PennyMac: Hedging Costs & Residential Loan Recapture Crater the Stock

February 3, 2026 | Last week the financial markets were roiled when PennyMac Financial (PFSI), the #2 aggregator nationally in residential mortgage loans, badly missed the Street’s earnings targets. PFSI EPS fell short of expectations at $1.97 compared to the forecasted $3.12 per share in Q4 2025. 

Revenue also disappointed the Street's admittedly inflated expectations, coming in at $538 million against an impossible forecast of $637.49 million, but the Street estimate was never even remotely realistic. Sometimes stock analysts are misled by rising equity market valuations and this is a case in point. But as we noted in our last comment, 2025 was the year of aspiration and hype. This year is shaping up to be very different.

More important than illusory Street expectations, however, was market conditions and that dangerous buzzword "affordability." Analysts assumed an improvement in the firm’s hedging results – a considerable stretch – which caused more than a few investors and analysts to lean into the stock. 

But the key factor that generated investor angst was under-performance in terms of loan recapture, an illustration of the hyper-competitive market in residential mortgages. After touching $160 in late January, PFSI closed yesterday below $95 per share and pulled down other mortgage names as well.

Source: Google Finance

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