All right, I think we'll get started. Good afternoon. Thank you, everybody, for joining. My name is Terry Ma. I cover mortgage finance at Barclays. Pleased to have with me on stage PennyMac Financial Services. We have David Spector, CEO, and Dan Perotti, CFO. Welcome, gentlemen. Thank you, Terry. Thank you for hosting us today, and thank you all for joining us today. Great. I think we'll jump right into it. Maybe, you know, let's start with the mark to market. You released an update this morning with volumes and margins quarter to date. Can you maybe just talk about what you're seeing across your business and also the competitive landscape? Yeah, so as indicated by our release this morning, we're very pleased with what we're seeing after the first two months of the quarter. In our correspondent space, we're seeing some nice margin expansion taking place. We've been coming off a low of around 23 basis points, making our way to 30 basis points, and we're pleased with the margin increase. Volumes are off a little bit, but with the rally here in the market over the last, you know, since the beginning of the month, I expect volumes to start increasing in our correspondent and definitely in our best efforts business. On the bulk business, we probably will not see the increase really until Q4. Suffice it to say, we're pleased with what we're seeing in correspondent. We also announced this morning that we're going to be introducing non-QM in the correspondent. We introduced that last week. We're focused on investor loans and bank statement underwriting, which is about half of the addressable market. With the addressable market at $70 to $80 billion, that's about $35 to $40 billion of non-QM production that we believe we can offer to our correspondents. The initial strategy is to buy the closed loans through correspondent and then sell those as whole loans to investors. We'll talk about PennyMac Mortgage Investment Trust a little bit later, but there could be a role for PennyMac Mortgage Investment Trust a little later on. Turning to broker, in our broker direct channel, I'm really excited with what we're accomplishing in broker. Our market share is above 5% now. Clearly, there's an opportunity. There's been an opportunity for us to grow share, to be a meaningful correspondent originator. We're doing that. We've been very good at leveraging our expertise in distribution and pricing in capital markets, and we're doing a lot of jumbo originations in broker direct. We'll be introducing non-QM into broker later this year, and that's where I expect to see a good amount of the activity take place for non-QM. As I mentioned, our share goal is to be at 10% by the end of 2026, and I'm confident that we'll get there at least by then, if not sooner. It's a function of the fact that that market has a leader in the market space who's been very successful at building out the broker direct channel. I believe that we have a number two broker originator, which has its own challenges and distractions, and I think we can continue to operate to be a strong number two to number one. That's been our strategy. On the consumer direct side, we're seeing a lot of great activity. By the way, on broker direct, we've seen margins. I failed to speak about margins, but margins have been holding steady, if not going up in broker direct, while volumes have been going up. On the consumer direct side, we're seeing a lot of good activity, especially over the past couple of weeks. By the time we got to August, end of August, we saw volumes up a bit, while margins were down a little bit, but revenues are up. Over the past couple of weeks, the activity's been what you would expect it to be given the decline in rates. If you think about our balanced business model really delivering recapture, the recapture opportunity off of our servicing portfolio is key. That's really, we'll get to it in a minute, what's been behind the hedge benefit that we've seen this quarter. We're seeing the capacity we put in place at the end of last year being put to use as rates are declining, and we're seeing the recapture coming in quite nicely. We're generally very pleased on the production side. On the servicing side, we are in a market where delinquencies are low and they continue to remain low. That lends itself to growing servicing profitability. I'm enthusiastic with what we're seeing on the servicing side as well. It all adds up to something that I've been saying for the past couple of quarters in that, look, we're in a sector of the market where we've been working tirelessly over the last three years to achieve some strategic initiatives, and we're now starting to see the success of those initiatives. While others in our space are distracted for various reasons, and I have tremendous respect and fondness for those that we compete against, but they all have their distractions, we are in a really good position to continue to just execute. Right, helpful color. In the update, it seems the hedge is performing a lot better than previous quarters. Maybe just take a step back, remind investors what your overall hedging strategy is, and maybe just talk about some of the changes. When we think about our hedge strategy, stepping back and thinking of what's the overall objective of the hedge strategy, it's really to provide book value stability and earning stability through time. We can see, going back a number of years, that the primary case for that is really at the onset of the pandemic. We had a really sharp drop in interest rates, a sharp drop in the value of our mortgage servicing rights. Because we had our hedging program in place, both from a book value perspective as well as a liquidity perspective, we avoided some of the issues that others fell into. We had a few in the mortgage industry that had near-death experiences. Obviously, once we got past that initial volatility, production kicked in and the tale of the rest of 2020 and 2021 was a little bit different, but ensuring that we are always protected against those types of moves. As we've gone through the past few years, we've had some issues given the shape of the yield curve and the price of options that we use to hedge in terms of balancing the cost of the hedge versus how we would, as well as positioning ourselves as interest rates moved up and down in order to ensure that we were continuing to have enough ample coverage when we saw interest rates or if we saw interest rates move further. That led to some underperformance over the past several years. Really, what we've changed now at the end of the second quarter, as we've gotten through the second quarter, as David mentioned, we've brought on more capacity in our consumer direct channel. We view that capacity in the consumer direct channel as really, A, the best hedge against additional prepayments if interest rates decline, and also the cheapest hedge against prepayments if interest rates decline, because that additional capacity that we've brought on is less costly than the options that we were otherwise using to hedge. We had to get that capacity into place first before we made these changes. Having that capacity in place has given us, and incorporating that capacity into the way that we view our hedging program has allowed us to shift the instruments that we use to hedge, relying less on the costly options that we've traditionally relied more upon and using more of futures and mortgage-backed securities forwards, which tend to have actually positive carry contributing value in terms of having those hedges on. That overall has allowed us to shift our hedge cost profile to be lower. Versus the 1 to 2% that we've typically mentioned as a range, we believe that'll be closer to the lower end as we move forward or potentially below the lower end. The changes that we've seen recently in the market with the shorter end of the yield curve coming down, as well as interest rate volatility or implied volatility coming down—in other words, the cost of options coming down—all of that plays into lower expected hedge costs going forward and our shift into those other instruments. We believe we'll see greater tracking of our net hedge performance versus the way that interest rates move as we go forward. What we've seen thus far in the quarter has really borne that out. I think that the results that we mentioned this morning, $20 million in terms of the negative hedge impact for what we've seen in the quarter thus far, really shows the reduction that we've seen over the past implementing this strategy in this quarter. Got it. That's helpful. Maybe just more broadly, can you talk about how you expect servicing to perform and also just give us an update on where we are in the subservice effort? Yeah, so look, the servicing performance for the third quarter is really strong, and it's really a function of the fact that borrowers are continuing to make their payments and delinquency rates continue to remain low. We're not seeing any indication to date that that's going to change. I think that that's been the value of being an investor in servicing for the last three plus years. We're continuing to see cost improvements in terms of the servicing. Our servicing technology continues to evolve and continues to impress. We've driven down the cost of service by close to 40% over the last five years, and there's still room for more. Really, what we're able to do with servicing gives us a real competitive advantage as we look out into the future and the ability to continue to grow the servicing portfolio. As it pertains to subservicing, we're really seeing some really good opportunities in the marketplace. Clearly, I would say rational pricing is returning to the sector. There's been a lot of competition over the past couple of years to grow servicing, but through a lot of work, we've been able to build a value proposition that can compete in the marketplace, as well as we're starting to see a major market participant speaking about perhaps stepping back from subservicing. I believe that we can continue to make a value proposition not just to our correspondent aggregators, but also to owners of servicing who've been buying as a financial asset. There's been big demand for low-rate servicing in the marketplace, and we can provide a very competitive suite of products to people who are looking for our subservicers. I would expect our subservicing business to grow over the next 12 months and really to be able to step in where others may be looking to step out. Got it. Maybe just to switch gears, this morning you also announced an equity investment, Vesta. You're switching over to Vesta's LOS for consumer direct specifically. Can you maybe just talk about the partnership, why you're making the change, and then when we think about broker and correspondent, is there the opportunity over there? I'm really excited about the Vesta opportunity. We have been looking to enhance our direct origination LOS technology for a few years, and about two years ago we had to make a decision of whether to develop proprietary technology or work with a technologist who's looking to create LOS technology. We're very fortunate to meet Mike, who runs Vesta. Vesta was an existing technology that wasn't as sophisticated as it is today, but it did have some direct LOS, direct to consumer clients. In working with Mike and the Vesta team, we have built out what we believe to be a next-gen system. It really comes about in terms of the configuration of the technology. We're very workflow-oriented. We are very process-oriented. The system has proved itself to be incredibly nimble to meet the demands and needs of a sophisticated originator like us. We went on their system. We started in mid-August. We've put on about 100 loans onto the system. We're seeing tremendous benefits already. The amount of time it takes from when a borrower calls in to when we get the information to either lock the loan, that's been reduced by 50%. On the processing of a loan, we're seeing improvements of minimum 20%. I expect to be 100% on their system by Q1 of next year. It's really only the beginning. There's a lot of AI initiatives in place that we have for our consumer direct division. I believe that it's only going to lend itself to produce results like we're seeing with our servicing system, where you're going to see our costs coming down and our efficiencies going up in terms of loans per employee, locks per employee, and the process improvements. Being that it's a system built for direct originations, the logical next step is to move it into broker direct. We're going to be looking to get it into broker direct and our correspondent system just so we're on one system. There's a lot of synergies we can get by being on one system. Obviously, having the investment in Vesta has the correct alignment of interests. The investment is about a $10 million investment. We have an ownership stake in Vesta. Clearly, one of the biggest benefits of this is it gives us a system that was built for customer number one, but we also believe it's a system that can be offered out to our own correspondent sellers. It's a system that we can help Mike and the team be able to move into other correspondent sellers because it is built for a correspondent seller who does as little as 100 loans a month or, in our case, 5,000 to 10,000 loans a month. We believe, finally, it's a legacy-free system. Building something legacy-free is a lot easier than configuring and trying to adapt to an existing system. All in all, I'm really excited about the Vesta opportunity. I think it's going to be really beneficial as we not only become more efficient running a status quo system, but also as we adapt it to all of the AI initiatives that we do have on the horizon for our consumer direct team. Got it. Maybe just staying with consumer direct, you've been talking about the portfolio you've built, the recapture rates. Last year you spoke about focusing more on brand marketing and brand recognition. Maybe just update us on that and how the progress with the Olympic partnerships are going. The Olympic partnership is exceeding my expectations on many fronts. I will tell you that the ability to have a partner of the magnitude of the U.S. Olympic & Paralympic Committee is really important to us. It allows us to hang our brand with a gold medal, no pun intended, organization like the U.S. Olympics, and LA28 is really vital. It's been instrumental in allowing us to bring on capacity. The ability to bring on key leaders and key hires and meet the capacity needs that we have today and that we're going to have is really enhanced. We hear this directly from people we're hiring. It's really important in terms of marketing to our portfolio of existing customers and prior customers. It just has this halo effect in terms of, you know, just in when you listen to recorded calls and you listen to our LOs speak to customers, it's clearly part of the routine that they use to be able to get customers to lock and close the loan with us. It's having huge benefits in our broker direct channel. The ability to call on brokers and get brokers to sign up for us has really picked up since we've brought on the partnership of the Olympic Committee. That's been vital. Just working with our other key stakeholders, whether it be government agencies or our banks, it's just something that adds brand equity to us. I'm really pleased with what I'm seeing. It's an appropriate way for us to market PennyMac. It's something that, as we get closer to the Winter Olympics and certainly the Summer Olympics of 2028, we'll be doing more with the Olympics. By and large, having those rings, having the flag, and having the Olympics with PennyMac is really noticeable. Got it. That's helpful. PennyMac remains a leader in correspondent. You have about 20% market share. You've mentioned your desires to grow your broker share to 10%, 5% today. What's the competitive landscape look like across third-party lending channels? How has PennyMac been strategically investing and positioning itself to gain share? Let me start with the broker channel. We have a market leader who I have tremendous respect for. They represent about half the broker market. I think that we've done a really nice job positioning ourselves as a strong number two to number one. We continue to offer new products, quite frankly, offer more than competitive pricing. I believe that we are the best in the broker channel at being able to price and execute, and that gives us a competitive advantage. If you think about what we've done in correspondent in terms of being in the market every single day with our correspondent aggregators with a competitive price, that's something we're doing in the broker channel, and the brokers are seeing it. That's really a competitive advantage that we have both to number one and number two. As it pertains to number two, look, they are distracted with the closing of the transaction that's going to be taking place. I just think that, given the, in terms of what the Rocket Mortgage enterprise is going to be, it's going to be a heavy retail-focused enterprise. I think that the broker direct channel is one that doesn't really lend itself for what they're going in for. Furthermore, given what the FHFA came out with in terms of caps on the portfolio sizes, there are things that they're going to be looking at, whether it be the broker channel or whether it be subservicing or buying bulk servicing, all of those advantages. On the subservicing side, it advantages us in the fact that we're trying to build a subservicing business. On the broker side, it advantages us for the reason I just stated. On the bulk servicing side, it advantages us in correspondent because many sellers of bulk servicing either sell loans to the Fannie Freddie cash window or they securitize loans themselves and then bulk up the servicing and sell it. In the absence of bids, which both Rocket Mortgage and United Wholesale Mortgage have been very strong bids of bulk servicing, you're going to see more loans going whole loan. That's where I think we'll be able to use our market leadership in correspondent to continue to do more correspondent business and do so while at the same time not having to lead with margin. Raising margin in correspondent is my top priority in correspondent. I believe we can raise margin and grow share. We're the leading correspondent aggregator. Everyone who originates loans and sells to a correspondent wants to do business with PennyMac. The fact that we're introducing non-QM gives us the final set of products that have been missing from our product makeup and design. I'm really encouraged by that. I think from a competitive, to your point about competitive landscape and correspondent on the government side, we continue to see the likes of AmeriHome, Freedom, and Planet Home. On the government side, on the conventional side, our competitors are really the Fannie Freddie cash windows. By and large, with all that, we're still north of 20%. We'll see what happens. When we get to 25%, look, if we can do so and continue to raise margin, we should all be very glad. I don't see us falling below 20%. We're going to do so without sacrificing margin or our credit guideline. Got it. That's helpful. You touched on non-QM a bit. Maybe just talk a little bit more about that opportunity. In terms of how impactful it can be to PennyMac Financial Services, maybe just talk about that. Yeah, so when we look at the non-QM market, from our perspective, the addressable market is $70 to $80 billion of total production. When we then put on our credit overlays that we want to participate in, and those credit overlays primarily are we want to deal with ESCR investor loans and bank statement underwriting. That cuts the addressable market to about $30 to $40 billion. The other overlay, by the way, is FICO, and we really don't want to participate in FICOs below 700. We start there. We believe that these programs are meaningful enough and in demand in speaking to our correspondent sellers as well as our broker originators as well as the call center. We believe that we can be meaningful in terms of our participation in the market. As history has shown, we typically are a little bit slower out of the box than we'd like, but we want to make sure, one, we've got it right. Furthermore, as we introduce the product, the distribution will be to other non-QM aggregators or to the street. Obviously, as we are in correspondent today, we'll be in broker by the end of the year and consumer direct by Q1 or at the latest April of Q2. As we see the velocity increasing, then we'll be in a position of, do we think about securitizing or selling the loans and securitizing those with PMT? How do we think about the distribution? For now, it's about getting it right and making sure that we're focused on the prime part of the market as opposed to the non-prime part. Got it. Got it. Maybe just switching gears and taking a closer look at tech. You know, this year, PennyMac Financial Services had launched 35 AI tools, which could save about $25 million annually. I think that number may be updated now. Can you maybe just touch upon what investments or technology you're most excited for as you can and where you can continue to see additional opportunities? We are, as a Senior Management team, really, really focused on what the AI opportunity means for each and every one of us in the organization. It's not just the loan, it's not just the loan origination business or the servicing business. It's all of our businesses. I will tell you that we've always been a tech-focused organization. When we built the correspondent business, for example, we had the OCR technology in place when we started it. It's not something that's new to this team. I will say that we are very fortunate in the fact we're spending a lot of time with a business partner in AWS who's been incredibly valuable to us and will continue to be valuable to us. We're working with Google to see where we can work with them on initiatives. Having said that, on the AI front, we have a really exciting group of initiatives in our consumer direct channel. Just to give you a flavor, we've introduced a chatbot in our consumer direct channel to really help our LOs online deal with customer issues. We record all of our consumer calls. There are call summaries that are created with AI after every call and tagged with the loan. When the borrower calls in again, the LO who is on the call can see what has been discussed to better meet the borrower's needs. We're doing a lot of work in terms of agentic AI in our consumer direct channel. All of this, to me, lends itself to making our LOs more efficient, reducing the cost to originate a loan, and making the customer experience that much better. You can do all three with AI. It goes without saying a lot of the AI tools that we're creating for our consumer direct channel will also be used in our broker direct channel. That's the power of being on the same loan origination system. We're going to continue to introduce AI tools that over the next few quarters we'll be introducing to you and the investor community. It's something that I'm really excited about. In terms of the greatest payback of sorts for AI, what we're seeing with copilots and other tools in our technology area is truly remarkable. We are doing more with technology with the same amount of people, and it's only going to grow. The needs for junior coders has diminished. The ability to use technology that records meetings, that lays out what the initiatives are, and turn that into the first round of coding, that's in place. There is just a lot of sophisticated AI technology that we're going to be using and developing as tools that I think is going to show itself. It shouldn't surprise anyone in the room. This is something we've always led with. If you think back to what I've been saying over the last 10 years to everybody, it's only going to just be more of the same. Got it. Maybe just drilling down to servicing expenses, right? That's come down pretty meaningfully over the last few years as a percentage of UPB. Maybe just talk about where this could kind of ultimately go as we kind of look out medium and long term. As David mentioned, the technology that we have in place, our proprietary technology, has really been a great platform for us to be able to decrease our servicing expenses over time. You look back to our pre-pandemic years, which is when 2019 is when we implemented our technology. We've been able to drive down our costs by over 40% through that period of time, including in some years where we had elevated delinquencies. As we look out, further enhancing our technology platform, further adding AI tools of the sorts that David was talking about into the platform that allow each of the participants in the platform or our staff being able to work more efficiently, either handle calls more efficiently through having chatbots that give them some of the answers to their servicing inquiries as they're on the phone, having our customers be able to self-service more efficiently, and being able to handle certain reconciliations and investor accounting and so forth in a more automated manner, all of those lead to further decreases in costs, all else being equal. If we do see an increase in delinquencies over the next few years, on an overall unit basis, we may see a bit of an increase in the cost of service. On a like-for-like basis, certainly we expect to be able to continue to drive down costs in a meaningful way with further double-digit increases in efficiency as we move forward. There is really no, you know, this is not a stopping point for us. Especially as we continue to grow the portfolio and implement these efficiency measures, we will continue to see our cost to service, our operating cost to service, drive down. Great. Maybe just to tie all this together, if we kind of think about ROE or normalized ROE, how should we kind of think about it as it pertains to PennyMac Financial Services? Obviously, the origination market is a bit constrained today, but maybe just talk about the current environment and what kind of normalized ROE looks like. In a constrained origination market, our ROE target should be 15 to 18%. We've done a lot of work over the past two to three years to get us to this point. I feel very confident that that is the target ROE. Obviously, as we move into a higher origination market, whether it be $2.2 trillion, $2.3 trillion, $2.4 trillion, getting above 20% is, from my point of view, where we should be. That's a function of just doing more, more consumer, direct-to-consumer originations, margin expansion in correspondent, as well as growth of broker margins and broker share. That's really where I'm leading the organization. I feel, as evidenced by what we issued this morning, very good and really happy and proud for the team for the work that they've done over the past couple of years to get us to this point. Great. At this point, we're going to switch gears and maybe just talk about PMT for a little bit. Can you just remind everyone what the significance of PMT is within the PennyMac complex? Just talk about why PMT is beneficial to PFSI and why investors should be looking harder at PMT. PMT, as we all know, is a tax-efficient REIT. It was established back in 2009, really with an eye, if one who was on the roadshow, with an eye to a return, a private label securitization to invest in subordinate tranches. We, back in 2009, thought we'd be there in a year or two, but it took us about 11 to 12 years to get there, but we are there. We have in PMT some real core competencies in terms of the ability to aggregate and securitize loans and understanding what that means and what it takes to be able to do so. We've got a great team in place that's doing it. The advantage to PFSI is, first off, as the manager of PMT, it obviously gets paid an incentive, a management fee with capital under management, as well as an incentive fee. Obviously, as we grow the profitability of PMT, PFSI will be a beneficiary. PMT, over the last year, has been transitioning to doing more private label securitization. It's gone from zero to now being a top three securitizer of loans. By the end of the year, it'll be the top non-bank securitizer, only behind Chase. It gets its loans through the loans it buys through correspondent, as well as sales of loans at market rates from PFSI to PMT. Having that synergistic relationship with PFSI allows it to confidently be able to say they're going to be able to do an investor securitization every three weeks and be able to do a jumbo loan securitization once a month. When it adds excess capital to sale, it'll be able to do a non-QM securitization. I think the transition into the investing in securitizations is very much akin to what it did in CRT from 2015 to 2020, albeit they can't do it with the same size and velocity and the same ease, but suffice it to say it has a real competitive advantage. I expect PMT to be able to continue to grow profitability and ultimately to be able to raise capital. Great. We have like three or four minutes. Maybe I'll just pause here and open it up to the audience if there is any Q&A. Back, Raul, Ravi. Hi, can you hear me? Yes, we can. I'm sorry, I just walked in, so I apologize if you addressed this, but I just wondered if you could talk about competitive conditions in the wholesale channel in particular. Thanks. Yeah, as I mentioned earlier, the wholesale channel is dominated by two players, really one in particular. You have United Wholesale, that's clearly the market dominator. I think of them as a 50% plus market share participant. They've built a great company. They're really focused on delivering service and speed at a low cost. Secondly, we have Rocket, who's been number two, followed around 15% to 20%. My belief is they're not going to be as committed to the broker channel as they have been. It's a function of the fact that if you look at what they do in the channel, they originate loans for brokers and they turn around and sell the servicing. Given the market share caps that we're hearing about coming out of FHFA, I just see it as an unnecessary nuisance for them or distraction versus really executing on the combination of the two companies, meaning Coupe and Rocket, as well as the integration of Redfin into this company. I generally think of it as ultimately a two-player market with UWM and PennyMac. We've said we want to be a 10% market share by the end of 2026. It's my belief, and all things I'm saying, we're going to get there if not sooner. Really, it's about leveraging what we're doing on the consumer direct channel with our technology and the tools we're building, combined with leveraging what we've built in correspondent. That's really giving to the brokers much of the service and products and pricing that we make available as being the leading correspondent aggregator. Could you maybe talk about the impact of the recent trigger leads bill on your recapture rate and how you think about that impact? Look, what's going on with the consumer, you're talking about the trigger leads? What's going on with the consumer and trigger leads is really, it's really unfortunate. When we lock a borrower, we tell them you're going to be inundated with calls because the credit reporting bureaus will sell the fact that we've had a pull credit on you. As a result, they sell that to other mortgage originators. That's what's known as a trigger lead. We have customers who will get 50, 60, 70 calls within 15 minutes. It's really unfortunate. As a servicer, it bothers me because we invest in servicing and part of owning servicing is getting the recapture. Obviously, I don't like it. It's made its way into Congress and there's a bill that is inches away from being signed that will preclude those leads from being sold. They can be sold to the originator. If we buy the loan from a correspondent, that correspondent can get notified that credit's been pulled. It can get sold to, I believe, the bank that the customer banks at. We'll take that. Okay, that will take. I think it's going to lend itself to not only increasing recapture, but perhaps doing so with greater margin. That's what's driving our motivation in support of this bill. I think it's a great question and a great point as we think about the profitability of our direct lending business. Great. I think we're at time with that. Thank you, Terry. Thank you, everyone, for your time today.