PennyMac Mortgage Investment Trust (PMT), Two Harbors Investment Corp (TWO): Why This Mortgage REIT Can Do What No Others Dare

After a brutal earnings season during which most mortgage REITs reported second-quarter declines in book value, PennyMac Mortgage Investment Trust (NYSE:PMT) swam against the tide. In addition to beating revenue estimates, the company reported an actual gain in book value from the previous quarter, of 1.6%. With that victory under its belt, the company is embarking on a secondary offering of 11.3 million shares, with an option for its underwriters of almost 1.7 million additional shares.

Diversification was key
How did PennyMac Mortgage Investment Trust (NYSE:PMT) achieve such a triumph in the current climate? Much like Two Harbors Investment Corp (NYSE:TWO), which reported lower book value damage than most of its peers, PennyMac Mortgage Investment Trust (NYSE:PMT) owes its success to a varied business stream — particularly its correspondent lending business, which contributed revenues that increased by 42% from the first quarter.

Mortgage servicing income was robust in the second quarter, as well. Fees jumped from $6.6 million in the first quarter to $7.9 million, and PennyMac Mortgage Investment Trust (NYSE:PMT) notes that mortgage servicing rights are positioned well for the rising interest rate environment because of a drop in prepayments.

One of PennyMac Mortgage Investment Trust (NYSE:PMT)’s specialties is the acquisition of pools of distressed loans. The company purchases these assets at a discount, then either liquidates them, or returns these mortgages to profitability through loan modifications. Troubled loans engender higher servicing fees, as well — another feather in PennyMac Mortgage Investment Trust (NYSE:PMT)’s lucrative cap.

The jumbo-loan business is taking off
PennyMac Mortgage Investment Trust (NYSE:PMT), like Two Harbors, is moving into the jumbo market, including securitization activity. During Q2, the trust agreed to buy $393 million of prime jumbo loans, which it plans to blend with jumbos it purchases through its correspondence channel — which it will securitize and sell sometime during the third quarter.

PennyMac Mortgage Investment Trust (NYSE:PMT) considers jumbo securitization a profitable opportunity for the company, and it seems to be catching on with mREITs. Two Harbors participated in a prime jumbo securitization earlier this year and has plans to do so again very soon.

Annaly Capital Management, Inc. (NYSE:NLY)Even Annaly Capital Management, Inc. (NYSE:NLY), which was a pristine agency-only player for so many years, has recently revealed an interest in securitization and jumbo loans – though, at least for now, as separate activities. With its recent acquisition of CreXus, Annaly Capital Management, Inc. (NYSE:NLY) and CEO Wellington Denahan acknowledged plans to securitize some of its corporate debt, and the company noted that, sometime in the future, it will likely be originating jumbo loans through one of its affiliates, Shannon Funding.

Flexibility will protect yields
PennyMac Mortgage Investment Trust (NYSE:PMT) proves that variety is the stuff of profits, and it looks like other mortgage REITs are finding the same to be true. As the unstable economic environment continues to rock the sector, it seems obvious that the mREITs that are willing to change and adjust will deliver the best value to their investors.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!