NEW YORK, Jan 30, 2026, 15:41 (EST) — Regular session
- PFSI shares dropped roughly 33% in afternoon trading following fourth-quarter results that revealed a steep decline in servicing profit
- Mortgage servicing rights took a hit as faster payoffs kicked in, with rates holding below last year’s levels
- Investors are seeking clearer signals on prepayment trends and profit targets for 2026
PennyMac Financial Services shares dropped roughly 33% on Friday, deepening the selloff that followed its earnings report. Investors focused on a sharp decline in its servicing business. By mid-afternoon in New York, the stock had slipped to $100.39, down $49.31, after hitting a low of $93.88.
This shift is important because dropping mortgage rates cut both ways for lenders. On one hand, they boost new loan originations. On the other, they accelerate refinancing and early repayments, which erode the value of mortgage servicing rights — the fees lenders earn monthly on outstanding loans — ultimately squeezing servicing income. 1
Mortgage stocks tied to rates took a hit. Rocket Companies dropped roughly 16%, United Wholesale Mortgage slid around 14%, and loanDepot lost close to 9%.
In a late Thursday release, the Westlake Village, California-based firm posted fourth-quarter net income of $106.8 million, or $1.97 per share, on $538.0 million in total net revenue. Book value per share climbed to $82.77. Pretax income from the servicing segment plunged to $37.3 million from $157.4 million the previous quarter. The company attributed the 70% drop in pretax income—excluding valuation items—to lower mortgage rates triggering more prepayments and speeding up MSR runoff. Chairman and CEO David Spector noted that strong production results were “offset by increased runoff on our MSR asset.” Meanwhile, pretax income in the production segment increased to $127.3 million, and the servicing portfolio’s unpaid principal balance (UPB) expanded to $733.6 billion.
The company doubled down on efficiency in its earnings presentation after the miss. It projects operating return on equity — a profitability metric tied to shareholders’ capital, adjusted for some factors — will climb from low double digits to the mid-to-high teens by 2026. This growth hinges on scaling operations and investing in tech like Vesta’s loan-origination platform. 2
Analysts at Piper Sandler trimmed their price target on PennyMac to $137 from $168, while maintaining an Overweight rating. They described the quarter as a stumble mainly due to servicing issues, warning this could weigh on sentiment in the short run. 3
The earnings miss was sharp against forecasts. National Mortgage News showed GAAP earnings per share at $1.97, falling well short of the $3.26 consensus from Standard & Poor’s. 4
On Thursday, the company filed with the U.S. Securities and Exchange Commission, announcing it had released its earnings report along with a slide presentation and additional financial details.
This business can shift dramatically with changes in rates and borrower behavior. If mortgage rates remain low or drop further, prepayments could stay high, squeezing servicing income once more. On the other hand, if rates climb, origination demand might slump quickly, tightening margins amid fierce competition.
Investors will be closely monitoring if production growth can outpace servicing runoff in Q1, while also gauging whether management’s 2026 operating-ROE targets remain achievable amid stiff competition for refinancings.
PennyMac’s board announced a $0.30 quarterly dividend, setting the record date for Feb. 16 and payment on Feb. 26. These dates, along with upcoming weekly updates on mortgage rates and payoffs, are expected to influence the stock’s direction heading into the next quarter.
