PFSI - Things Could Be Looking Up for PennyMac Financial Services. Here's Why.
Mortgage origination is a feast-and-famine business, and the boom years of 2020 and 2021 turned into a bust in 2022. Much of the volume from these years disappeared as the Federal Reserve began to hike rates, which removed the incentive for homeowners to refinance. In addition, falling affordability has discouraged homeowners from selling and made it unaffordable for first-time homebuyers to purchase a starter home. Mortgage originators have struggled this year as well. That said, the Fed seems close to finishing up its tightening cycle, and mortgage rates have been falling recently. Is the worst behind for companies like PennyMac Financial Services (NYSE: PFSI) ?
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PennyMac Financial Services is one of the biggest correspondent lenders in the U.S. There are basically three types of business models in the mortgage banking business. The most common is retail, where a company employs loan officers (or technology) to originate loans, which the company funds and then sell to a third party. The best-known company in this market is Rocket (NYSE: RKT) . The second most common is wholesale, which utilizes a network of non-exclusive mortgage brokers. The company then puts the loan together, funds it, and then sells it. The best example of a company using this strategy is UWM Corporation (NYSE: UWMC) . Finally, there is the correspondent model, which buys completed loans from smaller retail shops and then sells them to a third party or securitizes them, packaging them into a single security that trades like a bond. This is PennyMac's model.
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Things Could Be Looking Up for PennyMac Financial Services. Here's Why.