v3.26.3
Derivative and Credit Risk Transfer Strip Assets and Liabilities
 9 Months Ended
Sep. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Credit Risk Transfer Strip Assets and Liabilities

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

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

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

(in thousands)

 

Derivative assets with nonaffiliates

 

$

53,001

 

 

$

49,696

 

Derivative assets with PennyMac Financial Services, Inc.

 

$

5,668

 

 

$

6,247

 

 

 

 

 

 

 

Derivative liabilities with nonaffiliates

 

$

6,102

 

 

$

933

 

Credit risk transfer strip liabilities

 

 

5,231

 

 

 

5,999

 

 

$

11,333

 

 

$

6,932

 

Derivative liabilities with PennyMac Financial Services, Inc.

 

$

16,456

 

 

$

2,257

 

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 are IRLCs that are created when the Company commits to purchase loans held for sale.

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 values 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 values of MBS, IRLCs and loans held for sale to decrease.
•
The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally encourage increased mortgage refinancing activities, which causes the fair values 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 values of the Company’s MBS, inventory of loans held for sale, IRLCs and MSRs. 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 held for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans held 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 strip liabilities at fair value and related margin deposits on the consolidated balance sheets:

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

 

 

 

Fair value

 

 

 

 

 

Fair value

 

 

 

Notional

 

 

Derivative

 

 

Derivative

 

 

Notional

 

 

Derivative

 

 

Derivative

 

Instrument

 

amount (1)

 

 

assets

 

 

liabilities

 

 

amount (1)

 

 

assets

 

 

liabilities

 

 

(in thousands)

 

Nonaffiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging derivatives subject to
   master netting arrangements (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase contracts

 

 

187,500

 

 

$

88

 

 

$

—

 

 

 

3,250,000

 

 

$

1,289

 

 

$

—

 

Put options on interest rate futures purchase contracts

 

 

187,500

 

 

 

5,566

 

 

 

—

 

 

 

2,500,000

 

 

 

4,109

 

 

 

—

 

Forward purchase contracts

 

 

2,028,054

 

 

 

—

 

 

 

13,166

 

 

 

3,703,628

 

 

 

4,113

 

 

 

158

 

Forward sale contracts

 

 

5,507,527

 

 

 

89,048

 

 

 

2,959

 

 

 

7,933,760

 

 

 

2,381

 

 

 

17,340

 

Bond futures

 

 

3,116,000

 

 

 

—

 

 

 

—

 

 

 

1,896,100

 

 

 

—

 

 

 

—

 

Swap futures

 

 

216,800

 

 

 

—

 

 

 

—

 

 

 

751,200

 

 

 

—

 

 

 

—

 

Swaptions

 

 

2,000,000

 

 

 

54,793

 

 

 

32

 

 

 

—

 

 

 

—

 

 

 

—

 

Other derivatives not subject to master netting arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk transfer derivatives

 

 

2,906,185

 

 

 

30,695

 

 

 

—

 

 

 

455,682

 

 

 

32,659

 

 

 

—

 

Total derivative instruments before netting

 

 

 

 

 

180,190

 

 

 

16,157

 

 

 

 

 

 

44,551

 

 

 

17,498

 

Netting

 

 

 

 

 

(127,189

)

 

 

(10,055

)

 

 

 

 

 

5,145

 

 

 

(16,565

)

 

 

 

 

$

53,001

 

 

$

6,102

 

 

 

 

 

$

49,696

 

 

$

933

 

 PennyMac Financial Services, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments not subject to
  master netting arrangements

 

 

883,146

 

 

$

370

 

 

$

16,456

 

 

 

1,207,859

 

 

$

4,605

 

 

$

2,257

 

Forward purchase contract subject to
   master netting arrangement

 

 

311,414

 

 

 

5,462

 

 

 

164

 

 

 

250,638

 

 

 

1,784

 

 

 

142

 

Total derivatives before netting

 

 

 

 

 

5,832

 

 

 

16,620

 

 

 

 

 

 

6,389

 

 

 

2,399

 

Netting

 

 

 

 

 

(164

)

 

 

(164

)

 

 

 

 

 

(142

)

 

 

(142

)

 

 

 

 

 

$

5,668

 

 

$

16,456

 

 

 

 

 

$

6,247

 

 

$

2,257

 

Margin deposits (received from) placed with derivative
   counterparties included in derivative balances above, net

 

 

 

 

$

(117,134

)

 

 

 

 

 

 

 

$

21,710

 

 

 

 

Derivative assets pledged to secure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase and Notes
   payable secured by credit risk transfer and mortgage
  servicing assets

 

 

 

 

$

30,695

 

 

 

 

 

 

 

 

$

32,659

 

 

 

 

 

(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 such positions are subject to legally enforceable master netting arrangements and the Company intends to set off. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of September 30, 2026 and December 31, 2025, 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.

Derivative Assets, Financial Instruments and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amounts 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.

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

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

 

Counterparty

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

 

(in thousands)

 

Non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRT derivatives

 

$

30,695

 

 

$

—

 

 

$

—

 

 

$

30,695

 

 

$

32,659

 

 

$

—

 

 

$

—

 

 

$

32,659

 

Metro Life Ins Co

 

 

7,639

 

 

 

—

 

 

 

—

 

 

 

7,639

 

 

 

151

 

 

 

—

 

 

 

—

 

 

 

151

 

Bank of America, N.A.

 

 

6,163

 

 

 

—

 

 

 

—

 

 

 

6,163

 

 

 

4,745

 

 

 

—

 

 

 

—

 

 

 

4,745

 

RJ O’Brien & Associates, LLC

 

 

5,654

 

 

 

—

 

 

 

—

 

 

 

5,654

 

 

 

5,398

 

 

 

—

 

 

 

—

 

 

 

5,398

 

Morgan Stanley & Co. LLC

 

 

1,078

 

 

 

—

 

 

 

—

 

 

 

1,078

 

 

 

3,500

 

 

 

—

 

 

 

—

 

 

 

3,500

 

Nomura

 

 

382

 

 

 

—

 

 

 

—

 

 

 

382

 

 

 

137

 

 

 

—

 

 

 

—

 

 

 

137

 

Ares Management Corporation

 

 

334

 

 

 

—

 

 

 

—

 

 

 

334

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

J.P. Morgan Securities LLC

 

 

126

 

 

 

—

 

 

 

—

 

 

 

126

 

 

 

102

 

 

 

—

 

 

 

—

 

 

 

102

 

BNP Paribas

 

 

46

 

 

 

—

 

 

 

—

 

 

 

46

 

 

 

236

 

 

 

—

 

 

 

—

 

 

 

236

 

Other

 

 

884

 

 

 

—

 

 

 

—

 

 

 

884

 

 

 

2,768

 

 

 

—

 

 

 

—

 

 

 

2,768

 

 

 

$

53,001

 

 

$

—

 

 

$

—

 

 

$

53,001

 

 

$

49,696

 

 

$

—

 

 

$

—

 

 

$

49,696

 

PennyMac Financial Services, Inc.

 

$

5,668

 

 

$

—

 

 

$

—

 

 

$

5,668

 

 

$

6,247

 

 

$

—

 

 

$

—

 

 

$

6,247

 

 

Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty

The following table summarizes by significant counterparty the amounts 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 were backed by sufficient collateral with fair values that exceeded the liability amounts recorded on the consolidated balance sheets.

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

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

 

 

Financial

 

 

Cash

 

 

 

 

 

consolidated

 

 

Financial

 

 

Cash

 

 

 

 

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

Counterparty

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

 

(in thousands)

 

Non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank of America, N.A.

 

$

1,465,715

 

 

$

(1,465,715

)

 

$

—

 

 

$

—

 

 

$

1,074,334

 

 

$

(1,074,334

)

 

$

—

 

 

$

—

 

Santander US Capital

 

 

1,346,450

 

 

 

(1,346,450

)

 

 

—

 

 

 

—

 

 

 

952,951

 

 

 

(952,933

)

 

 

—

 

 

 

18

 

J.P. Morgan Securities LLC

 

 

988,161

 

 

 

(988,161

)

 

 

—

 

 

 

—

 

 

 

1,536,038

 

 

 

(1,536,038

)

 

 

—

 

 

 

—

 

Wells Fargo Securities, LLC

 

 

814,970

 

 

 

(814,499

)

 

 

—

 

 

 

471

 

 

 

782,547

 

 

 

(782,547

)

 

 

—

 

 

 

—

 

Atlas Securitized Products, L.P.

 

 

709,399

 

 

 

(709,399

)

 

 

—

 

 

 

—

 

 

 

1,216,779

 

 

 

(1,216,779

)

 

 

—

 

 

 

—

 

Citigroup Global Markets Inc.

 

 

562,910

 

 

 

(562,667

)

 

 

—

 

 

 

243

 

 

 

397,162

 

 

 

(397,162

)

 

 

—

 

 

 

—

 

Barclays Capital Inc.

 

 

470,168

 

 

 

(468,959

)

 

 

—

 

 

 

1,209

 

 

 

431,016

 

 

 

(431,016

)

 

 

—

 

 

 

—

 

Morgan Stanley & Co. LLC

 

 

442,352

 

 

 

(439,804

)

 

 

—

 

 

 

2,548

 

 

 

319,500

 

 

 

(319,500

)

 

 

—

 

 

 

—

 

Nomura Holdings America, Inc

 

 

394,628

 

 

 

(394,628

)

 

 

—

 

 

 

—

 

 

 

231,308

 

 

 

(231,308

)

 

 

—

 

 

 

—

 

Bank of Montreal

 

 

358,433

 

 

 

(358,267

)

 

 

—

 

 

 

166

 

 

 

160,388

 

 

 

(160,324

)

 

 

—

 

 

 

64

 

RBC Capital Markets, L.P.

 

 

243,687

 

 

 

(243,687

)

 

 

—

 

 

 

—

 

 

 

438,781

 

 

 

(438,781

)

 

 

—

 

 

 

—

 

BNP Paribas

 

 

196,344

 

 

 

(196,344

)

 

 

—

 

 

 

—

 

 

 

54,191

 

 

 

(54,191

)

 

 

—

 

 

 

—

 

Daiwa Capital Markets

 

 

168,993

 

 

 

(168,921

)

 

 

—

 

 

 

72

 

 

 

195,268

 

 

 

(195,268

)

 

 

—

 

 

 

—

 

Goldman Sachs & Co. LLC

 

 

164,011

 

 

 

(163,491

)

 

 

—

 

 

 

520

 

 

 

151,274

 

 

 

(151,274

)

 

 

—

 

 

 

—

 

Mizuho Financial Group

 

 

63,108

 

 

 

(62,800

)

 

 

—

 

 

 

308

 

 

 

81,701

 

 

 

(81,701

)

 

 

—

 

 

 

—

 

Other

 

 

565

 

 

 

—

 

 

 

—

 

 

 

565

 

 

 

851

 

 

 

—

 

 

 

—

 

 

 

851

 

 

 

$

8,389,894

 

 

$

(8,383,792

)

 

$

—

 

 

$

6,102

 

 

$

8,024,089

 

 

$

(8,023,156

)

 

$

—

 

 

$

933

 

PennyMac Financial Services, Inc.

 

$

16,456

 

 

$

—

 

 

$

—

 

 

$

16,456

 

 

$

2,257

 

 

$

—

 

 

$

—

 

 

$

2,257

 

 

(1)
Amounts represent the UPB of Assets sold under agreements to repurchase.

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 September 30,

 

 

Nine months ended September 30,

 

Derivative activity

 

Consolidated statements of operations line

 

2026

 

 

2025

 

 

2026

 

 

2025

 

 

 

 

 

(in thousands)

 

Interest rate lock commitments

 

Net gains on loans held for sale (1)

 

$

(19,031

)

 

$

(2,033

)

 

$

(18,434

)

 

$

5,045

 

CRT derivatives

 

Net (losses) gains on investments
   and financings

 

$

2,504

 

 

$

2,947

 

 

$

4,895

 

 

$

10,302

 

Hedged item:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments
   and loans held for sale

 

Net gains on loans held for sale at fair value

 

$

119,935

 

 

$

(30,433

)

 

$

126,299

 

 

$

(69,130

)

Mortgage servicing rights

 

Net loan servicing fees

 

$

(30,820

)

 

$

(27,360

)

 

$

(75,532

)

 

$

(127,941

)

 

 

(1)
Represents net change in fair value of IRLCs from the beginning to the end of the period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan or cancellation of the commitment are shown in the rollforwards of IRLCs for the period in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.