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 Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!