PennyMac Mortgage Investment Trust (Form: 10-Q, Received: 05/06/2022 16:29:16)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

☐	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)

Maryland		27-0186273
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3043 Townsgate Road, Westlake Village, California		91361
(Address of principal executive offices)		(Zip Code)

(818) 224-7442

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol (s)	Name of Each Exchange on Which Registered
8.125% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value	PMT/PA	New York Stock Exchange
8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 Par Value	PMT/PB PMT/PC	New York Stock Exchange New York Stock Exchange
Common Shares of Beneficial Interest, $0.01 Par Value	PMT	New York Stock Exchange

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Class		Outstanding at May 5, 2022
Common Shares of Beneficial Interest, $0.01 par value		91,953,676

PENNYMAC MORTGAGE INVESTMENT TRUST

FORM 10-Q

March 31, 2022

TABLE OF CONTENTS

		Page
Special Note Regarding Forward-Looking Statements		1
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	6
	Consolidated Statements of Changes in Shareholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
	Our Company	57
	Results of Operations	60
	Net Investment Income	61
	Expenses	71
	Balance Sheet Analysis	73
	Asset Acquisitions	73
	Investment Portfolio Composition	74
	Cash Flows	77
	Liquidity and Capital Resources	77
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	80
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	81
Item 4.	Controls and Procedures	82
PART II. OTHER INFORMATION		83
Item 1.	Legal Proceedings	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
Item 3.	Defaults Upon Senior Securities	83
Item 4.	Mine Safety Disclosures	83
Item 5.	Other Information	83
Item 6.	Exhibits	84

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

•

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

•

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

•

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

•

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

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

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022.

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

•

changes in interest rates;

•

our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics such as the COVID-19 pandemic;

•

the impact to our CRT arrangements and agreements of increased borrower requests for forbearance under the Coronavirus Aid, Relief and Economic Security Act;

•

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;

•

the degree and nature of our competition;

•

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;

•

events or circumstances which undermine confidence in the financial and housing markets or otherwise have a broad impact on financial and housing 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;

•

changes in general business, economic, market, employment and domestic and international political conditions, or in consumer confidence and spending habits from those expected;

•

declines in real estate or significant changes in U.S. housing prices or activity in the U.S. housing market;

•

the availability of, and level of competition for, attractive risk-adjusted investment opportunities in loans and mortgage-related assets that satisfy our investment objectives;

•

the inherent difficulty in winning bids to acquire loans, and our success in doing so;

•

the concentration of credit risks to which we are exposed;

•

our dependence on our manager and servicer, potential conflicts of interest with such entities and their affiliates, and the performance of such entities;

•

changes in personnel and lack of availability of qualified personnel at our manager, servicer or their affiliates;

•

the availability, terms and deployment of short-term and long-term capital;

•

the adequacy of our cash reserves and working capital;

•

our substantial amount of debt;

•

our ability to maintain the desired relationship between our financing and the interest rates and maturities of our assets;

•

the timing and amount of cash flows, if any, from our investments;

•

unanticipated increases or volatility in financing and other costs, including a rise in interest rates;

•

the performance, financial condition and liquidity of borrowers;

•

the ability of our servicer, which also provides us with fulfillment services, to approve and monitor correspondent sellers and underwrite loans to investor standards;

•

incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties;

•

our indemnification and repurchase obligations in connection with loans we purchase and later sell or securitize;

•

the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest;

•

increased rates of delinquency, default and/or decreased recovery rates on our investments;

•

the performance of loans underlying mortgage-backed securities in which we retain credit risk;

•

our ability to foreclose on our investments in a timely manner or at all;

•

the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•

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;

•

our ability to maintain appropriate internal control over financial reporting;

•

technology failures, cybersecurity risks and incidents, and our ability to mitigate cybersecurity risks and cyber intrusions;

•

our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;

•

our ability to detect misconduct and fraud;

•

our ability to comply with various federal, state and local laws and regulations that govern our business;

•

developments in the secondary markets for our loan products;

•

legislative and regulatory changes that impact the loan industry or housing market;

•

changes in regulations that impact the business, operations or governance of mortgage lenders and/or publicly-traded companies or such changes that increase the cost of doing business with such entities;

•

the Consumer Financial Protection Bureau and its issued and future rules and the enforcement thereof;

•

changes in government support of homeownership;

•

our ability to effectively identify, manage and hedge our credit, interest rate, prepayment, liquidity, and climate risks;

•

changes in government or government-sponsored home affordability programs;

•

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 and the ability of certain of our subsidiaries to qualify as REITs or as taxable REIT subsidiaries 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;

•

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);

•

our ability to make distributions to our shareholders in the future;

•

our failure to deal appropriately with issues that may give rise to reputational risk; and

•

our organizational structure and certain requirements in our charter documents.

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

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
	2022			2021
	(in thousands, except share information)
ASSETS
Cash	$	187,880		$	58,983
Short-term investments at fair value		236,468			167,999
Mortgage-backed securities at fair value pledged to creditors		3,070,330			2,666,768
Loans acquired for sale at fair value ($1,675,107 and $4,059,479 pledged to creditors, respectively)		1,708,745			4,171,025
Loans at fair value ($1,822,947 and $1,564,924 pledged to creditors, respectively)		1,826,482			1,568,726
Derivative assets ($970 and $19,627 pledged to creditors, respectively)		77,823			34,238
Deposits securing credit risk transfer arrangements pledged to creditors		1,536,862			1,704,911
Mortgage servicing rights at fair value ($3,352,952 and $2,863,544 pledged to creditors, respectively)		3,391,172			2,892,855
Servicing advances ($64,852 and $93,455 pledged to creditors, respectively)		134,002			204,951
Due from PennyMac Financial Services, Inc.		20,562			15,953
Other ($6,204 and $7,293 pledged to creditors, respectively)		197,189			286,299
Total assets	$	12,387,515		$	13,772,708
LIABILITIES
Assets sold under agreements to repurchase	$	5,092,700		$	6,671,890
Mortgage loan participation purchase and sale agreements		65,699			49,988
Notes payable secured by credit risk transfer and mortgage servicing assets		2,372,279			2,471,961
Exchangeable senior notes		544,100			502,459
Asset-backed financings at fair value		1,712,650			1,469,999
Interest-only security payable at fair value		16,373			10,593
Derivative and credit risk transfer strip liabilities at fair value		129,350			42,206
Accounts payable and accrued liabilities		117,682			96,156
Due to PennyMac Financial Services, Inc.		27,722			40,091
Income taxes payable		46,797			9,598
Liability for losses under representations and warranties		40,225			40,249
Total liabilities		10,165,577			11,405,190

Commitments and contingencies ─ Note 17

SHAREHOLDERS’ EQUITY
Preferred shares of beneficial interest, $0.01 par value per share, authorized 100,000,000 shares, issued and outstanding 22,400,000, liquidation preference $560,000,000		541,482			541,482
Common shares of beneficial interest—authorized, 500,000,000 common shares of $0.01 par value; issued and outstanding, 93,007,076 and 94,897,255 common shares, respectively		930			949
Additional paid-in capital		2,000,107			2,081,757
Accumulated deficit		(320,581	)		(256,670	)
Total shareholders’ equity		2,221,938			2,367,518
Total liabilities and shareholders’ equity	$	12,387,515		$	13,772,708

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

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):

	March 31,		December 31,
	2022		2021
	(in thousands)
ASSETS
Loans at fair value	$	1,822,533	$	1,564,565
Derivative assets at fair value		970		19,627
Deposits securing credit risk transfer arrangements		1,536,862		1,704,911
Other‒interest receivable		4,621		3,701
	$	3,364,986	$	3,292,804
LIABILITIES
Asset-backed financings at fair value	$	1,712,650	$	1,469,999
Derivative and credit risk transfer strip liabilities at fair value		77,614		27,500
Interest-only security payable at fair value		16,373		10,593
Accounts payable and accrued liabilities‒interest payable		4,621		3,701
	$	1,811,258	$	1,511,793

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

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Quarter ended March 31,
	2022			2021
	(in thousands, except per common share amounts)
Net investment income
Net loan servicing fees:
From nonaffiliates
Contractually specified	$	146,885		$	116,287
Other		9,114			16,245
		155,999			132,532
Change in fair value of mortgage servicing rights		303,721			278,282
Mortgage servicing rights hedging results		(163,802	)		(374,403	)
		295,918			36,411
From PennyMac Financial Services, Inc.		8,260			13,634
		304,178			50,045
Net (losses) gains on investments and financings:
From nonaffiliates		(229,095	)		81,540
From PennyMac Financial Services, Inc.		—			1,651
		(229,095	)		83,191
Net gains on loans acquired for sale:
From nonaffiliates		2,657			51,274
From PennyMac Financial Services, Inc.		1,296			1,738
		3,953			53,012
Loan origination fees		14,774			52,902
Interest income:
From nonaffiliates		51,063			36,309
From PennyMac Financial Services, Inc.		—			1,280
		51,063			37,589
Interest expense:
To nonaffiliates		63,514			75,921
To PennyMac Financial Services, Inc.		—			387
		63,514			76,308
Net interest expense		(12,451	)		(38,719	)
Results of real estate acquired in settlement of loans		230			837
Other		250			129
Net investment income		81,839			201,397
Expenses
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees		21,088			19,093
Loan fulfillment fees		16,754			60,835
Management fees		8,117			8,449
Professional services		4,025			2,224
Loan collection and liquidation		3,177			3,857
Loan origination		2,842			9,308
Safekeeping		2,395			1,941
Compensation		1,437			2,185
Other		3,946			2,477
Total expenses		63,781			110,369
Income before provision for income taxes		18,058			91,028
Provision for income taxes		37,187			19,425
Net (loss) income		(19,129	)		71,603
Dividends on preferred shares		10,455			6,234
Net (loss) income attributable to common shareholders	$	(29,584	)	$	65,369
(Loss) earnings per common share
Basic	$	(0.32	)	$	0.67
Diluted	$	(0.32	)	$	0.67
Weighted average common shares outstanding
Basic		94,146			97,892
Diluted		94,146			98,103
Dividends declared per common share	$	0.47		$	0.47

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

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

	Quarter ended March 31, 2022
	Preferred shares				Common shares
	Number				Number						Additional
	of				of			Par			paid-in			Accumulated
	shares		Amount		shares			value			capital			deficit			Total
	(in thousands, except per share amounts)
Balance at December 31, 2021		22,400	$	541,482		94,897		$	949		$	2,081,757		$	(256,670	)	$	2,367,518
Cumulative effect of adoption of ASU 2020-06		—		—		—			—			(50,347	)		9,394			(40,953	)
Balance at January 1, 2022		22,400		541,482		94,897			949			2,031,410			(247,276	)		2,326,565
Net loss		—		—		—			—			—			(19,129	)		(19,129	)
Share-based compensation		—		—		84			1			506			—			507
Dividends:
Preferred shares		—		—		—			—			—			(10,454	)		(10,454	)
Common shares ($0.47 per share)		—		—		—			—			—			(43,722	)		(43,722	)
Repurchase of common shares		—		—		(1,974	)		(20	)		(31,809	)		—			(31,829	)
Balance at March 31, 2022		22,400	$	541,482		93,007		$	930		$	2,000,107		$	(320,581	)	$	2,221,938

	Quarter ended March 31, 2021
	Preferred shares				Common shares
	Number				Number						Additional
	of				of			Par			paid-in			Accumulated
	shares		Amount		shares			value			capital			deficit			Total
	(in thousands, except per share amounts)
Balance at December 31, 2020		12,400	$	299,707		97,863		$	979		$	2,096,907		$	(100,734	)	$	2,296,859
Net income		—		—		—			—			—			71,603			71,603
Share-based compensation		—		—		75			—			1,040			—			1,040
Recognition of cash conversion option included in issuance of exchangeable senior notes		—		—		—			—			39,986			—			39,986
Dividends:
Preferred shares		—		—		—			—			—			(6,236	)		(6,236	)
Common shares ($0.47 per share)		—		—		—			—			—			(46,109	)		(46,109	)
Balance at March 31, 2021		12,400	$	299,707		97,938		$	979		$	2,137,933		$	(81,476	)	$	2,357,143

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

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Quarter ended March 31,
	2022			2021
	(in thousands)
Cash flows from operating activities
Net (loss) income	$	(19,129	)	$	71,603
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Change in fair value of mortgage servicing rights		(303,721	)		(278,282	)
Mortgage servicing rights hedging results		163,802			374,403
Net losses (gains) on investments and financings		229,095			(83,191	)
Net gains on loans acquired for sale at fair value		(3,953	)		(53,012	)
Capitalization of interest and fees on loans at fair value		—			(198	)
Accrual of interest on excess servicing spread purchased from PennyMac Financial Services, Inc.		—			(1,280	)
Accrual of unearned discounts and amortization of purchase premiums on mortgage-backed securities, loans at fair value, and asset-backed financings		1,526			909
Amortization of debt issuance costs		4,140			7,384
Results of real estate acquired in settlement of loans		(230	)		(837	)
Share-based compensation expense		1,029			1,738
Purchase of loans acquired for sale at fair value from nonaffiliates		(23,072,430	)		(53,234,735	)
Purchase of loans acquired for sale at fair value from PennyMac Financial Services, Inc.		(259,038	)		—
Sale to nonaffiliates and repayment of loans acquired for sale at fair value		11,985,961			33,318,157
Sale of loans acquired for sale to PennyMac Financial Services, Inc.		13,160,768			18,420,614
Repurchase of loans subject to representation and warranties		(24,234	)		(16,094	)
Decrease (increase) in servicing advances		70,949			(28,686	)
(Increase) decrease in due from PennyMac Financial Services, Inc.		(4,609	)		688
Increase in other assets		(230,332	)		(366,695	)
Increase (decrease) in accounts payable and accrued liabilities		22,601			(1,988	)
Decrease in due to PennyMac Financial Services, Inc.		(12,369	)		(18,683	)
Increase in income taxes payable		37,199			18,930
Net cash provided by (used in) operating activities		1,747,025			(1,869,255	)
Cash flows from investing activities
Net (increase) decrease in short-term investments		(68,469	)		18,920
Purchase of mortgage-backed securities at fair value		(661,774	)		(1,259,189	)
Sale and repayment of mortgage-backed securities at fair value		70,276			1,482,986
Sale and repayment of loans at fair value		51,081			32,926
Repayment of excess servicing spread receivable from PennyMac Financial Services, Inc.		—			134,624
Net settlement of derivative financial instruments		2,688			4,820
Distribution from credit risk transfer arrangements		207,014			190,943
Sale of real estate acquired in settlement of loans		2,893			12,111
Decrease in margin deposits		199,719			312,741
Net cash (used in) provided by investing activities		(196,572	)		930,882

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

Statements continued on the next page

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Quarter ended March 31,
	2022			2021
	(in thousands)
Cash flows from financing activities
Sale of assets under agreements to repurchase		30,883,776			56,191,062
Repurchase of assets sold under agreements to repurchase		(32,463,483	)		(56,410,371	)
Issuance of mortgage loan participation purchase and sale agreements		999,031			1,305,282
Repayment of mortgage loan participation purchase and sale agreements		(983,296	)		(1,253,957	)
Issuance of notes payable secured by credit risk transfer and mortgage servicing assets		125,001			1,547,127
Repayment of notes payable secured by credit risk transfer and mortgage servicing assets		(225,927	)		(568,357	)
Issuance of exchangeable senior notes		—			345,000
Issuance of asset-backed financings at fair value		382,423			—
Repayment of asset-backed financings at fair value		(49,764	)		(31,798	)
Repurchase of assets sold to PennyMac Financial Services, Inc. under agreement to repurchase		—			(80,862	)
Payment of debt issuance costs		(1,715	)		(16,588	)
Payment of dividends to preferred shareholders		(10,454	)		(6,236	)
Payment of dividends to common shareholders		(44,797	)		(46,093	)
Payment of vested share-based compensation tax withholdings		(522	)		(698	)
Repurchase of common shares		(31,829	)		—
Net cash (used in) provided by financing activities		(1,421,556	)		973,511
Net increase in cash		128,897			35,138
Cash at beginning of quarter		58,983			57,704
Cash at end of quarter	$	187,880		$	92,842
Supplemental cash flow information:
Payments (refunds), net:
Income taxes	$	(11	)	$	494
Interest	$	62,903		$	91,611
Non-cash investing activities:
Transfer of loans and advances to real estate acquired in settlement of loans	$	—		$	280
Receipt of mortgage servicing rights as proceeds from sales of loans acquired for sale at fair value	$	194,596		$	407,696
Receipt of excess servicing spread pursuant to recapture agreement with PennyMac Financial Services, Inc.	$	—		$	557
Recognition of loans at fair value resulting from initial consolidation of variable interest entity	$	405,908		$	—
Retention of subordinate mortgage-backed securities in loan securitization	$	23,485		$	—
Non-cash financing activities:
Recognition of asset-backed financings resulting from initial consolidation of variable interest entity	$	382,423		$	—
Dividends declared, not paid	$	43,689		$	46,109

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

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Organization

PennyMac Mortgage Investment Trust (“PMT” or 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 four segments: credit sensitive strategies, interest rate sensitive strategies, correspondent production, and corporate:

•

The credit sensitive strategies segment represents the Company’s investments in credit risk transfer (“CRT”) arrangements, including CRT agreements (“CRT Agreements”) and CRT securities (together, “CRT arrangements”), subordinate mortgage-backed securities (“MBS”), distressed loans and real estate.

•

The interest rate sensitive strategies segment represents the Company’s investments in mortgage servicing rights (“MSRs”), excess servicing spread (“ESS”) purchased from PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company, Agency and senior non-Agency MBS and the related interest rate hedging activities.

•

The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality loans either directly or in the form of MBS, using the services of PNMAC Capital Management, LLC (“PCM” or the “Manager”) and PennyMac Loan Services, LLC (“PLS”), both indirect controlled subsidiaries of PFSI.

The Company primarily sells the loans it acquires through its correspondent production activities to government-sponsored entities such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or to PLS for sale into securitizations guaranteed by 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 corporate segment includes management fees, corporate expense amounts and certain interest income.

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 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. To maintain its tax status as a REIT, the Company is required to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.

Note 2—Basis of Presentation and Accounting Change

Basis of Presentation

The Company’s 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. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

These 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 presented, 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 Company 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.

The Company held no restricted cash during the periods presented. Therefore, the consolidated statements of cash flows do not include references to restricted cash.

Accounting Change

Effective January 1, 2022, the Company adopted FASB Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in ASC subtopic 470-20, Debt – Debt with Conversion and Other Options for convertible instruments.

As a result of the adoption of ASU 2020-06, the Company reclassified approximately $50.3 million of issuance discount originally recognized in the issuance of Exchangeable senior notes from Additional paid-in capital to the carrying value of the Exchangeable senior notes and $9.4 million of previously recognized accrual of the issuance discount, as an adjustment to the Accumulated deficit effective January 1, 2022. The adoption of ASU 2020-06 reduced Interest expense by approximately $1.7 million for the quarter ended March 31, 2022, as the result of the elimination of the issuance discount.

Note 3—Concentration of Risks

As discussed in Note 1 – Organization above, PMT’s operations and investing activities are centered in residential mortgage-related assets, including CRT arrangements, subordinate MBS and MSRs. CRT arrangements and subordinate MBS are more sensitive to borrower credit performance than other mortgage-related investments such as traditional loans and Agency MBS. MSRs are sensitive to changes in prepayment rate activity and expectations.

Credit Risk

Note 6 – Variable Interest Entities details the Company’s investments in CRT arrangements whereby the Company sells pools of recently-originated loans into Fannie Mae-guaranteed securitizations while either:

•

through May 2018, entering into CRT Agreements, whereby it retains a portion of the credit risk underlying such loans as part of the retention of an interest-only (“IO”) ownership interest in such loans and an obligation to absorb scheduled credit losses arising from such loans reaching a specific number of days delinquent; or

•

from June 2018 through 2020, entering into firm commitments to purchase and purchasing CRT securities and, upon purchase of such securities, holding CRT strips representing an IO ownership interest that absorbs realized credit losses arising from loans in the reference pools backing the CRT securities. The obligation to absorb the losses for both CRT Agreements and CRT securities represent the Company’s recourse obligations included in the arrangements (“Recourse Obligations”).

The Company also invests in subordinate MBS which are among the first beneficial interests in the related securitizations to absorb credit losses on the underlying loans.

The Company’s retention of credit risk through its investment in CRT arrangements and subordinate MBS subjects it to risks associated with delinquency and foreclosure similar to the risks of loss associated with owning the underlying loans, which is greater than the risk of loss associated with selling such loans to Fannie Mae without the retention of such credit risk in the case of CRT arrangements and investing in senior mortgage pass through securities in the case of subordinate MBS.

CRT Agreements are structured such that loans that reach a specific number of days delinquent (including loans in forbearance which also includes those subject to the forbearance provided in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)) trigger losses chargeable to the CRT Agreements based on the size of the loan and a contractual schedule of loss severity. Therefore, the risks associated with delinquency and foreclosure may in some instances be greater than the risks associated with owning the related loans because the structure of the CRT Agreements provides that the Company may be required to absorb losses in the event of delinquency or foreclosure even when there is ultimately no loss realized with respect to such loans (e.g., as a result of a borrower’s re-performance). In contrast, the structure of the Company’s investment in CRT strips requires PMT to absorb losses only when the reference loans realize losses.

Fair Value Risk

The Company is exposed to fair value risk in addition to the risks specific to credit and, as a result of prevailing market conditions or the economy generally, may be required to recognize losses associated with adverse changes to the fair value of its investments in MSRs, CRT arrangements, and MBS:

•

The fair value of MSRs is sensitive to changes in prepayment speeds, estimates of cost to service the underlying loans or the returns demanded by market participants;

•

The fair values of CRT arrangements and subordinate MBS are sensitive to market perceptions of future credit performance of the underlying loans as well as the actual credit performance of such loans and to the returns required by market participants to hold such investments; and

•

The fair value of Agency and senior non-Agency pass through MBS is sensitive to changes in market interest rates.

Note 4—Transactions with Related Parties

Operating Activities

Correspondent Production Activities

The Company is provided fulfillment and other services by PLS under an amended and restated mortgage banking services agreement. The Company does not hold the Ginnie Mae approval required to issue securities guaranteed by Ginnie Mae and service the underlying loans. Accordingly, under the agreement, PLS currently purchases loans saleable in accordance with the Ginnie Mae MBS Guide “as is” and without recourse of any kind from the Company at cost less any administrative fees paid by the correspondent to the Company plus accrued interest and a sourcing fee.

Fulfillment and sourcing fees are summarized below:

•

Fulfillment fees shall not exceed the following:

(i)

the number of loan commitments issued by the Company multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus

(ii)

$315 multiplied by the number of purchased loans up to and including 16,500 per quarter and $195 multiplied by the number of purchased loans in excess of 16,500 per quarter, plus

(iii)

$750 multiplied by the number of all purchased loans that are sold or securitized to parties other than Fannie Mae and Freddie Mac; provided however, that no fulfillment fee shall be due or payable to PLS with respect to any Ginnie Mae loans.

•

Sourcing fees range from one to two basis points of the unpaid principal balance (“UPB”), generally based on the average number of calendar days the loans are held by PMT before purchase by PLS.

The mortgage banking services agreement expires, unless terminated earlier in accordance with its terms, on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated in accordance with its terms.

The Company may purchase newly originated conforming balance non-government insured or guaranteed loans from PLS under a mortgage loan purchase and sale agreement.

Following is a summary of correspondent production activity between the Company and PLS:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Loan fulfillment fees earned by PLS	$	16,754	$	60,835
UPB of loans fulfilled by PLS	$	9,769,262	$	33,761,841

Sourcing fees received from PLS included in Net gains on loans acquired for sale	$	1,296	$	1,738
UPB of loans sold to PLS	$	12,747,779	$	17,559,575

Purchases of loans acquired for sale from PLS	$	259,038	$	—

Tax service fees paid to PLS	$	2,342	$	8,192

March 31, 2022

December 31, 2021

(in thousands)

Loans included in Loans acquired for sale at fair value

pending sale to PLS

288,974

314,995

Loan Servicing

The Company, through its Operating Partnership, has a loan servicing agreement with PLS (the “Servicing Agreement”) pursuant to which PLS provides subservicing for the Company's portfolio of MSRs, loans held for sale and loans held in VIEs (prime servicing) and its portfolio of residential loans purchased with credit deterioration (distressed loans). The Servicing Agreement provides for servicing fees earned by PLS that are established at a fixed per loan monthly amount based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or real estate acquired in settlement of loans (“REO”). The Servicing Agreement expires on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with its terms.

Prime Servicing

The base servicing fees for prime loans subserviced by PLS on the Company’s behalf are $7.50 per month for fixed-rate loans and $8.50 per month for adjustable-rate loans.

To the extent that these prime loans become delinquent, PLS is entitled to an additional servicing fee per loan ranging from $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, assumption, modification and origination fees and certain fees for COVID-19 pandemic-related forbearance and modification activities it provides as required by the CARES Act.

Special Servicing (Distressed Loans)

The base servicing fee rates for distressed loans range from $30 per month for current loans up to $95 per month for loans in foreclosure proceedings. The base servicing fee rate for REO is $75 per month.

PLS receives activity-based fees for modifications, foreclosures and liquidations that it facilitates with respect to distressed loans, as well as other market-based refinancing and loan disposition fees. PLS may also receive REO rental fees, property lease renewal fees, property management fees, tenant paid application fees, late rent fees, and third-party vendor fees.

MSR Recapture Agreement

The Company has an MSR recapture agreement with PFSI. Pursuant to the terms of the MSR recapture agreement, if PFSI refinances mortgage loans for which the Company previously held the MSRs, PFSI is generally required to transfer and convey to the Company cash in an amount equal to:

•

40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”;

•

35% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 15% and up to 30%; and

•

30% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30%.

The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance of all recaptured loans, to (ii) the aggregate unpaid principal balance of all mortgage loans for which the Company held the MSRs and that were refinanced or otherwise paid off in such month. PFSI has further agreed to allocate sufficient resources to target a recapture rate of at least 15%.

The MSR recapture agreement expires, unless terminated earlier in accordance with its terms, on June 30, 2025, subject to automatic renewal for additional 18-month periods, unless terminated in accordance with its terms.

Following is a summary of loan servicing fees earned by PLS:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Loan servicing fees:
Loans acquired for sale at fair value	$	264	$	543
Loans at fair value		210		137
MSRs		20,614		18,413
	$	21,088	$	19,093
Average investment in:
Loans acquired for sale at fair value	$	2,129,668	$	3,618,980
Loans at fair value	$	1,559,939	$	136,927
Average MSR portfolio UPB	$	217,692,169	$	177,161,626

Management Fees

The Company has a management agreement with PCM pursuant to which the Company pays PCM management fees as follows:

•

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

•

A performance incentive fee that is calculated quarterly 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.”

The performance incentive fee is equal to the sum of: (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”.

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

“Net income” is defined as net income or loss attributable to common shares of beneficial interest (“common shares”) calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between the Manager and the Company’s independent trustees and after approval by a majority of the Company’s independent trustees.

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

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

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

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

Following is a summary of management fee expenses:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Base management		$	8,117	$	8,449
Performance incentive			—		—
		$	8,117	$	8,449
Average shareholders' equity amounts used to calculate base management fee expense		$	2,212,304	$	2,310,261

Expense Reimbursement and Amounts Payable to and Receivable from PCM

Under the management agreement, PCM is entitled to reimbursement of its organizational and operating expenses, including third-party expenses, incurred on the Company’s behalf, it being understood that PCM and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of the Company. PCM is reimbursed $165,000 per fiscal quarter, such amount to be reviewed annually and to not preclude reimbursement for any other services performed by PCM or its affiliates.

The Company is required to pay PCM and its affiliates a portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of PCM and its affiliates required for the Company’s and its subsidiaries’

operations. These expenses are allocated based on the ratio of the Company’s and its subsidiaries’ proportion of gross assets compared to all remaining gross assets owned and managed by PCM as calculated at each fiscal quarter end.

Following is a summary of the Company’s reimbursements to PCM and its affiliates for expenses:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Reimbursement of:
Expenses incurred on the Company’s behalf, net	$	5,357	$	1,336
Common overhead incurred by PCM and its affiliates		1,864		571
Compensation		165		165
	$	7,386	$	2,072
Payments and settlements during the quarter (1)	$	39,764	$	112,741

(1)	Payments and settlements include payments and netting settlements made pursuant to master netting agreements between the Company and PFSI for the operating, investing and financing activities itemized in this Note.

Investing Activities

Spread Acquisition and MSR Servicing Agreements

The Company, through a wholly-owned subsidiary, PennyMac Holdings, LLC (“PMH”), has an amended and restated master spread acquisition and MSR servicing agreement with PLS (the “Spread Acquisition Agreement”), pursuant to which the Company may purchase from PLS, from time to time, participation certificates representing beneficial ownership in ESS arising from Ginnie Mae MSRs acquired by PLS, in which case PLS generally would be required to service or subservice the related loans for Ginnie Mae. The primary purpose of the amendment and restatement was to facilitate the continued financing of the ESS owned by the Company in connection with its participation in the GNMA MSR Facility (defined below).

To the extent PLS refinances any of the loans relating to the ESS the Company has acquired, the Spread Acquisition Agreement also contains recapture provisions requiring that PLS transfer to the Company, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated loans. However, under the Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae loans is not equal to at least 90% of the product of the excess servicing fee rate and the UPB of the refinanced 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 loans is not equal to at least 90% of the product of the excess servicing fee rate and the UPB of the modified loans, the 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, settle its recapture liability to the Company in cash in an amount equal to such fair market value in lieu of transferring such ESS.

The remaining balance of the ESS was repaid during the quarter ended March 31, 2021.

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

	Quarter ended March 31, 2021
	(in thousands)
ESS:
Received pursuant to a recapture agreement	$	557
Repayments		134,624
Interest income		1,280
Net gain included in Net (losses) gains on investments and financings:
Valuation changes		1,037
Recapture income		614
	$	1,651

Financing Activities

PFSI held 75,000 of the Company’s common shares at both March 31, 2022 and December 31, 2021.

Repurchase Agreement with PLS

The Company, through PMH, has a master repurchase agreement with PLS (the “PMH Repurchase Agreement”), pursuant to which PMH may borrow from PLS for the purpose of financing PMH’s participation certificates representing beneficial ownership in ESS acquired from PLS under the Spread Acquisition Agreement. PLS then re-pledges such participation certificates to PNMAC GMSR ISSUER TRUST (the “Issuer Trust”) under a master repurchase agreement by and among PLS, the Issuer Trust and Private National Mortgage Acceptance Company, LLC, as guarantor (the “PC Repurchase Agreement”). The Issuer Trust was formed for the purpose of allowing PLS to finance MSRs and ESS relating to such MSRs (the “GNMA MSR Facility”).

In the first quarter of 2021, PLS repurchased the ESS from PMH at fair market value, effectively terminating the borrowing arrangements allowing PMH to finance its participation certificates representing beneficial ownership in ESS.

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

	Quarter ended March 31, 2021
	(in thousands)
Net repayments of assets sold under agreements to repurchase	$	80,862
Interest expense	$	387

Amounts Receivable from and Payable to PFSI

Amounts receivable from and payable to PFSI are summarized below:

	March 31, 2022		December 31, 2021
	(in thousands)
Due from PFSI:
Affiliates loan settlements	$	16,263	$	—
Other receivables		4,299		15,953
	$	20,562	$	15,953

Due to PFSI:
Management fees	$	8,117	$	8,918
Loan servicing fees		7,136		6,848
Correspondent production fees		6,633		8,894
Allocated expenses and expenses and costs paid by PFSI on PMT’s behalf		3,364		15,431
Fulfillment fees		2,472		—
	$	27,722	$	40,091

The Company has also transferred cash to fund loan servicing advances and REO property acquisition and preservation costs to be advanced on its behalf by PLS. Such amounts are included in various balance sheet items as summarized below:

Balance sheet line including advance amount	March 31, 2022		December 31, 2021
	(in thousands)
Loan servicing advances	$	134,002	$	204,951
Real estate acquired in settlement of loans		4,904		7,115
	$	138,906	$	212,066

Note 5—Loan Sales

The following table summarizes cash flows between the Company and transferees in transfers of loans that are accounted for as sales where the Company maintains continuing involvement with the loans:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Cash flows:
Proceeds from sales	$	11,985,961	$	33,318,157
Loan servicing fees received net of guarantee fees	$	146,885	$	116,287

The following table summarizes, for the dates presented, collection status information for loans whose transfers are accounted for as sales where the Company maintains continuing involvement:

	March 31, 2022		December 31, 2021
	(in thousands)
UPB of loans outstanding	$	218,888,841	$	215,927,495
Collection status (UPB) (1)
Delinquency:
30-89 days delinquent	$	1,196,634	$	1,148,542
90 or more days delinquent:
Not in foreclosure	$	1,092,377	$	1,726,488
In foreclosure	$	64,636	$	36,658
Bankruptcy	$	126,619	$	130,582
Delinquent loans in COVID-19 pandemic-related forbearance:
30-89 days	$	216,706	$	169,654
90 days or more	$	481,090	$	614,882
Custodial funds managed by the Company (2)	$	3,293,190	$	3,823,527

(1)	Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act.

(2)

Custodial funds include borrower and investor custodial cash accounts relating to loans serviced under mortgage servicing agreements and are not included on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the loans’ borrowers and investors, which are included in Interest income in the Company’s consolidated statements of operations.

Note 6—Variable Interest Entities

The Company is a variable interest holder in various Variable Interest Entities (“VIEs”) that relate to its investing and financing activities.

Credit Risk Transfer Arrangements

The Company has entered into certain loan sales arrangements pursuant to which it accepts credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or incurred credit losses on such loans and include CRT Agreements and CRT strips.

The Company, through its subsidiary, PennyMac Corp. (“PMC”), entered into CRT Agreements with Fannie Mae, pursuant to which PMC, through subsidiary trust entities, sold pools of loans into Fannie Mae-guaranteed securitizations while retaining Recourse Obligations as part of the retention of IO ownership interests in such loans. The Company placed Deposits securing credit risk transfer arrangements pledged to creditors into the subsidiary trust entities to secure its Recourse Obligations. The Company recognizes its IO ownership interests and Recourse Obligations on the consolidated balance sheets as CRT Derivatives in Derivative assets and Derivative and credit risk transfer strip liabilities.

The Company’s exposure to losses under its Recourse Obligations was initially established at rates ranging from 3.5% to 4.0% of the UPB of the loans sold under the CRT arrangements. As the UPB of the loans underlying each CRT arrangement is reduced through repayments, the percentage exposure of each CRT arrangement will increase to maximums ranging from 4.5% to 5.0% of outstanding UPB, although the total dollar amount of exposure to losses does not increase. The final sales of loans subject to the CRT Agreements were made during May 2018.

Effective in June 2018, the Company began entering into a different type of CRT arrangement. Under the new arrangement, the Company sold loans subject to agreements that required PMT to purchase securities that absorb incurred credit losses on such loans. The final sales of loans subject to this type of CRT arrangement were made during September 2020.

The Company purchased the securities subject to the agreements. Similar to the CRT Agreements, the Company accounts for the deposits collateralizing these securities as Deposits securing credit risk transfer arrangements pledged to creditors and recognizes its IO ownership interests and Recourse Obligations as CRT strips, which are also included on the consolidated balance sheet in Derivative and credit risk transfer strip liabilities.

The Deposits securing credit risk transfer arrangements pledged to creditors relating to CRT arrangements represent the Company’s maximum contractual exposure to losses. Gains and losses on the derivatives and strips (including the IO ownership interest sold to nonaffiliates) included in the CRT arrangements are included in Net (losses) gains on investments and financings in the consolidated statements of operations.

Following is a summary of the CRT arrangements:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Investment income:
Net (losses) gains on investments and financings:
Derivative and CRT strips:
CRT derivatives:
Realized		$	21,201		$	23,496
Valuation changes			(27,049	)		12,874
			(5,848	)		36,370
CRT strips:
Realized			17,763			32,604
Valuation changes			(41,758	)		93,222
			(23,995	)		125,826
Interest-only security payable at fair value			(5,780	)		(8,165	)
			(35,623	)		154,031
Interest income — Deposits securing CRT arrangements			222			168
		$	(35,401	)	$	154,199

Net recoveries received to settle reversal of previously recognized losses on CRT arrangements		$	15,973		$	13,343

	March 31, 2022			December 31, 2021
	(in thousands)
Carrying value of CRT arrangements:
Derivative and credit risk transfer strip assets (liabilities), net
CRT derivatives	$	(8,049	)	$	18,964
CRT strips		(68,595	)		(26,837	)
	$	(76,644	)	$	(7,873	)

Deposits securing CRT arrangements	$	1,536,862		$	1,704,911
Interest-only security payable at fair value	$	16,373		$	10,593

CRT arrangement assets pledged to secure borrowings:
Derivative assets	$	970		$	19,627
Deposits securing CRT arrangements (1)	$	1,536,862		$	1,704,911

UPB of loans underlying CRT arrangements	$	28,160,867		$	30,808,907
Collection status (UPB):
Delinquency (2)
Current	$	27,394,812		$	29,581,803
30-89 days delinquent	$	312,851		$	349,291
90-180 days delinquent	$	108,762		$	120,775
180 or more days delinquent	$	328,506		$	748,576
Foreclosure	$	15,936		$	8,462
Bankruptcy	$	59,008		$	64,694
Delinquent loans in COVID-19 pandemic-related forbearance plans:
30-89 days delinquent	$	59,269		$	44,015
90-180 days delinquent	$	47,796		$	57,815
180 or more days delinquent	$	86,112		$	174,041

(1)	Deposits securing credit risk transfer strip arrangements pledged to creditors also secure $77.6 million and $27.5 million in CRT strip and CRT derivative liabilities at March 31, 2022 and December 31, 2021, respectively.

(2)	Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act.

Subordinate Mortgage-Backed Securities

The Company retains or purchases subordinate MBS in transactions sponsored by PMC or a nonaffiliate. Cash inflows from these loans are distributed to investors and service providers in accordance with the contractual priority of payments and, as such, most of these inflows must be directed first to service and repay the senior certificates.

The rights of holders of the subordinate certificates to receive distributions of principal and/or interest, as applicable, are subordinate to the rights of holders of the senior certificates. After the senior certificates are repaid, substantially all cash inflows will be directed to the subordinate certificates, including those held by the Company, until they are fully repaid.

The Company’s retention or purchase of subordinate MBS exposes PMT to the credit risk in the underlying loans because the Company’s beneficial interests are among the first beneficial interests to absorb credit losses on those assets. The Company’s exposure to losses from its investments in subordinate MBS is limited to its recorded investment in such securities.

Whether the Company concludes that it is the primary beneficiary of the VIEs issuing these subordinate MBS and therefore consolidates these entities is based on its exposure to losses that could be significant to the VIEs and its power to direct activities that most significantly impact the VIEs’ economic performance:

•

Certain of the Company’s investments in subordinate MBS either do not expose the Company to losses that could be significant to the issuing VIE or the Company has concluded that it does not have the power to direct the activities that most significantly impact the VIE’s economic performance. These investments are classified as credit linked securities in its investment in MBS as shown in Note 8 – Mortgage-Backed Securities.

•

For other investments in subordinate MBS, comprised of transactions backed by loans purchased by the Company that were subsequently included in securitizations sponsored by the Company or a nonaffiliate and serviced by PLS, the Company concluded that it is the primary beneficiary of the VIEs as it has the power, through PLS, in its role as the servicer or sub-servicer of the loans, to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance and, as a holder of subordinate securities, is exposed to losses that could potentially be significant to the VIEs. Therefore, PMT consolidates those VIEs.

The Company recognizes the interest income earned on the loans owned by the consolidated VIEs and the interest expense attributable to the asset-backed securities issued to nonaffiliates by the consolidated VIEs on its consolidated statements of operations.

The Company’s investment in subordinate MBS included in its consolidated VIEs are summarized below:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Interest income	$	12,849	$	1,899
Interest expense	$	11,027	$	168

	March 31, 2022		December 31, 2021
	(in thousands)
Loans at fair value	$	1,822,533	$	1,564,565
Asset-backed financings at fair value	$	1,712,650	$	1,469,999
Certificates retained at fair value pledged to secure Assets sold under agreements to repurchase	$	99,363	$	85,266

Note 7— Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement at or based on 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 Company has elected to carry the item at its fair value as discussed in the following paragraphs.

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

•

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

•

Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.

•

Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

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

The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the inputs required to establish fair value at a higher level of the hierarchy become available.

Fair Value Accounting Elections

The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets 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 Company has also identified its Asset-backed financings at fair value and Interest-only security payable at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.

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:

	March 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	236,468	$	—	$	—	$	236,468
Mortgage-backed securities at fair value		—		3,070,330		—		3,070,330
Loans acquired for sale at fair value		—		1,684,420		24,325		1,708,745
Loans at fair value		—		1,822,533		3,949		1,826,482
Derivative assets:
Call options on interest rate futures purchase contracts		1,230		—		—		1,230
Put options on interest rate futures purchase contracts		65,358		—		—		65,358
Forward purchase contracts		—		7,597		—		7,597
Forward sale contracts		—		132,751		—		132,751
MBS put options		—		11,971		—		11,971
CRT derivatives		—		—		970		970
Interest rate lock commitments		—		—		1,649		1,649
Total derivative assets before netting		66,588		152,319		2,619		221,526
Netting		—		—		—		(143,703	)
Total derivative assets after netting		66,588		152,319		2,619		77,823
Mortgage servicing rights at fair value		—		—		3,391,172		3,391,172
	$	303,056	$	6,729,602	$	3,422,065	$	10,311,020
Liabilities:
Asset-backed financings at fair value	$	—	$	1,712,650	$	—	$	1,712,650
Interest-only security payable at fair value		—		—		16,373		16,373
Derivative and credit risk transfer strip liabilities:
Put options on interest rate futures sale contracts		—		3,750		—		3,750
Forward purchase contracts		—		54,641		—		54,641
Forward sales contracts		—		12,886		—		12,886
CRT derivatives		—		—		9,019		9,019
Interest rate lock commitments		—		—		25,114		25,114
Total derivative liabilities before netting		—		71,277		34,133		105,410
Netting		—		—		—		(44,655	)
Total derivative liabilities after netting		—		71,277		34,133		60,755
Credit risk transfer strips		—		—		68,595		68,595
Total derivative and credit risk transfer strip liabilities		—		71,277		102,728		129,350
	$	—	$	1,783,927	$	119,101	$	1,858,373

	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	167,999	$	—	$	—	$	167,999
Mortgage-backed securities at fair value		—		2,666,768		—		2,666,768
Loans acquired for sale at fair value		—		4,140,896		30,129		4,171,025
Loans at fair value		—		1,564,565		4,161		1,568,726
Derivative assets:
Call options on interest rate futures purchase contracts		2,828		—		—		2,828
Put options on interest rate futures purchase contracts		3,180		—		—		3,180
Forward purchase contracts		—		5,806		—		5,806
Forward sale contracts		—		6,307		—		6,307
MBS put options		—		3,662		—		3,662
Swaption purchase contracts		—		39		—		39
CRT derivatives		—		—		19,627		19,627
Interest rate lock commitments		—		—		3,897		3,897
Total derivative assets before netting		6,008		15,814		23,524		45,346
Netting		—		—		—		(11,108	)
Total derivative assets after netting		6,008		15,814		23,524		34,238
Mortgage servicing rights at fair value		—		—		2,892,855		2,892,855
	$	174,007	$	8,388,043	$	2,950,669	$	11,501,611
Liabilities:
Asset-backed financings at fair value	$	—	$	1,469,999	$	—	$	1,469,999
Interest-only security payable at fair value		—		—		10,593		10,593
Derivative liabilities and credit risk transfer strips:
Forward purchase contracts		—		3,620		—		3,620
Forward sales contracts		—		13,782		—		13,782
CRT derivatives		—		—		663		663
Interest rate lock commitments		—		—		1,446		1,446
Total derivative liabilities before netting		—		17,402		2,109		19,511
Netting		—		—		—		(4,142	)
Total derivative liabilities after netting		—		17,402		2,109		15,369
Credit risk transfer strips		—		—		26,837		26,837
Total derivative and credit risk transfer strip liabilities		—		17,402		28,946		42,206
	$	—	$	1,487,401	$	39,539	$	1,522,798

The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the periods presented:

	Quarter ended March 31, 2022
Assets (1)	Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights		Total
	(in thousands)
Balance, December 31, 2021	$	30,129		$	4,161		$	18,964		$	2,451		$	(26,837	)	$	2,892,855	$	2,921,723
Purchases and issuances		24,105			—			—			(28,144	)		—			—		(4,039	)
Repayments and sales		(29,498	)		(654	)		(21,165	)		—			(17,763	)		—		(69,080	)
Amounts received pursuant to sales of loans		—			—			—			—			—			194,596		194,596
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—			—			—			—			—			—		—
Other factors		(411	)		442			(5,848	)		(118,799	)		(23,995	)		303,721		155,110
		(411	)		442			(5,848	)		(118,799	)		(23,995	)		303,721		155,110
Transfers:
Interest rate lock commitments to loans acquired for sale (2)		—			—			—			121,027			—			—		121,027
Balance, March 31, 2022	$	24,325		$	3,949		$	(8,049	)	$	(23,465	)	$	(68,595	)	$	3,391,172	$	3,319,337
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2022	$	(229	)	$	66		$	(27,049	)	$	(23,465	)	$	(41,758	)	$	303,721	$	211,286

(1)	For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)	The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Quarter ended March 31, 2022
	(in thousands)
Interest-only security payable:
Balance, December 31, 2021	$	10,593
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—
Other factors		5,780
		5,780
Balance, March 31, 2022	$	16,373
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2022	$	5,780

	Quarter ended March 31, 2021
Assets (1)	Loans acquired for sale			Loans at fair value			Excess servicing spread			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights		Total
	(in thousands)
Balance, December 31, 2020	$	33,875		$	8,027		$	131,750		$	31,795		$	72,386		$	(202,792	)	$	1,755,236	$	1,830,277
Purchases and issuances		15,898			—			—			—			(9,704	)		—			—		6,194
Repayments and sales		(16,070	)		(584	)		(134,624	)		(23,489	)		—			(32,604	)		—		(207,371	)
Capitalization of interest		—			198			1,280			—			—			—			—		1,478
ESS received pursuant to a recapture agreement with PFSI		—			—			557			—			—			—			—		557
Amounts received pursuant to sales of loans		—			—			—			—			—			—			407,696		407,696
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—			—			—			—			—			—			—		—
Other factors		531			95			1,037			36,370			(275,515	)		125,826			278,282		166,626
		531			95			1,037			36,370			(275,515	)		125,826			278,282		166,626
Transfers:
Loans to REO		—			66			—			—			—			—			—		66
Interest rate lock commitments to loans acquired for sale (2)		—			—			—			—			147,975			—			—		147,975
Balance, March 31, 2021	$	34,234		$	7,802		$	—		$	44,676		$	(64,858	)	$	(109,570	)	$	2,441,214	$	2,353,498
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2021	$	337		$	81		$	—		$	12,874		$	(64,858	)	$	93,222		$	278,282	$	319,938

(1)	For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)	The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Quarter ended March 31, 2021
	(in thousands)
Interest-only security payable:
Balance, December 31, 2020	$	10,757
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk		—
Other factors		8,165
		8,165
Balance, March 31, 2021	$	18,922
Changes in fair value recognized during the quarter relating to liability outstanding at March 31, 2021	$	8,165

Financial Statement Items Measured at Fair Value under the Fair Value Option

Following are the fair values and related principal amounts due upon maturity of loans accounted for under the fair value option (including loans acquired for sale, loans held in consolidated VIEs, and distressed loans):

	March 31, 2022							December 31, 2021
	Fair value		Principal amount due upon maturity		Difference			Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Loans acquired for sale at fair value:
Current through 89 days delinquent	$	1,704,140	$	1,704,707	$	(567	)	$	4,166,177	$	4,048,967	$	117,210
90 or more days delinquent:
Not in foreclosure		4,605		5,183		(578	)		4,848		5,801		(953	)
In foreclosure		—		—		—			—		—		—
		4,605		5,183		(578	)		4,848		5,801		(953	)
	$	1,708,745	$	1,709,890	$	(1,145	)	$	4,171,025	$	4,054,768	$	116,257
Loans at fair value:
Loans held in consolidated VIEs:
Current through 89 days delinquent	$	1,819,997	$	1,886,199	$	(66,202	)	$	1,561,794	$	1,514,575	$	47,219
90 or more days delinquent:
Not in foreclosure		1,920		2,527		(607	)		2,141		2,722		(581	)
In foreclosure		616		809		(193	)		630		809		(179	)
		2,536		3,336		(800	)		2,771		3,531		(760	)
		1,822,533		1,889,535		(67,002	)		1,564,565		1,518,106		46,459
Distressed loans:
Current through 89 days delinquent		781		1,338		(557	)		782		1,455		(673	)
90 or more days delinquent:
Not in foreclosure		1,207		2,713		(1,506	)		1,181		3,824		(2,643	)
In foreclosure		1,961		5,729		(3,768	)		2,198		5,490		(3,292	)
		3,168		8,442		(5,274	)		3,379		9,314		(5,935	)
		3,949		9,780		(5,831	)		4,161		10,769		(6,608	)
	$	1,826,482	$	1,899,315	$	(72,833	)	$	1,568,726	$	1,528,875	$	39,851

Following are the changes in fair value included in current period results of operations by consolidated statement of operations line item for financial statement items accounted for under the fair value option:

	Quarter ended March 31, 2022
	Net (losses) gains on investments and financings			Net gains on loans acquired for sale			Net loan servicing fees		Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	(186,525	)	$	—		$	—	$	(1,411	)	$	(187,936	)
Loans acquired for sale at fair value		—			(227,266	)		—		—			(227,266	)
Loans at fair value		(96,121	)		—			—		(949	)		(97,070	)
Credit risk transfer strips		(23,995	)		—			—		—			(23,995	)
MSRs at fair value		—			—			303,721		—			303,721
	$	(306,641	)	$	(227,266	)	$	303,721	$	(2,360	)	$	(232,546	)
Liabilities:
Interest-only security payable at fair value	$	(5,780	)	$	—		$	—	$	—		$	(5,780	)
Asset-backed financings at fair value		89,174			—			—		(834	)		88,340
	$	83,394		$	—		$	—	$	(834	)	$	82,560

	Quarter ended March 31, 2021
	Net (losses) gains on investments and financings			Net gains on loans acquired for sale			Net loan servicing fees		Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	(71,117	)	$	—		$	—	$	(2,523	)	$	(73,640	)
Loans acquired for sale at fair value		—			(106,664	)		—		—			(106,664	)
Loans at fair value		(2,250	)		—			—		825			(1,425	)
ESS at fair value		1,037			—			—		1,280			2,317
Credit risk transfer strips		125,826			—			—		—			125,826
MSRs at fair value		—			—			278,282		—			278,282
	$	53,496		$	(106,664	)	$	278,282	$	(418	)	$	224,696
Liabilities:
Interest-only security payable at fair value	$	(8,165	)	$	—		$	—	$	—		$	(8,165	)
Asset-backed financings at fair value		900			—			—		789			1,689
	$	(7,265	)	$	—		$	—	$	789		$	(6,476	)

Financial Statement Item Measured at Fair Value on a Nonrecurring Basis

Following is a summary of the carrying value of assets that were remeasured during the period based on fair value on a nonrecurring basis:

Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total
	(in thousands)
March 31, 2022	$	—	$	—	$	1,983	$	1,983
December 31, 2021	$	—	$	—	$	5,147	$	5,147

The following table summarizes the fair value changes recognized during the periods on assets held at period end that were remeasured at fair value on a nonrecurring basis:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Real estate asset acquired in settlement of loans	$	(148	)	$	(649	)

The Company remeasures its REO based on fair value when it evaluates the REO for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less cost to sell. REO may be revalued after acquisition 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 fair 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 operations.

Fair Value of Financial Instruments Carried at Amortized Cost

Most of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values.

The Company has concluded that the fair values of these borrowings other than Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.

Following are the carrying and fair values of the Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes:

	March 31, 2022				December 31, 2021
Instrument	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets	$	2,372,279	$	2,354,174	$	2,471,961	$	2,480,842
Exchangeable senior notes	$	544,100	$	531,434	$	502,459	$	536,460

The Company estimates the fair value of the Notes payable secured by credit risk transfer and mortgage servicing assets and Exchangeable senior notes using indications of fair value provided by nonaffiliate brokers.

Valuation Governance

Most of the Company’s assets, its Asset-backed financings at fair value, Interest-only security payable at fair value and Derivative and credit risk transfer strip liabilities at fair value 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 assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair value of these assets and liabilities to specialized staff and subjects the valuation process to significant senior management oversight:

•

PFSI’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs and maintaining its valuation policies and procedures.

•

PFSI’s Capital Markets Risk Management staff develops the fair value of the Company’s IRLCs which is reviewed by PFSI’s Capital Markets Operations group.

With respect to the non-IRLC “Level 3” valuations, the FAV group reports to PFSI’s senior management valuation committee, which oversees the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and reports those results to PFSI’s senior management valuation committee. PFSI’s senior management valuation committee includes the Company’s chief financial, investment and credit officers as well as other senior members of the Company’s finance, capital markets and risk management staffs.

The FAV group is responsible for reporting to PFSI’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.

Valuation Techniques and Inputs

The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Mortgage-Backed Securities

The Company categorizes its current holdings of MBS as “Level 2” fair value assets. Fair value of these MBS is established based on quoted market prices for the Company’s MBS holdings or similar securities. Changes in the fair value of MBS are included in Net (losses) gains on investments and financings in the consolidated statements of operations.

Loans

Fair value of loans is estimated based on whether the loans are saleable into active markets:

•

Loans that are saleable into active markets, comprised of most of the Company’s loans acquired for sale at fair value and all of the loans at fair value held in VIEs, are categorized as “Level 2” fair value assets:

•

For loans acquired for sale, the fair values are established using the loans’ contracted selling price or quoted market price or market price equivalent.

•

For the loans at fair value held in VIEs, the quoted indications of fair value of all of the individual securities issued by the securitization trusts are used to derive fair values for the 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 Company believes are similar to the models and inputs used by other market participants. The Company adjusts the fair values received from brokers to include the fair value of MSRs attributable to the loans held by the Company included in the VIEs.

•

Loans that are not saleable into active markets, comprised of previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets:

•

Fair value for loans acquired for sale categorized as “Level 3” assets is 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 or contracted selling price when applicable.

•

Fair value for distressed loans is estimated based on the expected resolution to be realized from the individual asset’s disposition strategy. When a cash flow projection is used to estimate the fair value of the resolution, those cash flows are discounted at annual rates up to 20%.

Derivative and Credit Risk Transfer Strip Assets and Liabilities

CRT Derivatives

The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair value of CRT derivatives is based on indications of fair value provided to the Company by nonaffiliated brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the Recourse Obligations and the IO ownership interests. Together, the Recourse Obligation and the IO ownership interest comprise the CRT derivative. Fair value of the CRT derivative is derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair value of the certificates.

The Company assesses the fair values it receives from nonaffiliated brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives are the discount rate, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net (losses) gains on investments and financings in the consolidated statements of operations.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:

	March 31, 2022		December 31, 2021
	(dollars in thousands)
Fair value
CRT derivatives
Assets	$	970	$	19,627
Liabilities	$	9,019	$	663
UPB of loans in reference pools	$	6,791,035	$	7,426,288
Key inputs (1)
Discount rate
Range	5.7% – 8.6%		3.3% – 5.9%
Weighted average	8.2%		5.7%
Voluntary prepayment speed (2)
Range	7.0% – 7.7%		12.6% – 13.1%
Weighted average	7.4%		12.7%
Involuntary prepayment speed (3)
Range	0.2% – 0.9%		(0.1)% – 0.8%
Weighted average	0.3%		0.1%
Remaining loss (recovery) expectation (4)
Range	0.3% – 0.6%		(0.1)% – 0.6%
Weighted average	0.3%		0.1%

(1)	Weighted average inputs are based on fair value amounts of the CRT Agreements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

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

(3)

Involuntary prepayment speed is measured using Life Involuntary CPR. Negative involuntary prepayment speeds reflect the expectation for reinstatement to the reference pool of a portion of the loans that previously triggered contractual losses due to delinquency while under CARES Act forbearance upon their expected re-performance, as contractually provided for in certain CRT Agreements.

(4)

Remaining loss (recovery) expectation is measured as expected future contractual losses divided by the UPB of the reference loans. Negative remaining loss expectations reflect the expectation of contractual reversals of previously incurred contractual losses due to the expected re-performance of a portion of the loans that experienced delinquency while under CARES Act forbearance.

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair value of IRLCs based on quoted Agency MBS prices, the probability that the loan will be purchased under the commitment (the “pull-through rate”) and the Company’s estimate of the fair value of the MSRs it expects to receive upon sale of the loan.

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the estimated MSR attributed to 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 the IRLCs’ 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 IRLCs’ fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans acquired for sale in the consolidated statements of operations.

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

	March 31, 2022			December 31, 2021
Fair value (in thousands) (1)	$	(23,465	)	$	2,451
Committed amount (in thousands)	$	1,871,490		$	2,092,129
Key inputs (2)
Pull-through rate
Range	54.8% – 100%			64.3% – 100%
Weighted average	91.4%			91.4%
MSR fair value expressed as:
Servicing fee multiple
Range	0.4 – 6.6			0.5 – 6.3
Weighted average	4.6			4.5
Percentage of UPB
Range	0.3% – 2.9%			0.3% – 2.7%
Weighted average	1.6%			1.5%

(1)	For purposes of this table, IRLC asset and liability positions are shown net.

(2)	Weighted-average inputs are based on the committed amounts.

Hedging Derivatives

Fair value of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net (losses) gains on investments and financings, Net gains on loans acquired for sale, or Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results, as applicable, in the consolidated statements of operations.

Credit Risk Transfer Strips

The Company categorizes CRT strips as “Level 3” fair value assets or liabilities. The fair value of CRT strips is based on indications of fair value provided to the Company by nonaffiliated brokers for the certificates representing the beneficial interests in the trust holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interest and Recourse Obligation. Together, the IO ownership interest and the Recourse Obligation comprise the CRT strips.

Fair value of the CRT strips is derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair value of the certificates derived from indications provided by the nonaffiliated brokers. Through December 31, 2021, the Company applied adjustments to the fair value derived from these indications to account for contractual restrictions limiting PMT’s ability to sell certain of the certificates. During the quarter ended March 31, 2022, the contractual restrictions on the Company’s ability to sell the certificates were removed. Therefore, the Company did not include adjustments relating to restrictions on the transfer of certificates in the fair value of the certificates as of March 31, 2022.

The Company assesses the indications of fair value it receives from nonaffiliated brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rate, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net (losses) gains on investments and financings.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the adjusted broker-provided fair values used to derive the value of the CRT strip liabilities:

	March 31, 2022		December 31, 2021
	(dollars in thousands)
Fair value	$	68,595	$	26,837
UPB of loans in the reference pools	$	21,369,832	$	23,382,619
Key inputs (1)
Discount rate
Range	4.8% – 8.6%		3.8% – 6.4%
Weighted average	8.1%		6.0%
Voluntary prepayment speed (2)
Range	7.8% – 10.7%		14.9% – 17.6%
Weighted average	8.2%		17.2%
Involuntary prepayment speed (3)
Range	0.4% – 1.3%		0.5% – 1.4%
Weighted average	0.5%		0.6%
Remaining loss expectation (4)
Range	0.4% – 1.4%		0.3% – 1.1%
Weighted average	0.6%		0.5%

(1)	Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

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

(3)	Involuntary prepayment speed is measured using Life Involuntary CPR.

(4)	Remaining loss expectation is measured as expected future losses divided by the UPB of the loans in the reference pools.

Mortgage Servicing Rights

The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The fair value of MSRs is derived from the net positive cash flows associated with the servicing agreements. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements. The Company generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and the Company is generally entitled to retain any placement fees earned on funds held pending remittance of mortgagor principal, interest, tax and insurance payments.

The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spread, the prepayment speeds of the underlying loans and the annual per-loan cost to service the loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of operations.

MSRs are generally subject to loss in fair value when returns required by market participants (pricing spreads) increase, when mortgage interest rates decrease, or when annual per-loan cost of servicing increases. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.

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

	Quarter ended March 31,
	2022		2021
	(MSR recognized and UPB of underlying loans amounts in thousands)
MSR recognized	$	194,596	$	407,696
UPB of underlying loans	$	11,929,172	$	32,448,891
Weighted average annual servicing fee rate (in basis points)	31		26
Key inputs (1)
Pricing spread (2)
Range	5.8% – 7.8%		8.0% – 8.0%
Weighted average	6.6%		8.0%
Prepayment speed (3)
Range	6.0% – 9.0%		6.0% – 9.3%
Weighted average	8.4%		7.5%
Equivalent average life (in years)
Range	4.0 – 8.4		3.9 – 8.9
Weighted average	8.0		8.5
Annual per-loan cost of servicing
Range	$80 – $80		$81 – $81
Weighted average	$80		$81

(1)	Weighted average inputs are based on UPB of the underlying loans.

(2)

Through December 31, 2021, the Company applied pricing spreads to the forward rates implied by the United States Dollar London Inter-Bank Offered Rate (“LIBOR”) swap curve for purposes of discounting cash flows relating to MSRs. Effective January 1, 2022, the Company adopted the United States Treasury (“Treasury”) securities yield curve for purpose of discounting cash flows relating to MSRs. The change in reference rate did not have a significant effect on the Company’s estimates of fair value.

(3)	Prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

Following is a quantitative 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:

	March 31, 2022		December 31, 2021
	(Fair value, UPB of underlying loans and effect on fair value amounts in thousands)
Fair value	$	3,391,172	$	2,892,855
UPB of underlying loans	$	219,017,091	$	216,065,626
Weighted average annual servicing fee rate (in basis points)	28		28
Weighted average note interest rate	3.3%		3.0%
Key inputs (1)
Pricing spread (2)
Range	4.9% – 9.0%		6.0% – 8.0%
Weighted average	5.9%		7.2%
Effect on fair value of:
5% adverse change	$(45,375)		$(39,826)
10% adverse change	$(89,600)		$(78,613)
20% adverse change	$(174,758)		$(153,220)
Prepayment speed (3)
Range	6.9% – 21.5%		5.5% – 12.5%
Weighted average	7.8%		8.2%
Equivalent average life (in years)
Range	3.4 – 8.5		3.5 – 9.1
Weighted average	8.1		8.1
Effect on fair value of:
5% adverse change	$(54,398)		$(59,726)
10% adverse change	$(106,919)		$(117,162)
20% adverse change	$(206,727)		$(225,672)
Annual per-loan cost of servicing
Range	$78 – $80		$80 – $81
Weighted average	$80		$80
Effect on fair value of:
5% adverse change	$(19,465)		$(17,585)
10% adverse change	$(38,930)		$(35,169)
20% adverse change	$(77,859)		$(70,338)

(1)	Weighted-average inputs are based on the UPB of the underlying loans.

(2)

Through December 31, 2021, the Company applied pricing spreads to the forward rates implied by the United States Dollar LIBOR swap curve for purposes of discounting cash flows relating to MSRs. Effective January 1, 2022, the Company adopted the Treasury securities yield curve for purpose of discounting cash flows relating to MSRs. The change in reference rate did not have a significant effect on the Company’s estimates of fair value.

(3)	Prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

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

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 asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, a full appraisal, or the price given in a pending contract of sale.

REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers obtain an additional appraisal to determine fair value. Recognized 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.

Note 8— Mortgage-Backed Securities

Following is a summary of activity in the Company’s investment in MBS:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Balance at beginning of quarter	$	2,666,768		$	2,213,922
Purchases		661,774			1,259,189
Sales		—			(1,300,653	)
Repayments		(70,276	)		(182,333	)
Changes in fair value included in income arising from:
Amortization of net purchase premiums		(1,411	)		(2,523	)
Valuation adjustments		(186,525	)		(71,117	)
		(187,936	)		(73,640	)
Balance at end of quarter	$	3,070,330		$	1,916,485

Following is a summary of the Company’s investment in MBS:

	March 31, 2022
	Principal balance		Unamortized net purchase premiums (discounts)			Accumulated valuation changes			Fair value (1)
	(in thousands)
Agency fixed-rate pass-through securities	$	3,119,140	$	88,744		$	(250,828	)	$	2,957,056
Subordinate credit-linked securities		85,900		(75	)		907			86,732
Senior non-Agency securities		29,491		(937	)		(2,012	)		26,542
	$	3,234,531	$	87,732		$	(251,933	)	$	3,070,330

	December 31, 2021
	Principal balance		Unamortized net purchase premiums		Accumulated valuation changes			Fair value (1)
	(in thousands)
Agency fixed-rate pass-through securities	$	2,649,238	$	82,938	$	(65,408	)	$	2,666,768

(1)	All MBS have maturities of more than ten years and are pledged to secure Assets sold under agreements to repurchase at March 31, 2022 and December 31, 2021.

Note 9—Loans Acquired for Sale at Fair Value

Following is a summary of the distribution of the Company’s loans acquired for sale at fair value:

Loan type	March 31, 2022		December 31, 2021
	(in thousands)
Agency-eligible (1)	$	1,394,676	$	3,825,901
Held for sale to PLS — Government insured or guaranteed (2)		288,974		314,995
Home equity lines of credit		2,971		3,265
Commercial real estate		948		964
Jumbo		770		—
Repurchased pursuant to representations and warranties		20,406		25,900
	$	1,708,745	$	4,171,025
Loans pledged to secure:
Assets sold under agreements to repurchase	$	1,608,823	$	4,007,377
Mortgage loan participation purchase and sale agreements		66,284		52,102
	$	1,675,107	$	4,059,479

(1)	Agency eligibility refers to loans’ eligibility for sale to Agencies. The Company sells or finances a portion of its Agency-eligible loan production to or with other investors.

(2)

The Company is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed loans. The Company sells government-insured or guaranteed loans that it purchases from correspondent sellers to PLS, which is a Ginnie Mae-approved issuer, and earns a sourcing fee as described in Note 4 – Transactions with Related Parties – Correspondent Production Activities.

Note 10—Loans at Fair Value

Loans at fair value are comprised primarily of loans held in VIEs securing asset-backed financings as discussed in Note 6 –Variable Interest Entities – Subordinate Mortgage-Backed Securities.

Following is a summary of the distribution of the Company’s loans at fair value:

Loan type	March 31, 2022		December 31, 2021
	(in thousands)
Loans in VIEs:
Agency-conforming loans secured by investment properties	$	1,761,201	$	1,495,914
Fixed interest rate jumbo loans		61,332		68,651
		1,822,533		1,564,565
Distressed loans		3,949		4,161
	$	1,826,482	$	1,568,726
Loans at fair value pledged to secure:
Asset-backed financings at fair value (1)	$	1,822,533	$	1,564,565
Assets sold under agreements to repurchase		414		359
	$	1,822,947	$	1,564,924

(1)

As discussed in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities, the Company holds a portion of the securities issued by the VIEs. At March 31, 2022 and December 31, 2021, $99.4 million and $85.3 million, respectively, of such retained certificates were pledged to secure Assets sold under agreements to repurchase.

Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities

Derivative and credit risk transfer assets and liabilities are summarized below:

	March 31, 2022		December 31, 2021
	(in thousands)
Derivative assets	$	77,823	$	34,238
	$	77,823	$	34,238

Derivative liabilities	$	60,755	$	15,369
Credit risk transfer strip liabilities		68,595		26,837
	$	129,350	$	42,206

The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period results of operations.

Derivative Activities

The Company holds and issues derivative financial instruments in connection with its operating, investing and financing activities. Derivative financial instruments are created as a result of certain of the Company’s operations and the Company also enters into derivative transactions as part of its interest rate risk management activities.

Derivative financial instruments created as a result of the Company’s operations include:

•

IRLCs that are created when the Company commits to purchase loans acquired for sale; and

•

CRT Agreements whereby the Company retained a Recourse Obligation relating to certain loans it sold into Fannie Mae guaranteed securitizations as part of the retention of IO ownership interests in such loans.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by the effects of changes in interest rates on the fair value of certain of its assets and liabilities. The Company bears price risk related to its mortgage production, servicing assets and MBS financing activities due to changes in market interest rates as discussed below:

•

The Company is exposed to losses if market mortgage interest rates increase, because market interest rate increases generally cause the fair value of MBS, IRLCs and loans acquired for sale to decrease.

•

The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally cause the fair value of MSRs to decrease.

To manage the price risk resulting from these interest rate risks, the Company uses derivative financial instruments 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 inventory of loans acquired for sale, IRLCs, MSRs and MBS.

The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period income. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.

Cash flows from derivative financial instruments relating to hedging of IRLCs and loans acquired for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans acquired for sale at fair value. Cash flows from derivative financial instruments relating to hedging of MSRs are included in Cash flows from investing activities.

Derivative Notional Amounts and Fair Value of Derivatives

The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative and credit risk transfer liabilities and related margin deposits recorded in Other assets on the consolidated balance sheets:

	March 31, 2022								December 31, 2021
			Fair value								Fair value
	Notional		Derivative			Derivative			Notional		Derivative			Derivative
Instrument	amount (1)		assets			liabilities			amount (1)		assets			liabilities
	(in thousands)
Hedging derivatives subject to master netting arrangements (2):
Call options on interest rate futures purchase contracts		1,275,000	$	1,230		$	—			1,450,000	$	2,828		$	—
Put options on interest rate futures purchase contracts		4,545,000		65,358			—			1,775,000		3,180			—
Put options on interest rate futures sale contracts		125,000		—			3,750			—		—			—
Forward purchase contracts		7,819,164		7,597			54,641			6,945,340		5,806			3,620
Forward sale contracts		12,069,211		132,751			12,886			10,466,182		6,307			13,782
MBS put options		1,200,000		11,971			—			3,400,000		3,662			—
MBS call options		1,000,000		—			—			—		—			—
Swaption purchase contracts		—		—			—			2,200,000		39			—
Swap futures		—		—			—			1,425,100		—			—
Bond futures		1,806,800		—			—			181,800		—			—
Other derivatives not subject to master netting arrangements:
CRT derivatives		6,791,035		970			9,019			7,426,288		19,627			663
Interest rate lock commitments		1,871,490		1,649			25,114			2,092,129		3,897			1,446
Total derivatives before netting				221,526			105,410					45,346			19,511
Netting				(143,703	)		(44,655	)				(11,108	)		(4,142	)
			$	77,823		$	60,755				$	34,238		$	15,369
Margin deposits received from derivative counterparties, net			$	99,049							$	6,965
Derivative assets pledged to secure:
Notes payable secured by credit risk transfer and mortgage servicing assets			$	970							$	19,627

(1)	Notional amounts provide an indication of the volume of the Company’s derivative activity.

(2)	All hedging derivatives are interest rate derivatives that are used as economic hedges.

Netting of Financial Instruments

The Company has elected to net derivative asset and liability positions, and cash collateral placed with or received from its counterparties when subject to a legally enforceable master netting arrangement. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of March 31, 2022 and December 31, 2021, the Company was not a party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.

Offsetting of Derivative Assets

Following is a summary of net derivative assets:

	March 31, 2022								December 31, 2021
	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
Subject to master netting arrangements:
Call options on interest rate futures purchase contracts	$	1,230	$	—		$	1,230		$	2,828	$	—		$	2,828
Put options on interest rate futures purchase contracts		65,358		—			65,358			3,180		—			3,180
Forward purchase contracts		7,597		—			7,597			5,806		—			5,806
Forward sale contracts		132,751		—			132,751			6,307		—			6,307
MBS put options		11,971		—			11,971			3,662		—			3,662
Swaption purchase contracts		—		—			—			39		—			39
Netting		—		(143,703	)		(143,703	)		—		(11,108	)		(11,108	)
		218,907		(143,703	)		75,204			21,822		(11,108	)		10,714
Not subject to master netting arrangements:
CRT derivatives		970		—			970			19,627		—			19,627
Interest rate lock commitments		1,649		—			1,649			3,897		—			3,897
		2,619		—			2,619			23,524		—			23,524
	$	221,526	$	(143,703	)	$	77,823		$	45,346	$	(11,108	)	$	34,238

Derivative Assets, Financial Instruments 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.

	March 31, 2022								December 31, 2021
	Net amount		Gross amounts						Net amount		Gross amounts
	of assets		not offset in the						of assets		not offset in the
	presented		consolidated						presented		consolidated
	in the		balance sheet						in the		balance sheet
	consolidated				Cash				consolidated				Cash
	balance		Financial		collateral		Net		balance		Financial		collateral		Net
	sheet		instruments		received		amount		sheet		instruments		received		amount
	(in thousands)
CRT derivatives	$	970	$	—	$	—	$	970	$	19,627	$	—	$	—	$	19,627
Interest rate lock commitments		1,649		—		—		1,649		3,897		—		—		3,897
RJ O’Brien & Associates, LLC		62,838		—		—		62,838		6,008		—		—		6,008
Bank of America, N.A.		7,033		—		—		7,033		1,958		—		—		1,958
Wells Fargo Securities, LLC		1,496		—		—		1,496		—		—		—		—
Jefferies & Company, Inc.		1,180		—		—		1,180		119		—		—		119
Federal National Mortgage Association		1,013		—		—		1,013		—		—		—		—
J.P. Morgan Securities LLC		—		—		—		—		2,085		—		—		2,085
Other		1,644		—		—		1,644		544		—		—		544
	$	77,823	$	—	$	—	$	77,823	$	34,238	$	—	$	—	$	34,238

Offsetting of Derivative Liabilities and Financial Liabilities

Following is a summary of net derivative liabilities and assets sold under agreements to repurchase. Assets sold under agreements to repurchase do not meet the accounting guidance to qualify for setoff accounting.

	March 31, 2022									December 31, 2021
	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:
Subject to master netting arrangements:
Put options on interest rate futures sale contracts	$	3,750		$	—		$	3,750		$	—		$	—		$	—
Forward purchase contracts		54,641			—			54,641			3,620			—			3,620
Forward sales contracts		12,886			—			12,886			13,782			—			13,782
Netting		—			(44,655	)		(44,655	)		—			(4,142	)		(4,142	)
		71,277			(44,655	)		26,622			17,402			(4,142	)		13,260
Not subject to master netting arrangements:
CRT derivatives		9,019			—			9,019			663			—			663
Interest rate lock commitments		25,114			—			25,114			1,446			—			1,446
		105,410			(44,655	)		60,755			19,511			(4,142	)		15,369
Assets sold under agreements to repurchase:
UPB		5,094,835			—			5,094,835			6,674,541			—			6,674,541
Unamortized debt issuance costs		(2,135	)		—			(2,135	)		(2,651	)		—			(2,651	)
		5,092,700			—			5,092,700			6,671,890			—			6,671,890
	$	5,198,110		$	(44,655	)	$	5,153,455		$	6,691,401		$	(4,142	)	$	6,687,259

Derivative Liabilities, Financial 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 to qualify for setoff accounting. All assets sold under agreements to repurchase represent sufficient collateral or exceed the liability amount recorded on the consolidated balance sheet.

	March 31, 2022									December 31, 2021
	Net amount		Gross amounts							Net amount		Gross amounts
	of liabilities		not offset in the							of liabilities		not offset in the
	presented		consolidated							presented		consolidated
	in the		balance sheet							in the		balance sheet
	consolidated					Cash				consolidated					Cash
	balance		Financial			collateral		Net		balance		Financial			collateral		Net
	sheet		instruments			pledged		amount		sheet		instruments			pledged		amount
	(in thousands)
Interest rate lock commitments	$	25,114	$	—		$	—	$	25,114	$	1,446	$	—		$	—	$	1,446
CRT derivatives		9,019		—			—		9,019		663		—			—		663
Bank of America, N.A.		1,166,110		(1,166,110	)		—		—		1,088,417		(1,088,417	)		—		—
J.P. Morgan Securities LLC		1,001,910		(999,248	)		—		2,662		726,762		(726,762	)		—		—
Barclays Capital Inc.		722,786		(722,495	)		—		291		1,086,104		(1,085,723	)		—		381
Credit Suisse Securities (USA) LLC		718,759		(708,581	)		—		10,178		832,610		(830,954	)		—		1,656
Daiwa Capital Markets		503,227		(503,048	)		—		179		495,973		(495,973	)		—		—
RBC Capital Markets, L.P.		346,316		(346,316	)		—		—		1,293,754		(1,293,754	)		—		—
Goldman Sachs & Co. LLC		208,497		(207,389	)		—		1,108		217,459		(212,580	)		—		4,879
Citigroup Global Markets Inc.		136,345		(131,170	)		—		5,175		131,312		(129,016	)		—		2,296
Amherst Pierpont Securities LLC		111,425		(111,425	)		—		—		125,090		(125,090	)		—		—
Wells Fargo Securities, LLC		84,998		(84,998	)		—		—		106,088		(104,674	)		—		1,414
BNP Paribas		81,750		(81,008	)		—		742		171,185		(171,185	)		—		—
Morgan Stanley & Co. LLC		37,148		(33,047	)		—		4,101		412,321		(410,413	)		—		1,908
Other		2,186		—			—		2,186		726		—			—		726
	$	5,155,590	$	(5,094,835	)	$	—	$	60,755	$	6,689,910	$	(6,674,541	)	$	—	$	15,369

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 March 31,
Derivative activity	Consolidated statement of operations line	2022			2021
		(in thousands)
Interest rate lock commitments	Net gains on loans acquired for sale (1)	$	(25,916	)	$	(137,243	)
CRT derivatives	Net (losses) gains on investments and financings	$	(5,848	)	$	36,370
Hedged item:
Interest rate lock commitments and loans acquired for sale	Net gains on loans acquired for sale	$	251,899		$	297,476
Mortgage servicing rights	Net loan servicing fees	$	(163,802	)	$	(374,403	)
Fixed-rate and prepayment sensitive assets and LIBOR-indexed repurchase agreements	Net (losses) gains on investments and financings	$	—		$	(24	)

(1)

Represents net change in fair value of IRLCs from the beginning to the end of the reporting period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan or cancellation of the commitment are shown in the rollforward of IRLCs for the period in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.

Credit Risk Transfer Strips

Following is a summary of the Company’s holdings of CRT strips:

Credit risk transfer strips contractually restricted from sale (1)	March 31, 2022			December 31, 2021
	(in thousands)
Currently unrestricted	$	(68,595	)	$	5,978
To maturity		—			(32,815	)
	$	(68,595	)	$	(26,837	)

(1)

Through December 31, 2021, the terms of the agreement underlying the CRT securities restricted sales of the securities, other than under agreements to repurchase, without the approval of Fannie Mae, for specified periods from the date of issuance. The restriction on sales was removed during the quarter ended March 31, 2022.

Note 12—Mortgage Servicing Rights

Following is a summary of MSRs:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Balance at beginning of quarter	$	2,892,855		$	1,755,236
MSRs resulting from loan sales		194,596			407,696
Changes in fair value:
Due to changes in inputs used in valuation model (1)		392,640			337,667
Other changes in fair value (2)		(88,919	)		(59,385	)
		303,721			278,282
Balance at end of quarter	$	3,391,172		$	2,441,214

March 31, 2022

December 31, 2021

(in thousands)

Fair value of mortgage servicing rights pledged to

secure Assets sold under agreements to repurchase

and Notes payable secured by credit risk transfer

and mortgage servicing assets

3,352,952

2,863,544

(1)	Primarily reflects changes in pricing spread, prepayment speed, servicing cost, and UPB for underlying loan inputs.

(2)	Represents changes due to realization of expected cash flows.

Servicing fees relating to MSRs are recorded in Net loan servicing fees – from nonaffiliates on the Company’s consolidated statements of operations and are summarized below:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Contractually-specified servicing fees		$	146,885	$	116,287
Ancillary and other fees:
Late charges			612		412
Other			8,502		15,833
			9,114		16,245
		$	155,999	$	132,532
Average MSR servicing portfolio		$	217,692,169	$	177,161,626

Note 13— Other Assets

Other assets are summarized below:

	March 31, 2022		December 31, 2021
	(in thousands)
Margin deposits	$	90,974	$	193,418
Correspondent lending receivables		54,141		27,539
Interest receivable		13,428		15,168
Real estate acquired in settlement of loans		11,719		14,382
Servicing fees receivable		10,473		16,756
Other receivables		4,215		15,299
Other		12,239		3,737
	$	197,189	$	286,299
Real estate acquired in settlement of loans pledge to secure Assets sold under agreements to repurchase	$	6,204	$	7,293

Note 14— Short-Term Borrowings

The borrowing facilities described throughout these Notes 14 and 15 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio and liquidity. Management believes that the Company was in compliance with these covenants as of March 31, 2022.

Assets Sold Under Agreements to Repurchase

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

	Quarter ended March 31,
	2022			2021
	(dollars in thousands)
Weighted average interest rate (1)		1.06	%		1.60	%
Average balance	$	4,999,896		$	5,971,290
Total interest expense	$	15,571		$	28,659
Maximum daily amount outstanding	$	7,405,436		$	7,208,807

(1)	Excludes the effect of amortization of debt issuance costs of $2.5 million and $5.2 million for the quarters ended March 31, 2022 and 2021, respectively.

	March 31, 2022			December 31, 2021
	(dollars in thousands)
Carrying value:
Unpaid principal balance
Funded under committed facilities	$	4,775,890		$	5,799,975
Funded under uncommitted facilities		318,945			874,566
		5,094,835			6,674,541
Unamortized debt issuance costs		(2,135	)		(2,651	)
	$	5,092,700		$	6,671,890
Weighted average interest rate		1.23	%		1.08	%
Available borrowing capacity (1):
Committed	$	1,211,221		$	289,436
Uncommitted		6,031,056			4,875,433
	$	7,242,277		$	5,164,869
Margin deposits placed with counterparties included in Other assets	$	44,153		$	67,997
Assets securing agreements to repurchase:
Mortgage-backed securities	$	3,070,330		$	2,666,768
Loans acquired for sale at fair value	$	1,608,823		$	4,007,377
Loans at fair value:
Certificates retained in asset-backed financings	$	99,363		$	85,266
Distressed	$	414		$	359
Deposits securing CRT arrangements	$	102,027		$	—
MSRs (2)	$	1,836,018		$	1,598,090
Servicing advances	$	64,852		$	93,455
Real estate acquired in settlement of loans	$	6,204		$	7,293

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

(2)	Beneficial interests in Fannie Mae MSRs are pledged as collateral under both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.

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

Remaining maturity at March 31, 2022	Unpaid principal balance
	(in thousands)
Within 30 days	$	3,204,520
Over 30 to 90 days		1,118,999
Over 90 days to 180 days		346,316
Over 180 days to 1 year		425,000
	$	5,094,835
Weighted average maturity (in months)		2.2

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

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 pledged asset and counterparty below as of March 31, 2022:

Loans, REO and MSRs

			Weighted-average maturity
Counterparty	Amount at risk		Advances	Facility
	(in thousands)
Bank of America, N.A.	$	10,622	April 18, 2022	June 7, 2023
Barclays Capital Inc.	$	25,760	June 21, 2022	November 3, 2022
JPMorgan Chase & Co.	$	2,478	May 24, 2022	June 6, 2023
Citibank, N.A.	$	8,196	June 7, 2022	August 10, 2023
Credit Suisse First Boston Mortgage Capital LLC	$	21,555	June 21, 2022	March 31, 2023
RBC Capital Markets, L.P.	$	15,239	July 19, 2022	February 10, 2023
Goldman Sachs & Co. LLC	$	8,130	June 22, 2022	December 23, 2022
Morgan Stanley & Co. LLC	$	3,733	June 4, 2022	January 3, 2024
BNP Paribas Corporate & Institutional Banking	$	2,439	June 19, 2022	July 31, 2023
Wells Fargo Securities, LLC	$	1,704	June 15, 2022	November 17, 2023

Securities

Counterparty	Amount at risk		Weighted average maturity
	(in thousands)
Bank of America, N.A.	$	43,672	April 15, 2022
Barclays Capital Inc.	$	14,045	April 12, 2022
JPMorgan Chase & Co.	$	29,054	April 16, 2022
Citibank, N.A.	$	16,691	April 28, 2022
Daiwa Capital Markets America Inc.	$	15,670	April 22, 2022
Amherst Pierpont Securities LLC	$	4,953	April 18, 2022

CRT arrangements

Counterparty	Amount at risk		Weighted average maturity
	(in thousands)
Bank of America, N.A.	$	34,627	April 29, 2022

Mortgage Loan Participation Purchase and Sale Agreement

One of the borrowing facilities secured by loans acquired for sale is in the form of mortgage loan participation purchase and sale agreement. Participation certificates, each of which represents an undivided beneficial ownership interest in a pool of loans that have been pooled with Fannie Mae or Freddie Mac, are sold to the lender pending the securitization of such loans and the sale of the resulting security. The 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. The holdback amount 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.

Mortgage loan participation purchase and sale agreement is summarized below:

		Quarter ended March 31,
		2022			2021
	(dollars in thousands)
Weighted average interest rate (1)			1.64	%		1.38	%
Average balance		$	35,809		$	39,162
Total interest expense		$	176		$	164
Maximum daily amount outstanding		$	88,633		$	82,571

(1)	Excludes the effect of amortization of debt issuance costs of $31,000 for the quarters ended March 31, 2022 and 2021.

	March 31, 2022			December 31, 2021
	(dollars in thousands)
Carrying value:
Amount outstanding	$	65,725		$	49,988
Unamortized debt issuance costs		(26	)		—
	$	65,699		$	49,988
Weighted average interest rate		1.83	%		1.48	%
Loans acquired for sale pledged to secure Mortgage loan participation purchase and sale agreements	$	66,284		$	52,102

Note 15— Long-Term Debt

Notes Payable Secured By Credit Risk Transfer and Mortgage Servicing Assets

The Company, through its indirect subsidiary, PMT CREDIT RISK TRANSFER TRUST, issued term notes to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). All of the CRT term notes rank pari passu with each other.

Following is a summary of the secured CRT term notes issued:

				Unpaid		Annual			Maturity date
Term notes	Issuance date	Issuance amount		principal balance		interest rate spread (1)			Stated	Optional extension (2)
		(in thousands)
2021 1R	March 04, 2021	$	659,156	$	350,557		2.90	%	February 28, 2024	February 27, 2026
2020 2R	December 22, 2020	$	500,000		264,301		3.81	%	December 28, 2022		—
2020 1R	February 14, 2020	$	350,000		75,356		2.35	%	March 1, 2023	February 27, 2025
2019 3R	October 16, 2019	$	375,000		71,556		2.70	%	October 27, 2022	October 29, 2024
2019 2R	June 11, 2019	$	638,000		216,940		2.75	%	May 29, 2023	May 29, 2025
				$	978,710

(1)	Spread over one-month LIBOR.

(2)	The indentures relating to these issuances provide the Company with the option of extending the maturity dates of certain of the term notes under the conditions specified in the respective agreements.

PMC finances mortgage servicing rights through the issuance of a Series 2017-VF1 Note dated December 20, 2017 (the "FMSR VFN") issued by another one of the Company’s indirect subsidiaries and sold to institutional buyers under an agreement to repurchase. The FMSR VFN has a committed borrowing capacity of $700 million and matures on March 31, 2023.

On March 30, 2021, the Company, through its indirect subsidiary, PMT ISSUER TRUST—FMSR, issued an aggregate principal amount of $350 million in secured term notes (the “2021-FT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2021-FT1 Notes are secured by certain participation certificates relating to Fannie Mae MSRs and excess servicing spread relating to such MSRs that are financed pursuant to a structured finance transaction. The 2021-FT1 Notes bear interest at a rate equal to one-month LIBOR plus 3.00% per year and will mature on March 25, 2026 or, if extended pursuant to the terms of the 2021-FT1 Notes indenture supplement on March 27, 2028. The 2021-FT1 Notes rank pari passu with the Series 2018-FT1 Notes described below and the FMSR VFN.

During March 2021, the Company, through PMC and PMH, terminated a loan and security agreement entered into on February 1, 2018, pursuant to which PMC and PMH could finance certain mortgage servicing rights (inclusive of any related excess servicing spread arising therefrom and transferred from PMC to PMH from time to time) relating to loans pooled into Freddie Mac securities, and entered into a similar borrowing arrangement with Citibank, N.A. The aggregate loan amount available under the loan and security agreement with Citibank, N.A. increased to $1 billion from $700 million, bears interest at a rate equal to SOFR plus 3.36% per year, and will mature on June 30, 2022. Advances under the loan and security agreement are secured by MSRs relating to loans serviced for Freddie Mac guaranteed securities.

On April 25, 2018, the Company, through its indirect subsidiary, PMT ISSUER TRUST-FMSR, issued an aggregate principal amount of $450 million in secured term notes (the “2018-FT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2018-FT1 Notes bear interest at a rate equal to one-month LIBOR plus 2.35% per year. The 2018-FT1 Notes will mature on April 25, 2023 or, if extended pursuant to the terms of the 2018-FT1 Notes indenture supplement, April 25, 2025 (unless earlier redeemed in accordance with their terms). The 2018-FT1 Notes rank pari passu with the FMSR VFN pledged to Credit Suisse under an agreement to repurchase. The 2018-FT1 Notes and the FMSR VFN are secured by certain participation certificates relating to Fannie Mae MSRs and ESS relating to such MSRs.

Following is a summary of financial information relating to notes payable secured by credit risk transfer and mortgage servicing assets:

		Quarter ended March 31,
		2022			2021
	(dollars in thousands)
Weighted average interest rate (1)			3.14	%		3.14	%
Average balance		$	2,438,773		$	2,260,721
Total interest expense		$	20,366		$	18,599
Maximum daily amount outstanding		$	2,601,767		$	3,180,115

(1)	Excludes the effect of amortization of debt issuance costs of $1.5 million and $1.1 million for the quarters ended March 31, 2022 and 2021, respectively.

	March 31, 2022			December 31, 2021
	(dollars in thousands)
Carrying value:
Amount outstanding
CRT term notes	$	978,710		$	1,204,636
2021-FT1 Notes		350,000			350,000
Freddie Mac loan and security agreement		600,000			475,000
2018-FT1 Notes		450,000			450,000
		2,378,710			2,479,636
Unamortized debt issuance costs		(6,431	)		(7,675	)
	$	2,372,279		$	2,471,961
Weighted average interest rate		3.29	%		3.02	%
Assets securing notes payable:
MSRs (1)	$	3,352,952		$	2,863,544
CRT Agreements:
Deposits securing CRT arrangements	$	1,434,835		$	1,704,911
Derivative assets	$	970		$	19,627

(1)	Beneficial interests in Freddie Mac and Fannie Mae MSRs are pledged as collateral for both Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets.

Exchangeable Senior Notes

On March 5 and March 9, 2021, PMC issued $345 million aggregate principal amount of exchangeable senior notes due 2026 (the “2026 Exchangeable Notes”) in a private offering. The 2026 Exchangeable Notes will mature on March 15, 2026 unless repurchased or exchanged in accordance with their terms before such date.

On November 4 and November 19, 2019, PMC issued $210 million aggregate principal amount of exchangeable senior notes due 2024 (the “2024 Exchangeable Notes” and, together with the 2026 Exchangeable Notes, the “Exchangeable Notes”) in a private offering. The 2024 Exchangeable Notes will mature on November 1, 2024 unless repurchased or exchanged in accordance with their terms before such date.

The 2026 Exchangeable Notes and the 2024 Exchangeable Notes each bear interest at 5.50% per year, payable semiannually, are fully and unconditionally guaranteed by the Company and are exchangeable for PMT common shares, cash, or a combination thereof, at PMC’s election, at any time until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, subject to the satisfaction of certain conditions if the exchange occurs before December 15, 2025 (in the case of the 2026 Exchangeable Notes) and August 1, 2024 (in the case of the 2024 Exchangeable Notes). The exchange rates are equal to 46.1063 and 40.101 common shares per $1,000 principal amount of the 2026 Exchangeable Notes and 2024 Exchangeable Notes, respectively, and are subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest.

Following is financial information relating to the Exchangeable Notes:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Average balance		$	529,542		$	298,554
Weighted average interest rate (1)			5.84	%		7.01	%
Interest expense:
Coupon		$	7,631		$	4,230
Amortization of:
Conversion options (2)			—			927
Issuance costs			689			385
		$	8,320		$	5,542

		March 31, 2022			December 31, 2021
		(in thousands)
Carrying value:
UPB		$	555,000		$	555,000
Conversion option allocated to Additional paid-in capital (2)			—			(40,952	)
Unamortized debt issuance costs			(10,900	)		(11,589	)
			(10,900	)		(52,541	)
		$	544,100		$	502,459

(1)	Excludes the effect of amortization of debt issuance and conversion option costs.

(2)

As discussed in Note 2 ‒ Basis of Presentation and Accounting Change ‒ Accounting Change, the Company adopted ASU 2020‑06 effective January 1, 2022. As a result of the adoption of ASU 2020-06, the Company reclassified approximately $50.3 million of issuance discount originally recognized in the issuance of Exchangeable senior notes from Additional paid-in capital to the carrying value of the Exchangeable senior notes and $9.4 million of previously recognized amortization of the issuance discount, as an adjustment to the Accumulated deficit effective January 1, 2022.

Asset-Backed Financing of Variable Interest Entities at Fair Value

Following is a summary of financial information relating to the asset-backed financings of VIEs at fair value described in Note 6 ‒ Variable Interest Entities ‒ Subordinate Mortgage-Backed Securities:

		Quarter ended March 31,
		2022			2021
	(dollars in thousands)
Average balance		$	1,460,610		$	120,415
Total interest expense		$	11,027		$	168
Weighted average interest rate (1)			3.29	%		3.22	%

(1)	Excludes the effect of net debt issuance cost of $834,000 and $789,000 for the quarters ended March 31, 2022 and 2021, respectively.

	March 31, 2022			December 31, 2021
	(dollars in thousands)
Fair value	$	1,712,650		$	1,469,999
UPB	$	1,787,300		$	1,442,379
Weighted average interest rate		3.18	%		3.18	%

The asset-backed financings are non-recourse liabilities and are secured solely by the assets of consolidated VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment of the certificates.

Maturities of Long-Term Debt

Contractual maturities of long-term debt obligations (based on final maturity dates) are as follows:

			Twelve months ended March 31,
	Total		2023		2024		2025		2026		2027		Thereafter
	(in thousands)
Notes payable secured by credit risk transfer and mortgage servicing assets (1)	$	2,378,710	$	1,011,213	$	1,017,497	$	—	$	350,000	$	—	$	—
Exchangeable senior notes		555,000		—		—		210,000		345,000		—		—
Asset-backed financings at fair value (2)		1,787,300		—		—		—		—		—		1,787,300
Interest-only security payable at fair value (2)		16,373		—		—		—		—		—		16,373
Total	$	4,737,383	$	1,011,213	$	1,017,497	$	210,000	$	695,000	$	—	$	1,803,673

(1)	Based on stated maturity. As discussed above, certain of the Notes payable secured by credit risk and mortgage servicing assets allow the Company to exercise optional extensions.

(2)	Contractual maturities do not reflect expected repayments as borrowers of the underlying loans generally have the right to repay their loans at any time.

Note 16—Liability for Losses Under Representations and Warranties

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

		Quarter ended March 31,
		2022			2021
	(in thousands)
Balance, beginning of quarter		$	40,249		$	21,893
Provision for losses:
Pursuant to loan sales			1,317			8,513
Reduction in liability due to change in estimate			(1,165	)		(1,424	)
Losses incurred, net			(176	)		(15	)
Balance, end of quarter		$	40,225		$	28,967
UPB of loans subject to representations and warranties at end of quarter		$	217,466,262		$	177,595,762

Note 17—Commitments and Contingencies

Commitments

The following table summarizes the Company’s outstanding contractual commitments:

	March 31, 2022
	(in thousands)
Commitments to purchase loans acquired for sale	$	1,871,490

Litigation

From time to time, the Company may be involved in various proceedings, claims and legal actions arising in the ordinary course of business. The amount, if any, of ultimate liability with respect to such matters cannot be determined, but despite the inherent uncertainties of litigation, management believes that the ultimate disposition of any such proceedings and exposure will not have, individually or taken together, a material adverse effect on the financial condition, results of operations, or cash flows of the Company.

Cessation of the LIBOR Index

The Company is involved in both lending and financing transactions that use the LIBOR index to establish the applicable interest or dividend rates. It has been announced that this index will no longer be published. The Company services LIBOR-based adjustable rate mortgages for which the underlying mortgage notes incorporate fallback provisions. The Company also has certain debt agreements and preferred shares of beneficial interest that have not yet transitioned from LIBOR to a replacement index but contain replacement provisions related to the transition from LIBOR. The Company cannot anticipate whether the response of borrowers, note holders or preferred shareholders to the adoption of the replacement indices adopted by the Company will result in future losses to PMT.

Note 18—Shareholders’ Equity

Preferred Shares of Beneficial Interest

Preferred shares of beneficial interest are summarized below:

Preferred										Dividends per share, quarter ended March 31,
Share series	Description (1)	Number of shares		Liquidation preference		Issuance discount		Carrying value		2022		2021
Fixed-to-floating rate cumulative redeemable preferred		(in thousands, except dividends per share)
A	8.125% Issued March 2017		4,600	$	115,000	$	3,828	$	111,172	$	0.51	$	0.51
B	8.00% Issued July 2017		7,800		195,000		6,465		188,535	$	0.50	$	0.50
Fixed-rate cumulative redeemable preferred
C	6.75% Issued August 2021		10,000		250,000		8,225		241,775	$	0.42	$	—
			22,400	$	560,000	$	18,518	$	541,482

(1)	Par value is $0.01 per share.

The Company’s Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) pay cumulative dividends at a fixed rate of 8.125% per year based on the $25.00 per share liquidation preference to, but not including, March 15, 2024. From, and including, March 15, 2024 and thereafter, the Company will pay cumulative dividends on the Series A Preferred Shares at a floating rate equal to three-month LIBOR as calculated on each applicable dividend determination date plus a spread of 5.831% per year based on the $25.00 per share liquidation preference.

The Company’s Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B Preferred Shares”) pay cumulative dividends at a fixed rate of 8.00% per year based on the $25.00 per share liquidation preference to, but not including, June 15, 2024. From, and including, June 15, 2024 and thereafter, the Company will pay cumulative dividends on the Series B Preferred Shares at a floating rate equal to three-month LIBOR as calculated on each applicable dividend determination date plus a spread of 5.99% per year based on the $25.00 per share liquidation preference.

The Company’s Series C Fixed Rate Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series C Preferred Shares” together with the Series A Preferred Shares and Series B Preferred Shares, the “Preferred Shares”) pay cumulative dividends at a fixed rate of 6.75% per year based on the $25.00 per share liquidation preference.

The Series A Preferred Shares, the Series B Preferred Shares and Series C Preferred Shares will not be redeemable before March 15, 2024, June 15, 2024 and August 24, 2026, respectively, except in connection with the Company’s qualification as a REIT for U.S. federal income tax purposes or upon the occurrence of a change of control. On or after the date the Preferred Shares become redeemable, or 120 days after the first date on which such change of control occurred, the Company may, at its option, redeem any or all of the Preferred Shares at $25.00 per share plus any accumulated and unpaid dividends to, but not including, the redemption date.

The Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless redeemed or repurchased by the Company or converted into common shares in connection with a change of control by the holders of the Preferred Shares.

Common Shares of Beneficial Interest

“At-The-Market” (“ATM”) Equity Offering Program

The Company periodically enters into ATM equity offering programs allowing it to offer and sell securities on an as-and-when-needed basis through designated broker-dealers. On June 15, 2021, the Company entered into a new ATM equity offering program allowing it to offer up to $200 million of its common shares, all of which were available for issuance as of March 31, 2022.

Common Share Repurchase Program

On June 11, 2021, the Company’s board of trustees approved an increase to the Company’s common share repurchase authorization from $300 million to $400 million. Under the program, as amended, the Company may repurchase up to $400 million of its outstanding common shares.

The following table summarizes the Company’s common share repurchase activity:

		Quarter ended March 31,				Cumulative
		2022		2021		total (1)
	(in thousands)
Common shares repurchased			1,974		—		22,571
Cost of common shares repurchased		$	31,829	$	—	$	342,576

(1)	Amounts represent the share repurchase program total from its inception in August 2015 through March 31, 2022.

Note 19— Net (Losses) Gains on Investments and Financings

Net (losses) gains on investments and financings are summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
From nonaffiliates:
Mortgage-backed securities		$	(186,525	)	$	(71,117	)
Loans at fair value:
Held in VIEs			(96,564	)		(2,345	)
Distressed			443			95
CRT arrangements			(35,623	)		154,031
Asset-backed financings at fair value			89,174			900
Hedging derivatives			—			(24	)
			(229,095	)		81,540
From PFSI ‒ ESS			—			1,651
		$	(229,095	)	$	83,191

Note 20— Net Gains on Loans Acquired for Sale

Net gains on loans acquired for sale are summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
From nonaffiliates:
Cash loss:
Sales of loans		$	(439,788	)	$	(592,789	)
Hedging activities			338,102			463,276
			(101,686	)		(129,513	)
Non‒cash gain:
Receipt of MSRs in mortgage loan sale transactions			194,596			407,696
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loans sales			(1,317	)		(8,513	)
Reduction of liability due to change in estimate			1,165			1,424
			(152	)		(7,089	)
Change in fair value of loans and derivatives
IRLCs			(25,916	)		(137,243	)
Loans			22,018			83,223
Hedging derivatives			(86,203	)		(165,800	)
			(90,101	)		(219,820	)
			104,343			180,787
Total from nonaffiliates			2,657			51,274
From PFSI ‒ cash gain			1,296			1,738
		$	3,953		$	53,012

Note 21—Net Interest Expense

Net interest expense is summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Interest income:
From nonaffiliates:
Cash and short-term investments		$	403		$	225
Mortgage-backed securities			14,400			8,286
Loans acquired for sale at fair value			19,248			22,908
Loans at fair value:
Held in VIEs			12,849			1,899
Distressed			174			253
Deposits securing CRT arrangements			222			168
Placement fees relating to custodial funds			3,709			2,532
Other			58			38
			51,063			36,309
From PFSI ‒ ESS			—			1,280
			51,063			37,589
Interest expense:
To nonaffiliates:
Assets sold under agreements to repurchase			15,571			28,659
Mortgage loan participation purchase and sale agreements			176			164
Notes payable secured by credit risk transfer and mortgage servicing assets			20,366			18,599
Exchangeable senior notes			8,320			5,542
Asset-backed financings at fair value			11,027			168
Interest shortfall on repayments of loans serviced for Agency securitizations			7,042			22,040
Interest on loan impound deposits			1,012			749
			63,514			75,921
To PFSI ‒ Assets sold under agreement to repurchase			—			387
			63,514			76,308
Net interest expense		$	(12,451	)	$	(38,719	)

Note 22—Share-Based Compensation

The Company has adopted an equity incentive plan which provides for the issuance of equity based awards based on PMT’s common shares that may be made by the Company to its officers and trustees, and the members, officers, trustees, directors and employees of PCM, PFSI, or their affiliates and to PCM, PFSI and other entities that provide services to PMT and the employees of such other entities.

The equity incentive plan is administered by the Company’s compensation committee, pursuant to authority delegated by PMT’s board of trustees, which has the authority to make awards to the eligible participants referenced above, and to determine what form the awards will take, and the terms and conditions of the awards.

The Company's equity incentive plan allows for the grant of restricted and performance-based share unit awards.

The shares underlying award grants will again be available for award under the equity incentive plan if:

•

any shares subject to an award granted under the equity incentive plan are forfeited, canceled, exchanged or surrendered;

•

an award terminates or expires without a distribution of shares to the participant; or

•

shares are surrendered or withheld by PMT as payment of either the exercise price of an award and/or withholding taxes for an award.

Restricted share units have been awarded to trustees and officers of the Company and to other employees of PFSI and its subsidiaries at no cost to the grantees. Such awards generally vest over a one-to three-year period.

The following table summarizes the Company’s share-based compensation activity:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Grants:
Restricted share units		128		101
Performance share units		99		84
		227		185
Grant date fair value:
Restricted share units	$	2,006	$	1,917
Performance share units		1,551		1,602
	$	3,557	$	3,519
Vestings:
Restricted share units		78		100
Performance share units (1)		41		37
		119		137
Forfeitures:
Restricted share units		—		—
Performance share units		9		—
		9		—
Compensation expense relating to share-based grants	$	1,029	$	1,738

(1)	The actual number of performance-based RSUs that vested during the quarter ended March 31, 2022 was 39,000 common shares, which is 96% of the originally granted performance-based RSUs.

	March 31, 2022
	Restricted share units		Performance share units
Shares expected to vest:
Number of units (in thousands)		221		171
Grant date average fair value per unit	$	17.33	$	17.31

Note 23—Income Taxes

The Company’s effective tax rate was 205.9% with consolidated pretax income of $18.1 million for the quarter ended March 31, 2022. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax expense of $37.9 million on pretax income of $272.8 million for the quarter ended March 31, 2022. The TRS income was primarily due to increases in MSR fair values. For the same period in 2021, the TRS recognized a tax expense of $19.4 million on pretax income of $88.1 million. The Company’s reported consolidated pretax income was $91.0 million for the quarter ended March 31, 2021. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2022, the valuation allowance was decreased to $6.8 million from the $34.1 million valuation allowance recorded at December 31, 2021 as the result of GAAP income at the TRS for the quarter ended March 31, 2022. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.

The CARES Act, passed in March 2020, introduced a number of tax law changes which are generally taxpayer favorable and, in December 2020, the Taxpayer Certainty and Disaster Tax Relief Act was signed into law. No material changes in our effective income tax rates resulted from either Act. While the CARES Act provides for carry back of losses from 2018, 2019 and 2020, the TRS does not have taxable income from prior years to which the losses could be carried back.

In general, cash dividends declared by the Company will be considered ordinary income to the shareholders for income tax purposes. Some portion of the dividends may be characterized as capital gain distributions or a return of capital. For tax years beginning after December 31, 2017, the 2017 Tax Cuts and Jobs Act (subject to certain limitations) provides a 20% deduction from taxable income for ordinary REIT dividends.

Note 24—Earnings Per Common Share

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 available to common shareholders (net income reduced by preferred dividends and income attributable to the participating securities) by the weighted average common shares outstanding during the period.

As discussed in Note 2 ‒ Basis of Presentation and Accounting Change ‒ Accounting Change, PMC issued the Exchangeable Notes. The Exchangeable Notes include cash conversion options. Through December 31, 2021, based on the Company’s intention to cash settle the Exchangeable Notes, the effect of conversion of the Exchangeable Notes was excluded from diluted earnings (losses) per common share. Effective January 1, 2022, the Company adopted ASU 2020-06, which requires inclusion of the common shares issuable pursuant to conversion of the Exchangeable Notes in the Company’s diluted earnings per common share calculation when the effect of such inclusion is dilutive to earnings per common share.

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

		Quarter ended March 31,
		2022			2021
	(in thousands except per share amounts)
Net (loss) income		$	(19,129	)	$	71,603
Dividends on preferred shares			(10,455	)		(6,234	)
Effect of participating securities‒share-based compensation awards			(104	)		(120	)
Net (loss) income attributable to common shareholders		$	(29,688	)	$	65,249
Weighted average basic shares outstanding			94,146			97,892
Dilutive securities‒shares issuable under share-based compensation plan			—			211
Diluted weighted average shares outstanding			94,146			98,103
Basic (loss) earnings per share		$	(0.32	)	$	0.67
Diluted (loss) earnings per share		$	(0.32	)	$	0.67

Calculation of diluted earnings per share requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the diluted earnings per share calculation as inclusion of such shares would have been antidilutive:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Shares issuable under share-based compensation plan			133		11
Shares issuable pursuant to exchange of the exchangeable senior notes			24,328		—

Note 25—Segments

The Company operates in four segments as described in Note 1 ‒ Organization.

Financial highlights by operating segment are summarized below:

	Credit			Interest rate
	sensitive			sensitive			Correspondent
Quarter ended March 31, 2022	strategies			strategies			production		Corporate			Total
	(in thousands)
Net investment income:
Net loan servicing fees	$	—		$	304,178		$	—	$	—		$	304,178
Net (losses) gains on investments and financings		(44,905	)		(184,190	)		—		—			(229,095	)
Net gains on loans acquired for sale		(4	)		—			3,957		—			3,953
Net interest expense:
Interest income		2,058			29,110			19,181		714			51,063
Interest expense		10,128			41,685			11,560		141			63,514
		(8,070	)		(12,575	)		7,621		573			(12,451	)
Other		288			—			14,966		—			15,254
		(52,691	)		107,413			26,544		573			81,839
Expenses:
Loan servicing fees and fulfillment payable to PFSI		59			21,029			16,754		—			37,842
Management fees		—			—			—		8,117			8,117
Other		3,211			2,175			5,212		7,224			17,822
		3,270			23,204			21,966		15,341			63,781
Pretax (loss) income	$	(55,961	)	$	84,209		$	4,578	$	(14,768	)	$	18,058
Total assets at end of quarter	$	1,747,763		$	8,387,313		$	1,812,210	$	440,229		$	12,387,515

	Credit			Interest rate
	sensitive			sensitive			Correspondent
Quarter ended March 31, 2021	strategies			strategies			production		Corporate			Total
	(in thousands)
Net investment income:
Net loan servicing fees	$	—		$	50,045		$	—	$	—		$	50,045
Net (losses) gains on investments and financings		154,271			(71,080	)		—		—			83,191
Net gains on loans acquired for sale		(1	)		—			53,013		—			53,012
Net interest expense:
Interest income		650			13,516			22,797		626			37,589
Interest expense		17,261			37,316			21,731		—			76,308
		(16,611	)		(23,800	)		1,066		626			(38,719	)
Other		888			—			52,980		—			53,868
		138,547			(44,835	)		107,059		626			201,397
Expenses:
Loan servicing fees and fulfillment payable to PFSI		137			18,955			60,836		—			79,928
Management fees		—			—			—		8,449			8,449
Other		4,150			812			10,646		6,384			21,992
		4,287			19,767			71,482		14,833			110,369
Pretax income (loss)	$	134,260		$	(64,602	)	$	35,577	$	(14,207	)	$	91,028
Total assets at end of quarter	$	2,772,111		$	4,739,849		$	4,796,564	$	213,730		$	12,522,254

Note 26—Regulatory Capital and Liquidity Requirements

The Company is subject to financial eligibility requirements established by the Federal Housing Finance Agency for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac. The eligibility requirements include:

•

A tangible net worth of $2.5 million plus 25 basis points of the UPB of the Company’s total 1-4 unit servicing portfolio, excluding mortgage loans subserviced for others;

•

A tangible net worth/total assets ratio greater than or equal to 6%; and

•

A liquidity requirement equal to 3.5 basis points of the aggregate UPB serviced for the Agencies plus 200 basis points of total nonperforming Agency servicing UPB less 70% of such nonperforming Agency servicing UPB in excess of 600 basis points where the underlying loans are in COVID-19 forbearance but were current at the time they entered forbearance.

The Agencies’ capital and liquidity amounts and requirements, are summarized below:

	Net worth (1)				Tangible net worth / total assets ratio (1)						Liquidity (1)
Fannie Mae and Freddie Mac	Actual		Required		Actual			Required			Actual		Required
	(dollars in thousands)
March 31, 2022	$	1,173,125	$	559,717		19	%		6	%	$	97,626	$	75,714
December 31, 2021	$	938,218	$	557,229		12	%		6	%	$	108,536	$	74,771

(1)	Calculated in accordance with the Agencies’ requirements.

Noncompliance with the Agencies’ capital and liquidity requirements can result in the Agencies taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the Agencies.

Note 27—Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period, all agreements to repurchase assets that matured before the date of this Report were extended or renewed.

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 (this “Report”).

Statements contained in this Report 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 Report and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Report 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 Report to the words “we,” “us,” “our” and the “Company” refer to PMT and its affiliates.

Our Company

We are a specialty finance company that invests primarily in 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. Our investment focus is on the mortgage-related assets that we create through our correspondent production activities, including mortgage servicing rights (“MSRs”), subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which include CRT Agreements and CRT strips that absorb credit losses on certain of the loans we sold. We also invest in Agency MBS and senior non-Agency MBS. We have also historically invested in distressed mortgage assets (distressed loans and real estate acquired in settlement of loans (“REO”)), which we have substantially liquidated.

We are externally managed by PNMAC Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loans and MSRs are serviced by PennyMac Loan Services, LLC (“PLS”). PCM and PLS are both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company.

During the quarter ended March 31, 2022, we purchased newly originated prime credit quality residential loans with fair values totaling $23.3 billion as compared to $53.2 billion for the quarter ended March 31, 2021, in our correspondent production business. To the extent that we purchase loans that are insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or insured or guaranteed by the Veterans Administration or U.S. Department of Agriculture, we and PLS have agreed that PLS will fulfill and purchase such loans, as PLS is a Government National Mortgage Association (“Ginnie Mae”) approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. We receive a sourcing fee from PLS based on the unpaid principal balance (“UPB”) of each loan that we sell to PLS under such arrangement, and earn interest income on the loan for the period we hold it before the sale to PLS. During the quarter ended March 31, 2022, we received sourcing fees totaling $1.3 million, relating to $12.7 billion in UPB of loans that we sold to PLS.

We operate our business in four segments: Correspondent production, Interest rate sensitive strategies, Credit sensitive strategies and our Corporate operations as described below.

Our Investment Activities

Correspondent Production

Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production serves as the source of our investments in MSRs, private label non-Agency securitizations, and, through 2020, CRT arrangements. Our correspondent production and resulting investment activity are summarized below:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Sales of loans acquired for sale:
To nonaffiliates		$	11,985,961	$	33,318,157
To PennyMac Financial Services, Inc.			13,160,768		18,420,614
		$	25,146,729	$	51,738,771
Net gains on loans acquired for sale		$	3,953	$	53,012
Investment activities resulting from correspondent production:
Receipt of MSRs as proceeds from sales of loans		$	194,596	$	407,696
Retention of interests in securitizations of loans secured by investment properties, net of associated asset-backed financings			23,485		—
Total investments resulting from correspondent activities		$	218,081	$	407,696

Interest Rate Sensitive Investments

Our interest rate sensitive investments include:

•

Mortgage servicing rights. During the quarter ended March 31, 2022, we received approximately $194.6 million of MSRs as proceeds from sales of loans acquired for sale. We held approximately $3.4 billion of MSRs at fair value at March 31, 2022.

•

REIT-eligible mortgage-backed or mortgage-related securities. We purchased approximately $661.8 million of MBS during the quarter ended March 31, 2022. We held MBS with fair values totaling approximately $3.1 billion at March 31, 2022.

Credit Sensitive Investments

CRT Arrangements

At present, we are no longer creating new CRT investments as the Federal Housing Finance Agency (“FHFA”) instructed the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to gradually wind down new front-end lender risk share transactions such as CRT investments as of the end of 2020. During the quarter ended March 31, 2022, we recognized investment losses of approximately $35.4 million relating to our holdings of CRT securities. We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and interest-only security payable) totaling approximately $1.4 billion at March 31, 2022.

Securities Backed by Loans Secured by Investment Properties

Beginning in the quarter ended June 30, 2021, the Company purchased or retained approximately $94.6 million of subordinate MBS backed by loans secured by investment properties sourced from the Company’s conventional correspondent production activities. The subordinate MBS provide us with a higher yield than senior securities. However, we retain credit risk in the subordinate MBS since they are the first securities to absorb credit losses relating to the underlying loans.

As the result of the Company’s consolidation of the variable interest entities that issued the subordinate MBS described in Note 6 – Variable Interest Entities – Subordinate Mortgage-Backed Securities to the consolidated financial statements included in this Report, we include loans underlying these and similar transactions with UPBs totaling approximately $1.8 billion on our consolidated balance sheet as of March 31, 2022.

Taxation

We believe that we qualify to be taxed as a REIT and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable REIT 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 taxable REIT subsidiary (“TRS”), which is subject to corporate federal and state income taxes. Accordingly, we make 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.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of all available positive and negative evidence using a “more-likely-than-not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.

Non-Cash Investment Income

A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments, recognition of the fair value of assets created and liabilities incurred in loan sale transactions and the capitalization and amortization of certain assets and liabilities. Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”), to record certain of our financial assets (comprised of MBS, loans acquired for sale at fair value, loans at fair value and ESS), our derivatives and CRT strips, our MSRs, and our asset-backed financings and interest-only security payable 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.

The amounts of non-cash investment (loss) income items included in net investment income are as follows:

		Quarter ended March 31,
		2022			2021
	(dollars in thousands)
Net (losses) gains on investments and financings:
Mortgage-backed securities		$	(186,525	)	$	(71,117	)
Loans:
Held in variable interest entities			(96,564	)		(2,345	)
Distressed			384			84
ESS			—			1,651
CRT arrangements			(74,587	)		97,931
Asset-backed financings at fair value			89,174			900
			(268,118	)		27,104
Net gains on loans acquired for sale (1)			104,343			180,787
Net loan servicing fees—MSR valuation adjustments			303,721			278,282
Net interest income—Capitalization of interest pursuant to loan modifications			—			198
		$	139,946		$	486,371
Net investment income		$	81,839		$	201,397
Non-cash items as a percentage of net investment income			171	%		241	%

(1)	Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, IRLCs and hedging derivatives held at period end.

We receive or pay cash relating to:

•

Our investment in mortgage-backed securities through monthly principal and interest payments from the issuer of such securities or from the sale of the investment;

•

Loan investments when the investments are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the property acquired in settlement of the loan has been sold;

•

ESS investments through a portion of the monthly interest payments collected on the loans in the ESS reference pool or from the sale of investment;

•

CRT arrangements through a portion of both the interest payments collected on loans in the CRT arrangements’ reference pools and the release to us of the deposits securing the arrangements as principal on such loans is repaid;

•

Hedging instruments when we receive or make margin deposits as the fair value of respective instrument changes, when the instruments mature or when we effectively cancel the transactions through offsetting trades;

•

Our liability for representations and warranties when we repurchase loans or settle loss claims from investors; and

•

MSRs in the form of loan servicing fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service.

Results of Operations

The following is a summary of our key performance measures:

	Quarter ended March 31,
	2022			2021
	(dollar amounts in thousands, except per common share amounts)
Net investment income	$	81,839		$	201,397
Expenses		63,781			110,369
Pretax income		18,058			91,028
Provision for income taxes		37,187			19,425
Net (loss) income		(19,129	)		71,603
Dividends on preferred shares		10,455			6,234
Net (loss) income attributable to common shareholders	$	(29,584	)	$	65,369
Pretax (loss) income by segment:
Credit sensitive strategies	$	(55,961	)	$	134,260
Interest rate sensitive strategies		84,209			(64,602	)
Correspondent production		4,578			35,577
Corporate		(14,768	)		(14,207	)
	$	18,058		$	91,028
Annualized return on average common shareholder's equity		(6.8	)%		12.8	%
(Loss) earnings per common share:
Basic	$	(0.32	)	$	0.67
Diluted	$	(0.32	)	$	0.67
Dividends per common share	$	0.47		$	0.47
	March 31, 2022			December 31, 2021
Total assets	$	12,387,515		$	13,772,708
Book value per common share	$	17.87		$	19.05
Closing price per common share	$	16.89		$	17.33

Due to significant inflationary pressures, the U.S. Federal Reserve raised the Federal Funds rate in the first quarter of 2022 and is expected to continue to raise interest rates through the year as well as reduce the federal government’s overall portfolio of Treasury and mortgage-backed securities. These resulting mortgage interest rate increases are expected to drive a decline in the size of the mortgage origination market from an estimated $4.4 trillion in 2021 to a current forecast range from $2.6 trillion to $3.1 trillion for 2022 according to leading economists. These lower overall projected mortgage transaction volumes and higher interest rates are expected to drive a decrease in our mortgage production activities and increase competition in the mortgage production business year over year, while also leading to declines in prepayment speeds in our mortgage servicing portfolio from the elevated levels experienced in 2021.

Due to certain capital rules, the Government-Sponsored Entities (“GSEs”) have higher capital requirements to guarantee loans delivered by loan aggregators and may charge higher fees for third party originated loans that we aggregate and deliver to the GSEs as compared to individual loans delivered by third party mortgage lenders directly to the GSEs’ cash windows without the assistance of a loan aggregator. To the extent the GSEs increase the number of cash window purchases and sales for their own accounts, our business and results of operations could be materially and adversely affected.

Our results of operations decreased by $90.7 million during the quarter ended March 31, 2022, as compared to the quarter ended March 31, 2021, reflecting the effect of declines in CRT-related investments valuation, gains on loans held for sale and loan origination fees, partially offset by the improved fair value performance of our MSR investments. The decrease in pretax results is summarized below:

•

A $189.7 million decrease in net gains on our CRT arrangements as credit spreads widened due to macroeconomic uncertainty as compared to the quarter ended March 31, 2021, which reflected the continuing recovery during the prior period from the market disruption caused by the COVID-19 pandemic on our investments in CRT arrangements.

•

An increase in net servicing fees of $254.1 million caused by positive fair value changes in our investment in MSRs and hedging results and a $115.4 million decrease in gains on MBS, due to sharply increasing interest rates, as well as an $11.2 million decrease in net interest expense in our interest rate sensitive strategies segment.

•

Decreases in both production volume and in our gain on sale margins during the quarter ended March 31, 2022, reflecting the effect of increasing interest rates on loan demand in our correspondent lending segment.

Net Investment Income

Our net investment income is summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Net loan servicing fees		$	304,178		$	50,045
Net (losses) gains on investments and financings			(229,095	)		83,191
Net gains on loans acquired for sale			3,953			53,012
Net loan origination fees			14,774			52,902
Net interest expense			(12,451	)		(38,719	)
Other			480			966
		$	81,839		$	201,397

Net Loan Servicing Fees

Our net loan servicing fee income has two primary components: fees earned for servicing the loans and the effects of MSR valuation changes, net of hedging results, as summarized below:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Loan servicing fees		$	155,999	$	132,532
Effect of MSRs and hedging results			148,179		(82,487	)
Net loan servicing fees		$	304,178	$	50,045

Following is a summary of our loan servicing fees:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Contractually-specified servicing fees		$	146,885	$	116,287
Ancillary and other fees:
Late charges			612		412
Other			8,502		15,833
			9,114		16,245
		$	155,999	$	132,532
Average MSR servicing portfolio		$	217,692,169	$	177,161,626

Loan servicing fees relate to our MSRs which are primarily related to servicing we provide for loans included in Agency securitizations. These fees are contractually established at an annualized percentage of the UPB of the loans serviced and we collect these fees from borrower payments. Other loan servicing fees are comprised primarily of borrower-contracted fees such as late charges, reconveyance fees and fees charged to correspondent lenders for loans repaid by the borrower shortly after purchase.

The change in contractually-specified fees for the quarter ended March 31, 2022, as compared to the quarter ended March 31, 2021, is due primarily to increased servicing fees resulting from the growth in our loan servicing portfolio. The changes in other loan servicing fees for the same comparative period is due primarily to a decrease in the volume of fees charged to correspondent lenders for loans repaid shortly after purchase as the result of the significant volume of refinancing activity experienced in the first part of 2021.

We have elected to carry our servicing assets at fair value. Changes in fair value have two components: changes due to realization of the contractual servicing fees and changes due to changes in inputs used to estimate the fair value of such items. We endeavor to moderate the effects of changes in fair value primarily by entering into derivatives transactions.

Changes in fair value of MSRs and hedging results are summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Change in fair value of MSRs
Realization of cash flows		$	(88,919	)	$	(59,385	)
Changes in valuation inputs used in valuation model			392,640			337,667
			303,721			278,282
Hedging results			(163,802	)		(374,403	)
Total change in fair value of mortgage servicing rights and hedging results			139,919			(96,121	)
Recapture income from PFSI			8,260			13,634
		$	148,179		$	(82,487	)
Average balance of MSRs		$	3,158,711		$	2,114,176

Changes in realization of cash flows are influenced by changes in the level of servicing assets and liabilities and changes in estimates of remaining cash flows to be realized. During the quarter ended March 31, 2022, realization of cash flows increased primarily due to the significant growth of our investment in MSRs as compared to the quarter ended March 31, 2021.

Changes in fair value due to changes in valuation inputs used in our valuation model during the quarter ended March 31, 2022 reflect the effects of expectations for slower future prepayments of the underlying loans as a result of increasing interest rates during the quarter ended March 31, 2022, as compared to the quarter ended March 31, 2021.

Hedging results reflect valuation losses attributable to the effects of interest rate increases on the fair value of the hedging instruments during the quarters ended March 31, 2022 and 2021. The loss from hedging activities decreased during the quarter ended March 31, 2022 compared to the same period in 2021 primarily due to the higher hedging cost as a result of market volatility during the quarter ended March 31, 2021.

The decrease in loan servicing fees from PFSI reflects the increase in refinancing activity in our MSR portfolio during the quarter ended March 31, 2022, as compared to 2021. We have an agreement with PFSI that requires that when PFSI refinances a loan for which we held the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ Transactions with Related Parties – Operating Activities to the consolidated financial statements included in this Report.

Following is a summary of our loan servicing portfolio:

	March 31, 2022		December 31, 2021
	(in thousands)
UPB of loans outstanding	$	218,888,841	$	215,927,495
Collection status (UPB) (1)
Delinquency:
30-89 days delinquent	$	1,196,634	$	1,148,542
90 or more days delinquent:
Not in foreclosure	$	1,092,377	$	1,726,488
In foreclosure	$	64,636	$	36,658
Bankruptcy	$	126,619	$	130,582
Delinquent loans in COVID-19 pandemic-related forbearance:
30-89 days	$	216,706	$	169,654
90 days or more	$	481,090	$	614,882
Custodial funds managed by the Company (2)	$	3,293,190	$	3,823,527

(1)	Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the CARES Act.

(2)

Net (Losses) Gains on Investments and Financings

Net (losses) gains on investments and financings are summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
From nonaffiliates:
Mortgage-backed securities		$	(186,525	)	$	(71,117	)
Loans at fair value:
Held in VIEs			(96,564	)		(2,345	)
Distressed			443			95
CRT arrangements			(35,623	)		154,031
Asset-backed financings at fair value			89,174			900
Hedging derivatives			—			(24	)
			(229,095	)		81,540
From PFSI—ESS			—			1,651
		$	(229,095	)	$	83,191

The decrease in net gains on investments for the quarter ended March 31, 2022, as compared to the quarter ended March 31, 2021, was caused primarily by increased losses from our investments in CRT arrangements and MBS.

Mortgage-Backed Securities

During the quarter ended March 31, 2022, we recognized net valuation losses of $186.5 million, as compared to $71.1 million for the same period in 2021. The losses recognized reflect more significant increases in interest rates during the quarter ended March 31, 2022 as compared to the quarter ended March 31, 2021.

Loans at fair value – Held in VIEs and Asset-Backed Financings at Fair Value

Loans at fair value held in VIEs and Asset-backed financings at fair value recorded a net loss of $7.4 million during the quarter ended March 31, 2022, as compared to a net loss of $1.4 million during the quarter ended March 31, 2021. The net loss during the quarter ended March 31, 2022 reflects the effect of increasing interest rates during the quarter ended March 31, 2022.

CRT Arrangements

The activity in and balances relating to our CRT arrangements are summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
Investment income:
Net (losses) gains on investments and financings:
Derivative and CRT strips:
CRT derivatives:
Realized		$	21,201		$	23,496
Valuation changes			(27,049	)		12,874
			(5,848	)		36,370
CRT strips:
Realized			17,763			32,604
Valuation changes			(41,758	)		93,222
			(23,995	)		125,826
Interest-only security payable at fair value			(5,780	)		(8,165	)
			(35,623	)		154,031
Interest income — Deposits securing CRT arrangements			222			168
		$	(35,401	)	$	154,199

Net recoveries received to settle reversal of previously recognized losses on CRT arrangements		$	15,973		$	13,343

	March 31, 2022			December 31, 2021
	(in thousands)
Carrying value of CRT arrangements:
Derivative and credit risk transfer strip assets (liabilities), net
CRT derivatives	$	(8,049	)	$	18,964
CRT strips		(68,595	)		(26,837	)
	$	(76,644	)	$	(7,873	)

Deposits securing CRT arrangements	$	1,536,862		$	1,704,911
Interest-only security payable at fair value	$	16,373		$	10,593

CRT arrangement assets pledged to secure borrowings:
Derivative assets	$	970		$	19,627
Deposits securing CRT arrangements (1)	$	1,536,862		$	1,704,911

UPB of loans underlying CRT arrangements	$	28,160,867		$	30,808,907
Collection status (UPB):
Delinquency (2)
Current	$	27,394,812		$	29,581,803
30-89 days delinquent	$	312,851		$	349,291
90-180 days delinquent	$	108,762		$	120,775
180 or more days delinquent	$	328,506		$	748,576
Foreclosure	$	15,936		$	8,462
Bankruptcy	$	59,008		$	64,694
Delinquent loans in COVID-19 pandemic-related forbearance plans:
30-89 days delinquent	$	59,269		$	44,015
90-180 days delinquent	$	47,796		$	57,815
180 or more days delinquent	$	86,112		$	174,041

(1)	Deposits securing credit risk transfer strip arrangements pledged to creditors also secure $77.6 million and $27.5 million in CRT strip and CRT derivative liabilities at March 31, 2022 and December 31, 2021, respectively.

(2)	Includes delinquent loans in COVID-19 pandemic-related forbearance plans that were requested by borrowers seeking payment relief in accordance with the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”).

The performance of our investments in CRT arrangements during the quarter ended March 31, 2022 reflects credit spread widening (an increase in the interest rate demanded by investors for instruments over those that are considered “risk free”) for CRT securities in the credit markets. This contrasts with CRT investments’ gains during the quarter ended March 31, 2021, which reflects a decrease in credit spread as the credit markets continued to recover from the dislocation experienced during the first quarter of 2020 as a result of the onset of the COVID-19 pandemic.

Net Gains on Loans Acquired for Sale

Our net gains on loans acquired for sale is summarized below:

		Quarter ended March 31,
		2022			2021
	(in thousands)
From nonaffiliates:
Cash loss:
Loans		$	(439,788	)	$	(592,789	)
Hedging activities			338,102			463,276
			(101,686	)		(129,513	)
Non-cash gain:
Receipt of MSRs in loan sale transactions			194,596			407,696
Provision for losses relating to representations and warranties provided in loan sales:
Pursuant to loan sales			(1,317	)		(8,513	)
Reduction in liability due to change in estimate			1,165			1,424
			(152	)		(7,089	)
Change in fair value during the quarter of financial instruments:
IRLCs			(25,916	)		(137,243	)
Loans			22,018			83,223
Hedging derivatives			(86,203	)		(165,800	)
			(90,101	)		(219,820	)
			104,343			180,787
Total from nonaffiliates			2,657			51,274
From PFSI—cash			1,296			1,738
		$	3,953		$	53,012

Interest rate lock commitments issued on loans acquired for sale to nonaffiliates		$	10,194,318		$	33,997,819
Acquisition of loans for sale (UPB):
To nonaffiliates		$	9,769,262		$	36,486,241
To PFSI			12,730,330			18,412,062
		$	22,499,592		$	54,898,303

The changes in gain on loans acquired for sale during the quarter ended March 31, 2022, as compared to the same period in 2021, reflect the effect of rising interest rates on demand for mortgage loans and on gain on sale margins.

Non-cash elements of gain on sale of loans

Interest Rate Lock Commitments

Our net gain on sale of loans includes our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gain on sale before we purchase the loans. This gain is reflected on our balance sheet as IRLC derivative assets and liabilities. We adjust the fair value of our IRLCs as the loan acquisition process progresses until we complete the acquisition or the commitment is canceled. Such adjustments are included in our gains on sale of loans acquired for sale. The fair value of our IRLCs become part of the carrying value of our loans when we complete the purchase of the loans. The methods and key inputs we use to measure the fair value of IRLCs are summarized in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

The MSRs and liability for representations and warranties we recognize represent our estimate of the fair value of future benefits and costs we will realize for years in the future. These estimates change as circumstances change, and changes in these estimates are recognized in our results of operations in subsequent periods. Subsequent changes in the fair value of our MSRs significantly affect our results of operations.

Mortgage Servicing Rights

Our methods to measure and update the measurements of our MSRs are detailed in Note 7 – Fair value – Valuation Techniques and Inputs to the consolidated financial statements included in this Report.

Liability for Losses Under Representations and Warranties

We recognize a liability for losses we expect to incur relating to the representations and warranties we provide to purchasers in our loan sales transactions. The representations and warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

We recorded a provision for losses relating to representations and warranties relating to current loan sales of $1.3 million and $8.5 million for the quarters ended March 31, 2022 and 2021, respectively. The decrease in the provision relating to current loan sales reflects the decrease of our loan sales volume.

In the event of a breach of our representations and warranties, we may be required to either repurchase the loans with the identified defects or indemnify the investor or insurer against credit losses attributable to the loans with indemnified defects. In such cases, we bear any subsequent credit loss on the loans. Our credit loss may be reduced by any recourse we have to correspondent sellers that, in turn, had sold such loans to us and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of those repurchase losses from that correspondent seller.

Following is a summary of the indemnification and repurchase activity of the loans subject to representations and warranties:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Indemnification activity unpaid principal balance ("UPB"):
Loans indemnified at beginning of quarter	$	2,782		$	4,583
New indemnifications		—			—
Less: Indemnified loans repaid or refinanced		—			887
Loans indemnified at end of quarter	$	2,782		$	3,696
Indemnified loans indemnified by correspondent lenders at end of quarter	$	1,112		$	1,497
UPB of loans with deposits received from correspondent sellers collateralizing prospective indemnification losses at end of quarter	$	213		$	213
Repurchase activity (UPB):
Loans repurchased	$	24,234		$	16,094
Less:
Loans repurchased by correspondent sellers		16,844			8,047
Loans resold or repaid by borrowers		11,172			6,264
Net loans (resolved) repurchased with losses chargeable to liability to representations and warranties	$	(3,782	)	$	1,783
Net losses charged to liability for representations and warranties	$	176		$	15
At end of quarter:
Loans subject to representations and warranties	$	217,466,262		$	177,595,762
Liability for representations and warranties	$	40,225		$	28,967

The losses on representations and warranties we have recorded to date have been moderated by our ability to recover most of the losses inherent in the repurchased loans from the correspondent sellers. As the outstanding balance of loans we purchase and sell subject to representations and warranties increases, as the loans sold season, as our investors’ and guarantors’ loss mitigation strategies change and as our correspondent sellers’ ability and willingness to repurchase loans change, we expect that the level of repurchase activity and associated losses may increase.

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

The amount of the liability for representations and warranties is difficult to estimate and requires considerable judgment. The level of loan repurchase losses is dependent on economic factors, investor loss mitigation strategies, our ability to recover any losses inherent in the repurchased loan from the correspondent seller and other external conditions that change over the lives of the underlying loans. We may be required to incur losses related to such representations and warranties for several periods after the loans are sold or liquidated.

We record adjustments to our liability for losses on representations and warranties as economic fundamentals change, as investor and Agency evaluations of their loss mitigation strategies (including claims under representations and warranties) change and as economic conditions affect our correspondent sellers’ ability or willingness to fulfill their recourse obligations to us. Such adjustments may be material to our financial position and results of operations in future periods.

Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans acquired for sale at fair value. We recorded a $1.2 million reduction in liability for representations and warranties during the quarter ended March 31, 2022 due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.

Loan Origination Fees

Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. The decrease in fees during the quarter ended March 31, 2022, as compared to the same period in 2021, reflects a decrease in our purchases of loans with delivery fees.

Net Interest Expense

Net interest expense is summarized below:

	Quarter ended March 31, 2022								Quarter ended March 31, 2021
	Interest					Interest			Interest					Interest
	income/			Average		yield/			income/			Average		yield/
	expense			balance		cost %			expense			balance		cost %
	(dollars in thousands)
Assets:
Cash and short-term investments	$	403		$	241,963		0.67	%	$	225		$	274,857		0.33	%
Mortgage-backed securities		14,400			2,815,409		2.05	%		8,286			2,006,195		1.65	%
Loans acquired for sale at fair value		19,248			2,129,668		3.62	%		22,908			3,618,980		2.53	%
Loans at fair value:
Held by variable interest entities		12,849			1,555,874		3.30	%		1,899			129,122		5.88	%
Distressed		174			4,065		17.12	%		253			7,805		12.97	%
		13,023			1,559,939		3.34	%		2,152			136,927		6.29	%
ESS from PFSI		—			—		—			1,280			87,451		5.85	%
Deposits securing CRT arrangements		222			1,665,568		0.05	%		168			2,743,862		0.02	%
		47,296			8,412,547		2.25	%		35,019			8,868,272		1.58	%
Placement fees relating to custodial funds		3,709								2,532
Other		58								38
		51,063		$	8,412,547		2.43	%		37,589		$	8,868,272		1.70	%
Liabilities:
Assets sold under agreements to repurchase	$	15,571		$	4,999,896		1.25	%	$	28,659		$	5,971,290		1.92	%
Mortgage loan participation purchase and sale agreements		176			35,809		1.97	%		164			39,162		1.68	%
Notes payable secured by credit risk transfer and mortgage servicing assets		20,366			2,438,773		3.34	%		18,599			2,260,721		3.29	%
Exchangeable senior notes		8,320			529,542		6.28	%		5,542			298,554		7.43	%
Asset-backed financings at fair value		11,027			1,460,610		3.02	%		168			120,415		0.56	%
Assets sold to PFSI under agreement to repurchase		—			—		—			387			52,803		2.93	%
		55,460			9,464,630		2.34	%		53,519			8,742,945		2.45	%
Interest shortfall on repayments of loans serviced for Agency securitizations		7,042								22,040
Interest on loan impound deposits		1,012								749
		63,514		$	9,464,630		2.68	%		76,308		$	8,742,945		3.49	%
Net interest expense	$	(12,451	)						$	(38,719	)
Net interest margin							-0.59	%							-1.75	%
Net interest spread							-0.26	%							-1.80	%

The effects of changes in the yields and costs and composition of our investments on our net interest expense are summarized below:

		Quarter ended March 31, 2022
		vs.
		Quarter ended March 31, 2021
		Increase (decrease) due to changes in
		Rate			Volume			Total
	(in thousands)
Assets:
Cash and short-term investments		$	208		$	(30	)	$	178
Mortgage-backed securities			2,271			3,843			6,114
Loans acquired for sale at fair value			7,745			(11,405	)		(3,660	)
Loans at fair value:
Held by variable interest entities			(1,184	)		12,134			10,950
Distressed			66			(145	)		(79	)
			(1,118	)		11,989			10,871
ESS from PFSI			—			(1,280	)		(1,280	)
Deposits securing CRT arrangements			139			(85	)		54
			9,245			3,032			12,277
Placement fees relating to custodial funds			—			1,177			1,177
Other			—			20			20
			9,245			4,229			13,474
Liabilities:
Assets sold under agreements to repurchase			(8,944	)		(4,144	)		(13,088	)
Mortgage loan participation purchase and sale agreements			27			(15	)		12
Notes payable secured by credit risk transfer and mortgage servicing assets			284			1,483			1,767
Exchangeable senior notes			(960	)		3,738			2,778
Asset-backed financings of at fair value			3,082			7,777			10,859
Assets sold to PFSI under agreement to repurchase			—			(387	)		(387	)
			(6,511	)		8,452			1,941
Interest shortfall on repayments of loans serviced for Agency securitizations			—			(14,998	)		(14,998	)
Interest on loan impound deposits			—			263			263
			(6,511	)		(6,283	)		(12,794	)
Decrease in net interest expense		$	15,756		$	10,512		$	26,268

The decrease in net interest expense during the quarter ended March 31, 2022, as compared to the same period in 2021, is due to:

•

A decrease in the interest shortfall on repayments of loans serviced for the Agency securitizations, reflecting decreased prepayment activity in our MSR portfolio as a result of increasing interest rates reducing the incentive of borrowers to refinance their loans.

•

An increase in the yields we earn on our investments in MBS and loans acquired for sale arising from fair value decreases and our acquisition of higher coupon Agency pass through securities and subordinate credit securities that was compounded by a decrease in the cost of repurchase agreements that finance these investments and a portion of our investments in CRT Agreements, owing to a change in the mix of assets financed under repurchase agreements.

Expenses

Our expenses are summarized below:

		Quarter ended March 31,
		2022		2021
	(in thousands)
Earned by PennyMac Financial Services, Inc.:
Loan servicing fees		$	21,088	$	19,093
Loan fulfillment fees			16,754		60,835
Management fees			8,117		8,449
Professional services			4,025		2,224
Loan collection and liquidation			3,177		3,857
Loan origination			2,842		9,308
Safekeeping			2,395		1,941
Compensation			1,437		2,185
Other			3,946		2,477
		$	63,781	$	110,369

Expenses decreased $46.6 million, or 42%, during the quarter ended March 31, 2022, as compared to the same period in 2021. The decrease for the quarter ended March 31, 2022, as compared to the same period in 2021, is primarily due to reduced fees relating to fulfillment activities performed by PFSI on our behalf.

Loan Servicing Fees

Loan servicing fees payable to PLS are summarized below:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Loan servicing fees:
Loans acquired for sale at fair value	$	264	$	543
Loans at fair value		210		137
MSRs		20,614		18,413
	$	21,088	$	19,093
Average investment in:
Loans acquired for sale at fair value	$	2,129,668	$	3,618,980
Loans at fair value	$	1,559,939	$	136,927
Average MSR portfolio UPB	$	217,692,169	$	177,161,626

Loan servicing fees increased by $2.0 million during the quarter ended March 31, 2022, as compared to the same period in 2021. We incur loan servicing fees primarily in support of our MSR portfolio. The increase in loan servicing fees is due to growth in our portfolio of MSRs.

Loan Fulfillment Fees

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 loans. Fulfillment fees decreased $44.1 million during the quarter ended March 31, 2022, compared to the same period in 2021. The decrease was primarily due to a decrease in loan production volume.

Management Fees

Management fees payable to PCM are summarized below:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Base	$	8,117	$	8,449
Performance incentive		—		—
	$	8,117	$	8,449
Average shareholders' equity amounts used to calculate base management fee expense	$	2,212,304	$	2,310,261

Management fees decreased by $332,000 during the quarter ended March 31, 2022, as compared to the same period in 2021. This decrease reflects the decrease in our average shareholders’ equity during the quarter ended March 31, 2022 as compared to the quarter ended March 31, 2021.

Loan origination

Loan origination expenses decreased $6.5 million, or 69%, during the quarter ended March 31, 2022, as compared to the same period in 2021, primarily reflecting a decrease in our loan originations produced through our correspondent production activities.

Income Taxes

We have elected to treat PennyMac Corp. (“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 us. 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.

The Company’s effective tax rate was 205.9% with consolidated pretax income of $18.1 million for the quarter ended March 31, 2022. The Company’s taxable REIT subsidiary (“TRS”) recognized a tax expense of $37.9 million on pretax income of $272.8 million for the quarter ended March 31, 2022. The TRS income was primarily due to fair market increases in MSR values. For the same period in 2021, the TRS recognized tax expense of $19.4 million on pretax income of $88.1 million, while the Company’s reported consolidated pretax income for the quarter ended March 31, 2021 was $91.0 million. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of March 31, 2022, the valuation allowance was decreased to $6.8 million from the $34.1 million valuation allowance recorded at December 31, 2021 as the result of a GAAP income at the TRS for the quarter ended March 31, 2022. The amount of deferred tax assets considered realizable could be adjusted in future periods based on future income.

The CARES Act, passed in March 2020, introduced a number of tax law changes which are generally taxpayer favorable and in December 2020, the Taxpayer Certainty and Disaster Tax Relief Act was signed into law. No material changes in our effective income tax rates resulted from either Act. While the CARES Act provides for carry back of losses from 2018, 2019 and 2020, the TRS does not have taxable income from prior years to which the losses could be carried back.

Balance Sheet Analysis

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

	March 31,		December 31,
	2022		2021
	(in thousands)
Assets
Cash	$	187,880	$	58,983
Investments:
Short-term		236,468		167,999
Mortgage-backed securities at fair value		3,070,330		2,666,768
Loans acquired for sale at fair value		1,708,745		4,171,025
Loans at fair value		1,826,482		1,568,726
Derivative assets		77,823		34,238
Deposits securing credit risk transfer arrangements		1,536,862		1,704,911
MSRs		3,391,172		2,892,855
		11,847,882		13,206,522
Other		351,753		507,203
Total assets	$	12,387,515	$	13,772,708
Liabilities
Debt:
Short-term	$	5,158,399	$	6,721,878
Long-term		4,645,402		4,455,012
		9,803,801		11,176,890
Other		361,776		228,300
Total liabilities		10,165,577		11,405,190
Shareholders’ equity		2,221,938		2,367,518
Total liabilities and shareholders’ equity	$	12,387,515	$	13,772,708

Total assets decreased by approximately $1.4 billion, or 10%, during the period from December 31, 2021 through March 31, 2022, primarily due to a decrease of $2.5 billion in Loans acquired for sale at fair value and $168.0 million in Deposits securing credit risk transfer arrangements pledged to creditors, partially offset by increases in MSRs of $498.3 million, MBS of $403.6 million and loans at fair value of $257.8 million.

Asset Acquisitions

Our asset acquisitions are summarized below.

Correspondent Production

Following is a summary of our correspondent production acquisitions at fair value:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Correspondent loan purchases:
Agency-eligible (1)	$	10,197,961	$	34,953,955
Government-insured or guaranteed - for sale to PLS		13,133,460		18,288,791
Advances to home equity lines of credit		47		36
	$	23,331,468	$	53,242,782

(1)	Agency eligibility refers to the eligibility of loans for sale to Agencies. The Company sells or finances a portion of its Agency-eligible loan production to other investors.

During the quarter ended March 31, 2022, we purchased for sale $23.3 billion in fair value of correspondent production loans as compared to $53.2 billion during the quarter ended March 31, 2021. The decrease in loan production reflects the effect of decreased loan demand as a result of the increasing interest rate environment during the quarter ended March 31, 2022, as compared to the same period in 2021.

Other Investment Activities

Following is a summary of our acquisitions of mortgage-related investments held in our credit rate sensitive strategies and interest rate sensitive strategies segments:

	Quarter ended March 31,
	2022		2021
	(in thousands)
Loans secured by investment properties, net of associated asset-backed financing	$	23,485	$	—
MBS (net of sales)		661,774		(41,464	)
MSRs received in loan sales		194,596		407,696
ESS received pursuant to a recapture agreement		—		557
		856,370		366,789
	$	879,855	$	366,789

Our acquisitions during the quarters ended March 31, 2022 and 2021 were financed through the use of a combination of proceeds from borrowings and liquidations of existing investments. 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 portfolio growth will depend on our ability to raise additional equity capital.

Investment Portfolio Composition

Mortgage-Backed Securities

Following is a summary of our MBS holdings:

	March 31, 2022									December 31, 2021
					Average									Average
	Fair				Life					Fair				Life
	value		Principal		(in years)		Coupon			value		Principal		(in years)		Coupon
	(dollars in thousands)
Agency:
Agency Pass-through sections	$	2,957,056	$	3,119,140		9.2		2.3	%	$	2,666,768	$	2,649,238		8.6		2.2	%
Subordinate credit-linked securities		86,732		85,900		5.5		8.4	%		—		—		—		—
Senior non-Agency MBS		26,542		29,491		13.6		2.5	%		—		—		—		—
	$	3,070,330	$	3,234,531						$	2,666,768	$	2,649,238

Credit Risk Transfer Transactions

Following is a summary of the composition of our holdings of CRT arrangements.

	March 31, 2022			December 31, 2021
	(in thousands)
Carrying value of CRT arrangements:
Derivative and credit risk transfer strip assets (liabilities), net
CRT strips	$	(68,595	)	$	(26,837	)
CRT derivatives		(8,049	)		18,964
		(76,644	)		(7,873	)
Deposits securing CRT arrangements		1,536,862			1,704,911
Interest-only security payable at fair value		(16,373	)		(10,593	)
	$	1,443,845		$	1,686,445
UPB of loans subject to credit guarantee obligations	$	28,160,867		$	30,808,907

Following is a summary of the composition of the loans underlying our investment in CRT arrangements as of March 31, 2022:

		Year of origination
		2020		2019		2018		2017		2016		2015		Total
	(in millions)
UPB:
Outstanding		$	5,594	$	13,037	$	3,435	$	2,954	$	2,383	$	758	$	28,161
Cumulative defaults		$	20	$	212	$	287	$	490	$	191	$	53	$	1,252
Cumulative losses		$	—	$	2	$	8	$	23	$	11	$	6	$	50

		Year of origination
Original debt-to income ratio		2020			2019			2018			2017			2016			2015			Total
	(in millions)
<25%		$	1,145		$	1,978		$	330		$	373		$	353		$	81		$	4,260
25 - 30%			896			1,667			285			339			325			84			3,596
30 - 35%			994			2,014			406			452			409			115			4,390
35 - 40%			970			2,309			559			536			456			136			4,966
40 - 45%			965			2,799			801			760			627			206			6,158
>45%			624			2,270			1,054			494			213			136			4,791
		$	5,594		$	13,037		$	3,435		$	2,954		$	2,383		$	758		$	28,161
Weighted average			33.4	%		35.7	%		38.8	%		36.5	%		35.0	%		31.4	%		35.5	%

		Year of origination
Origination FICO credit score		2020		2019		2018		2017		2016		2015		Total
	(in millions)
600 - 649		$	40	$	184	$	73	$	36	$	23	$	13	$	369
650 - 699			288		1,221		705		455		295		152		3,116
700 - 749			1,335		3,835		1,221		1,004		762		236		8,393
750 or greater			3,923		7,761		1,428		1,454		1,303		357		16,226
Not available			8		36		8		5		—		—		57
		$	5,594	$	13,037	$	3,435	$	2,954	$	2,383	$	758	$	28,161
Weighted average			763		752		735		744		750		741		751

		Year of origination
Origination loan-to value ratio		2020			2019			2018			2017			2016			2015			Total
	(in millions)
<80%		$	2,622		$	4,647		$	1,128		$	946		$	955		$	300		$	10,598
80-85%			938			2,528			837			837			647			205			5,992
85-90%			363			737			153			151			133			42			1,579
90-95%			510			1,360			382			366			263			83			2,964
95-100%			1,161			3,765			935			654			385			128			7,028
		$	5,594		$	13,037		$	3,435		$	2,954		$	2,383		$	758		$	28,161
Weighted average			80.8	%		83.2	%		83.2	%		82.6	%		80.7	%		81.0	%		82.4	%

		Year of origination
Current loan-to value ratio (1)		2020			2019			2018			2017			2016			2015			Total
	(in millions)
<80%		$	5,029		$	11,919		$	3,270		$	2,923		$	2,378		$	757		$	26,276
80-85%			433			810			108			24			4			1			1,380
85-90%			107			241			39			5			1			—			393
90-95%			20			46			13			1			—			—			80
95-100%			3			17			3			1			—			—			24
>100%			2			4			2			—			—			—			8
		$	5,594		$	13,037		$	3,435		$	2,954		$	2,383		$	758		$	28,161
Weighted average			66.4	%		66.2	%		62.7	%		57.4	%		52.0	%		49.0	%		63.2	%

(1)	Based on current UPB compared to estimated fair value of the property securing the loan.

		Year of origination
Geographic distribution		2020		2019		2018		2017		2016		2015		Total
	(in millions)
CA		$	567	$	1,237	$	407	$	305	$	438	$	134	$	3,088
FL			615		1,268		434		315		260		69		2,961
TX			688		1,141		278		260		306		119		2,792
VA			291		580		127		138		174		71		1,381
MD			212		536		153		164		156		42		1,263
Other			3,221		8,275		2,036		1,772		1,049		323		16,676
		$	5,594	$	13,037	$	3,435	$	2,954	$	2,383	$	758	$	28,161

		Year of origination
Regional geographic distribution (1)		2020		2019		2018		2017		2016		2015		Total
	(in millions)
Northeast		$	514	$	1,548	$	400	$	417	$	299	$	113	$	3,291
Southeast			1,894		4,525		1,237		1,017		766		236		9,675
Midwest			521		1,369		287		282		214		54		2,727
Southwest			1,483		2,937		663		592		457		161		6,293
West			1,182		2,658		848		646		647		194		6,175
		$	5,594	$	13,037	$	3,435	$	2,954	$	2,383	$	758	$	28,161

(1)

Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT, VI; Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV; Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD, WI; Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX, UT; and West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

		Year of origination
Collection status		2020		2019		2018		2017		2016		2015		Total
	(in millions)
Delinquency
Current - 89 Days		$	5,552	$	12,806	$	3,309	$	2,918	$	2,370	$	753	$	27,708
90 - 179 Days			10		47		25		15		8		4		109
180+ Days			31		178		92		21		5		1		329
Foreclosure			1		6		8		1		0		—		16
		$	5,594	$	13,037	$	3,435	$	2,954	$	2,383	$	758	$	28,161
Bankruptcy		$	2	$	21	$	15	$	8	$	11	$	2	$	59

Cash Flows

Our cash flows for the quarter ended March 31, 2022 and 2021 are summarized below:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Operating activities	$	1,747,025		$	(1,869,255	)
Investing activities		(196,572	)		930,882
Financing activities		(1,421,556	)		973,511
Net cash flows	$	128,897		$	35,138

Our cash flows resulted in a net increase in cash of $128.9 million during the quarter ended March 31, 2022, as discussed below.

Operating activities

Cash provided by operating activities totaled $1.7 billion during the quarter ended March 31, 2022, as compared to cash used in our operating activities of $1.9 billion during the quarter ended March 31, 2021. Cash flows from operating activities are most influenced by cash flows from loans acquired for sale as shown below:

	Quarter ended March 31,
	2022			2021
	(in thousands)
Operating cash flows from:
Loans acquired for sale	$	1,791,027		$	(1,512,058	)
Other		(44,002	)		(357,197	)
	$	1,747,025		$	(1,869,255	)

Cash flows from loans acquired for sale primarily reflect changes in the level of production inventory from the beginning to end of the periods presented. Our inventory of loans held for sale decreased during the quarter ended March 31, 2022, as compared to the same period in 2021.

Investing activities

Net cash used in our investing activities was $196.6 million for the quarter ended March 31, 2022, as compared to net cash provided by our investing activities of $930.9 million for the quarter ended March 31, 2021, primarily due to purchases of our investments in MBS in excess of sales and repayments of such assets partially offset by repayments from our investments in CRT arrangements and decreases in margin deposits.

Financing activities

Net cash used in our financing activities was $1.4 billion for the quarter ended March 31, 2022, as compared to net cash provided by our financing activities of $973.5 million for the quarter ended March 31, 2021. This change reflects reduced financing requirements relating to loans acquired for sale.

As discussed below in Liquidity and Capital Resources, our Manager continually evaluates and pursues additional sources of financing 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 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 sellers, our operating expenses and, when applicable, retirement of, and margin calls relating to, our debt and derivatives positions), make investments as our Manager identifies them, pursue our share repurchase program and 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 cash flows from our investment portfolio, including cash earnings on our investments, cash flows from business activities, liquidation of existing investments and proceeds from borrowings and/or additional equity offerings. When we finance a particular asset, the amount borrowed is less than the asset’s fair value and we must provide the cash in the amount of such difference. Our ability to continue making investments is dependent on our ability to invest the cash representing such difference.

The impact of the COVID-19 pandemic on our operations, liquidity and capital resources remains uncertain and difficult to predict. For further discussion of this and other risks applicable to us, see our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors.”

Debt Financing

Our current debt financing strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. We make collateralized borrowings in the form of sales of assets under agreements to repurchase, loan participation purchase and sale agreements and notes payable, including secured term financing for our MSRs and our CRT arrangements which has allowed us to more closely match the term of our borrowings to the expected lives of the assets securing those borrowings.

Our debt financing is summarized below:

	Assets financed
Financing	MBS		Loans acquired for sale		Loans at fair value		CRT assets		MSRs		REO		Total
	(in thousands)
Borrowings
Short term
Assets sold under agreements to repurchase	$	2,987,385	$	1,530,589	$	82,335	$	67,391	$	425,000	$	—	$	5,092,700
Mortgage loan participation purchase and sale agreements		—		65,699		—		—		—		—		65,699
Long term
Notes payable secured by CRT arrangements and MSRs		—		—		—		975,148		1,397,131		—		2,372,279
Asset-backed financings at fair value		—		—		1,712,650		—		—		—		1,712,650
Interest-only security payable		—		—		—		16,373		—		—		16,373
Total secured borrowings	$	2,987,385	$	1,596,288	$	1,794,985	$	1,058,912	$	1,822,131	$	—	$	9,259,701
Exchangeable senior notes														544,100
Total borrowings	$	2,987,385	$	1,596,288	$	1,794,985	$	1,058,912	$	1,822,131	$	—		9,803,801
Shareholders' equity														2,221,938
Total financing													$	12,025,739

Net assets pledged to secure financing	$	3,070,330	$	1,675,107	$	1,822,947	$	1,460,218	$	3,417,804	$	6,204	$	11,452,610

Debt-to-equity ratio													4.4:1

Sales of Assets Under Agreements to Repurchase

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 March 31,
Assets sold under agreements to repurchase			2022		2021
	(in thousands)
Average balance outstanding		$	4,999,896	$	5,971,290
Maximum daily balance outstanding		$	7,405,436	$	7,208,807
Ending balance		$	5,092,700	$	6,091,973

The difference between the maximum and average daily amounts outstanding is primarily due to timing of loan purchases and sales in our correspondent production business. The total facility size of our assets sold under agreements to repurchase was approximately $12.0 billion at March 31, 2022.

Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to either 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.

As discussed above, all of our repurchase agreements, and mortgage loan participation purchase and sale agreements have short-term maturities:

•

The transactions relating to loans and REO under agreements to repurchase generally provide for terms of approximately one to two years;

•

The transactions relating to loans under mortgage loan participation purchase and sale agreements provide for terms of approximately one year; and

•

The transactions relating to assets under notes payable provide for terms ranging from two to five years.

Debt Covenants

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:

•

a minimum of $75 million in unrestricted cash and cash equivalents among the Company and/or our subsidiaries; a minimum of $75 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 PennyMac Holdings, LLC (“PMH”); a minimum of $25 million in unrestricted cash and cash equivalents at PMC; and a minimum of $10 million in unrestricted cash and cash equivalents at PMH;

•

a minimum tangible net worth for the Company of $1.25 billion; a minimum tangible net worth for our Operating Partnership of $1.25 billion; a minimum tangible net worth for PMH of $250 million; and a minimum tangible net worth for PMC of $300 million;

•

a maximum ratio of total liabilities to tangible net worth of less than 10:1 for PMC and PMH and 7:1 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:

•

a minimum in unrestricted cash and cash equivalents of $100 million;

•

a minimum tangible net worth of $1.25 billion;

•

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

•

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

Many of our debt financing agreements contain a condition precedent to obtaining additional funding that requires us to maintain positive net income for at least one (1) of the previous two consecutive quarters, or other similar measures. For the first quarter of 2022, we have obtained waivers of this requirement from all of the applicable lenders. We may be required to obtain additional waivers in the future if this condition precedent is not met.

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.

Regulatory Capital and Liquidity Requirements

In addition to the financial covenants imposed upon us and PLS under our debt financing agreements, we and/or PLS, as applicable, are also subject to liquidity and net worth requirements established by FHFA for Agency sellers/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity and net worth requirements for approved non-depository single-family sellers/servicers in the case of FHFA, and for approved single-family issuers in the case of Ginnie Mae, as summarized below:

•

A minimum net worth of a base of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential loans serviced;

•

A tangible net worth/total assets ratio greater than or equal to 6%;

•

A liquidity requirement equal to 0.035% (3.5 basis points) of total Agency servicing UPB plus an incremental 200 basis points of the amount by which total nonperforming Agency servicing UPB (reduced by 70% of the UPB of nonperforming Agency loans that are in COVID-19 payment forbearance and were current when they entered such forbearance) exceeds 6% of the applicable Agency servicing UPB; allowable assets to satisfy liquidity requirement include cash and cash equivalents (unrestricted), certain investment-grade securities that are available for sale or held for trading including Agency mortgage-backed securities, obligations of Fannie Mae or Freddie Mac, and U.S. Treasury obligations, and unused and available portions of committed servicing advance lines;

•

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; and

•

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 Manager continues to explore a variety of additional means of financing our business, including debt financing through bank warehouse lines of credit, 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

As of March 31, 2022, we have not entered into any off-balance sheet arrangements.

All debt financing arrangements that matured between March 31, 2022 and the date of this Report have been renewed, extended or replaced.

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our assets sold under agreements to repurchase is summarized by counterparty below as of March 31, 2022:

Counterparty	Amount at risk
	(in thousands)
Bank of America, N.A.	$	88,921
Barclays Capital Inc.		39,805
JPMorgan Chase & Co.		31,532
Citibank, N.A.		24,887
Credit Suisse First Boston Mortgage Capital LLC		21,555
Daiwa Capital Markets America Inc.		15,670
RBC Capital Markets, L.P.		15,239
Goldman Sachs & Co. LLC		8,130
Amherst Pierpont Securities LLC		4,953
Morgan Stanley Bank, N.A.		3,733
BNP Paribas Corporate & Institutional Banking		2,439
Wells Fargo Securities, LLC		1,704
	$	258,568

Critical Accounting Estimates

Preparation of financial statements in compliance with GAAP requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and

expenses during the reporting period. Certain of these estimates significantly influence the portrayal of our financial condition and results, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.

Our Annual Report on Form 10-K for the year ended December 31, 2021 contains a discussion of our critical accounting policies, which utilize relevant critical accounting estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Our primary trading asset is our inventory of loans acquired for sale. We believe that such assets’ fair values respond primarily to changes in the market interest rates for comparable recently-originated loans. Our other market-risk assets are a substantial portion of our investments and are primarily comprised of MSRs, ESS, CRT arrangements and MBS. We believe that the fair values of MSRs, ESS and MBS also respond primarily to changes in the market interest rates for comparable loans or yields on MBS. Changes in interest rates are reflected in the prepayment speeds underlying these investments and in the pricing spread (an element of the discount rate) used in their valuation. We believe that the primary market risks to the fair values of our investment in CRT arrangements are changes in market credit spreads and the fair value of the real estate securing the loans underlying such arrangements.

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

Mortgage-backed securities at fair value

The following table summarizes the estimated change in fair value of our mortgage-backed securities as of March 31, 2022, given several hypothetical (instantaneous) changes in interest rates and parallel shifts in the yield curve:

Interest rate shift in basis points	-200		-75		-50		50			75			200
	(in thousands)
Change in fair value	$	210,003	$	114,262	$	78,404	$	(83,235	)	$	(125,384	)	$	(321,360	)

Mortgage Servicing Rights

The following tables summarize the estimated change in fair value of MSRs as of March 31, 2022, given several shifts in pricing spread, prepayment speeds and annual per-loan cost of servicing:

Change in fair value attributable to shift in:	-20%		-10%		-5%		+5%			+10%			+20%
	(in thousands)
Prepayment speed	$	238,692	$	114,873	$	56,384	$	(54,398	)	$	(106,919	)	$	(206,727	)
Pricing spread	$	193,849	$	94,365	$	46,566	$	(45,375	)	$	(89,600	)	$	(174,758	)
Annual per-loan cost of servicing	$	77,859	$	38,930	$	19,465	$	(19,465	)	$	(38,930	)	$	(77,859	)

CRT arrangements

Following is a summary of the effect on fair value of various changes to the pricing spread input used to estimate the fair value of our CRT arrangements given several shifts in pricing spread:

Pricing spread shift in basis points	-100		-50		-25		25			50			100
	(in thousands)
Change in fair value	$	60,842	$	29,861	$	14,794	$	(14,527	)	$	(28,793	)	$	(56,565	)

Following is a summary of the effect on fair value of various instantaneous changes in home values from those used to estimate the fair value of our CRT arrangements given several shifts:

Property value shift in %	-15%			-10%			-5%			5%		10%		15%
	(in thousands)
Change in fair value	$	(47,526	)	$	(28,643	)	$	(13,223	)	$	10,997	$	20,655	$	28,963

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.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. As of March 31, 2022, we were not involved in any material legal actions, claims or proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended March 31, 2022.

The following table provides information about our repurchases of common shares of beneficial interest (“common shares”) during the quarter ended March 31, 2022:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)		Amount available for future share repurchases under the plans or programs (1)
							(in thousands)
January 1, 2022 – January 31, 2022		197	$	17.19		197	$	85,867
February 1, 2022 –February 28, 2022		945	$	15.86		945	$	70,878
March 1, 2022 – March 31, 2022		833	$	16.15		833	$	57,423

(1)	On June 11, 2021, the Company’s board of trustees approved an increase to the Company’s common share repurchase authorization from $300 million to $400 million. Under the repurchase program, as amended, the Company may repurchase up to $400 million of its outstanding common shares.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

		Incorporated by Reference from the Below-Listed Form (Each Filed under SEC File Number 001-34416)
Exhibit No.	Exhibit Description	Form	Filing Date

3.1	Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated.	10-Q	November 6, 2009

3.2	Second Amended and Restated Bylaws of PennyMac Mortgage Investment Trust	8-K	March 16, 2018

3.3	Articles Supplementary classifying and designating the 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	March 7, 2017

3.4	Articles Supplementary classifying and designating the 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	June 30, 2017

3.5	Articles Supplementary classifying and designating the 6.75% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest.	8-A	August 20, 2021


10.1	Amendment No. 4 to Series 2017-VF1 Indenture Supplement, dated as of February 8, 2022, by and among PMT ISSUER TRUST – FSMR, Citibank, N.A., PennyMac Corp. and Credit Suisse First Boston Mortgage Capital, LLC.	*

10.2	Joint Amendment No. 4 to the Series 2017-VF1 Repurchase Agreement and Amendment No. 7 to the Pricing Side Letter, dated as of March 30, 2022 by and among Credit Suisse First Boston Mortgage Capital, LLC, Credit Suisse AG, Cayman Islands Branch, Citibank, N.A., PennyMac Corp. and PennyMac Mortgage Investment Trust.	*

10.3†	Form of Restricted Stock Award Agreement under the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (Non Employee Trustee) (2022).	*

31.1	Certification of David A. Spector pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

31.2	Certification of Daniel S. Perotti pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

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

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

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (ii) the Consolidated Statements of Operation for the quarter ended March 31, 2022 and March 31, 2021, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarter ended March 31, 2022 and March 31, 2021, (iv) the Consolidated Statements of Cash Flows for the quarter ended March 31, 2022 and March 31, 2021 and (v) the Notes to the Consolidated Financial Statements.	*
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

*	Filed herewith.

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

†	Indicates management contract or compensatory plan or arrangement.

SIGNATURES

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

	Pennymac Mortgage Investment Trust (Registrant)

Dated: May 6, 2022	By:	/s/ David A. Spector
		David A. Spector
		Chairman and Chief Executive Officer (Principal Executive Officer)

Dated: May 6, 2022	By:	/s/ Daniel S. Perotti
		Daniel S. Perotti
		Senior Managing Director and Chief Financial Officer (Principal Financial Officer)

EXHIBIT 10.1

AMENDMENT NO. 4 TO SERIES 2017-VF1 INDENTURE SUPPLEMENT

This Amendment No. 4 to the Series 2017-VF1 Indenture Supplement (this “Amendment”) is dated as of February 8, 2022, by and among PMT ISSUER TRUST - FMSR, as issuer (the “Issuer”), CITIBANK, N.A. (“Citibank”), as indenture trustee (the “Indenture Trustee”), PENNYMAC CORP. (“PMC”), as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), and CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as administrative agent (the “Administrative Agent”), and is consented to by CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CSCIB”) and CITIBANK, N.A. (“Citi”), together, the noteholders of 100% of Outstanding Notes (the “Noteholders”).

RECITALS

WHEREAS, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent are parties to that certain Base Indenture, dated as of December 20, 2017 (as amended by Amendment No. 1, dated as of April 25, 2018, Amendment No. 2, dated as of July 31, 2020, Amendment No. 3, dated as of October 20, 2020, Amendment No. 4, dated as of March 30, 2021, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), the provisions of which are incorporated, as modified by that certain Series 2017-VF1 Indenture Supplement, dated as of December 20, 2017 (as amended by Amendment No. 1, dated as of June 29, 2018, Amendment No. 2, dated as of August 4, 2020, and Amendment No. 3, dated as of August 9, 2021, and as may be further amended, restated, supplement or otherwise modified from time to time, the “Series 2017-VF1 Indenture Supplement”, and together with the Base Indenture, the “Indenture”), among the Issuer, Citibank, the Servicer, the Administrator and the Administrative Agent. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Indenture;

WHEREAS, the Issuer, the Indenture Trustee, the Administrator, the Servicer, the Administrative Agent and the Noteholders have agreed, subject to the terms and conditions of this Amendment, that the Series 2017-VF1 Indenture Supplement be amended to reflect certain agreed upon revisions to the terms of the Series 2017-VF1 Indenture Supplement;

WHEREAS, pursuant to Section 12.2 of the Base Indenture, the Issuer, the Indenture Trustee, the Administrator, the Servicer and the Administrative Agent, with prior notice to each Note Rating Agency and the consent of the Majority Noteholders of each Series materially and adversely affected by such amendment, by Act of said Noteholders delivered to the Issuer, the Administrator, the Servicer, the Administrative Agent and the Indenture Trustee, upon delivery of an Issuer Tax Opinion (unless the Noteholders unanimously consent to waive such opinion), for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, any Indenture Supplement;

WHEREAS, pursuant to Section 12.3 of the Base Indenture, in executing or accepting the additional trusts created by any amendment or Indenture Supplement of the Base Indenture permitted by Article XII or the modifications thereby of the trusts created by the Base Indenture, the Indenture Trustee will be entitled to receive, and (subject to Section 11.1 of the Base Indenture) will be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment or Indenture Supplement is authorized and permitted by the Base Indenture and that

all conditions precedent thereto have been satisfied (the “Authorization Opinion”); provided, that no such Authorization Opinion shall be required in connection with any amendment or Indenture Supplement consented to by all Noteholders if all of the Noteholders have directed the Indenture Trustee in writing to execute such amendment or Indenture Supplement;

WHEREAS, pursuant to Section 1.3 of the Base Indenture, the Issuer shall deliver an Officer’s Certificate stating that all conditions precedent, if any, provided for in the Base Indenture relating to a proposed action have been complied with and that the Issuer reasonably believes that this Amendment will not have a material Adverse Effect, and shall also furnish to the Indenture Trustee an opinion of counsel stating that in the opinion of such counsel all conditions precedent to a proposed action, if any, have been complied with (unless 100% of the Noteholders have consented to the related amendment, modification or action and all of the Noteholders have directed the Indenture Trustee in writing to execute such amendment or supplement, or with respect or with respect to any other modification or action, directed the Indenture Trustee in writing to permit such modification or action without receiving such certificate or opinion);

WHEREAS, pursuant to Section 11.1 of the Trust Agreement, prior to the execution of any amendment to any Transaction Documents to which the Trust is a party, the Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by the Trust Agreement and that all conditions precedent have been met;

WHEREAS, pursuant to Section 4.1(a)(iii) of the Trust Agreement, the consent of each of the Owners (as defined in the Trust Agreement) (unless an Event of Default has occurred and is continuing), the Administrative Agent and the Series Required Noteholders of all Variable Funding Notes is required for the amendment or other change to any Transaction Document in circumstances where the consent of any Noteholder or the Administrative Agent is required (other than an amendment or supplement to the Base Indenture pursuant to Section 12.1 thereof);

WHEREAS, there is currently one Outstanding Series of Notes, the Series 2017-VF1 Note (the “Series 2017-VF1 Note”), which was issued to PennyMac Corp. (“PMC”) pursuant to the terms of the Series 2017-VF1 Indenture Supplement, and which was purchased by CSCIB and Citi under the Amended and Restated Master Repurchase Agreement, dated as of June 29, 2018, by and among the Administrative Agent, CSCIB, as a buyer, Citi, as a buyer, and PMC, as seller (the “Series 2017-VF1 Repurchase Agreement”), pursuant to which PMC sold all of rights, title and interest in the Series 2017-VF1 Note to CSCIB and Citi;

WHEREAS, (i) pursuant to the Trust Agreement, PMC is the sole Owner and (ii) pursuant to the Series 2017-VF1 Indenture Supplement, with respect to the Series 2017-VF1 Note, any Action provided by the Base Indenture or the Series 2017-VF1 Indenture Supplement to be given or taken by a Noteholder shall be taken by the VFN Repo Buyer, as the buyer of the Series 2017-VF1 Note under the Series 2017-VF1 Repurchase Agreement;

WHEREAS, pursuant to Section 11 of the Series 2017-VF1 Indenture Supplement, the parties hereto may enter into an amendment to supplement, amend or revise any term or provision of the Series 2017-VF1 Indenture Supplement pursuant to the terms and provisions of Section 12.2 of the Base Indenture with the consent of the Noteholders of 100% of the Outstanding Notes; and

WHEREAS, as of the date hereof, the Series 2017-VF1 Note is not rated by any Note Rating Agency.

NOW, THEREFORE, the Issuer, Indenture Trustee, the Administrator, the Servicer and the Administrative Agent hereby agree, in consideration of the amendments, agreements and other provisions herein contained and of certain other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged by the parties hereto, that the Series 2017-VF1 Indenture Supplement is hereby amended as follows:

SECTION 1.Amendments to the Series 2017-VF1 Indenture Supplement.

(a)Section 2 of the Series 2017-VF1 Indenture Supplement is hereby amended by adding the following definitions in proper alphabetical order:

“Adjusted Daily Simple SOFR” means an interest rate per annum equal to (i) the Daily Simple SOFR, plus (ii) the applicable Benchmark Adjustment. The Calculation Agent shall not be responsible for calculating the Adjusted Daily Simple SOFR.

“Daily Simple SOFR” means, for any day, SOFR, with conventions (including, without limitation, a lookback) established by the Administrative Agent in its sole and good faith discretion; provided that, if the Administrative Agent determines that any such convention is not administratively, operationally, or technically feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its sole and good faith discretion.

“Benchmark Adjustment” means, for any day, the spread adjustment for such Interest Accrual Period that has been selected or recommended by the Relevant Governmental Body for the tenor of 1 month. For the avoidance of doubt, the “Benchmark Adjustment” means, for any day, the value as reported on the display designated as “YUS0001M” on Bloomberg, or such other display as may replace “YUS0001M.”

“Benchmark Administration Changes”means, with respect to the Benchmark (including any Benchmark Replacement Rate), any technical, administrative or operational changes (including without limitation changes to the timing and frequency of determining rates and making payments of interest, length of lookback periods, and other administrative matters as may be appropriate, in the sole and good faith discretion of Administrative Agent, to reflect the adoption and implementation of such Benchmark and to permit the administration thereof by Administrative Agent in a manner substantially consistent with market practice (or, if Administrative Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such Benchmark exists, in such other manner of administration as Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement).

“Benchmark Replacement Rate” means with respect to any Benchmark Transition Event, the sum of: (i) the alternate benchmark rate that has been selected in the sole and good faith discretion of Administrative Agent, giving due consideration to (A) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for

determining a benchmark rate as a replacement to the then-current Benchmark for Dollar-denominated repurchase facilities and (ii) the related Benchmark Administration Changes; provided that, no such Benchmark Replacement Rate as so determined would be less than 0%.

(b)The Series 2017-VF1 Indenture Supplement is hereby amended by deleting the definitions of “Benchmark,” “Benchmark Transition Event” and “Note Interest Rate” from Section 2 thereof in their entirety and replacing them with the following:

“Benchmark” means, with respect to any date of determination, the Adjusted Daily Simple SOFR or, if applicable, a Benchmark Replacement Rate. It is understood that the Benchmark shall be adjusted on a daily basis; provided, that, Benchmark for the three (3) Business Days prior to the related Payment Date shall be fixed at Benchmark for the third (3rd) Business Day prior to the related Payment Date.

“Benchmark Transition Event” means a determination by Administrative Agent in its sole and good faith discretion that, by reason of circumstances affecting the relevant market, (i) adequate and reasonable means do not exist for ascertaining the Benchmark, (ii) the applicable Benchmark is permanently or indefinitely no longer in existence, (iii) continued implementation of the Benchmark is no longer administratively feasible or no significant market practice for the administration of the Benchmark exists, (iv) the Benchmark will not adequately and fairly reflect the cost to Noteholder of purchasing or maintaining Note (including increases in the balance thereof) going forward or (v) the administrator of the applicable Benchmark or a Relevant Governmental Body having jurisdiction over Noteholder or Administrative Agent has made a public statement identifying a specific date after which the Benchmark shall no longer be made available or used for determining the interest rate of loans or other extensions of credit.

“Note Interest Rate” means, for the Series 2017-VF1 Notes, with respect to any Interest Accrual Period, the sum of (a) the greater of (i) the Benchmark (as determined by the Administrative Agent) and (ii) 0.50% plus (b) the Margin.

(c)Section 2 of the Series 2017-VF1 Indenture Supplement is hereby amended by deleting the definitions of “Benchmark Determination Date,” “Benchmark Rate,” “Benchmark Reference Agreement,” “Benchmark Reference Time,” “Benchmark Replacement,” “Benchmark Replacement Adjustment,” “Benchmark Replacement Conforming Changes,” “Benchmark Replacement Date,” “Compounded SOFR,” “Corresponding Tenor,” “Designated Transaction Representative,” “Early Opt-in Effective Date,” “Early Opt-in Election,” “ISDA Definition,” “ISDA Fallback Adjustment,” “ISDA Fallback Rate,” “LIBOR,” “LIBOR Index Rate,” “LIBOR01 Page,” “London Banking Day” “Term SOFR” and “Unadjusted Benchmark Replacement” in their entirety.

(d)Section 8 of the Series 2017-VF1 Indenture Supplement is hereby amended by deleting in its entirety and replacing it with the following:

Section 8.Determination of Note Interest Rate and Benchmark.

(a)Two (2) Business Days immediately preceding the related Payment Date, the Administrative Agent will provide to the Calculation Agent the Benchmark for each day of the related Interest Accrual Period for the Series 2017-VF1 Notes on the basis of the procedures specified in the definition of Benchmark.

(b)The Calculation Agent shall calculate the Note Interest Rate for the related Interest Accrual Period and the Interest Payment Amount for the Series 2017-VF1 Notes on each Payment Date, and include a report of such amount in the related Payment Date Report.

(c)The establishment of the Benchmark by the Administrative Agent and the Calculation Agent’s subsequent calculation of the Note Interest Rate and the Interest Payment Amount on the Series 2017-VF1 Notes for the relevant Interest Accrual Period, in the absence of manifest error, will be final and binding.

(d)For purposes of calculating the Required Reserve Amount under the PC Repurchase Agreement, the “Pricing Rate” with respect to any “MRA Payment Date” thereunder will be calculated using the Benchmark as reported by the Administrative Agent for the immediately preceding Payment Date.

(e)Section 15 of the Series 2017-VF1 Indenture Supplement is hereby amended by deleting in its entirety and replacing it with the following:

Section 15.Owner Trustee Limitation of Liability.

It is expressly understood and agreed by the parties hereto that (a) this Indenture Supplement is executed and delivered by WSFS, not individually or personally but solely as owner trustee of the Issuer under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, warranties, undertakings, obligations and agreements herein made on the part of the Issuer is made and intended not as personal representations, warranties, undertakings, obligations and agreements by WSFS but is made and intended for the purpose of binding only, and is binding only on, the Issuer, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant or obligation of the Issuer, either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has made and will make no investigation as to the accuracy or completeness of any representations or warranties made by the Issuer in this Indenture Supplement and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness, indemnities or expenses of the Issuer or be liable for the performance, breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Indenture Supplement or any other Transaction Documents, as to all of which recourse shall be had solely to the assets of the Issuer.

SECTION 2.No Note Rating Agency. As of the date hereof and prior to the execution of this Amendment, there are no Classes or Series of Outstanding Notes rated by any Note Rating Agency.

SECTION 3.Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon (i) the execution and delivery of this Amendment by all parties hereto and (ii) delivery of an Opinion of Counsel pursuant to Section 11.1 of the Trust Agreement.

SECTION 4.Consent, Acknowledgment and Waiver. By execution of this Amendment, each of CSCIB and Citi, in its capacity as Noteholder of the Outstanding Notes, hereby consents to this Amendment. The Noteholders certify that together, they are the sole

Noteholders of the Series 2017-VF1 Note with the right to instruct the Indenture Trustee. In addition, each Noteholder certifies as to itself that (i) it is authorized to execute and deliver this consent and such power has not been granted or assigned to any other person, (ii) the Person executing this Indenture Supplement on behalf of such Noteholder is duly authorized to do so, (iii) the Indenture Trustee may conclusively rely upon such consent and certifications, (iv) the execution by each Noteholder of this Amendment should be considered an “Act” by Noteholders pursuant to Section 1.5 of the Base Indenture, and (v) it acknowledges and agrees that the amendments effected by this Amendment shall become effective on the Amendment Effective Date. The Noteholders further hereby instruct the Indenture Trustee to execute this Amendment, thereby waiving the requirement for the delivery of the Authorization Opinion, the Officer’s Certificate and the Issuer Tax Opinion pursuant to Sections 1.3, 12.2 and 12.3 of the Base Indenture.

SECTION 5.Representations and Warranties. The Issuer hereby represents and warrants to the Indenture Trustee, the Administrative Agent and the Noteholders that as of the date hereof it is in compliance with all the terms and provisions set forth in the Indenture on its part to be observed or performed remains bound by the terms thereof, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 9.1 of the Base Indenture.

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

SECTION 7.No Recourse. It is expressly understood and agreed by the parties hereto that (a) this Amendment is executed and delivered by Wilmington Savings Fund Society, FSB (“WSFS”), not individually or personally but solely as Owner Trustee of the Issuer under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, warranties, undertakings, obligations and agreements herein made on the part of the Issuer is made and intended not as personal representations, warranties, undertakings, obligations and agreements by WSFS but is made and intended for the purpose of binding only, and is binding only on, the Issuer, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant or obligation of the Issuer, either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has made and will make no investigation as to the accuracy or completeness of any representations or warranties made by the Issuer in this Amendment and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness, indemnities or expenses of the Issuer or be liable for the performance, breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Amendment or any other related documents, as to all of which recourse shall be had solely to the assets of the Issuer.

SECTION 8.Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.

SECTION 9.GOVERNING LAW. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT

OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF (WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

SECTION 10.Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention.

SECTION 11.Entire Agreement. The Indenture, as amended by this Amendment, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof, and fully supersedes any prior or contemporaneous agreements relating to such subject matter.

SECTION 12.Recitals. The recitals and statements contained in this Amendment shall be taken as the statements of the Issuer, and the Indenture Trustee does not assume any responsibility for their correctness. The Indenture Trustee does not make any representation as to the validity or sufficiency of this Amendment (except as may be made with respect to the validity of its own obligations hereunder.) In entering into this Amendment, the Indenture Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct of, or affecting the liability of or affording protection to it.

[Signature Pages Follow]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.

PMT ISSUER TRUST – FMSR, as Issuer

By: Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as Owner Trustee

By:  /s/ Mary Emily Pagano
Name:  Mary Emily Pagano
Title:    Assistant Vice President

PENNYMAC CORP., as Servicer and as Administrator

By: /s/ Pamela Marsh
Name: Pamela Marsh
Title: Senior Managing Director and Treasurer

CITIBANK, N.A., as Indenture Trustee, and not in its individual capacity

By:  /s/ Valerie Delgado
Name:  Valerie Delgado
Title:    Senior Trust Officer

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent

By: /s/ Dominic Obaditch
Name: Dominic Obaditch
Title: Vice President

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, solely in its capacity as Administrative Agent on behalf of Credit Suisse AG, Cayman Islands Branch, as VFN Repo Buyer, and Citibank, N.A., as VFN Repo Buyer

By: /s/ Dominic Obaditch
Name: Dominic Obaditch
Title: Vice President

CONSENTED TO BY:

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a VFN Repo Buyer and as noteholder of Series 2017-VF1 Note

By: /s/ Dominic Obaditch
Name: Dominic Obaditch
Title: Authorized Signatory

By: /s/ Margaret D. Dellafera
Name: Margaret D. Dellafera
Title: Authorized Signatory

CONSENTED TO BY:

CITIBANK, N.A., as a VFN Repo Buyer and as a noteholder of Series 2017-VF1 Note

By:  /s/ Arunthathi Theivakumaran
Name:  Arunthathi Theivakumaran
Title:    Vice President

EXHIBIT 10.2

JOINT AMENDMENT NO. 4 TO THE SERIES 2017-VF1 REPURCHASE AGREEMENT AND AMENDMENT NO. 7 TO THE PRICING SIDE LETTER

This Joint Amendment No. 4 to the Series 2017-VF1 Repurchase Agreement (as defined below) and Amendment No. 7 to the Pricing Side Letter (as defined below), is entered into as of March 30, 2022 (this “Amendment”), among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as administrative agent (the “Administrative Agent”), CREDIT SUISSE AG, Cayman Islands Branch, as a buyer (“CSCIB” or “CSCIB Buyer”), CITIBANK, N.A., as a buyer (“Citibank” or “Citibank Buyer” and together with CSCIB Buyer, “Buyers”), PENNYMAC CORP., as seller (“PMC” or the “Seller”), and PENNYMAC MORTGAGE INVESTMENT TRUST, as guarantor (the “VFN Guarantor”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Indenture (as defined below).

W I T N E S S E T H:

WHEREAS, the Administrative Agent, the Buyers and the Seller are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of June 29, 2018 (as amended by Amendment No. 1, dated August 4, 2020, Amendment No. 2, dated August 9, 2021, Amendment No. 3, dated January 3, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2017-VF1 Repurchase Agreement”) and the related Second Amended and Restated Pricing Side Letter, dated as of June 29, 2018 (as amended by Amendment No. 1, dated as of June 25, 2020, Amendment No. 2, dated August 4, 2020, Amendment No. 3, dated March 31, 2021, Amendment No. 4, dated August 2, 2021, Amendment No. 5, dated August 9, 2021, and Amendment No. 6, dated as of February 8, 2022, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Pricing Side Letter”);

WHEREAS, the Administrative Agent, the Buyers, the Seller and the VFN Guarantor have agreed, subject to the terms and conditions of this Amendment, that the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter be amended to reflect the certain agreed upon revisions to the terms of the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter;

WHEREAS, the VFN Guarantor is party to that certain Amended and Restated Guaranty, dated as of June 29, 2018 (as amended, restated, supplemented or otherwise modified from time to time, the “VFN Repo Guaranty”), by the VFN Guarantor in favor of Buyers;

WHEREAS, as a condition precedent to amending the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter, Buyers have required the VFN Guarantor to ratify and affirm the VFN Repo Guaranty on the date hereof;

WHEREAS, PMT Issuer Trust – FMSR, as issuer (the “Issuer”), Citibank, as indenture trustee, calculation agent, paying agent and securities intermediary, PMC, as administrator (in such capacity, the “Administrator”) and as servicer (in such capacity, the “Servicer”), and the Administrative Agent are parties to that certain Indenture, dated as of December 20, 2017 (as amended by Amendment No. 1, dated as of April 25, 2018, Amendment

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No. 2, dated as of July 31, 2020, Amendment No. 3, dated as of October 20, 2020, Amendment No. 4, dated as of March 30, 2021, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Base Indenture”), the provisions of which are incorporated, as modified by that certain Series 2017-VF1 Indenture Supplement, dated as of December 20, 2017 (as amended by Amendment No. 1, dated as of June 29, 2018, Amendment No. 2, dated as of August 4, 2020, Amendment No. 3, dated as of August 9, 2021, and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Series 2017-VF1 Indenture Supplement,” and together with the Base Indenture, the “Indenture”), among the Issuer, Citibank, the Servicer, the Administrator and the Administrative Agent;

WHEREAS, pursuant to Section 10.3(e)(iii) of the Base Indenture, so long as any Note is Outstanding and until all obligations have been paid in full, PMC shall not consent to any amendment, modification or waiver of any term or condition of any Transaction Document, without the prior written consent of the Administrative Agent; and

WHEREAS, the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter are Transaction Documents.

NOW THEREFORE, the Administrative Agent, the Buyers, the Seller and the Guarantor hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter are hereby amended as follows:

SECTION 1.Amendment to the Series 2017-VF1 Repurchase Agreement

(a)Section 5.02 of the Series 2017-VF1 Repurchase Agreement is hereby amended by deleting subsection (h) in its entirety and replacing it with the following:

(h)Maintenance of Profitability. VFN Guarantor shall maintain profitability (i) for the Test Period ending December 2021, of at least $1.00 in Net Income for either the Test Period ending June 2021 or December 2021, (ii) for the Test Period ending March 2022, of at least $1.00 in Net Income for either the Test Period ending June 2021 or March 2022, or (iii) for each other Test Period, of at least $1.00 in Net Income for one of the two prior Test Periods.

SECTION 2.Amendment to the Pricing Side Letter.

(a)Exhibit A of the Pricing Side Letter is hereby amended by deleting in its entirety and replacing with Exhibit A attached hereto as Exhibit A.

SECTION 3.Reaffirmation of VFN Repo Guaranty. The VFN Guarantor hereby (i) ratifies and affirms all of the terms, covenants, conditions and obligations of the VFN Repo Guaranty and (ii) acknowledges and agrees that such VFN Repo Guaranty is and shall continue to be in full force and effect.

SECTION 4.Conditions Precedent. This Amendment shall become effective as of the date hereof upon receipt of this Amendment by the Administrative Agent on behalf of the

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Buyers, executed and delivered by the duly authorized officers of the Administrative Agent, the Buyers, the Seller and the VFN Guarantor.

SECTION 5.Representations and Warranties. The Seller hereby represents and warrants to the Administrative Agent and the Buyers that it is in compliance with all the terms and provisions set forth in the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Article III of the Series 2017-VF1 Repurchase Agreement.

SECTION 6.Limited Effect. Except as expressly amended and modified by this Amendment, the Series 2017-VF1 Repurchase Agreement and the Pricing Side Letter shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 7.Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. The parties agree that this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law. Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service with appropriate document access tracking, electronic signature tracking and document retention.

SECTION 8.Severability. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.

SECTION 9.GOVERNING LAW. THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES HERETO, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING THE STATUTES OF LIMITATIONS AND OTHER PROCEDURAL LAWS THEREOF (WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURES FOLLOW.]

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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as Administrative Agent

By: /s/ Dominic Obaditch
Name: Dominic Obaditch
Title: Vice President

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Buyer

By: /s/ Dominic Obaditch
Name: Dominic Obaditch
Title: Authorized Signatory

By: /s/ Margaret D. Dellafera
Name: Margaret D. Dellafera
Title: Authorized Signatory

CITIBANK, N.A., as a Buyer

By:  /s/ Arunthathi Theivakumaran
Name:  Arunthathi Theivakumaran
Title:  Vice President

PENNYMAC CORP., as Seller

By:/s/ Pamela Marsh
Name: Pamela Marsh
Title: Senior Managing Director and Treasurer

PENNYMAC MORTGAGE INVESTMENT TRUST, as VFN Guarantor

By:/s/ Pamela Marsh
Name: Pamela Marsh
Title: Senior Managing Director and Treasurer

EXHIBIT A

OFFICER’S COMPLIANCE CERTIFICATE

I, ___________________, do hereby certify that I am the [duly elected, qualified and authorized] [CFO/TREASURER/FINANCIAL OFFICER] of PennyMac Corp. (“PMC”) and PennyMac Mortgage Investment Trust (“PMIT”). This Certificate is delivered to you in connection with Section 6.24(b) of the Amended and Restated Master Repurchase Agreement, dated as of June 29, 2018, among Credit Suisse First Boston Mortgage Capital LLC, as administrative agent (the “Administrative Agent”), PMC, as seller (the “Seller”), Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as a buyer (a “Buyer”), Citibank, N.A. (“Citibank”), as a buyer (a “Buyer” and together with CSCIB, the “Buyers”), and PMIT, as guarantor (the “VFN Guarantor”) (as amended from time to time, the “Series 2017-VF1 Repurchase Agreement”). I hereby certify that, as of the date of the financial statements attached hereto and as of the date hereof, each of PMC and PMIT (each an “Applicable Party” and collectively, the “Applicable Parties”) is and has been in compliance with all the terms of the Series 2017-VF1 Repurchase Agreement and, without limiting the generality of the foregoing, I certify on behalf of the Applicable Party that:

Adjusted Tangible Net Worth.

(i)PMC has maintained at all times an Adjusted Tangible Net Worth of at least equal to $300,000,000.

(ii)VFN Guarantor has maintained at all times an Adjusted Tangible Net Worth of at least equal to $1,250,000,000.

Indebtedness to Adjusted Tangible Net Worth Ratio.

(i)PMC’s ratio of Indebtedness (on and off balance sheet and excluding (A) Non-Recourse Debt, including any securitization debt, and (B) any intercompany debt eliminated in consolidation) to Adjusted Tangible Net Worth has not exceeded 10:1 at any time.

(ii)VFN Guarantor’s ratio of Indebtedness (on and off balance sheet and excluding (A) Non-Recourse Debt, including any securitization debt, and (B) any intercompany debt eliminated in consolidation) to Adjusted Tangible Net Worth has not exceeded 7:1 at any time.

Maintenance of Liquidity.

(i)PMC has ensured that, as of the end of each calendar month, it has maintained cash and Cash Equivalents other than Restricted Cash on a consolidated basis in an amount not less than $10,000,000.

(ii)VFN Guarantor has ensured that, as of the end of each calendar month, it has maintained cash and Cash Equivalents other than Restricted Cash on a consolidated basis in an amount not less than $40,000,000.

Maintenance of Profitability. VFN Guarantor has maintained profitability (i) for the Test Period ending December 2021, of at least $1.00 in Net Income for either the Test Period ending June 2021 or December 2021, (ii) for the Test Period ending March 2022, of at least $1.00 in Net Income for either the Test Period ending June 2021 or March 2022, or (iii) for each other Test Period, of at least $1.00 in Net Income for one of the two prior Test Periods.

Financial Statements. The financial statements attached hereto as Schedule 1 are accurate and complete, accurately reflect the financial condition of the Applicable Parties, and do not omit any material fact as of the date(s) thereof.

Compliance. The Applicable Party has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition, contained in the Series 2017-VF1 Repurchase Agreement and the other Program Agreements to be observed, performed and satisfied by it. [If a covenant or other agreement or condition has not been complied with, the Applicable Party shall describe such lack of compliance and provide the date of any related waiver thereof.]

No Advance Rate Reduction Event, Servicer Termination Events, Events of Default or Funding Interruption Events. No Advance Rate Reduction Event, Servicer Termination Event, Event of Default or Funding Interruption Event has occurred or is continuing. [If any Advance Rate Reduction Event, Servicer Termination Event, Event of Default or Funding Interruption Event has occurred and is continuing, the Applicable Party shall describe the same in reasonable detail and describe the action Applicable Party has taken or proposes to take with respect thereto, and if such Advance Rate Reduction Event, Servicer Termination Event, Event of Default or Funding Interruption Event has been expressly waived by Buyers in writing, Applicable Party shall describe the Advance Rate Reduction Event, Servicer Termination Event, Event of Default or Funding Interruption Event, as applicable, and provide the date of the related waiver.]

Indebtedness. All Indebtedness (including, without limitation, all Subordinated Debt) (other than Indebtedness evidenced by the Applicable Agreement) of the Applicable Party existing on the date hereof is listed on Schedule 2 hereto.

Hedging. With respect to the Series 2017-VF1 Repurchase Agreement, attached hereto as Schedule 3 is a true and correct summary of all interest rate protection agreements entered into or maintained by the Applicable Party.

MSR Valuation. A detailed summary of the fair market value and Market Value Percentage of MSRs from the most recently delivered Market Value Report has been provided to Buyers in accordance with the timing requirements of Section 3.3(g) of the Base Indenture.

Litigation Summary. Attached hereto as Schedule 4 is a true and correct summary of all actions, notices, proceedings and investigations pending with respect to which the Applicable Party has received service of process or other form of notice or, to the best of

Applicable Party’s knowledge, threatened against it, before any court, administrative or governmental agency or other regulatory body or tribunal.

IN WITNESS WHEREOF, I have set my hand this _____ day of ________, 20___.

PENNYMAC CORP.

By: _________________________________

Name: ______________________________

Title: _______________________________

PENNYMAC MORTGAGE INVESTMENT TRUST

By: _________________________________

Name: ______________________________

Title: _______________________________

Schedule 1

Financial Statement

Schedule 2

Existing Indebtedness

Schedule 3

Interest Rate Protection Agreement

Schedule 4

Litigation Summary

EXHIBIT 10.3

PENNYMAC MORTGAGE INVESTMENT TRUST

2019 EQUITY INCENTIVE PLAN

RESTRICTED SHARE UNIT

AWARD AGREEMENT

THIS RESTRICTED SHARE UNIT AWARD AGREEMENT (the “Agreement”), effective as of February 25, 2022 (the “Grant Date”), is made by and between PennyMac Mortgage Investment Trust, a Maryland real estate investment trust (the “Trust”), and _______________ (the “Grantee”).

WHEREAS, the Trust has adopted the PennyMac Mortgage Investment Trust 2019 Equity Incentive Plan (the “Plan”), pursuant to which the Trust may grant awards representing the right to receive Shares or cash after the lapse of such forfeiture restrictions as may be determined by the Board (such rights hereinafter referred to as “Restricted Share Units”);

WHEREAS, the Grantee is providing bona fide services to the Trust on the date of this Agreement;

WHEREAS, the Trust desires to grant to the Grantee the number of Restricted Share Units provided for herein;

NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:

Section 1.Grant of Restricted Share Unit Award

(a)Grant of Restricted Share Units. The Trust hereby grants to the Grantee _______ Restricted Share Units on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. The Trust shall establish a book account in the Grantee’s name with respect to the Award granted hereby.

(b)Incorporation of Plan. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Board shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions shall be binding and conclusive upon the Grantee and the Grantee’s legal representative in respect of any questions arising under the Plan or this Agreement.

Section 2.Terms and Conditions of Award

The grant of Restricted Share Units provided in Section 1(a) shall be subject to the following terms, conditions and restrictions:

(a)Restrictions. The Restricted Share Units and any Distribution Equivalents related thereto as provided in Section 2(d) may not be sold, assigned, transferred, pledged,

hypothecated or otherwise disposed of, except by will or the laws of descent and distribution prior to the lapse of restrictions set forth in this Agreement applicable thereto, as set forth in Section 2(b). The Board may in its discretion, cancel all or any portion of any outstanding restrictions prior to the expiration of the periods provided under Section 2(b). The period from the date of grant of a Restricted Share Unit to the date it becomes vested and payable shall be referred to herein as the “Restricted Period.”

(b)Lapse of Restrictions. Except as may otherwise be provided herein, the restrictions on transfer set forth in Section 2(a) shall lapse with respect to one hundred percent (100%) of the Restricted Share Units granted hereunder on the first anniversary of the Grant Date, so long as the Grantee is providing services to the Trust as of such date.

(c)Form of Payment. Unless otherwise determined by the Board at the time of payment, each Restricted Share Unit granted hereunder shall represent the right to receive one Share upon the date on which the restrictions applicable to such Restricted Share Unit lapse.

(d)Distribution Equivalents. The Grantee shall be entitled to a Distribution Equivalent as of each date (a “Distribution Date”) on which cash distributions and/or special distributions are paid with respect to Shares, provided that the record date with respect to such distribution occurs within the Restricted Period. The Distribution Equivalents shall be paid on the Distribution Date as to the Grantee as though such Restricted Share Units were outstanding Shares and shall equal the product of (x) the number of Restricted Share Units held on the record date for such distribution and (y) the per Share distribution payable on such Distribution Date.

(e)Issuance of Certificate. In the event that Shares are to be issued upon any lapse of restrictions relating to the Restricted Share Units, the Trust shall issue to the Grantee or the Grantee’s personal representative a share certificate representing such Shares.

(f)Termination of Service. In the event that the Grantee’s service to the Trust is terminated pursuant to a Removal for Cause, all Restricted Share Units subject to this Award Agreement shall be immediately forfeited as of the effective date of such termination of service. Upon termination of the Grantee’s service to the Trust for any reason other than pursuant to a Removal for Cause, any Restricted Share Units granted hereunder which have not become free of transfer restrictions shall as of the effective date of such termination of service become fully vested and free of such restrictions (including all Distribution Equivalents with respect thereto). Restricted Share Units (including all Distribution Equivalents with respect thereto) forfeited pursuant to this Agreement shall be transferred to, and reacquired by, the Trust without payment of any consideration by the Trust, and neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall thereafter have any further rights or interests in such Restricted Share Units.

Section 3. Miscellaneous

(a)Notices. Any and all notices, designations, consents, offers, acceptances and any other communications provided for herein shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed in the case of the Trust to the Secretary of the Trust at the principal office of the Trust and, in the case of the Grantee, to the Grantee’s address appearing on the books of the Trust or to the Grantee’s residence or to such other address as may be designated in writing by the Grantee.

(b)No Right to Continued Service. Nothing in the Plan or in this Agreement shall confer upon the Grantee any right to continue in the service of the Trust or any subsidiary or Affiliate of the Trust or shall interfere with or restrict in any way the right of the Trust, which is hereby expressly reserved, to remove, terminate or discharge the Grantee at any time for any reason whatsoever, with or without Cause.

(c)Bound by Plan. By signing this Agreement, the Grantee acknowledges receipt of a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

(d)Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Trust, its successors and assigns, and of the Grantee and the beneficiaries, executors, administrators, heirs and successors of the Grantee.

(e)Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

(f)Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto.

(g)Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

(h)Governing Law. This Agreement and the rights of the Grantee hereunder shall be construed and determined in accordance with the laws of the State of Maryland without giving effect to the conflict of laws principles thereof.

(i)Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part of this Agreement.

(j)Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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

PENNYMAC MORTGAGE INVESTMENT TRUST

Exhibit 31.1

CERTIFICATION

I, David A. Spector, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

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:

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;

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;

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

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

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

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: May 6, 2022

/s/ David A. Spector

David A. Spector

Chairman and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Daniel S. Perotti, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

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: May 6, 2022

/s/ Daniel S. Perotti

Daniel S. Perotti

Senior Managing Director and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust (the “Company”) for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Spector, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David A. Spector

David A. Spector

Chairman and Chief Executive Officer

(Principal Executive Officer)

Date: May 6, 2022

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 March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel S. Perotti, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Daniel S. Perotti

Daniel S. Perotti

Senior Managing Director and Chief Financial Officer

(Principal Financial Officer)

Date: May 6, 2022