oversee the servicing activities of Midland on behalf of Owner; and,
WHEREAS, the parties desire to provide the terms and conditions of PLS’ oversight of the servicing performed by Midland.
NOW, THEREFORE, in consideration of the mutual promises and agreements set forth and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms . Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
“ Accepted Servicing Practices ”: Servicing Mortgage Loans (a) in accordance with (i) applicable federal, state, and local laws, regulations, and ordinances, and investor requirements including, with respect to Freddie Mac SBL Loans, the Guide, (ii) the terms and provisions of the Mortgage Loan Documents, (iii) the express terms hereof, and (iv) the customary and usual standards of practice of prudent institutional commercial mortgage loan servicers, and (b) to the extent consistent with the foregoing requirements, in the same manner in which the Master Servicer or the applicable Special Servicer services commercial mortgage loans for itself, its Affiliates, or other third party portfolios of mortgage loans similar to the Mortgage Loans.
“ Action ”: Any litigation, claim, action, suit, arbitration, inquiry, proceeding, investigation, or similar proceeding by or before any Governmental Authority or arbitrator.
“ Additional Collateral ”: Any non-real property collateral (including any letters of credit or reserve funds) pledged and/or delivered by or on behalf of the Borrower and held by the mortgagee to secure payment on any Mortgage Loan.
“ Affiliate ”: With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person; provided, however, that in respect of Owner, the term “Affiliate” shall include only PennyMac Mortgage Investment Trust and its wholly owned subsidiaries and, in respect of Oversight Servicer, the term “Affiliate” shall include only Private National Mortgage Acceptance Company, LLC and its wholly owned subsidiaries. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“ Agreement ”: This Commercial Mortgage Servicing Oversight Agreement , as the same may be modified, supplemented or amended from time to time.
“ Borrower ”: The obligor on a Note.
“ Business Day ”: Any day other than a Saturday, a Sunday or a day on which banking institutions in the States of California or New York are authorized or obligated by law or executive order to be closed.
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“ Change of Control ” means the acquisition (in one or more transactions) by any Person, or two or more Persons acting in concert, of (i) beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of voting stock or other ownership interests of an entity at any time if after giving effect to such acquisition(s) such Person or Persons own(s) fifty percent (50%) or more of such outstanding voting stock or other ownership interests on a fully diluted basis or (ii) the power or right to control or otherwise limit or modify, directly or indirectly, the management and operations of such Person.
“ Custodian ”: Deutsche Bank Trust Company Americas, in its capacity as Custodian under the Amended and Restated Custodial Agreement dated May 12, 2015, as amended from time to time, or any successor custodian duly appointed by Owner.
“ Event of Default ” has the meaning set forth in Section 8.01 of this Agreement.
“ Freddie Mac ”: The Federal Home Loan Mortgage Corporation or any successor thereto.
“Freddie Mac SBL Loan” means a small balance Mortgage Loan providing financing for the acquisition or refinance of conventional multifamily housing with five residential units or more and eligible for delivery to Freddie Mac under the terms of the Freddie Mac Guide.
“Guide” means any and all rules, regulations, requirements and guidelines of Freddie Mac applicable to Freddie Mac SBL Loans, as the same may be amended from time to time, including without limitation the Freddie Mac Multifamily Seller/Servicer Guide.
“ Governmental Authority ” means any federal, state, municipal, national, or local or other governmental department, court, commission, board, bureau, agency, intermediary, carrier or instrumentality, or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory, or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory, or possession thereof, a foreign sovereign entity, or country or jurisdiction or the District of Columbia.
“ Loan Servicing ”: Those services pertaining to the Mortgage Loans which Master Servicer or Special Servicer must perform, applying Accepted Servicing Practices, under the terms of the Midland Servicing Agreement.
“ Losses ” mean any and all losses, damages, liabilities, fines, claims, demands, deficiencies, judgments, assessments, settlements, penalties, injuries, actions, suits, costs, and expenses of any nature whatsoever including, without limitation, reasonable attorneys’ fees and court costs.
“ Master Servicer ”: Midland, or any successor servicer as provided in the Midland Servicing Agreement.
“ Midland ”: Midland Loan Services, a Division of PNC Bank, National Association, or any successor Servicer as herein provided.
“ Midland Servicing Agreement ”: The Servicing Agreement dated July 13, 2015 among Owner, Midland and PLS.
“ Monthly Payment ”: With respect to any Mortgage Loan, the scheduled monthly payment of interest or the scheduled monthly payment of principal and interest, as the case may be, on such Mortgage Loan which is payable by a Borrower on the due date under the related Note.
“ Mortgage ”: With respect to each Mortgage Loan, the mortgage, deed of trust or other instrument securing the related Note, which creates a lien on the real property securing such Note.
“ Mortgage Loan ”: Each of the MSS Mortgage Loans and PMSS Mortgage Loans identified on any Mortgage Loan Schedule under the Midland Servicing Agreement.
“ Mortgage Loan Documents ”: With respect to each Mortgage Loan, the related Note, the related Mortgage and any and all other documents executed and delivered in connection with the origination or subsequent modification of such Mortgage Loan.
“ Mortgage Loan Schedule ”: A schedule of certain mortgage loans owned and held by the Owner which sets forth information with respect to such mortgage loans, as amended from time to time by the parties pursuant to Section 4.01(a) of the Midland Servicing Agreement.
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“ Mortgaged Property ”: The real property and improvements thereon securing repayment of the debt evidenced by the related Note. Such term shall also include any REO Property.
“ MSS Mortgage Loans ”: The Mortgage Loans identified as such on any Mortgage Loan Schedule under the Midland Servicing Agreement as being special serviced by Midland.
“ Note ”: With respect to any Mortgage Loan, the promissory note or other evidence of indebtedness or agreements evidencing the indebtedness of a Borrower under such Mortgage Loan.
“ Oversight Servicing ”: Those services to be performed by the Oversight Servicer pertaining to the Mortgage Loans in overseeing the performance of Midland in its capacity as Master Servicer and Special Servicer under the Midland Servicing Agreement, applying Accepted Servicing Practices, as more specifically set forth in Section 3.01.
“ Owner ”: PennyMac Corp. and PennyMac Holdings, LLC, each with respect to any Mortgage Loans which it owns or holds a beneficial interest in.
“ Person ”: Any individual, corporation, limited liability company, partnership, joint venture, estate, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“ PMSS Mortgage Loans ”: The Mortgage Loans identified as being special serviced by PLS on any Mortgage Loan Schedule under the Midland Servicing Agreement.
“ Private Securitization Transaction ”: Any transaction involving either (1) a sale of some or all of the Mortgage Loans directly or indirectly to an entity that issues privately offered, rated mortgage-backed securities or (2) an issuance of privately offered, rated securities, the payments of which are determined primarily by reference to one or more portfolios of mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans, in each case, in a transaction exempt from registration under federal, state and local securities laws.
“ Public Securitization Transaction ”: Any transaction subject to Regulation AB involving either (1) a sale or other transfer of some or all of the Mortgage Loans directly or indirectly to an issuing entity in connection with an issuance of publicly offered, rated mortgage-backed securities or (2) an issuance of publicly offered, rated securities, the payments on which are determined primarily by reference to one or more portfolios of residential mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans. With respect to Freddie Mac SBL Loans, the sale by Freddie Mac of the Freddie Mac SBL Loan to a real estate mortgage investment conduit trust that will issue securities backed by the Freddie Mac SBL Loans under the terms and conditions set forth in the Guide and the REMIC Provisions.
“ Regulatory Event ” means a situation in which (i) either Owner or Oversight Servicer becomes subject to any Regulatory Order or an Action initiated by a Governmental Authority, and (ii) such Regulatory Order or Action prevents or materially impairs such party’s ability to discharge its material obligations hereunder in any material respect, or the continuance of the arrangements contemplated by this Agreement by such party.
“ Regulatory Order ” means any injunction, order, judgment, decree, memorandum of understanding, consent decree, directive, or regulatory restriction, or any change in or interpretation of any law, rule or regulation, issued or imposed by a Governmental Authority and such event is not removed or stayed within thirty (30) days, or such shorter period as necessitated by such Governmental Authority, after reasonable efforts to so remove or stay such event are instituted by the party or parties made subject to thereto.
“REMIC Provisions”: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Section 860A through 860G of subchapter M of chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to time.
“ Servicing File ”: With respect to each Mortgage Loan, all documents, information and records relating to the Mortgage Loan and any Additional Collateral that are necessary to enable the Master Servicer or the Special Servicer to perform its duties and service the Mortgage Loan in compliance with the terms of this Agreement, and any additional documents or information related thereto maintained or created by the Master Servicer or the Special Servicer. Documents or information in the Servicing File may be maintained by the Master Servicer or the Special Servicer in any commonly used electronic format in lieu of paper. For the avoidance of doubt, Original Mortgage Loan Documents held by Owner's designated document custodian shall not be considered part of the Servicing File but the copies of such originals shall be considered part of the Servicing File.
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“ Servicing Transfer Date ”: With respect to each Mortgage Loan, the first Business Day of the month following delivery by Owner to the Master Servicer of a Mortgage Loan Schedule and the related Servicing File under the Midland Servicing Agreement or such other date as agreed in writing between the parties.
“ Special Servicer ”: With respect to MSS Mortgage Loans, Midland or any successor special servicer. With respect to PMSS Mortgage Loans, PLS or any successor special servicer.
“ Whole Loan Transfer ”: The sale or transfer by Owner of some or all of the Mortgage Loans in a whole loan or participation format other than a Private Securitization Transaction or a Public Securitization Transaction.
Section 1.02. General Interpretive Principles . For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) The terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;
(b) Accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America;
(c) References herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;
(d) A reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;
(e) The words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision;
(f) The term “include” “includes” or “including” shall be deemed to be followed by the phrase “without limitation”; and,
(g) Any and all capitalized terms which are not defined herein and which are defined in the Midland Servicing Agreement shall have the respective meanings set forth in the Midland Servicing Agreement, unless the context otherwise requires.
ARTICLE II
RETENTION AND AUTHORITY OF OVERSIGHT SERVICER
Section 2.01. Engagement . The Owner engages Oversight Servicer to perform, and Oversight Servicer agrees to perform, throughout the term of, and upon and subject to the terms, covenants and provisions of, this Agreement, oversight of the Loan Servicing activities of Midland with respect to each of the Mortgage Loans where Midland is the Master Servicer and/or Special Servicer.
Section 2.02. Servicing Standard . Oversight Servicer shall review Master Servicer’s performance of Loan Servicing activities with respect to the Mortgage Loans in light of Accepted Servicing Practices.
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Section 2.03. Authority of Oversight Servicer .
(a) In performing its Oversight Servicing obligations hereunder, Oversight Servicer shall, except as otherwise provided herein and subject to the terms of this Agreement, have full power and authority, acting alone or through others, to take any and all actions in connection with such Oversight Servicing that it deems necessary or appropriate. Without limiting the generality of the foregoing, Oversight Servicer is hereby authorized and empowered by the Owner when the Oversight Servicer deems it appropriate in its reasonable judgment, to execute and deliver, on behalf of the Owner, (i) any and all documents or instruments necessary to maintain the lien of each Mortgage on the related Mortgaged Property and any other Additional Collateral; (ii) any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments with respect to each of the Mortgage Loans; and (iii) any and all documents or instruments necessary to provide instructions or approval of any action as requested by Master Servicer or Custodian; provided, however, that Oversight Servicer shall notify the Owner in writing in the event that Oversight Servicer intends to execute and deliver any such instrument referred to in clause (ii) above. The Owner agrees to cooperate with Oversight Servicer by executing and delivering to Oversight Servicer (i) a power of attorney evidencing Oversight Servicer’s authority and power under this Section in the form provided in Exhibit B , and (ii) from time to time, such other documents or instruments deemed necessary or appropriate by Oversight Servicer to enable Oversight Servicer to carry out its Oversight Servicing obligations hereunder.
(b) In the performance of its Oversight Servicing obligations hereunder, Oversight Servicer shall take any action that is directed by the Owner which relates to Oversight Servicer’s Oversight Servicing obligations under this Agreement; provided, however, that Oversight Servicer shall not be obligated to take, or to refrain from taking, any action which the Owner requests that Oversight Servicer take or refrain from taking to the extent that Oversight Servicer determines in its reasonable and good faith judgment that such action or inaction (i) may cause a violation of applicable laws, regulations, codes, ordinances, court orders or restrictive covenants with respect to any Mortgage Loan, Borrower, Mortgaged Property; (ii) may cause a violation of any provision of a Mortgage Loan Document; or (iii) may be a violation of the Accepted Servicing Practices.
(c) In performing its Oversight Servicing obligations hereunder, Oversight Servicer shall, except as otherwise provided herein and subject to the terms of this Agreement, have the same access as the Owner to Servicing Files, other Mortgage Loan Documents, Borrower data and information, and other books and records maintained by the Master Servicer and Custodian. Owner agrees to cooperate with Oversight Servicer by executing and delivering to Master Servicer and Custodian such documents or instruments deemed necessary or appropriate to provide Oversight Servicer such access.
ARTICLE III
SERVICES TO BE PERFORMED
Section 3.01. Oversight Services . Oversight Servicer agrees to oversee the Loan Servicing activities of Midland on behalf of Owner with respect to each of the Mortgage Loans, upon and subject to the terms of this Agreement. Oversight Servicer shall perform such Oversight Servicing in a commercially reasonable and professional manner and consistent with Accepted Servicing Practices, which shall include but not be limited to the following:
(a) appointing a knowledgeable, single point-of-contact for the relationship with Midland to ensure direct communication of any issues, concerns or requests;
(b) accessing Midland’s system of record to perform a series of data integrity checks relative to primary servicing functions, including timely and accurate boarding and set up of all Mortgage Loans;
(c) reviewing a number of reports from Master Servicer, including reserve, payment and delinquency status, to confirm that Master Servicer is performing in accordance with the Servicing Agreement and Accepted Servicing Practices;
(d) downloading information from the system of record to produce customized borrower performance reports to aid Owner in tracking Mortgage Loan performance;
(e) reviewing Master Servicer’s accounting and cash management processing procedures to verify that payments are timely and accurately applied;
(f) meeting at least monthly with Master Servicer to review data, reports and other appropriate topics related to Master Servicer’s performance of services under the Midland Servicing Agreement;
(g) developing a vendor scorecard to evaluate Master Servicer on appropriate commercial servicing obligations including compliance with regulations, investor guidelines and Owner’s policies;
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(h) reviewing Master Servicer’s escrow administration procedures to confirm that taxes and insurance are timely paid, reserves are properly calculated, and escrow analysis is performed in accordance wi th Accepted Servicing Practices;
(i) reviewing Master Servicer’s procedures for confirming that adequate property and liability insurance coverage is in place in accordance with Accepted Servicing Practices;
(j) analyzing Master Servicer’s asset management process, including tracking of Mortgage Loan covenants, property inspection procedures, and Borrowers’ financial statement collection and analysis, if applicable;
(k) assessing Master Servicer’s customer service quality, including average time to answer calls, average response time to email and written inquiries, website functionality, call handling process, dispute resolution success, and complaint handling;
(l) assisting Owner in monitoring Master Servicer’s process for collecting delinquent payments and managing delinquencies, if applicable;
(m) reviewing calculations of interest and penalties to ensure Master Servicer’s compliance to the Mortgage Loan Documents, if applicable;
(n) reviewing Master Servicer’s process for sending deferred maintenance notices in order to preserve the value of Mortgage Property;
(o) assisting Owner in timely reporting investors and ensuring that Master Servicer, including in its capacity as Special Servicer of the MSS Mortgage Loans if applicable, provides all necessary information for such reporting, if applicable;
(p) monitoring Midland’s performance of special servicing activities on MSS Mortgage Loans, including loan workouts, foreclosure, bankruptcy and REO management, if applicable;
(q) monitoring Master Servicer’s forbearance activity to ensure appropriate handling, if applicable;
(r) reviewing Master Servicer’s investor reporting capabilities, including accuracy and timeliness of reports and ability to create ad hoc reports;
(s) assessing Master Servicer’s investor remittance capabilities;
(t) assessing the strengths and weaknesses of Master Servicer’s system of record, including technology initiatives, data backup procedures, and disaster recovery and business continuity plans;
(u) reviewing Master Servicer’s staffing levels, employee training, hiring practices, and employee performance and monitoring;
(v) assessing the quality of Master Servicer management’s response to audit findings and quality control reviews;
(w) reviewing Master Servicer’s litigation and regulatory inquiry management process;
(x) reviewing Master Servicer’s policies and procedures and process for updating such P&Ps; and,
(y) reviewing Master Servicer’s vendor management process and procedures, including for appraisers, environmental and engineering firms, attorneys, receivers, property managers and real estate agents;
(z) performing any other tasks outlined as “PennyMac Owner” or “PennyMac Owner Oversight” tasks in the Servicer Responsibility Matrix attached as an exhibit to the Midland Servicing Agreement;
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(aa) reviewing Master Servicer’s process on Freddie Mac SBL Loan for monitoring the expiration dates of financing statements filed and recorded with respect to Freddie Mac’s perfected security interest in personal property and timely filing continuation statements;
(bb) to the extent not addressed in 3.01(z), performing any other post-purchase reporting tasks required by the Guide, preparing and executing remittance and reporting respecting Freddie Mac SBL Loan repurchases in compliance with Chapters 53 and 54 of the Guide, preparing and executing remittances due for Freddie Mac SBL Loan Defaulted Mortgages, reporting, no later than the 1st day of each month, a balance for the SBL Cash Collateral Account from the depository institution, and other mutually agreed services for the Freddie Mac SBL loans, all of the above subject to Oversight Servicer’s completion of the training required by Freddie Mac and in coordination with Master Servicer.
Section 3.02. Administrative Procedures . Owner and Oversight Servicer shall develop appropriate administrative procedures for coordinating with each other, reporting on Oversight Servicer’s results of work performed, and meeting with Owner from time to time to discuss Oversight Servicer’s recommendations regarding the Loan Servicing activities of Master Servicer.
Section 3.03. Additional Consulting Services . Oversight Servicer agrees to perform such additional consulting services related to the Loan Servicing as may be reasonably requested from time-to-time by Owner, subject to mutual agreement on an appropriate statement of work and additional fees for such services.
ARTICLE IV
COMPENSATION
Section 4.01 Oversight Servicing Fees . As compensation for services performed by Oversight Servicer under this Agreement, Owner will pay Oversight Servicer the fees set forth and calculated in accordance with attached Exhibit A (“Oversight Servicing Fees”). For the avoidance of doubt, such Oversight Servicing Fees shall be separate from and in addition to any compensation that PLS is entitled to under the Midland Servicing Agreement for acting as Special Servicer with respect to the PMSS Mortgage Loans.
Section 4.02 Reimbursement of Travel Expenses . During the term of this Agreement, Owner will reimburse Oversight Servicer for its actual, reasonable, out-of-pocket expenses for travel reasonably necessary in connection with work under this Agreement (e.g., visits to Master Servicer’s facilities). Oversight Servicer shall submit accurate and complete supporting documents for reimbursement of such expenses and shall follow any reasonable policies, requirements, or directions imposed by Owner in connection with such expenses.
Section 4.03 Invoices and Payments . Oversight Servicer shall deliver to Owner an invoice on or before the seventh (7th) calendar day of each month, accompanied by a report detailing the calculation of the Oversight Servicing Fees earned for the preceding calendar month (in a mutually agreed format). Owner will pay the Oversight Servicing Fees, as reflected on such invoice and report, to Oversight Servicer in immediately available funds on or before the eighteenth (18 th ) day of each calendar month, or the immediately preceding Business Day if the 18 th is not a Business Day. Each monthly payment shall also include reimbursement of any travel expenses of Oversight Servicer pursuant to Section 4.02 if Oversight Servicer submits the supporting documents to Owner on or before the seventh (7th) calendar day of such month.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01 Representations and Warranties of Oversight Servicer . Oversight Servicer makes the following representations and warranties as of the date of this Agreement and as of each Servicing Transfer Date:
(a) Due Organization and Good Standing . Oversight Servicer is a limited liability company duly organized, validly existing, and in good standing under the laws of Delaware.
(b) Authority and Capacity . Oversight Servicer has all requisite organizational power, authority, and capacity to carry on its business as it is now being conducted, to execute and deliver this Agreement, and to perform all of its obligations hereunder. Oversight Servicer does not believe, nor does it have any cause or reason to believe, that it cannot perform each and every covenant of Oversight Servicer contained in this Agreement.
(c) Effective Agreement . The execution, delivery, and performance of this Agreement by Oversight Servicer and consummation of the transactions contemplated hereby have been or will be duly and validly authorized by all necessary organizational or other action; and this Agreement is a valid and legally binding agreement of Oversight Servicer enforceable against Oversight Servicer in accordance with its terms, subject to bankruptcy, insolvency, and similar laws affecting generally the enforcement of creditors’ rights and the discretion of a court to grant specific performance.
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(d) No Conflict . Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with its terms and conditions, will (a) violate, conflict with, result in the breach of, constitute a default under, be prohibited by, or require any additional approval under any of the terms, conditions, or provisions of the articles of incorporation, by-laws, or other organizational documents of Oversight Servicer, as applicable, or of any mortgage, indenture, deed of trust, loan or credit agreement, or other agreement or instrument to which Oversight Servicer is a party or by which Oversight Servicer is bound, or of any law, ordinance, rule, or regulation of any governmental authority applicable to Oversight Servicer, or of any order, judgment, or decree of any court or governmental authority applicable to Oversight Servicer, or (b) result in the creation or imposition of any lien, charge, or encumbrance of any nature upon the Mortgage Loans or the properties or assets of Oversight Servicer.
(e) Consents, Approvals and Compliance . Oversight Servicer has all licenses, approvals, permits, and other authorizations required under Accepted Servicing Practices to oversee servicing of the Mortgage Loans, and the same are in full force and effect, without notice of possible suspension, revocation, or impairment. Any requisite consents or approvals of other Persons to the execution and delivery of this Agreement, or the performance of the transactions contemplated hereby by Oversight Servicer, have been or will be obtained prior to the applicable Servicing Transfer Date or such other earlier or later date as expressly provided herein. Oversight Servicer has complied with, and is not in default under, any law, ordinance, requirement, regulation, rule, or order applicable to its business or properties, the violation of which might materially and adversely affect the operations or financial condition of Oversight Servicer or its ability to perform its obligations hereunder.
(f) Ordinary Course of Business . The transactions contemplated by this Agreement are in the ordinary course of business of Oversight Servicer.
(g) Litigation . There is no Action existing or pending, or to the best of Oversight Servicer’s knowledge, threatened, or any order, injunction, or decree outstanding, against or relating to Oversight Servicer that could have a material adverse effect upon: (i) the Mortgage Loans to be oversight serviced by Oversight Servicer hereunder; (ii) the performance by Oversight Servicer of its obligations under this Agreement.
(h) Authority of Oversight Servicer . Oversight Servicer’s execution and delivery of this Agreement has been (i) specifically approved by the Board of Directors of Oversight Servicer, and such approval is reflected in the books and records of such Board of Directors, or (ii) approved by an officer of Oversight Servicer, who was duly authorized by the Board of Directors of Oversight Servicer to enter into such types of transactions and such authorization is reflected in the books and records of the Board of Directors.
(i) Insurance . Oversight Servicer has in full force and effect all insurance required to oversee servicing of the Mortgage Loans pursuant to Accepted Servicing Practices and as necessary to perform its obligations hereunder.
Section 5.02 Representations and Warranties of Owner . As an inducement to Oversight Servicer to enter into this Agreement, each Owner represents and warrants as to itself as of the date of this Agreement and each Servicing Transfer Date as follows:
(a) Due Organization and Good Standing . PennyMac Corp., as Owner, is duly organized, validly existing and in good standing as a corporation under the laws of the State of Delaware and has the power and authority to own its assets and to transact the business in which it is currently engaged. PennyMac Holdings, LLC, as Owner, is duly organized, validly existing and in good standing as a limited liability company under the laws of the State of Delaware and has the power and authority to own its assets and to transact the business in which it is currently engaged.
(b) No Violation of Organizational Documents or Agreements . The execution and delivery of this Agreement by each Owner, and the performance and compliance with the terms of this Agreement by each Owner, will not violate the Owner’s organizational documents or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material agreement or other instrument to which the Owner is a party or which is applicable to it or any of its assets.
(c) Full Power and Authority . Each Owner has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has duly authorized the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement.
(d) Binding Obligation . This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid, legal and binding obligation of each Owner, enforceable against the Owner in accordance with the terms hereof, subject to (A) applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights generally, and (B) general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law.
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(e) No Violation of Law, Regulation or Order . Each Owner is not in violation of, and its execution and delivery of this Agreement and its performance and compliance with the terms of this Agreement will not constitute a violation of, any law, any order or decree of any court or arbiter, or, to the Owner’s knowledge, any order, regulation or demand of any federal, state or local governmental or regulatory authority, which violation, in the Owner’s good faith and reasonable judgment, is likely to affect materially and adversely either the ability of the Owner to perform its obligations under this Agreement or the financial condition of the Owner.
(f) No Material Litigation . No litigation is pending or, to the best of the Owner’s knowledge, threatened against the Owner that, if determined adversely to the Owner, would prohibit the Owner from entering into this Agreement or that, in the Owner’s good faith and reasonable judgment, is likely to materially and adversely affect either the ability of the Owner to perform its obligations under this Agreement or the financial condition of the Owner.
(g) No Consent Required . Any consent, approval, authorization or order of any court or governmental agency or body required under federal or state law for the execution, delivery and performance by the Owner of or compliance by the Owner with this Agreement or the consummation of the transactions contemplated by this Agreement has been obtained and is effective except where the lack of consent, approval, authorization or order would not have a material adverse effect on the performance by the Owner under this Agreement.
Section 5.03 Survival . The representations and warranties of set forth in this Article V shall survive the execution and delivery of this Agreement and each Servicing Transfer Date and shall continue in full force and effect after the termination date. Upon discovery by any party of any breach of any of the foregoing representations and warranties, such party shall give prompt written notice thereof to the other parties.
ARTICLE VI
TERM AND TERMINATION
Section 6.01 Term of the Agreement . The initial term of this Agreement shall be for the same three (3) year term as the Midland Servicing Agreement unless terminated earlier as provided in this Article VI (“Initial Term”). After the Initial Term, this Agreement shall renew automatically every 18 months for an additional 18 month period (an “Automatic Renewal Term”) unless the Owner or Oversight Servicer terminates this Agreement upon the expiration of the Initial Term or any Automatic Renewal Term and upon at least 90 days’ prior written notice to the Owner or Oversight Servicer, as applicable.
Section 6.02 Termination for Convenience . Owner may terminate this Agreement for convenience (i.e., for any reason or no reason) by giving Oversight Servicer written notice, (i) specifying termination in whole or in part as to a portion of the Mortgage Loans, as the case may be, and (ii) designating the termination date, which shall be not less than ninety (90) days after the date of such notice.
Section 6.03 Termination for Event of Default .
(a) By giving Oversight Servicer written notice and designating the termination date, which may be immediately on the date of such written notice, Owner may terminate this Agreement for an Event of Default by Oversight Servicer.
(b) Termination by Owner in connection with an Event of Default will be without prejudice to and with full reservation of any other rights and remedies available to Owner under this Agreement or at law or in equity.
(c) No termination fees will be payable in connection with any termination by Owner for an Event of Default by Oversight Servicer.
Section 6.04 Termination for Regulatory Event . Any party may terminate this Agreement in whole or in part by giving the other parties at least thirty (30) days’ prior written notice and designating the termination date if there is a Regulatory Event or changes are made to applicable law that would prohibit, prevent, or materially impair such party’s continuing this Agreement with the other party with respect to all or specific Mortgage Loans. Such termination will not be considered a termination for convenience or as a result of an Event of Default.
Section 6.05 Termination for Change in Oversight Servicer Circumstances .
(a) Owner may terminate this Agreement by notice to Oversight Servicer in the event of (a) a sale of a direct or indirect majority interest in Oversight Servicer to a non-affiliated Person, (b) a Change of Control of Oversight Servicer, or (c) a change in the corporate status of Oversight Servicer, including any merger or consolidation with any Person (other than any merger or consolidation
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(i) with respect to which Oversight Servicer will be the continuing Person, and (ii) if such merger or consolidation will not otherwise result in an Event of Default by Oversight Servicer hereunder).
(b) Owner’s written consent to a change in Oversight Servicer circumstances under this Agreement will constitute consent under all other agreements between Owner and Oversight Servicer concerning the servicing of the Mortgage Loans.
(c) Such termination will not be considered to be a termination for convenience or a termination in connection with an Event of Default.
Section 6.06 Other Termination Provisions . If a Mortgage Loan is repurchased by the originator, a prior servicer or other third party, this Agreement will automatically terminate with respect to such Mortgage Loan, and such termination will not be considered to be a termination for convenience or an Event of Default.
Section 6.07 Duties upon Termination; Transfer of Books, Records and Accounts . Regardless of the basis for termination or expiration of this Agreement (in whole or in part), commencing upon effectiveness of a notice of the termination of this Agreement, and continuing after the effective date of expiration or, if applicable, termination of this Agreement (as such effective date may be extended pursuant to Section 6.08), Oversight Servicer will provide reasonable assistance with the transfer of the Oversight Servicing to Owner or another designated Person. Oversight Servicer shall (i) deliver all books, records, documents, files, data tapes, and other information and data related to the Mortgage Loans to the Owner or other Persons designated by the Owner; and (ii) fully cooperate with the Owner and any new servicer to effectuate an orderly transition of Oversight Servicing of the related Mortgage Loans. Oversight Servicer will use commercially reasonable efforts to minimize Owner’s costs and management time resulting from the cessation of the terminated servicing and to minimize the implementation time for the transfer of the terminated servicing to Owner and/or its successor servicer or Oversight Servicer. Upon such termination, any Oversight Servicing Fees which remain unpaid shall be remitted by Owner to Oversight Servicer within ten (10) Business Days after Owner’s receipt of an itemized invoice therefor. Such transfers and actions will be at Oversight Servicer’s expense, unless this Agreement is terminated by Owner in accordance with Section 6.02.
Section 6.08 Extension of Expiration or Termination Date . Oversight Servicer acknowledges that the services provided under this Agreement are vital to Owner and must continue without interruption during any transition period (except as otherwise directed by Owner) if Owner decides to perform such services itself or engage a successor servicer to perform them, or to provide an orderly wind-down of servicing in the event of a partial or complete cessation or termination of servicing with respect to any or all Mortgage Loans. To provide for orderly completion of such transition, Owner has the right to extend the effective date of termination or expiration one or more times as it elects, in its discretion, provided that the total of all such extensions will not exceed ninety (90) days following the original effective date of such termination or expiration. Owner will use commercially reasonable efforts to exercise this option by notice delivered to Oversight Servicer at least thirty (30) days before the upcoming expiration or termination date.
Section 6.09 Transfer of Mortgage Loans .
(a) The Oversight Servicer acknowledges that any or all of the Mortgage Loans may be sold, transferred, assigned or otherwise conveyed by the Owner to any third party without the consent or approval of the Oversight Servicer. Except as provided in Section 6.03, any such transfer shall constitute a termination of this Agreement with respect to such Mortgage Loans, subject to the Owner’s notice requirements under Section 6.02. Owner acknowledges that the Oversight Servicer shall not be obligated to perform Oversight Servicing with respect to such transferred Mortgage Loans for any third party unless and until the Oversight Servicer and such third party execute an oversight servicing agreement having terms which are mutually agreeable to Oversight Servicer and such third party.
(b) Until Oversight Servicer receives written notice from the Owner of the sale, transfer, assignment or conveyance of one or more Mortgage Loans, the Owner shall be presumed to be the owner and holder of such Mortgage Loans and Oversight Servicer shall continue to earn Oversight Servicing Fees with respect to such Mortgage Loans.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification by Oversight Servicer . Oversight Servicer will indemnify and hold Owner, its directors, officers, and employees, harmless from, and will reimburse Owner, its directors, officers, and employees for, any and all Losses incurred to the extent that such Losses arise out of, relate to, or result from any breach of any representation or warranty of Oversight Servicer hereunder or the material breach of any term, covenant, condition, agreement, or obligation of Oversight Servicer set forth in this Agreement, or in any schedule, exhibit, or certificate furnished pursuant hereto. Notwithstanding any provision to the contrary, Oversight Servicer will have no obligation to indemnify or hold Owner harmless from and against that portion of any claim for indemnification that arises from any fact or circumstance for which Oversight Servicer is entitled to indemnification by Owner pursuant to Section 7.02. Further, Owner will not enforce against Oversight Servicer any indemnity obligation with respect to (i)
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Losses relating to any representations and warranties made by a third party and related to the sale or origination of th e Mortgage Loans , or (ii) any servicing deficiencies, to the extent any servicing deficiency is caused solely b y any action or failure of the prior s ervicer or Master Servicer . Notwithstanding the foregoing, Oversight Servicer will be liable to the extent of any Losses caused by Oversight Servicer’s failure to notify Owner of such Losses as required by this Agree ment and Accepted Servicing Practices and will take any corrective action requested by Owner , to the extent any such corrective action is reasonably able to be taken by Oversight Servicer, or for any other failure in Oversight Servicer’s performance of its responsibilities on or after the applicable Servicing Transfer Date.
Section 7.02 Indemnification by Owner . Owner will indemnify and hold Oversight Servicer harmless from, and will reimburse Oversight Servicer for, all Losses incurred to the extent that such Losses arise out of, relate to, or result from the following: (i) the breach of any term, covenant, condition, agreement, or obligation of Owner set forth in this Agreement or in any schedule, exhibit, or certificate furnished pursuant hereto; (ii) any acts or omissions of the Master Servicer or prior servicer relating to the Mortgage Loans except to the extent that Oversight Servicer was a contributing cause; (iii) a claim by a Borrower or any other party to a Mortgage Loan to the extent that such claim arises solely out of alleged acts or omissions of the Master Servicer or prior servicer or any party in connection with the origination or servicing of such Borrower’s Mortgage Loan and except to the extent that Oversight Servicer was a contributing cause; or (iv) subject to Oversight Servicer’s performance under this Agreement and its reasonable effort to avoid such claim: (A) the failure of the information contained in a Mortgage Loan Schedule or other data or information provided by or on behalf of Owner to be true and complete in all material respects, (B) Owner, the Master Servicer or the prior servicer’s failure to provide information regarding the Mortgage Loans, or (C) a data integrity failure with respect to data provided by or on behalf of Owner, Master Servicer or a prior servicer.
Section 7.03 Notice of Indemnifiable Actions .
(a) Each party to this Agreement will promptly (but in all cases within ten (10) days) notify the other party in writing of the existence of any matter known to it giving rise to any obligation of the other party under this Article VII and, in the case of any Action brought by a third party which may give rise to any such obligation, each party will promptly (but in all cases within ten (10) days) notify the other party of the commencement of such Action as and when same becomes known to it. Subject to Section 7.05, the indemnifying party (the “Indemnifying Party”) may, at its own cost and expense, assume and control the defense of any third-party Action, including, without limitation, the right to designate counsel and to control all negotiations, litigation, settlements, compromises, and appeals of any such claim or potential claim; provided, however, that the counsel is reasonably satisfactory to the indemnified party (“Indemnified Party”) in the exercise of its reasonable discretion. The party not controlling the defense or prosecution of any such third-party Action may participate at its own cost and expense. Following the full discharge of the Indemnifying Party’s obligations, the Indemnified Party will, subject to Accepted Servicing Practices or other requirements of Owner, assign to the Indemnifying Party any and all related claims against third parties. Subject to Accepted Servicing Practices, promptly after receipt, the Indemnified Party will refund to the Indemnifying Party the amounts of all recoveries received by the Indemnified Party with respect to any Action with respect to which it was also reimbursed for Losses by the Indemnifying Party.
(b) Following receipt of written notice from the Indemnified Party of a demand for indemnification, the Indemnifying Party will seek to cure the problem giving rise to the demand, if possible, and pay the amount for which it is liable, or otherwise take the actions which it is required to take within thirty (30) days or such other time as may be required by Owner or other third-party claimant. As to any claim for indemnity for which notice is given as herein provided, the corresponding obligation of indemnity will continue to survive until whichever of the following events first occurs: (i) the Indemnifying Party will have discharged its obligation of indemnity to the Indemnified Party with respect to such claim, as required hereunder; (ii) a court of competent jurisdiction will have finally determined that the Indemnifying Party is not liable to the Indemnified Party with respect to such claim; or (iii) the Indemnified Party will have released in writing (or be held by a court of competent jurisdiction to have released) the Indemnifying Party from any liability with respect to such claim.
Section 7.04 Mitigation of Losses . An Indemnified Party will, to the extent practicable and reasonably within its control, make good faith efforts to mitigate any Losses of which it has adequate notice, provided that an Indemnified Party will not be obligated to act in a manner which it reasonably believes is adverse to its own best interests. Except to the extent required by Accepted Servicing Practices, nothing in this Article VII will be construed as obligating any party to this Agreement to sue any third party.
Section 7.05 Control of Actions .
(a) Owner will have the right to assume some or all of the control or defense of any Action, including by transfer of some or all of the control or defense of such Action to the prior servicer or other third party settlement; provided, however, that the Owner shall not enter into any settlement that obligates Oversight Servicer to take any action, incur any expense, or make any admission of guilt without Oversight Servicer’s prior written consent, and further provided that Oversight Servicer shall have the right to be represented by independent counsel of their own choosing, at their own cost and expense, in connection with such claim or suit. In connection therewith, Oversight Servicer will make available such information and assistance as Owner or such prior servicer or other third party
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may reasonably request, including any witnesses, pertinent records, materials, and information in Oversight Servicer’s possession or under Oversight Servicer’s control.
(b) If Oversight Servicer retains control over the defense of an Action as permitted herein, Oversight Servicer and Owner (and to the extent requested by Owner, the prior servicer or other third party) will confer in good faith, and Oversight Servicer will reasonably consider suggestions from Owner and its counsel regarding the control or defense of the Action. The parties may jointly agree upon counsel reasonably acceptable to such parties to represent them to defend the Action, and when appropriate, will enter into joint defense agreements for retaining joint counsel. Oversight Servicer will follow any directions from Owner to bill all or any portion of the Losses or any cost or expenses of the defense of such Action to a third party, provided that Owner will remain liable for such amounts to the extent provided in this Agreement.
ARTICLE VIII
DEFAULT
Section 8.01 Events of Default .
(a) The following shall constitute an Event of Default under this Agreement on the part of the Oversight Servicer:
(i) the failure by the Oversight Servicer duly to observe or perform in any material respect any other covenant or agreement on the part of the Oversight Servicer set forth in this Agreement that has not been remedied for a period of thirty (30) days after the date on which notice of such failure is given to the Oversight Servicer by the Owner; provided, however, that, with respect to any such failure that is susceptible to cure but not curable within such 30-day period, Oversight Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as Oversight Servicer has commenced to cure such failure within the initial 30-day period, Oversight Servicer is diligently pursuing a full cure, and Oversight Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner;
(ii) any breach of any representation or warranty on the part of Oversight Servicer set forth in this Agreement that has not been remedied for a period of thirty (30) days after the date on which notice of such breach, requiring the same to be remedied, is given to Oversight Servicer by the Owner; provided, however, that, with respect to any such breach that is susceptible to cure but not curable within such 30-day period, Oversight Servicer shall have an additional cure period of thirty (30) days to effect such cure so long as Oversight Servicer has commenced to cure such failure within the initial 30-day period, Oversight Servicer is diligently pursuing a full cure and Oversight Servicer has provided evidence of such curability and such diligent pursuit that is reasonably satisfactory to the Owner;
(iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, shall have been entered against Oversight Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days;
(iv) Oversight Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to Oversight Servicer or of or relating to all or substantially all of its property;
(v) Oversight Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations;
(vi) Oversight Servicer fails to maintain its license to do business or service residential mortgage loans in any jurisdiction where the Mortgaged Properties are located for more than ninety (90) days after receiving notice from any Person thereof, provided that such failure shall not constitute an Event of Default if, prior to the expiration of such ninety (90) day period, the Oversight Servicer transfers the affected Mortgaged Properties to an oversight servicer that (A) satisfies the licensing requirements for the jurisdiction where such Mortgaged Properties are located and (B) is reasonably acceptable to Owner; or
(vii) without the prior consent of the Owner or as expressly permitted or required by the other provisions of this Agreement, Oversight Servicer attempts to assign this Agreement or its right to servicing compensation hereunder, or to delegate its duties hereunder, in each case whether in whole or in part, or Oversight Servicer sells or otherwise disposes of all or substantially all of its property or assets.
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In each and every such case, so long as an Event of Default shall not have been remedied, in addition to what ever rights the Owner may have at law or equity to damages, including injunctive relief and specific performance, the Owner, by notice in writing to Oversight Servicer , may terminate without compensation all the rights and obligations of Oversight Servicer under this Agreement.
(b) In case one or more Events of Default by Oversight Servicer occur and shall not have been remedied, the Owner, by notice in writing to Oversight Servicer, shall be entitled, in addition to whatever rights the Owner may have at law or equity to damages, including injunctive relieve and specific performance, to terminate all the rights and obligations of Oversight Servicer under this Agreement, by notice in writing to Oversight Servicer and without payment of any other compensation; provided, however, that Oversight Servicer shall continue to be obligated to pay and entitled to receive all amounts accrued or owing by or to it under this Agreement on or prior to the date of such termination, whether in respect of Oversight Servicing Fees or otherwise and such amounts shall be due and payable at the times and in the manner as if Oversight Servicer were not terminated. Upon receipt by Oversight Servicer of such written notice, all authority and power of Oversight Servicer under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the Owner or any successor appointed by the Owner. Upon written request from the Owner, Oversight Servicer shall prepare, execute and deliver any and all documents and other instruments, place in such successor’s possession all Mortgage Files to the extent provided to Oversight Servicer, and do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise, at Oversight Servicer’s sole expense or as otherwise consistent with Accepted Servicing Practices. Oversight Servicer agrees to cooperate with the Owner and such successor in effecting the termination of Oversight Servicer’s responsibilities and rights hereunder.
Section 8.02 Waiver of Defaults . The Owner may waive in writing any default by Oversight Servicer in the performance of its obligations hereunder and its consequences. Upon any such written waiver of a default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon except to the extent expressly so waived.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01 Entire Agreement; Amendment . This Agreement, including all documents and exhibits incorporated by reference, together with the Midland Servicing Agreement, constitute the entire agreement between the parties with respect to servicing of the Mortgage Loans. All prior negotiations or representations of the parties are merged into this Agreement and shall have no force or effect unless expressly stated herein. This Agreement may be amended and any provision hereof waived, but, only in writing signed by the party against whom such enforcement is sought.
Section 9.02 Governing Law . This Agreement and any claim, controversy or dispute arising under or related to or in connection with the Agreement, the relationship of the parties, and/or the interpretation and enforcement of the rights and duties of the parties will be governed by the laws of the State of New York (without regard to conflicts of laws principles other than sections 5-1401 and 5-1402 of the New York general obligations law), except to the extent preempted by federal law.
Section 9.03 Notices . All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given upon the delivery or mailing thereof, as the case may be, sent by registered or certified mail, return receipt requested:
If to the Owner to:
PennyMac Corp.
Attn: Chief Operating Officer
3043 Townsgate Road
Westlake Village, California 91361
PennyMac Holdings, LLC
Attn: Chief Operating Officer
3043 Townsgate Road
Westlake Village, California 91361
With a copy to:
PennyMac Operating Partnership, L.P.
Attn: General Counsel
3043 Townsgate Road
Westlake Village, California 91361
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If to the Oversight Servicer:
PennyMac Loan Services, LLC
Attn: Director, Servicing Operations
3043 Townsgate Road
Westlake Village, California 91361
With a copy to:
PennyMac Loan Services, LLC
Attn: General Counsel
3043 Townsgate Road
Westlake Village, California 91361
Section 9.04 Severability of Provisions . If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenant(s), agreement(s), provision(s) or term(s) shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.
Section 9.05 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
Section 9.06 Relationship of Parties . Nothing herein contained shall be deemed or construed to create a partnership or joint venture between the parties. The duties and responsibilities of Master Servicer or Special Servicer shall be rendered by it as an independent contractor and not as an agent of the Owner. Master Servicer or Special Servicer shall have full control of all of its acts, doings, proceedings, relating to or requisite in connection with the discharge of its duties and responsibilities under this Agreement.
Section 9.07 Attorneys’ Fees . If any claim, legal action or any arbitration or other proceeding is brought for the enforcement of the Agreement or because of a dispute, breach, default or misrepresentation in connection with any of the provisions of the Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that claim, action or proceeding, in addition to any other relief to which such party may be entitled.
Section 9.08. Confidentiality . Each party understands that certain information which it has been furnished and will be furnished in connection with the Agreement, including information concerning business procedures, servicing fees or prices, Non Public Personal Information and/or Personally Identifiable Financial Information (as those terms are defined in Regulations on Privacy of Consumer Information published at 12 C.F.R. Sections 43(m) and (o)), policies or plans of the other party or any of its Affiliates, is confidential and proprietary, and each party agrees that it will maintain the confidentiality of such information and will not disclose it to others (except for its Affiliates and its and their respective directors, managers, officers, employees, financing sources, agents, representatives and advisors who have a need to know such information) or use it, except in connection with this Agreement or as such party reasonably determines necessary as a part of its filing of Securities and Exchange Commission Forms 8-K, 10-Q or 10-K as related to disclosures to investors, without the prior written consent of the party furnishing such information. Information which is publicly known or which has been disclosed to the other party by third parties who have a right to do so shall not be deemed confidential or proprietary information for these purposes. If any party, or any of its Affiliates or any officer, director, employee or agent of any of the foregoing is at any time requested or required to disclose any information supplied to it in connection with the Agreement, such party agrees to provide the affected party with prompt notice of such request(s) so that the affected party may seek an appropriate protective order and/or waive notifying party’s compliance with the terms of this Section 9.08. Notwithstanding the terms of this Section 9.08, if, (i) in the absence of a protective order or the receipt of a waiver, a party is nonetheless, in the opinion of its counsel, legally compelled to disclose information concerning another party or else stand liable for contempt or suffer other censure or penalty, or (ii) such request for disclosure is made by a governmental entity, the party may disclose such information without liability hereunder. Following termination of this Agreement, each party agrees to promptly return to the other, immediately upon request, all confidential materials, and all copies thereof, which have been furnished to it in connection with this Agreement.
Section 9.09 Cooperation of Oversight Servicer with a Reconstitution .
(a) Oversight Servicer and Owner agree that with respect to some or all of the Mortgage Loans, on one or more dates (each a “Reconstitution Date”), at the Owner’s sole option, the Owner may effect a sale (each, a “Reconstitution”) of some or all of the Mortgage Loans then subject to this Agreement and the Midland Servicing Agreement, without recourse, to:
(i) Fannie Mae or Freddie Mac in one or more Whole Loan Transfers with respect to multifamily Mortgage Loans, which Reconstitution with respect to Freddie Mac SBL Loans shall also include a subsequent Public Securitization Transaction;
(ii) one or more other third-party purchasers in one or more Whole Loan Transfers;
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(iii) one or more trusts or other entities to be formed as part of one or more Private Securitization Transactions; or
(iv) one or more trusts or other entities to be formed as part of one or more Public Securitization Transactions.
(b) With respect to each Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, as the case may be, entered into by the Owner, Oversight Servicer shall:
(i) upon request of the Owner or, in the case of Freddie Mac SBL Loans, in the absence of a written notice to Oversight Servicer to the contrary, continue to provide oversight for the servicing of the Mortgage Loans included in such Reconstitution pursuant to a pooling and servicing agreement or other agreement;
(ii) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, provide as applicable:
(A) information pertaining to Oversight Servicer of the type and scope customarily included in offering documents for commercial mortgage-backed securities transactions involving single or multiple loan originators including information regarding financial condition and mortgage loan delinquency, foreclosure and loss experience or other information as is otherwise reasonably requested by the Owner, and to deliver to the Owner any non-public, unaudited financial information, in which case the Owner shall bear the cost of having such information audited by certified public accountants if the Owner desires such an audit, or as is otherwise reasonably requested by the Owner and which Oversight Servicer is capable of providing without unreasonable effort or expense (collectively “Servicer Information”), and to indemnify the Owner and its affiliates for material misstatements or omissions contained in Oversight Servicer Information; provided, however, Owner shall indemnify and hold harmless Oversight Servicer and its affiliates for material misstatements or omissions contained in all other information in any offering document, other than Servicer Information; and
(B) such opinions of counsel, letters from auditors, and certificates of officers of Oversight Servicer as are reasonably believed necessary by the trustee, any rating agency or the Owner, as the case may be, in connection with such Private Securitization Transaction or Public Securitization Transaction. The Owner shall pay all third party costs associated with the preparation of the information described in clause (ii)(A) above and the delivery of any opinions (other than opinions by in-house counsel), letters or certificates described in this clause (ii)(B).
(iii) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, aid in the negotiation and execution of one or more custodial agreements among the Owner, Master Servicer or Special Servicer and a third party custodian/trustee which is generally considered to be a prudent custodian/trustee in the secondary mortgage market designated by the Owner in its sole discretion after consultation with Oversight Servicer, Master Servicer or Special Servicer, in each case for the purpose of pooling the Mortgage Loans with other Mortgage Loans for resale or securitization; and
(iv) if Oversight Servicer will continue to provide oversight for the servicing of the Mortgage Loans included in the Reconstitution, (1) cooperate fully with the Owner, any prospective purchaser, any Rating Agency or any party to any agreement to be executed in connection with such Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, with respect to all reasonable requests and due diligence procedures, including participating in meetings with Rating Agencies, bond insurers and such other parties as the Owner shall designate and participating in meetings with prospective purchasers of the Mortgage Loans or interests therein and providing information reasonably requested by such purchasers; (2) to execute, deliver and perform all reconstitution agreements required by the Owner, and to use its best reasonable, good faith efforts to facilitate such Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction, as the case may be; (3) (a) to restate the representations and warranties set forth in this Agreement as of the Reconstitution Date which shall not be materially more onerous than those required under this Agreement or (b) make the representations and warranties with respect to the oversight of the servicing of the Mortgage Loans set forth in the related selling/servicing guide of the master servicer or issuer, as the case may be, or such representations and warranties with respect to the oversight of the servicing of the Mortgage Loans as may be required by any Rating Agency or prospective purchaser of the related securities or such Mortgage Loans, in connection with such Reconstitution; provided, however, that such representations and warranties shall not be materially more onerous than those required under this Agreement. Master Servicer or Special Servicer shall use its reasonable best efforts to provide to such master servicer or issuer, as the case may be, and any other participants in such Reconstitution: (i) any and all information and appropriate verification of information which may be reasonably available to Master Servicer or Special Servicer or its affiliates, whether through letters of its auditors and counsel or otherwise, as the Owner or any such other participant shall reasonably request and (ii) subject to the provisions of this Section 9.09(b), to execute, deliver and satisfy all conditions set forth in any indemnity agreement required by the Owner or any such
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participant; provided that Master Servicer or Special Servicer is given an opportunity to review and reasonably negotiate in good faith provisions of such indemnity.
(c) Any execution of a pooling and servicing agreement or reconstitution agreement by Oversight Servicer shall be conditioned on Oversight Servicer receiving the Oversight Servicing Fees, or such other servicing fees and compensation acceptable to Oversight Servicer. All Mortgage Loans not sold or transferred pursuant to a Whole Loan Transfer, Private Securitization Transaction or Public Securitization Transaction shall be subject to this Agreement and shall continue to be overseen in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect. Notwithstanding any provision to the contrary in this Agreement, if Oversight Servicer is performing oversight servicing with respect to a Reconstitution, the Owner agrees that in such Reconstitution any performance termination triggers shall be substantially similar to those contained in this Agreement or the Freddie Mac Guide, if applicable, or otherwise subject to approval by Oversight Servicer in its reasonable discretion.
Section 9.10 Article and Section Headings . The article and section headings in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof.
Section 9.11 Counterparts . This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.
Section 9.12 Trademarks . Owner and Oversight Servicer agree that they and their employees, subcontractors and agents, shall not, without the prior written consent of the other party in each instance, (i) use in advertising, publicity or otherwise the name of each and every other party to this Agreement or their Affiliates or any of their managing directors, partners or employees, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned by the other party or their Affiliates, or (ii) represent, directly or indirectly, any product or any service provided by Owner and Oversight Servicer as approved or endorsed by the other parties to this Agreement or their Affiliates.
Section 9.13 WAIVER OF TRIAL BY JURY . OVERSIGHT SERVICER AND OWNER EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.14 LIMITATION OF DAMAGES . NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE PARTIES AGREE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE, PROVIDED, HOWEVER, THAT SUCH LIMITATION SHALL NOT BE APPLICABLE WITH RESPECT TO THIRD PARTY CLAIM MADE AGAINST A PARTY.
Section 9.15 SUBMISSION TO JURISDICTION; WAIVERS . OVERSIGHT SERVICER AND OWNER EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT OF CALIFORNIA AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(c) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement by their respective officers duly authorized as of the date first above written.
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PENNYMAC CORP., a Delaware corporation |
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(Owner) |
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By: |
/s/ Vandad Fartaj |
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Name: |
Vandad Fartaj |
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Title: |
Senior Managing Director and Chief Investment Officer |
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PENNYMAC HOLDINGS, LLC, a Delaware limited liability company |
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(Owner) |
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By: |
/s/ Andrew S. Chang |
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Name: |
Andrew S. Chang |
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Title: |
Senior Managing Director and Chief Business Development Officer |
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PENNYMAC LOAN SERVICES, LLC, a Delaware limited liability company |
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(Oversight Servicer) |
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By: |
/s/ Steven F. Skolnik |
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Name: |
Steven F. Skolnik |
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Title: |
Managing Director, Commercial Lending |
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EXHIBIT A
OVERSIGHT SERVICING FEES
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Monthly Oversight Servicing Fee: |
An amount equal to the product of (a) the aggregate outstanding principal balance of Mortgage Loans as of the first day of each month subject to the Midland Servicing Agreement during such month, times (y) 0.05% (5 basis points) divided by (z) twelve (12). |
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EXHIBIT B
FORM OF POWER OF ATTORNEY
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
THAT, PENNYMAC CORP., a Delaware corporation, as an Owner, and PENNYMAC HOLDINGS, LLC, a Delaware limited liability company, as an Owner (“ Owners ”), by these presents do hereby make, constitute and appoint PENNYMAC LOAN SERVICES, LLC (“ Oversight Servicer ”), a Delaware limited liability company, Owners’ true and lawful agent and attorney-in-fact, and hereby grant it authority and power to take, through its duly authorized officers and designated agents, the Actions (as such term is defined herein) in Owners’ name, place and stead. This limited power of attorney (“ Limited Power of Attorney ”) is given in connection with, and relates solely to that certain Commercial Mortgage Servicing Oversight Agreement dated as of November [_], 2015, between Owners and Oversight Servicer, under the terms of which Oversight Servicer shall oversee the servicing activities of Midland Loan Services, a Division of PNC Bank, National Association “(Midland”) under a Servicing Agreement dated July 13, 2015 among Midland, Owners and Oversight Servicer (“Midland Servicing Agreement”). Pursuant to the Midland Servicing Agreement, Owners engaged Midland to act as the Master Servicer of Mortgage Loans that the Owners acquire or originate from time to time and as the Special Servicer with respect to certain of those Mortgage Loans as defined in the Midland Servicing Agreement.
As used above, the term “Actions” shall mean and be limited to the following acts, in each case only with respect to any of the Mortgage Loans and only as mandated or permitted by federal, state or local laws or other legal requirements or restrictions:
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1. |
Execute or file any documents necessary and appropriate to authorize or consent to Midland’s performance of actions respecting any Mortgage Loan; |
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2. |
Correct or otherwise remedy any errors or deficiencies contained in any transfer or reconveyance documents provided or prepared by Owner, Master Servicer or a prior transferor, including, but not limited to note indorsements; |
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3. |
Execute or file quitclaim deeds or, only where necessary and appropriate, special warranty deeds or other deeds causing the transfer of title to a third party, in respect of property acquired through a foreclosure or deed-in-lieu of foreclosure (“REO Property”); |
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4. |
Execute and deliver documentation with respect to the marketing and sale of REO Property, including: eviction notices, listing agreements, purchase and sale agreements, escrow instructions, HUD-1 settlement statements, and any other document necessary to effect the transfer of REO Property. |
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5. |
To execute, acknowledge, seal and deliver deed of trust/mortgage note endorsements, lost note affidavits, assignments of deed of trust/mortgage and other recorded documents, satisfactions/releases/reconveyances of deed of trust/mortgage, subordinations and modifications, tax authority notifications and declarations, deeds, bills of sale, and other instruments of sale, conveyance, and transfer, appropriately completed, with all ordinary or necessary endorsements, acknowledgments, affidavits, and supporting documents as may be necessary or appropriate to effect its execution, delivery, conveyance, recordation or filing. |
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6. |
To execute and deliver insurance filings and claims, affidavits of debt, substitutions of trustee, substitutions of counsel, non military affidavits, notices of rescission, foreclosure deeds, transfer tax affidavits, affidavits of merit, verifications of complaints, notices to quit, bankruptcy declarations for the purpose of filing motions to lift stays, and other documents or notice filings on behalf of Owner in connection with insurance, foreclosure, bankruptcy and eviction actions. |
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To endorse any checks or other instruments received by the Oversight Servicer and made payable to either Owner. |
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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. |
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To do any other act or complete any other document that arises in the normal course of oversight servicing of all Mortgage Loans and REO Properties, as defined in, and subject to the terms of the Midland Servicing Agreement. |
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With respect to the Actions, Owner gives to said attorney-in-fact full power and authority to execute such instruments and to do and perform all and every act and thing requisite, necessary and proper to carry into effect the power or powers granted by or under this Limited Power of Attorney as fully, to all intents and purposes, as the undersigned might or could do, and hereby does ratify and confirm all that said attorney-in-fact shall lawfully do or cause to be done by authority hereof.
Nothing contained herein shall be construed to grant Servicer the power to (i) initiate or defend any suit, litigation, or proceeding in the name of Owners or be construed to create a duty of Owners to initiate or defend any suit, litigation, or proceeding in the name of Servicer, (ii) incur or agree to any liability or obligation in the name of or on behalf of Owners, or (iii) execute any document or take any action on behalf of, or in the name, place, or stead of, Owners, except as provided herein. This Limited Power of Attorney is entered into and shall be governed by the laws of the State of New York without regard to conflicts of law principles of such state.
[ Remainder of page intentionally left blank .]
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IN WITNESS WHEREOF , the Owners has executed this Limited Power of Attorney this ____ day of November , 2015 .
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PENNYMAC CORP. |
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By: |
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Title: |
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PENNYMAC HOLDINGS, LLC |
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By: |
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Title: |
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Witness: |
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Name: |
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Title: |
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Witness: |
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Name: |
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Title: |
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A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
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STATE OF CALIFORNIA
COUNTY OF )
On before me,
(insert name and title of the officer)
Personally appeared
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
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WITNESS my hand and official seal.
Signature (Seal)
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
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Exhibit 31.1
CERTIFICATION
I, Stanford L. Kurland, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust; |
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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; |
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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; |
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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)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have: |
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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; |
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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; |
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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 |
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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 |
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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 Trustees (or persons performing the equivalent functions): |
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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 |
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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, 2016
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/ S / S TANFORD L. K URLAND |
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Stanford L. Kurland |
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Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Anne D. McCallion, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust; |
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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; |
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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; |
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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)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have: |
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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; |
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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; |
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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 |
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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 |
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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 Trustees (or persons performing the equivalent functions): |
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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 |
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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, 2016
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/ S / A NNE D. M C C ALLION |
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Anne D. McCallion |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust (the “Company”) for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanford L. Kurland, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/ S / S TANFORD L. K URLAND |
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Stanford L. Kurland Chairman of the Board and Chief Executive Officer |
August 5, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PennyMac Mortgage Investment Trust and will be retained by PennyMac Mortgage Investment Trust 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 Mortgage Investment Trust (the “Company”) for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anne D. McCallion, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/ S / A NNE D. M C C ALLION |
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Anne D. McCallion |
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Chief Financial Officer |
August 5, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PennyMac Mortgage Investment Trust and will be retained by PennyMac Mortgage Investment Trust and furnished to the Securities and Exchange Commission or its staff upon request.