PennyMac Financial Services, Inc. Q4 FY2024 Earnings Call

Good afternoon. And welcome to PennyMac Financial Services, Inc. Fourth 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 GAAP equivalents in the earnings materials. 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. You may begin.

Thank you, Operator. Good afternoon and thank you to everyone for participating in our fourth quarter earnings call. For the fourth quarter, PFSI reported net income of $104 million or diluted earnings per share of $1.95 for an annualized return on equity of 11%. Excluding the impact of fair value changes, PFSI produced an annualized operating ROE of 16%, driven by continued strength in our Servicing business and a solid contribution from our Production segment, despite higher mortgage rates. In total, loan originations and acquisitions were $36 billion in unpaid principal balance, up 13% from the prior quarter and driving the continued growth of our Servicing portfolio to $666 billion in unpaid principal balance with 2.6 million customers. Before I continue on, I would like to talk about a change in how we are reporting our financial results and reporting segments. We took the opportunity to address our financial reporting for the evolution of our businesses and the way we manage them. As a result, we have modified our segment definitions. The principal change we made was to remove the corporate overhead allocations from our business segments to better evaluate the performance of our operating businesses. We also determined that our Investment Management business was not an operational segment and as such the related results are now consolidated into Corporate and Other items. Our two operating segments are now Production and Servicing, and we have included non-segment activities and activities related to our Investment Management business in Corporate and Other. Prior period amounts have been recast to conform those periods' presentation to the current period's presentation and I encourage investors to view the Excel supplement posted on pfsi.pennymac.com for more detailed information. Now back to our results. The fourth quarter marked the end of a very successful year for PFSI as you can see on Slide 4 of our earnings presentation. We highlighted some of our key achievements in 2024, which demonstrate the earnings power of our balanced business model and the significant gains in operating leverage we achieved. In the Production segment total acquisition and origination volumes were $116 billion in UPB, up 17% from 2023 driven by a nearly 70% increase in originations from the direct lending channels. Production segment revenues were up 47% from 2023 and despite the large mix shift, expenses remain contained, up only 13% from 2023. Production segment pre-tax income in 2024 was $311 million up from $116 million in 2023 including a significantly higher contribution in the third quarter when rates declined, highlighting our ability to rapidly address recapture opportunities and increased demand for refinances when mortgage rates declined. Our large Servicing business provides ongoing revenue and cash flow contributions in this higher rate environment and continues to provide the foundation for our strong financial performance. The unpaid principal balance of our Servicing portfolio increased 10% from the prior year end as Production volumes more than offset runoff from prepayments. Servicing segment operating revenues were $1.5 billion, a 19% increase from the prior year driven primarily by increased Servicing fees and earnings on custodial balances due to growth in the owned portfolio. Operating expenses increased by only 3% demonstrating the ability of our Servicing workflows and technology to scale efficiently with our growth while also providing our Servicing associates with the tools they need to best serve our customers. In 2024, Servicing segment operating pre-tax income was $643 million or 10.1 basis points of average Servicing portfolio UPB, up from $535 million or 9.3 basis points in 2023. In total, we delivered an operating return on equity of 17%. GAAP ROE was 9%. Growth in book value per share was 6% and we also increased our dividend to $0.30 per quarter, an increase of 50% from the previous dividend. These strong yearly results demonstrate our commitment to operational excellence and our focus on delivering sustainable earnings through varying interest rate cycles by leveraging our balanced business model. Turning to the origination market, current third-party estimates for total originations in 2025 averaged $2 trillion, reflecting growth in overall volume. Though mortgage rates are back up into the 7% range, we believe ongoing volatility in rates will present opportunities in the origination market from time to time. As you can see on Slide 6, our balanced and diversified business model with leadership positions in both Production and Servicing enables strong financial performance and a foundation for continued growth as an industry-leading mortgage company across different interest rate environments. We achieved a mid-teens operating ROE in quarters characterized by higher mortgage rates and a 20% operating ROE in the third quarter when mortgage rates declined. Because we retain the Servicing rights on our loan production and have been one of the largest producers of mortgage loans in recent periods, we are uniquely positioned with a large and growing portfolio of borrowers who recently entered into mortgages at higher rates and who stand to benefit from a refinance in the future when interest rates decline. On Slide 7 of our earnings presentation, you can see that as of year-end $220 billion in unpaid principal balance, or approximately one-third of the loans in our portfolio, had a note rate above 5%. Approximately $100 billion were government loans and approximately $120 billion were conventional and other loans. The potential opportunity for earnings growth is highlighted on this slide, as well as our historical refinance recapture rates, which have improved significantly from five years ago as a result of our ongoing technology enhancements and process improvements. We expect these recapture rates to continue improving given our multiyear investments, combined with the increased investment in our brand and use of targeted marketing strategies. As I briefly discussed, our large and growing Servicing portfolio is a key asset, anchoring our core operational results in this higher interest rate environment and driving low-cost leads to our Consumer Direct division. Throughout our history, we have been focused on deploying new and emerging technologies to drive efficiencies and lower costs, as evidenced by the chart on the right side of Slide 8, which highlights a decline in our per-loan Servicing expenses of more than 35% since 2019. We have a platform in the mortgage industry that I believe is unmatched. And further, our best-in-class management team remains committed to unlocking additional efficiencies through continued investments in workflow and technologies. It is for all of these reasons that I am confident in our ability to continue driving strong financial performance in this higher rate environment, bolstered by increases in the origination market in periods when mortgage rates decline. 2025 will be an exciting year for us. I will now turn it over to Dan, who will review the drivers of PFSI’s fourth quarter financial performance.

Thank you, David. PFSI reported net income of $104 million in the fourth quarter or $1.95 in earnings per share, for an annualized ROE of 11%. These results included $68 million of fair value declines on MSRs, net of hedges and costs, and the impact of these items on diluted earnings per share was negative $0.93. PFSI’s Board of Directors declared a fourth quarter common share dividend of $0.30 per share. Beginning with our Production segment, pre-tax income was $78 million, down from $129 million in the prior quarter. Total acquisition and origination volumes were $36 billion in unpaid principal balance, up 13% from the prior quarter, as many loans originally locked in the third quarter were funded in the fourth quarter. Total lock volumes were $36 billion in UPB, down 7% from the prior quarter due to higher mortgage rates. Of total acquisition and origination volumes, $32 billion was for PFSI’s own account and $4 billion was fee-based fulfillment activity for PMT. PennyMac maintained its dominant position in correspondent lending in the fourth quarter, with total acquisitions of $28 billion, up from $26 billion in the prior quarter. Correspondent channel margins in the fourth quarter were 27 basis points, down from 33 basis points in the prior quarter. However, the revenue contribution was essentially unchanged as increased volumes offset the lower margins. Increased volume in the quarter was primarily due to PMT retaining 19% of total conventional correspondent production in the fourth quarter, a decline from 42% in the third quarter. In the first quarter of 2025, we expect PMT to retain approximately 15% to 25% of total conventional correspondent production, consistent with the fourth quarter. Of note, pursuant to a renewed mortgage banking agreement with PMT, beginning in the third quarter of 2025, all correspondent loans will initially be acquired by PFSI. However, PMT will retain the right to purchase up to 100% of non-government correspondent loan production. 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. Originations in the channel were up 22% as many loans locked in the third quarter were funded in the fourth, while lock volume was down 17% given the reversal in mortgage rates. The number of brokers approved to do business with us at year end was over 4,600, up 21% from the end of last year and we expect this number to continue growing as top brokers increasingly look for strength and diversification in their business partners. Broker channel margins were up slightly from the prior quarter, near normalized levels. Consumer Direct was similar with originations up 40% from the third quarter and lock volumes down 30%. Margins in the channel were up given a higher mix of refinanced loans in the third quarter at lower margins. Activity in January was down due to higher mortgage rates and typical seasonality. Production expenses, net of loan origination expense, increased 12% from the prior quarter due to higher funded volumes and increased capacity in the direct lending channels. It is our preference to hold a level of excess origination capacity in the current market environment given our belief that volatility in interest and mortgage rates will provide pockets of opportunity from time to time and that we will need to be quick to react. Turning to Servicing, the Servicing segment recorded pre-tax income of $87 million. Excluding valuation-related changes, pre-tax income was $168 million or 10.3 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 and earnings on custodial balances, and deposits and other income decreased due to lower short-term rates. Custodial funds managed for PFSI’s own portfolio averaged $7.3 billion in the fourth quarter, up from $6.9 billion in the third quarter primarily due to increased prepayments. Realization of MSR cash flows decreased $10 million from the prior quarter due to lower prepayment expectations as a result of higher mortgage rates. Operating expenses were down $2 million from the prior quarter at $81 million or 5 basis points of average servicing portfolio UPB. The fair value of PFSI’s MSR increased by $540 million driven by higher market interest rates. Pension losses and costs were $608 million, more than offsetting MSR fair value gains. As David mentioned, results from our Investment Management business are now included within Corporate and Other. Corporate and Other items contributed a pre-tax loss of $36 million compared to $39 million in the prior quarter. PFSI recorded a provision for tax expense of $25 million, resulting in an effective tax rate of 19.2%. The reduction in the effective tax rate from the prior quarter was primarily due to a decline in the provision rate from 26.85% to 26.7% and the resulting repricing of expected taxes on deferred income. We ended the quarter with $3.3 billion of total liquidity, which includes cash and amounts available to draw on facilities where we have collateral pledged. We’ll now open it up for questions. Operator?

Thank you. Operator provided instructions to participants for the question-and-answer session. Your first question comes from the line of Doug Harter with UBS. Please go ahead.

Go into a little bit more about the hedge performance this quarter, kind of what drove the larger hedge loss. And I know in past quarters, you had talked about changing the hedge strategy, the costs of it, and just give us an update on the strategy there?

Sure. So, sorry, you cut out a little bit, Doug. I’m going to answer the questions that I heard. And if there’s some piece that I didn’t answer, just let me know afterwards. In terms of the performance of the hedge in the fourth quarter, actually, the overall hedge performed more or less in line with how we expected in terms of our insulation from changes in market rates. One change that we did have during the quarter is that as interest rates increased significantly, when rates were at lower levels, we had discussed we were attempting to hedge in sort of an 80% to 90% area as we moved up to higher rates, where again, in near-term rallies there’s not as much of an impact to Production. We moved that hedge ratio back towards 90% to 100% as rates increased and that’s where we started the quarter and what we’re currently targeting today. What we did see impact the net hedge results during the quarter that departed from that 90% to 100% hedge ratio was that we did see hedge costs since we do utilize options and the curve was still flatly inverted for part of the quarter. And then we did see some excess prepayments. We mentioned the prepayment speeds were a bit higher in the fourth quarter due to the impact of rates being lower in the third quarter. Although that was baked into our model, the speeds were a bit in excess of what we had projected, and for us that flows through into our changes in fair value and so that had a bit of a negative impact in the quarter as well. Those components together account for most of the negative contribution on the hedge during the quarter. As we’re going into the first quarter, we’ve seen the hedge perform fairly well thus far. As I mentioned, we’re hedging more in the 90% to 100% range currently, given where we’re sitting in the interest rate environment and the amount of production that we would see in a near-term rally.

Great. Appreciate that, Dan.

Your next question comes from the line of Michael Kaye with Wells Fargo. Please go ahead.

A quick question on the 2025 ROE guidance. It looks like you downgraded it from prior. What kind of rate environment do you contemplate in that revised ROE guidance? Is that current rates on the low end or is it some sort of improvement? Could you just flesh that out a little bit?

Yeah. That’s really more or less assuming a rate environment that’s pretty similar to where we are today. So, we aren’t really forecasting a significant decline in interest rates given that mid-teens to high-teens operating ROE guidance. Given what we’re seeing and the Production environment that we think is likely in that case and especially the refinance environment that’s likely in that case, that, as you mentioned, sort of brings down our operating ROE expectations from what we had communicated a quarter ago. To the extent that we do see a meaningful rally or pockets of meaningful rallies from here, that would allow those operating ROEs to get back up into the 20s like we saw in Q3 or higher if there’s a more sustained rally. But that operating ROE projection was really more contemplating rates at levels that we’re currently at.

Okay. A question on what’s the impact to PennyMac, if the GSEs exit conservatorship and just wondering how PennyMac is preparing for that potential. And maybe you could talk about how the benefit of having PMT benefits PFSI in that scenario?

Well, you kind of answered the question, Michael, so thank you. But let me kind of take it from the top here. How are you doing?

Good. How are you?

Good. So look, we from day one have managed this company to a range of outcomes. In a period of time when the GSEs were 90% plus of the market, we are a leading residential mortgage lender and producer of mortgages and servicer. If the GSEs begin to retrace that, which we’re starting to see parts of, we’re going to continue to operate better than anyone in the industry. As you pointed out, we’re uniquely positioned with PMT to have an investment vehicle to invest in credit-related investments. In Q4, we had two securitizations of investor and second-home loans that execute better in the private markets than they do delivering to the GSEs. We closed our first deal for 2025 today. We’re on track to do a deal a month, which represents about 50% of that Production with the remaining Production going to whole loan buyers like insurance companies. What’s important there is you can begin to see how we think about distribution as the GSE footprint gets reduced. Guarantee fees, if you listen to some people, they say they’re going to go up with the new administration. But if guarantee fees were to go up, the ability to access all outlets in the market is a trademark of my career in this company. We’ll continue to find whole loan investors. We’ll continue to do securitizations in PMT. PMT is going to thrive in that opportunity. PMT is expanding the loans that they’re looking to securitize. There are opportunities in jumbo. There are opportunities, less so, in closed-end seconds. But I will tell you that PMT had a great quarter in the fourth quarter. It’s got a really nice start in the first quarter. That’s something that we’re going to leverage if we see the GSE retracement take place. In addition, what’s interesting about the Q4 results and we’re seeing it in January, is the amount of jumbo volume we’re doing. In the fourth quarter, we did almost $1 billion of jumbo production across all three channels. We are on pace to do more than that in the first quarter. We’re looking to do a securitization in PMT in the first half of this year. We’re accessing the whole loan markets as well. On the Consumer Direct side, we had a really nice quarter in terms of closed-end second production in the fourth quarter. That plays into our ability to distribute loans away from the agency and we’re building a great operation to access pools of capital to be able to put on trades and settle trades. As we see loans move away from the agencies, we’re going to continue to be the leader in the industry in being able to maximize the economics. When I look at our organizations between PFSI and PMT, that’s the differentiator: our expertise to price and execute and find best execution for our customers, our correspondents and our brokers.

Your next question comes from the line of Terry Ma with Barclays. Please go ahead.

Hey. Thank you. Good evening. I just had a follow-up on the operating ROE range for 2025 of mid- to high-teens. I guess your exit rate for this year is kind of already in the mid-teens. I’m just curious, what do you need to see to get to the high-teens? Do you need to see many rate rallies or do you think you can continue to kind of grind higher on the ROE scale, even if rates stay where they are right now?

I think if rates continue to stay at this high level, we do expect to continue to drift upwards in terms of operating ROE. A key aspect there is the efficiencies that we’ve gained over time in the Servicing business and Servicing portfolio. We have a page in the deck that shows our decrease in operating expenses over time with respect to our Servicing portfolio that’s gone down by about 30% since 2019. We expect to be able to continue to drive that down on a per-unit basis, both as a function of scale as well as continuing to make our operations more efficient. On that basis, we would generally expect our operating ROE to drift upwards even if we stay in the current environment. So the mid-to-high-teens range contemplates us drifting toward the high-teens over the year if rates stay at these levels and we keep gaining further efficiencies.

Terry, a couple of things about 2024 that really highlight the power of the company: look at the Q3 results when we had that brief rally and you can see how quickly the ROE can climb to 20% and even higher if the rally is protracted. Similarly, historically when we’ve had rallies, you recognize the lock when you take it, but many of the expenses hit when you close the loan. In Q4, we were closing loans from the pipeline and we still had a relatively very good ROE. That speaks to the leverage in our Production channels. As you continue to see growth in the non-agency products combined with continued efficiencies in Production, much of it is in our control. The piece that’s not in our control is the market. Rates go up and rates come down, and our ability to seize the opportunity is vitally important. That’s one reason we’ve brought in some excess capacity in our Consumer Direct channel. We have about an additional 100 loan officers at the moment focused on customers who want cash-out refinances, closed-end seconds, or are looking to buy homes. As rates decline, we can pivot those loan officers to focus on rate-and-term refinances. Historically, when markets move, originators go out and try to find additional capacity; we’re in a position to maintain that capacity and offer products to our customer base.

Got it. That’s very helpful color. And then just to follow up, any color you can provide on what you’re seeing with respect to delinquencies in your portfolio? The 60-plus-day delinquency rate increased sequentially, but it also accelerated year-over-year in the quarter.

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Thank you. Sorry about that. On delinquencies, they continue to stay at low levels. As you can see on Slide 26, they have gone up a little bit. Much of that is seasonality; you saw that a little at the end of 2023 where delinquency numbers rose slightly. We expect those levels to return to more normalized levels in Q1 and Q2 as tax refunds come in and people get current. I will tell you that we are very well positioned if delinquency rates do show a spike. That speaks to our expertise in servicing delinquent loans and our Servicing technology. There are forbearance programs available through FHA, VA, USDA, and the GSEs. The VA has a program to buy delinquent modified loans called the VASP program that we’ve participated in. Last quarter, we sold $800 million of unpaid principal balance of once-delinquent VA loans back to the VA that had a negative Servicing mark of a little over $11 million and we were well over 50% of the participants in that program. That demonstrates our expertise and our ability to adopt and implement programs quickly. I monitor this number monthly, mindful of past patterns. Generally speaking, I take comfort in the fact that over 50% of loans are still below 5%, housing supply constraints persist, and demand is still up. We’re in a good market for borrowers who want or need to sell their home. But we manage a balanced business model and prepare for a range of outcomes, both in Production and in Servicing.

And your next question comes from the line of Crispin Love with Piper Sandler. Please go ahead.

Thank you. Good afternoon. First, on origination and channels: most of your origination channels were down in the quarter, which makes sense, but I saw that conventional correspondent locks were actually up nicely in the quarter. Can you discuss how you’re able to do that in this type of environment and what drove that?

One thing to note about correspondent is that it typically lags the current rate environment because the correspondent locks we take are generally after the correspondent themselves has locked and closed the loan. There’s typically a 60- to 90-day lag relative to the interest rate environment. As we moved into the fourth quarter, we saw a lot of volume from rates being lower in the third quarter flow into the fourth quarter in terms of locks. In addition, we’ve been active sourcing investor loans, which often fall into the conventional correspondent category. That activity also helped drive some of the increased lock share in conventional correspondent in the fourth quarter.

Great. Thank you. I appreciate that. And then just one last one: can you discuss your outlook for the level of mortgage rates and what makes you think you could see volatility in the near to intermediate term that could present opportunities for originations and refis, or is it more just a possibility of rates rallying and being ready, like you’ve added capacity, that we may see something similar to the third quarter?

Right now we’re in kind of unprecedented territory in terms of daily volatility in rates; the movements are extreme relative to what I’ve seen in my career. That validates why it’s vitally important to manage through a range of outcomes. If rates go higher, having our Servicing portfolio is important. Being a leading correspondent aggregator to continue to buy loans during periods of higher rates feeds the flywheel that benefits our Consumer Direct channel. Regardless of where rates go, people will continue buying homes and there will always be a market for loan originations. In markets like this, being a well-capitalized enterprise with a strong reputation benefits us. If rates go higher, consolidation will continue in the industry. If rates decline, the ability to offer refinances and seize the opportunity benefits us as a servicer and as an originator—like we saw in Q3. Consolidation can reduce capacity, which typically leads to higher margins in periods when rates decline, which benefits remaining originators. The key is operating nimbly across different rate environments; that is how this organization is set up to operate.

And your next question comes from the line of Mark DeVries with Deutsche Bank. Please go ahead.

Thanks. I wanted to drill down a little bit more on what gives you confidence in continuing to drive down that average cost of servicing to get you to that higher-teens ROE. The rate of change has obviously been flowing in recent years. Are you expecting or still generating new ways to drive efficiency through your proprietary Servicing platform or just benefiting from getting a lot more scale without having to add costs? What gives you the confidence there?

It’s a bit of both. As we continue to grow the Servicing portfolio, we capture economies of scale. Our overall operating expenses in the Servicing segment have been roughly flat over the last few quarters, so as we continue to add Servicing UPB we get the benefits of scale. There are also process improvements and automation opportunities, particularly related to delinquent loans, where we believe there is significant additional savings from automation and process enhancements that haven’t been fully implemented yet. Those two aspects give us confidence we can continue to drive down per-unit Servicing costs as we move forward.

That group is hyper-focused on driving down costs. Having proprietary technology allows us to implement changes faster and smarter. We plan to introduce a chatbot in the call center and in Servicing as well as the Consumer Direct call center in the not-too-distant future. We’ll continue to enhance workflows and move initiatives offshore where appropriate. You will continue to see costs come down. Yes, scale helps, but technology and the team are the reason we’ve achieved this progress and will continue to push costs lower.

Okay. Great. That’s really helpful. Dan, just one more question: are there any accounting issues that we need to think about as you make that transition you mentioned in 3Q to initially retaining all of the conventional originations?

No significant accounting issues per se. There could be a slight increase in inventory relative to other periods. As we move forward, loans that PMT ultimately acquires will typically only sit on PFSI’s books for one to two days on average, so the impact would be dominated by other market fluctuations. We don’t expect significant accounting changes. As the contract stipulates, PFSI will charge a fulfillment fee to PMT for loans passed through to PMT, and the gain-on-sale structure for PMT should remain substantially the same because the economic terms at which they’ll be acquiring the loans will be substantially the same as before. So don’t expect any meaningful accounting differences versus what you see today.

And your next question comes from the line of Ryan Shelley with Bank of America. Please go ahead.

Hey, guys. Thanks for taking the question. I have two quick ones. First, on revenue margin, was the decrease in the quarter just attributed to mix shift or were you guys seeing anything else? And then I’ll just drop the second one and let you guys answer. How are you thinking about the unsecured maturity coming up this October?

With respect to the revenue margin in Production, the change was largely due to mix shift. The overall correspondent locks remained similar quarter-over-quarter if you include the PMT impact. There was a significant shift toward correspondent given the change in the percentage PMT retained during the quarter, and the direct channels with higher margins declined. Within correspondent, there was also a reduction in margin driven by competitiveness in the channel in the fourth quarter and a greater proportion of conventional locks, which tend to be a bit lower margin than government loans. Regarding the unsecured maturity, we do have an unsecured debt maturity later in 2025. That is part of our capital planning for the year: to address that maturity and to move our non-funding debt mix more toward unsecured and a bit away from funding secured by MSR. We expect to be in the unsecured market in 2025 to address the maturity and to increase our overall proportion of unsecured debt, seeking the best opportunities to execute those objectives.

Thank you very much, guys. Very helpful.

And your next question comes from the line of Derek Sommers with Jefferies. Please go ahead.

Good afternoon, everyone. Based on your approved broker count in the presentation, what percentage of the total broker market do you think you’ve penetrated so far?

I would say somewhere between 25% and 30%. The velocity of growth is accelerating as we get share growth and more people see our performance and pricing. I expect growth to continue at a very good pace in 2025. We had good share growth in 2024 and I believe we’ll have even better share growth in 2025 as brokers look for an alternative to the top two players and recognize our product mix and ability to adapt to changing markets.

Got it. Thank you.

And your next question comes from the line of Bose George with KBW. Please go ahead.

Hey, guys. Good afternoon. On the direct-to-consumer side, your volume, I assume, is still largely recapture. Are there strategies you’re thinking about to go to market to consumers outside of your Servicing portfolio?

Absolutely. It’s a huge part of our strategic plan this year to focus on our brand. Over the next quarter you’ll see a series of announcements reflecting that commitment. Doug and the team have put time and work into focusing on the brand. There are direct marketing strategies to our portfolio on purchase transactions, and I’m pleased with the improving name recognition of PennyMac. That will grow as the brand strategy is implemented. At higher rates, it’s imperative to focus on new customer acquisition for Consumer Direct. Doug and the team are hyper-focused on continuing to drive leads from that part of our Consumer Direct channel.

And your next question comes from the line of Eric Hagen with BTIG. Please go ahead.

Hey. Thanks. Good afternoon and hope all you guys are okay following the fires in your area.

Thank you.

I know that you don’t typically give guidance around origination volume, but do you feel like the lower bound for your originations on a go-forward basis will be at least $30 billion per quarter? And from the perspective of the correspondent sellers, how competitive is the alternative for them just being the opportunity to deliver loans into the cash window?

I don’t want to put a hard floor out there, but regarding correspondent, the cash window ebbs and flows. Fannie and Freddie are important business partners and if they come out of conservatorship there will be focus on making sure they are ready. I expect the agencies to be relatively quiet on new programs in the near term. The window becomes less of an issue in higher interest rate periods because sellers don’t want to retain Servicing when they don’t hedge it. When rates were near zero, there was a better economic thesis to holding Servicing; at 7% mortgage rates that’s less compelling. We have great competitors, but we are the leading correspondent aggregator and will continue to grow market share profitably. In markets like this, correspondent sellers want to maintain strong relationships with an aggregator who can clear warehouse lines quickly and buy loans quickly. That is a core strength for us.

And that is all the time we have for questions. I’d like to turn it back to David Spector for closing remarks.

Okay. Well, listen, I want to thank everyone for the call. I’m really sorry about the interruption earlier. If you have any questions or thoughts, please reach out to our Investor Relations team. They’re always available. I’ll always make myself available and thank you all for the great questions and the robust discussion. Bye-bye.

Thank you all for joining us this afternoon. We encourage investors with additional questions to contact our Investor Relations team by email or phone. Thank you.