PennyMac Mortgage Investment Trust (PMT) risk factors, 2025 10-K

Other

1. 01A disruption in the MBS market could materially and adversely affect our business, financial condition, liquidity and results of operations
2. 02Our or PLS’ inability to meet certain net worth and liquidity requirements imposed by the Agencies could have a material adverse effect on our business, financial condition, liquidity and results of operation
3. 03We are not an approved Ginnie Mae issuer and an increase in the percentage of government loans we acquire could be detrimental to our results of operations
4. 04Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to a risk of loss
5. 05Climate change, adverse weather conditions, man-made or natural disasters, pandemics, wars and armed conflicts, terrorist attacks, and other long term physical and environmental changes and conditions could adversely impact properties that we own or that collateralize loans we own or service
6. 06Fair values of many of our investments are estimates and the realization of reduced values from our recorded estimates may materially and adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our shareholders
7. 07Even if we qualify as a REIT, we face tax liabilities that reduce our cash flow, and a significant portion of our income may be earned through TRSs that are subject to U.S. federal income taxation

Risks Related to Our Business

1. 08Interest rate fluctuations could significantly decrease our results of operations and cash flows and the fair value of our investments
2. 09A prolonged economic slowdown, recession or declining real estate values could materially and adversely affect us
3. 10Difficult conditions in the mortgage, real estate and financial markets and the economy generally may adversely affect the performance and fair value of our investments
4. 11We have a substantial amount of indebtedness, which may limit our financial and operating activities, expose us to substantial increases in costs due to interest rate fluctuations, expose us to the risk of default under our debt obligations and adversely affect our ability to incur additional debt to fund future needs
5. 12place us at a competitive disadvantage to competitors that have relatively less debt than we have
6. 13We finance our investments with borrowings, which may materially and adversely affect our return on our investments and may reduce cash available for distribution to our shareholders
7. 14Our financing agreements contain financial and restrictive covenants that could adversely affect our financial condition and our ability to operate our businesses
8. 15We may not be able to raise the debt or equity capital required to finance our assets or grow our business
9. 16We may engage in mortgage loan securitizations that could adversely affect our business, financial condition, liquidity and results of operations
10. 17We operate in a highly regulated industry and the continually changing federal, state and local laws and regulations could materially and adversely affect our business, financial condition, liquidity and results of operations
11. 18Failures at financial institutions at which we deposit funds or maintain investments could adversely affect us
12. 19We are subject to risks associated with the discontinuation of LIBOR, including its impact on our Series A Preferred Shares and Series B Preferred Shares
13. 20We are subject to market risk and declines in credit quality and changes in credit spreads, which may adversely affect investment income and cause realized and unrealized losses
14. 21Hedging against interest rate exposure may materially and adversely affect our business, financial condition, liquidity, results of operations and cash flows
15. 22we may fail to recalculate, re‑adjust and execute hedges in an efficient manner
16. 23Our correspondent production activities could subject us to increased risk of loss that could adversely affect our business, financial condition, liquidity and results of operations
17. 24Our correspondent production activities depend, in part, upon PLS’ and PFSI’s ability to adapt to and implement technological changes and to successfully develop, implement and protect their proprietary technology
18. 25Technology disruptions or failures, including a failure in our information systems or those of third parties with whom we or our Manager does business, could disrupt our or our Manager’s business, cause legal or reputational harm and adversely impact our results of operations and financial condition
19. 26Our and our Manager’s services rely on software and services from third-party vendors and if any of these services became unavailable or unreliable, it could adversely affect the quality and timeliness of services and adversely impact our results of operations and financial condition
20. 27The development, proliferation and use of artificial intelligence could give rise to legal and/or regulatory action, damage our reputation or otherwise materially impact our business, financial condition, and liquidity
21. 28The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulations and conflicting legal requirements

Risks Related to Our Investments

1. 29Our retention of credit risk underlying loans we sell to the GSEs is inherently uncertain and exposes us to a risk of loss
2. 30The loans in which we invest subject us to costs and losses arising from delinquency and foreclosure, as well as the risks associated with residential real estate and residential real estate-related investments, any of which could result in losses to us
3. 31Our ownership of mortgage servicing rights exposes us to significant prepayment, delinquency, interest rate and regulatory risks
4. 32We may change our investment strategies and policies without shareholder consent, and this may materially and adversely affect the market value of our Common Shares and our ability to make distributions to our shareholders
5. 33Investments in subordinate loans and mortgage securities could subject us to increased risk of losses
6. 34Many of our investments are unrated or, where any credit ratings are assigned to our investments, they will be subject to ongoing evaluations and revisions and we can provide no assurance that those ratings will not be downgraded
7. 35We may be materially and adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from unfavorable changes in the related geographic regions
8. 36Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions. Changes in accounting interpretations or assumptions could impact our financial statements
9. 37PCM utilizes analytical models and data in connection with the valuation of our investments, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks
10. 38We depend on the accuracy and completeness of information about borrowers and counterparties and any misrepresented information could adversely affect our business, financial condition, liquidity and results of operations
11. 39We are subject to counterparty risk and may be unable to seek indemnity or require our counterparties to repurchase loans if they breach representations and warranties, which could cause us to suffer losses
12. 40Our counterparties may terminate our MSRs, which could adversely affect our business, financial condition, liquidity and results of operations
13. 41We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, which could adversely affect our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders

Risks Related to Our Management and Relationship with Our Manager and Its Affiliates

1. 42We are dependent upon PCM and PLS and their resources and may not find suitable replacements if any of our service agreements with PCM or PLS are terminated
2. 43The management fee structure may provide incentives not fully aligned with our interest and/or create greater investment risk
3. 44The servicing fee structure could create a conflict of interest
4. 45Termination of our management agreement and/or servicing agreements with PCM and PLS, which are wholly-owned subsidiaries of PFSI, would be difficult and could result in a significant termination fee or loss
5. 46Our relationship with PFSI, PCM and PLS may result in conflicts of interest
6. 47We may encounter conflicts of interest in our Manager’s efforts to appropriately allocate its time and services between activities of PFSI and the management of us, and the loss of the services of our Manager’s management team could adversely affect us
7. 48PCM and PLS both have limited liability and indemnity rights

Risks Related to Our Organization and Structure

1. 49Certain provisions of Maryland law, our staggered board of trustees and certain provisions in our declaration of trust could each inhibit a change in our control
2. 50Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit shareholder recourse in the event of actions not in the best interest of our shareholders
3. 51Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management
4. 52Our bylaws include an exclusive forum provision that could limit our shareholders’ ability to obtain a judicial forum viewed by the shareholders as more favorable for disputes with us or our trustees or officers
5. 53Failure to maintain exemptions or exclusions from registration under the Investment Company Act could materially and adversely affect us
6. 54Rapid changes in the fair values of our investments may make it more difficult for us to maintain our REIT qualification or exclusion from the Investment Company Act

Risks Related to Taxation

1. 55Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our shareholders
2. 56of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes. Any of these taxes would decrease cash available for distribution to our shareholders
3. 57The percentage of our assets held through TRSs and the amount of our income that we can receive in the form of TRS dividends are subject to statutory limitations that could jeopardize our REIT status and limit our pursuit of certain investment strategies
4. 58Ordinary dividends payable by REITs do not generally qualify for the reduced tax rates applicable to certain corporate dividends
5. 59We have not established a minimum distribution payment level and no assurance can be given that we will be able to make distributions to our shareholders in the future at current levels or at all
6. 60the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates
7. 61The REIT distribution requirements could materially and adversely affect our ability to execute our business strategies
8. 62We may be required to report taxable income early in our holding period for certain investments in excess of the economic income we ultimately realize from them
9. 63The share ownership limits applicable to us that are imposed by the Internal Revenue Code for REITs and our declaration of trust may restrict our business combination opportunities
10. 64Complying with the REIT requirements can be difficult and may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments
11. 65Complying with the REIT requirements may limit our ability to hedge effectively
12. 66The tax on prohibited transactions limits our ability to engage in transactions, including certain methods of securitizing loans that would be treated as sales for U.S. federal income tax purposes
13. 67more TRSs that are subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and our ability to make distributions to our shareholders
14. 68The taxable mortgage pool (“TMP”) rules may increase the taxes that we or our shareholders may incur, and may limit the manner in which we effect future securitizations
15. 69New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT

General Risks

1. 70Our and our Manager’s risk management efforts may not be effective in identifying our significant risks and designing and implementing adequate internal controls to mitigate those risks
2. 71We could be harmed by misconduct or fraud that is difficult to detect
3. 72Our failure to appropriately address various issues that may give rise to reputational risk could adversely affect our business, financial condition and results of operations
4. 73customers, trading counterparties, investors and employees and adversely affect our business, financial condition, liquidity, results of operations and our ability to make distributions to our shareholders
5. 74If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud
6. 75We operate in a highly competitive market and decreased margins resulting from increased competition or our inability to compete successfully could adversely affect our business, financial condition, liquidity and results of operations
7. 76Future issuances of our equity and debt securities may rank senior to our Common Shares and may materially and adversely affect the market price of our Common Shares
8. 77Initiating new business activities or investment strategies, developing new products or significantly expanding existing business activities or investment strategies may expose us to new risks and increase our cost of doing business
9. 78We may not be able to successfully generate sufficient returns and cash flows to make or sustain distributions to our shareholders