PennyMac Financial Services Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 24, 2024

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to PennyMac Financial Services Inc. 1st Quarter 2024 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call are available on PennyMac Financial's website at pfsi. Pennymac.com. Before we begin, let me remind you that this call may contain forward looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials.

Operator

Now I'd like to introduce David Spector, PennyMac Financial's Chairman and Chief Executive Officer and Dan Perotti, PennyMac Financial's Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon and thank you to everyone for participating in our Q1 earnings call. PFSI reported net income of $39,000,000 and an annualized return on equity of 4% in the Q1. These results include $125,000,000 of fair value declines on mortgage servicing rights net of hedges and $2,000,000 of a non recurring legal accrual. Excluding the impact of these items, our results were very strong.

Speaker 1

PFSI's annualized operating ROE was 15% as we continue to demonstrate the resilience and strength of our balanced business model. Our production segment remained profitable, contributing $36,000,000 to pre tax income, driven by higher volumes in the direct lending channels. And our large and growing servicing portfolio continues to anchor our financial performance with pre tax income of $125,000,000 excluding market driven value impacts and non recurring items. Total loan acquisitions and originations in the 1st quarter were $22,000,000,000 in unpaid principal balance, driving continued growth in our servicing portfolio to nearly $620,000,000,000 with 2,500,000 customers. Turning to the origination market, current third party estimates for total originations in 2024 averaged $1,800,000,000,000 reflecting growth from an estimated $1,500,000,000,000 in 2023.

Speaker 1

However, we believe these estimates to be optimistic and dependent upon multiple interest rate cuts from the Federal Reserve in the second half of the year. With current expectations for market interest rates to remain higher for longer and mortgage rates back up into the 7% range, we expect these 3rd party estimates will decline further from their current levels. Though the origination market remains constrained currently, we believe it is beginning to reset. In the last 2 years, we estimate approximately $3,000,000,000,000 of mortgages were originated with a note rate of 5% or higher. In a higher for longer environment, this group of borrowers is expected to continue growing, supported by a purchase market with strong pent up demand from key home buying demographics.

Speaker 1

It is our expectation that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels. As I will discuss, we are very well positioned to capitalize on increased volumes of refinance loans when rates do decline. However, in the current market environment, we remain focused on adding new originations to our growing servicing portfolio and we are also actively exploring a continuum of potential opportunities related to our proprietary servicing system. These opportunities will allow us to leverage what we have built to unlock additional value for many of our for our many stakeholders. SSE is a proven servicing system and has helped to drive excellent customer service for our large and growing base of borrowers.

Speaker 1

Since its launch in 2019, our servicing costs per loan are down more than 30% and the results surveys have confirmed our position as one of the lowest cost servicers in the industry due in large part to our utilization of SSC. Not only does our servicing system provide our associates with a friendly and intuitive user interface, but its increased flexibility versus other systems was highlighted during the pandemic, when we were able to seamlessly implement system changes to quickly accommodate regulatory changes, which allowed many of our borrowers to enter and exit forbearance programs via self-service and automated channels. One opportunity we are looking at includes expanding our subservicing business beyond P and T, potentially beginning with some of the larger correspondent sellers we already work with who maintain smaller servicing portfolios. Additionally, we've been approached by numerous innovative technologists in the industry looking to partner with us, leveraging SSE alongside other mortgage technology to create a comprehensive marketplace of next generation mortgage banking technology. While a meaningful upfront investment and a longer timeline would be required, we could also look to potentially commercialize SSE into a multi tenant industry leading servicing software platform, licensing our technology to other servicers in the industry.

Speaker 1

We believe SSE's competitive advantages versus other servicing systems in the marketplace are meaningful and we are encouraged by the opportunities that we've explored thus far. However, we will be thoughtful in further monetizing SSC and we remain committed to doing the right thing for our customers and other stakeholders. As I mentioned earlier, our Q1 annualized operating ROE was 15%, a significant increase from the Q1 of last year and highlighting our ability to generate strong results in what we expect is one of the smallest quarterly origination markets in this interest rate cycle. As we look to build on these results in 2024, servicing income is expected to continue driving the majority of our operating earnings, particularly in a scenario where interest rates remain elevated. The majority of our servicing portfolio continues to be comprised of borrowers that have locked in very low interest rates, which we expect to provide a base level of earnings that persists for an extended period of time supporting our continued profitability.

Speaker 1

Additionally, delinquencies remain low due to the overall strength of the consumer as well as the substantial accumulation of home equity in recent years due to continued home price appreciation. Our multifaceted approach to mortgage production and position as one of the largest producers in the country provides us with unique access to originate and acquire newly originated mortgages in the current market. In recent periods, we have added a meaningful volume of mortgages with no rates of 5% or higher to our portfolio. And we expect this population of borrowers to provide strong leads for our consumer direct division when rates do decline. As rates remain higher for longer, this population of borrowers is expected to grow, driving an even larger opportunity in the future.

Speaker 1

As of March 31, roughly 25% or more than $150,000,000,000 in UPB of mortgage loans in our servicing portfolio were at these higher rates, driving our expectations for additional upside potential in our production segment when the origination market improves. I will now turn it over to Dan, who will review the drivers of PFSI's Q1 financial performance.

Speaker 2

Thank you, David. PFSI reported net income of $39,000,000 in the Q1 or $0.74 in earnings per share for an annualized ROE of 4%. As David mentioned, these results included $125,000,000 of net fair value declines on MSRs and hedges and $2,000,000 of accrued interest related to the final Black Knight arbitration result. The impact of these items on diluted earnings per share was negative 1.74 dollars PFSI's Board of Directors also declared a 1st quarter cash dividend of $0.20 per share. Book value per share was $70.13 down slightly from the prior quarter end, primarily due to the annual issuance of additional common stock related to production segment, pre tax income was $36,000,000 down slightly from $39,000,000 in the prior quarter.

Speaker 2

Total acquisition and origination volumes were $22,000,000,000 in unpaid principal balance, down 19% from the prior quarter. Dollars 20,000,000,000 was for PFSI's own account and $2,000,000,000 was fee based fulfillment activity for PMT. PennyMac maintained its dominant position in correspondent lending in the Q1 with total acquisitions of $18,000,000,000 down from $24,000,000,000 in the Q4 of 2023. The decline from the prior quarter was driven by our focus on profitability over volume. Our correspondent margin in the first quarter was 35 basis points up slightly from 34 basis points in the prior quarter.

Speaker 2

Acquisitions in April are expected to total approximately $7,500,000,000 and locks are expected to total $8,100,000,000 In broker direct, we continue to see strong trends and continued growth in market share as we position PennyMac as a strong alternative to channel leaders. Despite a smaller overall market locks in the channel were up 20% from last quarter and fundings were essentially unchanged. We reported broker channel margins of 103 basis points, up from 79 basis points last quarter, which included the impact of higher levels of fallout during that quarter. The number of brokers approved to do business with us at quarter end was over 4,000 up 36% from the same time last year and we expect this number to continue growing as top brokers increasingly look for a strong second option. In consumer direct, lock volume was up 35% from the prior quarter and originations were up 62%.

Speaker 2

Higher volumes in the channel were driven primarily by an increase in streamline refinances of government loans as mortgage rates declined from their recent highs, providing us with an opportunity to lower mortgage payments for borrowers who previously locked in higher rates. Production expenses and net of loan origination expense were 7% higher than the prior quarter, primarily due to increased volumes in the direct lending channels. Turning to servicing, the servicing segment recorded pre tax income of $5,000,000 Excluding valuation related changes and non recurring items, pre tax income was $125,000,000 or 8.1 basis points of average servicing portfolio UPB. Loan servicing fees were up from the prior quarter primarily due to growth in PFSI's owned portfolio as PFSI has been acquiring a larger portion of the conventional correspondent production from PMT in recent periods. Operating expenses increased slightly.

Speaker 2

Earnings on custodial balances and deposits and other income decreased slightly due to a smaller due to smaller average balances during the quarter as a result of seasonal tax payments at the end of 2023. However, custodial funds managed for PFSI's own portfolio totaled $5,400,000,000 at March 31, up from $3,700,000,000 at year end. Realization of MSR cash flows increased $34,000,000 from the prior quarter due to lower average yields during the quarter. EVO income was down slightly and we expect its contribution to remain low for the next few quarters. The fair value of PFSI's MSR increased by $170,000,000 driven by higher mortgage rates at the end of the quarter, which drove expectations for lower for lower prepayment activity and higher earnings on custodial balances in the future.

Speaker 2

Hedging losses were $295,000,000 Our hedges were positioned with increased net exposure to interest rate volatility during the quarter to limit elevated hedge costs. The Investment Management segment contributed $3,000,000 to pre tax income during the quarter and assets under management were unchanged from the end of the prior quarter. Provision for income tax expense was $4,600,000 resulting in an effective tax rate of 10.4% due to the vesting of certain stock based compensation awards, which positively impacted PFSI's tax liability. Finally, on capital, in February, we issued a new 5 year $425,000,000 term note secured by Ginnie Mae MSRs and servicing advances and subsequently retired $425,000,000 of secured term notes due to mature in August of 2025. We'll now open it up for questions.

Operator

Operator? Thank you. I would like to remind everyone, we will only take questions related to PennyMac Financial Services Inc. Or PFSI. We also ask that you please keep your The first question is from Bose George with KBW.

Operator

Your line is now open.

Speaker 3

Hey, everyone. Good afternoon. I wanted to ask first just about the hedging this quarter. I guess, could you just kind of walk through a little bit about what drove some of the hedge ineffectiveness this quarter?

Speaker 2

Yes. Hi, Bose. Thanks. This is Dan. So as I mentioned in the remarks, during the quarter, we were positioned with an increased exposure to really interest rate volatility overall, meaning that if interest rates were a bit more volatile then that would lead to a greater loss exposure in the MSR.

Speaker 2

Either way, the reason that we whichever direction rates move, the reason that we were positioned that way was as I had mentioned due to the elevated cost of hedging during the quarter. Given the inverted shape and the significantly inverted shape of the yield curve during most of the Q1 and at the onset of the quarter, as well as the elevated levels of implied volatility and options. And we were seeing a pretty significant potential costs for maintaining our typical hedge position. And so needed to identify if we needed if we wanted take sort of accept those hedge costs, which would be insured money that would be insured to be lost on the hedge or open up certain exposures. And so we elected to open up certain exposures.

Speaker 2

As you know, interest rates were significantly volatile in the Q1 and that led to the hedging loss that you see. As we're moving into the Q2, we've repositioned our hedge. We have really two factors that have changed. One is that the hedge the shape of the yield curve has changed, overall levels of volatility have also changed, implied volatility in the options market. And so that has improved the cost outlook of hedging.

Speaker 2

And we've also repositioned our hedge to what I would call a more traditional profile where we would expect gains in a sell off and losses in a rally. And so we don't expect as we go forward the same type of recurrence of the same type of result.

Speaker 3

Okay. That's helpful. Thank you. And then I wanted to ask, the VA announced that the VA SB program, where they purchase loans that otherwise go into foreclosure. Do you think this could remove a lot of the tail risk from VA servicing and then in turn improve valuations especially for the VA exposure that you guys have in the MSRs?

Speaker 1

Yes. So look, I think that as it pertains to the program, I think it's a really good program for existing customers that are delinquent, because it removes the tail risk of taking those loans down to foreclosure and stop advances and it's a value to us. It's a little bit concerning because there is some moral hazard around the program, but I'm concerned at least at some level of strategic defaults and I continue to hope the VA will recognize this and put some controls in place around it. I think there's also a phenomenon in the marketplace because interest rates have increased meaningfully so quickly. There's kind of a tale of 2 cities that pertains to VA loans where many of the borrowers already have really low rates.

Speaker 1

And I don't see them really engaging strategic defaults or really being in this position and it's the ones with the higher rates that I'm really concerned about. But suffice it to say, I think the devil is going to be in the details as the VA discloses more. Dan can go over kind of where the portfolio sits today, because we've done a lot of great work on that.

Speaker 2

Sure. As we look at our servicing portfolio today, and what loans might be eligible for VAS under the guidelines that we've seen, We think it's about 4,700 loans or $1,200,000,000 of UPB of outstanding VA loans that would be in that deep delinquency position where they don't have an alternative elsewhere in the VA waterfall that would help serve their loss mitigation needs. And so overall versus our total portfolio, a small portion today. In terms of the go forward implications for VA servicing and the valuation of VA servicing, as I mentioned, could be somewhat beneficial in terms of our current portfolio looking at the certainly helps remove some of the delinquency risk and downside around VA loans in more extreme cases. But as David mentioned, where we have potential concern today is around the moral hazard and how that could eventually play out and if we and others would sort of get comfortable with that.

Speaker 2

So I think it's a little bit early to say whether it would have a net benefit or negative impact in terms of the servicing value.

Speaker 3

Okay, great. Thanks for that.

Operator

Your next question comes from the line of Doug Harter with UBS. Your line is now open.

Speaker 2

Thanks. Can you talk about the market for originating second liens, how that was in the quarter and how you would view Freddie Mac's new announcement?

Speaker 1

Yes. Hey, Doug, how are you today? Look, I think that look, we are very supportive of the GSEs getting into 2nd lien originations. By the sheer fact they offer cash out refinances, they kind of already are in that market. And I think that where we see issues in the marketplace is we see cash out refinances being done on low rate mortgages, which I think is not a great place for anyone to be in.

Speaker 1

And that's why we came out with the 2nd lien program. We I think that with Freddie's announcement, I would just expect that Fannie will follow suit on their portfolio. I think it's going to I think it's an important tool for borrowers who need or want to tap their equity. It creates some standardization in the industry. And I think it's something that will be could be very meaningful.

Speaker 1

From our perspective, we're originating north of $100,000,000 a month of close end seconds. It's a product that's a key component of our product offerings to our customers. But I'm really excited about it. And I know that there's some issues around concerns around private capital getting crowded out. But I think the fact that people are you have some borrowers who are taking cash out refinances and paying off low rate mortgages is a very important issue that is going to get addressed by the offering of the 2nd lien.

Speaker 2

Great. Thank you.

Operator

Your next question comes from Kristin Love with Piper Sandler. Your line is now open.

Speaker 4

Thanks. I appreciate you taking my questions. Just based on some of your comments, it seems that servicing will be the key driver of operating results just given the current rate environment, rate cuts being pushed out. Given this, do you have a target in mind on servicing portfolio growth as you move through 2024? And also, just what's your appetite for acquiring MSRs?

Speaker 1

Look, we have built a really great model in terms of growing the servicing portfolio as a byproduct of our organic our organic growth strategy. And as we continue to lead in the correspondent space and continue to grow our presence in the broker direct space, I expect that our servicing will continue to grow at probably even a little faster clip. I don't we don't have servicing size goals in the company. We could go out and buy a big blob of servicing and get really big really fast. What I'm really focused on is the organic growth of the portfolio.

Speaker 1

And I think that we've done a great job in the 17 years that we built this company to build this balanced business model with a flywheel that when rates do decline, we can offer refinances to our borrowers and we have a strong consumer direct channel to meet that challenge. And so I would expect the port to continue to grow. And I think that as we see that growth takes place, we're going to continue to be on the right side of that growth such that I'm not I don't see a melting ice cube scenario anytime in the future.

Speaker 2

Yes. Just to give a little bit more definition to that. If you look at what our pace of originationacquisition through our direct lending and correspondent channels, we've typically been adding $20,000,000,000 to $25,000,000,000 of servicing overall to the platform per quarter. We have some runoff against that. I think we're around $10,000,000,000 this quarter, so that you can sort of do the math there overall adding $10,000,000,000 to $15,000,000,000 a quarter is around the pace that we'd expect to see most likely through the rest of the year.

Speaker 2

And we do look at servicing portfolios in terms of the acquisitions. We do review the portfolios that come out onto the market. But as David mentioned, we are focused on adding to PFSI's portfolio generally at the higher note rates. There are a few more of those types of portfolios that have come out recently, but there are also still a preponderance of lower note rates mortgage servicing portfolios, which may be attractive as a PMT, more as a PMT investment, but less so for PFSI. And although we look at those portfolios, generally speaking, the return we've not seen any of that sort of meet our return hurdle as well as the portfolio characteristics that we would want to add to our portfolio.

Speaker 2

We have significant control over the characteristics of the loans that we add to our portfolio through our production channels and specifically in correspondent able to shape the type of loans or the characteristics of the loans that we're bringing on to be able to limit the downside and you have less control of that if you're buying sort of blocks of servicing, bulk servicing.

Speaker 5

Great.

Speaker 4

Thank you. I appreciate that. And just one last one for me. Gain on sale margins increased in the quarter, looks to be mostly driven by broker direct. Can you just discuss some of the dynamics there?

Speaker 4

What drove the margins higher? And then just competition in broker direct broadly with you being a top 3 player in the channel?

Speaker 1

Look, I think that the broker direct story in Q1 is really something everyone in the organization is incredibly proud of. We're continuing to gain share in broker direct. And I think it's really a byproduct in that top brokers see PennyMac as a strong alternative to the top 2 participants. We've got great tech supporting our brokers and brokers need a strong second option. I would say as it pertains to gain on sale margins, look, there was a period of time a year or 2 back when there was irrational pricing taking place in this part of the market.

Speaker 1

And I think we've seen a kind of a return to more rational pricing. And it's margins are continued to remain good. And I think that it's something that I foresee continuing in Q2 and beyond. But it's just there's just a lot of good things coming out of broker direct, just from broker feedback and we're seeing increased amount of jumbo activity at a broker direct. And it's just a it's a very meaningful shift quarter over quarter.

Speaker 1

The

Speaker 2

One other note that I'd have on the broker margins too is that if you look back to the Q4, the broker margins were impacted by some fallout in excess of our model that we experienced in the 4th quarter as we had that sharp interest rate rally and that did not recur in the Q1. And we view the Q1 as a bit more normalized for the current environment and in line with our expectations barring some significant change as we're going forward in terms of the broker margin specifically.

Speaker 4

Okay. Thanks for all that. Thank you for taking my questions.

Operator

The next question comes from the line of Kyle Joseph with Jefferies. Please ask your question.

Speaker 6

Hey, good afternoon. Thanks for taking my questions. A lot of them have been asked. I just wanted to hone in on Slide 6 regarding technology and post unlock. You laid out 4 strategies.

Speaker 6

Is it going to be a 4 pronged approach? Do you anticipate focusing on one of these more than the others? And give us a sense for the timeframe for the layout of this.

Speaker 1

Yes. Look, I think it's not a linear approach we're taking. We're exploring all options as it pertains to SSC. And I'm really encouraged with the opportunities as they presented themselves. I mean, clearly, we have the most advanced system in the marketplace.

Speaker 1

And as you can see from on earlier slides that just what we've done to later slides, what we've done to drive down servicing costs is really remarkable. And that's a testament to the system that we have. We continue to identify efficiencies. And I look at the opportunities and they're plentiful. I think 1st and foremost, we need to focus on continuing to drive down the costs, and we need to continue to optimize our investment in servicing.

Speaker 1

Furthermore, I think then with that, we have a competitive advantage and they'll allow us to increase our production capabilities in the organization and that will be vitally important. But I think as it pertains to SCC, the next logical step is sub servicing. And we need to expand beyond PMT. And there's some real opportunities there in soliciting correspondent sellers who maintain smaller servicing portfolios. I think that there are banks and other large servicers who perhaps want to get out of servicing.

Speaker 1

But clearly, our success on SSE compared to other offerings in the marketplace is being noticed. And I think that that's a very I think that's a great selling point for us. We're also having good conversations with technologists and other innovative parties in the industry, interesting in building on our technology and working with us to get the technology out into the marketplace. And I think that the next final step, which is probably the option that's furthest away is just commercialization of the technology. And that would require some investment to allow for multi tenancy on the platform.

Speaker 1

But I think that as I said, we there's a lot of talk about AI in the marketplace. And I look at what we've done on the system. And it's I know many in the industry I'm hearing want to get to 60%, 70% self serve using AI. We're at 95% self serve on our system. And I think a lot of the AI discussions that are taking place in the marketplace are really yesterday's automation discussions.

Speaker 1

And we built this system really to be robust and to really allow borrowers to really be served. And I think that we're we've got a lot of great AI development here in the organization. On the production side, we have we've deployed AI to read documents from clients and brokers, which helps in the classification of documents and extraction of data. On the servicing side, we can route all documents to the area that has affected or needs to address documents coming in. We have a lot of great voice AI tools that we're using.

Speaker 1

Most exciting one is the one that we can record all customer conversations to drive better business outcomes, but also be able to see all customer complaints, which allows us to reduce the complaints and continue to reduce costs. And so I think that this system is going to continue to outshine and is one that is going to be really meaningful 1st and foremost for us, but we also think it's important for the industry and I'm excited about, seeing others reap the benefits as well.

Speaker 6

Got it. Very helpful. Thanks for answering my questions.

Operator

The next question comes from the line of Terry Ma with Barclays. Please ask your question.

Speaker 5

Hey, thanks. Good afternoon. So I think last quarter you guys spoke about a seasonal decline in ROE in the Q1, but you should expect to continue to kind of build on that throughout this year. And obviously, you guys printed 15% operating ROE this quarter. So maybe can you just speak to your confidence level that you can Yes.

Speaker 5

I think, looking at the higher for longer rate outlook.

Speaker 2

Yes, I think looking at the higher for longer rate outlook, we would expect our ROEs to generally be our operating ROEs I should say to generally be in that sort of mid teen, potentially moving up to high teen ROE level as we move through the year depending on the size of the the overall size of the mortgage market. As David noted in his remarks, despite the fact that we are higher for longer, there are more and more mortgages that exist at these higher rates. And so any bit of interest rate volatility leads to greater and greater refinance opportunities or opportunities for the market to become that incrementally larger and sort of feed the flywheel in terms of our refinance business and boost our other channels. And so we do expect a general increase from these levels of ROE, but probably remaining in the mid to high teens for this year.

Speaker 5

Got it. That's helpful. And then, I just wanted to follow-up on the hedging. If I interpreted your comments correctly, you guys were initially positioned for more rate vol in the Q1 that did not materialize. So therefore, there were some hedging inaccuracies, but you guys have since adjusted.

Speaker 5

Is it possible to kind of give a mark to market on those hedges have performed quarter to date?

Speaker 2

So we don't typically give that sort of inter quarter updates and everything changes a little bit on a day to day basis, but we are tracking adjusted for costs much closer to our 90% to 100% hedge ratio this quarter than what we saw last quarter.

Speaker 5

Okay, great. That's helpful. Thank you.

Operator

We will take the final question from the line of Eric Hagen from BTIG. Your line is open.

Speaker 7

Hey, thanks. How are we doing? Looking at Ginnie Correspondent, I mean how sustainable do you think those margins are at these rate levels? And how do you weigh the option to either cut your margin or expand the credit box to win more business when rates are at these levels versus maybe rates being lower? How would you maybe change your risk or return hurdles if rates are in fact lower?

Speaker 1

Yes. Look, I think as it pertains to listen, we're not the organization that's going to be going down the credit box to get more production. We're always focused on margins, return and profitability. I will tell you that in the Q1, some kind of weird activity. We had a market participant who raised a bunch of capital that was just being overly aggressive.

Speaker 1

I will tell you that there's still share to be gained. We had a good quarter. We had over we're going to finish the quarter over 20% market share. We're still the dominant player on the government correspondent side. I will tell you that I expect margins to continue to kind of run where they are today.

Speaker 1

I don't we're kind of holding steady state here. And we're getting as it pertains to correspondent, we're getting increased gain on sale activity from good whole on executions away from the GSEs. And so I think that that's important as well. But I don't I think we've gone off to a nice start in April and I would expect that to continue for the quarter.

Speaker 7

Yes. Okay. That's helpful. I'm looking at Slide 23 and looking at the tangible net worth to assets. I mean, is there a target range for your leverage at these rate levels?

Speaker 7

I mean, you guys are doing a 15% pretax ROE. I mean, how does that compare to your cost of capital? And how do you see that maybe changing at different levels of leverage?

Speaker 2

So overall in terms of our total debt to equity as we've got noted on the page, We typically targeted around 3.5%. We've been below 3.5% given the lower rate environment recently. We continue to add to our servicing portfolio as we move through time and that has driven up a bit our non funding debt to equity ratio, which we target roughly in the range that we're in now between 1 to 1.5. So overall, I think we're in terms of the non funding debt to equity ratio in sort of range we would expect in terms of the total debt to equity ratio could be higher, but that's really driven by overall production volumes primarily, which will be a function of the market more than anything. And so we don't expect to dramatically change our leverage profile or to change our leverage profile in a meaningful way as we're moving forward.

Speaker 2

We think we're managing to a prudent level there. And as I discussed before, we think that in the current environment that really results in a mid teen mid to high teen operating ROE.

Speaker 7

Got you. Okay, thanks a lot. Appreciate it.

Operator

We have no further questions at this time. I will now turn it back to Mr. Spector for the closing remarks.

Speaker 1

I'd like to thank everyone for joining us on the call today. If you have any questions, please feel free to reach out to our Investor Relations team. And I look forward to speaking to you all myself over the next coming months. Thanks so much.

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Earnings Conference Call
PennyMac Financial Services Q1 2024
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