PMT 10-K & 10-Q changes, risk factors and insider trading

WeOur operateinvestments in aare highly regulateddependent industryon macroeconomic, real estate, mortgage and thefinancial continuallymarket changingconditions federal, state and local laws and regulationsthat could materially and adversely affect our business, financial condition, liquidity and results of operations.

WeA aredisruption highlyin dependentour oncorrespondent U.S.production government-sponsored entities and government agencies, and any organizationalactivities or pricingthe changesMBS at such entities or their regulatorsmarket could materially and adversely affect our business, liquidity, financial conditioncondition, liquidity and results of operations.

Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to a risk of loss.

The management fee structure may provide incentives not fully aligned with our interest and/or may create greater investment risk.

Interest rates are highly sensitive to many factors, including United States monetary policies, domestic and international economic and political considerations and other macroeconomic conditions such as inflation, consumer confidence and demand. OurFor primaryexample, higher interest raterates exposuresand relateinflationary pressures in 2024 and 2025 have constrained mortgage origination and refinancing activity compared to theprevious yield on our investments, their fair values and the financing cost of our debt, as well as to the impact they may have on any derivative financial instruments that we utilize for hedging purposes.years. In addition, MBSthe pricing and liquidity andof interestthe ratesMBS market may be impacted by futuresignificant saleschanges in and reallocations of the Federal Reserve’s MBS portfolio. Changes in interest rates affect our net interest income, which is the difference between the interest income we earn on our interest earning investments and the interest expense we incur in financing these investments. Interest rate fluctuationsportfolio, resulting in ourwider interestmortgage-backed expensesecurity exceedingspreads. interestFuture incomereductions of the Federal Reserve’s balance sheet or its MBS portfolio may result in operating losses for us. The U.S. Federal Reserve’s federal funds rates and ongoing inflationary pressures have constrained U.S. mortgage originations and refinancing activity and futurehigher interest rate changesvolatility and wider mortgage-backed security spreads that could negatively impact our results of operations and cash flows and the fair value of our investments.

Changes in the level of interest rates also may affect our ability to make investments, the fair value of our investments (including our pipeline of loan commitments) and any related hedging instruments, the value of newly originated loans acquired through our correspondent production activities, and our ability to realize gains from the disposition of our assets. Changes in interest rates may result in margin calls requiring us to post additional collateral, affect borrower default rates and impact our ability to refinance or modify loans and/or to sell REO. Decreasing interest rates may cause a large number of borrowers to refinance, which may result in the loss of mortgage servicing business and write-downs of the associated MSRs. Any such scenario could materially and adversely affect us.

A disruption in our correspondent production activities or the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations.

Correspondent production activities may include purchasing residential loans, pooling Fannie Mae and Freddie Mac loans into Agency MBS securities and selling or securitizing the loans. The liquidity of the MBS market may be impacted by futuresignificant saleschanges in and reallocations of the Federal Reserve’s MBS portfolio, resulting in wider mortgage-backed security spreads. Any significant disruption or period of illiquidity in the MBS market would directly affect our liquidity because no existing alternative secondary market would likely be able to accommodate on a timely basis the volume of loans that we typically acquire and sell in any given period.

Because we and PLS are not federally chartered depository institutions, neither we nor PLS benefit from exemptions to state mortgage lending, loan servicing or debt collection licensing and regulatory requirements. Accordingly, PLS is licensed in all state jurisdictions, and for those activities,jurisdictions where it is required to be licensed and believes it is cost effective and appropriate to become licensed.

We and our servicerPLS are subject to minimum financial eligibility requirements established by the Agencies, as applicable. For example, the FHFA and Ginnie Mae enacted enhanced minimum net capital and liquidity eligibility requirements for sellers, servicers and issuers.issuers effective in 2023 and 2024. These eligibility requirements align the minimum financial requirements for mortgage sellers/servicers and MBS issuers to do business with the Agencies. These minimum financial requirements include net worth, capital ratio and/or liquidity criteria in order to set a minimum level of capital needed to adequately absorb potential losses and a minimum amount of liquidity needed to service Agency loans and MBS and cover the associated financial obligations and risks. To the extent any newfuture minimum net worth, capital ratio and liquidity standards and requirements are overly burdensome, complying with such standards and requirements may have a material adverse effect on our business, financial condition and results of operations.

In order to meet these minimum financial requirements, we and PLS are required to maintain rather than spend or invest, cash and cash equivalents in amounts that may adversely affect our or its business and significantly impede us and PLS, as non-bank mortgage lenders, from growing our respective businesses and place us at a competitive disadvantage in relation to federally chartered banks and other financial institutions. To the extent that such minimum financial requirements are not met, the Agencies may suspend or terminate Agency approval or certain agreements with us or PLS, which could cause us or PLS to cross defaultcross-default under financing arrangements and/or have a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.

Specifically, we have financed certain of our investments through repurchase agreements, pursuant to which we may sell securities or loans to lenders (i.e., repurchase agreement counterparties). CRT investments havemay beenbe financed throughwith term notes and repurchase agreements. Unlike MBS and other investments, we finance under repurchase agreements, our CRT investments are generally more illiquid and subject to greater fluctuations in fair value and the term notes we issue to finance these assets may not be callable and may otherwise prohibit the disposition of the assets securing the financing.

We also currently finance certain of our MSRs under secured financing arrangements. Our Freddie Mac MSRs are pledged to secure borrowings under loan and security agreements, while our Fannie Mae MSRs are pledged to a special purpose entity, which issues variable funding notes and term notes that are secured by such Fannie Mae MSRs and repaid through the cash flows received by the special purpose entity as the lender under a repurchase agreement with PMC. A decrease in the fair value of the pledged collateral can result in a margin call. Any such margin call may require that we liquidate assets at a disadvantageous time or provide that the secured parties may sell the collateral, either of which could result in significant losses to us. Each of the secured financing arrangements pursuant to which we finance MSRs is further subject to the terms of an acknowledgement agreement with Fannie Mae,Mae or Freddie Mac or Ginnie Mae,Mac, as applicable, pursuant to which our and the secured parties’ rights are subordinate in all respects to the rights of the applicable Agency. Any extinguishment of our and the secured parties’ rights in the related collateral could result in significant losses to us.

The lenders under our repurchase agreements may require us and/or our subsidiaries to comply with various financial covenants, including those relating to tangible net worth, profitability and our ratio of total liabilities to tangible net worth. Our lenders alsomay require us to maintain minimum amounts of cash or cash equivalents sufficient to maintain a specified liquidity position. If we are unable to maintain these liquidity levels, we could be forced to sell additional investments at a loss and our financial condition could deteriorate rapidly.

Our existing financing agreements also contain certain events of default and other financial and non‑financial covenants and restrictions that impact our flexibility to determine our operating policies and investment strategies. If we default on our obligations under a credit or financing agreement, fail to comply with certain covenants and restrictions or breach our representations and are unable to cure, the lender may be able to terminate the transaction or its commitments, accelerate any amounts outstanding, require us to post additional collateral or repurchase the assets, and/or cease entering into any other credit transactionsor financing arrangement with us.

We are also dependent on a limited number of banking institutions andbanks, private equity firms and institutional investors to extend us credit on terms that we have determined to be commercially reasonable. These banking institutions andbanks, private equity firms and institutional investors are subject to their own risk management frameworks, profitability and risk thresholds and tolerances, any of which may change materially and negatively impact their business strategies, including their extension of credit to us specifically or mortgage lenders and servicers generally. Several financial firms have exited the mortgage lending market in the last several years, and others financial firms may decide to exit the mortgage lending business in the future. Such actions may increase our cost of capital and limit or otherwise eliminate our access to capital, in which case our business, financial condition, liquidity and results of operations would be materially and adversely affected.

In addition, any securitization entities that own collateral underlying the mortgage loan securitizations may be held liable for acts of third parties. For example, the CFPB has asserted the powersought to investigate and bring enforcement actions directly against securitization entities for the bad acts of the entities’ servicers or sub-servicers. OnIn addition, in March 19, 2024,2024 the U.S. Court of Appeals for the Third Circuit in CFPB v. National Collegiate Master Student Loan Trust held that certain securitization trusts were a “covered person” under the Consumer Financial Protection Act because they engaged in providing a consumer financial product or service and thus are subject to the investigative and enforcement powers of the CFPB, increasing the risk that the CFPB and other regulators may pursue investigations and enforcement actions against securitization vehicles.

The failure of ourPLS’ correspondent sellers to comply with any applicable laws, regulations and rules may also result in these adverse consequences. We and PLS have in place a compliance program designed to assess areas of risk with respect to loans wePLS acquireacquires from such correspondent sellers.sellers that we may subsequently purchase. However, we and PLS may not detect every violation of law and,and to the extent any correspondent sellers with which we do business fail to comply with applicable laws or regulations and any of their loans or MSRs become part of our assets, it could subject us, as an assignee or purchaser of the related loans or MSRs, to monetary penalties or other losses. While we may have contractual rights to seek indemnity or repurchase from certain lenders, if they are unable to fulfill their indemnity or repurchase obligations to us to a material extent, our business, liquidity, financial condition and results of operations could be materially and adversely affected. Our service providers and other vendors are also required to operate in compliance with applicable laws, regulations and rules. Our failure to adequately manage service providers and other vendors to mitigate risks of noncompliance with applicable laws may also have these negative results.

Regulatory agencies and consumer advocacy groups arehave becoming more aggressive in assertingbrought fair lending, fair housing and other related claims that the practices of lenders and loan servicers can result in a disparate impact on protected classes. Anti-discrimination statutes, such as the Fair Housing Act and the Equal Credit Opportunity Act, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin. Various federal regulatory agencies and departments take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a “disparate impact” on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionately negative effect on a protected class of individuals).

FederalThe current or a future federal and state administrations could enact significant policy changes increasing regulatory scrutiny and enforcement actions in our industry. In particular, the new presidential administration may enact significant policy and regulatory changes that maycould impact our industry.business and our ability to adequately comply with regulatory and enforcement oversight. For example, onin January 20, 2025, an executive order established the “Department of Government Efficiency” to reform federal government processes and reduce expenditures that could result in significant changes to federal housing and consumer financial regulatory agencies. Significant changes to federal agency structures, regulatory policies, or housing funding priorities could reduce funding for federal housing programs and increase regulatory uncertainty. Additionally, reforming federal agencies such as the CFPB and federal housing regulations could fragment federal regulatory oversight among local, state, and federal regulators resulting in additional compliance costs and heightened regulatory uncertainty for our industry.

While it is not possible to predict when and whether significant policy or regulatory changes will occur, any such changes on the federal, state or local level could significantly impact, among other things, our operating expenses, the availability of mortgage financing, interest rates, consumer spending, the economy and the geopolitical landscape. To the extent that the new governmentfederal administration takes action by proposing and/or passing regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders. To the extent any such state regulator imposes minimum net worth, capital ratio, liquidity standards or other requirements that are overly burdensome, such actions may have a material adverse effect on our business, financial condition, liquidity and results of operations.

Enforcement of existing orExisting new rules and regulations by the CFPBfederal and state regulators could result in enforcement actions, fines, penalties and reputational harm.

The CFPBFederal and state regulators have regulatory authority over certain aspects of our business as a result of our residential mortgage banking activities, including, without limitation, the authority to conduct investigations, bring enforcement actions, impose monetary penalties, require remediation of practices, pursue administrative proceedings or litigation, and obtain cease and desist orders for violations of applicable federal consumer financial laws.

Failure to comply with the federal and state laws, rules or regulations to which we are subject, whether actual or alleged, could have a material adverse effect on our business, financial condition, liquidity and results of operations. Our or PLS’ failure to comply with the laws, rules or regulations to which we and PLS are subject, whether actual or alleged, would expose us orand PLS to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our or PLS’ business, liquidity, financial condition and results of operations and our ability to make distributions to our shareholders.

Our ability to generate revenues through loan sales depends on programs administered by the Agencies and others that facilitate the issuance of MBS in the secondary market. We acquire loans from mortgage lenders and PLS through our correspondent production activities that qualify under existing standards for inclusion in mortgage securities backed by the Agencies. We also derive other material financial benefits from these relationships, including the ability to avoid certain loan inventory finance costs through streamlined loan funding and sale procedures and the assumption of credit risk on certain loans. Significant changes in our Agency relationships could impact our ability to finance and sell mortgage loans and materially impact our revenues and profit margin.

Any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and their regulators or the U.S. federal government, and any changes in leadership at any of these entities could adversely affect our business and prospects.prospects, including any decision to go public via an initial public offering or make any other changes in the ownership structure for Fannie Mae or Freddie Mac. Any discontinuation of, or significant reduction in or significant organizational change in, the operationoperations of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or secondary mortgage markets or underwriting criteria could materially and adversely affect our business, liquidity, financial condition, results of operations and our ability to make distributions to our shareholders.

Our ability to generate revenues from newly originated loans that we acquire from PLS through our correspondent production activities is also highly dependent on the fact that the Agencies have not historically acquired such loans directly from mortgage lenders, but have instead relied on banks and non-bank aggregators such as us to acquire, aggregate and securitize or otherwise sell such loans to investors in the secondary market. To the extent that mortgage lenders choose to sell directly to the Agencies rather than through loan aggregators like us, this would reduce the number of loans available for purchase, which could materially and adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders.

We deposit substantial funds in financial institutions and may, from time to time, maintain cash balances at such financial institutions in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured amounts. We also hold investments and settled funds in accounts at financial institutions acting as brokers or custodians. In addition, we deposit certain funds owned by third parties, such as escrow deposits, in financial institutions. There was significant volatility and instability among banks and financial institutions in 2023 that led to the failure of multiple banks. Should one or more of the financial institutions at which our deposits are maintained fail, there is no guarantee as to the extent that we would recover the funds deposited, whether through FDIC coverage or otherwise, or the timing of any recovery. In the event of any such failure, we also could be held liable for the funds owned by third parties.

The discontinuation of London Inter-bank Offered Rate (“LIBOR”) could have a significant impact on our business activities, including, but not limited to, agreements or instruments underlying our financing arrangements, and securities and liabilities with fallback language that seeks to ensure economic equivalence with our financing arrangements and securities prior to the discontinuation of LIBOR. For example, as discussed further below, the discontinuation of LIBOR has resulted in the filing of a shareholder complaint in the United States District Court for the Central District of California alleging that the replacement of the floating three-month LIBOR dividend rate for our Series A Fixed-to-Floatingpreferred Rate Cumulative Redeemable Preferred Sharesshares of Beneficialbeneficial Interestinterest (the “Series A Preferred Shares”) and Series B Fixed-to-Floatingpreferred Rate Cumulative Redeemable Preferred Sharesshares of Beneficialbeneficial Interestinterest (the “Series B Preferred Shares”) with a fixed rate per the “fallback” provisions of our Series A Preferred Shares and Series B Preferred Shares violated California’s Unfair Competition Law. More specifically, as a result of the cessation of representative LIBOR and subsequent legislation and rulemaking, the Articles Supplementary for each of our Series A Preferred Shares and Series B Preferred Shares require that the applicable dividend rate for dividend periods from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares, be calculated at the dividend rate in effect for the immediately preceding dividend period. As a result, the Series A Preferred Shares and Series B Preferred Shares have continued to accumulate dividends from and after March 15, 2024, in the case of the Series A Preferred Shares, or June 15, 2024, in the case of the Series B Preferred Shares at their respective fixed rates then in effect and did not transition to floating reference rates. In the event we are unsuccessful in defending against this litigation, it may adversely impact our financial condition, liquidity, results of operations and our ability to make distributions to our shareholders. In addition, the discontinuation of LIBOR may result in other customers, investors and other market participants challenging the determination of their payments, disputing the interpretations or implementation of contract or instrument “fallback” provisions and other transition related changes, that may result in additional litigation or legal proceedings that adversely affect our business, financial condition, liquidity and results of operations.

The degree of correlation between price movements of the instruments used in hedging strategies and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, we may not establish an effective correlation between such hedging instruments and the portfolio positions or liabilities being hedged. Any such ineffective correlation may prevent us from achieving the intended hedge and exposeexposes us to risk of loss. Numerous regulations currently apply to hedging and any new regulations or changes in existing regulations may significantly increase our administrative or compliance costs. Our derivative agreements generally provide for the daily mark to market of our hedge exposures. If a hedge counterparty determines that its exposure to us exceeds its exposure threshold, it may initiate a margin call and require us to post collateral. If we are unable to satisfy a margin call, we would be in default of our agreement, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and cash flows.

In our correspondent production activities, we acquirehistorically acquired loans from mortgagecorrespondent lenderssellers and PLS that wewere may later sellsold or securitizesecuritized to the Agencies, third-party investors or into the MBS markets. However,Beginning thereJuly 1, 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such purchases to us. Under our mortgage banking services agreement with PLS, we retain the right to purchase up to 100% of the non-government insured or guaranteed loans purchased by PLS. There can be no assurance that PLS will continue to be successful in operating this business on our behalf or that weit will continue to be able to capitalize on these opportunities on favorable terms or at all. In particular, we have committed, and expect to continue to commit, capital and other resources to this operation. PLS may not be able to continue to source sufficient loan acquisition opportunities to justify the expenditure of such capital and other resources. In the event that PLS is unable to continue to source sufficient opportunities for this operation, there can be no assurance that we would be able to acquire such assets on favorable terms or at all, or that such loans, if acquired, would be profitable to us. In addition, we may be unable to finance the acquisition of these loans and/or may be unable to sell the resulting MBS in the secondary mortgage market on favorable terms or at all. We are also subject to the risk that the fair value of the acquired loans may decrease prior to their disposition. The occurrence of any of these risks could adversely impact our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders. Beginning July 1, 2025, PLS will become the initial purchaser of loans from correspondent sellers and begin transferring agreed-upon volumes of such purchases to us. We will retain the right to purchase up to 100% of PLS's non-government correspondent production.

Our success in the mortgage industry is highly dependent upon the ability of PLS and PFSI to adapt to constant technological changes, successfully enhance their current information technology solutions through the use of third-party and proprietary technologies, and introduce new solutions and services that more efficiently address our needs. Our correspondent production activities are currently dependent, in part, upon the ability of PLS to effectively interface with our mortgage lenders and other third parties and to efficiently process loan fundings and closings. The correspondent production process is becoming more dependent upon technological advancement, and our correspondent sellers expect and require certain conveniences and service levels.

The development, implementation and protection of these technologies and becoming more proficient with them may also require significant capital expenditures by PLS and PFSI. As these technological advancements continue in the future, PLS and PFSI will need to further develop and invest in these technological capabilities to remain competitive. Moreover, litigation has become required for PLS and PFSI to protect itstheir technologies and such litigation is time consuming and costly.

We are a specialty finance company that invests in mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our correspondent production activities, including mortgage servicing rights (“MSRs”), senior and subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate and credit-linked MBS andMBS, interest-only (“"IO”") and principal-only (“"PO”") stripped MBS.MBS Weand haveAgency alsofloating historicallyrate invested in distressedcollateralized mortgage assetsobligations (distressed loans and real estate acquired in settlement of loans (“REO”"CMOs")), which we have substantially liquidated..

We are externally managed by PNMACPennymac Capital Management, LLC (“PCM”), an investment adviser that specializes in and focuses on U.S. mortgage assets. Our loanscorrespondent andproduction MSRsloan acquisitions are servicedfacilitated by PennyMac Loan Services, LLC (“PLS”). which also performs servicing activities for our loans and MSRs. PCM and PLS are both indirect controlled subsidiaries of PennyMac Financial Services, Inc. (“PFSI”), a publicly-traded mortgage banking and investment management company separately listed on the New York Stock Exchange.

We operate our business in three segments: credit sensitive strategies, interest rate sensitive strategies and correspondent production. Non-segment activities are included in our corporate operations. Our segment and corporate activities are described below.

The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our own correspondent production and subordinate and credit-linked MBS.

The interest rate sensitive strategies segment represents our investments in MSRs, Agency pass through MBS and structured products (including IO and PO MBS and floating rate CMOs), senior non-Agency MBS and the related interest rate hedging activities.

We primarily sell the loans we acquire through our correspondent production activities to government-sponsored entities ("GSEs") such as the Federal National Mortgage Association (“Fannie Mae”)Agencies and thealso Federalsell Home Loan Mortgage Corporation (“Freddie Mac”), or the GSEs, orloans to PLSother fornon-affiliate sale into securitizations guaranteed by the Government National Mortgage Association ("Ginnie Mae"). Fannie Mae, Freddie Mac and Ginnie Mae are each referred to as an “Agency” and, collectively, as the “Agencies.”entities. We also securitize certain of our loans directly and may retain interests, such as senior and subordinate MBS, from these securitizations.

CRT ArrangementsArrangements.

Subordinate Credit-Linkedand credit-linked Mortgage-Backed Securities

Subordinate and credit-linked MBS provide us with a higher yield than senior MBS securities.MBS. However, we incur credit risk in the subordinate and credit-linked MBS since they are the first securities to absorb credit losses relating to the underlying loans. We retainedsold approximatelyour $64.3 millionholdings of subordinatethe credit-linked securities that we account for as MBS inthat ourwe securitizationspurchased offrom loans secured by investment properties and sold approximately $111.0 million of subordinate credit-linked MBSnonaffiliates during the year ended December 31, 2024. We held subordinate credit-linked MBS with fair values totaling approximately $196.5 million at December 31, 2024.2025.

As the result of the Company’s consolidation of the variable interest entities ("VIEs") that issued certain of our holdings of subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities to the consolidated financial statements included in this Report, we includereflect our investments in those securities as loans held for investment and reflect the loansrelated underlyingsecurities thesethat transactionswe withsell UPBto totalingnonaffiliates as asset-backed financings. We invested approximately $2.4$420.2 billionmillion onin ournon-Agency consolidatedsubordinate balancebonds sheetduring asthe ofyear ended December 31, 2024.2025 and held approximately $554.9 million in non-Agency subordinate bonds at December 31, 2025.

Mortgage servicing rights. During the year ended December 31, 2024,2025, we purchased $29.4 million of MSRs and received approximately $219.0$190.1 million of MSRs as proceeds from sales of loans acquiredheld for sale. We held approximately $3.9$3.6 billion of MSRs at fair value at December 31, 2024.2025.

REIT-eligible Agency,Agency senior non-Agency,MBS and Agencystructured products (IO and PO stripped MBS. We purchased approximately $638.2 million of Agency PO stripped MBS and soldfloating $963.4rate million of fixed-rate pass-through securitiesCMOs) and IOsenior strippednon-Agency MBSMBS. duringDuring the year ended December 31, 2024.2025, Wewe purchased approximately $66.1 million and $876.4 million of senior non-Agency fixed-rate MBS and Agency floating rate CMOs, respectively, issued by nonaffiliates, and we held Agency fixed-rate pass-through, senior non-Agency, IO stripped and PO stripped MBS and Agency floating rate CMOs with fair values totaling approximately $3.9$4.5 billion at December 31, 2024.2025.

Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production has served as the source of our investments in MSRs, private label non-Agency securitizations andand, previously, CRT arrangements. Our sales of loans from correspondent production and resulting investment activity are summarized below:

The trusts issuing thethese securities are consolidated on our consolidated balance sheets. Therefore, our investments in these securities are shown as their underlying assets, Loans held for investment at fair value, with the securities held by non-affiliatesnonaffiliates being shown as Asset-backed financings of variable interest entities at fair value.

During the year ended December 31, 2024,2025, we purchased newly originated prime credit quality residential loans with fair values totaling $96.8$70.8 billion as compared to $87.5$96.8 billion and $88.1$87.5 billion for the years ended December 31, 20232024 and December 31, 2022,2023, respectively, in our correspondent production business. Our loan sales included $82.0$52.9 billion, $72.4$82.0 billion and $50.6$72.4 billion of loans we sold to PLS during the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. We receivereceived a sourcing fee from PLS based on the unpaid principal balance (“UPB”) of each loan that we sellsold to PLS under such arrangement, and earnearned interest income on the loan for the period we holdheld it before the sale to PLS. During the years ended December 31, 2024,2025, 20232024 and 2022,2023, we received sourcing fees totaling $8.1$5.2 million, $7.2$8.1 million and $5.0$7.2 million, respectively.

To the extent that we purchasepurchased loans that arewere insured by the U.S. Department of Housing and Urban Development through the Federal Housing Administration, or guaranteed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, we and PLS havepreviously agreed that PLS willwould fulfill and purchase such loans, as PLS is a GinnieGovernment MaeNational approvedMortgage Association-approved issuer and we are not. This arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional loans. We may also sellsold conventional loans that we purchasepurchased to PLS subject to our and PLS's mutual agreement. During the year ended December 31, 2024,2025, our sales of loans to PLS also included $40.8$27.1 billion and $39.9$25.0 billion in unpaid principal balance (“UPB”) of government guaranteed or insuredconventional loans and conventional loans, respectively, in order to optimize our use and allocation of capital. Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we retain the right to purchase up to 100% of PLS's non-government correspondent production.

Preparation of financial statements in compliance with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Certain of these estimates significantly influence the portrayal of our financial condition and results,income, and they require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates.

At December 31, 2024,2025, $13.6$20.6 billion, or 94%,96%, of our total assets were carried at fair value on a recurring basis and $2.5$1.4 million, or less than 1% (consisting of REOreal estate acquired in settlement of loans), were carried based on fair value on a non-recurring basis. Of these assets, $5.1$4.8 billion, or 35%,22%, of total assets are measured using “Level 3” fair value inputs-significant inputs where there is difficulty observing the inputs used by theother market participants to establish fair value. Different approaches to valuing or changes in inputs used to measure these assets can have a significant effect on the amounts reported for these items and their effects on our results of operations.income.

Includes DepositDeposits Securingsecuring CRT arrangements, CRT derivatives, CRT strips and IO security payable.

Because the fair value of “Level 3” fair value assets and liabilities is difficult to estimate, our valuation process is conducted by specialized staff and receives significant management oversight. We have assigned the responsibility for estimating the fair values of our “Level 3” fair value assets and liabilities, except for interest rate lock commitments (“IRLCs”), to specialized staff within PFSI's capital markets group. With respect to those valuations, PFSI’s capital markets valuation staff reports to PFSI’s management valuation subcommittee, which oversees the valuations. PFSI’s management valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, capital markets and risk management staffs.

We carry loans at their fair values. We recognize changes in the fair value of loans in current period results of operationsincome as a component of either Net gains on loans acquiredheld for sale at fair value or Net gains (losses) on investments and financings. We estimate fair value of loans based on whether the loans are saleable into active markets with observable pricing.pricing:

We categorize loans that are saleable into active markets with observable pricing inputs as “Level 2” fair value assets. Such loans include substantially all of our loans acquiredheld for sale and our loans held in variableconsolidated interest entities (“VIEs").VIEs. We estimate such loans’the fair valuesvalue of loans held for sale using their quoted market price or market price equivalent. We estimate the fair values of loans held $4.3for investment in VIE using quoted indications of fair value of all of the securities issued by the securitization trusts holding the loans. We held $11.2 billion of such loans at fair value at December 31, 2024.2025.

We categorize loans that are not saleable into active markets with observable pricing inputs as “Level 3” fair value assets. Such loans include our investments in distressed loans, home equity loans held for sale and certain of the loans held for sale which we subsequently repurchased pursuant to representations and warranties or that we identified as non-salable to the Agencies. We estimate the fair value of our “Level 3” fair value loans based on the fair values of the real estate collateralizing individual loans for distressed loans and using a discounted cash flow valuation model for loans held for sale. Inputs to the discounted cash flow model include current interest rates, loan amount, payment status and property type, and forecasts of future interest rates, home prices, prepayment speeds, defaults and loss severities. We held $5.3 million of such loans at fair value at December 31, 2025.

Our net gains on loans acquiredheld for sale include our estimates of gains or losses we expect to realize upon the sale of loans we have committed to purchase but have not yet purchased or sold. Therefore, we recognize a substantial portion of our net gains on loans acquiredheld for sale at fair value before we purchase the loans. In the course of our correspondent production activities, we make contractual commitments to correspondent sellers to purchase loans at specified terms. We call these commitments IRLCs. We recognize the fair values of IRLCs at the time we make the commitment to the correspondent seller and adjust the fair value of such IRLCs during the time the commitment is outstanding.

We carry IRLCs as either derivative assets or derivative liabilities on our consolidated balance sheet. The fair value of an IRLC is transferred to the fair value of Loans acquiredheld for sale at fair value when the loan is funded.

An active, observable market for IRLCs does not exist. Therefore, we measure the fair value of IRLCs using methods and inputs we believe that market participants use in pricing IRLCs. We estimate the fair value of an IRLC based on quoted Agency MBS prices, our estimate of the fair value of the MSRs we expect to receive in the sale of the loan and the probability that the loan will be purchased as a percentage of the commitment we have made (the “pull-through rate”).

Pull-through rates and MSR fair values are based on our estimates as these inputs are difficult to observe in the mortgage marketplace. Changes in our estimate of the probability that a loan will fund and changes in mortgage market interest rates are recognized as IRLCs move through the purchase process and may result in significant changes in the estimates of the fair value of the IRLCs. Such changes are reflected in the change in fair value of IRLCs which is a component of our Net gains on loans acquiredheld for sale and may be included in Net loan servicing fees – From nonaffiliates – Mortgage servicing rights hedging results when we include the IRLCs in our MSR hedging activities in the period of the change. The financial effects of changes in the pull-through rates and MSR fair values generally move in different directions. Increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value but increase the pull-through rate for the principal and interest payment portion of the loans that decrease in fair value.

A shift in the market for IRLCs or a change in our assessment of an input to the valuation of IRLCs can have an effect on the amount of Net gains on loans acquiredheld for sale for the period. We believe that the fair value of IRLCs is most sensitive to changes in pull-through rate inputs. We held $0.4$2.3 million of net IRLC assets at December 31, 2024.2025. Following is a quantitative summary of the effect of changes in pull-through inputs on the fair value of IRLCs at December 31, 20242025:

We hold CRT arrangements with Fannie Mae, pursuant to which we sold pools of loans into Fannie Mae-guaranteed securitizations while retaining recourse obligations as part of the retention of an interest-only ownership interest in such loans. We carry the strips or derivative assets or liabilities relating to these transactions at fair value and recognize changes in the respective asset's or liability’s fair values in Net gains (losses) on investments and financings in the consolidated statements of operations.income.

A shift in the market for CRT arrangements or a change in our assessment of an input to the valuation of CRT arrangements can have a significant effect on the fair value of CRT arrangements and in our results of operationsincome for the period. We believe that the most significant “Level 3” fair value inputs to the valuation of CRT arrangements are the pricing spread (discount rate) and the remaining loss expectation, which is influenced by the changes in the fair value of the properties securing the loans in the reference pool.

We held $1.1approximately $1.0 billion of net CRT arrangement assets at December 31, 2024.2025. Following is a summary of the effect on fair value of various changes to the pricing spread and property value shifts (which is used in the determination of estimated remaining credit losses) inputs used to estimate the fair value of our CRT arrangements as of December 31, 20242025:

MSRs represent the value of a contract that obligates us to service the loans on behalf of the owner of the loan in exchange for servicing fees and the right to collect certain ancillary income. We carry all of our investments in MSRs at fair value and recognize changes in fair value in current period results of operations.income. Changes in fair value of MSRs are recognized as a component ofin Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in our consolidated statements of operations.income.

We believe the most significant “Level 3” fair value inputs to the valuation of MSRs are the prepayment speed, OAS or pricing spread (the OAS and pricing spread are components of the discount rate) and annual per-loan cost of servicing. A shift in the market for MSRs or a change in our assessment of an input to the valuation of MSRs can have a significant effect on the fair value of MSRs and in our results of operationsincome for the period. We believe the most significant “Level 3” fair value inputs to the valuation of MSRs are the pricing spread (a component of the discount rate), prepayment speed and annual per-loan cost of servicing. We held $3.9$3.6 billion of MSRs at December 31, 2024. Following is a summary of the effect on fair value of various changes to these key inputs that we use in making our fair value estimates as of December 31, 2024:2025.

For our financial reporting purposes, the underlying assets owned by the securitization VIEs that we presently consolidate are shown under Loans held for investment at fair value, Derivative assets, Mortgage servicing rights, Deposits securing credit risk transfer agreements and Derivative and credit risk transfer strip liabilities and Deposits securing credit risk transfer agreements on our consolidated balance sheets:

The VIEs that hold loans we have securitized are shown as their constituent assets and liabilities- Loans held for investment at fair value, and the securities issued to third parties by the consolidated VIE are shown as Asset-backed financings of variable interest entities at fair value on our consolidated balance sheets. We include the interest earned on the loans held by the VIEs in Interest income and interest attributable to the asset-backed securities issued by the VIEs in Interest expense in our consolidated statements of operations.income. Changes in the fair value of loans held in the VIEs and the associated asset-backed financings are included in Net gains (losses) on investments and financings in our consolidated statements of operations.income.

The VIEs that hold assets relating to our CRT arrangements are shown as their constituent assets and liabilities – the DepositDeposits securing credit risk transfer agreements, Derivative assets and Derivative and credit risk liabilities which represent our IO ownership interest and obligation to absorb credit losses arising from the reference loans, and Interest-only security payable at fair value. We include the income we receive from the IO ownership interests and changes in fair value of the Derivative assets, Derivative and credit risk liabilities and Interest-only security payable at fair value in Net gains (losses) on investments and financings in our consolidated statements of operations.income.

The assets of the VIEs that hold participation certificates relating to our financing of MSRs are shown as the MSRs underlying the participation certificatescertificates, and the liabilities financing the MSRs are shown as Assets sold under agreements to repurchase and Notes payable secured by credit risk transfer and mortgage servicing assets. We include the interest expense incurred in these financings in Interest expense in our consolidated statements of operations.income.

We have elected to be taxed as a REIT and believe we comply with the provisions of the Internal Revenue Code of 1986 (the “Internal Revenue Code”) applicable to REITs. Accordingly, we believe that we will not be subject to federal income tax on that portion of our REIT taxable income that is distributed to shareholders as long as we meet the requirements of certain asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, we will be subject to income taxes and may be precluded from qualifying as a REIT for the four tax years following the year of loss of our REIT qualification.

Refer to Note 3 – Significant Accounting Policies – Recently IssuedAdopted Accounting PronouncementsPronouncement to our consolidated financial statements for a discussion of recent accounting developments and the effect of these developments on us.

A substantial portion of our net investment income is comprised of non-cash items, including fair value adjustments and recognition of the fair value of assets created and liabilities incurred in loan sales transactions. Because we have elected, or are required by accounting principles generally accepted in the United States (“GAAP”),GAAP, to record certain of our financial assets (comprised of MBS, loans acquiredheld for sale at fair value,value and loans held for investment at fair value), our derivatives and CRT strips), our derivatives,strips, our MSRs, and our asset-backed financings and IO security payable at fair value, a substantial portion of the income or loss we record with respect to such assets and liabilities results from non-cash changes in fair value.

Amount represents MSRs received, liability for representations and warranties incurred in loan sales transactions and changes in fair value of loans, IRLCs and hedging derivatives held at the end of the year.period.

Our investment in MBS through monthly principal and interest payments from the issuer of such securities or from the sale of the investments;

Loan investments when the investmentsloans are paid down, paid off or sold, when payments of principal and interest occur on such loans or when the properties acquired in settlement of loans are sold;

MSRs in the form of loan servicing fees (including both base servicing and ESSexcess servicing spread), ancillary fees and placement fees on the deposits we manage on behalf of the borrowers and investors in the loans we service;

The recentongoing periodeconomic of inflationary pressureuncertainty and elevatedmarket interestvolatility ratescould may also lead to a reductionresult in reduced economic activity and slowing home price growth or depreciation, which couldmay lead to increasingincrease mortgage delinquencies or defaults and increased losses. If these effects are realized, they could negatively affect the performance of our credit-sensitive assetsassets, such as ourincluding CRT arrangements orand subordinate credit-linkedMBS, notesas andwell as increase losses from our representations and warranties. However, many of the loans underlying our assets have favorable credit characteristics including low loan-to-value ratios, which are likely to help moderate the negative effects of credit performance in an economic downturn.

Our resultsnet of operationsincome decreased by $38.7$33.1 million during the year ended December 31, 2024,2025, as compared to the year ended December 31, 2023,2024, reflecting the effect of the increased fair value performancelosses offrom our MBS and MSRs and reduced gains on our CRT-related investments, partially offset by increased loangains productionon incomeMBS and benefitsloans fromheld incomefor taxes.investment.

We are a specialty finance company that invests in mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. A significant portion of our investment portfolio is comprised of mortgage-related assets that we have created through our aggregation and securitization activities, including mortgage servicing rights (“MSRs”), senior and subordinate mortgage-backed securities (“MBS”), and credit risk transfer (“CRT”) arrangements, which absorb credit losses on certain of the loans we have sold. We also invest in Agency and senior non-Agency MBS, subordinate and credit-linked MBS, interest-only ("IO") and principal-only ("PO") stripped MBS, and Agency floating rate collateralized mortgage obligations ("CMOs").

The credit sensitive strategies segment represents our investments in CRT arrangements referencing loans from our aggregation and securitization activities,activities and subordinate and credit-linked MBS.

The aggregation and securitization segment represents our operations in purchasing, pooling and resellingreselling, or financing through our private-label securitization activities, newly originated prime credit quality loans either directly or in the form of MBS, using the services of PCM and PLS.

We sell the loans we acquire through our aggregation and securitization activities primarily to the Agencies and also sell loans to other non-affiliate entities. We also securitize certain of our loans directly and retain beneficial interests, such as senior and subordinate MBS, from these securitizations.

We have previously entered into loan sales arrangements with Fannie Mae pursuant to which we accepted credit risk relating to the loans sold in exchange for a portion of the interest earned on such loans. These arrangements absorb scheduled or realized credit losses on those loans and comprise the Company’sour investments in CRT arrangements.

We held net CRT-related investments (comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips and an IO security payable) totaling approximately $1.0$0.9 billion at MarchJune 31,30, 2026.

Subordinate MBS provide us with a higher yield than senior MBS. However, we incur credit risk since subordinate MBS are the first securities to absorb credit losses relating to the underlying loans. We purchased $4.0 million of MBS backed by residential transition loans during the quartersix months ended MarchJune 31,30, 2026. We sold our holdings of the credit-linked securities that we account for as MBS that we purchased from nonaffiliates during the year ended 2025.

As the result of the Company’s consolidation of the variable interest entities ("VIEs") that issued certain of our holdings of subordinate MBS as described in Note 6 – Variable Interest Entities – Subordinate and Senior Non-Agency Mortgage-Backed Securities to the consolidated financial statements included in this Report, we reflect our investments in those securities as loans held for investment and reflect the related securities that we sell to nonaffiliates as asset-backed financings. We invested approximately $189.2$309.3 million in such non-Agency subordinate MBS during the quartersix months ended MarchJune 31,30, 2026 and we held approximately $844.1$861.0 million of such securities at MarchJune 31,30, 2026.

During the quartersix months ended MarchJune 31,30, 2026, we received approximately $40.3$71.3 million of MSRs as proceeds from sales of loans held for sale. At MarchJune 31,30, 2026, we held MSRs at fair value of approximately $3.6 billion. During June 2026, the Company entered into an agreement to sell a portfolio of conventional MSRs with an aggregate UPB of approximately $13.0 billion. The transaction is expected to close in August 2026.

Our investment portfolio includes REIT-eligible Agency MBS and structured products (IO and PO stripped MBS and floating rate CMOs) and senior non-Agency MBS. During the quartersix months ended MarchJune 31,30, 2026, we purchased approximately $486.4 million of CMOs and sold approximately $477.4 million of our fixed-rate pass-through Agency MBS. At MarchJune 31,30, 2026, the total fair value of theseour interest rate investments was approximately $3.8$4.1 billion.

During the quartersix months ended MarchJune 31,30, 2026, we invested approximately $12.1 million in senior non-Agency MBS from our securitizations of loans secured by investment properties. We account for these investments as loans and reflect the securities we sold to nonaffiliates as asset-backed financings as described above. At MarchJune 31,30, 2026, we held senior non-Agency securities totaling approximately $93.6$83.8 million from our securitizations of loans secured by investment properties.

Beginning in July 2025, PLS became the initial purchaser of loans from correspondent sellers and began transferring agreed-upon volumes of such loans to us. Accordingly, we no longer purchase government loans, and we have the right to purchase up to 100% of PLS's non-government delegated correspondent production. During the quartersix months ended MarchJune 31,30, 2026, we purchased newly originated prime credit quality residential loansloans, primarily from PLS, with fair values totaling $4.8$10.0 billion as compared to $24.0$55.4 billion for the quartersix months ended MarchJune 31,30, 2025, from our aggregation and securitization business.

Includes fair value changes due to changes in fair value inputs and fair value changes related to MSR derivative hedging instruments held at the end of the quarter.period.

CRT arrangements through a portion of the interest payments collected on loans in the CRT arrangements’ reference pools, interest payments from the investment of the deposits securing the arrangementarrangements in short-term investments and the release to us of the deposits securing the arrangements as principal on such loans is repaid;

Our results of operations increased by $14.9$23.4 million during the quarter ended MarchJune 31,30, 2026, as compared to the quarter ended MarchJune 31,30, 2025, reflecting the effect of decreased income tax expense along with increased gains on our CRT-related investments and MSRs partially offset by increased losses on MBS.MBS and a decrease in gains on our CRT-related investments.

The increase in the quarterly pretax results is summarized below:

Our credit sensitive strategies segment recognized a $15.7$10.5 million increasedecrease in net gains on our CRT arrangements as market credit spreads (which represent the interest rate premium demanded by investors for instruments over those that are considered “risk free”) tightened,tightened whichto resulteda inlesser higher fair valuesextent during the quarter ended MarchJune 31,30, 20262026, compared to the quarter ended MarchJune 31,30, 2025.

Our interest rate sensitive strategies segment recognized a $110.8$16.1 million increase in net servicing fees primarily driven by a reduction in net MSR valuation losses due to increasesa decrease in interesthedging rateslosses during the quarter ended MarchJune 31,30, 2026 compared to the quarter ended MarchJune 31,30, 2025. Net interest expense also decreased by $2.5 million, which further contributed to the overall increase in net results. These benefitsfavorable effects were partially offset by a $99.3$13.6 million decrease in valuation gains on MBS and $2.9 million increase in valuationnet lossesinterest on MBS.expense.

Our aggregation and securitization segment recognized a $10.6$2.5 million increasedecrease in gain on sale during the quarter ended MarchJune 31,30, 2026, primarilyreflecting drivena byreduction higherin correspondentour lock volumes and margins, including higher volumesvolume of jumbosales loans,to as well as favorable non-Agency execution.nonaffiliates.

The change in contractually-specified fees during the quarter and six months ended MarchJune 31,30, 2026 is due primarily to the slight reduction in our MSR servicing portfolio, reflecting a reduction in the volume of loans we acquire for sale, as well as a decline in the weighted average servicing fee of the MSRs.portfolio.

Effect of Mortgage Servicing Rights and Hedging Results

Changes in fair value due to changes in valuation inputs used in our valuation model are affected by the magnitude of the interest rate changes and the interest rate and prepayment sensitivities of the MSRs, which are based on the relationship of the interest rates of the underlying mortgages to the level of market interest rates. ChangesDuring inthe fairsix valuemonths dueended toJune changes30, in2026, valuation inputsadjustments usedshifted in our valuation model during the quarter ended March 31, 2026 reflect the effects of expectations for slower future prepayments of the underlying loans due to increases in interest rates which extended the expected life of the servicing cash flows during the quarter ended March 31, 2026positively compared to the same period in 2025, driven by rising interest rates that slowed expected prepayments and increased servicing cash flow expectations. For the quarter ended June 30, 2026, these same factors resulted in a favorable valuation adjustment of $18.9 million, though moderated compared to the $22.7 million adjustment in the second quarter of 2025.

We have an agreement with PFSI that requires that when PFSI refinances a loan for which we heldhold the MSRs, we receive a recapture fee. The MSR recapture agreement is summarized in Note 4 ‒ Transactions with Related Parties – Operating Activities to the consolidated financial statements included in this Report. The increase in loan recapture income from PFSI reflects elevated refinancing activity within our MSR portfolio due to declines andthe volatility in interest rates before the end ofduring the quarter and six months ended MarchJune 31,30, 2026, whencompared interestto ratesthe weresame lower.periods in 2025.

Hedging results during the quarter and six months ended MarchJune 31,30, 2026 were primarily attributabledriven toby the impact of increasing interest rates—which partially offset the positive valuation adjustments on our MSRs—as well as the embedded costs of maintaining theour hedge positions. These losses decreased compared to the same periods in 2025. Our hedging activities are intended to manage our net exposure across all interest rate sensitiverate-sensitive strategies, which includeincluding MSRs, MBSMBS, and related tax effects.

Following is a summary of characteristics of our MSR servicing portfolio as of MarchJune 31,30, 2026:

The changes in Net gains on loans held for sale at fair value during the quarter and six months ended MarchJune 31,30, 2026, as compared to the same periodperiods in 2025, were primarily driven by the reduction in our volume of sales to nonaffiliates during the quarter ended June 30, 2026 and higher correspondentinterest rate lock volumes and margins,margins during the six months ended June 30, 2026, including higher volumes of jumbo loans, as well as favorable non-Agency execution.

We recorded a provision for losses relating to representations and warranties relating to current period loan sales of $310,000$348,000 and $304,000$658,000 for the quartersquarter and six months ended MarchJune 31,30, 20262026, respectively, and $227,000 and $531,000 for the quarter and six months ended June 30, 2025, respectively.

Adjustments to our liability for representations and warranties are included as a component of our Net gains on loans held for sale at fair value. We recorded a $0.4 million$245,000 and $1.2$687,000 reduction in liability for the quarter and six months ended June 30, 2026, respectively, and a $912,000 and $2.1 million reduction in liability for representations and warranties during the quartersquarter and six months ended MarchJune 31, 2026 and30, 2025, respectively, due to the effects of certain loans reaching specified performance histories identified by the Agencies as sufficient to limit repurchase claims relating to such loans.

Loan origination fees represent fees we charge correspondent sellers relating to our purchase of loans from those sellers. Loan origination fees decreased during the quarter and six months ended MarchJune 31,30, 2026, reflecting an overall decrease in our purchase volume of loans for sale. The reduction is related to activity-based expenses, including tax service fees and boarding fees associated with loans held for sale.

Net gains (losses) gains on investments and financings are summarized below:

The decrease in net gains on investments for the quarter and six months ended MarchJune 31,30, 2026, as compared to the same periodperiods in 2025, was primarily due to losses from our investments in MBS as interest rates increased, partially offset by increased gains in our CRTinvestments arrangementsin interests we retained in our private label securitization activities as credit spreads tightened during the quartersix months ended MarchJune 31,30, 2026,2026 as compared to the quartersame endedperiods March 31,in 2025.

During the quarter and six months ended MarchJune 31,30, 2026, we recognized net valuation gains of $0.4 million and losses of $33.4$33.0 million, respectively, as compared to valuation gains of $64.9$14.6 million and $79.4 million, respectively, for the same periodperiods in 2025. The lossreduced recognizedperformance reflects increasing interest rates during the quarter and six months ended MarchJune 31,30, 2026, as compared to decreasing interest rates during the quartersame endedperiods March 31,in 2025.

Loans Held for Investment at Fair Value – Held in VIEs and Asset-backed Financings at Fair Value Loans held for investment held in VIEs and Asset-backed financings of variable interest entities at fair value recorded combined net valuation lossesgains of $3.6$12.2 million and $8.6 million during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to a net loss of $0.7$1.1 million and $1.9 million during the quartersame endedperiods Marchin 31,2025, 2025.respectively. The net lossgains during the quarter and six months ended MarchJune 31,30, 2026 reflectsare thedue losses on the underlying assets exceeding the gains on the asset-backed financing as the result of increasingto interest rates,rate volatility during 2026, which unfavorably affectedreduced the fair value of ourthe netunderlying investments.loan assets held for investments to a lesser degree than the decline in the value of the issued asset-backed debt liabilities.

Deposits securing credit risk transfer strip liabilities arrangements also secure $4.1$5.4 million and $6.0 million in CRT strip and CRT derivative liabilities at MarchJune 31,30, 2026 and December 31, 2025, respectively.

Net interest expense: is summarized below:

Expenses increased $4.5$2.7 million and $7.2 million, or 9%,5% and 7%, during the quarter and six months ended MarchJune 31,30, 2026, as compared to the same periodperiods in 2025, as discussed below.

Loan servicing fees decreased by $2.0 million and $4.0 million during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to the same periodperiods in 2025, reflecting a decrease in the MSR portfolio as well as reduction in the subservicing fee rate implemented in October 2025, as described in Note 4—Transactions with Related Parties to the consolidated financial statements included in this Report.

Management fees decreased by $250,000$59,000 and $309,000 during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to the same periodperiods in 2025. This decrease reflects the effect of the decrease in our average shareholders’ equity on our base management fee.

Loan fulfillment fees represent fees we pay to PLS for the services it performs on our behalf in connection with our acquisition, packaging and sale of loans. Fulfillment fees increaseddecreased by $0.4$0.8 million and $0.3 million during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to the same periodperiods in 2025. The increasedecrease was due to the increasedecrease in the volume of loans purchased for sale to nonaffiliates and an increase in our non-Agency sales and securitizations.nonaffiliates. Our loan fulfillment fee structure is described in Note 4 – Transactions with Related Parties to the consolidated financial statements included in this Report.

Professional services expense increased by $6.5$3.3 million and $9.8 million during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to the same periodperiods in 2025, due to increased legal and consulting fees in support of the increase in our private label securitization activities.

Loan collection and liquidation expenses increaseddecreased by $155,000$0.7 million and $0.6 million during the quarter and six months ended MarchJune 31,30, 2026, respectively, as compared to the same periodperiods in 2025, due to increaseddecreased servicing costs related to delinquent loans serviced for the Agencies' foreclosure avoidance programs.

The Company’s effective tax rate was 8.5%(83.9)% and 253.7%(27.0)% with consolidated pretax income of $26.9$16.8 million and pretax loss of $6.3$43.7 million for the quartersquarter and six months ended MarchJune 31,30, 2026 and March 31, 2025,2026, respectively. The Company’s TRS recognized a tax expensebenefit of $2.9$14.1 million on a pretax incomeloss of $964,000$55.3 million and tax benefit of $11.2 million on a pretax loss of $54.3 million for the quarter and six months ended MarchJune 31,30, 2026.2026, respectively. For the same periodperiods in 2025, the TRS recognized a tax benefitexpense of $17.2$9.7 million on a pretax loss of $75.3$11.9 million.million and a tax benefit of $7.5 million on a pretax loss of $87.2 million, respectively. The primary difference between the Company’s effective tax rate and the statutory tax rate is generally attributable to nontaxable REIT income resulting from the dividends paid deduction.