The Wrap: The Flight from AI; PennyMac + Cenlar FSB = Strike Two

February 13, 2026 | The latest edition of “The Wrap” features our view of the key events in Washington and on Wall Street over the past week. Don’t forget to watch “The Wrap” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. Below for our Premium Service subscribers is a replay of yesterday’s quarterly update and some other content.

AI Hype Stalls

Large-cap tech stocks experienced the worst week since November, causing a split market where value-oriented stocks are gaining attention, while tech stocks and crypto tokens are being liquidated. Equity managers are rotating out of tech and into everything else, creating a cosmic imbalance that is difficult for the non-tech equity market to absorb.

Virtually every stock in our fintech-heavy finance company group, for example, is down for the year and we expect the selloff to continue. Charlie McElligott at Nomura (NMR) summed it up from his options market perspective:

The risk hence is a day like today, where a lot of “Lazy Longs” in Equities and Metals have enjoyed extremely high Sharpe “smooth glide,” which then risks a “Profit-Take” spilling-over into a larger “Risk Management Exercise” of forced selling into “Skinny Exits”

Likewise the bank group is also in retreat, with all of the large cap names in the WGA Bank Top 50 now pushed out of the top 25 rankings. Sector leader JPMorgan (JPM) now ranks 87th in our group based upon the 200 day moving average, a striking setback for the House of Morgan. Shed no tears, because JPM’s price to book value is still around 2.5x, but it has lost considerable ground vs other, mostly smaller names. 

Source: YahooFinance (02/12/26)

As stocks have retreated, the Treasury market has rallied, with the 10-year T-note moving down towards 4% and related issues in the corporate and mortgage markets rallying as well. The average coupon of all T-notes is 3%, of note, illustrating just how far out of the money is the population of notes below the average.  

Adding to the gloom is the crypto sector, where bitcoin and other speculative vehicles are being routed in a way not seen since before COVID. Whereas the environment of speculative frenzy that prevailed in 2025 boosted the value of banks, credit, bitcoin and other opportunities, the more critical atmosphere that prevails today is causing a selloff in most crypto tokens and an exodus of liquidity from this ersatz market. 

Housing & the Economy

Fannie Mae and Freddie Mac released earnings this past week and the GSEs are profitable with rising volumes. The only problem is that most of the growth is in refinance transactions rather than purchase mortgages. And the average loan coupon of $14 trillion in residential mortgages is still below 4%. 

As we noted earlier this week (“Santander + Webster = ? | Affordability: Accelerate Treasury Debt Repurchases”), the weight of low-coupon Treasury bonds and MBS issued during COVID is essentially negating the purchases by the GSEs, which are concentrated in current coupons. For the same reason, the bond purchases of the GSEs are unlikely to push down mortgage rates, especially with Fannie/Freddie buying current coupons.

Fannie Mae

If FHFA Director Bill Pulte was really smart, he'd repackage the MBS bought by the GSEs into CMOs and bury the troublesome duration in the insurance market. Then he'd go buy more low coupons and restructure those. Yet a selloff in equities accompanied by a flight to quality in risk-free assets such as Treasuries and MBS may do the trick in the short-term.

During comments to our Premium Service readers yesterday in our quarterly update, we reflected our view that the mortgage market is likely to have a rough year. There is a dearth of quality leads in the agency market and, not surprisingly, some lenders are behaving very badly in order to win business. 

When a broker partner of a major lender you don’t know calls after you close a mortgage and offers to immediately beat your rate, that is illegal. As our dear departed friend David Stevens liked to say, the mortgage industry is one big RESPA violation. The growth of the jumbo, non-QM loan market is driven by slow business in the agency world.

Strike Two: PennyMac Buys Cenlar

During the quarterly call, we repeated our view that PennyMac Financial (PFSI) is relatively cheap following their disastrous earnings announcement last week, but the flow of comments coming in from various observers makes us reconsider that view. Why? Because in the increasingly desperate search for new loans and mortgage servicing rights (MSRs), some lenders are making bad decisions.

This week PennyMac announced the purchase of industry servicing giant Cenlar FSB. The deal ends a long narrative in the mortgage industry. The Trenton NJ specialty sub-servicer operated inside a grandfathered thrift but with a severely and deliberately constrained business model. Our assumption has always been that Cenlar was unsalable. The OCC will probably be happy to see this relic of the final days of the Office of Thrift Supervision go into the history books. 

We see a couple of issues for PFSI. First, PFSI has agreed to acquire the subservicing business of Cenlar Capital Corporation for a total of $257.5 million. The deal consists of an upfront cash payment of $172.5 million and up to $85 million in contingent payments based on performance over three years. The acquisition is expected to close in the second half of 2026.

Here's the obvious question: What is PFSI buying? Inside Mortgage Finance reports correctly that "Pennymac noted that some $307.0 billion of the portfolio is in the process of leaving Cenlar or has provisions allowing a move to a different subservicer if Cenlar is sold."  

Since the very political 2021 consent order with the OCC, servicing has been leaving Cenlar. United Wholesale Mortgage (UWMC) transitioned away from Cenlar for servicing, opting instead to bring its loan servicing in-house using technology from ICE.  Ally Financial Inc. (ALLY) has also announced a transfer to servicing to the bank. Many other banks are retaining originated mortgage servicing rights (OMSRs), reducing natural customers for subservicing.

One of the odd things about the Cenlar model is their basic decision not to compete with lenders or even primary servicers. Cenlar explicitly subordinated itself to the interests of the MSR owner in all respects. The bank did not even control escrow deposits, a major difference with other bank subservicing models such as JPM and the pre-NYCB Flagstar. Indeed, the Cenlar bank has been shrinking.

Cenlar FSB (12/31/25)

Source: FDIC/BankRegData

Another aspect of the Cenlar model is that they did not solicit borrowers. Under PennMac ownership, will they mine the portfolio for recapture? Of course, but how big will the portfolio be in a year? What about other firms involved with subserviced assets? We can see this sale process getting very complicated and potentially causing even more migration of MSRs. You can be sure every Cenlar servicing customer is getting calls from the competition.

As one industry maven wrote: "It's all about getting access to borrowers before your competitors. Gotta own the comms channels. The best use of AI in mortgage lending might actually be an agent that blocks your competitor's robocallers."  In this regard, Fannie Mae's results show how refinance volumes are growing while purchases are falling as shown in the chart above. 

It will be interesting to see if this transaction helps the PFSI stock price, but our fear – which is shared by a number of operators in the industry – is that PennyMac has made a second serious mistake in as many weeks buying Cenlar. The economics of the subservicing business is very thin and depends upon maintaining the good will of the owner of the MSR.

If the subservicing business runs off to other subservicers like Loan Care or Dovenmuehle, then PFSI could end up losing money on this transaction, even if the performance fees are not triggered. Let’s say they ultimately buy $300 billion in subservicing. Is that worth $172 million, assuming no performance payments? Say a million loans x $6-8 per performing loan per month annually?  But frankly, the whole book could move. Cenlar does not own the MSR.

The mortgage equity group we track has also sold off in recent weeks.  Market leader PFSI is down at the bottom of the list with poor performers like Zillow (Z) and Blend (BLND). For the sake of the mortgage sector, we hope PFSI rebounds soon and that we avoid more surprises, but frankly the Cenlar acquisition looks like it may actually take the valuation of PennyMac lower in the near term. Our mortgage surveillance group is available to subscribers to our Premium Service below. 

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