8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 24, 2014

PennyMac Financial Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001- 35916	80-0882793
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

6101 Condor Drive, Moorpark, California	93021
(Address of principal executive offices)	(Zip Code)

(818) 224-7442

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b)Resignation of Director.  As previously disclosed, BlackRock Mortgage Ventures, LLC (“BlackRock”) owns in excess of 20% of the equity interests in PennyMac Financial Services, Inc. (the “Company”).  BlackRock is an affiliate of BlackRock, Inc. (“BRI”), which is deemed to be a non-bank subsidiary of The PNC Financial Services Group, Inc. (“PNC”) as a result of PNC’s ownership interest in BRI.  Due to these relationships, the Company is also deemed to be a non-bank subsidiary of PNC and, therefore, required to comply with The Depository Institution Management Interlocks Act of 1978 and the implementing regulations adopted thereunder (collectively, the “Interlocks Act”).  Under the Interlocks Act, no director of the Company may serve at the same time as either a director or a “senior executive officer” (as defined in 12 CFR 303.101(b)) of a depository institution or a depository holding company that is not affiliated with the Company and holds assets in excess of $1.5 billion.

One of our directors, John Taylor, serves on the board of directors of an unaffiliated depository institution with assets in excess of $1.5 billion.  Accordingly, on June 24, 2014, Mr. Taylor informed the Company’s Board of Directors (the “Board”) that he would be resigning from the Board, effective July 1, 2014, in order to ensure the Company’s compliance with the Interlocks Act.  Mr. Taylor’s decision to resign was not due to any disagreement with the Company or any matter relating to the Company’s operations, policies or practices.

(d)Appointment of Director.  On June 24, 2014, the Board elected Patrick Kinsella to fill the vacancy created by the departure of Mr. Taylor, effective July 1, 2014.  Mr. Kinsella will serve until the Company’s 2015 annual meeting of stockholders and his successor has been duly elected and qualified. Prior to his retirement as a senior audit partner with KPMG LLP (“KPMG”) in May 2013, Mr. Kinsella spent over 35 years at KPMG serving clients generally concentrated in the financial services sector, including banks, thrifts, mortgage companies, automotive finance companies, alternative investment companies and real estate companies. The Board has determined that Mr. Kinsella is independent under the current New York Stock Exchange independence requirements and the Securities and Exchange Commission (“SEC”) rules.  Mr. Kinsella will serve on the Board’s Related-Party Matters Committee and its Audit Committee, for which he will serve as Chairman and an “audit committee financial expert” as that term is defined by the SEC.

In consideration for his services as a director, Mr. Kinsella will be entitled to receive compensation on the same terms and in the same amounts as the other independent directors.  Accordingly, Mr. Kinsella will receive an annual base retainer of $65,000, as well as additional annual committee retainers of $10,750 for serving as Chairman of the Audit Committee and $5,750 for serving as a member of the Related-Party Matters Committee.  In connection with his election to the Board, Mr. Kinsella will receive a one-time equity grant of approximately $87,000 in restricted stock units under the Company’s equity incentive plan. One-third of such restricted stock units shall vest on each of the first, second and third anniversaries of the grant date, subject to continued service through each vesting date. Each such restricted stock unit represents a contingent right to receive one share of the Company’s Class A common stock upon settlement.

In connection with his election, the Company will enter into an indemnification agreement with Mr. Kinsella in the same form that the Company has entered into with its other directors.  There are no arrangements or understandings pursuant to which Mr. Kinsella was elected as a director, and there are no related party transactions between the Company and Mr. Kinsella.

Item 8.01Other Events.

The Company is also filing this Current Report on Form 8-K to retrospectively adjust certain prior period amounts to conform with the segment reporting changes made in connection with changes in the information used by the Company’s chief operating decision maker which resulted in a re-evaluation of how we identify our operating segments.

On May 15, 2014, the Company filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (the “Form 10-Q).  As disclosed in the Form 10-Q, the Company enhanced its segment reporting structure as part of a continuing development of its internal management reporting. Such development resulted in changes in the information used by the Company’s chief operating decision maker and a re-evaluation of the new information in relation to the Company’s operating segments.

The rules of the SEC require that when a registrant prepares, on or after the date a registrant reports an accounting change such as the change noted above, a new registration, proxy or information statement (or amends a previously filed registration, proxy, or information statement) that includes or incorporates by reference financial statements, the registrant must retrospectively adjust the prior period financial statements included or incorporated by reference in the registration, proxy or information statement to reflect the accounting change. Accordingly, the Company is filing this Form 8-K, in part, to retrospectively adjust the segment information included in the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. These updates have no effect on the Company’s previously reported results of operations, financial position or cash flows. All other information in the Form 10-K remains unchanged and has not been otherwise updated for events occurring after December 31, 2013. The retrospectively adjusted information of Items contained in the Company’s 2013 Form 10-K is presented in Exhibits 99.1, 99.2 and 99.3 to this Current Report on Form 8-K.

As a result of the new reporting used by the chief operating decision maker, management concluded that its mortgage banking operations should be disclosed as two segments: loan production and loan servicing. Accordingly, the Company now reports its business activities in three segments: loan production, loan servicing and investment management.

To reflect the enhanced segment reporting structure, the information contained in this Current Report on Form 8-K updates and supersedes the original filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Form 10-K”), as described in Item 9.01.  All updates to the Company’s Form 10-K relate solely to the presentation of segment-specific disclosure on a basis consistent with the current segment reporting structure.  The information in this Current Report on Form 8-K should be read in conjunction with the Company’s Form 10-K, which was filed with the Securities and Exchange Commission on March 14, 2014.

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Item 9.01Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
23.1	Consent of Deloitte & Touche LLP.
99.1	Updates, where applicable, to Part I — Item 1. Business to conform to our new segment reporting structure (excluding the Compliance and Regulatory and Employees sections which were not affected by the new segment reporting structure).
99.2	Updates, where applicable, to Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations to conform to our new segment reporting structure (excluding the Observations on Current Market Condition, Reporting Metrics and Prospective Trends, Other Factors Influencing Our Results, Critical Accounting Policies, Balance Sheet Analysis, Cash Flows, Liquidity and Capital Resources, and Off-Balance Sheet Arrangements and Aggregate Contractual Obligations sections which were not affected by the new segment reporting structure).
99.3	Updated Part II — Item 8. Financial Statements and Supplementary Data (including information incorporated therein by reference from Part IV) to conform to our new segment reporting structure (including revisions to Note 26) (excluding the Exhibit List in Item 15 of Part IV which was not affected by the new segment reporting structure).
101**	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012, (ii) the Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, (iii) the Consolidated Statements of Changes in Members’ Equity for the years ended December 31, 2013, 2012 and 2011, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 and (v) the Notes to the Consolidated Financial Statements.

**Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not otherwise subject to liability under those sections.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PENNYMAC FINANCIAL SERVICES, INC.
Dated: June 27, 2014	/s/ Anne D. McCallion
	Anne D. McCallion
	Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Deloitte & Touche LLP.
99.1	Updates, where applicable, to Part I — Item 1. Business to conform to our new segment reporting structure (excluding the Compliance and Regulatory and Employees sections which were not affected by the new segment reporting structure).
99.2	Updates, where applicable, to Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations to conform to our new segment reporting structure (excluding the Observations on Current Market Condition, Reporting Metrics and Prospective Trends, Other Factors Influencing Our Results, Critical Accounting Policies, Balance Sheet Analysis, Cash Flows, Liquidity and Capital Resources, and Off-Balance Sheet Arrangements and Aggregate Contractual Obligations sections which were not affected by the new segment reporting structure).
99.3	Updated Part II — Item 8. Financial Statements and Supplementary Data (including information incorporated therein by reference from Part IV) to conform to our new segment reporting structure (including revisions to Note 26) (excluding the Exhibit List in Item 15 of Part IV which was not affected by the new segment reporting structure).
101**	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012, (ii) the Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, (iii) the Consolidated Statements of Changes in Members’ Equity for the years ended December 31, 2013, 2012 and 2011, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 and (v) the Notes to the Consolidated Financial Statements.

**Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not otherwise subject to liability under those sections.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement  No. 333-188929 on Form S-8 of our report dated March 14, 2014, except for Note 26, as to which the date is June 27, 2014, relating to the consolidated financial statements of PennyMac Financial Services, Inc. and subsidiaries (the “Company”) (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the recapitalization and reorganization) appearing in this Current Report on Form 8-K for the year ended December 31, 2013.

/s/ Deloitte & Touche LLP

Los Angeles, California

June 27, 2014

EX-99.1

Exhibit 99.1

PART I

Item 1.  Business

Note: The information contained in this Item has been updated for the change to reportable segments discussed in the Notes to Financial Statements. This Item has not been updated for any other changes since the filing of the 2013 Annual Report on Form 10-K (“2013 Form 10-K”). For significant developments since the filing of the 2013 Form 10-K, refer to the PennyMac Financial Services, Inc. (“PFSI”) Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

The following description of our business should be read in conjunction with the information included elsewhere in this Report. This description contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the projections and results discussed in the forward-looking statements due to the factors described under the caption “Risk Factors” and elsewhere in this Report. References in this Report to “we,” “our,” “us,” and the “Company” refer to PFSI.

Initial Public Offering and Recapitalization

On May 14, 2013, we completed an initial public offering (“IPO”) in which we sold approximately 12.8 million shares of Class A Common Stock par value $0.0001 per share (“Class A Common Stock”) for cash consideration of $16.875 per share (net of underwriting discounts). With the net proceeds from the IPO, we bought Class A units of Private National Mortgage Acceptance Company, LLC (“PennyMac”) and became its sole managing member. We operate and control all of the business and affairs and consolidate the financial results of PennyMac.

Before the completion of the IPO, the limited liability company agreement of PennyMac was amended and restated to, among other things, change its capital structure by converting the different classes of interests held by its existing unitholders into Class A units. PennyMac and its existing unitholders also entered into an exchange agreement under which (subject to the terms of the exchange agreement) they have the right to exchange their Class A units for shares of our Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and certain other transactions.

Our Company

We are a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. residential mortgage loans and the management of investments related to the U.S. residential mortgage market. We believe that our operating capabilities, specialized expertise, access to long-term investment capital, and our management’s deep experience across all aspects of the mortgage business will allow us to profitably grow these activities and capitalize on other related opportunities as they arise in the future.

We were founded in 2008 by members of our executive leadership team and two strategic partners, BlackRock Mortgage Ventures, LLC (“BlackRock” or “BlackRock, Inc.”) and HC Partners, LLC, formerly known as Highfields Capital Investments, LLC (“Highfields”). Since our founding we have pursued opportunities to acquire and manage residential mortgage loans and established what we believe to be a best-in-class mortgage platform. We have relied on the know-how of our management team and built a de novo operating platform to our specifications using industry-leading technology, processes and procedures to address the stringent requirements of residential mortgage lending and servicing in the post-financial crisis market. We believe that this approach has resulted in a specialized mortgage platform that is “legacy-free” and highly scalable to support the continued growth of our business.

We conduct our business in three segments: two in mortgage banking (loan production and loan servicing) and investment management. Our principal mortgage banking subsidiary, PennyMac Loan Services, LLC (“PLS”), is a leading non-bank producer and servicer of mortgage loans in the United States. PLS is a seller/servicer for the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which is a government-sponsored entity (“GSE”). It is also an approved issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), a lender of the Federal Housing Administration (“FHA”), a lender/servicer of the Veterans Administration (“VA”), and a servicer for the Home Affordable Modification Program (“HAMP”). We refer to each of Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA as an “Agency” and collectively as the “Agencies.” PLS is licensed (or exempt or otherwise not required to be licensed) to originate residential mortgage loans in 47 states and the District of Columbia and to service loans in 49 states, the District of Columbia and the U.S. Virgin Islands.

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Our principal investment management subsidiary, PNMAC Capital Management, LLC (“PCM”), is an SEC registered investment adviser. It manages PennyMac Mortgage Investment Trust (“PMT”), a mortgage real estate investment trust (“REIT”) listed on the New York Stock Exchange. PCM also manages PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP, both registered under the Investment Company Act of 1940 (“Investment Company Act”), as amended, an affiliate of these Funds and PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these Funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.” Our Advised Entities have been some of the leading non-bank investors in distressed mortgage loans since 2008, investing in loans with approximately $8.0 billion of unpaid principal balances (“UPB”). As of December 31, 2013, our Advised Entities had combined net assets of approximately $2.0 billion.

We conduct some of our activities for our own account and some for our Advised Entities. We earn significant fee income and carried interest from the activities we conduct for our Advised Entities; such fees include investment management fees, incentive fees, subservicing fees for servicing loan portfolios and fulfillment fees for mortgage banking services provided to PMT in connection with our correspondent lending program. Our relationships with our Advised Entities also allow us to pursue some market opportunities with reduced capital intensity, with PLS and PCM providing operational expertise and our Advised Entities providing investment capital for mortgage-related assets.

Our Company Structure

We conduct our business in three segments: two in the mortgage banking business (loan production and loan servicing) and investment management:

Mortgage Banking Segments

Our mortgage banking segments are comprised of loan production through which we purchase and originate mortgage loans for resale to mortgage loan investors and loan servicing through which we service mortgage loans for mortgage loan investors.

Loan Production Segment

As summarized below, our loan production segment produces mortgage loans through two lending channels: correspondent lending and retail lending.

Correspondent Lending

Our correspondent lending channel manages, on behalf of PMT and for our own account, the acquisition of newly originated, prime credit quality, first- lien residential mortgage loans that have been underwritten to investor guidelines,

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pooling loans into mortgage-backed securities (“MBS”) and resale of the resulting securities into the secondary markets. PMT acquires, from approved correspondent sellers, newly originated residential mortgage loans that generally qualify to be insured or guaranteed by the Agencies.

For conventional loans, we perform fulfillment activities for PMT and earn a fee for each loan acquired by PMT. Fulfillment activities include reviews of loan data, documentation and appraisals to assess loan quality and risk, correspondent seller performance and credit monitoring procedures, and the subsequent sale and securitization of loans through secondary mortgage markets on behalf of PMT. PMT earns interest income and gains or losses during the holding period and upon the sale or securitization of these conventional loans and retains the associated MSRs. PLS provides loan subservicing for PMT’s retained MSRs and earns a subservicing fee.

Correspondent Conventional Conforming Lending

In the case of government-insured loans, we purchase them from PMT at PMT’s cost plus a sourcing fee. We fulfill the government loans for our own account. We typically pool the federally insured or guaranteed loans together into an MBS which Ginnie Mae guarantees. We earn interest income and gains or losses during the holding period and upon the sale of these securities, and we retain the associated MSRs.

Correspondent Government Lending

Our correspondent lending channel has grown through purchases from approved mortgage originators that meet specific criteria related to management experience, financial strength, risk management controls and loan quality. Our management team has prior experience with the majority of these mortgage originators. As of December 31, 2013, 229 sellers have been approved on PMT’s behalf, primarily independent mortgage originators and small banks located across the United States. PMT purchased approximately $32.0 billion of loans in 2013, including $15.4 billion of conventional loans and $16.1 billion of government-insured loans. In the fourth quarter of 2013, with $6.0 billion in production, PMT was the third largest correspondent lender in the United States as ranked by Inside Mortgage Finance.

Retail Lending

Our retail lending channel originates new prime credit quality, first-lien residential conventional and government-insured mortgage loans on a national basis to allow customers to purchase or refinance their homes. We conduct this activity through a consumer direct model, which relies on the Internet and call center-based staff, rather than a traditional branch network, to acquire and interact with customers across the country. In 2013, we originated $1.1 billion of residential mortgage loans in our retail lending channel, a 105% growth rate compared to 2012.

Our existing servicing portfolio is our main source of leads for new originations. These portfolio-based originations include: refinancing loans to proactively protect our servicing portfolio from run-off, which we refer to as “recapture;” refinancing loans from the restructure of distressed loans acquired by our Advised Entities; and originating purchase money

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loans to facilitate the sale of real estate owned (“REO”) properties held by our Advised Entities. In addition, we are growing our non-portfolio originations by sourcing prospective customers through consumer marketing and community and professional relationships.

Retail Lending

For loans originated through our retail lending channel, we conduct our own fulfillment, earn interest income and gains or losses during the holding period and upon the sale or securitization of these loans, and retain the associated MSRs (subject to sharing with PMT a portion of such MSRs or cash with respect to certain retail originated loans that refinance loans for which the related MSRs or excess servicing spread (“ESS”) was held by PMT).

Loan Servicing Segment

Our loan servicing segment performs loan administration, collection, and default activities, including the collection and remittance of loan payments, responding to customer inquiries, accounting for principal and interest, holding custodial (impound) funds for the payment of property taxes and insurance premiums, counseling delinquent mortgagors, modifying loans and supervising foreclosures and property dispositions.

We service loans for which we own the MSRs and we service loans on behalf of other MSR or mortgage owners which we refer to as “subservicing.” The owner of MSRs acts on behalf of mortgage loan owners and has the contractual right to receive a stream of cash flows (expressed as a percentage of UPB) in exchange for performing specified mortgage servicing functions and temporarily advancing funds to cover payments on delinquent and defaulted mortgages. As a subservicer, we earn a contractual fee on a per-loan basis and the right to any ancillary fees, and we are reimbursed for any servicing advances we make on delinquent or defaulted mortgages.

We characterize our servicing activities as either “Prime Servicing” or “Special Servicing.”

Prime Servicing.  Our prime servicing includes servicing or subservicing activities for loans that are prime credit quality and generally exhibit low delinquency and default rates. This portfolio includes conventional and government-insured loans. Prime servicing generally tends to be lower cost and benefits from significant economies of scale. As of December 31, 2013, our prime servicing portfolio consisted of approximately 346,000 loans with an aggregate UPB of approximately $72.3 billion. We own the MSRs to over 241,000 of these loans (or approximately 63% of our total prime portfolio as measured by UPB), most of which are serviced for Ginnie Mae securitizations and were produced by us through our correspondent and retail lending channels. In addition, we subservice approximately 105,000 conventional loans (or approximately 37% of our total prime portfolio as measured by UPB), the MSRs to which are owned by PMT.

Special Servicing.  Our special servicing includes servicing activities for distressed whole loans that have been acquired as investments by our Advised Entities and non-affiliates, as well as for loans in “private-label” MBS, which are securities that are not guaranteed by or otherwise affiliated with any government agency. Special servicing utilizes a “high-touch” model to establish and maintain borrower contact and facilitate loss mitigation strategies. Our general strategy is to try to keep defaulted borrowers in their homes. Under certain circumstances, we offer loss mitigation options that include loan modification through the use of federally sponsored loan modification programs (such as HAMP) or otherwise to reflect both the borrowers’ current financial condition and the value of their homes. When loan modifications and other efforts are unable to cure a default, we seek to avoid foreclosure and timely acquire and/or liquidate the property securing the mortgage loan where possible by pursuing alternative

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property resolutions including “short sales,” in which the borrower agrees to sell the property for less than the loan balance and the difference is forgiven, and deeds-in- lieu of foreclosure, in which the borrower agrees to convey the property deed outside of foreclosure proceedings. As of December 31, 2013, we provided special servicing to over 25,000 distressed whole loans with an aggregate UPB of approximately $5.9 billion and including approximately 19,000 loans in “private- label” securities with an aggregate UPB of approximately $4.8 billion. Our special servicing fees typically include a base servicing fee and activity-based fees for the successful completion of default-related services.

We have grown our mortgage servicing portfolio primarily through organic mortgage loan production in our correspondent lending and retail lending channels, supplemented by the opportunistic acquisition by our Advised Entities of distressed pools of residential whole loans which we subservice, the retention of MSRs by PMT through its correspondent lending business, and our own MSR acquisitions. Some of our MSR acquisitions have been completed in partnership with PMT which has co-invested in the MSRs through the purchase of a portion of the servicing fee cash flows in the form of ESS. As of December 31, 2013, we serviced or subserviced approximately 371,000 loans with an aggregate UPB of approximately $78.2 billion. The majority of these loans are serviced for Fannie Mae, Freddie Mac or Ginnie Mae securitizations.

The following charts detail the percentages of the aggregate UPB in our prime and special servicing and prime subservicing portfolios, and our total servicing portfolio by investor as of December 31, 2013:

Total Servicing Portfolio	Total Servicing Portfolio by Investor
Total = $78.2 billion in UPB	Total = $78.2 billion in UPB

The following charts detail the percentages of the aggregate UPB in our prime and special servicing portfolios by product type as of December 31, 2013:

Prime Servicing Portfolio by Product Type	Special Servicing Portfolio by Product Type
Total = $72.3 billion in UPB	Total = $5.9 billion in UPB

The following charts detail the percentages of the aggregate UPB in our prime and special servicing portfolios by geography as of December 31, 2013:

Prime Servicing Portfolio by State	Special Servicing Portfolio by State
Total = $72.3 billion in UPB	Total = $5.9 billion in UPB

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Investment Management Segment

We are an investment manager through an indirectly held subsidiary, PCM. PCM currently manages PMT and the Investment Funds, which had combined net assets of approximately $2.0 billion as of December 31, 2013. For these activities, we earn management fees as a percentage of net assets or contributions and incentive compensation based on investment performance. The Investment Funds are limited-life private funds established in August 2008, whose commitment periods ended in 2011. As of December 31, 2013, these Investment Funds had aggregate equity value of $558 million and had generated total returns of 61%, net of all fees, expenses and carried interest, since their inception. The term of each of these funds ends in December 2016 with the possibility of three one-year extensions. Subject to contractual restrictions with PMT, we may establish additional private investment vehicles to invest in distressed loans or pursue related mortgage strategies, for which we would provide investment management services as well.

PMT was formed as a Maryland real estate investment trust in May 2009 and consummated an initial public offering in August 2009. PMT’s shareholders’ equity has grown through a combination of retained earnings and new equity raised through follow-on public offerings and other sales of its common stock. Since its initial public offering, PMT has raised new equity of approximately $200 million in 2011, approximately $607 million in 2012, and approximately $249 million in 2013. As of December 31, 2013, PMT had shareholders’ equity of $1,467 million. For the years ended December 31, 2013, 2012 and 2011, PMT reported returns on average shareholders’ equity of 15%, 16% and 13%, respectively. Our relationship with PMT provides a partner with long-term investment capital and enhances our ability to both support our existing business and to pursue potential growth initiatives.

Market Opportunity

The U.S. residential mortgage industry is one of the largest financial markets in the world, with approximately $10 trillion of outstanding debt and average annual origination volume of $1.7 trillion for the five years ending December 31, 2013. Dislocations from the financial crisis have led many of the largest financial institutions to reduce their participation in the mortgage market through asset sales and by exiting businesses, and the industry remains in a period of significant transformation. In addition, increasing capital requirements for banks have resulted in competitive advantages for non-bank participants relative to the banks that have traditionally held the majority of the market share in mortgage originations and servicing.

The residential mortgage industry is characterized by high barriers to entry, including: the necessity for approvals required to sell loans to and service loans for the Agencies; state licensing requirements for non-banks without a federal charter; sophisticated infrastructure, technology, and processes required for successful operations; and financial capital requirements. We believe that we are one of the few new enterprises well positioned to lead in the rapidly evolving mortgage industry.

Our Growth Strategies

Since our establishment during the financial crisis, we have demonstrated our ability to apply our residential mortgage expertise and operating capabilities to multiple business opportunities. In the initial years of our operation, for example, we identified distressed investing as an attractive opportunity and we raised and deployed capital through a series of successful transactions. As the mortgage market presented opportunities in new loan production and servicing, we expanded our management and capabilities to profitably capitalize on these businesses as well.

As a non-bank mortgage company, we believe that we are well positioned to continue to take advantage of future industry changes as the market shifts away from the large banks to specialized firms. For example, we are not subject to stringent regulatory capital constraints limiting the retention of certain mortgage-related assets that could prove beneficial as the residential mortgage market develops following the recent financial crisis. Examples of industry changes that may create

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future business opportunities for us include, among others, Basel III, Agency reform and the long-term market opportunity in non-agency jumbo mortgage loans.

We expect to drive near-term growth in the following ways:

Grow our Servicing Portfolio Organically and through Opportunistic Acquisitions

We expect to grow our servicing portfolio largely on an organic basis, as our correspondent government-insured lending and retail lending production adds new prime servicing for owned MSRs, and correspondent conventional lending adds new subservicing. In 2013, our correspondent and retail loan production at fair value totaled $16.4 billion. We will supplement our organic growth by adding new special servicing through continued distressed loan acquisitions by PMT and any entities that we may manage in the future. We have also acquired residential mortgage loan servicing portfolios from third parties. During the fourth quarter of 2013, we completed acquisitions of MSRs with UPB totaling $20.3 billion. We effected these acquisitions through a co-investment with PMT by which we financed a portion of these purchases through the sale to PMT of ESS.

Grow Correspondent Lending through Expanding Seller Relationships

We expect to grow our correspondent lending channel by selectively expanding the number and types of sellers from which we purchase loans and cautiously increasing the volume of loans that we purchase from our existing sellers as we continue to increase the breadth of approved loan products that we offer and expand into additional geographic markets in the United States. Over the past few years, a number of large banks have exited or reduced the size of their correspondent lending activities, creating an opportunity for non-bank entities to gain market share. We believe that we are well positioned to take advantage of this opportunity based on our management expertise in the correspondent lending channel, our relationships with correspondent sellers, and our supporting systems and processes.

Grow Retail Lending through Portfolio Refinance and Non-Portfolio Originations

We expect to grow our retail lending channel by leveraging our growing servicing portfolio through refinance activities as well as increasing our non-portfolio originations. As our servicing portfolio grows, we will have a greater number of leads to pursue, which we believe will lead to greater recapture activity. At the same time, we are making significant investments in technology, personnel and marketing to increase our non-portfolio originations. We believe that our national call center model and our technology will enable us to drive origination process efficiencies and best-in- class customer service.

Competition

Given the diverse and specialized nature of our businesses, we do not believe we have a direct competitor for the totality of our business. We compete with a number of nationally-focused companies in each of our businesses.

In our loan production and loan servicing segments, we compete with large financial institutions and with other independent residential mortgage loan producers and servicers, such as Wells Fargo, JP Morgan Chase, Bank of America, Citigroup, U.S. Bank, Quicken Loans, Nationstar Mortgage, Ocwen Financial Corporation and Walter Investment Management Corp. In our loan production segment, we compete on the basis of product offerings, technical knowledge, manufacturing quality, speed of execution, rate and fees. In our loan servicing segment, we compete on the basis of experience in the residential loan servicing business, quality of high-touch special servicing and historical servicing performance, and quality of execution, especially in high-touch special servicing.

In our investment management segment, we compete for capital with both traditional and alternative investment managers. We compete on the basis of historical track record of risk-adjusted returns, experience of investment management team, the return profile of prospective investment opportunities and on the level of fees and expenses.

7

EX-99.2

Exhibit 99.2

PART II

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note: The information contained in this Item has been updated for the change to reportable segments discussed in the Notes to Financial Statements. This Item has not been updated for any other changes since the filing of the 2013 Annual Report on Form 10-K (“2013 Form 10-K”). For significant developments since the filing of the 2013 Form 10-K, refer to PFSI’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

Cautionary Statement Regarding Forward-Looking Statements

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of PennyMac Financial Services, Inc. included within this Annual Report on Form 10-K.

Statements contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Annual Report on Form 10-K and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.

Overview

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. Unless the context indicates otherwise, references in this Annual Report on Form 10-K to the words “we,” “us,” “our,” “PFSI” and the “Company” refer to PennyMac Financial Services, Inc.

Initial Public Offering and Recapitalization

On May 14, 2013, we completed an initial public offering (“IPO”) in which we sold approximately 12.8 million shares of Class A Common Stock par value $0.0001 per share (“Class A Common Stock”) for cash consideration of $16.875 per share (net of underwriting discounts). With the net proceeds from the IPO, we bought Class A units of Private National Mortgage Acceptance Company, LLC (“PennyMac”) and became its sole managing member. We operate and control all of the business and affairs and consolidate the financial results of PennyMac.

Before the completion of the IPO, the limited liability company agreement of PennyMac was amended and restated to, among other things, change its capital structure by converting the different classes of interests held by its existing unitholders into Class A units. PennyMac and its existing unitholders also entered into an exchange agreement under which (subject to the terms of the exchange agreement) they have the right to exchange their Class A units for shares of our Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and certain other transactions.

Before 2013, PennyMac made an election pursuant to Section 754 of the Internal Revenue Code which remains in effect. As a result of this election, an exchange results in a special adjustment for PFSI that may increase PFSI’s tax basis in certain assets of PennyMac that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that PFSI would otherwise be required to pay in the future and result in increases in investment in PennyMac deferred tax assets net of investment in PennyMac deferred tax liabilities.

As part of the IPO, we entered into a tax receivable agreement with the then-existing unitholders of PennyMac that provides for payment to such owners of 85% of the tax benefits, if any, that we are deemed to realize under certain circumstances as a result of (i) increases in tax basis resulting from exchanges of Class A units and (ii) certain other tax benefits related to our tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

1

Our Company

We are a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. residential mortgage loans and the management of investments related to the U.S. residential mortgage market. We believe that our operating capabilities, specialized expertise, access to long-term investment capital, and our management’s deep experience across all aspects of the mortgage business will allow us to profitably grow these activities and capitalize on other related opportunities as they arise in the future.

PennyMac was founded in 2008 by members of its executive leadership team and two strategic partners, BlackRock Mortgage Ventures, LLC, together with its affiliates, and HC Partners LLC, formerly known as Highfields Capital Investments LLC, together with its affiliates.

We conduct our business in three segments, two in mortgage banking (loan production and loan servicing) and investment management.  Our principal mortgage banking subsidiary, PennyMac Loan Services, LLC (“PLS”), is a non-bank producer and servicer of mortgage loans in the United States. Our principal investment management subsidiary, PNMAC Capital Management, LLC (“PCM”), is an SEC registered investment adviser. PCM manages PennyMac Mortgage Investment Trust (“PMT”), a mortgage real estate investment trust, listed on the New York Stock Exchange under the ticker symbol PMT. PCM also manages PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP, both registered under the Investment Company Act, an affiliate of these funds, and PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.”

Retrospective Adjustment of Previously Reported Business Segment Amounts

Since the date of our IPO, we have continued our development of internal management reporting. Such development has resulted in changes in the information that is used by our chief operating decision maker. Accordingly, during the quarter ended March 31, 2014, we re-evaluated this new information in relation to how we define our operating segments.

As a result of the new reporting used by our chief operating decision maker, we have concluded that our mortgage banking operations should be disclosed as two segments: loan production and loan servicing. Accordingly, the following segment disclosure includes three segments: loan production, loan servicing and investment management.

The loan production segment performs origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans and servicing of mortgage loans sourced and managed by the investment management segment, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans. The investment management segment performs sourcing, due diligence, bidding and closing investment asset acquisitions, managing correspondent lending activities for PMT and managing the acquired assets for the Advised Entities.

Development of our internal management reporting has resulted in refinements to the way we allocate costs to our business activities. As a result the expenses we allocated to our investment management activities for the year ended December 31, 2013, increased by $9.4 million from $9.7 million as previously reported to $19.1 million, and certain other income we allocate among the segments decreased by $1.1 million, reducing investment management’s pre-tax net income from $46.6 million as previously reported to $36.1 million and increasing the net income attributable to our mortgage banking operations from $135.5 million as previously reported to $146.1 million for the year ended December 31, 2013.

The change in segment pre-tax income for the year ended December 31, 2013 is summarized below:

	Mortgage Banking
Pre-tax income	Loan production			Loan servicing			Total		Investment management			Total
	(in thousands)
As originally presented			*			*	$	135,525	$	46,601		$	182,126
As adjusted	$	126,020		$	20,048		146,068		36,058			182,126
Change							$	10,543	$	(10,543	)	$	—

* Not previously reported

We did not have in place the reporting structure that enabled us to report on our three segments before 2013 and are therefore unable to retrospectively adjust our 2012 and 2011 segment information to conform to the 2013 presentation.

Mortgage Banking

Our mortgage banking activities are comprised of two segments: loan production and loan servicing. These segments are described below.

2

Loan Production Segment

We produce mortgage loans for sale through two production channels: correspondent lending and retail lending as described below:

·Correspondent Lending.  Our correspondent lending channel manages, on behalf of PMT and for our own account, the acquisition of newly originated, prime credit quality, first-lien residential mortgage loans that have been underwritten to investor guidelines. PMT acquires, from approved correspondent sellers, newly originated loans, primarily “conventional” residential mortgage loans guaranteed by the GSEs. For conventional loans, we perform fulfillment activities for PMT and earn a fulfillment fee for each loan purchased by PMT. In the case of government-insured loans, we purchase them from PMT at PMT’s cost plus a sourcing fee and fulfill them for our own account.

During the year ended December 31, 2013, we managed PMT’s acquisition of newly originated, prime credit quality, first lien residential mortgage loans with fair values totaling $32.0 billion. We purchased, for our own account, approximately $16.1 billion of government insured loans at fair value from PMT during the year ended December 31, 2013.

During the year ended December 31, 2012, we managed PMT’s acquisition of newly originated, prime credit quality, first lien residential mortgage loans with fair values totaling $22.4 billion. We purchased, for our own account, approximately $8.9 billion of government insured loans at fair value from PMT during the year ended December 31, 2012.

·Retail Lending.  Our retail lending channel originates new prime credit quality, first-lien residential conventional and government- insured mortgage loans on a national basis to allow customers to purchase or refinance their homes. We operate this channel through a consumer direct model, which relies on the Internet and call center-based staff to acquire and interact with customers across the country. We do not have a “brick and mortar” branch network and have been developing our consumer direct operations with call centers strategically positioned across the United States.

During the year ended December 31, 2013, we originated $1.1 billion of residential mortgage loans at fair value through our retail channel. During the year ended December 31, 2012, we originated $539.2 million of residential mortgage loans at fair value.

Loan Servicing Segment

Our loan servicing segment performs loan administration, collection and default activities, including the collection and remittance of loan payments; response to customer inquiries; accounting for principal and interest; holding custodial (impound) funds for the payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions. We service a diverse portfolio of loans both as the owner of MSRs and on behalf of other MSR or mortgage owners. We provide prime servicing for conventional and government- insured loans, as well as special servicing for distressed loans that have been acquired as investments by our Advised Entities, and loans in “private-label” MBS, which are securities issued by institutions that are not affiliated with any Agency.

During the year ended December 31, 2013, we increased our portfolio of loans that we serviced or subserviced from approximately $28.2 billion in UPB at December 31, 2012 to approximately $78.2 billion in UPB at December 31, 2013. During the year ended December 31, 2012, we increased our portfolio of loans that we serviced or subserviced from approximately $7.7 billion in UPB at December 31, 2011 to approximately $28.2 billion in UPB at December 31, 2012.

Investment Management Segment

We are an investment manager through an indirect subsidiary, PCM. PCM currently manages PMT and the Investment Funds, which had combined net assets of approximately $2.0 billion as of December 31, 2013. For these activities, we earn management fees as a percentage of net assets and incentive compensation based on investment performance.

3

Results of Operations

Our results of operations are summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value	$	138,013		$	118,170		$	13,029
Loan origination fees	23,575			9,634			669
Fulfillment fees from PennyMac Mortgage Investment Trust	79,712			62,906			1,747
Net loan servicing fees	90,010			40,105			28,667
Management fees	40,330			21,799			16,683
Carried interest from Investment Funds	13,419			10,473			12,596
Net interest expense	(1,041		)	(1,525		)	(343		)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust	41			817			23
Other	2,500			2,707			1,713
Total net revenue	386,559			265,086			74,784
Total expenses	204,433			146,763			60,085
Provision for income taxes	9,961			—			—
Net income	172,165			$	118,323		$	14,699
Less: Net income attributable to noncontrolling interest	157,765
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,400
Pre-tax income by segment (1):
Mortgage Banking
Loan production	$	126,020
Loan servicing	20,048
	146,068			$	93,178		$	(4,142	)
Investment Management	36,058			25,145			18,841
	$	182,126		$	118,323		$	14,699
During the year:
Mortgage loans purchased and originated for sale:
Government-insured or guaranteed loans acquired from PMT at fair value	$	16,113,806		$	8,864,264		$	577,852
Retail production at fair value, net	1,104,051			539,160			149,393
	$	17,217,857		$	9,403,424		$	727,245
UPB of mortgage loans fulfilled for PMT	$	15,225,153		$	13,028,375		$	505,317
At year end:
UPB of mortgage loan servicing portfolio
MSRs owned	$	45,938,820		$	11,254,705		$	3,649,502
Subserviced	31,722,079			16,480,102			4,002,722
Mortgage loans held for sale	506,540			417,742			84,384
	$	78,167,439		$	28,152,549		$	7,736,608
Net assets of Advised Entities
PennyMac Mortgage Investment Trust	$	1,467,114		$	1,201,336		$	546,017
Investment Funds	557,956			591,154			620,078
	$	2,025,070		$	1,792,490		$	1,166,095

(1)The Company did not have in place the reporting structure that enabled it to report on its three segments before the year ended December 31, 2013 and is therefore unable to retrospectively adjust its segment information for the years ended December 31, 2012 and 2011 to conform with the presentation for the year ended December 31, 2013.

4

Comparison of the years ended December 31, 2013, 2012 and 2011

Net income for 2013 was $172.2 million, compared with $118.3 million for 2012 and $14.7 million for 2011. The increase in net income from the year ended December 31, 2012 to the year ended December 31, 2013 is primarily due to the growth in our mortgage servicing operations, growth in our loan production segment and growth in incentive fee income in our investment management segment.

Our mortgage loan production volume increased $7.8 billion or 83% in 2013 compared to 2012. Increased price competition in the mortgage market moderated the increase in our net gains on mortgage loans held for sale at fair value to an increase of $19.8 million or 17%. Our mortgage loan servicing portfolio grew to approximately $78.2 billion at December 31, 2013 from approximately $28.2 billion at December 31, 2012, an increase of approximately $50.0 billion, or 178%. This growth was supplemented by growth in management fees and carried interest of $21.5 million, or 67%, during the year ended December 31, 2013. These revenue increases were partially offset by increases in expenses totaling $57.7 million, or 39%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012.

Net income increased by approximately $103.6 million or 705% for the year ended December 31, 2012 when compared to the same period in 2011. The increase in net income from the year ended December 31, 2012 to the year ended December 31, 2011 was primarily due to the growth in the Company’s mortgage banking operations. Loan purchase and origination volume increased by approximately $8.7 billion or 1,197% in the year ended December 31, 2012 as compared to the year ended December 31, 2011, and the Company’s loan servicing portfolio was approximately $28.2 billion at December 31, 2012, an increase of $20.4 billion, or 264%, from December 31, 2011. This growth was supplemented by growth in the Company’s investment management segment due to an increase of $3.0 million, or 10%, in management fees and carried interest for the year ended December 31, 2012, compared to the year ended December 31, 2011. These revenue increases were partially offset by increases in expenses of approximately $86.7 million, or 144%, during the year ended December 31, 2012 as compared to the same period in 2011. We incurred these increases in expenses to accommodate the Company’s growth.

Net gains on mortgage loans held for sale at fair value

During the year ended December 31, 2013, we recognized net gains on mortgage loans held for sale at fair value totaling $138.0 million. This compares to net gains on mortgage loans held for sale at fair value totaling $118.2 million and $13.0 million during the years ended December 31, 2012 and 2011, respectively.

The increase in net gains on mortgage loans held for sale at fair value from the year ended December 31, 2012 to the year ended December 31, 2013 is due to the growth in the volume of IRLCs partially offset by increasing price competition in the mortgage market, which had a negative effect on our production margins compared to the year ended December 31, 2012. The net gains for the years ended December 31, 2013, 2012 and 2011 included $205.1 million, $90.5 million and $8.3 million, respectively, in fair value of MSRs received as part of proceeds on sales.

5

Our gains on mortgage loans held for sale are summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Cash (loss) gain:
Sales proceeds	$	(150,589	)	$	78,671		$	182
Hedging activities	98,707			(70,916		)	(8,578		)
	(51,882		)	7,755			(8,396		)
Non-cash gain:
Receipt of MSRs in loan sale transactions	205,105			90,472			8,253
MSR recapture payable to PennyMac Mortgage Investment Trust	(709		)	—			—
Provision for losses relating to representations and warranties on loans sold	(4,675		)	(3,055		)	(260		)
Change in fair value relating to mortgage loans and hedging derivatives held at year end:
IRLCs	(17,179		)	16,035			7,919
Mortgage loans	(4,207		)	4,030			393
Hedging derivatives	11,560			2,933			5,120
	$	138,013		$	118,170		$	13,029
During the year:
UPB of mortgage loans sold	$	16,401,282		$	8,545,915		$	625,793
Interest rate lock commitments issued, net of cancellations:
Conventional mortgage loans	$	989,350		$	702,387		$	171,779
Government-insured or guaranteed loans	14,816,066			9,413,801			779,660
	$	15,805,416		$	10,116,188		$	951,439
Year end:
Fair value of mortgage loans held for sale	$	531,004		$	448,384		$	89,857
Commitments to fund and purchase mortgage loans	$	971,783		$	1,576,174		$	324,752
Increase (decrease) in net gains on mortgage loans held for sale at fair value due to:
Net change in fair value of IRLCs	$	(33,214	)	$	8,116		$	7,943
Volume of loans sold	77,729			93,625			5,804
Gain margin	(24,672		)	3,400			(2,726		)
Total change	$	19,843		$	105,141		$	11,021

We recognize a substantial portion of our gain on mortgage loans held for sale at fair value before we fund or purchase the loan. In the course of our correspondent and retail lending activities, we issue IRLCs to PMT and to mortgage loan applicants. We recognize the value of IRLCs at the time we make a commitment to PMT or the borrower.

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 loans and the probability that the mortgage loan will fund or be purchased as a percentage of the commitment we have made (the “pull-through rate”). We update our estimates of the value of the IRLCs as the mortgage loans move through the purchase or loan process for changes in our estimate of the probability the loan will fund and for changes in market interest rates.

An active, observable market for IRLCs does not exist. Therefore, we estimate the fair value of IRLCs using methods and assumptions we believe that market participants use in pricing IRLCs. The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the value of the mortgage loans we have committed to purchase. Significant changes in the pull-through rate and the MSR component of the IRLCs, in isolation, could result in a significant change in fair value measurement. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC value, but rising interest rates increase the pull-through rate for loans that have decreased in fair value.

6

Following is a quantitative summary of key unobservable inputs we used in the valuation of IRLCs:

	December 31,
	2013	2012
Key inputs	Range (Weighted average)
Pull-through rate	62.1% - 98.1%	61.6% - 98.1%
	(81.7)%	(79.1)%
MSR value expressed as:
Servicing fee multiple	2.0 - 5.0	3.2 - 4.2
	(3.7)	(4.0)
Percentage of UPB	0.4% - 2.4%	0.6% - 2.2%
	(0.9)%	(0.9)%

We receive non-cash proceeds on sale of mortgage loans in the form of MSRs. MSRs represent the value of a contract that obligates us to service mortgage loans on behalf of the purchaser of the loan in exchange for servicing fees and the right to collect certain ancillary income from the borrower. We recognize MSRs initially at our estimate of the fair value of the contract to service the loans.

As economic fundamentals influence the loans we sell with servicing rights retained change, our estimate of the fair value of MSRs will also change. As a result, we will record changes in fair value as a component of Net loan servicing fees for the MSRs we carry at fair value and we may recognize changes in fair value relating to our MSRs carried at the lower of amortized cost or fair value depending on the relationship of the asset’s fair value to its carrying value at the measurement date.

Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:

	Year ended December 31,
	2013		2012		2011
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost	Fair value	Amortized cost
	(Amount recognized and UPB of underlying loans in thousands)
Amount recognized	$14,636	$190,468	$774	$89,698	$1,696	$6,557
UPB of underlying loans	$1,055,797	$15,316,315	$17,615	$8,524,533	$415,954	$449,715
Weighted-average servicing fee rate (in basis points)	33	29	28	27	27	31
Pricing spread(1)	7.4% - 14.4%	5.4% - 15.9%	7.5% - 9.9%	7.5% - 11.9%	8.3% - 14.0%	9.3% - 12.6%
	(10.2)%	(8.5)%	(8.4)%	(9.8)%	(11.7)%	(9.7)%
Annual total prepayment speed(2)	7.8% - 25.5%	7.6% - 42.5%	7.8% - 20.1%	6.7% - 17.8%	6.3% - 8.9%	5.6% - 7.9%
	(9.2)%	(8.8)%	(9.7)%	(8.5)%	(8.2)%	(6.8)%
Life (in years)	2.5 - 7.3	1.5 - 7.5	3.6 - 7.0	2.8 - 7.0	6.5 - 8.1	5.2 - 8.0
	(6.9)	(6.7)	(6.7)	(6.7)	(7.0)	(7.3)
Per-loan annual cost of servicing	$68 - $120	$68 - $120	$68 - $100	$68 - $100	$64 - $98	$61 - $98
	$(98)	$(102)	$(78)	$(99)	$(88)	$(96)

(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)Annual total prepayment speed is measured using Conditional Prepayment Rate (“CPR”).

We also provide for our estimate of the future losses that we may be required to incur as a result of our breach of representations and warranties provided to the purchasers of the loans we sold. Our agreements with the Agencies include representations and warranties related to the loans we sell to the Agencies. The representations and warranties require adherence to Agency origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

7

In the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or insurer. In such cases, we bear any subsequent credit loss on the mortgage loans. Our credit loss may be reduced by any recourse we have to correspondent lenders that sold such mortgage loans and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of related repurchase losses from that correspondent lender.

We evaluate the adequacy of the balance of our recorded liability for losses under representations and warranties based on our loss experience and our assessment of future losses to be incurred relating to loans we have previously sold and which remain outstanding at the balance sheet date. The method used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates and the potential severity of loss in the event of defaults and the probability of reimbursement by the correspondent loan seller. We establish a liability at the time loans are sold and periodically update our liability estimate. The level of our liability for representations and warranties is approved by our senior management credit committee on a quarterly basis.

Following is a summary of our Liability for losses under representations and warranties in the consolidated balance sheets:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Balance at beginning of year	$	3,504		$	449	$	189
Provision for losses on loans sold	4,675			3,055		260
Incurred losses	(56		)	—		—
Balance at end of year	$	8,123		$	3,504	$	449
UPB of mortgage loans subject to representations and warranties at year end	$	23,637,202		$	8,856,044	$	679,247

Following is a summary of the repurchase activity and unpaid balance of mortgage loans subject to representations and warranties:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
During the year:
UPB of mortgage loans repurchased	$	8,449	$	4,399	$	—
UPB of repurchased mortgage loans put to correspondent lenders	$	3,593	$	—	$	—
Year end:
UPB of mortgage loans subject to pending claims for repurchase	$	1,655	$	2,582	$	9,774

During the year ended December 31, 2013, we repurchased mortgage loans with unpaid balances totaling $8.4 million and charged $56,000 in incurred losses relating to these repurchases against our liability for representations and warranties. As the outstanding balance of loans we purchase and sell subject to representations and warranties increases and the loans sold season, we expect the level of repurchase activity to increase. As economic fundamentals change and as investor and Agency evaluation of their loss mitigation strategies, including claims under representations and warranties, change, the level of repurchase activity and ensuing losses will change, which may be material to us.

The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and other external conditions that may change over the lives of the underlying loans. Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current UPB of loans sold by us to date represents the maximum exposure to repurchases related to representations and warranties. We believe the amount and range of reasonably possible losses in relation to the recorded liability is not material to our financial condition or results of operations.

8

Our hedging activities relating to correspondent and retail lending primarily involve forward sales of our inventory and IRLCs as well as purchases of options to sell and options to purchase MBS.

Other loan production-related revenues

Loan origination fees increased $13.9 million in the year ended December 31, 2013 compared to the same period in 2012. The increase was due to growth in the volume of loans produced.

Loan fulfillment fees from PMT represent fees we collect for services we perform on behalf of PMT in connection with its acquisition, packaging and sale of mortgage loans. The loan fulfillment fees are calculated as a percentage of the UPB of the mortgage loans we fulfill for PMT. Summarized below are our fulfillment fees:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Fulfillment fee revenue	$	79,712	$	62,906	$	1,747
UPB of loans fulfilled	$	15,225,153	$	13,028,375	$	505,317

Fulfillment fees for 2013 were $79.7 million, compared to $62.9 million and $1.7 million for 2012 and 2011, respectively. The increase of $16.8 million in fulfillment fees during the year ended December 31, 2013 is due to the continuing growth in the volume of Agency-eligible and jumbo mortgage loans we fulfilled on behalf of PMT.

Net servicing fees

Our net servicing fees are summarized below.

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Net servicing fees:
Loan servicing fees
From non-affiliates	$	61,523		$	20,673		$	11,493
From PennyMac Mortgage Investment Trust	39,413			18,608			13,204
From Investment Funds	7,799			11,716			14,523
Mortgage servicing rebate to Investment Funds	(700		)	(885		)	(2,772		)
Ancillary and other fees	11,426			2,245			1,657
	119,461			52,357			38,105
Amortization, impairment and change in estimated fair value of mortgage servicing rights	(29,451		)	(12,252		)	(9,438		)
Net servicing fees	$	90,010		$	40,105		$	28,667

Following is a summary of our loan servicing portfolio measured based on UPB:

	December 31,
	2013		2012
	(in thousands)
Loans serviced at year end:
Prime servicing:
Subserviced for Advised Entities	$	26,788,479	$	12,920,209
Owned MSRs—Originated	23,640,261		8,992,602
Owned MSRs—Acquisitions	21,328,765		990,461
Mortgage loans held for sale	506,540		417,742
Total prime servicing	72,264,045		23,321,014
Special servicing:
Subserviced for Advised Entities	4,844,239		3,559,893
Owned MSRs—Acquisitions	969,794		1,271,642
Subserviced for non-affiliates	89,361		—
Total special servicing	5,903,394		4,831,535
Total loans serviced	$	78,167,439	$	28,152,549

9

Total loan servicing fees increased $67.1 million during the year ended December 31, 2013 compared to 2012. The increase in the year ended December 31, 2013 was primarily due to an increase of $40.9 million in loan servicing fees from non-affiliates due to growth in our portfolio of loans serviced as a result of our ongoing sales of mortgage loans with servicing rights retained and bulk purchases of MSRs; an increase of $20.8 million in loan servicing fees from PMT due to growth in the volume of loans we service and subservice for PMT; and an increase of $9.2 million in ancillary fees due to growth in the portfolios of mortgage loans serviced, partially offset by a decrease in loan servicing fees net of mortgage servicing rebate from the Investment Funds of $3.7 million. This decrease was due to the decrease in the principal balance in the Investment Funds’ mortgage loan portfolios as these portfolios liquidate following the end of the Investment Funds’ investment commitment periods on December 31, 2011.

Amortization, impairment and change in estimated fair value of mortgage servicing rights are summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Effect of MSRs:
Amortization	$	19,251		$	4,039		$	61
Provision for impairment of MSRs carried at lower of amortized cost or fair value	1,644			2,908			70
Change in fair value MSRs carried at fair value due to:
Change in valuation inputs or assumptions used in valuation model	(659		)	1,550			5,323
Realization of cash flows	5,501			5,124			3,984
	25,737			13,621			9,438
Change in fair value of excess spread financing	2,423			—			—
Hedging losses (gains)	1,291			(1,369		)	—
	3,714			(1,369		)	—
Total amortization, impairment and change in fair value of MSRs	$	29,451		$	12,252		$	9,438
Ending MSRs:
At lower of amortized cost or fair value	$	258,751		$	89,177		$	6,426
At fair value	224,913			19,798			25,698
	$	483,664		$	108,975		$	32,124

Amortization, impairment and change in estimated fair value of mortgage servicing rights increased $17.2 million from $12.3 million to $29.5 million for the year ended December 31, 2013. The increase in amortization, impairment and change in estimated fair value during the year ended December 31, 2013 as compared to the year ended December 31, 2012 was due primarily to growth in our investment in MSRs between 2012 and 2013, which caused an increase in amortization of the asset.

Impairment and changes in fair value of MSRs have a significant effect on net servicing fees, driven primarily by our monthly re-estimation of the fair value of MSRs. As our investment in MSRs grows, we expect that the effect of impairment and changes in fair value will have an increasing influence on our net income. The fair value of MSRs is difficult to determine because MSRs are not actively traded in observable stand-alone markets. Considerable judgment is required to estimate the fair values of these assets and the exercise of such judgment can significantly affect our earnings.

Our MSR valuation process combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value at each balance sheet date. The cash flow and prepayment assumptions used in our discounted cash flow model are based on market factors and include the historical performance of our MSRs, which we believe are consistent with assumptions and data used by market participants valuing similar MSRs.

The key inputs used in the valuation of MSRs include mortgage prepayment and default rates of the underlying loans, the applicable discount rate, and cost to service loans. These variables can, and generally do, change from period to period as market conditions change. Therefore our estimate of the fair value of MSRs changes from period to period. Our valuation committee reviews and approves the fair value estimates of our MSRs.

10

We account for MSRs at either our estimate of the asset’s estimated fair value with changes in fair value recorded in current period income or using the amortization method with the MSRs carried at the lower of amortized cost or estimated fair value based on how we finance certain of our MSR purchases and whether we believe the underlying mortgages are sensitive to prepayments resulting from changing market interest rates. We have identified an initial mortgage interest rate of 4.5% for MSRs originated through our lending activities as the threshold for whether such mortgage loans are sensitive to changes in interest rates:

·Our risk management efforts in connection with MSRs relating to mortgage loans originated through our lending activities with initial interest rates of more than 4.5% are aimed at moderating the effects of changes in interest rates on the assets’ values.

·For MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5% that were acquired as a result of our lending activities, we have concluded that such assets present different risks than MSRs relating to mortgage loans with initial interest rates of more than 4.5% and therefore require a different risk management approach. Our risk management efforts relating to these assets are aimed at moderating the effects of non-interest rate risks on fair value, such as the effect of changes in home prices on the assets’ values. We have identified these assets for accounting using the amortization method.

·MSRs purchased for which a financing in the form of ESS cash flows has been recorded are accounted for at fair value. The ESS financing at fair value is accounted for at fair value to align the accounting for the MSR with the related liability.

Our MSRs are summarized by the basis on which we account for the assets below:

	December 31,
Basis of Accounting	2013			2012
	(in thousands)
Fair value	$	224,913		$	19,798
Lower of amortized cost or fair value:
Amortized cost	$	263,372		$	92,155
Valuation allowance	(4,621		)	(2,978		)
Carrying value	$	258,751		$	89,177
Fair value	$	269,422		$	91,028
Total MSR:
Carrying value	$	483,664		$	108,975
Fair value	$	494,335		$	110,826
UPB of mortgage loans underlying MSRs	$	45,938,820		$	11,254,705

Key inputs used in determining the fair value of MSRs are as follows:

Purchased MSRs backed by distressed mortgage loans

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$10,129	—	$12,370	—
UPB of underlying loans	$969,794	—	$1,271,478	—
Weighted-average note rate	5.80%	—	6.01%	—
Weighted-average servicing fee rate (in basis points)	50	—	50	—
Discount rate	15.3% - 15.3%	—	15.3% - 15.3%	—
	(15.3)%	—	(15.3)%	—
Average life (in years)	5.0 - 5.0	—	5.0 - 5.0	—
	(5.0)		5.0
Prepayment speed(1)	11.4% - 11.4%	—	10.7% - 10.7%	—
	(11.4)%	—	(10.7)%	—
Per-loan cost of servicing	$218 - $218	—	$270 - $270	—
	$(218)	—	$(270)	—

(1)Prepayment speed is measured using CPR.

11

All other MSRs

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$214,784	$258,751	$7,428	$89,177
UPB of underlying loans	$22,469,179	$22,499,847	$1,166,765	$8,730,686
Weighted-average note rate	4.48%	3.65%	5.22%	3.65%
Weighted-average servicing fee rate (in basis points)	32	29	26	28
Pricing spread(1)	2.9% - 18.0%	6.3% - 14.5%	7.5% - 19.5%	7.5% - 16.5%
	(7.5)%	(8.7)%	(10.6)%	(9.8)%
Average life (in years)	0.1 - 14.4	1.5 - 7.3	0.2 - 14.4	2.5 - 6.9
	(6.2)	(7.0)	(5.0)	(6.6)
Prepayment speed(2)	7.8% - 50.8%	7.6% - 42.5%	9.0% - 84.2%	8.7% - 28.3%
	(9.7)%	(8.0)%	(19.2)%	(9.2)%
Per-loan cost of servicing	$68 - $115	$68 - $100	$68 - $140	$68 - $140
	$(87)	$(99)	$(76)	$(99)

(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of loans and purchased MSRs not backed by pools of distressed mortgage loans.

(2)Prepayment speed is measured using CPR.

Management fees and Carried Interest

Management fees and carried interest are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Management Fees:
PennyMac Mortgage Investment Trust:
Base management fee	$	19,644	$	12,436	$	6,740
Performance incentive fee	12,766		—		—
	32,410		12,436		6,740
Investment Funds	7,920		9,363		9,943
	$	40,330	$	21,799	$	16,683
Carried Interest	$	13,419	$	10,473	$	12,596
Total management fees and carried interest	$	53,749	$	32,272	$	29,279
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust	$	1,467,114	$	1,201,336	$	546,017
Investment Funds	557,956		591,154		620,078
	$	2,025,070	$	1,792,490	$	1,166,095

12

Management fees from PMT increased $20.0 million in the year ended December 31, 2013 compared to the same period in 2012. The increase was due primarily to:

·Base management fees increased due to an increase in PMT’s shareholders’ equity upon which its management fee is based by $265.8 million or 22% from December 31, 2012 through December 31, 2013. PMT’s average shareholders’ equity increased by 459.5 million, or 53%, from 2012 to 2013. The growth in PMT’s shareholders’ equity occurred in the second half of 2012, therefore we did not benefit from a higher shareholders’ equity base until the latter half of 2012.

·We recognized incentive fees of $12.8 million for the year ended December 31, 2013. These fees were not recognized during 2012 or 2011. We recognized performance incentive fees during 2013 as a result of the amendment to our management agreement with PMT effective February 1, 2013, which changed the basis on which profitability is measured for incentive fee purposes. Under the amended agreement, profitability is primarily based on net income determined in compliance with U.S. GAAP. Previously, the agreement based profitability on U.S. GAAP net income generally excluding non-cash gains and losses.

Partially offsetting the increases in management fees from PMT, management fees from the Investment Funds decreased $1.4 million from December 31, 2012 to December 31, 2013. The decrease was due to decreases in the Investment Funds’ net asset values as a result of continued distributions to the Investment Funds’ investors following the end of the Investment Funds’ investment commitment periods at December 31, 2011, which reduced the investment base on which the management fees are computed.

Carried interest from Investment Funds increased $2.9 million from $10.5 million for the year ended December 31, 2012 to $13.4 million for the year ended December 31, 2013. The increase was primarily due to valuation gains in the Investment Funds’ loan portfolios, which reflect increases in demand for performing distressed mortgage loans, increases in the value of the loans as they proceed through the resolution process and continuing increases in collateral valuations for the properties underlying the Investment Funds’ loans.

Other revenues

Net interest expense decreased $484,000 from $1.5 million for the year ended December 31, 2012, to $1.0 million for the year ended December 31, 2013 due to growth in our average inventory of mortgage loans held for sale combined with an increase in the net interest margin relating to such loans during 2013 as compared to 2012. Net interest income relating to our interest earning assets is offset by the cost of financing our non-interest earning assets—primarily MSRs and certain of our servicing advances.

The results of our holdings of common shares of PMT, which is included in Changes in fair value of investment in, and dividends received from PMT are summarized below:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Dividends	$	216		$	167	$	138
Change in fair value	(175		)	650		(115		)
	$	41		$	817	$	23
Fair value of PennyMac Mortgage Investment Trust shares at year end	$	1,722		$	1,897	$	1,247

Change in fair value of investment in and dividends received from PMT decreased $776,000 in the year ended December 31 2013 compared to the same period in 2012. The decrease was primarily due to a decrease in the fair value of our investment in common shares of PMT as of December 31, 2013 as compared to the appreciation in value of our investment in common shares of PMT during 2012. During the three years ended December 31, 2013, we held 75,000 common shares of PMT.

13

Expenses

Our compensation expense is summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Salaries and wages	$	101,064	$	61,300	$	30,128
Incentive compensation	24,929		30,607		10,803
Taxes and benefits	16,125		9,025		3,672
Stock and unit-based compensation	6,458		23,082		2,876
	$	148,576	$	124,014	$	47,479
Average headcount	1,331		732		317
Year end headcount	1,373		1,028		435

Compensation expense increased $76.5 million and $24.6 million from $47.5 million for the year ended December 31, 2011 to $124.0 million for the year ended December 31, 2012 to $148.6 million for the year ended December 31, 2013. The increase in compensation expense was due to the development of and growth in our loan production and loan servicing segments as well as growth in the level of assets managed and serviced for PMT, partially offset by decreases in unit-based compensation relating to PennyMac Class A unit awards as well as reduced accruals for cash-based incentive compensation between 2012 and 2013.

Stock and unit-based compensation expense increase during 2012 as compared to 2011 and 2013 due to unit grants made to certain members of PennyMac’s management under its 2011 Incentive Plan. Such awards vested on January 1, 2013. We expect stock-based compensation to increase in future years as a result of equity-based grants made on June 13, 2013 and future grants under the 2013 Equity Incentive Plan. However, based on current outstanding equity award grants we do not expect to incur stock-based compensation expense at the level recorded during 2012.

Professional services expense increased $1.7 million and $5.0 million from $3.9 million and $5.6 million for the years ended December 31, 2011 and December 31, 2012 to $10.6 million for the year ended December 31, 2013. The increases were due to growth in the size of our operations and the cost of being a public company.

Loan origination expense increased $2.8 million and $6.9 million from $185,000 and $3.0 million for the years ended December 31, 2011 and December 31, 2012 to $9.9 million for the year ended December 31, 2013. The increases were due to growth in our loan origination volume and to changes in our fee structure which resulted in many of our fees being charged to correspondent lenders on an other-than pass-through basis. As a result of this change in structure, we recognized both the fee income and expense during 2013 as compared to “passing through” these items on a net basis during 2012.

Technology expense increased $2.5 million and $4.8 million from $2.0 million and $4.4 million for the years ended December 31, 2011 and December 31, 2012 to $9.2 million for the year ended December 31, 2013. The increases were due to growth in the size of our operations.

Marketing expense increased $586,000 and $8.2 million from $346,000 and $932,000 for the years ended December 31, 2011 and December 31, 2012 to $9.1 million for the year ended December 31, 2013. The increase in 2013 was primarily due to an increase in direct mail solicitations and online advertising incurred to promote our retail loan origination business.

Servicing expense increased $1.3 million and $3.4 million from $2.3 million and $3.6 million for the years ended December 31, 2011 and December 31, 2012 to $7.0 million for the year ended December 31, 2013. The increases were due to growth in our mortgage servicing portfolio.

Occupancy expense increased $1.3 million from $1.5 million for the year ended December 31, 2012 to $2.8 million for the year ended December 31, 2013. The increase was primarily due to growth in the size of our operations. Occupancy expense decreased $464,000 during the year ended December 31, 2012 from $2.0 million to $1.5 million due to recognition of a lease abandonment charge relating to the relocation of our offices to a larger facility to accommodate our growth, partially offset by increased costs related to our larger facility.

14

Expenses Allocated to PMT

PMT reimburses us for other expenses, including common overhead expenses incurred on its behalf by us, in accordance with the terms of our management agreement. The expense amounts presented in our income statement are net of these allocations. Expense amounts allocated to PMT during the years ended December 31, 2013, 2012 and 2011 are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Technology	$	3,876	$	1,158	$	1,094
Occupancy	2,174		1,374		1,091
Depreciation and amortization	1,393		590		324
Other	2,980		1,067		1,472
Total expenses	$	10,423	$	4,189	$	3,981

The amount of total expenses that we allocated to PMT increased $6.2 million from $4.2 million in the year ended December 31, 2012 to $10.4 million for the year ended December 31, 2013. The increase was due to growth in our overhead expenses as well as growth in PMT’s balance sheet, resulting in an increase in the proportion of our overhead expenses being allocated to PMT.

Provision for Income Taxes

For the year ended December 31, 2013, our effective tax rate was 5.5%. The difference between our effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling unitholders convert their ownership units into our shares, we expect an increase in allocated earnings that will be subject to corporate federal and state income taxes

15

EX-99.3

Exhibit 99.3

PART II

Item 8.  Financial Statements and Supplementary Data

The information called for by this Item 8 is hereby incorporated by reference from our Financial Statements and Auditors’ Report in Part IV of this Report.

PART IV

Item 15.  Exhibits and Financial Statement Schedules

1

Note: The information contained in this Item has been updated to reflect PFSI’s change in segment definitions as a result of the development of management reporting used by the Company’s chief operating decision maker. The resulting changes are discussed further in Note 26 to the Financial Statements. For significant developments since the filing of the 2013 Form 10-K, refer to PFSI Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

PENNYMAC FINANCIAL SERVICES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

	Page
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets	F-1
Consolidated Statements of Income	F-2
Consolidated Statements of Changes in Stockholders’ Equity	F-3
Consolidated Statements of Cash Flows	F-4
Notes to Consolidated Financial Statements	F-5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

PennyMac Financial Services, Inc.

6101 Condor Drive

Moorpark, CA 93021

We have audited the accompanying consolidated balance sheets of PennyMac Financial Services, Inc. and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PennyMac Financial Services, Inc. and subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, on May 14, 2013, Private National Mortgage Acceptance Company, LLC (“PNMAC”), a subsidiary of the Company, sold 12.8 million Class A Units to the Company, which represents recapitalization and reorganization of PNMAC. As a result of the recapitalization and reorganization, the accompanying consolidated balance sheets of the Company as of December 31, 2012, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012 are PNMAC’s historical financial statements.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

March 14, 2014, except for Note 26 as to which the date is June 27, 2014

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2013		2012
	(in thousands, except share data)
ASSETS
Cash	$	30,639	$	12,323
Short-term investments at fair value	142,582		53,164
Mortgage loans held for sale at fair value (includes $512,350 and $438,850 pledged to secure mortgage loans sold under agreements to repurchase)	531,004		448,384
Servicing advances (includes $5,564 and $7,430 pledged to secure note payable)	154,328		93,152
Derivative assets	21,540		27,290
Carried Interest due from Investment Funds	61,142		47,723
Investment in PennyMac Mortgage Investment Trust at fair value	1,722		1,897
Mortgage servicing rights (includes $224,913 and $19,798 Mortgage servicing rights at fair value; $258,241 and $100,957 pledged to secure note payable; and $138,723 pledged to secure excess servicing spread financing)	483,664		108,975
Receivable from Investment Funds	2,915		3,672
Receivable from PennyMac Mortgage Investment Trust	18,636		16,691
Furniture, fixtures, equipment and building improvements, net	9,837		5,065
Capitalized software, net	764		795
Deferred tax asset	63,117		—
Loans eligible for repurchase	46,663		—
Other	15,922		13,032
Total assets	$	1,584,475	$	832,163
LIABILITIES
Mortgage loans sold under agreements to repurchase	$	471,592	$	393,534
Note payable	52,154		53,013
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	138,723		—
Derivative liabilities	2,462		509
Accounts payable and accrued expenses	46,387		36,279
Payable to Investment Funds	36,937		36,795
Payable to PennyMac Mortgage Investment Trust	81,174		46,779
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement	71,056		—
Liability for loans eligible for repurchase	46,663		—
Liability for losses under representations and warranties	8,123		3,504
Total liabilities	955,271		570,413
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Class A common stock, par value $0.0001 per share, 200,000,000 shares authorized, 20,812,777 shares issued and outstanding at December 31, 2013	$	2	$	—
Class B common stock, par value $0.0001 per share, 1,000 shares authorized, 61 shares issued and outstanding at December 31, 2013	—		—
Additional paid-in capital	153,000		—
Retained earnings	14,400		—
Total stockholders’ equity attributable to PennyMac Financial Services, Inc. common stockholders	167,402		—
Members’ equity attributable to Private National Mortgage Acceptance Company, LLC	—		261,750
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC	461,802		—
Total stockholders’ equity	629,204		261,750
Total liabilities and stockholders’ equity	$	1,584,475	$	832,163

The accompanying notes are an integral part of these financial statements.

F-1

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31,
	2013			2012			2011
	(in thousands, except per share data)
Revenue
Net gains on mortgage loans held for sale at fair value	$	138,013		$	118,170		$	13,029
Loan origination fees	23,575			9,634			669
Fulfillment fees from PennyMac Mortgage Investment Trust	79,712			62,906			1,747
Net loan servicing fees:
Loan servicing fees
From non-affiliates	61,523			20,673			11,493
From PennyMac Mortgage Investment Trust	39,413			18,608			13,204
From Investment Funds	7,799			11,716			14,523
Mortgage servicing rebate to Investment Funds	(700		)	(885		)	(2,772		)
Ancillary and other fees	11,426			2,245			1,657
	119,461			52,357			38,105
Amortization, impairment and change in estimated fair value of mortgage servicing rights	(29,451		)	(12,252		)	(9,438		)
Net loan servicing fees	90,010			40,105			28,667
Management fees:
From PennyMac Mortgage Investment Trust	32,410			12,436			6,740
From Investment Funds	7,920			9,363			9,943
	40,330			21,799			16,683
Carried Interest from Investment Funds	13,419			10,473			12,596
Net interest expense:
Interest income	15,632			6,354			1,532
Interest expense	16,673			7,879			1,875
	(1,041		)	(1,525		)	(343		)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust	41			817			23
Other	2,500			2,707			1,713
Total net revenue	386,559			265,086			74,784
Expenses
Compensation	148,576			124,014			47,479
Professional services	10,571			5,568			3,867
Loan origination	9,943			2,953			185
Technology	9,205			4,455			1,979
Marketing	9,118			932			346
Servicing	7,028			3,642			2,344
Occupancy	2,795			1,521			1,985
Other	7,197			3,678			1,900
Total expenses	204,433			146,763			60,085
Income before provision for income taxes	182,126			118,323			14,699
Provision for income taxes	9,961			—			—
Net income	172,165			$	118,323		$	14,699
Less: Net income attributable to noncontrolling interest	157,765
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,400
Earnings per common share
Basic	$	0.83
Diluted	$	0.82
Weighted-average common shares outstanding
Basic	17,311
Diluted	75,892

The accompanying notes are an integral part of these financial statements.

F-2

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

															Noncontrolling
															interest in
															Private
	PennyMac Financial Services, Inc. Stockholders														National
	Number of														Mortgage
	Shares		Common stock				Additional			Retained		Members’			Acceptance			Total
	Class A	Class B	Class A		Class B		paid-in capital			earnings		equity			Company, LLC			equity
	(in thousands)
Balance at December 31, 2010	—	—	$	—	$	—	$	—		$	—	$	89,969		$	—		$	89,969
Capital:
Contributions	—	—	—		—		—			—		18,908			—			18,908
Redemptions	—	—	—		—		—			—		(131		)	—			(131		)
Draws	—	—	—		—		—			—		(646		)	—			(646		)
Unit-based compensation expense	—	—	—		—		—			—		1,116			—			1,116
Net income	—	—	—		—		—			—		14,699			—			14,699
Balance at December 31, 2011	—	—	—		—		—			—		123,915			—			123,915
Capital:
Contributions	—	—	—		—		—			—		15,058			—			15,058
Redemptions	—	—	—		—		—			—		(6		)	—			(6		)
Distributions	—	—	—		—		—			—		(15,847		)	—			(15,847		)
Unit-based compensation expense	—	—	—		—		—			—		20,307			—			20,307
Net income	—	—	—		—		—			—		118,323			—			118,323
Balance at December 31, 2012	—	—	—		—		—			—		261,750			—			261,750
Capital:
Distributions	—	—	—		—		—			—		(19,623		)	—			(19,623		)
Unit-based compensation expense	—	—	—		—		—			—		238			—			238
Partner capital issuance costs	—	—	—		—		—			—		(3,745		)	—			(3,745		)
Net income	—	—	—		—		—			—		76,834			—			76,834
Exchange of existing member units to Class A units of Private National Mortgage Acceptance Company, LLC	—	—	—		—		—			—		(315,454		)	315,454			—
Balance post-reorganization	—	—	—		—		—			—		—			315,454			315,454
Issuance of common stock in initial public offering, net of issuance costs	12,778	—	1		—		229,999			—		—			—			230,000
Underwriting and offering costs	—	—	—		—		(13,290		)	—		—			(196		)	(13,486		)
Dilution assumed with IPO	—	—	—		—		(127,160		)	—		—			127,160			—
Stock-based compensation expense	—	—	—		—		881			—		—			2,818			3,699
Distributions	—	—	—		—		—			—		—			(3,809		)	(3,809		)
Net income	—	—	—		—		—			14,400		—			80,931			95,331
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc.	8,035	—	1		—		60,555			—		—			(60,556		)	—
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc.	—	—	—		—		2,015			—		—			—			2,015
Balance at December 31, 2013	20,813	—	$	2	—		$	153,000		$	14,400	$	—		$	461,802		$	629,204

The accompanying notes are an integral part of these financial statements.

F-3

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Cash flow from operating activities
Net income	$	172,165		$	118,323		$	14,699
Adjustments to reconcile net income to net cash used in operating activities:
Net gains on mortgage loans held for sale at fair value	(138,013		)	(118,685		)	(13,029		)
Accrual of servicing rebate to Investment Funds	700			885			2,772
Amortization, impairment and change in fair value of mortgage servicing rights	29,451			12,252			9,438
Carried Interest from Investment Funds	(13,419		)	(10,473		)	(12,596		)
Accrual of interest on excess servicing spread financing	1,348			—			—
Amortization of debt issuance costs and commitment fees relating to financing facilities	5,014			1,866			1,028
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust	175			(650		)	114
Change in fair value of real estate acquired in settlement of loans	22			—			—
Stock and unit-based compensation expense	3,937			20,308			1,116
Depreciation and amortization	824			520			251
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust	(16,113,806		)	(8,864,264		)	(575,649		)
Purchase of modified mortgage loans for sale from Ginnie Mae securities	(30,950		)	—			—
Originations of mortgage loans held for sale, net	(1,104,051		)	(539,160		)	(149,393		)
Sale and principal payments of mortgage loans held for sale	17,105,047			9,053,364			649,625
Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust	12,339			3,622			—
Repurchase of loans subject to representations and warranties	(6,696		)	—			—
Repurchase of real estate acquired in settlement of loans subject to representations and warranties	(309		)	—			—
Sale of real estate acquired in settlement of loans subject to representations and warranties	287			—			—
Increase in servicing advances	(60,189		)	(30,855		)	(40,754		)
Decrease (increase) in receivable from Investment Funds	57			3,797			(1,644		)
Decrease (increase) in receivable from PennyMac Mortgage Investment Trust	173			(3,970		)	(5,675		)
Increase in other assets	(6,433		)	(5,998		)	(1,423		)
Increase in accounts payable and accrued expenses	10,109			22,704			8,596
Increase in payable to Investment Funds	142			7,173			16,359
Increase in payable to PennyMac Mortgage Investment Trust	33,686			21,184			21,447
Net cash used in operating activities	(98,390		)	(308,057		)	(74,718		)
Cash flow from investing activities
Net increase in short-term investments	(89,418		)	(37,123		)	(6,727		)
Purchase of mortgage servicing rights	(195,871		)	—			(1,352		)
Sale of mortgage servicing rights	550			—			—
Purchase of furniture, fixtures, equipment and building improvements	(6,615		)	(3,370		)	(1,888		)
Acquisition of capitalized software	(343		)	(503		)	(112		)
Increase (decrease) in margin deposits and restricted cash	6,916			(4,539		)	(2,310		)
Net cash used in investing activities	(284,781		)	(45,535		)	(12,389		)
Cash flow from financing activities
Sale of loans under agreements to repurchase	15,805,464			8,528,184			656,742
Repurchase of loans sold under agreements to repurchase	(15,727,406		)	(8,212,350		)	(592,331		)
(Decrease) increase in note payable	(859		)	34,411			15,103
Issuance of excess servicing spread financing	139,028			—			—
Repayment of excess servicing spread financing	(4,076		)	—			—
Decrease in leases payable	(1		)	—			—
Issuance of common stock	230,000			—			—
Payment of common stock underwriting and offering costs	(13,486		)	—			—
Payment by noncontrolling interest of common stock issuance costs	(3,745		)	—			—
Collection of subscriptions receivable relating to noncontrolling interest	—			15,058			18,908
Noncontrolling interest partners’ capital redemptions	—			(6		)	(131		)
Distributions to noncontrolling interest	(23,432		)	(15,847		)	(646		)
Net cash provided by financing activities	401,487			349,450			97,645
Net increase in cash	18,316			(4,142		)	10,538
Cash at beginning of year	12,323			16,465			5,927
Cash at end of year	$	30,639		$	12,323		$	16,465

The accompanying notes are an integral part of these financial statements.

F-4

PENNYMAC FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Basis of Presentation

PennyMac Financial Services, Inc. (“PFSI” or the “Company”) was formed as a Delaware corporation on December 31, 2012. Pursuant to a reorganization, the Company became a holding corporation and its primary asset is an equity interest in Private National Mortgage Acceptance Company, LLC (“PennyMac”). The Company is the managing member of PennyMac and operates and controls all of the businesses and affairs of PennyMac subject to the consent rights of other members under certain circumstances and, through PennyMac and its subsidiaries, continues to conduct the business previously conducted by these subsidiaries.

PennyMac is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PennyMac’s mortgage banking activities consist of residential mortgage lending (including correspondent lending and retail lending) and loan servicing. PennyMac’s investment management activities and a portion of its loan servicing activities are conducted on behalf of its Advised Entities, which invest in residential mortgage loans and related assets. PennyMac’s primary wholly-owned subsidiaries are:

·PNMAC Capital Management, LLC (“PCM”)—a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM enters into investment management agreements with entities that invest in residential mortgage loans and related assets.

Presently, PCM has management agreements with PennyMac Mortgage Investment Trust (“PMT”), a publicly held real estate investment trust, and three investment funds: PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., (the “Master Fund”), both registered under the Investment Company Act of 1940, as amended; and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, “Investment Funds”). Together, the Investment Funds and PMT are referred to as the “Advised Entities.”

·PennyMac Loan Services, LLC (“PLS”)—a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates or the Advised Entities, originates new prime credit quality residential mortgage loans, and engages in other mortgage banking activities for its own account and the account of PMT.

PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) (each an “Agency” and collectively the “Agencies “).

·PNMAC Opportunity Fund Associates, LLC (“PMOFA”)—a Delaware limited liability company and the general partner of the Master Fund. PMOFA is entitled to incentive fees representing allocations of profits (“Carried Interest”) from the Master Fund.

Initial Public Offering and Recapitalization

On May 14, 2013, PFSI completed an initial public offering (“IPO”) in which it sold approximately 12.8 million shares of its Class A common stock, at a public offering price of $18.00 per share. PFSI received net proceeds of $216.8 million, after deducting underwriting discounts and commissions, from sales of its shares in the IPO. PFSI used these net proceeds to purchase approximately 12.8 million Class A units of PennyMac. PFSI operates and controls all of the business and affairs and consolidates the financial results of PennyMac and its subsidiaries.

The purchase of 12.8 million Class A units of PennyMac has been accounted for as a transfer of interests under common control. Accordingly, the accompanying consolidated financial statements reflect a reclassification of members’ equity to noncontrolling interests in the Company of $315.5 million. This amount represents the carrying value in the Company of the existing owners of PennyMac on the date of the IPO.

F-5

Before the IPO, PennyMac completed a reorganization by amending its limited liability company agreement to convert all classes of ownership interests held by its existing owners to a single class of common units. The conversion of existing interests was based on the various interests’ liquidation priorities as specified in PennyMac’s prior limited liability company agreement. In connection with that reorganization, PFSI became the sole managing member of PennyMac.

After the completion of the recapitalization and reorganization transactions, PennyMac became a consolidated subsidiary of the Company. Accordingly, PennyMac’s consolidated financial statements are the Company’s historical financial statements. The historical consolidated financial statements of PennyMac are reflected herein based on the historical ownership interests of the then-existing PennyMac unitholders.

Tax Receivable Agreement

As part of the IPO, PFSI entered into an Exchange Agreement with PennyMac’s existing unitholders whereby the existing unitholders may exchange their PennyMac units for PFSI stock. Before 2013, PennyMac made an election pursuant to Section 754 of the Internal Revenue Code which remains in effect. An exchange results in a special adjustment for PFSI that may increase PFSI’s tax basis of certain assets of PennyMac that otherwise would not have been available. These increases in tax basis may reduce the amount of income tax that PFSI would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase tax receivable agreement losses) on future dispositions of certain assets to the extent a portion of the increased tax basis is allocated to those assets.

PFSI entered into a tax receivable agreement with PennyMac’s existing unitholders that will provide for the payment by PFSI to PennyMac exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from exchanges and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

The term of the tax receivable agreement will continue until all such tax benefits have been utilized or expired, unless PFSI exercises its right to terminate the tax receivable agreement. In the event of termination of the tax receivable agreement, the Company would be required to make an immediate payment equal to the present value of the anticipated future net tax benefits, which upfront payment may be made years in advance of the actual realization of such future benefits.

Note 2—Concentration of Risk

A substantial portion of the Company’s activities relate to the Advised Entities. Fees charged to these entities (comprised of management fees, loan servicing fees and loan servicing rebates, Carried Interest and fulfillment fees) totaled 47%, 47% and 75% of total net revenues for the years ended December 31, 2013, 2012 and 2011, respectively.

Note 3—Significant Accounting Policies

A description of the Company’s significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (the “Codification”). All significant intercompany accounts and transactions have been eliminated.

Reclassification of Previously Presented Balances

Certain prior period amounts have been reclassified to conform to the current presentation. Specifically:

·Interest expense is included with Interest income as a new caption of Net interest expense to better reflect our results due to growth in the Company’s portfolio of interest-earning assets. Previously, Interest expense was included within Total expenses. This reclassification results in the presentation of Net interest expense.

F-6

Following is a summary of the reclassifications:

	As reported						As previously reported				Reclassification
	Year ended December 31,						Year ended December 31,				Year ended December 31,
	2012			2011			2012		2011		2012		2011
	(in thousands)
Net interest expense:
Interest income	$	6,354		$	1,532		$	6,354	$	1,532	$	—	$	—
Interest expense	7,879			1,875			—		—		7,879		1,875
	$	(1,525	)	$	(343	)	$	6,354	$	1,532	$	7,879	$	1,875

These reclassifications did not change previously reported income before provision for income taxes, provision for taxes, net income, reported consolidated balance sheet amounts including stockholders’ equity, or consolidated cash flows.

Principles of Consolidation

The consolidated financial statements include the accounts of PennyMac and all of its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

Fair Value

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:

·Level 1—Quoted prices in active markets for identical assets or liabilities.

·Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and other inputs.

·Level 3—Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an asset or liability at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

While management believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.

Management incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. The Company uses discounted cash flow techniques to estimate fair value. These techniques incorporate forecasting of expected cash flows discounted at market discount rates that are intended to reflect the lack of liquidity in the market.

F-7

Short-Term Investments

Short-term investments, which represent investments in money market accounts with a depository institution, are carried at fair value. Changes in fair value are recognized in current period income. The Company classifies its short-term investments as “Level 1” fair value financial statement items.

Mortgage Loans Held for Sale at Fair Value

Management has elected to account for mortgage loans held for sale at fair value, with changes in fair value recognized in current period income, to more timely reflect the Company’s performance. All changes in fair value, including changes arising from the passage of time, are recognized as a component of Net gains on mortgage loans held for sale at fair value. The Company classifies most of the mortgage loans held for sale at fair value as “Level 2” fair value financial statement items. Certain of the Company’s mortgage loans held for sale may not be readily saleable due to identified defects or delinquency. Such loans are classified as “Level 3” financial statement items.

Sale Recognition

The Company recognizes transfers of mortgage loans as sales when it surrenders control over the mortgage loans. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company, (ii) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates the Company to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets.

Interest Income Recognition

Interest income on mortgage loans held for sale at fair value is recognized over the life of the loans using their contractual interest rates. Income recognition is suspended for loans when they become 90 days delinquent, or when, in management’s opinion, a full recovery of interest and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current.

Servicing Advances

Servicing advances represent advances made on behalf of borrowers and the loans’ investors to fund delinquent balances for property tax and insurance premiums and out of pocket costs (e.g., preservation and restoration of mortgaged or real estate owned property, legal fees, appraisals and insurance premiums). Servicing advances are made in accordance with the Company’s servicing agreements and are deemed recoverable at the time of liquidation. These advances are periodically reviewed for collectability. Uncollectible amounts are written off when they are deemed uncollectible.

Derivative Financial Instruments

The Company is exposed to price risk relative to its mortgage loans held for sale as well as to the commitments it makes to loan applicants to originate or to PMT to acquire loans at specified interest rates (“interest rate lock commitments” or “IRLCs”). The Company bears price risk from the time a commitment to originate a loan is made to a borrower or to purchase a loan from PMT, to the time the mortgage loan is sold. During this period, the Company is exposed to losses if mortgage interest rates rise, because the value of the purchase commitment or mortgage loan held for sale decreases. The Company also is exposed to risk relative to the fair value of its mortgage servicing rights (“MSRs”). The Company is exposed to loss in value of its MSRs when interest rates decrease.

IRLCs are accounted for as derivative financial instruments. The Company manages the risk created by IRLCs relating to mortgage loans held for sale by entering into forward sale agreements to sell the mortgage loans and by the purchase and sale of mortgage-backed securities (“MBS”) options and futures. Such agreements are also accounted for as derivative financial instruments. From time to time, these instruments are also used to manage the risk created by changes in prepayment speeds on certain of the MSRs the Company holds. The Company classifies its IRLCs as “Level 3” financial statement items and the derivative financial instruments it acquires to manage the risks created by IRLCs and mortgage loans held for sale as “Level 2” fair value financial statement items. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities.

F-8

MSRs are generally subject to loss in value when market mortgage interest rates decrease. Decreasing market mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect income primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of mortgage loans underlying MSRs.

The Company accounts for its derivative financial instruments as free- standing derivatives. The Company does not designate its derivative financial instruments for hedge accounting. All derivative financial instruments are recognized on the consolidated balance sheet at fair value with changes in the fair values being reported in current period income. Changes in fair value of derivatives hedging IRLCs and mortgage loans held for sale at fair value are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income. For derivatives hedging MSRs, changes in fair value are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company’s consolidated statements of income.

When the Company has multiple derivative instruments with the same counterparty under a master netting arrangement, it offsets the amounts recorded as assets and liabilities and amounts recognized for the right to reclaim cash collateral it has deposited with the counterparty or the obligation to return cash collateral it has collected from the counterparty arising from that master netting arrangement. Such offset amounts are presented as either a net asset or liability by counterparty on the Company’s consolidated balance sheets.

Carried Interest Due from Investment Funds

The Company has a general partnership interest or other Carried Interest arrangement with the Investment Funds, and earns Carried Interest thereunder. Carried Interest, in general terms, is the share of any profits that the general partners receive as compensation. The Company determines the amount of Carried Interest to be recorded each period based on the cash flows that would be produced assuming termination of the Investment Funds agreements at period end. The allocation of profits between the Investment Funds and the Company is described under the Significant Accounting Policies caption Management Fees and Carried Interest, following.

Investment in PennyMac Mortgage Investment Trust at Fair Value

Common shares of beneficial interest in PMT are carried at their fair value with changes in fair value recognized in current period income. Fair value for purposes of the Company’s holdings in PMT is based on the published closing price of the shares as of period end. The Company classifies its investment in common shares of PMT as a “Level 1” fair value financial statement item.

Mortgage Servicing Rights

MSRs arise from contractual agreements between the Company and investors (or their agents) in mortgage securities and mortgage loans. Under these contracts, the Company performs loan servicing functions in exchange for fees and other remuneration. The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments; responding to borrower inquiries; accounting for principal and interest; holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; supervising the acquisition of real estate in settlement of loans and property disposition. Real estate acquired in settlement of loans (“REO”) represents real estate that collateralized the mortgage loans before the properties were acquired in settlement of loans.

The value of MSRs is derived from the net positive cash flows associated with the servicing contracts. The Company receives a servicing fee ranging generally from 0.19% to 0.57% annually on the remaining outstanding principal balances of the mortgage loans subject to the servicing contracts. The servicing fees are collected from the monthly payments made by the mortgagors. The Company is contractually entitled to receive other remuneration including rights to various mortgagor-contracted fees such as late charges, collateral reconveyance charges and loan prepayment penalties, and the Company is generally entitled to retain the interest earned on funds held pending remittance related to its collection of mortgagor payments. The Company also generally has the right to solicit the mortgagors for other products and services as well as for new mortgages for those considering refinancing or purchasing a new home.

F-9

The Company recognizes MSRs initially at their estimated fair value, either as proceeds from sales of mortgage loans where the Company assumes the obligation to service the loan in the sale transaction, or from the purchase of MSRs. The Company’s MSRs generally relate to either pools of distressed loans (“Distressed MSRs”), or pools of loans that were originated to borrowers with prime credit characteristics or are backed by government insurance. Accordingly, the assumptions used in the valuation are differentiated based on the higher expectation of the delinquency migration of the MSRs backed by distressed loans and significantly higher expected cost to service and advance payments for MSRs backed by the distressed loans.

The Company’s subsequent accounting for MSRs is based on the class of MSRs. The Company has identified three classes of MSRs: originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5%; MSRs backed by mortgage loans with initial interest rates of more than 4.5%; and purchased MSRs acquired in transactions financed in part through the financing of the right to receive excess servicing spread (“ESS”) cash flows. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method. MSRs backed by loans with initial interest rates of more than 4.5% are accounted for at fair value with changes in fair value recorded in current period income. The Company distinguishes between these classes of MSRs due to the differing factors that can cause changes in prepayment speeds of the underlying loans, which in turn cause changes in the fair value of the MSRs. MSRs purchased for which a financing in the form of ESS cash flows has been recorded are accounted for at fair value. The ESS financing at fair value is also accounted for at fair value to align the accounting for the MSR with the related liability.

The fair value of MSRs is difficult to determine because MSRs are not actively traded in observable stand-alone markets. Considerable judgment is required to estimate the fair values of MSRs and the exercise of such judgment can significantly affect the Company’s income. Therefore, the Company classifies its MSRs as “Level 3” fair value financial statement items.

The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting servicing cash flows. The inputs used in the Company’s discounted cash flow model are based on market factors which management believes are consistent with assumptions and data used by market participants valuing similar MSRs.

The key inputs used in the valuation of MSRs include mortgage prepayment speeds, cost to service the loans and discount rates. These inputs can, and generally do, change from period to period as market conditions change.

MSRs are generally subject to loss in value when mortgage rates decline. Declining mortgage rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect earnings primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of the underlying mortgage loans.

MSRs Accounted for Using the Amortization Method

The Company amortizes MSRs that are accounted for using the amortization method. MSR amortization is determined by applying the ratio of the net MSR cash flows projected for the current period to the estimated total remaining projected net MSR cash flows. The estimated total net MSR cash flows are determined at the beginning of each month using prepayment assumptions applicable at that time.

MSRs accounted for using the amortization method are periodically evaluated for impairment. Impairment occurs when the current fair value of the MSRs decreases below the asset’s carrying value (carrying value is the MSR’s amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period income and the carrying value of the MSRs is adjusted through a valuation allowance. If the value of impaired MSRs subsequently increases, the increase in value is recognized in current-period income. When an increase in value of MSR is recognized, the valuation allowance is adjusted to increase the carrying value of the MSRs only to the extent of the valuation allowance.

For impairment evaluation purposes, the Company stratifies its MSRs by predominant risk characteristic when evaluating for impairment. For purposes of performing its MSR impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics including loan type (fixed-rate or adjustable-rate) and note rate. Fixed-rate loans are stratified into note rate pools of 50 basis points for note rates between 3.0% and 4.5% and a single pool for note rates below 3%. If the fair value of MSRs in any of the note rate pools is below the carrying value of the MSRs for that pool, impairment is recognized to the extent of the difference between the estimated fair value and the carrying value, including the existing valuation allowance for that pool.

F-10

Management periodically reviews the various impairment strata to determine whether the value of the impaired MSRs in a given stratum is likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

Both amortization and changes in the amount of the MSR valuation allowance are recorded in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

MSRs Accounted for at Fair Value

Changes in fair value of MSRs accounted for at fair value are recognized in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

Furniture, Fixtures, Equipment and Building Improvements

Furniture, fixtures, equipment and building improvements are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the various classes of assets, which range from five to seven years for furniture and equipment and the lesser of the asset’s estimated useful life or the remaining lease term for fixtures and building improvements.

Capitalized Software

The Company capitalizes certain consulting, payroll, and payroll-related costs related to computer software for internal use, and subsequently amortizes such costs over a period of five years using the straight-line method.

The Company also periodically assesses long-lived assets including capitalized software for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. If management identifies an indicator of impairment, it assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. No such impairment was recorded during the three years ended December 31, 2013.

Restricted Cash

Restricted cash represents deposits that serve as collateral for various agreements the Company has entered into, such as derivative margin account agreements. Restricted cash is included in Other assets in the Company’s consolidated balance sheets. Management classifies restricted cash as a “Level 1” fair value financial statement item.

Mortgage Loans Sold Under Agreements to Repurchase

The carrying value of mortgage loans sold under agreements to repurchase is based on the accrued cost of the agreements. The costs of creating the facilities underlying the agreements are recognized as deferred charges in Other assets and amortized to Interest expense over the term of the borrowing facility.

Excess Servicing Spread Financing at Fair Value

In conjunction with the Company’s acquisition of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows of certain MSRs. Management classifies ESS at fair value as a “Level 3” fair value financial statement item.

Loans Eligible for Repurchase

The terms of the Ginnie Mae MBS program allow, but do not require, the Company to repurchase mortgage loans when the borrower has made no payments for three consecutive months. As a result of this right, the Company records the mortgage loans in Loans eligible for repurchase and records a corresponding liability in Liability for loans eligible for repurchase on its balance sheet.

F-11

Liability for Losses Under Representations and Warranties

The Company’s agreements with the Agencies include representations and warranties related to the loans the Company sells to the Agencies. The representations and warranties require adherence to Agency origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

In the event of a breach of its representations and warranties, the Company may be required to either repurchase the mortgage loans with the identified defects or indemnify the Agency, or may become ineligible to receive any of the benefits provided by the insurer with respect to such mortgage loans. In such cases, the Company bears any subsequent credit loss on the mortgage loans. The Company’s credit loss may be reduced by any recourse it has to correspondent lenders that, in turn, had sold such mortgage loans to the Company and breached similar or other representations and warranties. In such event, the Company has the right to seek a recovery of related repurchase losses from that correspondent lender.

The Company includes a provision for losses relating to the representations and warranties it makes as part of its loan sale transactions. The method used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates, the potential severity of loss in the event of default and the probability of reimbursement by the correspondent loan seller. The Company establishes a liability at the time loans are sold and periodically updates its liability estimate. The liability estimate is reviewed and approved by the Company’s management credit committee.

The level of the liability for representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and other external conditions that may change over the lives of the underlying loans, The Company’s representations and warranties are generally not subject to stated limits of exposure. However, management believes that the current unpaid principal balance (“UPB”) of loans sold by the Company to date represents the maximum exposure to repurchases related to representations and warranties. Management believes the amount and range of reasonably possible losses in relation to the recorded liability is not material to the Company’s financial condition or results of operations.

Loan Servicing Fees

Loan servicing fees and other remuneration are received by the Company for servicing residential mortgage loans. Loan servicing fees are recorded net of Agency guarantee fees paid by the Company. Loan servicing fees are recognized as earned over the life of the loans in the servicing portfolio.

Stock-Based Compensation

The Company’s 2013 Equity Incentive Plan provides for awards of nonstatutory and incentive stock options (“Stock Options”), time-based restricted stock units, performance-based restricted stock units, stock appreciation rights, performance units and stock grants. The Company estimates the value of the Stock Options, time-based restricted stock units and performance-based restricted stock units awarded with reference to the value of its underlying common stock on the date of the award.

Compensation costs are fixed, except for performance-based restricted stock units, at the estimated fair value as of the award date as all grantees are employees of PennyMac or directors of the Company. The Company amortizes the cost of time-based restricted stock unit awards to compensation expense over the vesting period using the graded vesting method. The Company amortizes performance-based restricted stock unit awards on the straight-line basis over the vesting period. Expense relating to awards is included in Compensation in the consolidated statements of income.

Income Taxes

As a result of the PennyMac recapitalization and reorganization, the Company expects to benefit from amortization and other tax deductions due to an increase in tax basis from the exchange of PennyMac Class A units. Those deductions will be allocated to the Company and will be taken into account in reporting the Company’s taxable income. The Company has entered into an agreement with the unitholders of PennyMac that will provide for the additional payment by the Company to exchanging unitholders of PennyMac equal to 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that PFSI realizes due to (i) increases in tax basis resulting from exchanges of the then-existing unitholders and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

F-12

The Company is subject to federal and state income taxes. Income taxes are provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. A valuation allowance is established if, in management’s judgment, it is not more likely than not that a deferred tax asset will be realized.

The Company recognizes tax benefits relating to its tax positions only if, in the opinion of management, it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this standard is recognized as the largest amount that is greater than 50% likely to be realized upon ultimate settlement with the appropriate taxing authority. The Company will classify any penalties and interest as a component of provision for income taxes.

Variable Interest Held in Unconsolidated Variable Interest Entities

PMOFA is a general partner in the Master Fund. The Master Fund wholly owns PennyMac Mortgage Co. Funding, LLC (“Funding, LLC”), PennyMac Mortgage Co. Funding II, LLC (“Funding II, LLC), and PennyMac Mortgage Co, LLC (“Mortgage Co”). Funding, LLC and Funding II, LLC are each the majority interest holder in PennyMac Loan Trust 2010-NPL1, PennyMac Loan Trust 2011-NPL1 and PennyMac REO 2011-NPL1 (the “Trusts”), which in the case of the first entity holds the mortgage loans for Funding LLC and in the case of the latter two entities hold the mortgage loans for Funding II, LLC.

PLS provides loan servicing to the Trusts as well as to Mortgage Co. The related party group constituting the Company and its affiliates (including PMOFA) has an equity interest in the Master Fund, the ultimate Parent of the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC. The direct equity holders in the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC, however, do not have power to direct operations of the respective entities and as such, both the Trusts and Mortgage Co are considered to be variable interest entities (“VIEs”) as defined in the Consolidations topic of the Codification.

The Company is not the primary beneficiary in these VIEs, given it does not represent the enterprise within the related party group that is most closely associated with these VIEs and, as such, the Company does not consolidate these VIEs. Exposure of loss to the related party group from the unconsolidated VIEs is limited to the contributed capital of the related party group in the Master Fund totaling $1,436,000 which represents the general partnership interest held by PMOFA in the Master Fund.

Recent Accounting Pronouncements

In December 2011, the FASB issued an Accounting Standards Update (“ASU”), ASU 2011-11, to the Balance Sheet topic of the Codification. The amendments in this ASU affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic of the Codification or (2) subject an enforceable master netting arrangement or similar agreement.

The amendments in this ASU require the Company to disclose information about offsetting and related arrangement to enable users of financial statements to understand the effect of netting to an entity’s financial position.

In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. The ASU clarifies that the scope applied to derivatives accounted for in accordance with the Derivatives and Hedging topic of the Codification, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic or subject to an enforceable master netting arrangement or similar agreement.

F-13

The ASU amendment and the subsequent clarification of the amendment are effective for periods beginning on or after January 1, 2013, and must be shown for all periods shown on the balance sheet. The adoption of these ASU amendments did not have a material effect on the Company’s financial condition or results of operations.

In January 2014, the FASB issued ASU 2014-04, Troubled Debt Restructurings by Creditors to the Receivables topic of the Codification, which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

ASU 2014-04 specifies that a creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:

a.The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.

b.The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.

ASU 2014-04 also requires the disclosure of the carrying value of REO and its recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for the Company for annual and interim periods within those annual periods, beginning after December 15, 2014.

An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity would apply the amendments in ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. The adoption of ASU-2014-04 is not expected to be material to the financial statements of the Company.

Note 4—Transactions with Affiliates

PennyMac Mortgage Investment Trust

Management Fees

Before February 1, 2013, under a management agreement, PennyMac received a base management fee from PMT. The base management fee was calculated at 1.5% per year of PMT’s shareholders’ equity. The management agreement also provided for a performance incentive fee, which was calculated at 20% per year of the amount by which PMT’s “core earnings,” on a rolling four-quarter basis and before the incentive fee, exceeded an 8% “hurdle rate” as defined in the management agreement. PennyMac did not earn a performance incentive fee before February 1, 2013.

Effective February 1, 2013, the management agreement was amended to provide that:

·The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT’s shareholders’ equity up to $2 billion, (ii) 1.375% per year of shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s shareholders’ equity in excess of $5 billion.

·The performance incentive fee is calculated at a defined annualized percentage of the amount by which PMT’s “net income,” on a rolling four- quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.”

F-14

The performance incentive fee is calculated quarterly and is equal to the sum of: (a) 10% of the amount by which PMT’s net income for the quarter exceeds (i) an 8% return on equity plus the “high watermark,” up to (ii) a 12% return on PMT’s equity; plus (b) 15% of the amount by which PMT’s net income for the quarter exceeds (i) a 12% return on PMT’s equity plus the “high watermark,” up to (ii) a 16% return on PMT’s equity; plus (c) 20% of the amount by which PMT’s net income for the quarter exceeds a 16% return on equity plus the “high watermark.”

For the purpose of determining the amount of the performance incentive fee:

“Net income” is defined as net income or loss computed in accordance with U.S. GAAP and certain other non-cash charges determined after discussions between the Company and PMT’s independent trustees and approval by a majority of PMT’s independent trustees.

“Equity” is the weighted average of the issue price per common share of all of PMT’s public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four- quarter period.

The “high watermark” starts at zero and is adjusted quarterly. The quarterly adjustment reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30-year MBS yield (the “target yield”) for the four quarters then ended. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for the Company to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned.

The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or in PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.

Following is a summary of the management fees earned from PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Management fees:
Base	$	19,644	$	12,436	$	6,740
Performance incentive	12,766		—		—
	$	32,410	$	12,436	$	6,740

The term of the management agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the management agreement.

In the event of termination by PMT, the Company may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual (or, if the period is than 24 months, annualized) performance incentive fee earned by the Company, in each case during the 24-month period before termination.

Mortgage Loan Servicing

The Company has a loan servicing agreement with PMT. Before February 1, 2013, the servicing fee rates were based on the risk characteristics of the mortgage loans serviced and total servicing compensation was established at levels that management believed were competitive with those charged by other servicers or specialty servicers, as applicable.

F-15

·Servicing fee rates for nonperforming loans ranged between 50 and 100 basis points per year on the UPB of the mortgage loans serviced on PMT’s behalf. PennyMac was also entitled to certain customary market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges, as well as interest on funds on deposit in custodial accounts. In the event PennyMac either effected a refinancing of a loan on PMT’s behalf and not through a third party lender and the resulting loan was readily saleable, or originated a loan to facilitate the disposition of real estate that PMT had acquired in settlement of a loan, PennyMac was entitled to receive from PMT market-based fees and compensation.

·For mortgage loans serviced by PMT as a result of acquisitions and sales with servicing rights retained in connection with PMT’s correspondent lending business, PennyMac was entitled to base subservicing fees and other customary market-based fees and charges as described above.

Effective February 1, 2013, the servicing agreement was amended to provide for servicing fees payable to the Company that changed from being based on a percentage of the loan’s UPB to fixed per-loan monthly amounts based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or the REO.

·The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per-loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or the related underlying real estate. Presently, the base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $125 per month for mortgage loans that are severely delinquent and in foreclosure.

·The base servicing fee rates for non-distressed mortgage loans subserviced by the Company on PMT’s behalf are also calculated through a monthly per-loan dollar amount, with the actual dollar amount for each mortgage loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fee rates for mortgage loans subserviced on PMT’s behalf are $7.50 per month for fixed-rate mortgage loans and $8.50 per month for adjustable rate mortgage loans. To the extent that these mortgage loans become delinquent, the Company is entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $75 per month based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or the related underlying real estate.

·The Company is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because PMT does not have any employees or infrastructure. For these services, the Company receives a supplemental fee of $25 per month for each distressed whole mortgage loan and $3.25 per month for each non-distressed subserviced mortgage loan. With respect to non- distressed subserviced mortgage loans, the supplemental fee is subject to a cap of $700,000 per quarter. The Company is also entitled to reimbursement for all customary, good faith reasonable and necessary out-of-pocket expenses incurred in performance of its servicing obligations.

·The Company, on behalf of PMT, currently participates in the Home Affordable Modification Program (“HAMP”) of the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (“HUD”) (and other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for “at risk” homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles the Company to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to the Company under HAMP in connection with a mortgage loan modification for which PMT previously paid the Company a modification fee, the Company shall reimburse PMT an amount equal to the incentive payments.

The Company also remains entitled to market-based fees and charges including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges relating to loans it services for PMT.

F-16

Following is a summary of mortgage loan servicing fees earned from PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Loan servicing fees:
Base	$	26,993	$	14,332	$	9,740
Activity-based	12,420		4,276		3,464
	$	39,413	$	18,608	$	13,204

The term of the servicing agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the servicing agreement.

Correspondent Lending

Before February 1, 2013, PMT paid PennyMac a fulfillment fee of 50 basis points of the UPB of mortgage loans sold to non-affiliates where PMT is approved or licensed to sell to such non-affiliate. Effective February 1, 2013, the mortgage banking and warehouse services agreement provides for a fulfillment fee paid to the Company based on the type of mortgage loan that PMT acquires. The fulfillment fee is equal to a percentage of the UPB of mortgage loans purchased by PMT, with the addition of potential fee rate discounts applicable to PMT’s monthly purchase volume in excess of designated thresholds. The Company has also agreed to provide such services exclusively for PMT’s benefit, and the Company and its affiliates are prohibited from providing such services for any other third party.

Presently, the applicable fulfillment fee percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans salable in accordance with the Ginnie Mae Mortgage-Backed Securities Guide, (iii) 0.80% for the U.S. Department of the Treasury and HUD’s Home Affordable Refinance Program (“HARP”) mortgage loans with a loan-to-value ratio of 105% or less, (iv) 1.20% for HARP mortgage loans with a loan-to-value ratio of more than 105%, and (v) 0.50% for all other mortgage loans not contemplated above; provided, however, that the Company may, in its sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage loan was funded.

In the event that PMT purchases mortgage loans with an UPB in any month totaling more than $2.5 billion and less than $5 billion, the Company has agreed to discount the amount of such fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which the Company collected fulfillment fees in such month. In the event PMT purchases mortgage loans with an total UPB in any month greater than $5 billion, the Company has agreed to further discount the amount of fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which the Company collected fulfillment fees in such month.

PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the mortgage banking and warehouse services agreement, the Company currently purchases loans salable in accordance with the Ginnie Mae Mortgage-Backed Securities Guide “as is” and without recourse of any kind to PMT at its cost less fees collected by PMT from the seller, plus accrued interest and a sourcing fee of three basis points.

In consideration for the mortgage banking services provided by the Company with respect to PMT’s acquisition of mortgage loans under PLS’s early purchase program, the Company is entitled to fees (i) accruing at a rate equal to $25,000 per year per early purchase facility administered by the Company, and (ii) in the amount of $50 for each mortgage loan PMT acquires. In consideration for the warehouse services provided by the Company with respect to mortgage loans that PMT finances for its warehouse lending clients, with respect to each facility, the Company is entitled to fees (i) accruing at a rate equal to $25,000 per year, and (ii) in the amount of $50 for each mortgage loan that PMT finances thereunder. Where PMT has entered into both an early purchase agreement and a warehouse lending agreement with the same client, the Company shall only be entitled to one $25,000 per year fee and, with respect to any mortgage loan that becomes subject to both such agreements, only one $50 per mortgage loan fee.

The term of the mortgage banking and warehouse services agreement expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.

F-17

Following is a summary of correspondent lending activity between the Company and PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Fulfillment fee revenue	$	79,712	$	62,906	$	1,747
UPB of loans fulfilled for PMT	$	15,225,153	$	13,028,375	$	505,317
Sourcing fees paid	$	4,611	$	2,505	$	166
Fair value of loans purchased from PMT	$	16,113,806	$	8,864,264	$	577,852

MSR Recapture Agreement

Pursuant to the terms of a MSR recapture agreement, as amended, if the Company refinances through its retail lending business mortgage loans for which PMT previously held the MSRs, the Company is generally required to transfer and convey to one of PMT’s wholly-owned subsidiaries, without cost to PMT, the MSRs with respect to new mortgage loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have a total UPB that is not less than 30% of the total UPB of all the mortgage loans so originated.

Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair market value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on February 1, 2017, subject to automatic renewal for additional 18-month periods. The Company recorded MSR recapture totaling $709,000 for the year ended December 31, 2013 as a component of Gain on mortgage loans held for sale.

Spread Acquisition and MSR Servicing Agreements

Effective February 1, 2013, the Company entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which it may sell to PMT or one of its wholly owned subsidiaries the rights to receive certain ESS from MSRs acquired by the Company from banks and other third party financial institutions. The Company is generally required to service or subservice the related mortgage loans for the applicable agency or investor. The terms of each transaction under the 2/1/13 Spread Acquisition Agreement are subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.

To the extent the Company refinances any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

On December 30, 2013, the Company entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/30/13 Spread Acquisition Agreement”). The terms of the 12/30/13 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that the Company only intends to sell ESS relating to Ginnie Mae MSRs under the 12/30/13 Spread Acquisition Agreement.

To the extent the Company refinances any of the mortgage loans relating to the ESS it sells to PMT, the 12/30/13 Spread Acquisition Agreement also contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 12/30/13 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, the Company is also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the 12/30/13 Spread Acquisition Agreement contains provisions that require the Company to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

F-18

In connection with the Company’s entry into the 12/30/13 Spread Acquisition Agreement, it was also required to amend the terms of its loan and security agreement (the “LSA”) with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), pursuant to which the Company pledged to CSFB all of its rights and interests in the Ginnie Mae MSRs it owns or acquires, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and the Company. Separately, as a condition to permitting the Company to transfer to PMT the ESS relating to a portion of the Company’s pledged Ginnie Mae MSRs, CSFB required PMT to enter into a Security and Subordination Agreement (the “Security Agreement”), pursuant to which PMT pledged to CSFB its rights under the 12/30/13 Spread Acquisition Agreement and its interest in any ESS purchased thereunder. CSFB’s lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 12/30/13 Spread Acquisition Agreement and the terms of the acknowledgement agreement.

The Security Agreement permits CSFB to liquidate PMT’s ESS along with the related MSRs to the extent there exists an event of default under the LSA, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of PMT’s credit facilities, that would require the Company to either (i) repay in full the outstanding loan amount under the LSA or (ii) repurchase the ESS from PMT at fair value. To the extent the Company is unable to repay the loan under the LSA or repurchase the ESS, an event of default would exist under the LSA, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the ESS is liquidated as a result of certain actions or inactions of the Company, PMT generally would be entitled to seek indemnity from the Company under the 12/30/13 Spread Acquisition Agreement.

Payable to Exchanged Private National Mortgage Acceptance Company, LLC Unitholders Under Tax Receivable Agreement

As discussed in Note 1, the Company entered into a tax receivable agreement with PennyMac’s existing unitholders on the date of the IPO that will provide for the payment by PFSI to PennyMac’s exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from exchanges and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Based on the PennyMac unitholder exchanges during the period, the Company has recorded a $71.1 million liability and has not made a payment under the tax sharing agreement as of December 31, 2013.

Other Transactions

In connection with the IPO of PMT’s common shares on August 4, 2009, the Company entered into an agreement with PMT pursuant to which PMT agreed to reimburse the Company for the $2.9 million payment that it made to the underwriters in such offering (the “Conditional Reimbursement”) if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, PMT amended the terms of the reimbursement agreement to provide for the reimbursement to the Company of the Conditional Reimbursement if PMT is required to pay the Company performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12- month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million. The Company received payments from PMT totaling $944,000 during the year ended December 31, 2013.

In the event the termination fee is payable to the Company under the management agreement and the Company has not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.

F-19

PMT reimburses the Company for other expenses, including common overhead expenses incurred on its behalf by the Company, in accordance with the terms of its management agreement. Such amounts are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Reimbursement of:
Common overhead incurred by PCM and its affiliates	$	10,989	$	4,183	$	4,086
Expenses incurred on PMT’s behalf	4,638		3,146		2,219
	$	15,627	$	7,329	$	6,305
Payments and settlements during the year(1)	$	121,230	$	85,554	$	12,656

(1)Payments and settlements include payments for management fees and correspondent lending activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT.

Amounts due from PMT are summarized below:

	December 31,
	2013		2012
	(in thousands)
Management fees	$	8,924	$	4,499
Servicing fees	5,915		3,670
Allocated expenses	2,009		1,106
Underwriting fees	1,788		2,941
Loan purchases	—		4,475
	$	18,636	$	16,691

The Company also holds an investment in PMT in the form of 75,000 common shares of beneficial interest as of December 31, 2013 and December 31, 2012. The shares had fair values of $1.7 million and $1.9 million as of December 31, 2013 and December 31, 2012, respectively.

Investment Funds

Amounts due from the Investment Funds are summarized below:

	December 31,
	2013		2012
	(in thousands)
Receivable from Investment Funds:
Management fees	$	2,031	$	2,164
Loan servicing fees	727		1,052
Loan servicing rebate	136		(239		)
Expense reimbursements	21		695
	$	2,915	$	3,672
Carried Interest due from Investment Funds:
PNMAC Mortgage Opportunity Fund, LLC	$	37,702	$	29,785
PNMAC Mortgage Opportunity Fund Investors, LLC	23,440		17,938
	$	61,142	$	47,723

Amounts due to the Investment Funds totaling $36.9 million and $36.8 million represent amounts advanced by the Investment Funds to fund servicing advances made by the Company as of December 31, 2013 and December 31, 2012, respectively.

F-20

Note 5—Earnings Per Share of Common Stock

Basic earnings per share of common stock is determined using net income attributable to the Company’s common stockholders divided by the weighted- average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is determined by dividing net income attributable to the Company’s common stockholders by the weighted-average of shares of common stock outstanding, assuming all potentially dilutive shares of common stock were issued.

The Company applies the treasury stock method to determine the dilutive weighted-average shares of common stock represented by the unvested stock-based awards and the exchangeable PennyMac Class A units. The diluted earnings per share calculation assumes the exchange of these PennyMac Class A units for shares of common stock. Accordingly, earnings attributable to the Company’s common stockholders is also adjusted to include the earnings allocated to the PennyMac Class A units after taking into account the income taxes applicable to the shares assumed to be exchanged.

The following table summarizes the basic and diluted earnings per share calculations:

	Year ended December 31, 2013
	(in thousands, except per share amounts)
Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,400
Weighted-average common stock shares outstanding	17,311
Basic earnings per share of common stock	$	0.83
Diluted earnings per share of common stock:
Net income	$	14,400
Effect of net income attributable to noncontrolling interest, net of tax	47,838
Diluted net income attributable to common stockholders	$	62,238
Weighted-average shares outstanding	17,311
Dilutive shares:
PennyMac Class A common units exchangeable to common stock	58,553
Shares issuable under stock-based compensation plans	28
Diluted weighted-average common stock shares outstanding	75,892
Diluted earnings per share of common stock	$	0.82

Note 6—Loan Sales and Servicing Activities

The Company purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.

The following table summarizes cash flows between the Company and transferees upon sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans (primarily the obligation to service the loans on behalf of the loans’ owners or owners’ agents):

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash flows:
Sales proceeds	$	17,006,460	$	9,123,645	$	655,724
Servicing fees received	$	56,066	$	11,197	$	163
Net servicing advances	$	4,207	$	7,818	$	538
Year end information:
UPB of loans outstanding at year end	$	23,640,261	$	9,847,509	$	696,521
Delinquencies:
30 - 89 days	$	410,927	$	137,827	$	5,272
90 days or more or in foreclosure or bankruptcy	$	143,022	$	54,795	$	813

F-21

The Company’s mortgage servicing portfolio is summarized as follows:

	December 31, 2013
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	44,969,026	$	—	$	44,969,026
Affiliated entities	—		31,632,718		31,632,718
Private investors	969,794		89,361		1,059,155
Mortgage loans held for sale	506,540		—		506,540
	$	46,445,360	$	31,722,079	$	78,167,439
Amount subserviced for the Company	$	156,347	$	582,610	$	738,957
Delinquent mortgage loans:
30 days	$	1,304,054	$	263,518	$	1,567,572
60 days	346,912		112,275		459,187
90 days or more	605,555		1,416,498		2,022,053
	2,256,521		1,792,291		4,048,812
Loans pending foreclosure	168,776		1,792,128		1,960,904
	$	2,425,297	$	3,584,419	$	6,009,716
Custodial funds managed by the Company(1)	$	568,161	$	246,587	$	814,748

	December 31, 2012
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	9,860,284	$	—	$	9,860,284
Affiliated entities	—		16,552,939		16,552,939
Private investors	1,321,584		—		1,321,584
Mortgage loans held for sale	417,742		—		417,742
	$	11,599,610	$	16,552,939	$	28,152,549
Amount subserviced for the Company	$	45,562	$	375,818	$	421,380
Delinquent mortgage loans:
30 days	$	191,884	$	187,653	$	379,537
60 days	60,886		122,564		183,450
90 days or more	112,847		851,851		964,698
	365,617		1,162,068		1,527,685
Loans pending foreclosure	75,329		1,290,687		1,366,016
	$	440,946	$	2,452,755	$	2,893,701
Custodial funds managed by the Company(1)	$	263,562	$	150,080	$	413,642

(1)Borrower and investor custodial cash accounts relate to loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the loans’ investors, which is recorded as part of the interest income in the Company’s consolidated statements of income.

F-22

Following is a summary of the geographical distribution of loans included in the Company’s servicing portfolio for the top five and all other states as measured by the total UPB:

	December 31,
State	2013			2012
	(in thousands)
California	$	30,320,616		$	10,696,508
Texas	4,470,123			1,223,382
Virginia	3,769,683					*
Florida	3,416,274			1,385,286
Washington	2,760,900			1,143,849
Colorado			*	1,299,295
All other states	33,429,843			12,404,229
	$	78,167,439		$	28,152,549

*State did not represent a top five state as of the respective date.

Certain of the loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Loans are subserviced for the Company when the loans are secured by property in the State of Massachusetts where the Company is not licensed and a license is required to perform such services, or on a transitional basis for loans where the Company has obtained the rights to service the loans but servicing of the loans has not yet transferred to the Company’s servicing system.

Note 7—Netting of Financial Instruments

The Company uses derivative financial instruments to manage exposure to interest rate risk for the IRLCs it makes to purchase or originate mortgage loans at specified interest rates, its inventory of mortgage loans held for sale and MSRs. The Company has elected to setoff derivative asset and liability positions, and cash collateral obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs.

Following are summaries of derivative assets and related setoff amounts. As of December 31, 2013 and December 31, 2012, the Company was not party to reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following table.

Offsetting of Derivative Assets

	December 31, 2013								December 31, 2012
	Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet			Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet
	(in thousands)
Derivatives subject to master netting arrangements:
MBS put options	$	665	$	—		$	665		$	967	$	—		$	967
MBS call options	91		—			91			—		—			—
Forward purchase contracts	416		—			416			1,645		—			1,645
Forward sale contracts	18,762		—			18,762			1,818		—			1,818
Netting	—		(7,358		)	(7,358		)	—		(1,091		)	(1,091		)
	19,934		(7,358		)	12,576			4,430		(1,091		)	3,339
Derivatives not subject to master netting arrangements—IRLCs	8,964		—			8,964			23,951		—			23,951
	$	28,898	$	(7,358	)	$	21,540		$	28,381	$	(1,091	)	$	27,290

F-23

Derivative Assets, Financial Assets, and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.

	December 31, 2013								December 31, 2012
			Gross amount not								Gross amount not
			offset in the								offset in the
	Net		consolidated						Net		consolidated
	amount		balance sheet						amount		balance sheet
	of assets				Cash				of assets				Cash
	in the		Financial		collateral		Net		in the		Financial		collateral		Net
	balance sheet		instruments		received		amount		balance sheet		instruments		received		amount
	(in thousands)
Interest rate lock commitments	$	8,964	$	—	$	—	$	8,964	$	23,951	$	—	$	—	$	23,951
Credit Suisse First Boston Mortgage Capital LLC	2,149		—		—		2,149		—		—		—		—
Bank of America, N.A.	1,680		—		—		1,680		1,782		—		—		1,782
Morgan Stanley Bank, N.A.	1,704		—		—		1,704		—		—		—		—
Daiwa Capital Markets	1,190		—		—		1,190		—		—		—		—
Citibank, N.A.	—		—		—		—		522		—		—		522
Other	5,853		—		—		5,853		1,035		—		—		1,035
	$	21,540	$	—	$	—	$	21,540	$	27,290	$	—	$	—	$	27,290

Offsetting of Derivative Liabilities and Financial Liabilities

Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related setoff amounts. As discussed above, all derivatives with the exception of IRLCs are subject to master netting arrangements. The assets sold under agreements to repurchase do not qualify for setoff accounting.

F-24

	December 31, 2013								December 31, 2012
	Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet			Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet
	(in thousands)
Derivatives subject to a master netting arrangement:
Forward purchase contracts	$	6,542	$	—		$	6,542		$	389	$	—		$	389
Forward sale contracts	504		—			504			1,894		—			1,894
Netting	—		(6,787		)	(6,787		)	—		(1,785		)	(1,785		)
	7,046		(6,787		)	259			2,283		(1,785		)	498
Derivatives not subject to a master netting arrangement—IRLCs	2,203		—			2,203			11		—			11
Total derivatives	9,249		(6,787		)	2,462			2,294		(1,785		)	509
Mortgage loans sold under agreements to repurchase	471,592		—			471,592			393,534		—			393,534
	$	480,841	$	(6,787	)	$	474,054		$	395,828	$	(1,785	)	$	394,043

Derivative Liabilities, Financial Liabilities, and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that does not qualify under the accounting guidance for setoff accounting. All assets sold under agreements to repurchase are secured by sufficient collateral or exceed the liability amount recorded on the consolidated balance sheets.

	December 31, 2013									December 31, 2012
			Gross amount									Gross amount
			not offset in the									not offset in the
			consolidated									consolidated
	Net amount of		balance sheet							Net amount of		balance sheet
	liabilities					Cash				liabilities					Cash
	in the consolidated		Financial			collateral		Net		in the consolidated		Financial			collateral		Net
	balance sheet		instruments			pledged		amount		balance sheet		instruments			pledged		amount
	(in thousands)
Interest rate lock commitments	$	2,203	$	—		$	—	$	2,203	$	11	$	—		$	—	$	11
Bank of America, N.A.	234,511		(234,511		)	—		—		150,082		(150,082		)	—		—
Credit Suisse First Boston Mortgage Capital LLC	198,888		(198,888		)	—		—		122,443		(122,252		)	—		191
Morgan Stanley Bank, N.A.	38,193		(38,193		)	—		—		53		—			—		53
Citibank, N.A.	—		—			—		—		121,200		(121,200		)	—		—
Other	259		—			—		259		254		—			—		254
	$	474,054	$	(471,592	)	$	—	$	2,462	$	394,043	$	(393,534	)	$	—	$	509

Note 8—Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its estimated fair value as discussed in the following paragraphs.

F-25

Fair Value Accounting Elections

Management identified all of its non-cash financial assets and its originated MSRs relating to loans with initial interest rates of more than 4.5% and MSRs purchased subject to ESS financing to be accounted for at estimated fair value so changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company’s performance. Management has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSR’s fair value risk.

For originated MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5%, management has concluded that such assets present different risks to the Company than originated MSRs relating to mortgage loans with initial interest rates of more than 4.5% and therefore require a different risk management approach. Management’s risk management efforts relating to these assets are aimed at mainly moderating the effects of non-interest rate risks on fair value, such as the effect of changes in home prices on the assets’ values. Management has identified these assets for accounting using the amortization method.

Management’s risk management efforts in connection with MSRs relating to mortgage loans with initial interest rates of more than 4.5% are aimed at mainly moderating the effects of changes in interest rates on the assets’ values. At times during the year ended December 31, 2013, a portion of the IRLCs, the fair value, which typically increases when prepayment speeds increase, were used to moderate the effect of changes in fair value of MSRs, which typically decreases as prepayment speeds increase.

Financial Statement Items Measured at Fair Value on a Recurring Basis

Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis:

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	142,582	$	—	$	—	$	142,582
Mortgage loans held for sale at fair value	—		527,071		3,933		531,004
Derivative assets:
Interest rate lock commitments	—		—		8,964		8,964
Forward purchase contracts	—		416		—		416
Forward sales contracts	—		18,762		—		18,762
MBS put options	—		665		—		665
MBS call options	—		91		—		91
Total derivative assets before netting	—		19,934		8,964		28,898
Netting(1)	—		—		—		(7,358		)
Total derivative assets	—		19,934		8,964		21,540
Investment in PennyMac Mortgage Investment Trust	1,722		—		—		1,722
Mortgage servicing rights at fair value	—		—		224,913		224,913
	$	144,304	$	547,005	$	237,810	$	921,761
Liabilities:
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust	$	—	$	—	$	138,723	$	138,723
Derivative liabilities:
Interest rate lock commitments	—		—		2,203		2,203
Forward purchase contracts	—		6,542		—		6,542
Forward sales contracts	—		504		—		504
Total derivative liabilities before netting	—		7,046		2,203		9,249
Netting(1)	—		—		—		(6,787		)
Total derivative liabilities	—		7,046		2,203		2,462
	$	—	$	7,046	$	140,926	$	141,185

F-26

(1)Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	53,164	$	—	$	—	$	53,164
Mortgage loans held for sale at fair value	—		448,384		—		448,384
Derivative assets:
Interest rate lock commitments	—		—		23,951		23,951
Forward purchase contracts	—		1,645		—		1,645
Forward sales contracts	—		1,818		—		1,818
MBS put options	—		967		—		967
Total derivative assets before netting	—		4,430		23,951		28,381
Netting(1)	—		—		—		(1,091		)
Total derivative assets	—		4,430		23,951		27,290
Investment in PennyMac Mortgage Investment Trust	1,897		—		—		1,897
Mortgage servicing rights at fair value	—		—		19,798		19,798
	$	55,061	$	452,814	$	43,749	$	550,533
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	11	$	11
Forward purchase contracts	—		389		—		389
Forward sales contracts	—		1,894		—		1,894
Total derivative liabilities before netting	—		2,283		11		2,294
Netting(1)	—		—		—		(1,785		)
Net derivative liabilities	$	—	$	2,283	$	11	$	509

(1)Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the setoff of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

F-27

As shown above, certain of the Company’s mortgage loans held for sale at fair value, MSRs at fair value, IRLCs, and ESS financing at fair value are measured using Level 3 inputs. Following is a roll forward of these items for the three years ended December 31, 2013 where Level 3 significant inputs were used on a recurring basis:

	Year ended December 31, 2013
	Mortgage loans held for sale			Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Assets:
Balance, December 31, 2012	$	—		$	23,940		$	19,798		$	43,738
Repurchases of mortgage loans subject to representations and warranties	5,529			—			—			5,529
Repayments	(1,364		)	—			—			(1,364		)
Interest rate lock commitments issued, net	—			101,179			—			101,179
MSRs resulting from purchases	—			—			195,871			195,871
MSRs resulting from loan sales	—			—			14,636			14,636
Sales	—			—			(550		)	(550		)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk	—									—
Other factors	(232		)	(15,682		)	(4,842		)	(20,756		)
	(232		)	(15,682		)	(4,842		)	(20,756		)
Transfers of interest rate lock commitments to mortgage loans held for sale	—			(102,676		)	—			(102,676		)
Balance, December 31, 2013	$	3,933		$	6,761		$	224,913		$	235,607
Changes in fair value recognized during the period relating to assets still held at December 31, 2013	$	(390	)	$	6,761		$	(4,842	)

(1)For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Excess servicing spread financing
	(in thousands)
Liability:
Balance, December 31, 2012	$	—
Proceeds received from financing of excess servicing spread	139,028
Accrual of interest on excess servicing spread financing	1,348
Repayments	(4,076		)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk	—
Other factors	2,423
	2,423
Balance, December 31, 2013	$	138,723
Changes in fair value recognized during the period relating to liability still held at December 31, 2013	$	2,423

F-28

	Year ended December 31, 2012
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Interest rate lock commitments issued, net	167,066			—			167,066
MSRs resulting from loan sales	—			774			774
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk							—
Other factors	—			(6,674		)	(6,674		)
	—			(6,674		)	(6,674		)
Transfers of interest rate lock commitments to mortgage loans held for sale	(151,031		)	—			(151,031		)
Balance, December 31, 2012	$	23,940		$	19,798		$	43,738
Changes in fair value recognized during the period relating to assets still held at December 31, 2012	$	23,940		$	(6,674	)

(1)For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Year ended December 31, 2011
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2010	$	(13	)	$	31,957		$	31,944
Interest rate lock commitments issued, net	18,436			—			18,436
MSRs resulting from purchases	—			1,352			1,352
MSRs resulting from loan sales	—			1,696			1,696
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk							—
Other factors	—			(9,307		)	(9,307		)
	—			(9,307		)	(9,307		)
Transfers of interest rate lock commitments to mortgage loans held for sale	(10,518		)	—			(10,518		)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Changes in fair value recognized during the period relating to assets still held at December 31, 2011	$	7,905		$	(9,307	)

(1)For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Mortgage loans sold under agreements to repurchase at fair value
	(in thousands)
Liabilities:
Balance, December 31, 2010	$	13,289
Changes in fair value included in income	—
Sales	57,908
Assumption of agreements pursuant purchase from affiliate of mortgage loans subject to agreements to repurchase	62,989
Repurchases	(134,186		)
Balance, December 31, 2011	$	—
Changes in fair value recognized during the year relating to liabilities still held at December 31, 2011	$	—

F-29

The information used in the preceding roll forwards represents activity for any financial statement items identified as using Level 3 significant inputs at either the beginning or the end of the periods presented. The Company had no transfers in or out among the levels other than transfers of IRLCs to mortgage loans held for sale at fair value upon purchase or funding of the respective mortgage loans.

Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value as a result of management’s election of the fair value option are summarized below:

	Year ended December 31,
	2013								2012								2011
	Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total
	(in thousands)
Assets:
Mortgage loans held for sale at fair value	$	49,559	$	—		$	49,559		$	171,236	$	—		$	171,236		$	13,029	$	—		$	13,029
Mortgage servicing rights at fair value	—		(4,842		)	(4,842		)	—		(6,674		)	(6,674		)	—		(9,307		)	(9,307		)
	$	49,559	$	(4,842	)	$	44,717		$	171,236	$	(6,674	)	$	164,562		$	13,029	$	(9,307	)	$	3,722
Liabilities:
Mortgage loans sold under agreements to repurchase	$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—		$	—
Excess servicing spread financing at fair value to Penny Mac Mortgage Investment Trust	—		(2,423		)	(2,423		)	—		—			—			—		—			—
	$	—	$	(2,423	)	$	(2,423	)	$	—	$	—		$	—		$	—	$	—		$	—

Following are the fair value and related principal amounts due upon maturity of assets and liabilities accounted for under the fair value option:

	December 31, 2013
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	524,665	$	504,705	$	19,960
90 days or more delinquent:
Not in foreclosure	5,567		5,479		88
In foreclosure	772		660		112
	$	531,004	$	510,844	$	20,160

	December 31, 2012
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	447,889	$	418,650	$	29,239
90 days or more delinquent:
Not in foreclosure	288		390		(102		)
In foreclosure	207		233		(26		)
	$	448,384	$	419,273	$	29,111

F-30

Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

Following is a summary of financial statement items that are measured at estimated fair value on a nonrecurring basis:

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	136,690	$	136,690
	$	—	$	—	$	136,690	$	136,690

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	51,180	$	51,180
	$	—	$	—	$	51,180	$	51,180

The following table summarizes the total gains (losses) on assets measured at estimated fair values on a nonrecurring basis:

	December 31,
	2013			2012
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	(1,643	)	$	(2,908	)
	$	(1,643	)	$	(2,908	)

Fair Value of Financial Instruments Carried at Amortized Cost

The Company’s Cash as well as its Mortgage loans sold under agreements to repurchase, Note payable, Carried Interest due from Investment Funds, and amounts receivable from and payable to the Advised Entities are carried at amortized cost.

Cash is measured using “Level 1” significant inputs. The Company’s borrowings carried at amortized cost do not have active markets or observable inputs and the fair value is measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The Company has classified these financial instruments as “Level 3” financial statement items as of December 31, 2013 and December 31, 2012 due to the lack of current market activity and the Company’s reliance on unobservable inputs to estimate the fair value.

Management has concluded that the carrying value of the Carried Interest due from Investment Funds approximates its fair value as the balance represents the amount distributable to the Company at the balance sheet date assuming liquidation of the Investment Funds. Management has concluded that the estimated fair value of the Note payable approximates the agreements’ carrying value due to the agreement’s short term and variable interest rate.

The Company also carries the receivable from and payable to the Advised Entities at cost. Management has concluded that the estimated fair value of such balances approximates the carrying value due to the short terms of such balances.

Valuation Techniques and Assumptions

Most of the Company’s financial assets as well as its ESS are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and all of its MSRs and ESS are “Level 3” financial statement items which require the use of significant unobservable inputs in the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

The Company’s Financial Analysis and Valuation group (the “FAV group”), which is responsible for valuing and monitoring the Company’s investment portfolios and maintenance of its valuation policies and procedures, estimates the fair values of “Level 3” investment instruments.

F-31

The FAV group reports to the Company’s senior management valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” financial statement items, including the models’ performance versus actual results and reports those results to the Company’s senior management valuation committee. The results developed in the FAV group’s monitoring activities may be used to calibrate subsequent projections used for valuation.

The FAV group is responsible for reporting to the Company’s senior management valuation committee on a monthly basis on the changes in the valuation of the portfolio, including major factors affecting the valuation and any changes in model methods and assumptions. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.

Following is a description of the techniques and assumptions used in estimating the fair values of “Level 2” and “Level 3” fair value financial statement items:

Mortgage Loans Held for Sale

Most of the Company’s mortgage loans held for sale at fair value are salable into active markets and are therefore categorized as “Level 2” fair value financial statement items and their fair values are estimated using their quoted market or contracted price or market price equivalent.

Certain of the Company’s mortgage loans may become non-salable into active markets due to identification of a defect by the Company or to the repurchase of a mortgage loan with an identified defect. Because such loans are generally not salable into active mortgage markets, they are classified as “Level 3” financial statement items. The significant unobservable inputs used in the fair value measurement of the Company’s “non-salable” mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment speeds and default speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

The Company did not hold “Level 3” mortgage loans held for sale at fair value before 2013. Following is a quantitative summary of key inputs used in the valuation of “Level 3” mortgage loans held for sale at fair value:

	December 31, 2013
Key inputs	Range (Weighted average)
Discount rate	7.8% - 13.4%
	(8.9%)
Twelve-month projected housing price index change	4.5% - 4.7%
	(4.6%)
Prepayment speed(1)	1.6% - 5.1%
	(4.4%)
Total prepayment speed(2)	2.9% - 5.2%
	(4.7%)

(1)Prepayment speed is measured using Life Voluntary CPR.

(2)Total prepayment speed is measured using Life Total CPR.

Changes in fair value attributable to changes in instrument-specific credit risk are measured by the change in the respective loan’s delinquency status at period-end from the later of the beginning of the year or acquisition date. Changes in fair value of IRLCs are included in Net gains on mortgage loans held for sale at fair value in the consolidated income statements.

Derivative Financial Instruments

The Company categorizes IRLCs as a “Level 3” financial statement item. The Company estimates the fair value of an IRLC based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and the probability that the mortgage loan will fund or be purchased (the “pull-through rate”).

F-32

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in fair value measurement. The financial effects of changes in these assumptions are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC value, but increase the pull-through rate for loans that have decreased in fair value.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

	December 31,
	2013	2012
Key inputs	Range (Weighted average)
Pull-through rate	62.1% - 98.1%	61.6% - 98.1%
	(81.7%)	(79.1%)
MSR value expressed as:
Servicing fee multiple	2.0 - 5.0	3.2 - 4.2
	(3.7)	(4.0)
Percentage of UPB	0.4% - 2.4%	0.6% - 2.2%
	(0.9%)	(0.9%)

The Company estimates the fair value of commitments to sell loans based on quoted MBS prices. The Company estimates the fair value of the MBS options and futures it purchases and sells based on observed interest rate volatilities in the MBS market. Changes in fair value of IRLCs and related hedging derivatives are included in Net gains on mortgage loans held for sale at fair value in the consolidated income statements.

Mortgage Servicing Rights

MSRs are categorized as “Level 3” fair value financial statement items. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting net servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment rates of the underlying loans, the applicable discount rate or pricing spread, and the cost to service loans.

The results of the estimates of fair value of MSRs are reported to the Company’s senior management valuation committee as part of their review and approval of monthly valuation results. Changes in the fair value of MSRs are included in the consolidated statements of income under the caption Net servicing fees—Amortization, impairment and change in estimated fair value of mortgage servicing rights.

Key assumptions used in determining the fair value of MSRs at the time of initial recognition are as follows:

	Year ended December 31,
	2013		2012		2011
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost	Fair value	Amortized cost
	(Amount recognized and UPB of underlying loans in thousands)
Amount recognized	$14,636	$190,468	$774	$89,698	$1,696	$6,557
UPB of underlying loans	$1,055,797	$15,316,315	$17,615	$8,524,533	$415,954	$449,715
Weighted-average servicing fee rate (in basis points)	33	29	28	27	27	31
Pricing spread(1)	7.4% - 14.4%	5.4% - 15.9%	7.5% - 9.9%	7.5% - 11.9%	8.3% - 14.0%	9.3% - 12.6%
	(10.2%)	(8.5%)	(8.4%)	(9.8%)	(11.7%)	(9.7%)
Annual total prepayment speed(2)	7.8% - 25.5%	7.6% - 42.5%	7.8% - 20.1%	6.7% - 17.8%	6.3% - 8.9%	5.6% - 7.9%
	(9.2%)	(8.8%)	(9.7%)	(8.5%)	(8.2%)	(6.8%)
Life (in years)	2.5 - 7.3	1.5 - 7.5	3.6 - 7.0	2.8 - 7.0	6.5 - 8.1	5.2 - 8.0
	(6.9)	(6.7)	(6.7)	(6.7)	(7.0)	(7.3)
Per-loan annual cost of servicing	$68 - $120	$68 - $120	$68 - $100	$68 - $100	$64 - $98	$61 - $98
	($98)	($102)	($78)	($99)	($88)	($96)

F-33

(1)           Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)           Prepayment speed is measured using CPR.

Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs at period end and the effect on the estimated fair value from adverse changes in those assumptions (weighted averages are based upon UPB):

Purchased MSRs Backed by Distressed Mortgage Loans

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$10,129	—	$12,370	—
UPB of underlying loans	$969,794	—	$1,271,478	—
Weighted-average note rate	5.80%	—	6.01%	—
Weighted-average servicing fee rate (in basis points)	50	—	50	—
Discount rate	15.3% - 15.3%	—	15.3% - 15.3%	—
	(15.3%)	—	(15.3%)	—
Effect on fair value of adverse change of:
5%	$(251)	—	$(302)	—
10%	$(490)	—	$(590)	—
20%	$(937)	—	$(1,130)	—
Life (in years)	5.0 - 5.0	—	5.0 - 5.0	—
	(5.0)		(5.0)
Prepayment speed(1)	11.4% - 11.4%	—	10.7% - 10.7%	—
	(11.4%)	—	(10.7%)	—
Effect on fair value of adverse change of:
5%	$(231)	—	$(273)	—
10%	$(456)	—	$(529)	—
20%	$(898)	—	$(1,040)	—
Per-loan annual cost of servicing	$218 - $218	—	$270 - $270	—
	($218)	—	($270)	—
Effect on fair value of adverse change of:
5%	$(197)	—	$(290)	—
10%	$(393)	—	$(580)	—
20%	$(787)	—	$(1,159)	—

(1)Prepayment speed is measured using Life Voluntary CPR.

F-34

All Other MSRs

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$214,784	$258,751	$7,428	$89,177
UPB of underlying loans	$22,469,179	$22,499,847	$1,166,765	$8,730,686
Weighted-average note rate	4.48%	3.65%	5.22%	3.65%
Weighted-average servicing fee rate (in basis points)	32	29	26	28
Pricing spread(1)	2.9% - 18.0%	6.3% - 14.5%	7.5% - 19.5%	7.5% - 16.5%
	(7.5%)	(8.7%)	(10.6%)	(9.8%)
Effect on fair value of adverse change of:
5%	$(3,551)	$(5,312)	$(113)	$(1,814)
10%	$(6,900)	$(10,395)	$(222)	$(3,562)
20%	$(13,305)	$(20,039)	$(430)	$(6,870)
Average life (in years)	0.1 - 14.4	1.5 - 7.3	0.2 - 14.4	2.5 - 6.9
	(6.2)	(7.0)	(5.0)	(6.6)
Prepayment speed(2)	7.8% - 50.8%	7.6% - 42.5%	9.0% - 84.2%	8.7% - 28.3%
	(9.7%)	(8.0%)	(19.2%)	(9.2%)
Effect on fair value of adverse change of:
5%	$(4,622)	$(4,615)	$(238)	$(1,751)
10%	$(9,073)	$(9,097)	$(462)	$(3,446)
20%	$(17,500)	$(17,684)	$(877)	$(6,674)
Per-loan annual cost of servicing	$68 - $115	$68 - $100	$68 - $140	$68 - $140
	$(87)	$(99)	$(76)	$(99)
Effect on fair value of adverse change of:
5%	$(2,817)	$(2,609)	$(77)	$(963)
10%	$(5,633)	$(5,217)	$(153)	$(1,926)
20%	$(11,266)	$(10,434)	$(307)	$(3,852)

(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans.

(2)Prepayment speed is measured using CPR.

The preceding sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect the Company’s overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

Excess Servicing Spread Financing at Fair Value

The Company categorizes ESS financing as a “Level 3” financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS financing. The key assumptions used in the fair value estimate of ESS financing include pricing spread, average life, and prepayment speed. Significant changes to any of those inputs in isolation could result in a significant change in the ESS financing fair value measurement. Changes in these key assumptions are not necessarily directly related.

F-35

ESS is generally subject to loss in value when mortgage interest rates decrease. Decreasing mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the ESS, thereby reducing ESS financing’s value. Reductions in the value of ESS financing affect income primarily through change in fair value.

Interest expense for ESS financing is accrued using the interest method based upon the expected income from the ESS through the expected life of the underlying mortgages. Changes to expected cash flows result in a change in fair value which is recorded in Amortization, impairment and change in estimated fair value of mortgage servicing rights.

Following are the key inputs used in determining the fair value of ESS financing at the time of initial recognition:

	December 31,
	2013	2012
Key inputs	Range (Weighted average)
Pricing spread	2.8% - 14.4%	—
	(5.4%)
Average life	0.9 - 8.0	—
	(6.1)
Prepayment speed	7.7% - 48.6%	—
	(9.7%)

Note 9—Mortgage Loans Held for Sale at Fair Value

Mortgage loans held for sale at fair value include the following:

	December 31,
	2013		2012
	(in thousands)
Government-insured or guaranteed	$	482,066	$	398,381
Conventional	45,005		50,003
Repurchased mortgage loans	3,933		—
	$	531,004	$	448,384
Fair value of mortgage loans pledged to secure mortgage loans sold under agreements to repurchase	$	512,350	$	438,850

Note 10—Derivative Financial Instruments

The Company is exposed to price risk relative to its mortgage loans held for sale as well as to its IRLCs. The Company bears price risk from the time an IRLC is made to PMT or a loan applicant to the time the mortgage loan is sold. The Company is exposed to loss in value of its IRLCs and mortgage loans held for sale when mortgage rates increase. The Company is also exposed to loss in value of its MSRs when interest rates decrease.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this price risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the value of the Company’s IRLCs, inventory of mortgage loans held for sale and MSRs. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities.

F-36

The Company had the following derivative financial instruments recorded on its consolidated balance sheets:

	December 31,
	2013							2012
		Fair value							Fair value
Instrument	Notional amount	Derivative assets			Derivative liabilities			Notional amount	Derivative assets			Derivative liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Free-standing derivatives:
Interest rate lock commitments	971,783	$	8,964		$	2,203		1,576,174	$	23,951		$	11
Forward purchase contracts	1,418,527	416			6,542			1,021,981	1,645			389
Forward sales contracts	2,659,000	18,762			504			2,621,948	1,818			1,894
MBS put options	185,000	665			—			500,000	967			—
MBS call options	105,000	91			—			—	—			—
Total derivatives before netting		28,898			9,249				28,381			2,294
Netting		(7,358		)	(6,787		)		(1,091		)	(1,785		)
		$	21,540		$	2,462			$	27,290		$	509

The following table summarizes the activity for derivative contracts used to hedge the Company’s IRLCs and inventory of mortgage loans held for sale at notional value:

Period/Instrument	Balance beginning of period	Additions	Dispositions/ expirations		Balance end of period
	(in thousands)
Year ended December 31, 2013
Forward purchase contracts	1,021,981	43,449,699	(43,053,153	)	1,418,527
Forward sales contracts	2,621,948	63,655,600	(63,618,548	)	2,659,000
MBS put options	500,000	2,520,000	(2,835,000	)	185,000
MBS call options	—	2,205,000	(2,100,000	)	105,000

Period/Instrument	Balance beginning of period	Additions	Dispositions/ expirations		Balance end of period
	(in thousands)
Year ended December 31, 2012
Forward purchase contracts	130,900	19,425,777	(18,534,696	)	1,021,981
Forward sales contracts	510,569	29,394,503	(27,283,124	)	2,621,948
MBS put options	29,000	2,098,000	(1,627,000	)	500,000
MBS call options	3,000	85,000	(88,000	)	—

Period/Instrument	Balance beginning of period	Additions	Dispositions/ expirations		Balance end of period
	(in thousands)
Year ended December 31, 2011
Forward purchase contracts	2,908	978,395	(850,403	)	130,900
Forward sales contracts	27,700	1,975,563	(1,492,694	)	510,569
MBS put options	—	68,000	(39,000	)	29,000
MBS call options	2,000	37,500	(36,500	)	3,000

The Company recorded net gains on derivative financial instruments totaling $110.3 million for the year ended December 31, 2013 and net losses totaling $68.0 million and $3.5 million for the years ended December 31, 2012 and 2011, respectively. Derivative gains and losses are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income.

F-37

The Company recorded net losses on IRLCs used as economic hedges of MSRs totaling $1.3 million for the year ended December 31, 2013 and net gains totaling $1.3 million for the year ended December 31, 2012. The Company had no similar economic hedges in place in 2011. The derivative losses are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company’s consolidated statements of income.

Note 11—Mortgage Servicing Rights

Carried at Fair Value:

The activity in MSRs carried at fair value is as follows:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Balance at beginning of year	$	19,798		$	25,698		$	31,957
Additions:
MSRs resulting from purchases	195,871			—			1,352
MSRs resulting from loan sales	14,636			774			1,696
	210,507			774			3,048
Sales	(550		)	—			—
Change in fair value:
Due to changes in valuation inputs or assumptions used in valuation model(1)	659			(1,550		)	(5,323		)
Other changes in fair value(2)	(5,501		)	(5,124		)	(3,984		)
Total change in fair value	(4,842		)	(6,674		)	(9,307		)
Balance at end of year	$	224,913		$	19,798		$	25,698

(1)Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)Represents changes due to realization of cash flows.

Carried at Lower of Amortized Cost or Fair Value:

The activity in MSRs carried at the lower of amortized cost or fair value is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Amortized cost:
Balance at beginning of year	$	92,155		$	6,496		$	—
Additions:
MSRs resulting from loan sales	190,469			89,698			6,557
Amortization	(19,251		)	(4,039		)	(61		)
Application of valuation allowance to write down MSRs with other-than-temporary impairment	—			—			—
Balance at end of year	263,373			92,155			6,496
Valuation allowance for impairment of MSRs:
Balance at beginning of year	(2,978		)	(70		)	—
Additions	(1,644		)	(2,908		)	(70		)
Application of valuation allowance to write down MSRs with other-than-temporary impairment	—			—			—
Balance at end of year	(4,622		)	(2,978		)	(70		)
MSRs, net	$	258,751		$	89,177		$	6,426
Estimated fair value of MSRs at end of year	$	269,422		$	91,028		$	6,465

F-38

The following table summarizes the Company’s estimate of future amortization of its existing MSRs. This projection was developed using the assumptions made by management in its December 31, 2013 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.

Year ending December 31,	Estimated MSR amortization
	(in thousands)
2014	$	23,254
2015	22,714
2016	22,215
2017	21,869
2018	20,978
Thereafter	152,343
	$	263,373

Servicing fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees are recorded in Net servicing fees—Loan servicing fees—Ancillary and other fees on the consolidated statements of income and are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Contractual servicing fees	$	61,523	$	20,673	$	11,493
Ancillary and other fees
Late charges	1,998		948		829
Other	549		276		136
	$	64,070	$	21,897	$	12,458

Note 12—Carried Interest Due from Investment Funds

The activity in the Company’s Carried Interest due from Investment Funds is summarized as follows:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Balance at beginning of year	$	47,723	$	37,250	$	24,654
Carried Interest recognized during the year:
Carried Interest earned during the year	13,419		10,473		9,275
Adjustment recognized pursuant to amendment of management agreement	—		—		3,321
	13,419		10,473		12,596
Proceeds received during the year	—		—		—
Balance at end of year	$	61,142	$	47,723	$	37,250

The amount of the Carried Interest received by the Company depends on the Investment Funds’ future performance. As a result, the amount of Carried Interest recorded by the Company at year end is subject to adjustment based on future results of the Investment Funds and may be reduced in future years. However, the Company is not required to pay guaranteed returns to the Investment Funds and the amount of Carried Interest will only be reduced to the extent of amounts previously recognized.

Management expects the Carried Interest to be collected by the Company when the Investment Funds liquidate. The investment commitment period for the Investment Funds ended on December 31, 2011. The Investment Funds will continue in existence through December 31, 2016, subject to three one- year extensions by PCM at its discretion as specified in the limited liability company and limited partnership agreements that govern the Investment Funds.

F-39

Note 13—Investment in PennyMac Mortgage Investment Trust at Fair Value

Following is a summary of Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Dividends	$	216		$	167	$	138
Change in fair value	(175		)	650		(115		)
	$	41		$	817	$	23
Fair value of PennyMac Mortgage Investment Trust shares at year end	$	1,722		$	1,897	$	1,247

Note 14—Furniture, Fixtures, Equipment and Building Improvements

Furniture, fixtures, equipment and building improvements is summarized below:

	December 31,
	2013			2012
	(in thousands)
Furniture, fixtures, equipment and building improvements	$	13,128		$	6,494
Less: Accumulated depreciation and amortization	(3,291		)	(1,429		)
	$	9,837		$	5,065

Depreciation and amortization expense totaled $1.8 million, $846,000 and $337,000 for the years ended December 31, 2013, 2012 and 2011, respectively, of which $1.4 million, $590,000 and $324,000, respectively, were allocated to PMT as called for in its management agreement.

Note 15—Capitalized Software

Capitalized software is summarized below:

	December 31,
	2013			2012
	(in thousands)
Cost	$	2,015		$	1,676
Less: Accumulated amortization	(1,251		)	(881		)
	$	764		$	795

Software amortization expenses totaled $374,000, $264,000, and $238,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Note 16—Borrowings

As of December 31, 2013, the Company maintained five borrowing facilities: four facilities that provide for sales of mortgage loans under agreements to repurchase; and one note payable secured by MSRs and servicing advances made relating to loans in the Company’s loan servicing portfolio.

Mortgage Loans Sold Under Agreement to Repurchase

The borrowing facilities secured by mortgage loans held for sale are in the form of loan sale and repurchase agreements. Eligible mortgage loans are sold at advance rates based on the loan type. Interest is charged at a rate based on the buyer’s overnight cost-of funds rate for one agreement and based on LIBOR for the other three agreements. Loans sold under these agreements may be re-pledged by the lenders.

F-40

Financial data pertaining to mortgage loans sold under agreements to repurchase are as follows:

	Year ended December 31,
	2013			2012			2011
	(dollar amounts in thousands)
Year end:
Balance	$	471,592		$	393,534		$	77,700
Unused amount(1)	$	528,408		$	106,466		$	22,300
Weighted-average interest rate	1.79		%	2.20		%	2.39		%
Fair value of loans securing agreements to repurchase	$	512,350		$	438,850		$	86,787
During the year:
Average balance of loans sold under agreements to repurchase	$	344,625		$	172,729		$	24,905
Weighted-average interest rate(2)	1.96		%	2.24		%	2.66		%
Total interest expense	$	10,863		$	5,927		$	1,875
Maximum daily amount outstanding	$	623,523		$	441,245		$	127,593

(1)The amount the Company is able to borrow under loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the mortgage loans sold.

(2)Excludes the effect of amortization of commitment fees totaling $4.0 million, $2.0 million, and $1.0 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:

Remaining maturity at December 31, 2013	Balance
	(in thousands)
Within 30 days	$	782
Over 30 to 90 days	470,810
Over 90 days to 180 days	—
Over 180 days to 1 year	—
	$	471,592
Weighted-average maturity (in months)	2.6

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to the Company’s mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of December 31, 2013:

Counterparty	Amount at risk		Weighted-average maturity of advances under repurchase agreement	Facility Maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC	$	19,593	March 26, 2014	October 31, 2014
Bank of America, N.A.	$	19,195	March 22, 2014	January 2, 2014
Morgan Stanley	$	3,103	February 22, 2014	July 1, 2014
Citibank, N.A.	$	—	—	July 24, 2014

The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the value (as determined by the applicable lender) of the mortgage loans securing those agreements decreases. The Company had $1.5 million and $6.8 million on deposit with its mortgage loan repurchase agreement counterparties at December 31, 2013 and 2012, respectively. Such amounts are included in Other assets on the consolidated balance sheets.

F-41

Excess Servicing Spread Financing

In conjunction with the Company’s purchase from non-affiliates of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows relating to certain MSRs. The Company retained all ancillary income associated with servicing the loans and a fixed base servicing fee. The Company continues to be the servicer of the mortgage loans and provides all servicing functions, including responsibility to make servicing advances. The Company accounts for the transactions as a financing and the total proceeds received was $139.0 million.

Note Payable

The note payable is summarized below:

	December 31,
	2013		2012
	(in thousands)
Year end:
Note payable secured by:
Servicing advances	$	3,852	$	4,905
MSRs	48,302		48,108
	$	52,154	$	53,013
Assets pledged to secure note:
Servicing advances	$	5,564	$	7,430
MSRs	$	258,241	$	100,957

The note payable matures on October 31, 2014. Interest is charged at a rate based on the lender’s overnight cost of funds. The note payable is secured by servicing advances and MSRs relating to certain loans in the Company’s servicing portfolio, and provides for advance rates ranging from 50% to 85% of the amount of the servicing advances or the carrying value of the MSR pledged, up to a maximum of $17 million in the case of servicing advances and $100 million in the case of MSRs. At December 31, 2013, the Company had elected to reduce its advance rate on this note as a means of investing excess cash.

The borrowing facilities contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio, profitability and liquidity. Management believes the Company was in compliance with these requirements as of December 31, 2013.

Note 17—Liability for Losses Under Representations and Warranties

Following is a summary of activity in the Company’s liability for representations and warranties:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Balance at beginning of year	$	3,504		$	449	$	189
Provision for losses on loans sold	4,675			3,055		260
Incurred losses	(56		)	—		—
Balance at end of year	$	8,123		$	3,504	$	449
UPB of mortgage loans subject to representations and warranties at year end	$	23,637,202		$	8,856,044	$	679,247

F-42

Following is a summary of the Company’s repurchase activity:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
During the year:
UPB of mortgage loans repurchased	$	8,449	$	4,399	$	—
UPB of repurchased mortgage loans put to correspondent lenders	$	3,593	$	—	$	—
Year end:
UPB of mortgage loans subject to pending claims for repurchase	$	1,655	$	2,582	$	9,774

Note 18—Income Taxes

The Company files U.S. federal and state corporate income tax returns for PFSI and partnership returns for PennyMac. Before the IPO, the Company did not have a provision for income taxes as PennyMac is a pass-through taxable entity. PFSI’s tax returns are subject to examination for 2012 and forward. In March 2013, the IRS concluded its audit of the partnership return of PennyMac and its subsidiaries for the tax year ended December 31, 2010 and proposed no changes to the return as originally filed. No returns are currently under examination. PennyMac’s federal partnership returns are subject to examination for 2011 and forward. PennyMac’s primary state tax return is generally subject to examination for 2009 and forward.

The following table details the Company’s income tax expense (benefit).

	Year ended December 31, 2013
	(in thousands)
Current expense:
Federal	$	—
State	—
Total current expense	—
Deferred expense:
Federal	7,815
State	2,146
Total deferred expense	9,961
Total provision for income taxes	$	9,961

The provision for deferred income taxes for the year ended December 31, 2013 primarily relates to the Company’s investment in PennyMac partially offset by a net operating loss carryforward. The portion attributable to its investment in PennyMac primarily relates to MSRs that PennyMac received pursuant to sales of mortgage loans held for sale at fair value and Carried Interest from the Investment Funds.

The following table is a reconciliation of the Company’s provision for income taxes at statutory rates to the provision for income taxes at the Company’s effective tax rate:

	Year ended December 31, 2013
Federal income tax statutory rate	35.0	%
Less: Rate attributable to non-controlling members	(30.3	)%
State income taxes, net of federal benefit	0.8	%
Valuation allowance	0.0	%
Effective tax rate	5.5	%

F-43

The components of the Company’s provision for deferred income taxes are as follows:

	Year ended December 31, 2013
	(in thousands)
Investment in PennyMac	$	12,909
Net operating loss carryforward	(2,948		)
Valuation allowance	—
Total provision for deferred income taxes	$	9,961

The components of Deferred tax asset are as follows:

	December 31, 2013
	(in thousands)
Taxes currently receivable	$	7
Deferred income tax asset, net	63,110
Deferred tax asset	$	63,117

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:

	December 31, 2013
	(in thousands)
Deferred income tax assets:
Investment in PennyMac	$	60,162
Net operating loss carryforward	2,948
Gross deferred tax assets	63,110
Deferred income tax liabilities:
Other	—
Gross deferred tax liabilities	—
Net deferred income tax asset	$	63,110

The Company’s deferred income tax is recorded in Deferred tax asset in the consolidated balance sheet as of December 31, 2013. There was no income tax asset or liability as of December 31, 2012 since PennyMac is a pass-through taxable entity and PFSI had no activity in 2012. Increases in deferred tax assets are primarily due to the increase in the Company’s ownership of PennyMac as a result of members exchanging PennyMac Class A units for PFSI Class A common stock. As existing members exchange their units, the Company records a deferred tax asset related to PennyMac’s election pursuant to Section 754 of the Internal Revenue Code. The portion of the deferred tax asset relating to the Company’s investment in PennyMac is net of deferred tax liabilities primarily related to deferred income from MSRs and accrued Carried Interest from the Investment Funds.

The Company recorded a deferred tax asset of $2.9 million related to net operating loss carryforwards of approximately $7.2 million, which generally expire in 2033.

At December 31, 2013 and December 31, 2012, the Company had no unrecognized tax benefits and does not anticipate any increase in unrecognized tax benefits. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in the Company’s income tax accounts. No such accruals existed at December 31, 2013 and December 31, 2012.

Note 19—Stockholders’ Equity

During the year ended December 31, 2013, PennyMac unitholders exchanged 8,035,000 Class A units for PFSI Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 83.16% at the date of the IPO to 72.57% at December 31, 2013.

F-44

Note 20—Net Gains on Mortgage Loans Held for Sale

Net gains on mortgage loans held for sale at fair value is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Cash gain (loss):
Sales proceeds	$	(150,589	)	$	78,671		$	182
Hedging activities	98,707			(70,916		)	(8,578		)
	(51,882		)	7,755			(8,396		)
Non-cash gain:
Receipt of MSRs in loan sale transactions	205,105			90,472			8,253
MSR recapture payable to PennyMac Mortgage Investment Trust	(709		)	—			—
Provision for losses relating to representations and warranties on loans sold	(4,675		)	(3,055		)	(260		)
Change in fair value relating to loans and hedging derivatives held at year end:
IRLCs	(17,179		)	16,035			7,919
Mortgage loans	(4,207		)	4,030			393
Hedging derivatives	11,560			2,933			5,120
	$	138,013		$	118,170		$	13,029

Note 21—Net Interest Expense

Net interest expense is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Interest income:
Short-term investments	$	893		$	72		$	22
Mortgage loans held for sale at fair value	14,739			6,282			1,510
	15,632			6,354			1,532
Interest expense:
Mortgage loans sold under agreements to repurchase	10,863			5,927			1,874
Note payable	2,931			1,180			—
Excess servicing spread financing at fair value	1,091			—			—
Other	1,788			772			1
	16,673			7,879			1,875
Net interest expense	$	(1,041	)	$	(1,525	)	$	(343	)

Note 22—Stock-based Compensation

The Company’s 2013 Equity Incentive Plan provides for grants of stock options, time-based and performance-based restricted stock units (“RSUs”), stock appreciation rights, performance units and stock grants. As of December 31, 2013, the Company has 18.1 million units available for future awards. The Company estimates the cost of the stock options, time-based restricted stock units and performance-based restricted stock units awarded with reference to the fair value of PFSI’s underlying common stock on the date of the award. Compensation costs are fixed, except for the performance-based restricted stock units, at the grant’s estimated fair value on the grant date as all grantees are employees of PennyMac and directors of the Company. Expense relating to awards is included in Compensation in the consolidated statements of income.

F-45

Following is a summary of the stock-based compensation expense by instrument awarded:

	Year ended December 31, 2013
	(in thousands)
Stock Options	$	1,387
Performance-based RSUs	1,273
Time-based RSUs	672
	$	3,332

Stock Options

The Stock Option award agreements provide for the award of Stock Options to purchase the optioned common stock. In general, and except as otherwise provided by the agreement, one-third of the optioned common stock will vest on each of the first, second, and third anniversaries of the grant date, subject to the recipient’s continued service through each anniversary. Compensation cost relating to Stock Options is amortized to expense using the graded vesting method. Each Stock Option will have a term of ten years from the date of grant but will expire (1) immediately upon termination of the holder’s employment or other association with the Company for cause, (2) one year after the holder’s employment or other association is terminated due to death or disability and (3) three months after the holder’s employment or other association is terminated for any other reason.

The fair value of each Stock Option award is estimated on the date of grant using a variant of the Black Scholes model based on the assumptions noted in the following table:

	Year ended December 31, 2013
Expected volatility(1)	45%
Expected dividends	0%
Risk-free rate	0.3% - 2.3%
Expected grantee forfeiture rate	6.2% - 19.2%

(1)Based on historical volatilities of comparable companies’ common stock.

The Company uses its historical data to estimate employee departure behavior used in the option-pricing model; groups of employees (executives and non- executives) that have similar historical behavior are considered separately for valuation purposes. The expected term of common stock options granted is derived from the option pricing model and represents the period of time that common stock options granted are expected to be outstanding. The risk-free rate for periods within the contractual term of the common stock option is based on the U.S. Treasury yield curve in effect at the time of grant.

F-46

The table below summarizes stock option award activity and compensation expense:

	Year ended December 31, 2013
Number of Stock Options
Outstanding at beginning of year	—
Granted	425,796
Exercised	—
Expired or canceled	(7,011		)
Outstanding at end of year	418,785
Weighted-average exercise price per share:
Outstanding at beginning of year	$	—
Granted	21.03
Exercised	—
Expired or canceled	21.03
Outstanding at end of year	$	21.03
Number of shares exercisable at end of year	—
Weighted-average remaining contractual term (in years):
Outstanding at end of year	9.4
Exercisable at end of year	—
Aggregate intrinsic value:
Outstanding at end of year	$	—
Exercisable at end of year	$	—
Expected vesting amounts at year end:
Number of shares	340,061
Grant date fair value	$	9.17
Weighted-average vesting period (in months)	21

Time-Based RSUs

The RSU grant agreements provide for the award of time-based RSUs, entitling the award recipient to one share of the Company’s Class A common stock for each RSU. One-third of all time-based RSUs vest in a lump sum on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary.

Compensation cost relating to time-based RSUs is based on the grant- date fair value of the Company’s Class A common stock and the number of shares expected to vest. For purposes of estimating the cost of the time- based RSUs granted, management assumes turnover rates of 6.2% - 19.2% per year based on the grantees’ employee classification. Compensation cost relating to time-based RSUs is amortized to expense using the graded vesting method and is included in the Compensation expense on the accompanying consolidated statements of income.

F-47

Following is a summary of time-based RSU activity:

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year	—
Granted	101,459
Vested	—
Expired or canceled	(1,141		)
Outstanding at end of year	100,318
Weighted-average grant date fair value per unit:
Outstanding at beginning of year	$	—
Granted	$	18.03
Vested	$	—
Expired or canceled	$	17.14
Outstanding at end of year	$	18.04
Compensation expense recorded during the year (in thousands)	$	672
Year end:
Unamortized compensation cost (in thousands)	$	1,099
Number of shares expected to vest	58,398
Grant date fair value	20.99
Weighted-average remaining vesting period (in months)	18

Performance-Based RSUs

The performance-based RSUs provide for the issuance of shares of the Company’s Class A common stock based equally on the attainment of earnings per share and total shareholder return goals and are generally adjusted for grantee performance ratings. The performance period for these grants is from June 13, 2013 through December 31, 2015. The grantees’ satisfaction of the performance goals will be established by review of a committee of PFSI’s board of directors. Shares vested under these grants will be issued to the grantees no later than March 15, 2016.

The performance-based RSUs contain both performance goals (attainment of earnings per share) and market goals (total shareholder return). The Company separately accounts for the performance and market goals when recognizing compensation expense relating to performance-based RSUs.

The grant date fair value of the market goal component of the performance-based RSUs is measured using a variant of the Black-Scholes model. Key inputs are the expected volatility of the Company’s Class A common stock, the risk-free interest rate and expected grantee forfeiture rates.

Following are the inputs for grants made:

	Year ended December 31, 2013
Expected volatility(1)	45%
Expected dividends	0%
Risk-free rate	0.3% - 2.3%
Expected grantee forfeiture rate	6.2% - 19.2%

(1)Based on historical volatilities of comparable companies’ common stock.

The fair value of the performance goal component of the performance-based RSUs is measured based on the fair value of the Company’s common shares at the grant date, taking into consideration management’s estimate of the most probable outcome of the performance goal, and the number of shares to be forfeited during the vesting period. The cost of the performance-based RSUs is amortized to Compensation expense using the straight line method over the performance period.

F-48

Following is a summary of performance-based RSU activity:

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year	—
Granted	500,373
Vested	—
Expired or canceled	(9,375		)
Outstanding at end of year	490,998
Weighted-average per unit grant date fair value:
Outstanding at beginning of year	$	—
Granted	$	11.29
Vested	$	—
Expired or canceled	$	10.85
Outstanding at end of year	$	11.30
Compensation expense recorded during the year (in thousands)	$	1,273
Year end:
Unamortized compensation cost (in thousands)	$	4,364
Number of shares expected to vest	448,639
Grant date fair value of shares expected to vest	20.99
Weighted-average remaining vesting period (in months)	18

Note 23—Supplemental Cash Flow Information

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash paid for interest	$	16,527	$	7,858	$	858
Cash paid for income taxes	$	7	$	—	$	—
Non-cash investing activity:
Receipt of MSRs created in loan sales activities	$	205,105	$	90,472	$	8,253

Note 24—Regulatory Net Worth and Agency Capital Requirements

The Company, through PLS, is required to maintain specified levels of equity to remain a seller/servicer in good standing with the Agencies. Such equity requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.

The Agencies’ capital requirements, the calculations of which are specified by each Agency, are summarized below:

	December 31,
	2013				2012
Requirement—company subject to requirement	Net worth(1)		Required		Net worth(1)		Required
	(in thousands)
Fannie Mae—PLS	$	409,552	$	83,148	$	172,843	$	35,947
Freddie Mac—PLS	$	409,860	$	3,001	$	173,273	$	2,556
Ginnie Mae:
Issuer—PLS	$	388,125	$	102,619	$	152,782	$	23,886
Issuer’s parent—PennyMac	$	598,198	$	112,881	$	227,560	$	26,275
HUD—PLS	$	388,125	$	2,500	$	152,782	$	1,000

(1)Calculated in compliance with the respective Agency’s requirements.

Noncompliance with the respective agencies’ capital requirements can result in the respective Agency taking various remedial actions up to and including removing PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency. Management believes that PennyMac and PLS had Agency capital in excess of the respective Agencies’ requirements at December 31, 2013.

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Note 25—Commitments and Contingencies

Litigation

The business of the Company involves the collection of numerous accounts, as well as the validation of liens and compliance with various state and federal lending and servicing laws. Accordingly, the Company may be involved in proceedings, claims, and legal actions arising in the ordinary course of business. As of December 31, 2013, the Company was not involved in any legal proceedings, claims, or actions in management’s view would be reasonably likely to have a material adverse effect on the Company.

Commitments to Fund and Sell Mortgage Loans

	December 31, 2013
	(in thousands)
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$	718,105
Commitments to fund mortgage loans	253,678
	$	971,783
Commitments to sell mortgage loans	$	2,659,000

Note 26—Segments and Related Information

Since the date of the Company’s IPO, the Company has continued its development of internal management reporting. Such development has resulted in changes in the information that is used by the Company’s chief operating decision maker. Accordingly, during the quarter ended March 31, 2014, management re-evaluated this new information in relation to its definition of its operating segments.

As a result of the new reporting used by the chief operating decision maker, management has concluded that its mortgage banking operations should be disclosed as two segments: loan production and loan servicing. Accordingly, the following segment disclosure includes three segments: loan production, loan servicing and investment management.

The loan production segment performs origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans and servicing of mortgage loans sourced and managed by the investment management segment, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans. The investment management segment represents the activities of the Company’s investment manager, which include sourcing, performing diligence, bidding and closing investment asset acquisitions, managing correspondent lending activities for PMT and managing the acquired assets for the Advised Entities.

Development of the Company’s internal management reporting has resulted in refinements to the way PFSI allocates costs among its business activities. As a result the expenses the Company allocated to its investment management segment for the year ended December 31, 2013, increased by $9.4 million from $9.7 million as previously reported to $19.1 million, and the allocation to the investment management segment of certain other income decreased by $1.1 million, reducing pre-tax net income attributable to its investment management segment from $46.6 million as previously reported to $36.1 million and increased the net income attributable to its mortgage banking operations from $135.5 million as previously reported to $146.1 million for the year ended December 31, 2013.

F-50

Financial highlights by segment are as follows:

	Year ended December 31, 2013
	Mortgage banking
	Loan production			Loanservicing			Total			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	138,013		$	—		$	138,013		$	—	$	138,013
Loan origination fees	23,575			—			23,575			—		23,575
Fulfillment fees from PennyMac Mortgage Investment Trust	79,712			—			79,712			—		79,712
Net servicing fees				90,010			90,010			—		90,010
Management fees	—			—			—			40,330		40,330
Carried Interest from Investment Funds	—			—			—			13,419		13,419
Net interest (expense) income:
Interest income	15,610			—			15,610			22		15,632
Interest expense	(11,103		)	(5,570		)	(16,673		)	—		(16,673		)
	4,507			(5,570		)	(1,063		)	22		(1,041		)
Other	912			244			1,156			1,385		2,541
	246,719			84,684			331,403			55,156		386,559
Expenses	120,699			64,636			185,335			19,098		204,433
Income before provision for income taxes	$	126,020		$	20,048		146,068			$	36,058	$	182,126
Segment assets at year end	$	607,989		$	795,320		$	1,403,309		$	117,341	$	1,520,650

Segment total assets do not sum to consolidated total assets as segment assets exclude parent company assets consisting of cash in the amount of $707,000 and deferred tax asset in the amount of $63.1 million.  The Company did not have in place the reporting structure that enabled it to report on its three segments before 2013 and is therefore unable to retrospectively adjust its 2012 and 2011 segment information to conform with the 2013 presentation.

	Year ended December 31, 2012
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	118,170		$	—	$	118,170
Loan origination fees	9,634			—		9,634
Fulfillment fees from PennyMac Mortgage Investment Trust	62,906			—		62,906
Net servicing fees	40,105			—		40,105
Management fees	—			21,799		21,799
Carried Interest from Investment Funds	—			10,473		10,473
Net interest (expense) income:
Interest income	6,349			5		6,354
Interest expense	(7,879		)	—		(7,879		)
	(1,530		)	5		(1,525		)
Other	2			3,522		3,524
	229,287			35,799		265,086
Expenses:	136,109			10,654		146,763
Income before provision for income taxes	$	93,178		$	25,145	$	118,323
Segment assets at year end	$	761,949		$	70,214	$	832,163

F-51

	Year ended December 31, 2011
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	13,029		$	—	$	13,029
Loan origination fees	669			—		669
Fulfillment fees from PennyMac Mortgage Investment Trust	1,747			—		1,747
Net servicing fees	28,667			—		28,667
Management fees	—			16,683		16,683
Carried Interest from Investment Funds	—			12,596		12,596
Net interest (expense) income:
Interest income	1,528			4		1,532
Interest expense	(1,875		)	—		(1,875		)
	(347		)	4		(343		)
Other	—			1,736		1,736
	43,765			31,019		74,784
Expenses:	47,904			12,181		60,085
Income before provision for income taxes	$	(4,139	)	$	18,838	$	14,699
Segment assets at year end	$	241,716		$	47,565	$	289,281

Note 27—Selected Quarterly Results (Unaudited)

Following is a presentation of selected quarterly financial data:

	Quarter ended
	2013								2012
	Dec. 31		Sept. 30		June 30		Mar. 31		Dec. 31		Sept. 30		June 30		Mar. 31
	(in thousands, except per share data)
For the quarter ended:
Net gains on mortgage loans held for sale at fair value	$	29,453	$	25,949	$	42,654	$	39,957	$	49,683	$	39,760	$	14,790	$	13,937
Fulfillment fees from PennyMac Mortgage Investment Trust	11,087		18,327		22,054		28,244		31,809		17,258		7,715		6,124
Net servicing fees	30,500		21,399		22,069		16,042		14,759		6,112		7,658		11,576
Management fees and Carried Interest	13,963		13,352		13,291		13,143		12,560		9,469		6,966		5,982
Other income	5,417		8,167		6,509		4,982		708		3,633		4,318		269
	90,420		87,194		106,577		102,368		109,519		76,232		41,447		37,888
Expenses	48,733		52,277		56,348		47,075		54,099		38,369		30,969		22,657
Income before provision for income taxes	41,687		34,917		50,229		55,293		55,420		37,863		10,478		15,231
Provision for income taxes	4,430		3,493		2,038		—		—		—		—		—
Net income	37,257		31,424		48,191		$	55,293	$	55,420	$	37,863	$	10,478	$	15,231
Less: Net income attributable to noncontrolling interest	30,847		26,227		45,398
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	6,410	$	5,197	$	2,793
Earnings per share of Common Stock:
Basic	$	0.33	$	0.29	$	0.22
Diluted	$	0.32	$	0.28	$	0.22
At period end:
Mortgage loans held for sale at fair value	$	531,004	$	530,248	$	656,341	$	203,661	$	448,384	$	410,071	$	248,974	$	176,282
Mortgage servicing rights(1)	483,664		252,858		199,738		146,992		108,975		74,154		52,900		41,599
Carried Interest from Investment Funds	61,142		58,134		55,322		52,460		47,723		44,504		41,149		39,039
Servicing advances	154,328		105,344		94,791		96,587		93,152		76,554		73,706		68,961
Other assets	354,337		307,800		274,588		193,277		133,929		97,416		88,907		92,758
Total assets	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639
Assets sold under agreements to repurchase	471,592		387,883		500,427		180,049		393,534		361,478		220,546		159,547
Note payable	52,154		56,775		47,209		63,437		53,013		34,035		18,116		17,584
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust	138,723		2,857		—		—		—		—		—		—
Other liabilities	292,802		216,908		177,000		141,748		123,866		105,259		99,744		84,586
Total liabilities	955,271		664,423		724,636		385,234		570,413		500,772		338,406		261,717
Total equity	629,204		589,961		556,144		307,743		261,750		201,927		167,230		156,922
Total liabilities and equity	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639

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Note 28—Recently Issued Accounting Pronouncements

In December 2011, the FASB issued an Accounting Standards Update (“ASU”), ASU 2011-11, Disclosures About Offsetting Assets and Liabilities to the Balance Sheet topic of the Codification. The amendments in this ASU affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic of the Codification or (2) subject to an enforceable master netting arrangement or similar agreement.

In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. The ASU clarifies that the scope applied to derivatives accounted for in accordance with the Derivatives and Hedging topic of the Codification, including bifurcating embedded derivatives, repurchase agreement and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic or subject to an enforceable master netting arrangement or similar agreement.

The amendments in this ASU require the Company to disclose information about offsetting and related arrangement to enable users of financial statements to understand the effect of netting to an entity’s financial position. The ASU amendments and the subsequent clarification of the amendment are effective for periods beginning on or after January 1, 2013, and are shown for all periods presented on the consolidated balance sheet. The adoption of these ASU amendments did not have a material effect on the Company’s financial condition or results of operations.

In January of 2014, the FASB issued ASU 2014-04, Troubled Debt Restructurings by Creditors (Subtopic 310-40), which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

ASU 2014-04 specifies that a creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:

a.The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.

b.The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.

ASU 2014-04 also requires the disclosure of the carrying value of real estate acquired in settlement of loans and its recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for the Company for annual and interim periods within those annual periods, beginning after December 15, 2014.

An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity would apply the

F-53

amendments in ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. The adoption of ASU 2014-04 is not expected to be material to the financial statements of the Company.

Note 29—Parent Company Information

The Company’s debt financing agreements require PLS, PFSI’s controlled subsidiary, to comply with financial covenants that include a minimum tangible net worth of $90 million. PLS is limited from transferring funds to the Parent by this minimum tangible net worth requirement.

PENNYMAC FINANCIAL SERVICES, INC.

CONDENSED BALANCE SHEET

	December 31, 2013
	(in thousands)
ASSETS
Cash	$	707
Investments in subsidiaries	177,200
Other assets	63,117
Total assets	$	241,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accrued expenses and other liabilities	$	71,056
Payables to subsidiaries	50
Stockholders’ equity	169,918
Total liabilities and stockholders’ equity	$	241,024

PENNYMAC FINANCIAL SERVICES, INC.

CONDENSED STATEMENT OF INCOME

	Year ended December 31, 2013
	(in thousands)
Revenue
Dividends from subsidiaries	$	664
Interest	—
Total revenue	664
Expenses
Interest	—
Total expenses	—
Income before provision for income taxes and equity in undistributed earnings in subsidiaries	664
Provision for income taxes	9,961
Income before equity in undistributed earnings of subsidiaries	(9,297		)
Equity in undistributed earnings of subsidiaries	23,697
Net income	$	14,400

F-54

PENNYMAC FINANCIAL SERVICES, INC.

CONDENSED STATEMENT OF CASH FLOWS

	Year ended December 31, 2013
	(in thousands)
Cash flows from operating activities
Net income	$	14,400
Equity in undistributed earnings of subsidiaries	(23,697		)
Increase in payables to subsidiaries	50
Decrease in deferred tax asset	9,954
Net cash provided by operating activities	707
Cash flows from investing activities
Increase in investments in subsidiaries	(216,775		)
Net cash used by investing activities	(216,775		)
Cash flows from financing activities
Issuance of common shares	230,000
Payment of common share underwriting and offering costs	(13,225		)
Net cash provided by financing activities	216,775
Net change in cash	707
Cash at beginning of year	—
Cash at end of year	$	707

Note 30—Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period all agreements to repurchase assets that matured between December 31, 2013 and the date of this Report were extended or renewed.

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XML

Transactions with Affiliates (Tables)

12 Months Ended

Dec. 31, 2013

Transactions with Affiliates

Summary of management fees earned

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Management fees:
Base	$	19,644	$	12,436	$	6,740
Performance incentive		12,766		—		—
	$	32,410	$	12,436	$	6,740

Summary of mortgage loan servicing fees earned from PMT

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Loan servicing fees:
Base	$	26,993	$	14,332	$	9,740
Activity-based		12,420		4,276		3,464
	$	39,413	$	18,608	$	13,204

Summary of lending activity between the Company and affiliate

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Fulfillment fee revenue	$	79,712	$	62,906	$	1,747
UPB of loans fulfilled for PMT	$	15,225,153	$	13,028,375	$	505,317
Sourcing fees paid	$	4,611	$	2,505	$	166
Fair value of loans purchased from PMT	$	16,113,806	$	8,864,264	$	577,852

Summary of foregoing reimbursement of expenses

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Reimbursement of:
Common overhead incurred by PCM and its affiliates	$	10,989	$	4,183	$	4,086
Expenses incurred on PMT's behalf		4,638		3,146		2,219
	$	15,627	$	7,329	$	6,305
Payments and settlements during the year(1)	$	121,230	$	85,554	$	12,656

(1)

Payments and settlements include payments for management fees and correspondent lending activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT.

PMT

Transactions with Affiliates

Summary of amounts due from affiliate

	December 31,
	2013		2012
	(in thousands)
Management fees	$	8,924	$	4,499
Servicing fees		5,915		3,670
Allocated expenses		2,009		1,106
Underwriting fees		1,788		2,941
Loan purchases		—		4,475
	$	18,636	$	16,691

Investment Funds

Transactions with Affiliates

Summary of amounts due from affiliate

	December 31,
	2013		2012
	(in thousands)
Receivable from Investment Funds:
Management fees	$	2,031	$	2,164
Loan servicing fees		727		1,052
Loan servicing rebate		136		(239	)
Expense reimbursements		21		695
	$	2,915	$	3,672
Carried Interest due from Investment Funds:
PNMAC Mortgage Opportunity Fund, LLC	$	37,702	$	29,785
PNMAC Mortgage Opportunity Fund Investors, LLC		23,440		17,938
	$	61,142	$	47,723

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Net Gains on Mortgage Loans Held for Sale (Tables)

12 Months Ended

Dec. 31, 2013

Net Gains on Mortgage Loans Held for Sale

Net Gains on Mortgage Loans Held for Sale

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Cash gain (loss):
Sales proceeds	$	(150,589	)	$	78,671		$	182
Hedging activities		98,707			(70,916	)		(8,578	)
		(51,882	)		7,755			(8,396	)
Non-cash gain:
Receipt of MSRs in loan sale transactions		205,105			90,472			8,253
MSR recapture payable to PennyMac Mortgage Investment Trust		(709	)		—			—
Provision for losses relating to representations and warranties on loans sold		(4,675	)		(3,055	)		(260	)
Change in fair value relating to loans and hedging derivatives held at year end:
IRLCs		(17,179	)		16,035			7,919
Mortgage loans		(4,207	)		4,030			393
Hedging derivatives		11,560			2,933			5,120
	$	138,013		$	118,170		$	13,029

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Investment in PennyMac Mortgage Investment Trust at Fair Value (Tables)

12 Months Ended

Dec. 31, 2013

Investment in PennyMac Mortgage Investment Trust at Fair Value

Summary of change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Dividends	$	216		$	167	$	138
Change in fair value		(175	)		650		(115	)
	$	41		$	817	$	23
Fair value of PennyMac Mortgage Investment Trust shares at year end	$	1,722		$	1,897	$	1,247

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Earnings Per Share of Common Stock (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended			12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2013
Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc common stockholders	$ 6,410	$ 5,197	$ 2,793	$ 14,400
Weighted-average common stock shares outstanding				17,311
Basic earnings per share of common stock (in dollars per share)	$ 0.33	$ 0.29	$ 0.22	$ 0.83
Diluted earnings per share of common stock:
Net income	6,410	5,197	2,793	14,400
Effect of net income attributable to noncontrolling interest, net of tax				47,838
Diluted net income attributable to common stockholders				$ 62,238
Weighted-average common stock outstanding				17,311
Dilutive shares:
PennyMac Class A common units exchangeable to common stock				58,553
Shares issuable under stock-based compensation plans (in shares)				28
Diluted weighted-average common stock shares outstanding				75,892
Diluted earnings per share of common stock (in dollars per share)	$ 0.32	$ 0.28	$ 0.22	$ 0.82

XML

Net Interest Expense (Tables)

12 Months Ended

Dec. 31, 2013

Net Interest Expense

Summary of net interest income (expense)

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Interest income:
Short-term investments	$	893		$	72		$	22
Mortgage loans held for sale at fair value		14,739			6,282			1,510
		15,632			6,354			1,532
Interest expense:
Mortgage loans sold under agreements to repurchase		10,863			5,927			1,874
Note payable		2,931			1,180			—
Excess servicing spread financing at fair value		1,091			—			—
Other		1,788			772			1
		16,673			7,879			1,875
Net interest expense	$	(1,041	)	$	(1,525	)	$	(343	)

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Fair Value (Details 5) (Nonrecurring basis, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Total gains (losses) on assets measured at estimated fair values on a nonrecurring basis
Mortgage servicing rights at lower of amortized cost or fair value	$ (1,643)	$ (2,908)
Total gains on assets measured at estimated fair values on a nonrecurring basis	(1,643)	(2,908)
Level 3
Financial statement items measured at fair value on a nonrecurring basis
Mortgage servicing rights at lower of amortized cost or fair value	136,690	51,180
Total assets	136,690	51,180
Total
Financial statement items measured at fair value on a nonrecurring basis
Mortgage servicing rights at lower of amortized cost or fair value	136,690	51,180
Total assets	$ 136,690	$ 51,180

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Segments and Related Information (Details 2) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenues:
Net gains on mortgage loans held for sale at fair value	$ 29,453,000	$ 25,949,000	$ 42,654,000	$ 39,957,000	$ 49,683,000	$ 39,760,000	$ 14,790,000	$ 13,937,000	$ 138,013,000	$ 118,170,000	$ 13,029,000
Loan origination fees									23,575,000	9,634,000	669,000
Net servicing fees									90,010,000	40,105,000	28,667,000
Management fees									40,330,000	21,799,000	16,683,000
Carried Interest from Investment Funds									13,419,000	10,473,000	12,596,000
Net interest (expense) income:
Interest income									15,632,000	6,354,000	1,532,000
Interest expense									(16,673,000)	(7,879,000)	(1,875,000)
Net interest expense:									(1,041,000)	(1,525,000)	(343,000)
Other									2,541,000	3,524,000	1,736,000
Total net revenue	90,420,000	87,194,000	106,577,000	102,368,000	109,519,000	76,232,000	41,447,000	37,888,000	386,559,000	265,086,000	74,784,000
Expenses	48,733,000	52,277,000	56,348,000	47,075,000	54,099,000	38,369,000	30,969,000	22,657,000	204,433,000	146,763,000	60,085,000
Income before provision for income taxes	41,687,000	34,917,000	50,229,000	55,293,000	55,420,000	37,863,000	10,478,000	15,231,000	182,126,000	118,323,000	14,699,000
Segment assets at year end	1,584,475,000	1,254,384,000	1,280,780,000	692,977,000	832,163,000	702,699,000	505,636,000	418,639,000	1,584,475,000	832,163,000	289,281,000
Cash	30,639,000				12,323,000				30,639,000	12,323,000	16,465,000	5,927,000
Deferred tax asset	63,117,000								63,117,000
PennyMac Mortgage Investment Trust
Revenues:
Fulfillment fees from affiliate	11,087,000	18,327,000	22,054,000	28,244,000	31,809,000	17,258,000	7,715,000	6,124,000	79,712,000	62,906,000	1,747,000
Management fees									32,410,000	12,436,000	6,740,000
Net interest (expense) income:
Other									41,000	817,000	23,000
Investment Funds
Revenues:
Management fees									7,920,000	9,363,000	9,943,000
Carried Interest from Investment Funds									13,419,000	10,473,000	12,596,000
Parent Company
Net interest (expense) income:
Total net revenue									664,000
Income before provision for income taxes									664,000
Segment assets at year end	241,024,000								241,024,000
Cash	707,000								707,000
Deferred tax asset	63,100,000								63,100,000
Operating segment
Net interest (expense) income:
Segment assets at year end	1,520,650,000				832,163,000				1,520,650,000	832,163,000	289,281,000
Operating segment | Mortgage banking
Revenues:
Net gains on mortgage loans held for sale at fair value									138,013,000	118,170,000	13,029,000
Loan origination fees									23,575,000	9,634,000	669,000
Net servicing fees									90,010,000	40,105,000	28,667,000
Net interest (expense) income:
Interest income									15,610,000	6,349,000	1,528,000
Interest expense									(16,673,000)	(7,879,000)	(1,875,000)
Net interest expense:									(1,063,000)	(1,530,000)	(347,000)
Other									1,156,000	2,000
Total net revenue									331,403,000	229,287,000	43,765,000
Expenses									185,335,000	136,109,000	47,904,000
Income before provision for income taxes									146,068,000	93,178,000	(4,139,000)
Segment assets at year end	1,403,309,000				761,949,000				1,403,309,000	761,949,000	241,716,000
Operating segment | Mortgage banking | PennyMac Mortgage Investment Trust
Revenues:
Fulfillment fees from affiliate									79,712,000	62,906,000	1,747,000
Operating segment | Loan production
Revenues:
Net gains on mortgage loans held for sale at fair value									138,013,000
Loan origination fees									23,575,000
Net interest (expense) income:
Interest income									15,610,000
Interest expense									(11,103,000)
Net interest expense:									4,507,000
Other									912,000
Total net revenue									246,719,000
Expenses									120,699,000
Income before provision for income taxes									126,020,000
Segment assets at year end	607,989,000								607,989,000
Operating segment | Loan production | PennyMac Mortgage Investment Trust
Revenues:
Fulfillment fees from affiliate									79,712,000
Operating segment | Loan servicing
Revenues:
Net servicing fees									90,010,000
Net interest (expense) income:
Interest expense									(5,570,000)
Net interest expense:									(5,570,000)
Other									244,000
Total net revenue									84,684,000
Expenses									64,636,000
Income before provision for income taxes									20,048,000
Segment assets at year end	795,320,000								795,320,000
Operating segment | Investment management
Revenues:
Management fees									40,330,000	21,799,000	16,683,000
Net interest (expense) income:
Interest income									22,000	5,000	4,000
Net interest expense:									22,000	5,000	4,000
Other									1,385,000	3,522,000	1,736,000
Total net revenue									55,156,000	35,799,000	31,019,000
Expenses									19,098,000	10,654,000	12,181,000
Income before provision for income taxes									36,058,000	25,145,000	18,838,000
Segment assets at year end	117,341,000				70,214,000				117,341,000	70,214,000	47,565,000
Operating segment | Investment management | Investment Funds
Revenues:
Carried Interest from Investment Funds									$ 13,419,000	$ 10,473,000	$ 12,596,000

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Mortgage Servicing Rights (Tables)

12 Months Ended

Dec. 31, 2013

Mortgage Servicing Rights

Schedule of activity in MSRs carried at fair value

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Balance at beginning of year	$	19,798		$	25,698		$	31,957
Additions:
MSRs resulting from purchases		195,871			—			1,352
MSRs resulting from loan sales		14,636			774			1,696
		210,507			774			3,048
Sales		(550	)		—			—
Change in fair value:
Due to changes in valuation inputs or assumptions used in valuation model(1)		659			(1,550	)		(5,323	)
Other changes in fair value(2)		(5,501	)		(5,124	)		(3,984	)
Total change in fair value		(4,842	)		(6,674	)		(9,307	)
Balance at end of year	$	224,913		$	19,798		$	25,698

(1)

Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)

Represents changes due to realization of cash flows.

Schedule of activity in MSRs carried at lower of amortized cost or fair value

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Amortized cost:
Balance at beginning of year	$	92,155		$	6,496		$	—
Additions:
MSRs resulting from loan sales		190,469			89,698			6,557
Amortization		(19,251	)		(4,039	)		(61	)
Application of valuation allowance to write down MSRs with other-than-temporary impairment		—			—			—
Balance at end of year		263,373			92,155			6,496
Valuation allowance for impairment of MSRs:
Balance at beginning of year		(2,978	)		(70	)		—
Additions		(1,644	)		(2,908	)		(70	)
Application of valuation allowance to write down MSRs with other-than-temporary impairment		—			—			—
Balance at end of year		(4,622	)		(2,978	)		(70	)
MSRs, net	$	258,751		$	89,177		$	6,426
Estimated fair value of MSRs at end of year	$	269,422		$	91,028		$	6,465

Summary of estimate of future amortization of existing MSRs

Year ending December 31,	Estimated MSR amortization
	(in thousands)
2014	$	23,254
2015		22,714
2016		22,215
2017		21,869
2018		20,978
Thereafter		152,343
	$	263,373

Summary of servicing fees, late fees and ancillary and other fees relating to MSRs recorded on the consolidated statements of income

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Contractual servicing fees	$	61,523	$	20,673	$	11,493
Ancillary and other fees
Late charges		1,998		948		829
Other		549		276		136
	$	64,070	$	21,897	$	12,458

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Selected Quarterly Results (Unaudited)

12 Months Ended

Dec. 31, 2013

Selected Quarterly Results (Unaudited)

Selected Quarterly Results (Unaudited)

Note 27—Selected Quarterly Results (Unaudited)

        Following is a presentation of selected quarterly financial data:

	Quarter ended
	2013								2012
	Dec. 31		Sept. 30		June 30		Mar. 31		Dec. 31		Sept. 30		June 30		Mar. 31
	(in thousands, except per share data)
For the quarter ended:
Net gains on mortgage loans held for sale at fair value	$	29,453	$	25,949	$	42,654	$	39,957	$	49,683	$	39,760	$	14,790	$	13,937
Fulfillment fees from PennyMac Mortgage Investment Trust		11,087		18,327		22,054		28,244		31,809		17,258		7,715		6,124
Net servicing fees		30,500		21,399		22,069		16,042		14,759		6,112		7,658		11,576
Management fees and Carried Interest		13,963		13,352		13,291		13,143		12,560		9,469		6,966		5,982
Other income		5,417		8,167		6,509		4,982		708		3,633		4,318		269
		90,420		87,194		106,577		102,368		109,519		76,232		41,447		37,888
Expenses		48,733		52,277		56,348		47,075		54,099		38,369		30,969		22,657
Income before provision for income taxes		41,687		34,917		50,229		55,293		55,420		37,863		10,478		15,231
Provision for income taxes		4,430		3,493		2,038		—		—		—		—		—
Net income		37,257		31,424		48,191	$	55,293	$	55,420	$	37,863	$	10,478	$	15,231
Less: Net income attributable to noncontrolling interest		30,847		26,227		45,398
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	6,410	$	5,197	$	2,793
Earnings per share of Common Stock:
Basic	$	0.33	$	0.29	$	0.22
Diluted	$	0.32	$	0.28	$	0.22
At period end:
Mortgage loans held for sale at fair value	$	531,004	$	530,248	$	656,341	$	203,661	$	448,384	$	410,071	$	248,974	$	176,282
Mortgage servicing rights(1)		483,664		252,858		199,738		146,992		108,975		74,154		52,900		41,599
Carried Interest from Investment Funds		61,142		58,134		55,322		52,460		47,723		44,504		41,149		39,039
Servicing advances		154,328		105,344		94,791		96,587		93,152		76,554		73,706		68,961
Other assets		354,337		307,800		274,588		193,277		133,929		97,416		88,907		92,758
Total assets	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639
Assets sold under agreements to repurchase		471,592		387,883		500,427		180,049		393,534		361,478		220,546		159,547
Note payable		52,154		56,775		47,209		63,437		53,013		34,035		18,116		17,584
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust		138,723		2,857		—		—		—		—		—		—
Other liabilities		292,802		216,908		177,000		141,748		123,866		105,259		99,744		84,586
Total liabilities		955,271		664,423		724,636		385,234		570,413		500,772		338,406		261,717
Total equity		629,204		589,961		556,144		307,743		261,750		201,927		167,230		156,922
Total liabilities and equity	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639

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Fair Value (Details 6) (Level 3)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Mortgage loans held for sale at fair value | Minimum
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Discount rate (as a percent)	7.80%
Twelve-month projected housing price index change (as a percent)	4.50%
Prepayment speed (as a percent)	1.60%
Total prepayment speed (as a percent)	2.90%
Mortgage loans held for sale at fair value | Maximum
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Discount rate (as a percent)	13.40%
Twelve-month projected housing price index change (as a percent)	4.70%
Prepayment speed (as a percent)	5.10%
Total prepayment speed (as a percent)	5.20%
Mortgage loans held for sale at fair value | Weighted average
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Discount rate (as a percent)	8.90%
Twelve-month projected housing price index change (as a percent)	4.60%
Prepayment speed (as a percent)	4.40%
Total prepayment speed (as a percent)	4.70%
IRLCs | Minimum
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Pull-through rate (as a percent)	62.10%	61.60%
MSR value expressed as: Servicing fee multiple	2.0	3.2
MSR value expressed as: Percentage of UPB	0.40%	0.60%
IRLCs | Maximum
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Pull-through rate (as a percent)	98.10%	98.10%
MSR value expressed as: Servicing fee multiple	5.0	4.2
MSR value expressed as: Percentage of UPB	2.40%	2.20%
IRLCs | Weighted average
Quantitative summary of key inputs or assumptions used in the valuation of financial statement items
Pull-through rate (as a percent)	81.70%	79.10%
MSR value expressed as: Servicing fee multiple	3.7	4.0
MSR value expressed as: Percentage of UPB	0.90%	0.90%

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Netting of Financial Instruments (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Derivatives: Subject to a master netting arrangement:
Gross amounts of recognized liabilities	$ 7,046	$ 2,283
Netting	(6,787)	(1,785)
Net amounts of assets presented in the balance sheet	259	498
Total derivatives
Gross amounts of recognized liabilities	9,249	2,294
Net amounts of liabilities presented in the consolidated balance sheet	2,462	509
Total
Gross amounts of recognized liabilities	480,841	395,828
Gross amounts offset in the consolidated balance sheet	(6,787)	(1,785)
Net amounts of liabilities presented in the consolidated balance sheet	474,054	394,043
Gross amounts not offset in the balance sheet
Financial instruments	(471,592)	(393,534)
Net amount	2,462	509
Bank of America, N.A.
Total
Net amounts of liabilities presented in the consolidated balance sheet	234,511	150,082
Gross amounts not offset in the balance sheet
Financial instruments	(234,511)	(150,082)
Credit Suisse First Boston Mortgage Capital LLC
Total
Net amounts of liabilities presented in the consolidated balance sheet	198,888	122,443
Gross amounts not offset in the balance sheet
Financial instruments	(198,888)	(122,252)
Net amount		191
Morgan Stanley Bank, N.A.
Total
Net amounts of liabilities presented in the consolidated balance sheet	38,193	53
Gross amounts not offset in the balance sheet
Financial instruments	(38,193)
Net amount		53
Citibank, N.A.
Total
Net amounts of liabilities presented in the consolidated balance sheet		121,200
Gross amounts not offset in the balance sheet
Financial instruments		(121,200)
Other
Total
Net amounts of liabilities presented in the consolidated balance sheet	259	254
Gross amounts not offset in the balance sheet
Net amount	259	254
Mortgage loans held for sale
Mortgage loans sold under agreements to repurchase
Gross amounts of recognized liabilities	471,592	393,534
Net amounts of liabilities presented in the consolidated balance sheet	471,592	393,534
Forward contracts | Purchases
Derivatives: Subject to a master netting arrangement:
Gross amounts of recognized liabilities	6,542	389
Forward contracts | Sales
Derivatives: Subject to a master netting arrangement:
Gross amounts of recognized liabilities	504	1,894
IRLCs
Derivatives not subject to a master netting arrangement
Gross amounts of recognized liabilities	2,203	11
Total
Net amounts of liabilities presented in the consolidated balance sheet	2,203	11
Gross amounts not offset in the balance sheet
Net amount	$ 2,203	$ 11

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Furniture, Fixtures, Equipment and Building Improvements (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Furniture, fixtures, equipment and building improvements
Furniture, fixtures, equipment and building improvements, net	$ 9,837,000	$ 5,065,000
Depreciation and amortization expense	824,000	520,000	251,000
Furniture, Fixtures, Equipment and Building Improvements
Furniture, fixtures, equipment and building improvements
Furniture, fixtures, equipment and building improvements	13,128,000	6,494,000
Less: accumulated depreciation and amortization	(3,291,000)	(1,429,000)
Furniture, fixtures, equipment and building improvements, net	9,837,000	5,065,000
Depreciation and amortization expense	1,800,000	846,000	337,000
Furniture, Fixtures, Equipment and Building Improvements | PMT | Management Agreement
Furniture, fixtures, equipment and building improvements
Depreciation and amortization expense	$ 1,400,000	$ 590,000	$ 324,000

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Supplemental Cash Flow Information (Tables)

12 Months Ended

Dec. 31, 2013

Supplemental Cash Flow Information

Schedule of supplemental cash flow information

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash paid for interest	$	16,527	$	7,858	$	858
Cash paid for income taxes	$	7	$	—	$	—
Non-cash investing activity:
Receipt of MSRs created in loan sales activities	$	205,105	$	90,472	$	8,253

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Parent Company Information (Details 4) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities
Net income	$ 37,257,000	$ 31,424,000	$ 48,191,000	$ 55,293,000	$ 55,420,000	$ 37,863,000	$ 10,478,000	$ 15,231,000	$ 172,165,000	$ 118,323,000	$ 14,699,000
Net cash used in operating activities									(98,390,000)	(308,057,000)	(74,718,000)
Cash flows from investing activities
Net cash used in investing activities									(284,781,000)	(45,535,000)	(12,389,000)
Cash flows from financing activities
Issuance of common shares									230,000,000
Payment of common share underwriting and offering costs									(13,486,000)
Net cash provided by financing activities									401,487,000	349,450,000	97,645,000
Net change in cash									18,316,000	(4,142,000)	10,538,000
Cash at beginning of year				12,323,000				16,465,000	12,323,000	16,465,000	5,927,000
Cash at end of year	30,639,000				12,323,000				30,639,000	12,323,000	16,465,000
Parent Company
Cash flows from operating activities
Net income									14,400,000
Equity in undistributed earnings of subsidiaries									(23,697,000)
Increase in payables to subsidiaries									50,000
Decrease in deferred tax asset									9,954,000
Net cash used in operating activities									707,000
Cash flows from investing activities
Increase in investments in subsidiaries									(216,775,000)
Net cash used in investing activities									(216,775,000)
Cash flows from financing activities
Issuance of common shares									230,000,000
Payment of common share underwriting and offering costs									(13,225,000)
Net cash provided by financing activities									216,775,000
Net change in cash									707,000
Cash at end of year	$ 707,000								$ 707,000

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Fair Value (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	$ 44,717	$ 164,562	$ 3,722
PennyMac Mortgage Investment Trust
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Excess servicing spread financing at fair value to affiliate	(2,423)
Change in fair value of mortgage loans held for sale at fair value
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	49,559	171,236	13,029
Net servicing income
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	(4,842)	(6,674)	(9,307)
Net servicing income | PennyMac Mortgage Investment Trust
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Excess servicing spread financing at fair value to affiliate	(2,423)
Mortgage loans held for sale at fair value
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	49,559	171,236	13,029
Mortgage loans held for sale at fair value | Change in fair value of mortgage loans held for sale at fair value
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	49,559	171,236	13,029
Mortgage servicing rights
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	(4,842)	(6,674)	(9,307)
Mortgage servicing rights | Net servicing income
Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
Total gains (losses) from changes in estimated fair values included in earnings	$ (4,842)	$ (6,674)	$ (9,307)

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Mortgage Servicing Rights (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Ancillary and other fees
Other	$ 11,426	$ 2,245	$ 1,657
Net loan servicing fees	90,010	40,105	28,667
MSRs
Net servicing income
Contractual servicing fees	61,523	20,673	11,493
Ancillary and other fees
Late charges	1,998	948	829
Other	549	276	136
Net loan servicing fees	$ 64,070	$ 21,897	$ 12,458

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Fair Value (Details 8) (Level 3, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Minimum | ESS
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	2.80%
Average life (in years)	10 months 24 days
Prepayment speed (as a percent)	7.70%
Maximum | ESS
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	14.40%
Average life (in years)	8 years
Prepayment speed (as a percent)	48.60%
Weighted average | ESS
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	5.40%
Average life (in years)	6 years 1 month 6 days
Prepayment speed (as a percent)	9.70%
Purchased MSRs Backed by Distressed Mortgage Loans | Period end | Fair value
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Carrying value	$ 10,129	$ 12,370
UPB of underlying loans	969,794	1,271,478
Weighted-average note rate (as a percent)	5.80%	6.01%
Weighted-average servicing fee rate (as a percent)	0.50%	0.50%
Effect on fair value of adverse change of: 5%	(251)	(302)
Effect on fair value of adverse change of: 10%	(490)	(590)
Effect on fair value of adverse change of: 20%	(937)	(1,130)
Effect on fair value of adverse change of: 5%	(231)	(273)
Effect on fair value of adverse change of: 10%	(456)	(529)
Effect on fair value of adverse change of: 20%	(898)	(1,040)
Effect on fair value of adverse change of: 5%	(197)	(290)
Effect on fair value of adverse change of: 10%	(393)	(580)
Effect on fair value of adverse change of: 20%	(787)	(1,159)
Purchased MSRs Backed by Distressed Mortgage Loans | Period end | Fair value | Minimum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Discount rate (as a percent)	15.30%	15.30%
Average life (in years)	5 years	5 years
Prepayment speed (as a percent)	11.40%	10.70%
Annual per-loan cost of servicing	218	270
Purchased MSRs Backed by Distressed Mortgage Loans | Period end | Fair value | Maximum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Discount rate (as a percent)	15.30%	15.30%
Average life (in years)	5 years	5 years
Prepayment speed (as a percent)	11.40%	10.70%
Annual per-loan cost of servicing	218	270
Purchased MSRs Backed by Distressed Mortgage Loans | Period end | Fair value | Weighted average
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Discount rate (as a percent)	15.30%	15.30%
Average life (in years)	5 years	5 years
Prepayment speed (as a percent)	11.40%	10.70%
Annual per-loan cost of servicing	218	270
All Other MSRs | Period end | Fair value
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Carrying value	214,784	7,428
UPB of underlying loans	22,469,179	1,166,765
Weighted-average note rate (as a percent)	4.48%	5.22%
Weighted-average servicing fee rate (as a percent)	0.32%	0.26%
Effect on fair value of adverse change of: 5%	(3,551)	(113)
Effect on fair value of adverse change of: 10%	(6,900)	(222)
Effect on fair value of adverse change of: 20%	(13,305)	(430)
Effect on fair value of adverse change of: 5%	(4,622)	(238)
Effect on fair value of adverse change of: 10%	(9,073)	(462)
Effect on fair value of adverse change of: 20%	(17,500)	(877)
Effect on fair value of adverse change of: 5%	(2,817)	(77)
Effect on fair value of adverse change of: 10%	(5,633)	(153)
Effect on fair value of adverse change of: 20%	(11,266)	(307)
All Other MSRs | Period end | Fair value | Minimum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	2.90%	7.50%
Average life (in years)	1 month 6 days	2 months 12 days
Prepayment speed (as a percent)	7.80%	9.00%
Annual per-loan cost of servicing	68	68
All Other MSRs | Period end | Fair value | Maximum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	18.00%	19.50%
Average life (in years)	14 years 4 months 24 days	14 years 4 months 24 days
Prepayment speed (as a percent)	50.80%	84.20%
Annual per-loan cost of servicing	115	140
All Other MSRs | Period end | Fair value | Weighted average
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	7.50%	10.60%
Average life (in years)	6 years 2 months 12 days	5 years
Prepayment speed (as a percent)	9.70%	19.20%
Annual per-loan cost of servicing	87	76
All Other MSRs | Period end | Amortized cost
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Carrying value	258,751	89,177
UPB of underlying loans	22,499,847	8,730,686
Weighted-average note rate (as a percent)	3.65%	3.65%
Weighted-average servicing fee rate (as a percent)	0.29%	0.28%
Effect on fair value of adverse change of: 5%	(5,312)	(1,814)
Effect on fair value of adverse change of: 10%	(10,395)	(3,562)
Effect on fair value of adverse change of: 20%	(20,039)	(6,870)
Effect on fair value of adverse change of: 5%	(4,615)	(1,751)
Effect on fair value of adverse change of: 10%	(9,097)	(3,446)
Effect on fair value of adverse change of: 20%	(17,684)	(6,674)
Effect on fair value of adverse change of: 5%	(2,609)	(963)
Effect on fair value of adverse change of: 10%	(5,217)	(1,926)
Effect on fair value of adverse change of: 20%	(10,434)	(3,852)
All Other MSRs | Period end | Amortized cost | Minimum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	6.30%	7.50%
Average life (in years)	1 year 6 months	2 years 6 months
Prepayment speed (as a percent)	7.60%	8.70%
Annual per-loan cost of servicing	68	68
All Other MSRs | Period end | Amortized cost | Maximum
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	14.50%	16.50%
Average life (in years)	7 years 3 months 18 days	6 years 10 months 24 days
Prepayment speed (as a percent)	42.50%	28.30%
Annual per-loan cost of servicing	100	140
All Other MSRs | Period end | Amortized cost | Weighted average
Quantitative summary of key inputs used in the valuation and the effect on estimated fair value from adverse changes in those assumptions
Pricing spread (as a percent)	8.70%	9.80%
Average life (in years)	7 years	6 years 7 months 6 days
Prepayment speed (as a percent)	8.00%	9.20%
Annual per-loan cost of servicing	$ 99	$ 99

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Carried Interest Due from Investment Funds (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
Activity in the carried interest
Balance at beginning of period	$ 47,723			$ 58,134	$ 55,322	$ 52,460	$ 44,504	$ 41,149	$ 39,039
Recognition of Carried Interest earned during the period	13,419	10,473	12,596
Balance at end of period	61,142	47,723		58,134	55,322	52,460	44,504	41,149	39,039
Investment Funds
Activity in the carried interest
Balance at beginning of period	47,723	37,250	24,654
Carried Interest earned during the year	13,419	10,473	9,275
Adjustment recognized pursuant to amendment of management agreement			3,321
Recognition of Carried Interest earned during the period	13,419	10,473	12,596
Balance at end of period	$ 61,142	$ 47,723	$ 37,250
Additional disclosures
Number of times when agreement will be extended	3
Agreement extensions term	1 year

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Fair Value (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
Fair value
Total fair value	$ 531,004	$ 530,248	$ 656,341	$ 203,661	$ 448,384	$ 410,071	$ 248,974	$ 176,282
Mortgage loans held for sale at fair value
Fair value
Current through 89 days delinquent	524,665				447,889
Not in foreclosure	5,567				288
In foreclosure	772				207
Total fair value	531,004				448,384
Principal amount due upon maturity
Current through 89 days delinquent	504,705				418,650
Not in foreclosure	5,479				390
In foreclosure	660				233
Total principal amount due upon maturity	510,844				419,273
Difference
Current through 89 days delinquent	19,960				29,239
Not in foreclosure	88				(102)
In foreclosure	112				(26)
Total difference	$ 20,160				$ 29,111

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Loan Sales and Servicing Activities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 item	Dec. 31, 2012 item	Dec. 31, 2011
Cash flows :
Sales proceeds	$ 17,006,460	$ 9,123,645	$ 655,724
Servicing fees received	56,066	11,197	163
Net servicing (advances) recoveries	4,207	7,818	538
Year-end information:
UPB of loans outstanding at year end	23,640,261	9,847,509	696,521
30-89 days	410,927	137,827	5,272
90 days or more or in foreclosure or bankruptcy	143,022	54,795	813
Mortgage servicing portfolio
Mortgage loans held for sale	506,540	417,742
Total loans serviced	78,167,439	28,152,549
Amount subserviced for the Company	738,957	421,380
Delinquent mortgage loans:
30 days	1,567,572	379,537
60 days	459,187	183,450
90 days or more	2,022,053	964,698
Total delinquent mortgage loans	4,048,812	1,527,685
Loans pending foreclosure	1,960,904	1,366,016
Total delinquent mortgage loans and loans pending foreclosure	6,009,716	2,893,701
Custodial funds managed by the Company	814,748	413,642
Number of top states for which geographical loan distribution was measured	5	5
California
Mortgage servicing portfolio
Total loans serviced	30,320,616	10,696,508
Texas
Mortgage servicing portfolio
Total loans serviced	4,470,123	1,223,382
Virginia
Mortgage servicing portfolio
Total loans serviced	3,769,683
Florida
Mortgage servicing portfolio
Total loans serviced	3,416,274	1,385,286
Washington
Mortgage servicing portfolio
Total loans serviced	2,760,900	1,143,849
Colorado
Mortgage servicing portfolio
Total loans serviced		1,299,295
All other states
Mortgage servicing portfolio
Total loans serviced	33,429,843	12,404,229
Agencies
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	44,969,026	9,860,284
Affiliated entities
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	31,632,718	16,552,939
Private investors
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	1,059,155	1,321,584
Servicing rights owned
Mortgage servicing portfolio
Mortgage loans held for sale	506,540	417,742
Total loans serviced	46,445,360	11,599,610
Amount subserviced for the Company	156,347	45,562
Delinquent mortgage loans:
30 days	1,304,054	191,884
60 days	346,912	60,886
90 days or more	605,555	112,847
Total delinquent mortgage loans	2,256,521	365,617
Loans pending foreclosure	168,776	75,329
Total delinquent mortgage loans and loans pending foreclosure	2,425,297	440,946
Custodial funds managed by the Company	568,161	263,562
Servicing rights owned | Agencies
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	44,969,026	9,860,284
Servicing rights owned | Private investors
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	969,794	1,321,584
Contract servicing and subservicing
Mortgage servicing portfolio
Total loans serviced	31,722,079	16,552,939
Amount subserviced for the Company	582,610	375,818
Delinquent mortgage loans:
30 days	263,518	187,653
60 days	112,275	122,564
90 days or more	1,416,498	851,851
Total delinquent mortgage loans	1,792,291	1,162,068
Loans pending foreclosure	1,792,128	1,290,687
Total delinquent mortgage loans and loans pending foreclosure	3,584,419	2,452,755
Custodial funds managed by the Company	246,587	150,080
Contract servicing and subservicing | Affiliated entities
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	31,632,718	16,552,939
Contract servicing and subservicing | Private investors
Mortgage servicing portfolio
Total loans serviced, excluding loans held for sale	$ 89,361

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Stockholders' Equity

12 Months Ended

Dec. 31, 2013

Stockholders' Equity.

Stockholders' Equity

Note 19—Stockholders' Equity

        During the year ended December 31, 2013, PennyMac unitholders exchanged 8,035,000 Class A units for PFSI Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 83.16% at the date of the IPO to 72.57% at December 31, 2013.

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Capitalized Software (Tables) (Capitalized software)

12 Months Ended

Dec. 31, 2013

Capitalized software

Capitalized Software

Summary of capitalized software

	December 31,
	2013			2012
	(in thousands)
Cost	$	2,015		$	1,676
Less: Accumulated amortization		(1,251	)		(881	)
	$	764		$	795

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Netting of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Netting of Financial Instruments

Summaries of derivative assets and related setoff amounts

	December 31, 2013								December 31, 2012
	Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet			Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet
	(in thousands)
Derivatives subject to master netting arrangements:
MBS put options	$	665	$	—		$	665		$	967	$	—		$	967
MBS call options		91		—			91			—		—			—
Forward purchase contracts		416		—			416			1,645		—			1,645
Forward sale contracts		18,762		—			18,762			1,818		—			1,818
Netting		—		(7,358	)		(7,358	)		—		(1,091	)		(1,091	)
		19,934		(7,358	)		12,576			4,430		(1,091	)		3,339
Derivatives not subject to master netting arrangements—IRLCs		8,964		—			8,964			23,951		—			23,951
	$	28,898	$	(7,358	)	$	21,540		$	28,381	$	(1,091	)	$	27,290

Summary of the amount of derivative asset positions by significant counterparty after considering master netting arrangements and financial instruments or cash pledged

	December 31, 2013								December 31, 2012
			Gross amount not offfset in the consolidated balance sheet								Gross amount not offset in the consolidated balance sheet
	Net amount of assets in the balance sheet								Net amount of assets in the balance sheet
			Financial instruments		Cash collateral received		Net amount				Financial instruments		Cash collateral received		Net amount
	(in thousands)
Interest rate lock commitments	$	8,964	$	—	$	—	$	8,964	$	23,951	$	—	$	—	$	23,951
Credit Suisse First Boston Mortgage Capital LLC		2,149		—		—		2,149		—		—		—		—
Bank of America, N.A.		1,680		—		—		1,680		1,782		—		—		1,782
Morgan Stanley Bank, N.A.		1,704		—		—		1,704		—		—		—		—
Daiwa Capital Markets		1,190		—		—		1,190		—		—		—		—
Citibank, N.A.		—		—		—		—		522		—		—		522
Other		5,853		—		—		5,853		1,035		—		—		1,035
	$	21,540	$	—	$	—	$	21,540	$	27,290	$	—	$	—	$	27,290

Summary of net derivative liabilities and assets sold under agreements to repurchase and related setoff amounts

	December 31, 2013								December 31, 2012
	Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet			Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet
	(in thousands)
Derivatives subject to a master netting arrangement:
Forward purchase contracts	$	6,542	$	—		$	6,542		$	389	$	—		$	389
Forward sale contracts		504		—			504			1,894		—			1,894
Netting		—		(6,787	)		(6,787	)		—		(1,785	)		(1,785	)
		7,046		(6,787	)		259			2,283		(1,785	)		498
Derivatives not subject to a master netting arrangement—IRLCs		2,203		—			2,203			11		—			11
Total derivatives		9,249		(6,787	)		2,462			2,294		(1,785	)		509
Mortgage loans sold under agreements to repurchase		471,592		—			471,592			393,534		—			393,534
	$	480,841	$	(6,787	)	$	474,054		$	395,828	$	(1,785	)	$	394,043

Summary of amount of derivative liabilities and assets sold under agreements to repurchase by significant counterparty after considering master netting arrangements and financial instruments or cash pledged

	December 31, 2013									December 31, 2012
			Gross amount not offset in the consolidated balance sheet									Gross amount not offset in the consolidated balance sheet
	Net amount of liabilities in the consolidated balance sheet									Net amount of liabilities in the consolidated balance sheet
			Financial instruments			Cash collateral pledged		Net amount				Financial instruments			Cash collateral pledged		Net amount
	(in thousands)
Interest rate lock commitments	$	2,203	$	—		$	—	$	2,203	$	11	$	—		$	—	$	11
Bank of America, N.A.		234,511		(234,511	)		—		—		150,082		(150,082	)		—		—
Credit Suisse First Boston Mortgage Capital LLC		198,888		(198,888	)		—		—		122,443		(122,252	)		—		191
Morgan Stanley Bank, N.A.		38,193		(38,193	)		—		—		53		—			—		53
Citibank, N.A.		—		—			—		—		121,200		(121,200	)		—		—
Other		259		—			—		259		254		—			—		254
	$	474,054	$	(471,592	)	$	—	$	2,462	$	394,043	$	(393,534	)	$	—	$	509

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Fair Value (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Changes in fair value included in income arising from:
Transfers in or out the levels	$ 0
Recurring basis
Roll forward of assets measured using Level 3 inputs on a recurring basis
Balance at the beginning of the period	43,738	33,603	31,944
Repurchases of mortgage loans subject to representations and warranties	5,529
Repayments	(1,364)
Interest rate lock commitments issued, net	101,179	167,066	18,436
MSRs resulting from purchases	195,871		1,352
MSRs resulting from loan sales	14,636	774	1,696
Sales	(550)
Changes in fair value included in income arising from:
Other factors	(20,756)	(6,674)	(9,307)
Total changes in fair value included in income	(20,756)	(6,674)	(9,307)
Transfers of interest rate lock commitments to mortgage loans held for sale	(102,676)	(151,031)	(10,518)
Balance at the end of the period	235,607	43,738	33,603
Roll forward of liabilities measured using Level 3 inputs on a recurring basis
Balance at the beginning of the period			13,289
Changes in fair value included in income arising from:
Sales			57,908
Assumption of agreements pursuant purchase from affiliate of mortgage loans subject to agreements to repurchase			62,989
Repurchases			(134,186)
Recurring basis | Excess servicing spread financing
Roll forward of liabilities measured using Level 3 inputs on a recurring basis
Proceeds received from financing of excess servicing spread	139,028
Accrual of interest on excess servicing spread financing	1,348
Changes in fair value included in income arising from:
Other factors	2,423
Repayments	(4,076)
Total changes in fair value included in income	2,423
Balance at the end of the period	138,723
Changes in fair value recognized during the period relating to liability still held at the end of the period	2,423
Recurring basis | Mortgage loans held for sale
Roll forward of assets measured using Level 3 inputs on a recurring basis
Repurchases of mortgage loans subject to representations and warranties	5,529
Repayments	(1,364)
Changes in fair value included in income arising from:
Other factors	(232)
Total changes in fair value included in income	(232)
Balance at the end of the period	3,933
Changes in fair value recognized during the period relating to assets still held at the end of the period	(390)
Recurring basis | Net interest rate lock commitments
Roll forward of assets measured using Level 3 inputs on a recurring basis
Balance at the beginning of the period	23,940	7,905	(13)
Interest rate lock commitments issued, net	101,179	167,066	18,436
Changes in fair value included in income arising from:
Other factors	(15,682)
Total changes in fair value included in income	(15,682)
Transfers of interest rate lock commitments to mortgage loans held for sale	(102,676)	(151,031)	(10,518)
Balance at the end of the period	6,761	23,940	7,905
Changes in fair value recognized during the period relating to assets still held at the end of the period	6,761	23,940	7,905
Recurring basis | Mortgage servicing rights
Roll forward of assets measured using Level 3 inputs on a recurring basis
Balance at the beginning of the period	19,798	25,698	31,957
MSRs resulting from purchases	195,871		1,352
MSRs resulting from loan sales	14,636	774	1,696
Sales	(550)
Changes in fair value included in income arising from:
Other factors	(4,842)	(6,674)	(9,307)
Total changes in fair value included in income	(4,842)	(6,674)	(9,307)
Balance at the end of the period	224,913	19,798	25,698
Changes in fair value recognized during the period relating to assets still held at the end of the period	$ (4,842)	$ (6,674)	$ (9,307)

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Net Gains on Mortgage Loans Held for Sale (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash gain (loss):
Sales proceeds									$ (150,589)	$ 78,671	$ 182
Hedging activities									98,707	(70,916)	(8,578)
Cash gain, net of effects of cash hedging, on sale of mortgage loans held for sale									(51,882)	7,755	(8,396)
Non-cash gain:
Receipt of MSRs in loan sale transactions									205,105	90,472	8,253
MSR recapture payable to PennyMac Mortgage Investment Trust									(709)
Provision for losses relating to representations and warranties on loans sold									(4,675)	(3,055)	(260)
Change in fair value relating to loans and hedging derivatives held at year end:
IRLCs									(17,179)	16,035	7,919
Mortgage loans									(4,207)	4,030	393
Hedging derivatives									11,560	2,933	5,120
Net gains on mortgage loans held for sale at fair value	$ 29,453	$ 25,949	$ 42,654	$ 39,957	$ 49,683	$ 39,760	$ 14,790	$ 13,937	$ 138,013	$ 118,170	$ 13,029

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Significant Accounting Policies

Basis of Presentation

• Basis of Presentation

        The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") as codified in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification (the "Codification"). All significant intercompany accounts and transactions have been eliminated.

Reclassification of Previously Presented Balances

Reclassification of Previously Presented Balances

        Certain prior period amounts have been reclassified to conform to the current presentation. Specifically:

• •

  Interest expense is included withInterest income as a new caption ofNet interest expense to better reflect our results due to growth in the Company's portfolio of interest-earning assets. Previously,Interest expense was included withinTotal expenses. This reclassification results in the presentation ofNet interest expense.

        Following is a summary of the reclassifications:

	As reported						As previously reported				Reclassification
	Year ended December 31,						Year ended December 31,				Year ended December 31,
	2012			2011			2012		2011		2012		2011
	(in thousands)
Net interest expense:
Interest income	$	6,354		$	1,532		$	6,354	$	1,532	$	—	$	—
Interest expense		7,879			1,875			—		—		7,879		1,875
	$	(1,525	)	$	(343	)	$	6,354	$	1,532	$	7,879	$	1,875

        These reclassifications did not change previously reported income before provision for income taxes, provision for taxes, net income, reported consolidated balance sheet amounts including stockholders' equity, or consolidated cash flows.

Principles of Consolidation

• Principles of Consolidation

        The consolidated financial statements include the accounts of PennyMac and all of its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Use of Estimates

• Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

Fair Value

• Fair Value

        The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:

• •

  Level 1—Quoted prices in active markets for identical assets or liabilities.

  •

  Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and other inputs.

  •

  Level 3—Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an asset or liability at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

        While management believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.

        Management incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. The Company uses discounted cash flow techniques to estimate fair value. These techniques incorporate forecasting of expected cash flows discounted at market discount rates that are intended to reflect the lack of liquidity in the market.

Short-Term Investments

• Short-Term Investments

        Short-term investments, which represent investments in money market accounts with a depository institution, are carried at fair value. Changes in fair value are recognized in current period income. The Company classifies its short-term investments as "Level 1" fair value financial statement items.

Mortgage Loans Held for Sale at Fair Value

• Mortgage Loans Held for Sale at Fair Value

        Management has elected to account for mortgage loans held for sale at fair value, with changes in fair value recognized in current period income, to more timely reflect the Company's performance. All changes in fair value, including changes arising from the passage of time, are recognized as a component of Net gains on mortgage loans held for sale at fair value. The Company classifies most of the mortgage loans held for sale at fair value as "Level 2" fair value financial statement items. Certain of the Company's mortgage loans held for sale may not be readily saleable due to identified defects or delinquency. Such loans are classified as "Level 3" financial statement items.

• Sale Recognition

        The Company recognizes transfers of mortgage loans as sales when it surrenders control over the mortgage loans. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company, (ii) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates the Company to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets.

Interest Income Recognition

• Interest Income Recognition

        Interest income on mortgage loans held for sale at fair value is recognized over the life of the loans using their contractual interest rates. Income recognition is suspended for loans when they become 90 days delinquent, or when, in management's opinion, a full recovery of interest and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current.

Servicing Advances

• Servicing Advances

        Servicing advances represent advances made on behalf of borrowers and the loans' investors to fund delinquent balances for property tax and insurance premiums and out of pocket costs (e.g., preservation and restoration of mortgaged or real estate owned property, legal fees, appraisals and insurance premiums). Servicing advances are made in accordance with the Company's servicing agreements and are deemed recoverable at the time of liquidation. These advances are periodically reviewed for collectability. Uncollectible amounts are written off when they are deemed uncollectible.

Derivative Financial Instruments

• Derivative Financial Instruments

        The Company is exposed to price risk relative to its mortgage loans held for sale as well as to the commitments it makes to loan applicants to originate or to PMT to acquire loans at specified interest rates ("interest rate lock commitments" or "IRLCs"). The Company bears price risk from the time a commitment to originate a loan is made to a borrower or to purchase a loan from PMT, to the time the mortgage loan is sold. During this period, the Company is exposed to losses if mortgage interest rates rise, because the value of the purchase commitment or mortgage loan held for sale decreases. The Company also is exposed to risk relative to the fair value of its mortgage servicing rights ("MSRs"). The Company is exposed to loss in value of its MSRs when interest rates decrease.

        IRLCs are accounted for as derivative financial instruments. The Company manages the risk created by IRLCs relating to mortgage loans held for sale by entering into forward sale agreements to sell the mortgage loans and by the purchase and sale of mortgage-backed securities ("MBS") options and futures. Such agreements are also accounted for as derivative financial instruments. From time to time, these instruments are also used to manage the risk created by changes in prepayment speeds on certain of the MSRs the Company holds. The Company classifies its IRLCs as "Level 3" financial statement items and the derivative financial instruments it acquires to manage the risks created by IRLCs and mortgage loans held for sale as "Level 2" fair value financial statement items. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities.

        MSRs are generally subject to loss in value when market mortgage interest rates decrease. Decreasing market mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect income primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of mortgage loans underlying MSRs.

        The Company accounts for its derivative financial instruments as free-standing derivatives. The Company does not designate its derivative financial instruments for hedge accounting. All derivative financial instruments are recognized on the consolidated balance sheet at fair value with changes in the fair values being reported in current period income. Changes in fair value of derivatives hedging IRLCs and mortgage loans held for sale at fair value are included in Net gains on mortgage loans held for sale at fair value in the Company's consolidated statements of income. For derivatives hedging MSRs, changes in fair value are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company's consolidated statements of income.

        When the Company has multiple derivative instruments with the same counterparty under a master netting arrangement, it offsets the amounts recorded as assets and liabilities and amounts recognized for the right to reclaim cash collateral it has deposited with the counterparty or the obligation to return cash collateral it has collected from the counterparty arising from that master netting arrangement. Such offset amounts are presented as either a net asset or liability by counterparty on the Company's consolidated balance sheets.

Carried Interest Due from Investment Funds

• Carried Interest Due from Investment Funds

        The Company has a general partnership interest or other Carried Interest arrangement with the Investment Funds, and earns Carried Interest thereunder. Carried Interest, in general terms, is the share of any profits that the general partners receive as compensation. The Company determines the amount of Carried Interest to be recorded each period based on the cash flows that would be produced assuming termination of the Investment Funds agreements at period end. The allocation of profits between the Investment Funds and the Company is described under the Significant Accounting Policies caption Management Fees and Carried Interest, following.

Investment in PennyMac Mortgage Investment Trust at Fair Value

• Investment in PennyMac Mortgage Investment Trust at Fair Value

        Common shares of beneficial interest in PMT are carried at their fair value with changes in fair value recognized in current period income. Fair value for purposes of the Company's holdings in PMT is based on the published closing price of the shares as of period end. The Company classifies its investment in common shares of PMT as a "Level 1" fair value financial statement item.

Mortgage Servicing Rights

• Mortgage Servicing Rights

        MSRs arise from contractual agreements between the Company and investors (or their agents) in mortgage securities and mortgage loans. Under these contracts, the Company performs loan servicing functions in exchange for fees and other remuneration. The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments; responding to borrower inquiries; accounting for principal and interest; holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; supervising the acquisition of real estate in settlement of loans and property disposition. Real estate acquired in settlement of loans ("REO") represents real estate that collateralized the mortgage loans before the properties were acquired in settlement of loans.

        The value of MSRs is derived from the net positive cash flows associated with the servicing contracts. The Company receives a servicing fee ranging generally from 0.19% to 0.57% annually on the remaining outstanding principal balances of the mortgage loans subject to the servicing contracts. The servicing fees are collected from the monthly payments made by the mortgagors. The Company is contractually entitled to receive other remuneration including rights to various mortgagor-contracted fees such as late charges, collateral reconveyance charges and loan prepayment penalties, and the Company is generally entitled to retain the interest earned on funds held pending remittance related to its collection of mortgagor payments. The Company also generally has the right to solicit the mortgagors for other products and services as well as for new mortgages for those considering refinancing or purchasing a new home.

        The Company recognizes MSRs initially at their estimated fair value, either as proceeds from sales of mortgage loans where the Company assumes the obligation to service the loan in the sale transaction, or from the purchase of MSRs. The Company's MSRs generally relate to either pools of distressed loans ("Distressed MSRs"), or pools of loans that were originated to borrowers with prime credit characteristics or are backed by government insurance. Accordingly, the assumptions used in the valuation are differentiated based on the higher expectation of the delinquency migration of the MSRs backed by distressed loans and significantly higher expected cost to service and advance payments for MSRs backed by the distressed loans.

        The Company's subsequent accounting for MSRs is based on the class of MSRs. The Company has identified three classes of MSRs: originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5%; MSRs backed by mortgage loans with initial interest rates of more than 4.5%; and purchased MSRs acquired in transactions financed in part through the financing of the right to receive excess servicing spread ("ESS") cash flows. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method. MSRs backed by loans with initial interest rates of more than 4.5% are accounted for at fair value with changes in fair value recorded in current period income. The Company distinguishes between these classes of MSRs due to the differing factors that can cause changes in prepayment speeds of the underlying loans, which in turn cause changes in the fair value of the MSRs. MSRs purchased for which a financing in the form of ESS cash flows has been recorded are accounted for at fair value. The ESS financing at fair value is also accounted for at fair value to align the accounting for the MSR with the related liability.

        The fair value of MSRs is difficult to determine because MSRs are not actively traded in observable stand-alone markets. Considerable judgment is required to estimate the fair values of MSRs and the exercise of such judgment can significantly affect the Company's income. Therefore, the Company classifies its MSRs as "Level 3" fair value financial statement items.

        The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting servicing cash flows. The inputs used in the Company's discounted cash flow model are based on market factors which management believes are consistent with assumptions and data used by market participants valuing similar MSRs.

        The key inputs used in the valuation of MSRs include mortgage prepayment speeds, cost to service the loans and discount rates. These inputs can, and generally do, change from period to period as market conditions change.

        MSRs are generally subject to loss in value when mortgage rates decline. Declining mortgage rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect earnings primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of the underlying mortgage loans.

• MSRs Accounted for Using the Amortization Method

        The Company amortizes MSRs that are accounted for using the amortization method. MSR amortization is determined by applying the ratio of the net MSR cash flows projected for the current period to the estimated total remaining projected net MSR cash flows. The estimated total net MSR cash flows are determined at the beginning of each month using prepayment assumptions applicable at that time.

        MSRs accounted for using the amortization method are periodically evaluated for impairment. Impairment occurs when the current fair value of the MSRs decreases below the asset's carrying value (carrying value is the MSR's amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period income and the carrying value of the MSRs is adjusted through a valuation allowance. If the value of impaired MSRs subsequently increases, the increase in value is recognized in current-period income. When an increase in value of MSR is recognized, the valuation allowance is adjusted to increase the carrying value of the MSRs only to the extent of the valuation allowance.

        For impairment evaluation purposes, the Company stratifies its MSRs by predominant risk characteristic when evaluating for impairment. For purposes of performing its MSR impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics including loan type (fixed-rate or adjustable-rate) and note rate. Fixed-rate loans are stratified into note rate pools of 50 basis points for note rates between 3.0% and 4.5% and a single pool for note rates below 3%. If the fair value of MSRs in any of the note rate pools is below the carrying value of the MSRs for that pool, impairment is recognized to the extent of the difference between the estimated fair value and the carrying value, including the existing valuation allowance for that pool.

        Management periodically reviews the various impairment strata to determine whether the value of the impaired MSRs in a given stratum is likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

        Both amortization and changes in the amount of the MSR valuation allowance are recorded in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

• MSRs Accounted for at Fair Value

        Changes in fair value of MSRs accounted for at fair value are recognized in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

Furniture, Fixtures, Equipment and Building Improvements

• Furniture, Fixtures, Equipment and Building Improvements

        Furniture, fixtures, equipment and building improvements are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the various classes of assets, which range from five to seven years for furniture and equipment and the lesser of the asset's estimated useful life or the remaining lease term for fixtures and building improvements.

Capitalized Software

• Capitalized Software

        The Company capitalizes certain consulting, payroll, and payroll-related costs related to computer software for internal use, and subsequently amortizes such costs over a period of five years using the straight-line method.

        The Company also periodically assesses long-lived assets including capitalized software for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. If management identifies an indicator of impairment, it assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. No such impairment was recorded during the three years ended December 31, 2013.

Restricted Cash

• Restricted Cash

        Restricted cash represents deposits that serve as collateral for various agreements the Company has entered into, such as derivative margin account agreements. Restricted cash is included in Other assets in the Company's consolidated balance sheets. Management classifies restricted cash as a "Level 1" fair value financial statement item.

Mortgage Loans Sold Under Agreements to Repurchase

• Mortgage Loans Sold Under Agreements to Repurchase

        The carrying value of mortgage loans sold under agreements to repurchase is based on the accrued cost of the agreements. The costs of creating the facilities underlying the agreements are recognized as deferred charges in Other assets and amortized to Interest expense over the term of the borrowing facility.

Excess Servicing Spread Financing at Fair Value

• Excess Servicing Spread Financing at Fair Value

        In conjunction with the Company's acquisition of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows of certain MSRs. Management classifies ESS at fair value as a "Level 3" fair value financial statement item.

Loans Eligible for Repurchase

• Loans Eligible for Repurchase

        The terms of the Ginnie Mae MBS program allow, but do not require, the Company to repurchase mortgage loans when the borrower has made no payments for three consecutive months. As a result of this right, the Company records the mortgage loans in Loans eligible for repurchase and records a corresponding liability in Liability for loans eligible for repurchase on its balance sheet.

Liability for Losses Under Representations and Warranties

• Liability for Losses Under Representations and Warranties

        The Company's agreements with the Agencies include representations and warranties related to the loans the Company sells to the Agencies. The representations and warranties require adherence to Agency origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

        In the event of a breach of its representations and warranties, the Company may be required to either repurchase the mortgage loans with the identified defects or indemnify the Agency, or may become ineligible to receive any of the benefits provided by the insurer with respect to such mortgage loans. In such cases, the Company bears any subsequent credit loss on the mortgage loans. The Company's credit loss may be reduced by any recourse it has to correspondent lenders that, in turn, had sold such mortgage loans to the Company and breached similar or other representations and warranties. In such event, the Company has the right to seek a recovery of related repurchase losses from that correspondent lender.

        The Company includes a provision for losses relating to the representations and warranties it makes as part of its loan sale transactions. The method used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates, the potential severity of loss in the event of default and the probability of reimbursement by the correspondent loan seller. The Company establishes a liability at the time loans are sold and periodically updates its liability estimate. The liability estimate is reviewed and approved by the Company's management credit committee.

        The level of the liability for representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and other external conditions that may change over the lives of the underlying loans, The Company's representations and warranties are generally not subject to stated limits of exposure. However, management believes that the current unpaid principal balance ("UPB") of loans sold by the Company to date represents the maximum exposure to repurchases related to representations and warranties. Management believes the amount and range of reasonably possible losses in relation to the recorded liability is not material to the Company's financial condition or results of operations.

Loan Servicing Fees

• Loan Servicing Fees

        Loan servicing fees and other remuneration are received by the Company for servicing residential mortgage loans. Loan servicing fees are recorded net of Agency guarantee fees paid by the Company. Loan servicing fees are recognized as earned over the life of the loans in the servicing portfolio.

Stock-Based Compensation

• Stock-Based Compensation

        The Company's 2013 Equity Incentive Plan provides for awards of nonstatutory and incentive stock options ("Stock Options"), time-based restricted stock units, performance-based restricted stock units, stock appreciation rights, performance units and stock grants. The Company estimates the value of the Stock Options, time-based restricted stock units and performance-based restricted stock units awarded with reference to the value of its underlying common stock on the date of the award.

        Compensation costs are fixed, except for performance-based restricted stock units, at the estimated fair value as of the award date as all grantees are employees of PennyMac or directors of the Company. The Company amortizes the cost of time-based restricted stock unit awards to compensation expense over the vesting period using the graded vesting method. The Company amortizes performance-based restricted stock unit awards on the straight-line basis over the vesting period. Expense relating to awards is included in Compensation in the consolidated statements of income.

Income Taxes

• Income Taxes

        As a result of the PennyMac recapitalization and reorganization, the Company expects to benefit from amortization and other tax deductions due to an increase in tax basis from the exchange of PennyMac Class A units. Those deductions will be allocated to the Company and will be taken into account in reporting the Company's taxable income. The Company has entered into an agreement with the unitholders of PennyMac that will provide for the additional payment by the Company to exchanging unitholders of PennyMac equal to 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that PFSI realizes due to (i) increases in tax basis resulting from exchanges of the then-existing unitholders and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

        The Company is subject to federal and state income taxes. Income taxes are provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

        The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. A valuation allowance is established if, in management's judgment, it is not more likely than not that a deferred tax asset will be realized.

        The Company recognizes tax benefits relating to its tax positions only if, in the opinion of management, it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this standard is recognized as the largest amount that is greater than 50% likely to be realized upon ultimate settlement with the appropriate taxing authority. The Company will classify any penalties and interest as a component of provision for income taxes.

Variable Interest Held in Unconsolidated Variable Interest Entities

• Variable Interest Held in Unconsolidated Variable Interest Entities

        PMOFA is a general partner in the Master Fund. The Master Fund wholly owns PennyMac Mortgage Co. Funding, LLC ("Funding, LLC"), PennyMac Mortgage Co. Funding II, LLC ("Funding II, LLC), and PennyMac Mortgage Co, LLC ("Mortgage Co"). Funding, LLC and Funding II, LLC are each the majority interest holder in PennyMac Loan Trust 2010-NPL1, PennyMac Loan Trust 2011-NPL1 and PennyMac REO 2011-NPL1 (the "Trusts"), which in the case of the first entity holds the mortgage loans for Funding LLC and in the case of the latter two entities hold the mortgage loans for Funding II, LLC.

        PLS provides loan servicing to the Trusts as well as to Mortgage Co. The related party group constituting the Company and its affiliates (including PMOFA) has an equity interest in the Master Fund, the ultimate Parent of the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC. The direct equity holders in the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC, however, do not have power to direct operations of the respective entities and as such, both the Trusts and Mortgage Co are considered to be variable interest entities ("VIEs") as defined in the Consolidations topic of the Codification.

        The Company is not the primary beneficiary in these VIEs, given it does not represent the enterprise within the related party group that is most closely associated with these VIEs and, as such, the Company does not consolidate these VIEs. Exposure of loss to the related party group from the unconsolidated VIEs is limited to the contributed capital of the related party group in the Master Fund totaling $1,436,000 which represents the general partnership interest held by PMOFA in the Master Fund.

Recent Accounting Pronouncements

• Recent Accounting Pronouncements

        In December 2011, the FASB issued an Accounting Standards Update ("ASU"), ASU 2011-11, to the Balance Sheet topic of the Codification. The amendments in this ASU affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic of the Codification or (2) subject an enforceable master netting arrangement or similar agreement.

        The amendments in this ASU require the Company to disclose information about offsetting and related arrangement to enable users of financial statements to understand the effect of netting to an entity's financial position.

        In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. The ASU clarifies that the scope applied to derivatives accounted for in accordance with the Derivatives and Hedging topic of the Codification, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic or subject to an enforceable master netting arrangement or similar agreement.

        The ASU amendment and the subsequent clarification of the amendment are effective for periods beginning on or after January 1, 2013, and must be shown for all periods shown on the balance sheet. The adoption of these ASU amendments did not have a material effect on the Company's financial condition or results of operations.

        In January 2014, the FASB issued ASU 2014-04, Troubled Debt Restructurings by Creditors to the Receivables topic of the Codification, which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

        ASU 2014-04 specifies that a creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:

• a.

  The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
  
  

  b.

  The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.

        ASU 2014-04 also requires the disclosure of the carrying value of REO and its recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for the Company for annual and interim periods within those annual periods, beginning after December 15, 2014.

        An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity would apply the amendments in ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. The adoption of ASU-2014-04 is not expected to be material to the financial statements of the Company.

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Liability for Losses Under Representations and Warranties (Tables)

12 Months Ended

Dec. 31, 2013

Liability for Losses Under Representations and Warranties

Summary of the entity's liability for representations and warranties

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Balance at beginning of year	$	3,504		$	449	$	189
Provision for losses on loans sold		4,675			3,055		260
Incurred losses		(56	)		—		—
Balance at end of year	$	8,123		$	3,504	$	449
UPB of mortgage loans subject to representations and warranties at year end	$	23,637,202		$	8,856,044	$	679,247

Summary of repurchase activity

	Year ended December 31,
	2013		2012		2011
	(in thousands)
During the year:
UPB of mortgage loans repurchased	$	8,449	$	4,399	$	—
UPB of repurchased mortgage loans put to correspondent lenders	$	3,593	$	—	$	—
Year end:
UPB of mortgage loans subject to pending claims for repurchase	$	1,655	$	2,582	$	9,774

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Significant Accounting Policies (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended	36 Months Ended
	Dec. 31, 2013	Dec. 31, 2013
Long-lived asset disclosures
Period of payment default	3 months
Furniture, Fixtures, Equipment and Building Improvements | Minimum
Long-lived asset disclosures
Estimated useful lives	5 years
Furniture, Fixtures, Equipment and Building Improvements | Maximum
Long-lived asset disclosures
Estimated useful lives	7 years
Capitalized software
Long-lived asset disclosures
Estimated useful lives	5 years
Impairment of capitalized software		$ 0

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Selected Quarterly Results (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2013

Selected Quarterly Results (Unaudited)

Schedule of selected quarterly financial data

	Quarter ended
	2013								2012
	Dec. 31		Sept. 30		June 30		Mar. 31		Dec. 31		Sept. 30		June 30		Mar. 31
	(in thousands, except per share data)
For the quarter ended:
Net gains on mortgage loans held for sale at fair value	$	29,453	$	25,949	$	42,654	$	39,957	$	49,683	$	39,760	$	14,790	$	13,937
Fulfillment fees from PennyMac Mortgage Investment Trust		11,087		18,327		22,054		28,244		31,809		17,258		7,715		6,124
Net servicing fees		30,500		21,399		22,069		16,042		14,759		6,112		7,658		11,576
Management fees and Carried Interest		13,963		13,352		13,291		13,143		12,560		9,469		6,966		5,982
Other income		5,417		8,167		6,509		4,982		708		3,633		4,318		269
		90,420		87,194		106,577		102,368		109,519		76,232		41,447		37,888
Expenses		48,733		52,277		56,348		47,075		54,099		38,369		30,969		22,657
Income before provision for income taxes		41,687		34,917		50,229		55,293		55,420		37,863		10,478		15,231
Provision for income taxes		4,430		3,493		2,038		—		—		—		—		—
Net income		37,257		31,424		48,191	$	55,293	$	55,420	$	37,863	$	10,478	$	15,231
Less: Net income attributable to noncontrolling interest		30,847		26,227		45,398
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	6,410	$	5,197	$	2,793
Earnings per share of Common Stock:
Basic	$	0.33	$	0.29	$	0.22
Diluted	$	0.32	$	0.28	$	0.22
At period end:
Mortgage loans held for sale at fair value	$	531,004	$	530,248	$	656,341	$	203,661	$	448,384	$	410,071	$	248,974	$	176,282
Mortgage servicing rights(1)		483,664		252,858		199,738		146,992		108,975		74,154		52,900		41,599
Carried Interest from Investment Funds		61,142		58,134		55,322		52,460		47,723		44,504		41,149		39,039
Servicing advances		154,328		105,344		94,791		96,587		93,152		76,554		73,706		68,961
Other assets		354,337		307,800		274,588		193,277		133,929		97,416		88,907		92,758
Total assets	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639
Assets sold under agreements to repurchase		471,592		387,883		500,427		180,049		393,534		361,478		220,546		159,547
Note payable		52,154		56,775		47,209		63,437		53,013		34,035		18,116		17,584
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust		138,723		2,857		—		—		—		—		—		—
Other liabilities		292,802		216,908		177,000		141,748		123,866		105,259		99,744		84,586
Total liabilities		955,271		664,423		724,636		385,234		570,413		500,772		338,406		261,717
Total equity		629,204		589,961		556,144		307,743		261,750		201,927		167,230		156,922
Total liabilities and equity	$	1,584,475	$	1,254,384	$	1,280,780	$	692,977	$	832,163	$	702,699	$	505,636	$	418,639

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Carried Interest Due from Investment Funds (Tables)

12 Months Ended

Dec. 31, 2013

Carried Interest Due from Investment Funds

Summary of activity in the Company's Carried interest due from Investment Funds

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Balance at beginning of year	$	47,723	$	37,250	$	24,654
Carried Interest recognized during the year:
Carried Interest earned during the year		13,419		10,473		9,275
Adjustment recognized pursuant to amendment of management agreement		—		—		3,321
		13,419		10,473		12,596
Proceeds received during the year		—		—		—
Balance at end of year	$	61,142	$	47,723	$	37,250

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Significant Accounting Policies

Significant Accounting Policies

Note 3—Significant Accounting Policies

        A description of the Company's significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

• Basis of Presentation

        The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") as codified in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification (the "Codification"). All significant intercompany accounts and transactions have been eliminated.

Reclassification of Previously Presented Balances

        Certain prior period amounts have been reclassified to conform to the current presentation. Specifically:

• •

  Interest expense is included withInterest income as a new caption ofNet interest expense to better reflect our results due to growth in the Company's portfolio of interest-earning assets. Previously,Interest expense was included withinTotal expenses. This reclassification results in the presentation ofNet interest expense.

        Following is a summary of the reclassifications:

	As reported						As previously reported				Reclassification
	Year ended December 31,						Year ended December 31,				Year ended December 31,
	2012			2011			2012		2011		2012		2011
	(in thousands)
Net interest expense:
Interest income	$	6,354		$	1,532		$	6,354	$	1,532	$	—	$	—
Interest expense		7,879			1,875			—		—		7,879		1,875
	$	(1,525	)	$	(343	)	$	6,354	$	1,532	$	7,879	$	1,875

        These reclassifications did not change previously reported income before provision for income taxes, provision for taxes, net income, reported consolidated balance sheet amounts including stockholders' equity, or consolidated cash flows.

• Principles of Consolidation

        The consolidated financial statements include the accounts of PennyMac and all of its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

• Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

• Fair Value

        The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:

• •

  Level 1—Quoted prices in active markets for identical assets or liabilities.

  •

  Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and other inputs.

  •

  Level 3—Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an asset or liability at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

        While management believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.

        Management incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. The Company uses discounted cash flow techniques to estimate fair value. These techniques incorporate forecasting of expected cash flows discounted at market discount rates that are intended to reflect the lack of liquidity in the market.

• Short-Term Investments

        Short-term investments, which represent investments in money market accounts with a depository institution, are carried at fair value. Changes in fair value are recognized in current period income. The Company classifies its short-term investments as "Level 1" fair value financial statement items.

• Mortgage Loans Held for Sale at Fair Value

        Management has elected to account for mortgage loans held for sale at fair value, with changes in fair value recognized in current period income, to more timely reflect the Company's performance. All changes in fair value, including changes arising from the passage of time, are recognized as a component of Net gains on mortgage loans held for sale at fair value. The Company classifies most of the mortgage loans held for sale at fair value as "Level 2" fair value financial statement items. Certain of the Company's mortgage loans held for sale may not be readily saleable due to identified defects or delinquency. Such loans are classified as "Level 3" financial statement items.

• Sale Recognition

        The Company recognizes transfers of mortgage loans as sales when it surrenders control over the mortgage loans. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company, (ii) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates the Company to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets.

• Interest Income Recognition

        Interest income on mortgage loans held for sale at fair value is recognized over the life of the loans using their contractual interest rates. Income recognition is suspended for loans when they become 90 days delinquent, or when, in management's opinion, a full recovery of interest and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current.

• Servicing Advances

        Servicing advances represent advances made on behalf of borrowers and the loans' investors to fund delinquent balances for property tax and insurance premiums and out of pocket costs (e.g., preservation and restoration of mortgaged or real estate owned property, legal fees, appraisals and insurance premiums). Servicing advances are made in accordance with the Company's servicing agreements and are deemed recoverable at the time of liquidation. These advances are periodically reviewed for collectability. Uncollectible amounts are written off when they are deemed uncollectible.

• Derivative Financial Instruments

        The Company is exposed to price risk relative to its mortgage loans held for sale as well as to the commitments it makes to loan applicants to originate or to PMT to acquire loans at specified interest rates ("interest rate lock commitments" or "IRLCs"). The Company bears price risk from the time a commitment to originate a loan is made to a borrower or to purchase a loan from PMT, to the time the mortgage loan is sold. During this period, the Company is exposed to losses if mortgage interest rates rise, because the value of the purchase commitment or mortgage loan held for sale decreases. The Company also is exposed to risk relative to the fair value of its mortgage servicing rights ("MSRs"). The Company is exposed to loss in value of its MSRs when interest rates decrease.

        IRLCs are accounted for as derivative financial instruments. The Company manages the risk created by IRLCs relating to mortgage loans held for sale by entering into forward sale agreements to sell the mortgage loans and by the purchase and sale of mortgage-backed securities ("MBS") options and futures. Such agreements are also accounted for as derivative financial instruments. From time to time, these instruments are also used to manage the risk created by changes in prepayment speeds on certain of the MSRs the Company holds. The Company classifies its IRLCs as "Level 3" financial statement items and the derivative financial instruments it acquires to manage the risks created by IRLCs and mortgage loans held for sale as "Level 2" fair value financial statement items. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities.

        MSRs are generally subject to loss in value when market mortgage interest rates decrease. Decreasing market mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect income primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of mortgage loans underlying MSRs.

        The Company accounts for its derivative financial instruments as free-standing derivatives. The Company does not designate its derivative financial instruments for hedge accounting. All derivative financial instruments are recognized on the consolidated balance sheet at fair value with changes in the fair values being reported in current period income. Changes in fair value of derivatives hedging IRLCs and mortgage loans held for sale at fair value are included in Net gains on mortgage loans held for sale at fair value in the Company's consolidated statements of income. For derivatives hedging MSRs, changes in fair value are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company's consolidated statements of income.

        When the Company has multiple derivative instruments with the same counterparty under a master netting arrangement, it offsets the amounts recorded as assets and liabilities and amounts recognized for the right to reclaim cash collateral it has deposited with the counterparty or the obligation to return cash collateral it has collected from the counterparty arising from that master netting arrangement. Such offset amounts are presented as either a net asset or liability by counterparty on the Company's consolidated balance sheets.

• Carried Interest Due from Investment Funds

        The Company has a general partnership interest or other Carried Interest arrangement with the Investment Funds, and earns Carried Interest thereunder. Carried Interest, in general terms, is the share of any profits that the general partners receive as compensation. The Company determines the amount of Carried Interest to be recorded each period based on the cash flows that would be produced assuming termination of the Investment Funds agreements at period end. The allocation of profits between the Investment Funds and the Company is described under the Significant Accounting Policies caption Management Fees and Carried Interest, following.

• Investment in PennyMac Mortgage Investment Trust at Fair Value

        Common shares of beneficial interest in PMT are carried at their fair value with changes in fair value recognized in current period income. Fair value for purposes of the Company's holdings in PMT is based on the published closing price of the shares as of period end. The Company classifies its investment in common shares of PMT as a "Level 1" fair value financial statement item.

• Mortgage Servicing Rights

        MSRs arise from contractual agreements between the Company and investors (or their agents) in mortgage securities and mortgage loans. Under these contracts, the Company performs loan servicing functions in exchange for fees and other remuneration. The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments; responding to borrower inquiries; accounting for principal and interest; holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; supervising the acquisition of real estate in settlement of loans and property disposition. Real estate acquired in settlement of loans ("REO") represents real estate that collateralized the mortgage loans before the properties were acquired in settlement of loans.

        The value of MSRs is derived from the net positive cash flows associated with the servicing contracts. The Company receives a servicing fee ranging generally from 0.19% to 0.57% annually on the remaining outstanding principal balances of the mortgage loans subject to the servicing contracts. The servicing fees are collected from the monthly payments made by the mortgagors. The Company is contractually entitled to receive other remuneration including rights to various mortgagor-contracted fees such as late charges, collateral reconveyance charges and loan prepayment penalties, and the Company is generally entitled to retain the interest earned on funds held pending remittance related to its collection of mortgagor payments. The Company also generally has the right to solicit the mortgagors for other products and services as well as for new mortgages for those considering refinancing or purchasing a new home.

        The Company recognizes MSRs initially at their estimated fair value, either as proceeds from sales of mortgage loans where the Company assumes the obligation to service the loan in the sale transaction, or from the purchase of MSRs. The Company's MSRs generally relate to either pools of distressed loans ("Distressed MSRs"), or pools of loans that were originated to borrowers with prime credit characteristics or are backed by government insurance. Accordingly, the assumptions used in the valuation are differentiated based on the higher expectation of the delinquency migration of the MSRs backed by distressed loans and significantly higher expected cost to service and advance payments for MSRs backed by the distressed loans.

        The Company's subsequent accounting for MSRs is based on the class of MSRs. The Company has identified three classes of MSRs: originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5%; MSRs backed by mortgage loans with initial interest rates of more than 4.5%; and purchased MSRs acquired in transactions financed in part through the financing of the right to receive excess servicing spread ("ESS") cash flows. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method. MSRs backed by loans with initial interest rates of more than 4.5% are accounted for at fair value with changes in fair value recorded in current period income. The Company distinguishes between these classes of MSRs due to the differing factors that can cause changes in prepayment speeds of the underlying loans, which in turn cause changes in the fair value of the MSRs. MSRs purchased for which a financing in the form of ESS cash flows has been recorded are accounted for at fair value. The ESS financing at fair value is also accounted for at fair value to align the accounting for the MSR with the related liability.

        The fair value of MSRs is difficult to determine because MSRs are not actively traded in observable stand-alone markets. Considerable judgment is required to estimate the fair values of MSRs and the exercise of such judgment can significantly affect the Company's income. Therefore, the Company classifies its MSRs as "Level 3" fair value financial statement items.

        The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting servicing cash flows. The inputs used in the Company's discounted cash flow model are based on market factors which management believes are consistent with assumptions and data used by market participants valuing similar MSRs.

        The key inputs used in the valuation of MSRs include mortgage prepayment speeds, cost to service the loans and discount rates. These inputs can, and generally do, change from period to period as market conditions change.

        MSRs are generally subject to loss in value when mortgage rates decline. Declining mortgage rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs, thereby reducing their value. Reductions in the value of these assets affect earnings primarily through change in fair value and impairment charges. For MSRs backed by mortgage loans with historically low interest rates, factors other than interest rates (such as housing price changes) take on increasing influence on prepayment behavior of the underlying mortgage loans.

• MSRs Accounted for Using the Amortization Method

        The Company amortizes MSRs that are accounted for using the amortization method. MSR amortization is determined by applying the ratio of the net MSR cash flows projected for the current period to the estimated total remaining projected net MSR cash flows. The estimated total net MSR cash flows are determined at the beginning of each month using prepayment assumptions applicable at that time.

        MSRs accounted for using the amortization method are periodically evaluated for impairment. Impairment occurs when the current fair value of the MSRs decreases below the asset's carrying value (carrying value is the MSR's amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period income and the carrying value of the MSRs is adjusted through a valuation allowance. If the value of impaired MSRs subsequently increases, the increase in value is recognized in current-period income. When an increase in value of MSR is recognized, the valuation allowance is adjusted to increase the carrying value of the MSRs only to the extent of the valuation allowance.

        For impairment evaluation purposes, the Company stratifies its MSRs by predominant risk characteristic when evaluating for impairment. For purposes of performing its MSR impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics including loan type (fixed-rate or adjustable-rate) and note rate. Fixed-rate loans are stratified into note rate pools of 50 basis points for note rates between 3.0% and 4.5% and a single pool for note rates below 3%. If the fair value of MSRs in any of the note rate pools is below the carrying value of the MSRs for that pool, impairment is recognized to the extent of the difference between the estimated fair value and the carrying value, including the existing valuation allowance for that pool.

        Management periodically reviews the various impairment strata to determine whether the value of the impaired MSRs in a given stratum is likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

        Both amortization and changes in the amount of the MSR valuation allowance are recorded in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

• MSRs Accounted for at Fair Value

        Changes in fair value of MSRs accounted for at fair value are recognized in current period income in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.

• Furniture, Fixtures, Equipment and Building Improvements

        Furniture, fixtures, equipment and building improvements are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the various classes of assets, which range from five to seven years for furniture and equipment and the lesser of the asset's estimated useful life or the remaining lease term for fixtures and building improvements.

• Capitalized Software

        The Company capitalizes certain consulting, payroll, and payroll-related costs related to computer software for internal use, and subsequently amortizes such costs over a period of five years using the straight-line method.

        The Company also periodically assesses long-lived assets including capitalized software for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. If management identifies an indicator of impairment, it assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. No such impairment was recorded during the three years ended December 31, 2013.

• Restricted Cash

        Restricted cash represents deposits that serve as collateral for various agreements the Company has entered into, such as derivative margin account agreements. Restricted cash is included in Other assets in the Company's consolidated balance sheets. Management classifies restricted cash as a "Level 1" fair value financial statement item.

• Mortgage Loans Sold Under Agreements to Repurchase

        The carrying value of mortgage loans sold under agreements to repurchase is based on the accrued cost of the agreements. The costs of creating the facilities underlying the agreements are recognized as deferred charges in Other assets and amortized to Interest expense over the term of the borrowing facility.

• Excess Servicing Spread Financing at Fair Value

        In conjunction with the Company's acquisition of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows of certain MSRs. Management classifies ESS at fair value as a "Level 3" fair value financial statement item.

• Loans Eligible for Repurchase

        The terms of the Ginnie Mae MBS program allow, but do not require, the Company to repurchase mortgage loans when the borrower has made no payments for three consecutive months. As a result of this right, the Company records the mortgage loans in Loans eligible for repurchase and records a corresponding liability in Liability for loans eligible for repurchase on its balance sheet.

• Liability for Losses Under Representations and Warranties

        The Company's agreements with the Agencies include representations and warranties related to the loans the Company sells to the Agencies. The representations and warranties require adherence to Agency origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

        In the event of a breach of its representations and warranties, the Company may be required to either repurchase the mortgage loans with the identified defects or indemnify the Agency, or may become ineligible to receive any of the benefits provided by the insurer with respect to such mortgage loans. In such cases, the Company bears any subsequent credit loss on the mortgage loans. The Company's credit loss may be reduced by any recourse it has to correspondent lenders that, in turn, had sold such mortgage loans to the Company and breached similar or other representations and warranties. In such event, the Company has the right to seek a recovery of related repurchase losses from that correspondent lender.

        The Company includes a provision for losses relating to the representations and warranties it makes as part of its loan sale transactions. The method used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates, the potential severity of loss in the event of default and the probability of reimbursement by the correspondent loan seller. The Company establishes a liability at the time loans are sold and periodically updates its liability estimate. The liability estimate is reviewed and approved by the Company's management credit committee.

        The level of the liability for representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and other external conditions that may change over the lives of the underlying loans, The Company's representations and warranties are generally not subject to stated limits of exposure. However, management believes that the current unpaid principal balance ("UPB") of loans sold by the Company to date represents the maximum exposure to repurchases related to representations and warranties. Management believes the amount and range of reasonably possible losses in relation to the recorded liability is not material to the Company's financial condition or results of operations.

• Loan Servicing Fees

        Loan servicing fees and other remuneration are received by the Company for servicing residential mortgage loans. Loan servicing fees are recorded net of Agency guarantee fees paid by the Company. Loan servicing fees are recognized as earned over the life of the loans in the servicing portfolio.

• Stock-Based Compensation

        The Company's 2013 Equity Incentive Plan provides for awards of nonstatutory and incentive stock options ("Stock Options"), time-based restricted stock units, performance-based restricted stock units, stock appreciation rights, performance units and stock grants. The Company estimates the value of the Stock Options, time-based restricted stock units and performance-based restricted stock units awarded with reference to the value of its underlying common stock on the date of the award.

        Compensation costs are fixed, except for performance-based restricted stock units, at the estimated fair value as of the award date as all grantees are employees of PennyMac or directors of the Company. The Company amortizes the cost of time-based restricted stock unit awards to compensation expense over the vesting period using the graded vesting method. The Company amortizes performance-based restricted stock unit awards on the straight-line basis over the vesting period. Expense relating to awards is included in Compensation in the consolidated statements of income.

• Income Taxes

        As a result of the PennyMac recapitalization and reorganization, the Company expects to benefit from amortization and other tax deductions due to an increase in tax basis from the exchange of PennyMac Class A units. Those deductions will be allocated to the Company and will be taken into account in reporting the Company's taxable income. The Company has entered into an agreement with the unitholders of PennyMac that will provide for the additional payment by the Company to exchanging unitholders of PennyMac equal to 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that PFSI realizes due to (i) increases in tax basis resulting from exchanges of the then-existing unitholders and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

        The Company is subject to federal and state income taxes. Income taxes are provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

        The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. A valuation allowance is established if, in management's judgment, it is not more likely than not that a deferred tax asset will be realized.

        The Company recognizes tax benefits relating to its tax positions only if, in the opinion of management, it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this standard is recognized as the largest amount that is greater than 50% likely to be realized upon ultimate settlement with the appropriate taxing authority. The Company will classify any penalties and interest as a component of provision for income taxes.

• Variable Interest Held in Unconsolidated Variable Interest Entities

        PMOFA is a general partner in the Master Fund. The Master Fund wholly owns PennyMac Mortgage Co. Funding, LLC ("Funding, LLC"), PennyMac Mortgage Co. Funding II, LLC ("Funding II, LLC), and PennyMac Mortgage Co, LLC ("Mortgage Co"). Funding, LLC and Funding II, LLC are each the majority interest holder in PennyMac Loan Trust 2010-NPL1, PennyMac Loan Trust 2011-NPL1 and PennyMac REO 2011-NPL1 (the "Trusts"), which in the case of the first entity holds the mortgage loans for Funding LLC and in the case of the latter two entities hold the mortgage loans for Funding II, LLC.

        PLS provides loan servicing to the Trusts as well as to Mortgage Co. The related party group constituting the Company and its affiliates (including PMOFA) has an equity interest in the Master Fund, the ultimate Parent of the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC. The direct equity holders in the Trusts, Mortgage Co, Funding, LLC and Funding II, LLC, however, do not have power to direct operations of the respective entities and as such, both the Trusts and Mortgage Co are considered to be variable interest entities ("VIEs") as defined in the Consolidations topic of the Codification.

        The Company is not the primary beneficiary in these VIEs, given it does not represent the enterprise within the related party group that is most closely associated with these VIEs and, as such, the Company does not consolidate these VIEs. Exposure of loss to the related party group from the unconsolidated VIEs is limited to the contributed capital of the related party group in the Master Fund totaling $1,436,000 which represents the general partnership interest held by PMOFA in the Master Fund.

• Recent Accounting Pronouncements

        In December 2011, the FASB issued an Accounting Standards Update ("ASU"), ASU 2011-11, to the Balance Sheet topic of the Codification. The amendments in this ASU affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic of the Codification or (2) subject an enforceable master netting arrangement or similar agreement.

        The amendments in this ASU require the Company to disclose information about offsetting and related arrangement to enable users of financial statements to understand the effect of netting to an entity's financial position.

        In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. The ASU clarifies that the scope applied to derivatives accounted for in accordance with the Derivatives and Hedging topic of the Codification, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic or subject to an enforceable master netting arrangement or similar agreement.

        The ASU amendment and the subsequent clarification of the amendment are effective for periods beginning on or after January 1, 2013, and must be shown for all periods shown on the balance sheet. The adoption of these ASU amendments did not have a material effect on the Company's financial condition or results of operations.

        In January 2014, the FASB issued ASU 2014-04, Troubled Debt Restructurings by Creditors to the Receivables topic of the Codification, which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

        ASU 2014-04 specifies that a creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:

• a.

  The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
  
  

  b.

  The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.

        ASU 2014-04 also requires the disclosure of the carrying value of REO and its recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for the Company for annual and interim periods within those annual periods, beginning after December 15, 2014.

        An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity would apply the amendments in ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. The adoption of ASU-2014-04 is not expected to be material to the financial statements of the Company.

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Parent Company Information (Tables)

12 Months Ended

Dec. 31, 2013

Parent Company Information

Schedule of condensed balance sheets

	December 31, 2013
	(in thousands)
ASSETS
Cash	$	707
Investments in subsidiaries		177,200
Other assets		63,117
Total assets	$	241,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities	$	71,056
Payables to subsidiaries		50
Stockholders' equity		169,918
Total liabilities and stockholders' equity	$	241,024

Schedule of condensed statements of income

	Year ended December 31, 2013
	(in thousands)
Revenue
Dividends from subsidiaries	$	664
Interest		—
Total revenue		664
Expenses
Interest		—
Total expenses		—
Income before provision for income taxes and equity in undistributed earnings in subsidiaries		664
Provision for income taxes		9,961
Income before equity in undistributed earnings of subsidiaries		(9,297	)
Equity in undistributed earnings of subsidiaries		23,697
Net income	$	14,400

Schedule of condensed statements of cash flows

	Year ended December 31, 2013
	(in thousands)
Cash flows from operating activities
Net income	$	14,400
Equity in undistributed earnings of subsidiaries		(23,697	)
Increase in payables to subsidiaries		50
Decrease in deferred tax asset		9,954
Net cash provided by operating activities		707
Cash flows from investing activities
Increase in investments in subsidiaries		(216,775	)
Net cash used by investing activities		(216,775	)
Cash flows from financing activities
Issuance of common shares		230,000
Payment of common share underwriting and offering costs		(13,225	)
Net cash provided by financing activities		216,775
Net change in cash		707
Cash at beginning of year		—
Cash at end of year	$	707

XML

Fair Value (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value

Summary of financial statement items measured at estimated fair value on a recurring basis

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	142,582	$	—	$	—	$	142,582
Mortgage loans held for sale at fair value		—		527,071		3,933		531,004
Derivative assets:
Interest rate lock commitments		—		—		8,964		8,964
Forward purchase contracts		—		416		—		416
Forward sales contracts		—		18,762		—		18,762
MBS put options		—		665		—		665
MBS call options		—		91		—		91
Total derivative assets before netting		—		19,934		8,964		28,898
Netting(1)		—		—		—		(7,358	)
Total derivative assets		—		19,934		8,964		21,540
Investment in PennyMac Mortgage Investment Trust		1,722		—		—		1,722
Mortgage servicing rights at fair value		—		—		224,913		224,913
	$	144,304	$	547,005	$	237,810	$	921,761
Liabilities:
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust	$	—	$	—	$	138,723	$	138,723
Derivative liabilities:
Interest rate lock commitments		—		—		2,203		2,203
Forward purchase contracts		—		6,542		—		6,542
Forward sales contracts		—		504		—		504
Total derivative liabilities before netting		—		7,046		2,203		9,249
Netting(1)		—		—		—		(6,787	)
Total derivative liabilities		—		7,046		2,203		2,462
	$	—	$	7,046	$	140,926	$	141,185

(1)

Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	53,164	$	—	$	—	$	53,164
Mortgage loans held for sale at fair value		—		448,384		—		448,384
Derivative assets:
Interest rate lock commitments		—		—		23,951		23,951
Forward purchase contracts		—		1,645		—		1,645
Forward sales contracts		—		1,818		—		1,818
MBS put options		—		967		—		967
Total derivative assets before netting		—		4,430		23,951		28,381
Netting(1)		—		—		—		(1,091	)
Total derivative assets		—		4,430		23,951		27,290
Investment in PennyMac Mortgage Investment Trust		1,897		—		—		1,897
Mortgage servicing rights at fair value		—		—		19,798		19,798
	$	55,061	$	452,814	$	43,749	$	550,533
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	11	$	11
Forward purchase contracts		—		389		—		389
Forward sales contracts		—		1,894		—		1,894
Total derivative liabilities before netting		—		2,283		11		2,294
Netting(1)		—		—		—		(1,785	)
Net derivative liabilities	$	—	$	2,283	$	11	$	509

(1)

Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the setoff of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

Summary of roll forward of items measured using Level 3 inputs on a recurring basis

	Year ended December 31, 2013
	Mortgage loans held for sale			Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Assets:
Balance, December 31, 2012	$	—		$	23,940		$	19,798		$	43,738
Repurchases of mortgage loans subject to representations and warranties		5,529			—			—			5,529
Repayments		(1,364	)		—			—			(1,364	)
Interest rate lock commitments issued, net		—			101,179			—			101,179
MSRs resulting from purchases		—			—			195,871			195,871
MSRs resulting from loan sales		—			—			14,636			14,636
Sales		—			—			(550	)		(550	)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—									—
Other factors		(232	)		(15,682	)		(4,842	)		(20,756	)
		(232	)		(15,682	)		(4,842	)		(20,756	)
Transfers of interest rate lock commitments to mortgage loans held for sale		—			(102,676	)		—			(102,676	)
Balance, December 31, 2013	$	3,933		$	6,761		$	224,913		$	235,607
Changes in fair value recognized during the period relating to assets still held at December 31, 2013	$	(390	)	$	6,761		$	(4,842	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Excess servicing spread financing
	(in thousands)
Liability:
Balance, December 31, 2012	$	—
Proceeds received from financing of excess servicing spread		139,028
Accrual of interest on excess servicing spread financing		1,348
Repayments		(4,076	)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—
Other factors		2,423
		2,423
Balance, December 31, 2013	$	138,723
Changes in fair value recognized during the period relating to liability still held at December 31, 2013	$	2,423

	Year ended December 31, 2012
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Interest rate lock commitments issued, net		167,066			—			167,066
MSRs resulting from loan sales		—			774			774
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk								—
Other factors		—			(6,674	)		(6,674	)
		—			(6,674	)		(6,674	)
Transfers of interest rate lock commitments to mortgage loans held for sale		(151,031	)		—			(151,031	)
Balance, December 31, 2012	$	23,940		$	19,798		$	43,738
Changes in fair value recognized during the period relating to assets still held at December 31, 2012	$	23,940		$	(6,674	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Year ended December 31, 2011
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2010	$	(13	)	$	31,957		$	31,944
Interest rate lock commitments issued, net		18,436			—			18,436
MSRs resulting from purchases		—			1,352			1,352
MSRs resulting from loan sales		—			1,696			1,696
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk								—
Other factors		—			(9,307	)		(9,307	)
		—			(9,307	)		(9,307	)
Transfers of interest rate lock commitments to mortgage loans held for sale		(10,518	)		—			(10,518	)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Changes in fair value recognized during the period relating to assets still held at December 31, 2011	$	7,905		$	(9,307	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Mortgage loans sold under agreements to repurchase at fair value
	(in thousands)
Liabilities:
Balance, December 31, 2010	$	13,289
Changes in fair value included in income		—
Sales		57,908
Assumption of agreements pursuant purchase from affiliate of mortgage loans subject to agreements to repurchase		62,989
Repurchases		(134,186	)
Balance, December 31, 2011	$	—
Changes in fair value recognized during the year relating to liabilities still held at December 31, 2011	$	—

Summary of net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value

	Year ended December 31,
	2013								2012								2011
	Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total
	(in thousands)
Assets:
Mortgage loans held for sale at fair value	$	49,559	$	—		$	49,559		$	171,236	$	—		$	171,236		$	13,029	$	—		$	13,029
Mortgage servicing rights at fair value		—		(4,842	)		(4,842	)		—		(6,674	)		(6,674	)		—		(9,307	)		(9,307	)
	$	49,559	$	(4,842	)	$	44,717		$	171,236	$	(6,674	)	$	164,562		$	13,029	$	(9,307	)	$	3,722
Liabilities:
Mortgage loans sold under agreements to repurchase	$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—		$	—
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust		—		(2,423	)		(2,423	)		—		—			—			—		—			—
	$	—	$	(2,423	)	$	(2,423	)	$	—	$	—		$	—		$	—	$	—		$	—

Schedule of fair value and related principal amounts due upon maturity of assets and liabilities accounted for under the fair value option

	December 31, 2013
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	524,665	$	504,705	$	19,960
90 days or more delinquent:
Not in foreclosure		5,567		5,479		88
In foreclosure		772		660		112
	$	531,004	$	510,844	$	20,160

	December 31, 2012
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	447,889	$	418,650	$	29,239
90 days or more delinquent:
Not in foreclosure		288		390		(102	)
In foreclosure		207		233		(26	)
	$	448,384	$	419,273	$	29,111

Summary of financial statement items measured at estimated fair value on a nonrecurring basis

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	136,690	$	136,690
	$	—	$	—	$	136,690	$	136,690

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	51,180	$	51,180
	$	—	$	—	$	51,180	$	51,180

Summary of total gains (losses) on assets measured at estimated fair values on a nonrecurring basis

	December 31,
	2013			2012
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	(1,643	)	$	(2,908	)
	$	(1,643	)	$	(2,908	)

Schedule of key inputs used in determining the fair value of ESS financing at the time of initial recognition

	December 31,
	2013	2012
Key inputs	Range (Weighted average)
Pricing spread	2.8% - 14.4%		—
	(5.4%)
Average life	0.9 - 8.0		—
	(6.1)
Prepayment speed	7.7% - 48.6%		—
	(9.7%)

IRLCs

Fair Value

Summary of roll forward of items measured using Level 3 inputs on a recurring basis

	Excess servicing spread financing
	(in thousands)
Liability:
Balance, December 31, 2012	$	—
Proceeds received from financing of excess servicing spread		139,028
Accrual of interest on excess servicing spread financing		1,348
Repayments		(4,076	)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—
Other factors		2,423
		2,423
Balance, December 31, 2013	$	138,723
Changes in fair value recognized during the period relating to liability still held at December 31, 2013	$	2,423

	Mortgage loans sold under agreements to repurchase at fair value
	(in thousands)
Liabilities:
Balance, December 31, 2010	$	13,289
Changes in fair value included in income		—
Sales		57,908
Assumption of agreements pursuant purchase from affiliate of mortgage loans subject to agreements to repurchase		62,989
Repurchases		(134,186	)
Balance, December 31, 2011	$	—
Changes in fair value recognized during the year relating to liabilities still held at December 31, 2011	$	—

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items

	2013	2012
	December 31,
Key inputs	Range (Weighted average)
Pull-through rate	62.1% - 98.1%	61.6% - 98.1%
	(81.7%)	(79.1%)
MSR value expressed as:
Servicing fee multiple	2.0 - 5.0	3.2 - 4.2
	(3.7)	(4.0)
Percentage of UPB	0.4% - 2.4%	0.6% - 2.2%
	(0.9%)	(0.9%)

MSRs

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items

	December 31, 2013
Key inputs	Range (Weighted average)
Discount rate	7.8% - 13.4%
	(8.9%)
Twelve-month projected housing price index change	4.5% - 4.7%
	(4.6%)
Prepayment speed(1)	1.6% - 5.1%
	(4.4%)
Total prepayment speed(2)	2.9% - 5.2%
	(4.7%)

(1)

Prepayment speed is measured using Life Voluntary CPR.

(2)

Total prepayment speed is measured using Life Total CPR.

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items

	Year ended December 31,
	2013		2012		2011
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost	Fair value	Amortized cost
	(Amount recognized and UPB of underlying loans in thousands)
Amount recognized	$14,636	$190,468	$774	$89,698	$1,696	$6,557
UPB of underlying loans	$1,055,797	$15,316,315	$17,615	$8,524,533	$415,954	$449,715
Weighted-average servicing fee rate (in basis points)	33	29	28	27	27	31
Pricing spread(1)	7.4% - 14.4%	5.4% - 15.9%	7.5% - 9.9%	7.5% - 11.9%	8.3% - 14.0%	9.3% - 12.6%
	(10.2%)	(8.5%)	(8.4%)	(9.8%)	(11.7%)	(9.7%)
Annual total prepayment speed(2)	7.8% - 25.5%	7.6% - 42.5%	7.8% - 20.1%	6.7% - 17.8%	6.3% - 8.9%	5.6% - 7.9%
	(9.2%)	(8.8%)	(9.7%)	(8.5%)	(8.2%)	(6.8%)
Life (in years)	2.5 - 7.3	1.5 - 7.5	3.6 - 7.0	2.8 - 7.0	6.5 - 8.1	5.2 - 8.0
	(6.9)	(6.7)	(6.7)	(6.7)	(7.0)	(7.3)
Per-loan annual cost of servicing	$68 - $120	$68 - $120	$68 - $100	$68 - $100	$64 - $98	$61 - $98
	($98)	($102)	($78)	($99)	($88)	($96)

(1)

Pricing spread represents a margin that is applied to a reference interest rate's forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)

Prepayment speed is measured using CPR.

Purchased MSRs Backed by Distressed Mortgage Loans

Fair Value

Quantitative summary of key inputs used in the valuation of the MSRs at period end and the effect on estimated fair value from adverse changes in those assumptions

	December 31,
	2013			2012
	Range (Weighted average)
	Fair value	Amortized cost		Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$10,129		—	$12,370		—
UPB of underlying loans	$969,794		—	$1,271,478		—
Weighted-average note rate	5.80%		—	6.01%		—
Weighted-average servicing fee rate (in basis points)	50		—	50		—
Discount rate	15.3% - 15.3%		—	15.3% - 15.3%		—
	(15.3%)		—	(15.3%)		—
Effect on fair value of adverse change of:
5%	$(251)		—	$(302)		—
10%	$(490)		—	$(590)		—
20%	$(937)		—	$(1,130)		—
Life (in years)	5.0 - 5.0		—	5.0 - 5.0		—
	(5.0)			(5.0)
Prepayment speed(1)	11.4% - 11.4%		—	10.7% - 10.7%		—
	(11.4%)		—	(10.7%)		—
Effect on fair value of adverse change of:
5%	$(231)		—	$(273)		—
10%	$(456)		—	$(529)		—
20%	$(898)		—	$(1,040)		—
Per-loan annual cost of servicing	$218 - $218		—	$270 - $270		—
	($218)		—	($270)		—
Effect on fair value of adverse change of:
5%	$(197)		—	$(290)		—
10%	$(393)		—	$(580)		—
20%	$(787)		—	$(1,159)		—

(1)

Prepayment speed is measured using Life Voluntary CPR.

All Other MSRs

Fair Value

Quantitative summary of key inputs used in the valuation of the MSRs at period end and the effect on estimated fair value from adverse changes in those assumptions

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$214,784	$258,751	$7,428	$89,177
UPB of underlying loans	$22,469,179	$22,499,847	$1,166,765	$8,730,686
Weighted-average note rate	4.48%	3.65%	5.22%	3.65%
Weighted-average servicing fee rate (in basis points)	32	29	26	28
Pricing spread(1)	2.9% - 18.0%	6.3% - 14.5%	7.5% - 19.5%	7.5% - 16.5%
	(7.5%)	(8.7%)	(10.6%)	(9.8%)
Effect on fair value of adverse change of:
5%	$(3,551)	$(5,312)	$(113)	$(1,814)
10%	$(6,900)	$(10,395)	$(222)	$(3,562)
20%	$(13,305)	$(20,039)	$(430)	$(6,870)
Average life (in years)	0.1 - 14.4	1.5 - 7.3	0.2 - 14.4	2.5 - 6.9
	(6.2)	(7.0)	(5.0)	(6.6)
Prepayment speed(2)	7.8% - 50.8%	7.6% - 42.5%	9.0% - 84.2%	8.7% - 28.3%
	(9.7%)	(8.0%)	(19.2%)	(9.2%)
Effect on fair value of adverse change of:
5%	$(4,622)	$(4,615)	$(238)	$(1,751)
10%	$(9,073)	$(9,097)	$(462)	$(3,446)
20%	$(17,500)	$(17,684)	$(877)	$(6,674)
Per-loan annual cost of servicing	$68 - $115	$68 - $100	$68 - $140	$68 - $140
	$(87)	$(99)	$(76)	$(99)
Effect on fair value of adverse change of:
5%	$(2,817)	$(2,609)	$(77)	$(963)
10%	$(5,633)	$(5,217)	$(153)	$(1,926)
20%	$(11,266)	$(10,434)	$(307)	$(3,852)

(1)

Pricing spread represents a margin that is applied to a reference interest rate's forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans.

(2)

Prepayment speed is measured using CPR.

XML

Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2013

Supplemental Cash Flow Information

Supplemental Cash Flow Information

Note 23—Supplemental Cash Flow Information

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash paid for interest	$	16,527	$	7,858	$	858
Cash paid for income taxes	$	7	$	—	$	—
Non-cash investing activity:
Receipt of MSRs created in loan sales activities	$	205,105	$	90,472	$	8,253

XML

Stock-based Compensation

12 Months Ended

Dec. 31, 2013

Stock-based Compensation

Stock-based Compensation

Note 22—Stock-based Compensation

        The Company's 2013 Equity Incentive Plan provides for grants of stock options, time-based and performance-based restricted stock units ("RSUs"), stock appreciation rights, performance units and stock grants. As of December 31, 2013, the Company has 18.1 million units available for future awards. The Company estimates the cost of the stock options, time-based restricted stock units and performance-based restricted stock units awarded with reference to the fair value of PFSI's underlying common stock on the date of the award. Compensation costs are fixed, except for the performance-based restricted stock units, at the grant's estimated fair value on the grant date as all grantees are employees of PennyMac and directors of the Company. Expense relating to awards is included in Compensation in the consolidated statements of income.

        Following is a summary of the stock-based compensation expense by instrument awarded:

	Year ended December 31, 2013
	(in thousands)
Stock Options	$	1,387
Performance-based RSUs		1,273
Time-based RSUs		672
	$	3,332

• Stock Options

        The Stock Option award agreements provide for the award of Stock Options to purchase the optioned common stock. In general, and except as otherwise provided by the agreement, one-third of the optioned common stock will vest on each of the first, second, and third anniversaries of the grant date, subject to the recipient's continued service through each anniversary. Compensation cost relating to Stock Options is amortized to expense using the graded vesting method. Each Stock Option will have a term of ten years from the date of grant but will expire (1) immediately upon termination of the holder's employment or other association with the Company for cause, (2) one year after the holder's employment or other association is terminated due to death or disability and (3) three months after the holder's employment or other association is terminated for any other reason.

        The fair value of each Stock Option award is estimated on the date of grant using a variant of the Black Scholes model based on the assumptions noted in the following table:

	Year ended December 31, 2013
Expected volatility(1)		45%
Expected dividends		0%
Risk-free rate		0.3% - 2.3%
Expected grantee forfeiture rate		6.2% - 19.2%

(1)

Based on historical volatilities of comparable companies' common stock.

        The Company uses its historical data to estimate employee departure behavior used in the option-pricing model; groups of employees (executives and non-executives) that have similar historical behavior are considered separately for valuation purposes. The expected term of common stock options granted is derived from the option pricing model and represents the period of time that common stock options granted are expected to be outstanding. The risk-free rate for periods within the contractual term of the common stock option is based on the U.S. Treasury yield curve in effect at the time of grant.

        The table below summarizes stock option award activity and compensation expense:

	Year ended December 31, 2013
Number of Stock Options
Outstanding at beginning of year		—
Granted		425,796
Exercised		—
Expired or canceled		(7,011	)
Outstanding at end of year		418,785
Weighted-average exercise price per share:
Outstanding at beginning of year	$	—
Granted		21.03
Exercised		—
Expired or canceled		21.03
Outstanding at end of year	$	21.03
Number of shares exercisable at end of year		—
Weighted-average remaining contractual term (in years):
Outstanding at end of year		9.4
Exercisable at end of year		—
Aggregate intrinsic value:
Outstanding at end of year	$	—
Exercisable at end of year	$	—
Expected vesting amounts at year end:
Number of shares		340,061
Grant date fair value	$	9.17
Weighted-average vesting period (in months)		21

• Time-Based RSUs

        The RSU grant agreements provide for the award of time-based RSUs, entitling the award recipient to one share of the Company's Class A common stock for each RSU. One-third of all time-based RSUs vest in a lump sum on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient's continued service through each anniversary.

        Compensation cost relating to time-based RSUs is based on the grant-date fair value of the Company's Class A common stock and the number of shares expected to vest. For purposes of estimating the cost of the time-based RSUs granted, management assumes turnover rates of 6.2% - 19.2% per year based on the grantees' employee classification. Compensation cost relating to time-based RSUs is amortized to expense using the graded vesting method and is included in the Compensation expense on the accompanying consolidated statements of income.

        Following is a summary of time-based RSU activity:

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year		—
Granted		101,459
Vested		—
Expired or canceled		(1,141	)
Outstanding at end of year		100,318
Weighted-average grant date fair value per unit:
Outstanding at beginning of year	$	—
Granted	$	18.03
Vested	$	—
Expired or canceled	$	17.14
Outstanding at end of year	$	18.04
Compensation expense recorded during the year (in thousands)	$	672
Year end:
Unamortized compensation cost (in thousands)	$	1,099
Number of shares expected to vest		58,398
Grant date fair value		20.99
Weighted-average remaining vesting period (in months)		18

• Performance-Based RSUs

        The performance-based RSUs provide for the issuance of shares of the Company's Class A common stock based equally on the attainment of earnings per share and total shareholder return goals and are generally adjusted for grantee performance ratings. The performance period for these grants is from June 13, 2013 through December 31, 2015. The grantees' satisfaction of the performance goals will be established by review of a committee of PFSI's board of directors. Shares vested under these grants will be issued to the grantees no later than March 15, 2016.

        The performance-based RSUs contain both performance goals (attainment of earnings per share) and market goals (total shareholder return). The Company separately accounts for the performance and market goals when recognizing compensation expense relating to performance-based RSUs.

        The grant date fair value of the market goal component of the performance-based RSUs is measured using a variant of the Black-Scholes model. Key inputs are the expected volatility of the Company's Class A common stock, the risk-free interest rate and expected grantee forfeiture rates.

        Following are the inputs for grants made:

	Year ended December 31, 2013
Expected volatility(1)	45%
Expected dividends	0%
Risk-free rate	0.3% - 2.3%
Expected grantee forfeiture rate	6.2% - 19.2%

(1)

Based on historical volatilities of comparable companies' common stock.

        The fair value of the performance goal component of the performance-based RSUs is measured based on the fair value of the Company's common shares at the grant date, taking into consideration management's estimate of the most probable outcome of the performance goal, and the number of shares to be forfeited during the vesting period. The cost of the performance-based RSUs is amortized to Compensation expense using the straight line method over the performance period.

        Following is a summary of performance-based RSU activity:

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year		—
Granted		500,373
Vested		—
Expired or canceled		(9,375	)
Outstanding at end of year		490,998
Weighted-average per unit grant date fair value:
Outstanding at beginning of year	$	—
Granted	$	11.29
Vested	$	—
Expired or canceled	$	10.85
Outstanding at end of year	$	11.30
Compensation expense recorded during the year (in thousands)	$	1,273
Year end:
Unamortized compensation cost (in thousands)	$	4,364
Number of shares expected to vest		448,639
Grant date fair value of shares expected to vest		20.99
Weighted-average remaining vesting period (in months)		18

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Supplemental Cash Flow Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Supplemental Cash Flow Information
Cash paid for interest	$ 16,527	$ 7,858	$ 858
Cash paid for income taxes	7
Non-cash investing activity:
Receipt of MSRs created in loan sales activities	$ 205,105	$ 90,472	$ 8,253

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Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 2013

Stock-based Compensation

Summary of the stock-based compensation expense by instrument awarded

	Year ended December 31, 2013
	(in thousands)
Stock Options	$	1,387
Performance-based RSUs		1,273
Time-based RSUs		672
	$	3,332

Summary of assumption used utilizing the options pricing model

	Year ended December 31, 2013
Expected volatility(1)		45%
Expected dividends		0%
Risk-free rate		0.3% - 2.3%
Expected grantee forfeiture rate		6.2% - 19.2%

(1)

Based on historical volatilities of comparable companies' common stock.

Summary of Stock Option award activity and compensation expense

	Year ended December 31, 2013
Number of Stock Options
Outstanding at beginning of year		—
Granted		425,796
Exercised		—
Expired or canceled		(7,011	)
Outstanding at end of year		418,785
Weighted-average exercise price per share:
Outstanding at beginning of year	$	—
Granted		21.03
Exercised		—
Expired or canceled		21.03
Outstanding at end of year	$	21.03
Number of shares exercisable at end of year		—
Weighted-average remaining contractual term (in years):
Outstanding at end of year		9.4
Exercisable at end of year		—
Aggregate intrinsic value:
Outstanding at end of year	$	—
Exercisable at end of year	$	—
Expected vesting amounts at year end:
Number of shares		340,061
Grant date fair value	$	9.17
Weighted-average vesting period (in months)		21

Schedule of inputs for grants

	Year ended December 31, 2013
Expected volatility(1)	45%
Expected dividends	0%
Risk-free rate	0.3% - 2.3%
Expected grantee forfeiture rate	6.2% - 19.2%

(1)

Based on historical volatilities of comparable companies' common stock.

Performance-based RSUs

Stock-Based Compensation

Summary of RSU activity

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year		—
Granted		500,373
Vested		—
Expired or canceled		(9,375	)
Outstanding at end of year		490,998
Weighted-average per unit grant date fair value:
Outstanding at beginning of year	$	—
Granted	$	11.29
Vested	$	—
Expired or canceled	$	10.85
Outstanding at end of year	$	11.30
Compensation expense recorded during the year (in thousands)	$	1,273
Year end:
Unamortized compensation cost (in thousands)	$	4,364
Number of shares expected to vest		448,639
Grant date fair value of shares expected to vest		20.99
Weighted-average remaining vesting period (in months)		18

Time-based RSUs

Stock-Based Compensation

Summary of RSU activity

	Year ended December 31, 2013
Number of units
Outstanding at beginning of year		—
Granted		101,459
Vested		—
Expired or canceled		(1,141	)
Outstanding at end of year		100,318
Weighted-average grant date fair value per unit:
Outstanding at beginning of year	$	—
Granted	$	18.03
Vested	$	—
Expired or canceled	$	17.14
Outstanding at end of year	$	18.04
Compensation expense recorded during the year (in thousands)	$	672
Year end:
Unamortized compensation cost (in thousands)	$	1,099
Number of shares expected to vest		58,398
Grant date fair value		20.99
Weighted-average remaining vesting period (in months)		18

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Mortgage Loans Held for Sale at Fair Value (Tables)

12 Months Ended

Dec. 31, 2013

Mortgage Loans Held for Sale at Fair Value

Summary of mortgage loans held for sale at fair value

	December 31,
	2013		2012
	(in thousands)
Government-insured or guaranteed	$	482,066	$	398,381
Conventional		45,005		50,003
Repurchased mortgage loans		3,933		—
	$	531,004	$	448,384
Fair value of mortgage loans pledged to secure mortgage loans sold under agreements to repurchase	$	512,350	$	438,850

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Regulatory Net Worth and Agency Capital Requirements

12 Months Ended

Dec. 31, 2013

Regulatory Net Worth and Agency Capital Requirements

Regulatory Net Worth and Agency Capital Requirements

Note 24—Regulatory Net Worth and Agency Capital Requirements

        The Company, through PLS, is required to maintain specified levels of equity to remain a seller/servicer in good standing with the Agencies. Such equity requirements generally are tied to the size of the Company's loan servicing portfolio or loan origination volume.

        The Agencies' capital requirements, the calculations of which are specified by each Agency, are summarized below:

	December 31,
	2013				2012
Requirement—company subject to requirement	Net worth(1)		Required		Net worth(1)		Required
	(in thousands)
Fannie Mae—PLS	$	409,552	$	83,148	$	172,843	$	35,947
Freddie Mac—PLS	$	409,860	$	3,001	$	173,273	$	2,556
Ginnie Mae:
Issuer—PLS	$	388,125	$	102,619	$	152,782	$	23,886
Issuer's parent—PennyMac	$	598,198	$	112,881	$	227,560	$	26,275
HUD—PLS	$	388,125	$	2,500	$	152,782	$	1,000

(1)

Calculated in compliance with the respective Agency's requirements.

        Noncompliance with the respective agencies' capital requirements can result in the respective Agency taking various remedial actions up to and including removing PennyMac's ability to sell loans to and service loans on behalf of the respective Agency. Management believes that PennyMac and PLS had Agency capital in excess of the respective Agencies' requirements at December 31, 2013.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies.

Commitments and Contingencies

Note 25—Commitments and Contingencies

• Litigation

        The business of the Company involves the collection of numerous accounts, as well as the validation of liens and compliance with various state and federal lending and servicing laws. Accordingly, the Company may be involved in proceedings, claims, and legal actions arising in the ordinary course of business. As of December 31, 2013, the Company was not involved in any legal proceedings, claims, or actions in management's view would be reasonably likely to have a material adverse effect on the Company.

• Commitments to Fund and Sell Mortgage Loans

	December 31, 2013
	(in thousands)
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$	718,105
Commitments to fund mortgage loans		253,678
	$	971,783
Commitments to sell mortgage loans	$	2,659,000

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Concentration of Risk

12 Months Ended

Dec. 31, 2013

Concentration of Risk

Concentration of Risk

Note 2—Concentration of Risk

        A substantial portion of the Company's activities relate to the Advised Entities. Fees charged to these entities (comprised of management fees, loan servicing fees and loan servicing rebates, Carried Interest and fulfillment fees) totaled 47%, 47% and 75% of total net revenues for the years ended December 31, 2013, 2012 and 2011, respectively.

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Segments and Related Information

12 Months Ended

Dec. 31, 2013

Segments and Related Information

Segments and Related Information

Note 26—Segments and Related Information

Since the date of the Company’s IPO, the Company has continued its development of internal management reporting. Such development has resulted in changes in the information that is used by the Company’s chief operating decision maker. Accordingly, during the quarter ended March 31, 2014, management re-evaluated this new information in relation to its definition of its operating segments.

As a result of the new reporting used by the chief operating decision maker, management has concluded that its mortgage banking operations should be disclosed as two segments: loan production and loan servicing. Accordingly, the following segment disclosure includes three segments: loan production, loan servicing and investment management.

The loan production segment performs origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans and servicing of mortgage loans sourced and managed by the investment management segment, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans. The investment management segment represents the activities of the Company’s investment manager, which include sourcing, performing diligence, bidding and closing investment asset acquisitions, managing correspondent lending activities for PMT and managing the acquired assets for the Advised Entities.

Development of the Company’s internal management reporting has resulted in refinements to the way PFSI allocates costs among its business activities. As a result the expenses the Company allocated to its investment management segment for the year ended December 31, 2013, increased by $9.4 million from $9.7 million as previously reported to $19.1 million, and the allocation to the investment management segment of certain other income decreased by $1.1 million, reducing pre-tax net income attributable to its investment management segment from $46.6 million as previously reported to $36.1 million and increased the net income attributable to its mortgage banking operations from $135.5 million as previously reported to $146.1 million for the year ended December 31, 2013.

Financial highlights by segment are as follows:

	Year ended December 31, 2013
	Mortgage banking
	Loan production			Loanservicing			Total			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	138,013		$	—		$	138,013		$	—	$	138,013
Loan origination fees	23,575			—			23,575			—		23,575
Fulfillment fees from PennyMac Mortgage Investment Trust	79,712			—			79,712			—		79,712
Net servicing fees				90,010			90,010			—		90,010
Management fees	—			—			—			40,330		40,330
Carried Interest from Investment Funds	—			—			—			13,419		13,419
Net interest (expense) income:
Interest income	15,610			—			15,610			22		15,632
Interest expense	(11,103		)	(5,570		)	(16,673		)	—		(16,673		)
	4,507			(5,570		)	(1,063		)	22		(1,041		)
Other	912			244			1,156			1,385		2,541
	246,719			84,684			331,403			55,156		386,559
Expenses	120,699			64,636			185,335			19,098		204,433
Income before provision for income taxes	$	126,020		$	20,048		146,068			$	36,058	$	182,126
Segment assets at year end	$	607,989		$	795,320		$	1,403,309		$	117,341	$	1,520,650

Segment total assets do not sum to consolidated total assets as segment assets exclude parent company assets consisting of cash in the amount of $707,000 and deferred tax asset in the amount of $63.1 million. The Company did not have in place the reporting structure that enabled it to report on its three segments before 2013 and is therefore unable to retrospectively adjust its 2012 and 2011 segment information to conform with the 2013 presentation.

	Year ended December 31, 2012
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	118,170		$	—	$	118,170
Loan origination fees	9,634			—		9,634
Fulfillment fees from PennyMac Mortgage Investment Trust	62,906			—		62,906
Net servicing fees	40,105			—		40,105
Management fees	—			21,799		21,799
Carried Interest from Investment Funds	—			10,473		10,473
Net interest (expense) income:
Interest income	6,349			5		6,354
Interest expense	(7,879		)	—		(7,879		)
	(1,530		)	5		(1,525		)
Other	2			3,522		3,524
	229,287			35,799		265,086
Expenses:	136,109			10,654		146,763
Income before provision for income taxes	$	93,178		$	25,145	$	118,323
Segment assets at year end	$	761,949		$	70,214	$	832,163

	Year ended December 31, 2011
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	13,029		$	—	$	13,029
Loan origination fees	669			—		669
Fulfillment fees from PennyMac Mortgage Investment Trust	1,747			—		1,747
Net servicing fees	28,667			—		28,667
Management fees	—			16,683		16,683
Carried Interest from Investment Funds	—			12,596		12,596
Net interest (expense) income:
Interest income	1,528			4		1,532
Interest expense	(1,875		)	—		(1,875		)
	(347		)	4		(343		)
Other	—			1,736		1,736
	43,765			31,019		74,784
Expenses:	47,904			12,181		60,085
Income before provision for income taxes	$	(4,139	)	$	18,838	$	14,699
Segment assets at year end	$	241,716		$	47,565	$	289,281

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Derivative Financial Instruments (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Derivative assets, fair value
Total derivative assets before netting	$ 28,898,000	$ 28,381,000
Netting	(7,358,000)	(1,091,000)
Total derivative assets	21,540,000	27,290,000
Derivative liabilities, fair value
Total derivative liabilities before netting	9,249,000	2,294,000
Netting	(6,787,000)	(1,785,000)
Total derivative liabilities	2,462,000	509,000
Change in fair value of mortgage loans held for sale at fair value
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Net gains (losses) on derivative financial instruments	110,300,000	68,000,000	3,500,000
Amortization, impairment and changes in estimated fair value of mortgage servicing rights
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Net gains (losses) on derivative financial instruments	1,300,000	1,300,000
Not designated as hedging instrument
Derivative assets, fair value
Total derivative assets before netting	28,898,000	28,381,000
Netting	(7,358,000)	(1,091,000)
Total derivative assets	21,540,000	27,290,000
Derivative liabilities, fair value
Total derivative liabilities before netting	9,249,000	2,294,000
Netting	(6,787,000)	(1,785,000)
Total derivative liabilities	2,462,000	509,000
Not designated as hedging instrument | Interest rate lock commitments
Derivative Instruments
Notional amount	971,783,000	1,576,174,000
Derivative assets, fair value
Total derivative assets before netting	8,964,000	23,951,000
Derivative liabilities, fair value
Total derivative liabilities before netting	2,203,000	11,000
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Balance end of period	971,783,000	1,576,174,000
Not designated as hedging instrument | Forward contracts | Purchases
Derivative Instruments
Notional amount	1,418,527,000	1,021,981,000	130,900,000
Derivative assets, fair value
Total derivative assets before netting	416,000	1,645,000
Derivative liabilities, fair value
Total derivative liabilities before netting	6,542,000	389,000
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Balance at beginning of period	1,021,981,000	130,900,000	2,908,000
Additions	43,449,699,000	19,425,777,000	978,395,000
Dispositions/expirations	(43,053,153,000)	(18,534,696,000)	(850,403,000)
Balance end of period	1,418,527,000	1,021,981,000	130,900,000
Not designated as hedging instrument | Forward contracts | Sales
Derivative Instruments
Notional amount	2,659,000,000	2,621,948,000	510,569,000
Derivative assets, fair value
Total derivative assets before netting	18,762,000	1,818,000
Derivative liabilities, fair value
Total derivative liabilities before netting	504,000	1,894,000
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Balance at beginning of period	2,621,948,000	510,569,000	27,700,000
Additions	63,655,600,000	29,394,503,000	1,975,563,000
Dispositions/expirations	(63,618,548,000)	(27,283,124,000)	(1,492,694,000)
Balance end of period	2,659,000,000	2,621,948,000	510,569,000
Not designated as hedging instrument | MBS put options
Derivative Instruments
Notional amount	185,000,000	500,000,000	29,000,000
Derivative assets, fair value
Total derivative assets before netting	665,000	967,000
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Balance at beginning of period	500,000,000	29,000,000
Additions	2,520,000,000	2,098,000,000	68,000,000
Dispositions/expirations	(2,835,000,000)	(1,627,000,000)	(39,000,000)
Balance end of period	185,000,000	500,000,000	29,000,000
Not designated as hedging instrument | MBS call options
Derivative Instruments
Notional amount	105,000,000		3,000,000
Derivative assets, fair value
Total derivative assets before netting	91,000
Activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value
Balance at beginning of period		3,000,000	2,000,000
Additions	2,205,000,000	85,000,000	37,500,000
Dispositions/expirations	(2,100,000,000)	(88,000,000)	(36,500,000)
Balance end of period	$ 105,000,000		$ 3,000,000

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Earnings Per Share of Common Stock (Tables)

12 Months Ended

Dec. 31, 2013

Earnings Per Share of Common Stock

Summary of basic and diluted earnings per share calculations

	Year ended December 31, 2013
	(in thousands, except per share amounts)
Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,400
Weighted-average common stock shares outstanding		17,311
Basic earnings per share of common stock	$	0.83
Diluted earnings per share of common stock:
Net income	$	14,400
Effect of net income attributable to noncontrolling interest, net of tax		47,838
Diluted net income attributable to common stockholders	$	62,238
Weighted-average shares outstanding		17,311
Dilutive shares:
PennyMac Class A common units exchangeable to common stock		58,553
Shares issuable under stock-based compensation plans		28
Diluted weighted-average common stock shares outstanding		75,892
Diluted earnings per share of common stock	$	0.82

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Taxes

Schedule of the Company's income tax expense (benefit)

	Year ended December 31, 2013
	(in thousands)
Current expense:
Federal	$	—
State		—
Total current expense		—
Deferred expense:
Federal		7,815
State		2,146
Total deferred expense		9,961
Total provision for income taxes	$	9,961

Schedule of reconciliation of the Company's provision for income taxes at statutory rates to the provision for income taxes at the Company's effective tax rate

	Year ended December 31, 2013
Federal income tax statutory rate		35.0	%
Less: Rate attributable to non-controlling members		(30.3	)%
State income taxes, net of federal benefit		0.8	%
Valuation allowance		0.0	%
Effective tax rate		5.5	%

Schedule of components of the Company's provision for deferred income taxes

	Year ended December 31, 2013
	(in thousands)
Investment in PennyMac	$	12,909
Net operating loss carryforward		(2,948	)
Valuation allowance		—
Total provision for deferred income taxes	$	9,961

Schedule of components of Deferred tax asset

	December 31, 2013
	(in thousands)
Taxes currently receivable	$	7
Deferred income tax asset, net		63,110
Deferred tax asset	$	63,117

Schedule of tax effects of temporary differences that gave rise to deferred income tax assets and liabilities

	December 31, 2013
	(in thousands)
Deferred income tax assets:
Investment in PennyMac	$	60,162
Net operating loss carryforward		2,948
Gross deferred tax assets		63,110
Deferred income tax liabilities:
Other		—
Gross deferred tax liabilities		—
Net deferred income tax asset	$	63,110

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Netting of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Derivatives subject to master netting arrangements:
Gross amounts of recognized assets	$ 19,934	$ 4,430
Gross amounts offset in the balance sheet	(7,358)	(1,091)
Net amounts of assets presented in the balance sheet	12,576	3,339
Total
Gross amounts of recognized assets	28,898	28,381
Net amounts of assets presented in the balance sheet	21,540	27,290
Net amount	21,540	27,290
Credit Suisse First Boston Mortgage Capital LLC
Total
Net amounts of assets presented in the balance sheet	2,149
Net amount	2,149
Bank of America, N.A.
Total
Net amounts of assets presented in the balance sheet	1,680	1,782
Net amount	1,680	1,782
Morgan Stanley Bank, N.A.
Total
Net amounts of assets presented in the balance sheet	1,704
Net amount	1,704
Daiwa Capital Markets
Total
Net amounts of assets presented in the balance sheet	1,190
Net amount	1,190
Citibank, N.A.
Total
Net amounts of assets presented in the balance sheet		522
Net amount		522
Other
Total
Net amounts of assets presented in the balance sheet	5,853	1,035
Net amount	5,853	1,035
MBS put options
Derivatives subject to master netting arrangements:
Gross amounts of recognized assets	665	967
MBS call options
Derivatives subject to master netting arrangements:
Gross amounts of recognized assets	91
Forward contracts | Purchases
Derivatives subject to master netting arrangements:
Gross amounts of recognized assets	416	1,645
Forward contracts | Sales
Derivatives subject to master netting arrangements:
Gross amounts of recognized assets	18,762	1,818
IRLCs
Derivatives not subject to master netting arrangements
Gross amounts of recognized assets	8,964	23,951
Total
Net amounts of assets presented in the balance sheet	8,964	23,951
Net amount	$ 8,964	$ 23,951

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CONSOLIDATED BALANCE SHEETS (USD $)	Dec. 31, 2013	Dec. 31, 2012
ASSETS
Cash	$ 30,639,000	$ 12,323,000
Short-term investments at fair value	142,582,000	53,164,000
Mortgage loans held for sale at fair value (includes $512,350 and $438,850 pledged to secure mortgage loans sold under agreements to repurchase)	531,004,000	448,384,000
Servicing advances (includes $5,564 and $7,430 pledged to secure note payable)	154,328,000	93,152,000
Derivative assets	21,540,000	27,290,000
Carried Interest due from affiliates	61,142,000	47,723,000
Mortgage servicing rights (includes $224,913 and $19,798 Mortgage servicing rights at fair value; $258,241 and $100,957 pledged to secure note payable; and $138,723 pledged to secure excess servicing spread financing)	483,664,000	108,975,000
Furniture, fixtures, equipment and building improvements, net	9,837,000	5,065,000
Capitalized software, net	764,000	795,000
Deferred tax asset	63,117,000
Loans eligible for repurchase	46,663,000
Other	15,922,000	13,032,000
Total assets	1,584,475,000	832,163,000
LIABILITIES
Mortgage loans sold under agreements to repurchase	471,592,000	393,534,000
Note payable	52,154,000	53,013,000
Derivative liabilities	2,462,000	509,000
Accounts payable and accrued expenses	46,387,000	36,279,000
Liability for loans eligible for repurchase	46,663,000
Liability for losses under representations and warranties	8,123,000	3,504,000
Total liabilities	955,271,000	570,413,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Additional paid-in capital	153,000,000
Retained earnings	14,400,000
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders	167,402,000
Members' equity attributable to Private National Mortgage Acceptance Company, LLC		261,750,000
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC	461,802,000
Total stockholders' equity	629,204,000	261,750,000
Total liabilities and stockholders' equity	1,584,475,000	832,163,000
PennyMac
LIABILITIES
Payable under tax receivable agreement	71,056,000
Class A Common Stock
STOCKHOLDERS' EQUITY
Common stock	2,000
Class B Common Stock
STOCKHOLDERS' EQUITY
Common stock
Investment Funds
ASSETS
Carried Interest due from affiliates	61,142,000	47,723,000
Receivable from affiliates	2,915,000	3,672,000
LIABILITIES
Payable to affiliates	36,937,000	36,795,000
PennyMac Mortgage Investment Trust
ASSETS
Investment in affiliates, at fair value	1,722,000	1,897,000
Receivable from affiliates	18,636,000	16,691,000
LIABILITIES
Excess servicing spread financing at fair value payable to affiliate	138,723,000
Payable to affiliates	$ 81,174,000	$ 46,779,000

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Derivative Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Derivative Financial Instruments

Summary of derivative financial instruments

	December 31,
	2013								2012
			Fair value								Fair value
Instrument	Notional amount		Derivative assets			Derivative liabilities			Notional amount		Derivative assets			Derivative liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Free-standing derivatives:
Interest rate lock commitments		971,783	$	8,964		$	2,203			1,576,174	$	23,951		$	11
Forward purchase contracts		1,418,527		416			6,542			1,021,981		1,645			389
Forward sales contracts		2,659,000		18,762			504			2,621,948		1,818			1,894
MBS put options		185,000		665			—			500,000		967			—
MBS call options		105,000		91			—			—		—			—
Total derivatives before netting				28,898			9,249					28,381			2,294
Netting				(7,358	)		(6,787	)				(1,091	)		(1,785	)
			$	21,540		$	2,462				$	27,290		$	509

Summary of the activity for derivative contracts used to hedge the IRLCs and inventory of mortgage loans at notional value

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2013
Forward purchase contracts		1,021,981		43,449,699		(43,053,153	)		1,418,527
Forward sales contracts		2,621,948		63,655,600		(63,618,548	)		2,659,000
MBS put options		500,000		2,520,000		(2,835,000	)		185,000
MBS call options		—		2,205,000		(2,100,000	)		105,000

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2012
Forward purchase contracts		130,900		19,425,777		(18,534,696	)		1,021,981
Forward sales contracts		510,569		29,394,503		(27,283,124	)		2,621,948
MBS put options		29,000		2,098,000		(1,627,000	)		500,000
MBS call options		3,000		85,000		(88,000	)		—

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2011
Forward purchase contracts		2,908		978,395		(850,403	)		130,900
Forward sales contracts		27,700		1,975,563		(1,492,694	)		510,569
MBS put options		—		68,000		(39,000	)		29,000
MBS call options		2,000		37,500		(36,500	)		3,000

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Stockholders' Equity (Details)			12 Months Ended
	Dec. 31, 2013	May 14, 2013	Dec. 31, 2013 Class A Common Stock
Stockholders' Equity
Number of Class A units exchanged for PFSI Class A common stock (in shares)			8,035,000
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC at the date of the IPO (as a percent)		83.16%
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC (as a percent)	72.57%

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flow from operating activities
Net income	$ 172,165,000	$ 118,323,000	$ 14,699,000
Adjustments to reconcile net income to net cash used in operating activities:
Net gains on mortgage loans held for sale at fair value	(138,013,000)	(118,170,000)	(13,029,000)
Accrual of servicing rebate to Investment Funds	700,000	885,000	2,772,000
Amortization, impairment and change in fair value of mortgage servicing rights	29,451,000	12,252,000	9,438,000
Carried Interest from Investment Funds	(13,419,000)	(10,473,000)	(12,596,000)
Accrual of interest on excess servicing spread financing	1,348,000
Amortization of debt issuance costs and commitment fees relating to financing facilities	5,014,000	1,866,000	1,028,000
Change in fair value of real estate acquired in settlement of loans	22,000
Stock and unit-based compensation expense	3,937,000	20,308,000	1,116,000
Depreciation and amortization	824,000	520,000	251,000
Purchase of modified mortgage loans for sale from Ginnie Mae securities	(30,950,000)
Originations of mortgage loans held for sale, net	(1,104,051,000)	(539,160,000)	(149,393,000)
Sale and principal payments of mortgage loans held for sale	17,105,047,000	9,053,364,000	649,625,000
Repurchase of loans subject to representations and warranties	(6,696,000)
Increase in servicing advances	(60,189,000)	(30,855,000)	(40,754,000)
Repurchase of real estate acquired in settlement of loans subject to representations and warranties	(309,000)
Sale of real estate acquired in settlement of loans subject to representations and warranties	287,000
Increase in other assets	(6,433,000)	(5,998,000)	(1,423,000)
Increase in accounts payable and accrued expenses	10,109,000	22,704,000	8,596,000
Net cash used in operating activities	(98,390,000)	(308,057,000)	(74,718,000)
Cash flow from investing activities
Net increase in short-term investments	(89,418,000)	(37,123,000)	(6,727,000)
Purchase of mortgage servicing rights	(195,871,000)		(1,352,000)
Sale of mortgage servicing rights	550,000
Purchase of furniture, fixtures, equipment and building improvements	(6,615,000)	(3,370,000)	(1,888,000)
Acquisition of capitalized software	(343,000)	(503,000)	(112,000)
Increase (decrease) in margin deposits and restricted cash	6,916,000	(4,539,000)	(2,310,000)
Net cash used in investing activities	(284,781,000)	(45,535,000)	(12,389,000)
Cash flow from financing activities
Sale of loans under agreements to repurchase	15,805,464,000	8,528,184,000	656,742,000
Repurchase of loans sold under agreements to repurchase	(15,727,406,000)	(8,212,350,000)	(592,331,000)
(Decrease) increase in note payable	(859,000)	34,411,000	15,103,000
Issuance of excess servicing spread financing	139,028,000
Repayment of excess servicing spread financing	(4,076,000)
Decrease in leases payable	(1,000)
Issuance of common stock	230,000,000
Payment of common stock underwriting and offering costs	(13,486,000)
Payment by noncontrolling interest of common stock issuance costs	(3,745,000)
Collection of subscriptions receivable relating to noncontrolling interest		15,058,000	18,908,000
Noncontrolling interest partners' capital redemptions		(6,000)	(131,000)
Distributions to noncontrolling interest	(23,432,000)	(15,847,000)	(646,000)
Net cash provided by financing activities	401,487,000	349,450,000	97,645,000
Net increase in cash	18,316,000	(4,142,000)	10,538,000
Cash at beginning of year	12,323,000	16,465,000	5,927,000
Cash at end of year	30,639,000	12,323,000	16,465,000
Investment Funds
Adjustments to reconcile net income to net cash used in operating activities:
Carried Interest from Investment Funds	(13,419,000)	(10,473,000)	(12,596,000)
Decrease (increase) in receivable from affiliates	57,000	3,797,000	(1,644,000)
Increase in payable to affiliate	142,000	7,173,000	16,359,000
PennyMac Mortgage Investment Trust
Adjustments to reconcile net income to net cash used in operating activities:
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust	175,000	(650,000)	114,000
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust	(16,113,806,000)	(8,864,264,000)	(575,649,000)
Sale and principal payments of mortgage loans held for sale	12,339,000	3,622,000
Decrease (increase) in receivable from affiliates	173,000	(3,970,000)	(5,675,000)
Increase in payable to affiliate	$ 33,686,000	$ 21,184,000	$ 21,447,000

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2013 item	Mar. 31, 2013
Income Taxes
Changes to the returns as originally filed					$ 0
Returns currently under examination				0
Deferred expense:
Federal				7,815
State				2,146
Total deferred expense				9,961
Total provision for income taxes	$ 4,430	$ 3,493	$ 2,038	$ 9,961
Reconciliation of the entity's provision for income taxes at statutory rates to the provision for income taxes at the entity's effective tax rate
Federal income tax statutory rate (as a percent)				35.00%
Less: Rate attributable to non-controlling interest members (as a percent)				(30.30%)
State income taxes, net of federal benefit (as a percent)				0.80%
Valuation allowance (as a percent)				0.00%
Effective tax rate (as a percent)				5.50%

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies.

Schedule of commitments to fund and sell mortgage loans

	December 31, 2013
	(in thousands)
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$	718,105
Commitments to fund mortgage loans		253,678
	$	971,783
Commitments to sell mortgage loans	$	2,659,000

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Stock-based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Stock-Based Compensation
Units available for future awards under 2013 Equity Incentive Plan (in units)	18,100,000
Compensation expense recorded during the period (in dollars)	$ 3,332
Stock Options
Stock-Based Compensation
Compensation expense recorded during the period (in dollars)	1,387
Percentage of the award vesting at each of the three anniversaries	33.00%
Contractual term of the stock options	10 years
Expiration term, if employment or other association is terminated due to death or disability	1 year
Expiration term, if employment or other association is terminated due to other reason	3 months
Expected volatility (as a percent)	45.00%
Expected dividends (as a percent)	0.00%
Number of Stock Options:
Granted (in shares)	425,796
Expired or canceled (in units)	(7,011)
Outstanding at end of year (in shares)	418,785
Weighted-average exercise price per share:
Granted (in dollars per share)	$ 21.03
Expired or canceled (in dollars per share)	$ 21.03
Outstanding at end of year (in dollars per share)	$ 21.03
Weighted-average remaining contractual term:
Outstanding at end of year	9 years 4 months 24 days
Stock Options | Minimum
Stock-Based Compensation
Risk-free rate (as a percent)	0.30%
Expected grantee forfeiture rate (as a percent)	0.062
Stock Options | Maximum
Stock-Based Compensation
Risk-free rate (as a percent)	2.30%
Expected grantee forfeiture rate (as a percent)	0.192
Stock Options | Expected to vest
Number of Stock Options:
Number of shares (in units)	340,061
Weighted-average exercise price per share:
Grant date fair value (in dollars per share)	$ 9.17
Stock Options | Expected to vest | Weighted average
Weighted-average grant date fair value per unit:
Weighted - average vesting period	21 months
Performance-based RSUs
Stock-Based Compensation
Compensation expense recorded during the period (in dollars)	1,273
Expected volatility (as a percent)	45.00%
Expected dividends (as a percent)	0.00%
Number of units:
Granted (in units)	500,373,000
Expired or canceled (in units)	(9,375,000)
Outstanding at end of year (in units)	490,998,000
Weighted-average grant date fair value per unit:
Granted (in dollars per share)	$ 11.29
Expired or canceled (in dollars per share)	$ 10.85
Outstanding at end of year (in dollars per share)	$ 11.30
Unamortized compensation cost	4,364
Performance-based RSUs | Minimum
Stock-Based Compensation
Risk-free rate (as a percent)	0.30%
Expected grantee forfeiture rate (as a percent)	0.062
Performance-based RSUs | Maximum
Stock-Based Compensation
Risk-free rate (as a percent)	2.30%
Expected grantee forfeiture rate (as a percent)	0.192
Performance-based RSUs | Expected to vest
Number of units:
Number of shares expected to vest (in units)	448,634
Weighted-average grant date fair value per unit:
Grant date fair value (in dollars per share)	$ 20.99
Performance-based RSUs | Expected to vest | Weighted average
Weighted-average grant date fair value per unit:
Weighted - average vesting period	18 months
Time-based RSUs
Stock-Based Compensation
Compensation expense recorded during the period (in dollars)	672
Percentage of the award vesting at each of the three anniversaries	33.00%
Number of units:
Granted (in units)	101,459,000
Expired or canceled (in units)	(1,141,000)
Outstanding at end of year (in units)	100,318,000
Weighted-average grant date fair value per unit:
Granted (in dollars per share)	$ 18.03
Expired or canceled (in dollars per share)	$ 17.14
Outstanding at end of year (in dollars per share)	$ 18.04
Unamortized compensation cost	$ 1,099
Time-based RSUs | Minimum
Weighted-average remaining contractual term:
Turnover rates (as a percent)	0.062
Time-based RSUs | Maximum
Weighted-average remaining contractual term:
Turnover rates (as a percent)	0.192
Time-based RSUs | Expected to vest
Number of units:
Number of shares expected to vest (in units)	58,398
Weighted-average grant date fair value per unit:
Grant date fair value (in dollars per share)	$ 20.99
Time-based RSUs | Expected to vest | Weighted average
Weighted-average grant date fair value per unit:
Weighted - average vesting period	18 months
Time-based RSUs | Class A Common Stock
Weighted-average remaining contractual term:
Number of share awarded for each RSU (in shares)	1

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Parent Company Information

12 Months Ended

Dec. 31, 2013

Parent Company Information

Parent Company Information

Note 29—Parent Company Information

        The Company's debt financing agreements require PLS, PFSI's controlled subsidiary, to comply with financial covenants that include a minimum tangible net worth of $90 million. PLS is limited from transferring funds to the Parent by this minimum tangible net worth requirement.

PENNYMAC FINANCIAL SERVICES, INC.
CONDENSED BALANCE SHEET

	December 31, 2013
	(in thousands)
ASSETS
Cash	$	707
Investments in subsidiaries		177,200
Other assets		63,117
Total assets	$	241,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities	$	71,056
Payables to subsidiaries		50
Stockholders' equity		169,918
Total liabilities and stockholders' equity	$	241,024

PENNYMAC FINANCIAL SERVICES, INC.
CONDENSED STATEMENT OF INCOME

	Year ended December 31, 2013
	(in thousands)
Revenue
Dividends from subsidiaries	$	664
Interest		—
Total revenue		664
Expenses
Interest		—
Total expenses		—
Income before provision for income taxes and equity in undistributed earnings in subsidiaries		664
Provision for income taxes		9,961
Income before equity in undistributed earnings of subsidiaries		(9,297	)
Equity in undistributed earnings of subsidiaries		23,697
Net income	$	14,400

PENNYMAC FINANCIAL SERVICES, INC.
CONDENSED STATEMENT OF CASH FLOWS

	Year ended December 31, 2013
	(in thousands)
Cash flows from operating activities
Net income	$	14,400
Equity in undistributed earnings of subsidiaries		(23,697	)
Increase in payables to subsidiaries		50
Decrease in deferred tax asset		9,954
Net cash provided by operating activities		707
Cash flows from investing activities
Increase in investments in subsidiaries		(216,775	)
Net cash used by investing activities		(216,775	)
Cash flows from financing activities
Issuance of common shares		230,000
Payment of common share underwriting and offering costs		(13,225	)
Net cash provided by financing activities		216,775
Net change in cash		707
Cash at beginning of year		—
Cash at end of year	$	707

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Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Net interest (expense) income:
Interest income	$ 15,632	$ 6,354	$ 1,532
Interest expense	16,673	7,879	1,875
Net interest expense	(1,041)	(1,525)	(343)
As previously reported
Net interest (expense) income:
Interest income		6,354	1,532
Net interest expense		6,354	1,532
Reclassification
Net interest (expense) income:
Interest expense		7,879	1,875
Net interest expense		$ 7,879	$ 1,875

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Borrowings

12 Months Ended

Dec. 31, 2013

Borrowings

Borrowings

Note 16—Borrowings

        As of December 31, 2013, the Company maintained five borrowing facilities: four facilities that provide for sales of mortgage loans under agreements to repurchase; and one note payable secured by MSRs and servicing advances made relating to loans in the Company's loan servicing portfolio.

• Mortgage Loans Sold Under Agreement to Repurchase

        The borrowing facilities secured by mortgage loans held for sale are in the form of loan sale and repurchase agreements. Eligible mortgage loans are sold at advance rates based on the loan type. Interest is charged at a rate based on the buyer's overnight cost-of funds rate for one agreement and based on LIBOR for the other three agreements. Loans sold under these agreements may be re-pledged by the lenders.

        Financial data pertaining to mortgage loans sold under agreements to repurchase are as follows:

	Year ended December 31,
	2013			2012			2011
	(dollar amounts in thousands)
Year end:
Balance	$	471,592		$	393,534		$	77,700
Unused amount(1)	$	528,408		$	106,466		$	22,300
Weighted-average interest rate		1.79	%		2.20	%		2.39	%
Fair value of loans securing agreements to repurchase	$	512,350		$	438,850		$	86,787
During the year:
Average balance of loans sold under agreements to repurchase	$	344,625		$	172,729		$	24,905
Weighted-average interest rate(2)		1.96	%		2.24	%		2.66	%
Total interest expense	$	10,863		$	5,927		$	1,875
Maximum daily amount outstanding	$	623,523		$	441,245		$	127,593

(1)

The amount the Company is able to borrow under loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company's ability to fund the agreements' margin requirements relating to the mortgage loans sold.

(2)

Excludes the effect of amortization of commitment fees totaling $4.0 million, $2.0 million, and $1.0 million for the years ended December 31, 2013, 2012, and 2011, respectively.

        Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:

Remaining maturity at December 31, 2013	Balance
	(in thousands)
Within 30 days	$	782
Over 30 to 90 days		470,810
Over 90 days to 180 days		—
Over 180 days to 1 year		—
	$	471,592
Weighted-average maturity (in months)		2.6

        The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to the Company's mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of December 31, 2013:

Counterparty	Amount at risk		Weighted-average maturity of advances under repurchase agreement		Facility Maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC	$	19,593		March 26, 2014		October 31, 2014
Bank of America, N.A.	$	19,195		March 22, 2014		January 2, 2014
Morgan Stanley	$	3,103		February 22, 2014		July 1, 2014
Citibank, N.A.	$	—		—		July 24, 2014

        The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the value (as determined by the applicable lender) of the mortgage loans securing those agreements decreases. The Company had $1.5 million and $6.8 million on deposit with its mortgage loan repurchase agreement counterparties at December 31, 2013 and 2012, respectively. Such amounts are included in Other assets on the consolidated balance sheets.

• Excess Servicing Spread Financing

        In conjunction with the Company's purchase from non-affiliates of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows relating to certain MSRs. The Company retained all ancillary income associated with servicing the loans and a fixed base servicing fee. The Company continues to be the servicer of the mortgage loans and provides all servicing functions, including responsibility to make servicing advances. The Company accounts for the transactions as a financing and the total proceeds received was $139.0 million.

• Note Payable

        The note payable is summarized below:

	December 31,
	2013		2012
	(in thousands)
Year end:
Note payable secured by:
Servicing advances	$	3,852	$	4,905
MSRs		48,302		48,108
	$	52,154	$	53,013
Assets pledged to secure note:
Servicing advances	$	5,564	$	7,430
MSRs	$	258,241	$	100,957

        The note payable matures on October 31, 2014. Interest is charged at a rate based on the lender's overnight cost of funds. The note payable is secured by servicing advances and MSRs relating to certain loans in the Company's servicing portfolio, and provides for advance rates ranging from 50% to 85% of the amount of the servicing advances or the carrying value of the MSR pledged, up to a maximum of $17 million in the case of servicing advances and $100 million in the case of MSRs. At December 31, 2013, the Company had elected to reduce its advance rate on this note as a means of investing excess cash.

        The borrowing facilities contain various covenants, including financial covenants governing the Company's net worth, debt-to-equity ratio, profitability and liquidity. Management believes the Company was in compliance with these requirements as of December 31, 2013.

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Subsequent Events

12 Months Ended

Dec. 31, 2013

Subsequent Events

Subsequent Events

Note 30—Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period all agreements to repurchase assets that matured between December 31, 2013 and the date of this Report were extended or renewed.

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Net Interest Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest income:
Short-term investments	$ 893	$ 72	$ 22
Mortgage loans held for sale at fair value	14,739	6,282	1,510
Interest income	15,632	6,354	1,532
Interest expense:
Mortgage loans sold under agreements to repurchase	10,863	5,927	1,874
Note payable	2,931	1,180
Excess servicing spread financing at fair value	1,091
Other	1,788	772	1
Interest expense	16,673	7,879	1,875
Net interest expense:	$ (1,041)	$ (1,525)	$ (343)

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

Income Taxes

Note 18—Income Taxes

        The Company files U.S. federal and state corporate income tax returns for PFSI and partnership returns for PennyMac. Before the IPO, the Company did not have a provision for income taxes as PennyMac is a pass-through taxable entity. PFSI's tax returns are subject to examination for 2012 and forward. In March 2013, the IRS concluded its audit of the partnership return of PennyMac and its subsidiaries for the tax year ended December 31, 2010 and proposed no changes to the return as originally filed. No returns are currently under examination. PennyMac's federal partnership returns are subject to examination for 2011 and forward. PennyMac's primary state tax return is generally subject to examination for 2009 and forward.

        The following table details the Company's income tax expense (benefit).

	Year ended December 31, 2013
	(in thousands)
Current expense:
Federal	$	—
State		—
Total current expense		—
Deferred expense:
Federal		7,815
State		2,146
Total deferred expense		9,961
Total provision for income taxes	$	9,961

        The provision for deferred income taxes for the year ended December 31, 2013 primarily relates to the Company's investment in PennyMac partially offset by a net operating loss carryforward. The portion attributable to its investment in PennyMac primarily relates to MSRs that PennyMac received pursuant to sales of mortgage loans held for sale at fair value and Carried Interest from the Investment Funds.

        The following table is a reconciliation of the Company's provision for income taxes at statutory rates to the provision for income taxes at the Company's effective tax rate:

	Year ended December 31, 2013
Federal income tax statutory rate		35.0	%
Less: Rate attributable to non-controlling members		(30.3	)%
State income taxes, net of federal benefit		0.8	%
Valuation allowance		0.0	%
Effective tax rate		5.5	%

        The components of the Company's provision for deferred income taxes are as follows:

	Year ended December 31, 2013
	(in thousands)
Investment in PennyMac	$	12,909
Net operating loss carryforward		(2,948	)
Valuation allowance		—
Total provision for deferred income taxes	$	9,961

        The components of Deferred tax asset are as follows:

	December 31, 2013
	(in thousands)
Taxes currently receivable	$	7
Deferred income tax asset, net		63,110
Deferred tax asset	$	63,117

        The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:

	December 31, 2013
	(in thousands)
Deferred income tax assets:
Investment in PennyMac	$	60,162
Net operating loss carryforward		2,948
Gross deferred tax assets		63,110
Deferred income tax liabilities:
Other		—
Gross deferred tax liabilities		—
Net deferred income tax asset	$	63,110

        The Company's deferred income tax is recorded in Deferred tax asset in the consolidated balance sheet as of December 31, 2013. There was no income tax asset or liability as of December 31, 2012 since PennyMac is a pass-through taxable entity and PFSI had no activity in 2012. Increases in deferred tax assets are primarily due to the increase in the Company's ownership of PennyMac as a result of members exchanging PennyMac Class A units for PFSI Class A common stock. As existing members exchange their units, the Company records a deferred tax asset related to PennyMac's election pursuant to Section 754 of the Internal Revenue Code. The portion of the deferred tax asset relating to the Company's investment in PennyMac is net of deferred tax liabilities primarily related to deferred income from MSRs and accrued Carried Interest from the Investment Funds.

        The Company recorded a deferred tax asset of $2.9 million related to net operating loss carryforwards of approximately $7.2 million, which generally expire in 2033.

        At December 31, 2013 and December 31, 2012, the Company had no unrecognized tax benefits and does not anticipate any increase in unrecognized tax benefits. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals in the Company's income tax accounts. No such accruals existed at December 31, 2013 and December 31, 2012.

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Significant Accounting Policies (Details 4) (USD $)	12 Months Ended
	Dec. 31, 2013
Income Taxes
Amount of cash savings under an agreement (as a percent)	85.00%
PMOFA
Variable Interest Held in Unconsolidated Variable Interest Entities
Number of entities that hold mortgage loans for Funding II, LLC	2
Maximum exposure of loss from the unconsolidated VIEs	$ 1,436,000

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Parent Company Information (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenue
Interest									$ 15,632	$ 6,354	$ 1,532
Total net revenue	90,420	87,194	106,577	102,368	109,519	76,232	41,447	37,888	386,559	265,086	74,784
Expenses
Interest									16,673	7,879	1,875
Total expenses	48,733	52,277	56,348	47,075	54,099	38,369	30,969	22,657	204,433	146,763	60,085
Income before provision for income taxes	41,687	34,917	50,229	55,293	55,420	37,863	10,478	15,231	182,126	118,323	14,699
Provision for income taxes	4,430	3,493	2,038						9,961
Net income	37,257	31,424	48,191	55,293	55,420	37,863	10,478	15,231	172,165	118,323	14,699
Parent Company
Revenue
Dividends from subsidiaries									664
Total net revenue									664
Expenses
Income before provision for income taxes									664
Provision for income taxes									9,961
Income before equity in undistributed earnings of subsidiaries									(9,297)
Equity in undistributed earnings of subsidiaries									23,697
Net income									$ 14,400

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Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2013

Organization and Basis of Presentation

Organization and Basis of Presentation

Note 1—Organization and Basis of Presentation

        PennyMac Financial Services, Inc. ("PFSI" or the "Company") was formed as a Delaware corporation on December 31, 2012. Pursuant to a reorganization, the Company became a holding corporation and its primary asset is an equity interest in Private National Mortgage Acceptance Company, LLC ("PennyMac"). The Company is the managing member of PennyMac and operates and controls all of the businesses and affairs of PennyMac subject to the consent rights of other members under certain circumstances and, through PennyMac and its subsidiaries, continues to conduct the business previously conducted by these subsidiaries.

        PennyMac is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PennyMac's mortgage banking activities consist of residential mortgage lending (including correspondent lending and retail lending) and loan servicing. PennyMac's investment management activities and a portion of its loan servicing activities are conducted on behalf of its Advised Entities, which invest in residential mortgage loans and related assets. PennyMac's primary wholly-owned subsidiaries are:

• •

  PNMAC Capital Management, LLC ("PCM")—a Delaware limited liability company registered with the Securities and Exchange Commission ("SEC") as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM enters into investment management agreements with entities that invest in residential mortgage loans and related assets.

  • Presently, PCM has management agreements with PennyMac Mortgage Investment Trust ("PMT"), a publicly held real estate investment trust, and three investment funds: PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., (the "Master Fund"), both registered under the Investment Company Act of 1940, as amended; and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, "Investment Funds"). Together, the Investment Funds and PMT are referred to as the "Advised Entities."

  •

  PennyMac Loan Services, LLC ("PLS")—a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates or the Advised Entities, originates new prime credit quality residential mortgage loans, and engages in other mortgage banking activities for its own account and the account of PMT.

• • PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") and as an issuer of securities guaranteed by the Government National Mortgage Association ("Ginnie Mae"). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development ("HUD") and a lender/servicer with the Veterans Administration ("VA") (each an "Agency" and collectively the "Agencies ").

  •

  PNMAC Opportunity Fund Associates, LLC ("PMOFA")—a Delaware limited liability company and the general partner of the Master Fund. PMOFA is entitled to incentive fees representing allocations of profits ("Carried Interest") from the Master Fund.

• Initial Public Offering and Recapitalization

        On May 14, 2013, PFSI completed an initial public offering ("IPO") in which it sold approximately 12.8 million shares of its Class A common stock, at a public offering price of $18.00 per share. PFSI received net proceeds of $216.8 million, after deducting underwriting discounts and commissions, from sales of its shares in the IPO. PFSI used these net proceeds to purchase approximately 12.8 million Class A units of PennyMac. PFSI operates and controls all of the business and affairs and consolidates the financial results of PennyMac and its subsidiaries.

        The purchase of 12.8 million Class A units of PennyMac has been accounted for as a transfer of interests under common control. Accordingly, the accompanying consolidated financial statements reflect a reclassification of members' equity to noncontrolling interests in the Company of $315.5 million. This amount represents the carrying value in the Company of the existing owners of PennyMac on the date of the IPO.

        Before the IPO, PennyMac completed a reorganization by amending its limited liability company agreement to convert all classes of ownership interests held by its existing owners to a single class of common units. The conversion of existing interests was based on the various interests' liquidation priorities as specified in PennyMac's prior limited liability company agreement. In connection with that reorganization, PFSI became the sole managing member of PennyMac.

        After the completion of the recapitalization and reorganization transactions, PennyMac became a consolidated subsidiary of the Company. Accordingly, PennyMac's consolidated financial statements are the Company's historical financial statements. The historical consolidated financial statements of PennyMac are reflected herein based on the historical ownership interests of the then-existing PennyMac unitholders.

• Tax Receivable Agreement

        As part of the IPO, PFSI entered into an Exchange Agreement with PennyMac's existing unitholders whereby the existing unitholders may exchange their PennyMac units for PFSI stock. Before 2013, PennyMac made an election pursuant to Section 754 of the Internal Revenue Code which remains in effect. An exchange results in a special adjustment for PFSI that may increase PFSI's tax basis of certain assets of PennyMac that otherwise would not have been available. These increases in tax basis may reduce the amount of income tax that PFSI would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase tax receivable agreement losses) on future dispositions of certain assets to the extent a portion of the increased tax basis is allocated to those assets.

        PFSI entered into a tax receivable agreement with PennyMac's existing unitholders that will provide for the payment by PFSI to PennyMac exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from exchanges and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

        The term of the tax receivable agreement will continue until all such tax benefits have been utilized or expired, unless PFSI exercises its right to terminate the tax receivable agreement. In the event of termination of the tax receivable agreement, the Company would be required to make an immediate payment equal to the present value of the anticipated future net tax benefits, which upfront payment may be made years in advance of the actual realization of such future benefits.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Mortgage loans held for sale pledged to secure mortgage loans sold under agreements to repurchase at fair value	$ 512,350	$ 438,850
Servicing advances pledged to secure note payable	5,564	7,430
Mortgage servicing rights pledged to secure note payable at fair value	224,913	19,798
Mortgage servicing rights pledged to secure note payable at lower of amortized cost or fair value	258,241	100,957
Mortgage servicing rights pledged to secure excess servicing spread financing	$ 138,723	$ 138,723
Class A Common Stock
Common stock, par value (in dollars per share)	$ 0.0001
Common stock, shares authorized	200,000,000
Common stock, shares issued	20,812,777
Common stock, shares outstanding	20,812,777
Class B Common Stock
Common stock, par value (in dollars per share)	$ 0.0001
Common stock, shares authorized	1,000
Common stock, shares issued	61
Common stock, shares outstanding	61

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Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2013

Mortgage Servicing Rights

Mortgage Servicing Rights

Note 11—Mortgage Servicing Rights

• Carried at Fair Value:

        The activity in MSRs carried at fair value is as follows:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Balance at beginning of year	$	19,798		$	25,698		$	31,957
Additions:
MSRs resulting from purchases		195,871			—			1,352
MSRs resulting from loan sales		14,636			774			1,696
		210,507			774			3,048
Sales		(550	)		—			—
Change in fair value:
Due to changes in valuation inputs or assumptions used in valuation model(1)		659			(1,550	)		(5,323	)
Other changes in fair value(2)		(5,501	)		(5,124	)		(3,984	)
Total change in fair value		(4,842	)		(6,674	)		(9,307	)
Balance at end of year	$	224,913		$	19,798		$	25,698

(1)

Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)

Represents changes due to realization of cash flows.

• Carried at Lower of Amortized Cost or Fair Value:

        The activity in MSRs carried at the lower of amortized cost or fair value is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Amortized cost:
Balance at beginning of year	$	92,155		$	6,496		$	—
Additions:
MSRs resulting from loan sales		190,469			89,698			6,557
Amortization		(19,251	)		(4,039	)		(61	)
Application of valuation allowance to write down MSRs with other-than-temporary impairment		—			—			—
Balance at end of year		263,373			92,155			6,496
Valuation allowance for impairment of MSRs:
Balance at beginning of year		(2,978	)		(70	)		—
Additions		(1,644	)		(2,908	)		(70	)
Application of valuation allowance to write down MSRs with other-than-temporary impairment		—			—			—
Balance at end of year		(4,622	)		(2,978	)		(70	)
MSRs, net	$	258,751		$	89,177		$	6,426
Estimated fair value of MSRs at end of year	$	269,422		$	91,028		$	6,465

        The following table summarizes the Company's estimate of future amortization of its existing MSRs. This projection was developed using the assumptions made by management in its December 31, 2013 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.

Year ending December 31,	Estimated MSR amortization
	(in thousands)
2014	$	23,254
2015		22,714
2016		22,215
2017		21,869
2018		20,978
Thereafter		152,343
	$	263,373

        Servicing fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees are recorded in Net servicing fees—Loan servicing fees—Ancillary and other fees on the consolidated statements of income and are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Contractual servicing fees	$	61,523	$	20,673	$	11,493
Ancillary and other fees
Late charges		1,998		948		829
Other		549		276		136
	$	64,070	$	21,897	$	12,458

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Segments and Related Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013 item	Dec. 31, 2012	Dec. 31, 2011
Number of segments									3
Expenses	$ 48,733	$ 52,277	$ 56,348	$ 47,075	$ 54,099	$ 38,369	$ 30,969	$ 22,657	$ 204,433	$ 146,763	$ 60,085
Other income	5,417	8,167	6,509	4,982	708	3,633	4,318	269	2,500	2,707	1,713
Pre-tax net income	41,687	34,917	50,229	55,293	55,420	37,863	10,478	15,231	182,126	118,323	14,699
Investment management | Operating segment
Expenses									19,098	10,654	12,181
Pre-tax net income									36,058	25,145	18,838
Mortgage banking
Number of segments									2
Mortgage banking | Operating segment
Expenses									185,335	136,109	47,904
Pre-tax net income									146,068	93,178	(4,139)
As previously reported | Investment management | Operating segment
Expenses									9,700
Pre-tax net income									46,600
As previously reported | Mortgage banking | Operating segment
Pre-tax net income									135,500
Adjustment | Investment management | Operating segment
Expenses									9,400
Other income									$ 1,100

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Liability for Losses Under Representations and Warranties (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Liability for representations and warranties
Balance at beginning of the period	$ 3,504	$ 449	$ 189
Provision for losses on loans sold	4,675	3,055	260
Incurred losses	(56)
Balance at end of period	8,123	3,504	449
UPB of mortgage loans subject to representations and warranties	23,637,202	8,856,044	679,247
During the period:
UPB of mortgage loans repurchased	8,449	4,399
UPB of repurchased mortgage loans put to correspondent lenders	3,593
Period end:
UPB of mortgage loans subject to pending claims for repurchase	$ 1,655	$ 2,582	$ 9,774

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Borrowings (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 item	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
Mortgage loans sold under agreement to repurchase
Number of borrowing facilities	5
Number of borrowing facilities that provide for sales of mortgage loans under agreements to repurchase	4
Number of secured note payable borrowing facilities	1
Year end:
Balance	$ 471,592,000	$ 393,534,000		$ 387,883,000	$ 500,427,000	$ 180,049,000	$ 361,478,000	$ 220,546,000	$ 159,547,000
Fair value of mortgage loans securing agreements to repurchase	512,350,000	438,850,000
During the Year:
Amortization of commitment fees excluded from calculation of Weighted average interest rate	5,014,000	1,866,000	1,028,000
PMT | Sale and assignment agreement
During the Year:
Proceeds from sale of right to receive excess cash flow generated from the pool of mortgage loans	139,000,000
Loan Repo Facility
Year end:
Balance	471,592,000	393,534,000	77,700,000
Unused amount	528,408,000	106,466,000	22,300,000
Weighted average interest rate (as a percent)	1.79%	2.20%	2.39%
Fair value of mortgage loans securing agreements to repurchase	512,350,000	438,850,000	86,787,000
During the Year:
Average balance of mortgage loans sold under agreements to repurchase	344,625,000	172,729,000	24,905,000
Weighted-average interest rate (as a percent)	1.96%	2.24%	2.66%
Total interest expense	10,863,000	5,927,000	1,875,000
Maximum daily amount outstanding	623,523,000	441,245,000	127,593,000
Amortization of commitment fees excluded from calculation of Weighted average interest rate	4,000,000	2,000,000	1,000,000
Weighted-average maturity	2 months 18 days
Deposit with loan repurchase agreement counterparties	1,500,000	6,800,000
Loan Repo Facility | Credit Suisse First Boston Mortgage Capital LLC
During the Year:
Amount at risk	19,593,000
Loan Repo Facility | Bank of America, N.A.
During the Year:
Amount at risk	19,195,000
Loan Repo Facility | Morgan Stanley
During the Year:
Amount at risk	3,103,000
Loan Repo Facility | Within 30 days
Year end:
Balance	782,000
Loan Repo Facility | Over 30 to 90 days
Year end:
Balance	$ 470,810,000
Loan Repo Facility | Overnight cost-of funds rate
Mortgage loans sold under agreement to repurchase
Number of borrowing facilities that provide for sales of mortgage loans under agreements to repurchase	1
Loan Repo Facility | LIBOR
Mortgage loans sold under agreement to repurchase
Number of borrowing facilities that provide for sales of mortgage loans under agreements to repurchase	3

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Document and Entity Information	12 Months Ended
	Dec. 31, 2013
Entity Registrant Name	PENNYMAC FINANCIAL SERVICES, INC.
Entity Central Index Key	0001568669
Document Type	8-K
Document Period End Date	Dec. 31, 2013
Amendment Flag	false

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Carried Interest Due from Investment Funds

12 Months Ended

Dec. 31, 2013

Carried Interest Due from Investment Funds

Carried Interest Due from Investment Funds

Note 12—Carried Interest Due from Investment Funds

        The activity in the Company's Carried Interest due from Investment Funds is summarized as follows:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Balance at beginning of year	$	47,723	$	37,250	$	24,654
Carried Interest recognized during the year:
Carried Interest earned during the year		13,419		10,473		9,275
Adjustment recognized pursuant to amendment of management agreement		—		—		3,321
		13,419		10,473		12,596
Proceeds received during the year		—		—		—
Balance at end of year	$	61,142	$	47,723	$	37,250

        The amount of the Carried Interest received by the Company depends on the Investment Funds' future performance. As a result, the amount of Carried Interest recorded by the Company at year end is subject to adjustment based on future results of the Investment Funds and may be reduced in future years. However, the Company is not required to pay guaranteed returns to the Investment Funds and the amount of Carried Interest will only be reduced to the extent of amounts previously recognized.

        Management expects the Carried Interest to be collected by the Company when the Investment Funds liquidate. The investment commitment period for the Investment Funds ended on December 31, 2011. The Investment Funds will continue in existence through December 31, 2016, subject to three one-year extensions by PCM at its discretion as specified in the limited liability company and limited partnership agreements that govern the Investment Funds.

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Fair Value (Details 7) (MSRs, Initial recognition, Level 3, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Fair value
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Amount recognized	$ 14,636	$ 774	$ 1,696
UPB of underlying loans	1,055,797	17,615	415,954
Weighted-average servicing fee rate (as a percent)	0.33%	0.28%	0.27%
Fair value | Minimum
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	7.40%	7.50%	8.30%
Annual total prepayment speed (as a percent)	7.80%	7.80%	6.30%
Life	2 years 6 months	3 years 7 months 6 days	6 years 6 months
Annual per-loan cost of servicing	68	68	64
Fair value | Maximum
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	14.40%	9.90%	14.00%
Annual total prepayment speed (as a percent)	25.50%	20.10%	8.90%
Life	7 years 3 months 18 days	7 years	8 years 1 month 6 days
Annual per-loan cost of servicing	120	100	98
Fair value | Weighted average
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	10.20%	8.40%	11.70%
Annual total prepayment speed (as a percent)	9.20%	9.70%	8.20%
Life	6 years 10 months 24 days	6 years 8 months 12 days	7 years
Annual per-loan cost of servicing	98	78	88
Amortized cost
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Amount recognized	190,468	89,698	6,557
UPB of underlying loans	15,316,315	8,524,533	449,715
Weighted-average servicing fee rate (as a percent)	0.29%	0.27%	0.31%
Amortized cost | Minimum
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	5.40%	7.50%	9.30%
Annual total prepayment speed (as a percent)	7.60%	6.70%	5.60%
Life	1 year 6 months	2 years 9 months 18 days	5 years 2 months 12 days
Annual per-loan cost of servicing	68	68	61
Amortized cost | Maximum
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	15.90%	11.90%	12.60%
Annual total prepayment speed (as a percent)	42.50%	17.80%	7.90%
Life	7 years 6 months	7 years	8 years
Annual per-loan cost of servicing	120	100	98
Amortized cost | Weighted average
Key assumptions used in determining the fair value of MSRs at time of initial recognition
Pricing spread (as a percent)	8.50%	9.80%	9.70%
Annual total prepayment speed (as a percent)	8.80%	8.50%	6.80%
Life	6 years 8 months 12 days	6 years 8 months 12 days	7 years 3 months 18 days
Annual per-loan cost of servicing	$ 102	$ 99	$ 96

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Capitalized Software (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Capitalized Software
Cost	$ 2,015,000	$ 1,676,000
Less: Accumulated amortization	(1,251,000)	(881,000)
Capitalized Software, net	764,000	795,000
Software amortization expense	$ 374,000	$ 264,000	$ 238,000

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CONSOLIDATED STATEMENTS OF INCOME (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenue
Net gains on mortgage loans held for sale at fair value	$ 138,013,000	$ 118,170,000	$ 13,029,000
Loan origination fees	23,575,000	9,634,000	669,000
Loan servicing fees
From non-affiliates	61,523,000	20,673,000	11,493,000
Mortgage servicing rebate to Investment Funds	(700,000)	(885,000)	(2,772,000)
Other	11,426,000	2,245,000	1,657,000
Net servicing fees	119,461,000	52,357,000	38,105,000
Amortization, impairment and change in estimated fair value of mortgage servicing rights	(29,451,000)	(12,252,000)	(9,438,000)
Net loan servicing fees	90,010,000	40,105,000	28,667,000
Management fees:
Management fees	40,330,000	21,799,000	16,683,000
Carried Interest from Investment Funds	13,419,000	10,473,000	12,596,000
Net interest expense:
Interest income	15,632,000	6,354,000	1,532,000
Interest expense	16,673,000	7,879,000	1,875,000
Net interest expense:	(1,041,000)	(1,525,000)	(343,000)
Change in fair value of investment in and dividends received from affiliate	2,541,000	3,524,000	1,736,000
Other	2,500,000	2,707,000	1,713,000
Total net revenue	386,559,000	265,086,000	74,784,000
Expenses
Compensation	148,576,000	124,014,000	47,479,000
Professional services	10,571,000	5,568,000	3,867,000
Loan origination	9,943,000	2,953,000	185,000
Technology	9,205,000	4,455,000	1,979,000
Marketing	9,118,000	932,000	346,000
Servicing	7,028,000	3,642,000	2,344,000
Occupancy	2,795,000	1,521,000	1,985,000
Other	7,197,000	3,678,000	1,900,000
Total expenses	204,433,000	146,763,000	60,085,000
Income before provision for income taxes	182,126,000	118,323,000	14,699,000
Provision for income taxes	9,961,000
Net income	172,165,000	118,323,000	14,699,000
Less: Net income attributable to noncontrolling interest	157,765,000
Net income attributable to PennyMac Financial Services, Inc. common stockholders	14,400,000
Earnings per share of Common Stock
Basic (in dollars per share)	$ 0.83
Diluted (in dollars per share)	$ 0.82
Weighted-average common shares outstanding
Basic (in shares)	17,311
Diluted (in shares)	75,892
PennyMac Mortgage Investment Trust
Revenue
Fulfillment fees from affiliate	79,712,000	62,906,000	1,747,000
Loan servicing fees
From affiliates	39,413,000	18,608,000	13,204,000
Management fees:
Management fees	32,410,000	12,436,000	6,740,000
Net interest expense:
Change in fair value of investment in and dividends received from affiliate	41,000	817,000	23,000
Investment Funds
Loan servicing fees
From affiliates	7,799,000	11,716,000	14,523,000
Management fees:
Management fees	7,920,000	9,363,000	9,943,000
Carried Interest from Investment Funds	$ 13,419,000	$ 10,473,000	$ 12,596,000

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Loan Sales and Servicing Activities

12 Months Ended

Dec. 31, 2013

Loan Sales and Servicing Activities

Loan Sales and Servicing Activities

Note 6—Loan Sales and Servicing Activities

        The Company purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.

        The following table summarizes cash flows between the Company and transferees upon sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans (primarily the obligation to service the loans on behalf of the loans' owners or owners' agents):

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash flows:
Sales proceeds	$	17,006,460	$	9,123,645	$	655,724
Servicing fees received	$	56,066	$	11,197	$	163
Net servicing advances	$	4,207	$	7,818	$	538
Year end information:
UPB of loans outstanding at year end	$	23,640,261	$	9,847,509	$	696,521
Delinquencies:
30 - 89 days	$	410,927	$	137,827	$	5,272
90 days or more or in foreclosure or bankruptcy	$	143,022	$	54,795	$	813

        The Company's mortgage servicing portfolio is summarized as follows:

	December 31, 2013
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	44,969,026	$	—	$	44,969,026
Affiliated entities		—		31,632,718		31,632,718
Private investors		969,794		89,361		1,059,155
Mortgage loans held for sale		506,540		—		506,540
	$	46,445,360	$	31,722,079	$	78,167,439
Amount subserviced for the Company	$	156,347	$	582,610	$	738,957
Delinquent mortgage loans:
30 days	$	1,304,054	$	263,518	$	1,567,572
60 days		346,912		112,275		459,187
90 days or more		605,555		1,416,498		2,022,053
		2,256,521		1,792,291		4,048,812
Loans pending foreclosure		168,776		1,792,128		1,960,904
	$	2,425,297	$	3,584,419	$	6,009,716
Custodial funds managed by the Company(1)	$	568,161	$	246,587	$	814,748

	December 31, 2012
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	9,860,284	$	—	$	9,860,284
Affiliated entities		—		16,552,939		16,552,939
Private investors		1,321,584		—		1,321,584
Mortgage loans held for sale		417,742		—		417,742
	$	11,599,610	$	16,552,939	$	28,152,549
Amount subserviced for the Company	$	45,562	$	375,818	$	421,380
Delinquent mortgage loans:
30 days	$	191,884	$	187,653	$	379,537
60 days		60,886		122,564		183,450
90 days or more		112,847		851,851		964,698
		365,617		1,162,068		1,527,685
Loans pending foreclosure		75,329		1,290,687		1,366,016
	$	440,946	$	2,452,755	$	2,893,701
Custodial funds managed by the Company(1)	$	263,562	$	150,080	$	413,642

(1)

Borrower and investor custodial cash accounts relate to loans serviced under the servicing agreements and are not recorded on the Company's consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the loans' investors, which is recorded as part of the interest income in the Company's consolidated statements of income.

        Following is a summary of the geographical distribution of loans included in the Company's servicing portfolio for the top five and all other states as measured by the total UPB:

	December 31,
State	2013		2012
	(in thousands)
California	$	30,320,616	$	10,696,508
Texas		4,470,123		1,223,382
Virginia		3,769,683		*
Florida		3,416,274		1,385,286
Washington		2,760,900		1,143,849
Colorado		*		1,299,295
All other states		33,429,843		12,404,229
	$	78,167,439	$	28,152,549

*

State did not represent a top five state as of the respective date.

        Certain of the loans serviced by the Company are subserviced on the Company's behalf by other mortgage loan servicers. Loans are subserviced for the Company when the loans are secured by property in the State of Massachusetts where the Company is not licensed and a license is required to perform such services, or on a transitional basis for loans where the Company has obtained the rights to service the loans but servicing of the loans has not yet transferred to the Company's servicing system.

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Earnings Per Share of Common Stock

12 Months Ended

Dec. 31, 2013

Earnings Per Share of Common Stock

Earnings Per Share of Common Stock

Note 5—Earnings Per Share of Common Stock

        Basic earnings per share of common stock is determined using net income attributable to the Company's common stockholders divided by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is determined by dividing net income attributable to the Company's common stockholders by the weighted-average of shares of common stock outstanding, assuming all potentially dilutive shares of common stock were issued.

        The Company applies the treasury stock method to determine the dilutive weighted-average shares of common stock represented by the unvested stock-based awards and the exchangeable PennyMac Class A units. The diluted earnings per share calculation assumes the exchange of these PennyMac Class A units for shares of common stock. Accordingly, earnings attributable to the Company's common stockholders is also adjusted to include the earnings allocated to the PennyMac Class A units after taking into account the income taxes applicable to the shares assumed to be exchanged.

        The following table summarizes the basic and diluted earnings per share calculations:

	Year ended December 31, 2013
	(in thousands, except per share amounts)
Basic earnings per share of common stock:
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,400
Weighted-average common stock shares outstanding		17,311
Basic earnings per share of common stock	$	0.83
Diluted earnings per share of common stock:
Net income	$	14,400
Effect of net income attributable to noncontrolling interest, net of tax		47,838
Diluted net income attributable to common stockholders	$	62,238
Weighted-average shares outstanding		17,311
Dilutive shares:
PennyMac Class A common units exchangeable to common stock		58,553
Shares issuable under stock-based compensation plans		28
Diluted weighted-average common stock shares outstanding		75,892
Diluted earnings per share of common stock	$	0.82

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Liability for Losses Under Representations and Warranties

12 Months Ended

Dec. 31, 2013

Liability for Losses Under Representations and Warranties

Liability for Losses Under Representations and Warranties

Note 17—Liability for Losses Under Representations and Warranties

        Following is a summary of activity in the Company's liability for representations and warranties:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Balance at beginning of year	$	3,504		$	449	$	189
Provision for losses on loans sold		4,675			3,055		260
Incurred losses		(56	)		—		—
Balance at end of year	$	8,123		$	3,504	$	449
UPB of mortgage loans subject to representations and warranties at year end	$	23,637,202		$	8,856,044	$	679,247

        Following is a summary of the Company's repurchase activity:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
During the year:
UPB of mortgage loans repurchased	$	8,449	$	4,399	$	—
UPB of repurchased mortgage loans put to correspondent lenders	$	3,593	$	—	$	—
Year end:
UPB of mortgage loans subject to pending claims for repurchase	$	1,655	$	2,582	$	9,774

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Investment in PennyMac Mortgage Investment Trust at Fair Value

12 Months Ended

Dec. 31, 2013

Investment in PennyMac Mortgage Investment Trust at Fair Value

Investment in PennyMac Mortgage Investment Trust at Fair Value

Note 13—Investment in PennyMac Mortgage Investment Trust at Fair Value

        Following is a summary of Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust:

	Year ended December 31,
	2013			2012		2011
	(in thousands)
Dividends	$	216		$	167	$	138
Change in fair value		(175	)		650		(115	)
	$	41		$	817	$	23
Fair value of PennyMac Mortgage Investment Trust shares at year end	$	1,722		$	1,897	$	1,247

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Mortgage Servicing Rights (Details) (MSRs, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
MSRs
Activity in MSRs carried at fair value
Balance at beginning of period	$ 19,798	$ 25,698	$ 31,957
Additions - MSRs resulting from purchases	195,871		1,352
Additions - MSRs resulting from loan sales	14,636	774	1,696
Additions	210,507	774	3,048
Sales	(550)
Change in fair value:
Due to changes in valuation inputs or assumptions used in valuation model	659	(1,550)	(5,323)
Other changes in fair value	(5,501)	(5,124)	(3,984)
Total change in fair value	(4,842)	(6,674)	(9,307)
Balance at end of period	$ 224,913	$ 19,798	$ 25,698

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Mortgage Loans Held for Sale at Fair Value

12 Months Ended

Dec. 31, 2013

Mortgage Loans Held for Sale at Fair Value

Mortgage Loans Held for Sale at Fair Value

Note 9—Mortgage Loans Held for Sale at Fair Value

        Mortgage loans held for sale at fair value include the following:

	December 31,
	2013		2012
	(in thousands)
Government-insured or guaranteed	$	482,066	$	398,381
Conventional		45,005		50,003
Repurchased mortgage loans		3,933		—
	$	531,004	$	448,384
Fair value of mortgage loans pledged to secure mortgage loans sold under agreements to repurchase	$	512,350	$	438,850

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Segments and Related Information (Tables)

12 Months Ended

Dec. 31, 2013

Segments and Related Information

Summary of financial highlights by segment

	Year ended December 31, 2013
	Mortgage banking
	Loan production			Loanservicing			Total			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	138,013		$	—		$	138,013		$	—	$	138,013
Loan origination fees	23,575			—			23,575			—		23,575
Fulfillment fees from PennyMac Mortgage Investment Trust	79,712			—			79,712			—		79,712
Net servicing fees				90,010			90,010			—		90,010
Management fees	—			—			—			40,330		40,330
Carried Interest from Investment Funds	—			—			—			13,419		13,419
Net interest (expense) income:
Interest income	15,610			—			15,610			22		15,632
Interest expense	(11,103		)	(5,570		)	(16,673		)	—		(16,673		)
	4,507			(5,570		)	(1,063		)	22		(1,041		)
Other	912			244			1,156			1,385		2,541
	246,719			84,684			331,403			55,156		386,559
Expenses	120,699			64,636			185,335			19,098		204,433
Income before provision for income taxes	$	126,020		$	20,048		146,068			$	36,058	$	182,126
Segment assets at year end	$	607,989		$	795,320		$	1,403,309		$	117,341	$	1,520,650

Segment total assets do not sum to consolidated total assets as segment assets exclude parent company assets consisting of cash in the amount of $707,000 and deferred tax asset in the amount of $63.1 million. The Company did not have in place the reporting structure that enabled it to report on its three segments before 2013 and is therefore unable to retrospectively adjust its 2012 and 2011 segment information to conform with the 2013 presentation.

	Year ended December 31, 2012
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	118,170		$	—	$	118,170
Loan origination fees	9,634			—		9,634
Fulfillment fees from PennyMac Mortgage Investment Trust	62,906			—		62,906
Net servicing fees	40,105			—		40,105
Management fees	—			21,799		21,799
Carried Interest from Investment Funds	—			10,473		10,473
Net interest (expense) income:
Interest income	6,349			5		6,354
Interest expense	(7,879		)	—		(7,879		)
	(1,530		)	5		(1,525		)
Other	2			3,522		3,524
	229,287			35,799		265,086
Expenses:	136,109			10,654		146,763
Income before provision for income taxes	$	93,178		$	25,145	$	118,323
Segment assets at year end	$	761,949		$	70,214	$	832,163

	Year ended December 31, 2011
	Mortgage banking			Investment management		Total
	(in thousands)
Revenues:
Net gains on mortgage loans held for sale at fair value	$	13,029		$	—	$	13,029
Loan origination fees	669			—		669
Fulfillment fees from PennyMac Mortgage Investment Trust	1,747			—		1,747
Net servicing fees	28,667			—		28,667
Management fees	—			16,683		16,683
Carried Interest from Investment Funds	—			12,596		12,596
Net interest (expense) income:
Interest income	1,528			4		1,532
Interest expense	(1,875		)	—		(1,875		)
	(347		)	4		(343		)
Other	—			1,736		1,736
	43,765			31,019		74,784
Expenses:	47,904			12,181		60,085
Income before provision for income taxes	$	(4,139	)	$	18,838	$	14,699
Segment assets at year end	$	241,716		$	47,565	$	289,281

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Netting of Financial Instruments

12 Months Ended

Dec. 31, 2013

Netting of Financial Instruments

Netting of Financial Instruments

Note 7—Netting of Financial Instruments

        The Company uses derivative financial instruments to manage exposure to interest rate risk for the IRLCs it makes to purchase or originate mortgage loans at specified interest rates, its inventory of mortgage loans held for sale and MSRs. The Company has elected to setoff derivative asset and liability positions, and cash collateral obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs.

        Following are summaries of derivative assets and related setoff amounts. As of December 31, 2013 and December 31, 2012, the Company was not party to reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following table.

Offsetting of Derivative Assets

	December 31, 2013								December 31, 2012
	Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet			Gross amount of recognized assets		Gross amount offset in the balance sheet			Net amount of assets in the balance sheet
	(in thousands)
Derivatives subject to master netting arrangements:
MBS put options	$	665	$	—		$	665		$	967	$	—		$	967
MBS call options		91		—			91			—		—			—
Forward purchase contracts		416		—			416			1,645		—			1,645
Forward sale contracts		18,762		—			18,762			1,818		—			1,818
Netting		—		(7,358	)		(7,358	)		—		(1,091	)		(1,091	)
		19,934		(7,358	)		12,576			4,430		(1,091	)		3,339
Derivatives not subject to master netting arrangements—IRLCs		8,964		—			8,964			23,951		—			23,951
	$	28,898	$	(7,358	)	$	21,540		$	28,381	$	(1,091	)	$	27,290

Derivative Assets, Financial Assets, and Collateral Held by Counterparty

        The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.

	December 31, 2013								December 31, 2012
			Gross amount not offfset in the consolidated balance sheet								Gross amount not offset in the consolidated balance sheet
	Net amount of assets in the balance sheet								Net amount of assets in the balance sheet
			Financial instruments		Cash collateral received		Net amount				Financial instruments		Cash collateral received		Net amount
	(in thousands)
Interest rate lock commitments	$	8,964	$	—	$	—	$	8,964	$	23,951	$	—	$	—	$	23,951
Credit Suisse First Boston Mortgage Capital LLC		2,149		—		—		2,149		—		—		—		—
Bank of America, N.A.		1,680		—		—		1,680		1,782		—		—		1,782
Morgan Stanley Bank, N.A.		1,704		—		—		1,704		—		—		—		—
Daiwa Capital Markets		1,190		—		—		1,190		—		—		—		—
Citibank, N.A.		—		—		—		—		522		—		—		522
Other		5,853		—		—		5,853		1,035		—		—		1,035
	$	21,540	$	—	$	—	$	21,540	$	27,290	$	—	$	—	$	27,290

Offsetting of Derivative Liabilities and Financial Liabilities

        Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related setoff amounts. As discussed above, all derivatives with the exception of IRLCs are subject to master netting arrangements. The assets sold under agreements to repurchase do not qualify for setoff accounting.

	December 31, 2013								December 31, 2012
	Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet			Gross amount of recognized liabilities		Gross amount offset in the consolidated balance sheet			Net amount of liabilities in the consolidated balance sheet
	(in thousands)
Derivatives subject to a master netting arrangement:
Forward purchase contracts	$	6,542	$	—		$	6,542		$	389	$	—		$	389
Forward sale contracts		504		—			504			1,894		—			1,894
Netting		—		(6,787	)		(6,787	)		—		(1,785	)		(1,785	)
		7,046		(6,787	)		259			2,283		(1,785	)		498
Derivatives not subject to a master netting arrangement—IRLCs		2,203		—			2,203			11		—			11
Total derivatives		9,249		(6,787	)		2,462			2,294		(1,785	)		509
Mortgage loans sold under agreements to repurchase		471,592		—			471,592			393,534		—			393,534
	$	480,841	$	(6,787	)	$	474,054		$	395,828	$	(1,785	)	$	394,043

Derivative Liabilities, Financial Liabilities, and Collateral Held by Counterparty

        The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that does not qualify under the accounting guidance for setoff accounting. All assets sold under agreements to repurchase are secured by sufficient collateral or exceed the liability amount recorded on the consolidated balance sheets.

	December 31, 2013									December 31, 2012
			Gross amount not offset in the consolidated balance sheet									Gross amount not offset in the consolidated balance sheet
	Net amount of liabilities in the consolidated balance sheet									Net amount of liabilities in the consolidated balance sheet
			Financial instruments			Cash collateral pledged		Net amount				Financial instruments			Cash collateral pledged		Net amount
	(in thousands)
Interest rate lock commitments	$	2,203	$	—		$	—	$	2,203	$	11	$	—		$	—	$	11
Bank of America, N.A.		234,511		(234,511	)		—		—		150,082		(150,082	)		—		—
Credit Suisse First Boston Mortgage Capital LLC		198,888		(198,888	)		—		—		122,443		(122,252	)		—		191
Morgan Stanley Bank, N.A.		38,193		(38,193	)		—		—		53		—			—		53
Citibank, N.A.		—		—			—		—		121,200		(121,200	)		—		—
Other		259		—			—		259		254		—			—		254
	$	474,054	$	(471,592	)	$	—	$	2,462	$	394,043	$	(393,534	)	$	—	$	509

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Fair Value

12 Months Ended

Dec. 31, 2013

Fair Value

Fair Value

Note 8—Fair Value

        The Company's consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its estimated fair value as discussed in the following paragraphs.

• Fair Value Accounting Elections

        Management identified all of its non-cash financial assets and its originated MSRs relating to loans with initial interest rates of more than 4.5% and MSRs purchased subject to ESS financing to be accounted for at estimated fair value so changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company's performance. Management has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSR's fair value risk.

        For originated MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5%, management has concluded that such assets present different risks to the Company than originated MSRs relating to mortgage loans with initial interest rates of more than 4.5% and therefore require a different risk management approach. Management's risk management efforts relating to these assets are aimed at mainly moderating the effects of non-interest rate risks on fair value, such as the effect of changes in home prices on the assets' values. Management has identified these assets for accounting using the amortization method.

        Management's risk management efforts in connection with MSRs relating to mortgage loans with initial interest rates of more than 4.5% are aimed at mainly moderating the effects of changes in interest rates on the assets' values. At times during the year ended December 31, 2013, a portion of the IRLCs, the fair value, which typically increases when prepayment speeds increase, were used to moderate the effect of changes in fair value of MSRs, which typically decreases as prepayment speeds increase.

• Financial Statement Items Measured at Fair Value on a Recurring Basis

        Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis:

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	142,582	$	—	$	—	$	142,582
Mortgage loans held for sale at fair value		—		527,071		3,933		531,004
Derivative assets:
Interest rate lock commitments		—		—		8,964		8,964
Forward purchase contracts		—		416		—		416
Forward sales contracts		—		18,762		—		18,762
MBS put options		—		665		—		665
MBS call options		—		91		—		91
Total derivative assets before netting		—		19,934		8,964		28,898
Netting(1)		—		—		—		(7,358	)
Total derivative assets		—		19,934		8,964		21,540
Investment in PennyMac Mortgage Investment Trust		1,722		—		—		1,722
Mortgage servicing rights at fair value		—		—		224,913		224,913
	$	144,304	$	547,005	$	237,810	$	921,761
Liabilities:
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust	$	—	$	—	$	138,723	$	138,723
Derivative liabilities:
Interest rate lock commitments		—		—		2,203		2,203
Forward purchase contracts		—		6,542		—		6,542
Forward sales contracts		—		504		—		504
Total derivative liabilities before netting		—		7,046		2,203		9,249
Netting(1)		—		—		—		(6,787	)
Total derivative liabilities		—		7,046		2,203		2,462
	$	—	$	7,046	$	140,926	$	141,185

(1)

Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	53,164	$	—	$	—	$	53,164
Mortgage loans held for sale at fair value		—		448,384		—		448,384
Derivative assets:
Interest rate lock commitments		—		—		23,951		23,951
Forward purchase contracts		—		1,645		—		1,645
Forward sales contracts		—		1,818		—		1,818
MBS put options		—		967		—		967
Total derivative assets before netting		—		4,430		23,951		28,381
Netting(1)		—		—		—		(1,091	)
Total derivative assets		—		4,430		23,951		27,290
Investment in PennyMac Mortgage Investment Trust		1,897		—		—		1,897
Mortgage servicing rights at fair value		—		—		19,798		19,798
	$	55,061	$	452,814	$	43,749	$	550,533
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	11	$	11
Forward purchase contracts		—		389		—		389
Forward sales contracts		—		1,894		—		1,894
Total derivative liabilities before netting		—		2,283		11		2,294
Netting(1)		—		—		—		(1,785	)
Net derivative liabilities	$	—	$	2,283	$	11	$	509

(1)

Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the setoff of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.

        As shown above, certain of the Company's mortgage loans held for sale at fair value, MSRs at fair value, IRLCs, and ESS financing at fair value are measured using Level 3 inputs. Following is a roll forward of these items for the three years ended December 31, 2013 where Level 3 significant inputs were used on a recurring basis:

	Year ended December 31, 2013
	Mortgage loans held for sale			Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Assets:
Balance, December 31, 2012	$	—		$	23,940		$	19,798		$	43,738
Repurchases of mortgage loans subject to representations and warranties		5,529			—			—			5,529
Repayments		(1,364	)		—			—			(1,364	)
Interest rate lock commitments issued, net		—			101,179			—			101,179
MSRs resulting from purchases		—			—			195,871			195,871
MSRs resulting from loan sales		—			—			14,636			14,636
Sales		—			—			(550	)		(550	)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—									—
Other factors		(232	)		(15,682	)		(4,842	)		(20,756	)
		(232	)		(15,682	)		(4,842	)		(20,756	)
Transfers of interest rate lock commitments to mortgage loans held for sale		—			(102,676	)		—			(102,676	)
Balance, December 31, 2013	$	3,933		$	6,761		$	224,913		$	235,607
Changes in fair value recognized during the period relating to assets still held at December 31, 2013	$	(390	)	$	6,761		$	(4,842	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Excess servicing spread financing
	(in thousands)
Liability:
Balance, December 31, 2012	$	—
Proceeds received from financing of excess servicing spread		139,028
Accrual of interest on excess servicing spread financing		1,348
Repayments		(4,076	)
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		—
Other factors		2,423
		2,423
Balance, December 31, 2013	$	138,723
Changes in fair value recognized during the period relating to liability still held at December 31, 2013	$	2,423

	Year ended December 31, 2012
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Interest rate lock commitments issued, net		167,066			—			167,066
MSRs resulting from loan sales		—			774			774
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk								—
Other factors		—			(6,674	)		(6,674	)
		—			(6,674	)		(6,674	)
Transfers of interest rate lock commitments to mortgage loans held for sale		(151,031	)		—			(151,031	)
Balance, December 31, 2012	$	23,940		$	19,798		$	43,738
Changes in fair value recognized during the period relating to assets still held at December 31, 2012	$	23,940		$	(6,674	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Year ended December 31, 2011
	Net interest rate lock commitments(1)			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2010	$	(13	)	$	31,957		$	31,944
Interest rate lock commitments issued, net		18,436			—			18,436
MSRs resulting from purchases		—			1,352			1,352
MSRs resulting from loan sales		—			1,696			1,696
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk								—
Other factors		—			(9,307	)		(9,307	)
		—			(9,307	)		(9,307	)
Transfers of interest rate lock commitments to mortgage loans held for sale		(10,518	)		—			(10,518	)
Balance, December 31, 2011	$	7,905		$	25,698		$	33,603
Changes in fair value recognized during the period relating to assets still held at December 31, 2011	$	7,905		$	(9,307	)

(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

	Mortgage loans sold under agreements to repurchase at fair value
	(in thousands)
Liabilities:
Balance, December 31, 2010	$	13,289
Changes in fair value included in income		—
Sales		57,908
Assumption of agreements pursuant purchase from affiliate of mortgage loans subject to agreements to repurchase		62,989
Repurchases		(134,186	)
Balance, December 31, 2011	$	—
Changes in fair value recognized during the year relating to liabilities still held at December 31, 2011	$	—

        The information used in the preceding roll forwards represents activity for any financial statement items identified as using Level 3 significant inputs at either the beginning or the end of the periods presented. The Company had no transfers in or out among the levels other than transfers of IRLCs to mortgage loans held for sale at fair value upon purchase or funding of the respective mortgage loans.

        Net gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value as a result of management's election of the fair value option are summarized below:

	Year ended December 31,
	2013								2012								2011
	Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total			Net gains on mortgage loans held for sale at fair value		Net servicing income			Total
	(in thousands)
Assets:
Mortgage loans held for sale at fair value	$	49,559	$	—		$	49,559		$	171,236	$	—		$	171,236		$	13,029	$	—		$	13,029
Mortgage servicing rights at fair value		—		(4,842	)		(4,842	)		—		(6,674	)		(6,674	)		—		(9,307	)		(9,307	)
	$	49,559	$	(4,842	)	$	44,717		$	171,236	$	(6,674	)	$	164,562		$	13,029	$	(9,307	)	$	3,722
Liabilities:
Mortgage loans sold under agreements to repurchase	$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—		$	—
Excess servicing spread financing at fair value to PennyMac Mortgage Investment Trust		—		(2,423	)		(2,423	)		—		—			—			—		—			—
	$	—	$	(2,423	)	$	(2,423	)	$	—	$	—		$	—		$	—	$	—		$	—

        Following are the fair value and related principal amounts due upon maturity of assets and liabilities accounted for under the fair value option:

	December 31, 2013
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	524,665	$	504,705	$	19,960
90 days or more delinquent:
Not in foreclosure		5,567		5,479		88
In foreclosure		772		660		112
	$	531,004	$	510,844	$	20,160

	December 31, 2012
	Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	447,889	$	418,650	$	29,239
90 days or more delinquent:
Not in foreclosure		288		390		(102	)
In foreclosure		207		233		(26	)
	$	448,384	$	419,273	$	29,111

• Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

        Following is a summary of financial statement items that are measured at estimated fair value on a nonrecurring basis:

	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	136,690	$	136,690
	$	—	$	—	$	136,690	$	136,690

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	51,180	$	51,180
	$	—	$	—	$	51,180	$	51,180

        The following table summarizes the total gains (losses) on assets measured at estimated fair values on a nonrecurring basis:

	December 31,
	2013			2012
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	(1,643	)	$	(2,908	)
	$	(1,643	)	$	(2,908	)

• Fair Value of Financial Instruments Carried at Amortized Cost

        The Company's Cash as well as its Mortgage loans sold under agreements to repurchase, Note payable, Carried Interest due from Investment Funds, and amounts receivable from and payable to the Advised Entities are carried at amortized cost.

Cash is measured using "Level 1" significant inputs. The Company's borrowings carried at amortized cost do not have active markets or observable inputs and the fair value is measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The Company has classified these financial instruments as "Level 3" financial statement items as of December 31, 2013 and December 31, 2012 due to the lack of current market activity and the Company's reliance on unobservable inputs to estimate the fair value.

        Management has concluded that the carrying value of the Carried Interest due from Investment Funds approximates its fair value as the balance represents the amount distributable to the Company at the balance sheet date assuming liquidation of the Investment Funds. Management has concluded that the estimated fair value of the Note payable approximates the agreements' carrying value due to the agreement's short term and variable interest rate.

        The Company also carries the receivable from and payable to the Advised Entities at cost. Management has concluded that the estimated fair value of such balances approximates the carrying value due to the short terms of such balances.

• Valuation Techniques and Assumptions

        Most of the Company's financial assets as well as its ESS are carried at fair value with changes in fair value recognized in current period income. Certain of the Company's financial assets and all of its MSRs and ESS are "Level 3" financial statement items which require the use of significant unobservable inputs in the estimation of the items' fair values. Unobservable inputs reflect the Company's own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

        The Company's Financial Analysis and Valuation group (the "FAV group"), which is responsible for valuing and monitoring the Company's investment portfolios and maintenance of its valuation policies and procedures, estimates the fair values of "Level 3" investment instruments.

        The FAV group reports to the Company's senior management valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company's "Level 3" financial statement items, including the models' performance versus actual results and reports those results to the Company's senior management valuation committee. The results developed in the FAV group's monitoring activities may be used to calibrate subsequent projections used for valuation.

        The FAV group is responsible for reporting to the Company's senior management valuation committee on a monthly basis on the changes in the valuation of the portfolio, including major factors affecting the valuation and any changes in model methods and assumptions. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.

        Following is a description of the techniques and assumptions used in estimating the fair values of "Level 2" and "Level 3" fair value financial statement items:

• Mortgage Loans Held for Sale

        Most of the Company's mortgage loans held for sale at fair value are salable into active markets and are therefore categorized as "Level 2" fair value financial statement items and their fair values are estimated using their quoted market or contracted price or market price equivalent.

        Certain of the Company's mortgage loans may become non-salable into active markets due to identification of a defect by the Company or to the repurchase of a mortgage loan with an identified defect. Because such loans are generally not salable into active mortgage markets, they are classified as "Level 3" financial statement items. The significant unobservable inputs used in the fair value measurement of the Company's "non-salable" mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment speeds and default speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans' fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

        The Company did not hold "Level 3" mortgage loans held for sale at fair value before 2013. Following is a quantitative summary of key inputs used in the valuation of "Level 3" mortgage loans held for sale at fair value:

	December 31, 2013
Key inputs	Range (Weighted average)
Discount rate	7.8% - 13.4%
	(8.9%)
Twelve-month projected housing price index change	4.5% - 4.7%
	(4.6%)
Prepayment speed(1)	1.6% - 5.1%
	(4.4%)
Total prepayment speed(2)	2.9% - 5.2%
	(4.7%)

(1)

Prepayment speed is measured using Life Voluntary CPR.

(2)

Total prepayment speed is measured using Life Total CPR.

        Changes in fair value attributable to changes in instrument-specific credit risk are measured by the change in the respective loan's delinquency status at period-end from the later of the beginning of the year or acquisition date. Changes in fair value of IRLCs are included in Net gains on mortgage loans held for sale at fair value in the consolidated income statements.

• Derivative Financial Instruments

        The Company categorizes IRLCs as a "Level 3" financial statement item. The Company estimates the fair value of an IRLC based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and the probability that the mortgage loan will fund or be purchased (the "pull-through rate").

        The significant unobservable inputs used in the fair value measurement of the Company's IRLCs are the pull-through rate and the MSR component of the Company's estimate of the value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in fair value measurement. The financial effects of changes in these assumptions are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC value, but increase the pull-through rate for loans that have decreased in fair value.

        Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

	2013	2012
	December 31,
Key inputs	Range (Weighted average)
Pull-through rate	62.1% - 98.1%	61.6% - 98.1%
	(81.7%)	(79.1%)
MSR value expressed as:
Servicing fee multiple	2.0 - 5.0	3.2 - 4.2
	(3.7)	(4.0)
Percentage of UPB	0.4% - 2.4%	0.6% - 2.2%
	(0.9%)	(0.9%)

        The Company estimates the fair value of commitments to sell loans based on quoted MBS prices. The Company estimates the fair value of the MBS options and futures it purchases and sells based on observed interest rate volatilities in the MBS market. Changes in fair value of IRLCs and related hedging derivatives are included in Net gains on mortgage loans held for sale at fair value in the consolidated income statements.

• Mortgage Servicing Rights

        MSRs are categorized as "Level 3" fair value financial statement items. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting net servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment rates of the underlying loans, the applicable discount rate or pricing spread, and the cost to service loans.

        The results of the estimates of fair value of MSRs are reported to the Company's senior management valuation committee as part of their review and approval of monthly valuation results. Changes in the fair value of MSRs are included in the consolidated statements of income under the caption Net servicing fees—Amortization, impairment and change in estimated fair value of mortgage servicing rights.

        Key assumptions used in determining the fair value of MSRs at the time of initial recognition are as follows:

	Year ended December 31,
	2013		2012		2011
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost	Fair value	Amortized cost
	(Amount recognized and UPB of underlying loans in thousands)
Amount recognized	$14,636	$190,468	$774	$89,698	$1,696	$6,557
UPB of underlying loans	$1,055,797	$15,316,315	$17,615	$8,524,533	$415,954	$449,715
Weighted-average servicing fee rate (in basis points)	33	29	28	27	27	31
Pricing spread(1)	7.4% - 14.4%	5.4% - 15.9%	7.5% - 9.9%	7.5% - 11.9%	8.3% - 14.0%	9.3% - 12.6%
	(10.2%)	(8.5%)	(8.4%)	(9.8%)	(11.7%)	(9.7%)
Annual total prepayment speed(2)	7.8% - 25.5%	7.6% - 42.5%	7.8% - 20.1%	6.7% - 17.8%	6.3% - 8.9%	5.6% - 7.9%
	(9.2%)	(8.8%)	(9.7%)	(8.5%)	(8.2%)	(6.8%)
Life (in years)	2.5 - 7.3	1.5 - 7.5	3.6 - 7.0	2.8 - 7.0	6.5 - 8.1	5.2 - 8.0
	(6.9)	(6.7)	(6.7)	(6.7)	(7.0)	(7.3)
Per-loan annual cost of servicing	$68 - $120	$68 - $120	$68 - $100	$68 - $100	$64 - $98	$61 - $98
	($98)	($102)	($78)	($99)	($88)	($96)

(1)

Pricing spread represents a margin that is applied to a reference interest rate's forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.

(2)

Prepayment speed is measured using CPR.

        Following is a quantitative summary of key inputs used in the valuation of the Company's MSRs at period end and the effect on the estimated fair value from adverse changes in those assumptions (weighted averages are based upon UPB):

• Purchased MSRs Backed by Distressed Mortgage Loans

	December 31,
	2013			2012
	Range (Weighted average)
	Fair value	Amortized cost		Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$10,129		—	$12,370		—
UPB of underlying loans	$969,794		—	$1,271,478		—
Weighted-average note rate	5.80%		—	6.01%		—
Weighted-average servicing fee rate (in basis points)	50		—	50		—
Discount rate	15.3% - 15.3%		—	15.3% - 15.3%		—
	(15.3%)		—	(15.3%)		—
Effect on fair value of adverse change of:
5%	$(251)		—	$(302)		—
10%	$(490)		—	$(590)		—
20%	$(937)		—	$(1,130)		—
Life (in years)	5.0 - 5.0		—	5.0 - 5.0		—
	(5.0)			(5.0)
Prepayment speed(1)	11.4% - 11.4%		—	10.7% - 10.7%		—
	(11.4%)		—	(10.7%)		—
Effect on fair value of adverse change of:
5%	$(231)		—	$(273)		—
10%	$(456)		—	$(529)		—
20%	$(898)		—	$(1,040)		—
Per-loan annual cost of servicing	$218 - $218		—	$270 - $270		—
	($218)		—	($270)		—
Effect on fair value of adverse change of:
5%	$(197)		—	$(290)		—
10%	$(393)		—	$(580)		—
20%	$(787)		—	$(1,159)		—

(1)

Prepayment speed is measured using Life Voluntary CPR.

• All Other MSRs

	December 31,
	2013		2012
	Range (Weighted average)
	Fair value	Amortized cost	Fair value	Amortized cost
	(Carrying value, UPB of underlying loans and effect on value amounts in thousands)
Carrying value	$214,784	$258,751	$7,428	$89,177
UPB of underlying loans	$22,469,179	$22,499,847	$1,166,765	$8,730,686
Weighted-average note rate	4.48%	3.65%	5.22%	3.65%
Weighted-average servicing fee rate (in basis points)	32	29	26	28
Pricing spread(1)	2.9% - 18.0%	6.3% - 14.5%	7.5% - 19.5%	7.5% - 16.5%
	(7.5%)	(8.7%)	(10.6%)	(9.8%)
Effect on fair value of adverse change of:
5%	$(3,551)	$(5,312)	$(113)	$(1,814)
10%	$(6,900)	$(10,395)	$(222)	$(3,562)
20%	$(13,305)	$(20,039)	$(430)	$(6,870)
Average life (in years)	0.1 - 14.4	1.5 - 7.3	0.2 - 14.4	2.5 - 6.9
	(6.2)	(7.0)	(5.0)	(6.6)
Prepayment speed(2)	7.8% - 50.8%	7.6% - 42.5%	9.0% - 84.2%	8.7% - 28.3%
	(9.7%)	(8.0%)	(19.2%)	(9.2%)
Effect on fair value of adverse change of:
5%	$(4,622)	$(4,615)	$(238)	$(1,751)
10%	$(9,073)	$(9,097)	$(462)	$(3,446)
20%	$(17,500)	$(17,684)	$(877)	$(6,674)
Per-loan annual cost of servicing	$68 - $115	$68 - $100	$68 - $140	$68 - $140
	$(87)	$(99)	$(76)	$(99)
Effect on fair value of adverse change of:
5%	$(2,817)	$(2,609)	$(77)	$(963)
10%	$(5,633)	$(5,217)	$(153)	$(1,926)
20%	$(11,266)	$(10,434)	$(307)	$(3,852)

(1)

Pricing spread represents a margin that is applied to a reference interest rate's forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans.

(2)

Prepayment speed is measured using CPR.

        The preceding sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect the Company's overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

• Excess Servicing Spread Financing at Fair Value

        The Company categorizes ESS financing as a "Level 3" financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS financing. The key assumptions used in the fair value estimate of ESS financing include pricing spread, average life, and prepayment speed. Significant changes to any of those inputs in isolation could result in a significant change in the ESS financing fair value measurement. Changes in these key assumptions are not necessarily directly related.

        ESS is generally subject to loss in value when mortgage interest rates decrease. Decreasing mortgage interest rates normally encourage increased mortgage refinancing activity. Increased refinancing activity reduces the life of the loans underlying the ESS, thereby reducing ESS financing's value. Reductions in the value of ESS financing affect income primarily through change in fair value.

        Interest expense for ESS financing is accrued using the interest method based upon the expected income from the ESS through the expected life of the underlying mortgages. Changes to expected cash flows result in a change in fair value which is recorded in Amortization, impairment and change in estimated fair value of mortgage servicing rights.

        Following are the key inputs used in determining the fair value of ESS financing at the time of initial recognition:

	December 31,
	2013	2012
Key inputs	Range (Weighted average)
Pricing spread	2.8% - 14.4%		—
	(5.4%)
Average life	0.9 - 8.0		—
	(6.1)
Prepayment speed	7.7% - 48.6%		—
	(9.7%)

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Derivative Financial Instruments

12 Months Ended

Dec. 31, 2013

Derivative Financial Instruments

Derivative Financial Instruments

Note 10—Derivative Financial Instruments

        The Company is exposed to price risk relative to its mortgage loans held for sale as well as to its IRLCs. The Company bears price risk from the time an IRLC is made to PMT or a loan applicant to the time the mortgage loan is sold. The Company is exposed to loss in value of its IRLCs and mortgage loans held for sale when mortgage rates increase. The Company is also exposed to loss in value of its MSRs when interest rates decrease.

        The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this price risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the value of the Company's IRLCs, inventory of mortgage loans held for sale and MSRs. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities.

        The Company had the following derivative financial instruments recorded on its consolidated balance sheets:

	December 31,
	2013								2012
			Fair value								Fair value
Instrument	Notional amount		Derivative assets			Derivative liabilities			Notional amount		Derivative assets			Derivative liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Free-standing derivatives:
Interest rate lock commitments		971,783	$	8,964		$	2,203			1,576,174	$	23,951		$	11
Forward purchase contracts		1,418,527		416			6,542			1,021,981		1,645			389
Forward sales contracts		2,659,000		18,762			504			2,621,948		1,818			1,894
MBS put options		185,000		665			—			500,000		967			—
MBS call options		105,000		91			—			—		—			—
Total derivatives before netting				28,898			9,249					28,381			2,294
Netting				(7,358	)		(6,787	)				(1,091	)		(1,785	)
			$	21,540		$	2,462				$	27,290		$	509

        The following table summarizes the activity for derivative contracts used to hedge the Company's IRLCs and inventory of mortgage loans held for sale at notional value:

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2013
Forward purchase contracts		1,021,981		43,449,699		(43,053,153	)		1,418,527
Forward sales contracts		2,621,948		63,655,600		(63,618,548	)		2,659,000
MBS put options		500,000		2,520,000		(2,835,000	)		185,000
MBS call options		—		2,205,000		(2,100,000	)		105,000

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2012
Forward purchase contracts		130,900		19,425,777		(18,534,696	)		1,021,981
Forward sales contracts		510,569		29,394,503		(27,283,124	)		2,621,948
MBS put options		29,000		2,098,000		(1,627,000	)		500,000
MBS call options		3,000		85,000		(88,000	)		—

Period/Instrument	Balance beginning of period		Additions		Dispositions/ expirations			Balance end of period
	(in thousands)
Year ended December 31, 2011
Forward purchase contracts		2,908		978,395		(850,403	)		130,900
Forward sales contracts		27,700		1,975,563		(1,492,694	)		510,569
MBS put options		—		68,000		(39,000	)		29,000
MBS call options		2,000		37,500		(36,500	)		3,000

        The Company recorded net gains on derivative financial instruments totaling $110.3 million for the year ended December 31, 2013 and net losses totaling $68.0 million and $3.5 million for the years ended December 31, 2012 and 2011, respectively. Derivative gains and losses are included in Net gains on mortgage loans held for sale at fair value in the Company's consolidated statements of income.

        The Company recorded net losses on IRLCs used as economic hedges of MSRs totaling $1.3 million for the year ended December 31, 2013 and net gains totaling $1.3 million for the year ended December 31, 2012. The Company had no similar economic hedges in place in 2011. The derivative losses are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company's consolidated statements of income.

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Concentration of Risk (Details) (Total Revenues, Advised Entities)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Total Revenues | Advised Entities
Concentration of Risk
Percentage of total net revenue	47.00%	47.00%	75.00%

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Mortgage Servicing Rights (Details 2) (MSRs, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
MSRs
Amortized cost:
Amortized cost at beginning of period	$ 92,155	$ 6,496
MSRs resulting from loan sales	190,469	89,698	6,557
Amortization	(19,251)	(4,039)	(61)
Amortized cost at end of period	263,373	92,155	6,496
Valuation allowance for impairment of MSRs:
Balance at beginning of period	(2,978)	(70)
Additions	(1,644)	(2,908)	(70)
Balance at of period end	(4,622)	(2,978)	(70)
Additional disclosures
MSRs, net	258,751	89,177	6,426
Estimated fair value of MSRs at of period end	269,422	91,028	6,465
Estimated amortization
2014	23,254
2015	22,714
2016	22,215
2017	21,869
2018	20,978
Thereafter	152,343
Total	$ 263,373

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Significant Accounting Policies (Details 2)	12 Months Ended
	Dec. 31, 2013 item
MSRs
Mortgage Servicing Rights
Number of classes of MSRs	3
MSRs | Minimum
Mortgage Servicing Rights
Servicing fee (as a percent)	0.19%
Note rates (as a percent)	3.00%
MSRs | Maximum
Mortgage Servicing Rights
Servicing fee (as a percent)	0.57%
Note rates (as a percent)	4.50%
MSRs | Fixed-rate loans, stratified pool
Mortgage Servicing Rights
Stratification range, as a percent	0.50%
MSRs | Fixed-rate loans, single pool
Mortgage Servicing Rights
Stratification range, as a percent	3.00%
MSRs, class one
Mortgage Servicing Rights
Interest rate (as a percent)	4.50%
MSRs, class two
Mortgage Servicing Rights
Interest rate (as a percent)	4.50%

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Commitments and Contingencies.
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust	$ 718,105
Commitments to fund mortgage loans	253,678
Total commitments to purchase and fund mortgage loans	971,783
Commitments to sell mortgage loans	$ 2,659,000

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Organization and Basis of Presentation (Details) (USD $)	0 Months Ended	12 Months Ended
	May 14, 2013	Dec. 31, 2013
Organization and Basis of Presentation
Tax benefits payable under tax receivable agreement (as a percent)	85.00%
Amount of tax benefits under the tax sharing agreement (as a percent)		85.00%
Members' equity
Organization and Basis of Presentation
Reclassification of members' equity to non-controlling interest		$ 315,454,000
Non-controlling Interest
Organization and Basis of Presentation
Reclassification of members' equity to non-controlling interest		(315,454,000)
Class A Common Stock
Organization and Basis of Presentation
Common stock sold in initial public offering (in shares)	12,800,000	12,778,000
Public offering price (in dollars per share)	$ 18.00
Net proceeds from initial public offering, after deducting net underwriting discounts and commissions	$ 216,800,000
Number of Class A common units purchased	12,800,000
Shares purchased accounted for as a transfer of interests under common control	12,800,000
PCM
Organization and Basis of Presentation
Number of investment funds with whom management has management agreement		3

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Borrowings (Details 2) (USD $)									12 Months Ended		12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013 Note Payable	Dec. 31, 2012 Note Payable	Dec. 31, 2013 Note Payable Minimum	Dec. 31, 2013 Note Payable Maximum	Dec. 31, 2013 Note Payable Servicing advances	Dec. 31, 2012 Note Payable Servicing advances	Dec. 31, 2013 Note Payable MSRs	Dec. 31, 2012 Note Payable MSRs
Year-end:
Note Payable	$ 52,154,000	$ 56,775,000	$ 47,209,000	$ 63,437,000	$ 53,013,000	$ 34,035,000	$ 18,116,000	$ 17,584,000	$ 52,154,000	$ 53,013,000			$ 3,852,000	$ 4,905,000	$ 48,302,000	$ 48,108,000
Assets pledged to secure notes													5,564,000	7,430,000	258,241,000	100,957,000
Interest rate									lender's overnight cost of funds
Advance rate to secure note payable (as a percent)											50.00%	85.00%
Advance amount to secure note payable													$ 17,000,000		$ 100,000,000

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Recently Issued Accounting Pronouncements

12 Months Ended

Dec. 31, 2013

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Note 28—Recently Issued Accounting Pronouncements

        In December 2011, the FASB issued an Accounting Standards Update ("ASU"), ASU 2011-11, Disclosures About Offsetting Assets and Liabilities to the Balance Sheet topic of the Codification. The amendments in this ASU affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic of the Codification or (2) subject to an enforceable master netting arrangement or similar agreement.

        In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. The ASU clarifies that the scope applied to derivatives accounted for in accordance with the Derivatives and Hedging topic of the Codification, including bifurcating embedded derivatives, repurchase agreement and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with the Offsetting Presentation section of the Balance Sheet topic or the Presentation section of the Derivatives and Hedging topic or subject to an enforceable master netting arrangement or similar agreement.

        The amendments in this ASU require the Company to disclose information about offsetting and related arrangement to enable users of financial statements to understand the effect of netting to an entity's financial position. The ASU amendments and the subsequent clarification of the amendment are effective for periods beginning on or after January 1, 2013, and are shown for all periods presented on the consolidated balance sheet. The adoption of these ASU amendments did not have a material effect on the Company's financial condition or results of operations.

        In January of 2014, the FASB issued ASU 2014-04, Troubled Debt Restructurings by Creditors (Subtopic 310-40), which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

        ASU 2014-04 specifies that a creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:

• a.

  The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
  
  

  b.

  The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.

        ASU 2014-04 also requires the disclosure of the carrying value of real estate acquired in settlement of loans and its recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for the Company for annual and interim periods within those annual periods, beginning after December 15, 2014.

        An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity would apply the amendments in ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. The adoption of ASU 2014-04 is not expected to be material to the financial statements of the Company.

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2013

Borrowings

Summary of financial data pertaining to mortgage loans sold under agreements to repurchase

	Year ended December 31,
	2013			2012			2011
	(dollar amounts in thousands)
Year end:
Balance	$	471,592		$	393,534		$	77,700
Unused amount(1)	$	528,408		$	106,466		$	22,300
Weighted-average interest rate		1.79	%		2.20	%		2.39	%
Fair value of loans securing agreements to repurchase	$	512,350		$	438,850		$	86,787
During the year:
Average balance of loans sold under agreements to repurchase	$	344,625		$	172,729		$	24,905
Weighted-average interest rate(2)		1.96	%		2.24	%		2.66	%
Total interest expense	$	10,863		$	5,927		$	1,875
Maximum daily amount outstanding	$	623,523		$	441,245		$	127,593

(1)

The amount the Company is able to borrow under loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company's ability to fund the agreements' margin requirements relating to the mortgage loans sold.

(2)

Excludes the effect of amortization of commitment fees totaling $4.0 million, $2.0 million, and $1.0 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Summary of maturities of outstanding advances under repurchase agreements by maturity date

Remaining maturity at December 31, 2013	Balance
	(in thousands)
Within 30 days	$	782
Over 30 to 90 days		470,810
Over 90 days to 180 days		—
Over 180 days to 1 year		—
	$	471,592
Weighted-average maturity (in months)		2.6

Summary of amount at risk relating to the mortgage loans held for sale sold under agreements to repurchase by counterparty

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to the Company's mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of December 31, 2013:

Counterparty	Amount at risk		Weighted-average maturity of advances under repurchase agreement		Facility Maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC	$	19,593		March 26, 2014		October 31, 2014
Bank of America, N.A.	$	19,195		March 22, 2014		January 2, 2014
Morgan Stanley	$	3,103		February 22, 2014		July 1, 2014
Citibank, N.A.	$	—		—		July 24, 2014

Summary of note payable

	December 31,
	2013		2012
	(in thousands)
Year end:
Note payable secured by:
Servicing advances	$	3,852	$	4,905
MSRs		48,302		48,108
	$	52,154	$	53,013
Assets pledged to secure note:
Servicing advances	$	5,564	$	7,430
MSRs	$	258,241	$	100,957

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Capitalized Software (Capitalized software)

12 Months Ended

Dec. 31, 2013

Capitalized software

Capitalized Software

Capitalized Software

Note 15—Capitalized Software

        Capitalized software is summarized below:

	December 31,
	2013			2012
	(in thousands)
Cost	$	2,015		$	1,676
Less: Accumulated amortization		(1,251	)		(881	)
	$	764		$	795

        Software amortization expenses totaled $374,000, $264,000, and $238,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

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Net Gains on Mortgage Loans Held for Sale

12 Months Ended

Dec. 31, 2013

Net Gains on Mortgage Loans Held for Sale

Net Gains on Mortgage Loans Held for Sale

Note 20—Net Gains on Mortgage Loans Held for Sale

        Net gains on mortgage loans held for sale at fair value is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Cash gain (loss):
Sales proceeds	$	(150,589	)	$	78,671		$	182
Hedging activities		98,707			(70,916	)		(8,578	)
		(51,882	)		7,755			(8,396	)
Non-cash gain:
Receipt of MSRs in loan sale transactions		205,105			90,472			8,253
MSR recapture payable to PennyMac Mortgage Investment Trust		(709	)		—			—
Provision for losses relating to representations and warranties on loans sold		(4,675	)		(3,055	)		(260	)
Change in fair value relating to loans and hedging derivatives held at year end:
IRLCs		(17,179	)		16,035			7,919
Mortgage loans		(4,207	)		4,030			393
Hedging derivatives		11,560			2,933			5,120
	$	138,013		$	118,170		$	13,029

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Income Taxes (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Deferred expense:
Investment in PennyMac	$ 12,909,000
Net operating loss carryforward	(2,948,000)
Total deferred expense	9,961,000
Components of Deferred tax asset
Taxes currently receivable	7,000
Deferred income tax asset, net	63,110,000
Deferred tax asset	63,117,000
Deferred income tax assets:
Investment in PennyMac	60,162,000
Net operating loss carryforward	2,948,000
Gross deferred tax assets	63,110,000	0
Net deferred income tax asset	63,110,000
Deferred income tax liabilities:
Gross deferred tax liabilities		0
Net operating loss carryforward, generally expire in 2033	7,200,000
Unrecognized tax benefits	0	0
Accrual of interest or penalties related to unrecognized tax benefits	$ 0	$ 0

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Furniture, Fixtures, Equipment and Building Improvements (Tables) (Furniture, Fixtures, Equipment and Building Improvements)

12 Months Ended

Dec. 31, 2013

Furniture, Fixtures, Equipment and Building Improvements

Furniture, fixtures, equipment and building improvements

Schedule of furniture, fixtures, equipment and building improvements

	December 31,
	2013			2012
	(in thousands)
Furniture, fixtures, equipment and building improvements	$	13,128		$	6,494
Less: Accumulated depreciation and amortization		(3,291	)		(1,429	)
	$	9,837		$	5,065

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Selected Quarterly Results (Unaudited) (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenue
Net gains on mortgage loans held for sale at fair value	$ 29,453,000	$ 25,949,000	$ 42,654,000	$ 39,957,000	$ 49,683,000	$ 39,760,000	$ 14,790,000	$ 13,937,000	$ 138,013,000	$ 118,170,000	$ 13,029,000
Net servicing fees	30,500,000	21,399,000	22,069,000	16,042,000	14,759,000	6,112,000	7,658,000	11,576,000	119,461,000	52,357,000	38,105,000
Management fees and Carried Interest	13,963,000	13,352,000	13,291,000	13,143,000	12,560,000	9,469,000	6,966,000	5,982,000
Other income	5,417,000	8,167,000	6,509,000	4,982,000	708,000	3,633,000	4,318,000	269,000	2,500,000	2,707,000	1,713,000
Total net revenue	90,420,000	87,194,000	106,577,000	102,368,000	109,519,000	76,232,000	41,447,000	37,888,000	386,559,000	265,086,000	74,784,000
Expenses	48,733,000	52,277,000	56,348,000	47,075,000	54,099,000	38,369,000	30,969,000	22,657,000	204,433,000	146,763,000	60,085,000
Income before provision for income taxes	41,687,000	34,917,000	50,229,000	55,293,000	55,420,000	37,863,000	10,478,000	15,231,000	182,126,000	118,323,000	14,699,000
Provision for income taxes	4,430,000	3,493,000	2,038,000						9,961,000
Net income	37,257,000	31,424,000	48,191,000	55,293,000	55,420,000	37,863,000	10,478,000	15,231,000	172,165,000	118,323,000	14,699,000
Less: Net income attributable to noncontrolling interest	30,847,000	26,227,000	45,398,000						157,765,000
Net income attributable to PennyMac Financial Services, Inc. common stockholders	6,410,000	5,197,000	2,793,000						14,400,000
Earnings per share of Common Stock:
Basic (in dollars per share)	$ 0.33	$ 0.29	$ 0.22						$ 0.83
Diluted (in dollars per share)	$ 0.32	$ 0.28	$ 0.22						$ 0.82
Assets
Mortgage loans held for sale at fair value	531,004,000	530,248,000	656,341,000	203,661,000	448,384,000	410,071,000	248,974,000	176,282,000	531,004,000	448,384,000
Mortgage servicing rights	483,664,000	252,858,000	199,738,000	146,992,000	108,975,000	74,154,000	52,900,000	41,599,000	483,664,000	108,975,000
Carried Interest from Investment Funds	61,142,000	58,134,000	55,322,000	52,460,000	47,723,000	44,504,000	41,149,000	39,039,000	61,142,000	47,723,000
Servicing advances	154,328,000	105,344,000	94,791,000	96,587,000	93,152,000	76,554,000	73,706,000	68,961,000	154,328,000	93,152,000
Other assets	354,337,000	307,800,000	274,588,000	193,277,000	133,929,000	97,416,000	88,907,000	92,758,000	354,337,000	133,929,000
Total assets	1,584,475,000	1,254,384,000	1,280,780,000	692,977,000	832,163,000	702,699,000	505,636,000	418,639,000	1,584,475,000	832,163,000	289,281,000
Liabilities
Assets sold under agreement to repurchase	471,592,000	387,883,000	500,427,000	180,049,000	393,534,000	361,478,000	220,546,000	159,547,000	471,592,000	393,534,000
Note payable	52,154,000	56,775,000	47,209,000	63,437,000	53,013,000	34,035,000	18,116,000	17,584,000	52,154,000	53,013,000
Other liabilities	292,802,000	216,908,000	177,000,000	141,748,000	123,866,000	105,259,000	99,744,000	84,586,000	292,802,000	123,866,000
Total liabilities	955,271,000	664,423,000	724,636,000	385,234,000	570,413,000	500,772,000	338,406,000	261,717,000	955,271,000	570,413,000
Total equity	629,204,000	589,961,000	556,144,000	307,743,000	261,750,000	201,927,000	167,230,000	156,922,000	629,204,000	261,750,000	123,915,000	89,969,000
Total liabilities and stockholders' equity	1,584,475,000	1,254,384,000	1,280,780,000	692,977,000	832,163,000	702,699,000	505,636,000	418,639,000	1,584,475,000	832,163,000
PennyMac Mortgage Investment Trust
Revenue
Fulfillment fees from affiliate	11,087,000	18,327,000	22,054,000	28,244,000	31,809,000	17,258,000	7,715,000	6,124,000	79,712,000	62,906,000	1,747,000
Liabilities
Excess servicing spread financing at fair value payable to affiliate	$ 138,723,000	$ 2,857,000							$ 138,723,000

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Loan Sales and Servicing Activities (Tables)

12 Months Ended

Dec. 31, 2013

Loan Sales and Servicing Activities

Summary of cash flows between the Company and transferees upon sale of mortgage loans in transactions

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Cash flows:
Sales proceeds	$	17,006,460	$	9,123,645	$	655,724
Servicing fees received	$	56,066	$	11,197	$	163
Net servicing advances	$	4,207	$	7,818	$	538
Year end information:
UPB of loans outstanding at year end	$	23,640,261	$	9,847,509	$	696,521
Delinquencies:
30 - 89 days	$	410,927	$	137,827	$	5,272
90 days or more or in foreclosure or bankruptcy	$	143,022	$	54,795	$	813

Summary of mortgage servicing portfolio

	December 31, 2013
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	44,969,026	$	—	$	44,969,026
Affiliated entities		—		31,632,718		31,632,718
Private investors		969,794		89,361		1,059,155
Mortgage loans held for sale		506,540		—		506,540
	$	46,445,360	$	31,722,079	$	78,167,439
Amount subserviced for the Company	$	156,347	$	582,610	$	738,957
Delinquent mortgage loans:
30 days	$	1,304,054	$	263,518	$	1,567,572
60 days		346,912		112,275		459,187
90 days or more		605,555		1,416,498		2,022,053
		2,256,521		1,792,291		4,048,812
Loans pending foreclosure		168,776		1,792,128		1,960,904
	$	2,425,297	$	3,584,419	$	6,009,716
Custodial funds managed by the Company(1)	$	568,161	$	246,587	$	814,748

	December 31, 2012
	Servicing rights owned		Contract servicing and subservicing		Total loans serviced
	(in thousands)
Agencies	$	9,860,284	$	—	$	9,860,284
Affiliated entities		—		16,552,939		16,552,939
Private investors		1,321,584		—		1,321,584
Mortgage loans held for sale		417,742		—		417,742
	$	11,599,610	$	16,552,939	$	28,152,549
Amount subserviced for the Company	$	45,562	$	375,818	$	421,380
Delinquent mortgage loans:
30 days	$	191,884	$	187,653	$	379,537
60 days		60,886		122,564		183,450
90 days or more		112,847		851,851		964,698
		365,617		1,162,068		1,527,685
Loans pending foreclosure		75,329		1,290,687		1,366,016
	$	440,946	$	2,452,755	$	2,893,701
Custodial funds managed by the Company(1)	$	263,562	$	150,080	$	413,642

(1)

Borrower and investor custodial cash accounts relate to loans serviced under the servicing agreements and are not recorded on the Company's consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the loans' investors, which is recorded as part of the interest income in the Company's consolidated statements of income.

Summary of the geographical distribution of loans for the top five and all other states as measured by the total unpaid principal balance

	December 31,
State	2013		2012
	(in thousands)
California	$	30,320,616	$	10,696,508
Texas		4,470,123		1,223,382
Virginia		3,769,683		*
Florida		3,416,274		1,385,286
Washington		2,760,900		1,143,849
Colorado		*		1,299,295
All other states		33,429,843		12,404,229
	$	78,167,439	$	28,152,549

*

State did not represent a top five state as of the respective date.

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Parent Company Information (Details 2) (USD $)	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Cash	$ 30,639,000				$ 12,323,000				$ 16,465,000	$ 5,927,000
Other assets	15,922,000				13,032,000
Total assets	1,584,475,000	1,254,384,000	1,280,780,000	692,977,000	832,163,000	702,699,000	505,636,000	418,639,000	289,281,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity	167,402,000
Total liabilities and stockholders' equity	1,584,475,000	1,254,384,000	1,280,780,000	692,977,000	832,163,000	702,699,000	505,636,000	418,639,000
Parent Company
ASSETS
Cash	707,000
Investment in affiliates, at fair value	177,200,000
Other assets	63,117,000
Total assets	241,024,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities	71,056,000
Payables to subsidiaries	50,000
Stockholders' equity	169,918,000
Total liabilities and stockholders' equity	$ 241,024,000

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Class A Common Stock	Additional paid-in capital	Retained earnings	Members' equity	Non-controlling Interest
Balance at Dec. 31, 2010	$ 89,969				$ 89,969
Capital:
Contributions	18,908				18,908
Redemptions	(131)				(131)
Distributions	(646)				(646)
Unit-based compensation expense	1,116				1,116
Net income	14,699				14,699
Balance at Dec. 31, 2011	123,915				123,915
Capital:
Contributions	15,058				15,058
Redemptions	(6)				(6)
Distributions	(15,847)				(15,847)
Unit-based compensation expense	20,307				20,307
Net income	118,323				118,323
Balance at Dec. 31, 2012	261,750				261,750
Capital:
Distributions	(19,623)				(19,623)
Unit-based compensation expense	238				238
Partner capital issuance costs	(3,745)				(3,745)
Net income	76,834				76,834
Exchange of existing member units to Class A units of Private National Mortgage Acceptance Company, LLC					(315,454)	315,454
Balance post-reorganization	315,454					315,454
Issuance of common stock in initial public offering, net of issuance costs	230,000	1	229,999
Issuance of common stock in initial public offering, net of issuance costs (in shares)		12,778,000
Underwriting and offering costs	(13,486)		(13,290)			(196)
Dilution assumed with IPO			(127,160)			127,160
Stock-based compensation expense	3,699		881			2,818
Distributions	(3,809)					(3,809)
Net income	95,331			14,400		80,931
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc.		1	60,555			(60,556)
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc. (in shares)		8,035,000
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc.	2,015		2,015
Balance at Dec. 31, 2013	$ 629,204	$ 2	$ 153,000	$ 14,400		$ 461,802
Balance (in shares) at Dec. 31, 2013		20,813,000

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Investment in PennyMac Mortgage Investment Trust at Fair Value (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Investment in PennyMac Mortgage Investment Trust at Fair Value
Change in fair value and dividends received	$ 2,541	$ 3,524	$ 1,736
PMT
Investment in PennyMac Mortgage Investment Trust at Fair Value
Dividends	216	167	138
Change in fair value	(175)	650	(115)
Change in fair value and dividends received	41	817	23
Fair value of PennyMac Mortgage Investment Trust shares at period end	$ 1,722	$ 1,897	$ 1,247

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Transactions with Affiliates

12 Months Ended

Dec. 31, 2013

Transactions with Affiliates

Transactions with Affiliates

Note 4—Transactions with Affiliates

• PennyMac Mortgage Investment Trust

  Management Fees

        Before February 1, 2013, under a management agreement, PennyMac received a base management fee from PMT. The base management fee was calculated at 1.5% per year of PMT's shareholders' equity. The management agreement also provided for a performance incentive fee, which was calculated at 20% per year of the amount by which PMT's "core earnings," on a rolling four-quarter basis and before the incentive fee, exceeded an 8% "hurdle rate" as defined in the management agreement. PennyMac did not earn a performance incentive fee before February 1, 2013.

        Effective February 1, 2013, the management agreement was amended to provide that:

• •

  The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT's shareholders' equity up to $2 billion, (ii) 1.375% per year of shareholders' equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT's shareholders' equity in excess of $5 billion.

  •

  The performance incentive fee is calculated at a defined annualized percentage of the amount by which PMT's "net income," on a rolling four-quarter basis and before deducting the incentive fee, exceeds certain levels of return on "equity."

• • The performance incentive fee is calculated quarterly and is equal to the sum of: (a) 10% of the amount by which PMT's net income for the quarter exceeds (i) an 8% return on equity plus the "high watermark," up to (ii) a 12% return on PMT's equity; plus (b) 15% of the amount by which PMT's net income for the quarter exceeds (i) a 12% return on PMT's equity plus the "high watermark," up to (ii) a 16% return on PMT's equity; plus (c) 20% of the amount by which PMT's net income for the quarter exceeds a 16% return on equity plus the "high watermark."

    For the purpose of determining the amount of the performance incentive fee:

    "Net income" is defined as net income or loss computed in accordance with U.S. GAAP and certain other non-cash charges determined after discussions between the Company and PMT's independent trustees and approval by a majority of PMT's independent trustees.

    "Equity" is the weighted average of the issue price per common share of all of PMT's public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four-quarter period.

    The "high watermark" starts at zero and is adjusted quarterly. The quarterly adjustment reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30-year MBS yield (the "target yield") for the four quarters then ended. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for the Company to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT's net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then-current cumulative high watermark amount, and a performance incentive fee is earned.

        The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or in PMT's common shares (subject to a limit of no more than 50% paid in common shares), at PMT's option.

        Following is a summary of the management fees earned from PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Management fees:
Base	$	19,644	$	12,436	$	6,740
Performance incentive		12,766		—		—
	$	32,410	$	12,436	$	6,740

        The term of the management agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the management agreement.

        In the event of termination by PMT, the Company may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual (or, if the period is than 24 months, annualized) performance incentive fee earned by the Company, in each case during the 24-month period before termination.

• Mortgage Loan Servicing

        The Company has a loan servicing agreement with PMT. Before February 1, 2013, the servicing fee rates were based on the risk characteristics of the mortgage loans serviced and total servicing compensation was established at levels that management believed were competitive with those charged by other servicers or specialty servicers, as applicable.

• •

  Servicing fee rates for nonperforming loans ranged between 50 and 100 basis points per year on the UPB of the mortgage loans serviced on PMT's behalf. PennyMac was also entitled to certain customary market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges, as well as interest on funds on deposit in custodial accounts. In the event PennyMac either effected a refinancing of a loan on PMT's behalf and not through a third party lender and the resulting loan was readily saleable, or originated a loan to facilitate the disposition of real estate that PMT had acquired in settlement of a loan, PennyMac was entitled to receive from PMT market-based fees and compensation.

  •

  For mortgage loans serviced by PMT as a result of acquisitions and sales with servicing rights retained in connection with PMT's correspondent lending business, PennyMac was entitled to base subservicing fees and other customary market-based fees and charges as described above.

        Effective February 1, 2013, the servicing agreement was amended to provide for servicing fees payable to the Company that changed from being based on a percentage of the loan's UPB to fixed per-loan monthly amounts based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or the REO.

• •

  The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per-loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or the related underlying real estate. Presently, the base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $125 per month for mortgage loans that are severely delinquent and in foreclosure.

  •

  The base servicing fee rates for non-distressed mortgage loans subserviced by the Company on PMT's behalf are also calculated through a monthly per-loan dollar amount, with the actual dollar amount for each mortgage loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fee rates for mortgage loans subserviced on PMT's behalf are $7.50 per month for fixed-rate mortgage loans and $8.50 per month for adjustable rate mortgage loans. To the extent that these mortgage loans become delinquent, the Company is entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $75 per month based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or the related underlying real estate.

  •

  The Company is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because PMT does not have any employees or infrastructure. For these services, the Company receives a supplemental fee of $25 per month for each distressed whole mortgage loan and $3.25 per month for each non-distressed subserviced mortgage loan. With respect to non-distressed subserviced mortgage loans, the supplemental fee is subject to a cap of $700,000 per quarter. The Company is also entitled to reimbursement for all customary, good faith reasonable and necessary out-of-pocket expenses incurred in performance of its servicing obligations.

  •

  The Company, on behalf of PMT, currently participates in the Home Affordable Modification Program ("HAMP") of the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development ("HUD") (and other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for "at risk" homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles the Company to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to the Company under HAMP in connection with a mortgage loan modification for which PMT previously paid the Company a modification fee, the Company shall reimburse PMT an amount equal to the incentive payments.

        The Company also remains entitled to market-based fees and charges including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges relating to loans it services for PMT.

        Following is a summary of mortgage loan servicing fees earned from PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Loan servicing fees:
Base	$	26,993	$	14,332	$	9,740
Activity-based		12,420		4,276		3,464
	$	39,413	$	18,608	$	13,204

        The term of the servicing agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the servicing agreement.

• Correspondent Lending

        Before February 1, 2013, PMT paid PennyMac a fulfillment fee of 50 basis points of the UPB of mortgage loans sold to non-affiliates where PMT is approved or licensed to sell to such non-affiliate. Effective February 1, 2013, the mortgage banking and warehouse services agreement provides for a fulfillment fee paid to the Company based on the type of mortgage loan that PMT acquires. The fulfillment fee is equal to a percentage of the UPB of mortgage loans purchased by PMT, with the addition of potential fee rate discounts applicable to PMT's monthly purchase volume in excess of designated thresholds. The Company has also agreed to provide such services exclusively for PMT's benefit, and the Company and its affiliates are prohibited from providing such services for any other third party.

        Presently, the applicable fulfillment fee percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans salable in accordance with the Ginnie Mae Mortgage-Backed Securities Guide, (iii) 0.80% for the U.S. Department of the Treasury and HUD's Home Affordable Refinance Program ("HARP") mortgage loans with a loan-to-value ratio of 105% or less, (iv) 1.20% for HARP mortgage loans with a loan-to-value ratio of more than 105%, and (v) 0.50% for all other mortgage loans not contemplated above; provided, however, that the Company may, in its sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage loan was funded.

        In the event that PMT purchases mortgage loans with an UPB in any month totaling more than $2.5 billion and less than $5 billion, the Company has agreed to discount the amount of such fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which the Company collected fulfillment fees in such month. In the event PMT purchases mortgage loans with an total UPB in any month greater than $5 billion, the Company has agreed to further discount the amount of fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which the Company collected fulfillment fees in such month.

        PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the mortgage banking and warehouse services agreement, the Company currently purchases loans salable in accordance with the Ginnie Mae Mortgage-Backed Securities Guide "as is" and without recourse of any kind to PMT at its cost less fees collected by PMT from the seller, plus accrued interest and a sourcing fee of three basis points.

        In consideration for the mortgage banking services provided by the Company with respect to PMT's acquisition of mortgage loans under PLS's early purchase program, the Company is entitled to fees (i) accruing at a rate equal to $25,000 per year per early purchase facility administered by the Company, and (ii) in the amount of $50 for each mortgage loan PMT acquires. In consideration for the warehouse services provided by the Company with respect to mortgage loans that PMT finances for its warehouse lending clients, with respect to each facility, the Company is entitled to fees (i) accruing at a rate equal to $25,000 per year, and (ii) in the amount of $50 for each mortgage loan that PMT finances thereunder. Where PMT has entered into both an early purchase agreement and a warehouse lending agreement with the same client, the Company shall only be entitled to one $25,000 per year fee and, with respect to any mortgage loan that becomes subject to both such agreements, only one $50 per mortgage loan fee.

        The term of the mortgage banking and warehouse services agreement expires on February 1, 2017, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.

        Following is a summary of correspondent lending activity between the Company and PMT:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Fulfillment fee revenue	$	79,712	$	62,906	$	1,747
UPB of loans fulfilled for PMT	$	15,225,153	$	13,028,375	$	505,317
Sourcing fees paid	$	4,611	$	2,505	$	166
Fair value of loans purchased from PMT	$	16,113,806	$	8,864,264	$	577,852

• MSR Recapture Agreement

        Pursuant to the terms of a MSR recapture agreement, as amended, if the Company refinances through its retail lending business mortgage loans for which PMT previously held the MSRs, the Company is generally required to transfer and convey to one of PMT's wholly-owned subsidiaries, without cost to PMT, the MSRs with respect to new mortgage loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have a total UPB that is not less than 30% of the total UPB of all the mortgage loans so originated.

        Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair market value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on February 1, 2017, subject to automatic renewal for additional 18-month periods. The Company recorded MSR recapture totaling $709,000 for the year ended December 31, 2013 as a component of Gain on mortgage loans held for sale.

• Spread Acquisition and MSR Servicing Agreements

        Effective February 1, 2013, the Company entered into a master spread acquisition and MSR servicing agreement (the "2/1/13 Spread Acquisition Agreement"), pursuant to which it may sell to PMT or one of its wholly owned subsidiaries the rights to receive certain ESS from MSRs acquired by the Company from banks and other third party financial institutions. The Company is generally required to service or subservice the related mortgage loans for the applicable agency or investor. The terms of each transaction under the 2/1/13 Spread Acquisition Agreement are subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.

        To the extent the Company refinances any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

        On December 30, 2013, the Company entered into a second master spread acquisition and MSR servicing agreement with PMT (the "12/30/13 Spread Acquisition Agreement"). The terms of the 12/30/13 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that the Company only intends to sell ESS relating to Ginnie Mae MSRs under the 12/30/13 Spread Acquisition Agreement.

        To the extent the Company refinances any of the mortgage loans relating to the ESS it sells to PMT, the 12/30/13 Spread Acquisition Agreement also contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 12/30/13 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the refinanced mortgage loans, the Company is also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the unpaid principal balance of the modified mortgage loans, the 12/30/13 Spread Acquisition Agreement contains provisions that require the Company to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

        In connection with the Company's entry into the 12/30/13 Spread Acquisition Agreement, it was also required to amend the terms of its loan and security agreement (the "LSA") with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"), pursuant to which the Company pledged to CSFB all of its rights and interests in the Ginnie Mae MSRs it owns or acquires, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and the Company. Separately, as a condition to permitting the Company to transfer to PMT the ESS relating to a portion of the Company's pledged Ginnie Mae MSRs, CSFB required PMT to enter into a Security and Subordination Agreement (the "Security Agreement"), pursuant to which PMT pledged to CSFB its rights under the 12/30/13 Spread Acquisition Agreement and its interest in any ESS purchased thereunder. CSFB's lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 12/30/13 Spread Acquisition Agreement and the terms of the acknowledgement agreement.

        The Security Agreement permits CSFB to liquidate PMT's ESS along with the related MSRs to the extent there exists an event of default under the LSA, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of PMT's credit facilities, that would require the Company to either (i) repay in full the outstanding loan amount under the LSA or (ii) repurchase the ESS from PMT at fair value. To the extent the Company is unable to repay the loan under the LSA or repurchase the ESS, an event of default would exist under the LSA, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the ESS is liquidated as a result of certain actions or inactions of the Company, PMT generally would be entitled to seek indemnity from the Company under the 12/30/13 Spread Acquisition Agreement.

• Payable to Exchanged Private National Mortgage Acceptance Company, LLC Unitholders Under Tax Receivable Agreement

        As discussed in Note 1, the Company entered into a tax receivable agreement with PennyMac's existing unitholders on the date of the IPO that will provide for the payment by PFSI to PennyMac's exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from exchanges and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Based on the PennyMac unitholder exchanges during the period, the Company has recorded a $71.1 million liability and has not made a payment under the tax sharing agreement as of December 31, 2013.

• Other Transactions

        In connection with the IPO of PMT's common shares on August 4, 2009, the Company entered into an agreement with PMT pursuant to which PMT agreed to reimburse the Company for the $2.9 million payment that it made to the underwriters in such offering (the "Conditional Reimbursement") if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, PMT amended the terms of the reimbursement agreement to provide for the reimbursement to the Company of the Conditional Reimbursement if PMT is required to pay the Company performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12-month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million. The Company received payments from PMT totaling $944,000 during the year ended December 31, 2013.

        In the event the termination fee is payable to the Company under the management agreement and the Company has not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.

        PMT reimburses the Company for other expenses, including common overhead expenses incurred on its behalf by the Company, in accordance with the terms of its management agreement. Such amounts are summarized below:

	Year ended December 31,
	2013		2012		2011
	(in thousands)
Reimbursement of:
Common overhead incurred by PCM and its affiliates	$	10,989	$	4,183	$	4,086
Expenses incurred on PMT's behalf		4,638		3,146		2,219
	$	15,627	$	7,329	$	6,305
Payments and settlements during the year(1)	$	121,230	$	85,554	$	12,656

(1)

Payments and settlements include payments for management fees and correspondent lending activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT.

        Amounts due from PMT are summarized below:

	December 31,
	2013		2012
	(in thousands)
Management fees	$	8,924	$	4,499
Servicing fees		5,915		3,670
Allocated expenses		2,009		1,106
Underwriting fees		1,788		2,941
Loan purchases		—		4,475
	$	18,636	$	16,691

        The Company also holds an investment in PMT in the form of 75,000 common shares of beneficial interest as of December 31, 2013 and December 31, 2012. The shares had fair values of $1.7 million and $1.9 million as of December 31, 2013 and December 31, 2012, respectively.

• Investment Funds

        Amounts due from the Investment Funds are summarized below:

	December 31,
	2013		2012
	(in thousands)
Receivable from Investment Funds:
Management fees	$	2,031	$	2,164
Loan servicing fees		727		1,052
Loan servicing rebate		136		(239	)
Expense reimbursements		21		695
	$	2,915	$	3,672
Carried Interest due from Investment Funds:
PNMAC Mortgage Opportunity Fund, LLC	$	37,702	$	29,785
PNMAC Mortgage Opportunity Fund Investors, LLC		23,440		17,938
	$	61,142	$	47,723

        Amounts due to the Investment Funds totaling $36.9 million and $36.8 million represent amounts advanced by the Investment Funds to fund servicing advances made by the Company as of December 31, 2013 and December 31, 2012, respectively.

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Regulatory Net Worth and Agency Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2013

Regulatory Net Worth and Agency Capital Requirements

Summary of agencies' capital requirements by each agency

	December 31,
	2013				2012
Requirement—company subject to requirement	Net worth(1)		Required		Net worth(1)		Required
	(in thousands)
Fannie Mae—PLS	$	409,552	$	83,148	$	172,843	$	35,947
Freddie Mac—PLS	$	409,860	$	3,001	$	173,273	$	2,556
Ginnie Mae:
Issuer—PLS	$	388,125	$	102,619	$	152,782	$	23,886
Issuer's parent—PennyMac	$	598,198	$	112,881	$	227,560	$	26,275
HUD—PLS	$	388,125	$	2,500	$	152,782	$	1,000

(1)

Calculated in compliance with the respective Agency's requirements.

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Mortgage Loans Held for Sale at Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
Mortgage Loans Held for Sale at Fair Value
Mortgage loans held for sale at fair value	$ 531,004	$ 530,248	$ 656,341	$ 203,661	$ 448,384	$ 410,071	$ 248,974	$ 176,282
Fair value of mortgage loans pledged to secure mortgage loans sold under agreements to repurchase	512,350				438,850
Government-insured or guaranteed
Mortgage Loans Held for Sale at Fair Value
Mortgage loans held for sale at fair value	482,066				398,381
Conventional
Mortgage Loans Held for Sale at Fair Value
Mortgage loans held for sale at fair value	45,005				50,003
Repurchased mortgage loans
Mortgage Loans Held for Sale at Fair Value
Mortgage loans held for sale at fair value	$ 3,933

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Parent Company Information (Details) (PLS, USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
PLS
Parent Company Information
Minimum tangible net worth	$ 90,000

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Transactions with Affiliates (Details) (USD $)	3 Months Ended								12 Months Ended						3 Months Ended								12 Months Ended			1 Months Ended	11 Months Ended	12 Months Ended			11 Months Ended														11 Months Ended		11 Months Ended	12 Months Ended			1 Months Ended	11 Months Ended	1 Months Ended	11 Months Ended	1 Months Ended	12 Months Ended			11 Months Ended																12 Months Ended			12 Months Ended	11 Months Ended			0 Months Ended	12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 PCM	Dec. 31, 2012 PCM	Dec. 31, 2011 PCM	Dec. 31, 2013 PMT	Sep. 30, 2013 PMT	Jun. 30, 2013 PMT	Mar. 31, 2013 PMT	Dec. 31, 2012 PMT	Sep. 30, 2012 PMT	Jun. 30, 2012 PMT	Mar. 31, 2012 PMT	Dec. 31, 2013 PMT item	Dec. 31, 2012 PMT	Dec. 31, 2011 PMT	Jan. 31, 2013 PMT Management Fees item	Dec. 31, 2013 PMT Management Fees item	Dec. 31, 2013 PMT Management Fees	Dec. 31, 2012 PMT Management Fees	Dec. 31, 2011 PMT Management Fees	Dec. 31, 2013 PMT Management Fees Minimum	Dec. 31, 2013 PMT Management Fees Maximum	Dec. 31, 2013 PMT Management Fees 8% return on equity	Dec. 31, 2013 PMT Management Fees 8% return on equity Minimum	Dec. 31, 2013 PMT Management Fees 8% return on equity Maximum	Dec. 31, 2013 PMT Management Fees 12% return on equity	Dec. 31, 2013 PMT Management Fees 12% return on equity Minimum	Dec. 31, 2013 PMT Management Fees 12% return on equity Maximum	Dec. 31, 2013 PMT Management Fees In excess of 16% return on equity	Dec. 31, 2013 PMT Management Fees In excess of 16% return on equity Maximum	Dec. 31, 2013 PMT Management Fees Shareholders' equity up to $2 billion Maximum	Dec. 31, 2013 PMT Management Fees Shareholders' equity in excess of $2 billion and up to $5 billion	Dec. 31, 2013 PMT Management Fees Shareholders' equity in excess of $2 billion and up to $5 billion Minimum	Dec. 31, 2013 PMT Management Fees Shareholders' equity in excess of $2 billion and up to $5 billion Maximum	Dec. 31, 2013 PMT Management Fees Shareholders' equity in excess of $5 billion	Dec. 31, 2013 PMT Management Fees Shareholders' equity in excess of $5 billion Minimum	Dec. 31, 2013 PMT Mortgage Loan Servicing	Dec. 31, 2013 PMT Mortgage Loan Servicing	Dec. 31, 2012 PMT Mortgage Loan Servicing	Dec. 31, 2011 PMT Mortgage Loan Servicing	Jan. 31, 2013 PMT Mortgage Loan Servicing Minimum	Dec. 31, 2013 PMT Mortgage Loan Servicing Minimum	Jan. 31, 2013 PMT Mortgage Loan Servicing Maximum	Dec. 31, 2013 PMT Mortgage Loan Servicing Maximum	Jan. 31, 2013 PMT Correspondent Lending	Dec. 31, 2013 PMT Correspondent Lending	Dec. 31, 2012 PMT Correspondent Lending	Dec. 31, 2011 PMT Correspondent Lending	Dec. 31, 2013 PMT Correspondent Lending Purchases mortgage loans with an aggregate unpaid principal balance in any month greater than $2.5 billion and less than $5 billion	Dec. 31, 2013 PMT Correspondent Lending Purchases mortgage loans with an aggregate unpaid principal balance in any month $5 billion	Dec. 31, 2013 PMT Correspondent Lending Conventional mortgage loans	Dec. 31, 2013 PMT Correspondent Lending Ginnie Mae Mortgage-Backed Securities Guide mortgage loans	Dec. 31, 2013 PMT Correspondent Lending HARP mortgage loans with a loan-to-value ratio of 105% or less	Dec. 31, 2013 PMT Correspondent Lending HARP mortgage loans with a loan-to-value ratio of greater than 105%	Dec. 31, 2013 PMT Correspondent Lending Other mortgage loans	Dec. 31, 2013 PMT Correspondent Lending Minimum Purchases mortgage loans with an aggregate unpaid principal balance in any month greater than $2.5 billion and less than $5 billion	Dec. 31, 2013 PMT Correspondent Lending Minimum Purchases mortgage loans with an aggregate unpaid principal balance in any month $5 billion	Dec. 31, 2013 PMT Correspondent Lending Minimum HARP mortgage loans with a loan-to-value ratio of 105% or less	Dec. 31, 2013 PMT Correspondent Lending Maximum Purchases mortgage loans with an aggregate unpaid principal balance in any month greater than $2.5 billion and less than $5 billion	Dec. 31, 2013 PMT Correspondent Lending Maximum HARP mortgage loans with a loan-to-value ratio of greater than 105%	Dec. 31, 2013 PMT Mortgage banking services	Dec. 31, 2013 PMT Warehouse services	Dec. 31, 2013 PMT Mortgage banking and warehouse services	Dec. 31, 2013 PMT Conditional Reimbursement	Dec. 31, 2013 PMT Conditional Reimbursement	Aug. 04, 2009 PMT Conditional Reimbursement	Dec. 31, 2013 PMT Conditional Reimbursement Maximum	Dec. 31, 2013 PMT MSR Recapture Agreement	Dec. 31, 2013 PMT MSR Recapture Agreement Minimum	Dec. 31, 2013 PMT MSR Recapture Agreement Maximum	Feb. 02, 2013 PMT 2/1/13 Spread Acquisition Agreement	Dec. 30, 2013 PMT 12/30/13 Spread Acquisition Agreement Ginnie Mae Mortgage-Backed Securities Guide mortgage loans	Dec. 31, 2013 Investment Funds	Dec. 31, 2012 Investment Funds	Dec. 31, 2011 Investment Funds	Dec. 31, 2010 Investment Funds	Dec. 31, 2013 PNMAC Mortgage Opportunity Fund, LLC	Dec. 31, 2012 PNMAC Mortgage Opportunity Fund, LLC	Dec. 31, 2013 PNMAC Mortgage Opportunity Fund Investors, LLC	Dec. 31, 2012 PNMAC Mortgage Opportunity Fund Investors, LLC
Transactions with Affiliates
Base management fee annual rate (as a percent)																										1.50%															1.50%	1.375%			1.25%
Percentage of net income for calculation of performance incentive fees																										20.00%							10.00%			15.00%			20.00%
Number of rolling quarters taken as base for performance incentive fee computation																										4	4
Hurdle rate (as a percent)																										8.00%
High watermark																															$ 0
Period of target yield considered for determination of performance incentive fee																											30 years
Percentage of change in net income due to quarterly adjustments																											8.00%
Number of quarters considered for determination of performance incentive fee																											4
Base management fee shareholders' equity limit																																									2,000,000,000		2,000,000,000	5,000,000,000		5,000,000,000
Percentage of return on affiliate's equity																																		8.00%	12.00%		12.00%	16.00%		16.00%
Percentage of performance incentive fee payable by issuance of common shares																																50.00%
Management fees earned
Base																												19,644,000	12,436,000	6,740,000
Performance incentive																												12,766,000
Management fees									40,330,000	21,799,000	16,683,000												32,410,000	12,436,000	6,740,000			32,410,000	12,436,000	6,740,000																																																					7,920,000	9,363,000	9,943,000
Multiplier for calculating the termination fee																							3
Period for calculating average annual fees																							24 months
Renewal period of servicing agreement																												18 months																				18 months								18 months																						18 months
Servicing fee rates per year for nonperforming loans (as a percent)																																																			0.50%		1.00%
Servicing fees amount per month for current loans																																																				30
Servicing fees amount per month for severely delinquent loans																																																						125
Base servicing fees per month for fixed-rate non-distressed loans subserviced																																															7.50
Base servicing fees per month for adjustable rate non-distressed loans subserviced																																															8.50
Additional servicing fee amount per month for delinquent loans																																																				10		75
Supplemental fee per month for each distressed whole loan																																															25
Supplemental fee per month for each non-distressed subserviced loan																																															3.25
Supplemental fee quarterly cap for each non-distressed subserviced loan																																															700,000
Mortgage loan servicing fees earned
Base																																																26,993,000	14,332,000	9,740,000
Activity-based																																																12,420,000	4,276,000	3,464,000
Loan servicing fees																																																39,413,000	18,608,000	13,204,000
Fulfillment fee as a percentage of unpaid principal balance of mortgage loans sold to non-affiliates																																																							0.50%						0.50%	0.88%	0.80%	1.20%	0.50%
Mortgage loans, loan-to-value ratio (as a percent)																																																																				105.00%		105.00%
Sourcing fee rate (as a percent)																																																														0.03%
Threshold unpaid principal balance of mortgage loans sold to non-affiliates																																																																		2,500,000,000	5,000,000,000		5,000,000,000
Fulfillment fee reimbursement as a percentage of unpaid principal balance of mortgage loans sold to non-affiliates																																																											0.025%	0.05%
Threshold unpaid principal balance of mortgage loans sold to non-affiliates for calculation of fulfillment fee																																																																		2,500,000,000	5,000,000,000
Mortgage loan servicing fee per year																																																																							25,000	25,000	25,000
Mortgage loan servicing fee per loan (in dollars)																																																																							50	50	50
Lending activity between the entity and affiliate
Fulfillment fee revenue															11,087,000	18,327,000	22,054,000	28,244,000	31,809,000	17,258,000	7,715,000	6,124,000	79,712,000	62,906,000	1,747,000																															79,712,000	62,906,000	1,747,000
UPB of loans fulfilled for PMT																																																								15,225,153,000	13,028,375,000	505,317,000
Sourcing fees paid																																																								4,611,000	2,505,000	166,000
Fair value of loans purchased from PMT																																																								16,113,806,000	8,864,264,000	577,852,000
Threshold percentage of unpaid principal balance with respect to new mortgage loans originating in refinancing																																																																															30.00%
Fair market value of the aggregate MSRs to be transferred																																																																																200,000
Gain on mortgage loans held for sale	29,453,000	25,949,000	42,654,000	39,957,000	49,683,000	39,760,000	14,790,000	13,937,000	138,013,000	118,170,000	13,029,000																																																																			709,000
Threshold amount of ESS to be transferred for the applicable month																																																																																	200,000	200,000
Percentage of the product of excess servicing fee rate and unpaid principal balance of refinanced mortgage loans considered for transfer of additional ESS																																																																																		90.00%
Amount of tax benefits under the tax receivable agreement (as a percent)									85.00%
Amount of tax liability under the tax sharing agreement	71,100,000								71,100,000
Conditional reimbursement																																																																												2,900,000	2,900,000
Performance incentive fees reimbursement under the management agreement for every $100 of performance incentive fees earned																																																																										10
Maximum performance incentive fees reimbursement within 12-month period																																																																										1,000,000
Payments received																																																																											944,000
Reimbursement of:
Common overhead/expenses incurred on behalf of affiliates									15,627,000	7,329,000	6,305,000	10,989,000	4,183,000	4,086,000									4,638,000	3,146,000	2,219,000
Payments and settlements during the period									121,230,000	85,554,000	12,656,000
Amounts due from affiliate
Management fees															8,924,000				4,499,000				8,924,000	4,499,000																																																											2,031,000	2,164,000
Servicing fees															5,915,000				3,670,000				5,915,000	3,670,000
Allocated expenses															2,009,000				1,106,000				2,009,000	1,106,000
Underwriting fees															1,788,000				2,941,000				1,788,000	2,941,000
Loan purchases																			4,475,000					4,475,000
Loan servicing fees																																																																																			727,000	1,052,000
Loan servicing rebate																																																																																			136,000	(239,000)
Expense reimbursements																																																																																			21,000	695,000
Total due from affiliate															18,636,000				16,691,000				18,636,000	16,691,000																																																											2,915,000	3,672,000
Investment in affiliate, common shares of beneficial interest (in shares)															75,000				75,000				75,000	75,000
Investment in affiliates, at fair value															1,700,000				1,900,000				1,700,000	1,900,000
Carried Interest due from affiliates	61,142,000	58,134,000	55,322,000	52,460,000	47,723,000	44,504,000	41,149,000	39,039,000	61,142,000	47,723,000																																																																									61,142,000	47,723,000	37,250,000	24,654,000	37,702,000	29,785,000	23,440,000	17,938,000
Amounts due to affiliates															$ 81,174,000				$ 46,779,000				$ 81,174,000	$ 46,779,000																																																											$ 36,937,000	$ 36,795,000

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Net Interest Expense

12 Months Ended

Dec. 31, 2013

Net Interest Expense

Net Interest Expense

Note 21—Net Interest Expense

        Net interest expense is summarized below:

	Year ended December 31,
	2013			2012			2011
	(in thousands)
Interest income:
Short-term investments	$	893		$	72		$	22
Mortgage loans held for sale at fair value		14,739			6,282			1,510
		15,632			6,354			1,532
Interest expense:
Mortgage loans sold under agreements to repurchase		10,863			5,927			1,874
Note payable		2,931			1,180			—
Excess servicing spread financing at fair value		1,091			—			—
Other		1,788			772			1
		16,673			7,879			1,875
Net interest expense	$	(1,041	)	$	(1,525	)	$	(343	)

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013 PMT	Dec. 31, 2012 PMT	Dec. 31, 2011 PMT	Dec. 31, 2013 Recurring basis Level 1	Dec. 31, 2012 Recurring basis Level 1	Dec. 31, 2013 Recurring basis Level 1 PMT	Dec. 31, 2012 Recurring basis Level 1 PMT	Dec. 31, 2013 Recurring basis Level 2	Dec. 31, 2012 Recurring basis Level 2	Dec. 31, 2013 Recurring basis Level 2 Forward contracts Purchases	Dec. 31, 2012 Recurring basis Level 2 Forward contracts Purchases	Dec. 31, 2013 Recurring basis Level 2 Forward contracts Sales	Dec. 31, 2012 Recurring basis Level 2 Forward contracts Sales	Dec. 31, 2013 Recurring basis Level 2 MBS put options	Dec. 31, 2012 Recurring basis Level 2 MBS put options	Dec. 31, 2013 Recurring basis Level 2 MBS call options	Dec. 31, 2013 Recurring basis Level 3	Dec. 31, 2012 Recurring basis Level 3	Dec. 31, 2013 Recurring basis Level 3 PMT	Dec. 31, 2013 Recurring basis Level 3 Interest rate lock commitments	Dec. 31, 2012 Recurring basis Level 3 Interest rate lock commitments	Dec. 31, 2013 Recurring basis Total	Dec. 31, 2012 Recurring basis Total	Dec. 31, 2013 Recurring basis Total PMT	Dec. 31, 2012 Recurring basis Total PMT	Dec. 31, 2013 Recurring basis Total Interest rate lock commitments	Dec. 31, 2012 Recurring basis Total Interest rate lock commitments	Dec. 31, 2013 Recurring basis Total Forward contracts Purchases	Dec. 31, 2012 Recurring basis Total Forward contracts Purchases	Dec. 31, 2013 Recurring basis Total Forward contracts Sales	Dec. 31, 2012 Recurring basis Total Forward contracts Sales	Dec. 31, 2013 Recurring basis Total MBS put options	Dec. 31, 2012 Recurring basis Total MBS put options	Dec. 31, 2013 Recurring basis Total MBS call options
Fair value
Interest rate threshold used in determination of accounting for loans underlying mortgage servicing rights (as a percent)	4.50%
Assets:
Short-term investments at fair value	$ 142,582				$ 53,164							$ 142,582	$ 53,164																	$ 142,582	$ 53,164
Mortgage loans held for sale at fair value	531,004	530,248	656,341	203,661	448,384	410,071	248,974	176,282								527,071	448,384								3,933					531,004	448,384
Derivative assets:
Total derivative assets before netting	28,898				28,381											19,934	4,430	416	1,645	18,762	1,818	665	967	91	8,964	23,951		8,964	23,951	28,898	28,381			8,964	23,951	416	1,645	18,762	1,818	665	967	91
Netting	(7,358)				(1,091)																									(7,358)	(1,091)
Total derivative assets	21,540				27,290											19,934	4,430								8,964	23,951				21,540	27,290
Investment in PennyMac Mortgage Investment Trust									1,722	1,897	1,247			1,722	1,897																	1,722	1,897
Mortgage servicing rights at fair value																									224,913	19,798				224,913	19,798
Total assets												144,304	55,061			547,005	452,814								237,810	43,749				921,761	550,533
Derivative liabilities:
Excess servicing spread financing at fair value to affiliate																											138,723					138,723
Total derivative liabilities before netting	9,249				2,294											7,046	2,283	6,542	389	504	1,894				2,203	11		2,203	11	9,249	2,294			2,203	11	6,542	389	504	1,894
Netting	(6,787)				(1,785)																									(6,787)	(1,785)
Total derivative liabilities	2,462				509											7,046	2,283								2,203	11				2,462	509
Total liabilities																$ 7,046									$ 140,926					$ 141,185

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Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Significant Accounting Policies

Summary of the reclassifications

	As reported						As previously reported				Reclassification
	Year ended December 31,						Year ended December 31,				Year ended December 31,
	2012			2011			2012		2011		2012		2011
	(in thousands)
Net interest expense:
Interest income	$	6,354		$	1,532		$	6,354	$	1,532	$	—	$	—
Interest expense		7,879			1,875			—		—		7,879		1,875
	$	(1,525	)	$	(343	)	$	6,354	$	1,532	$	7,879	$	1,875

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Furniture, Fixtures, Equipment and Building Improvements (Furniture, Fixtures, Equipment and Building Improvements)

12 Months Ended

Dec. 31, 2013

Furniture, Fixtures, Equipment and Building Improvements

Furniture, fixtures, equipment and building improvements

Furniture, Fixtures, Equipment and Building Improvements

Note 14—Furniture, Fixtures, Equipment and Building Improvements

        Furniture, fixtures, equipment and building improvements is summarized below:

	December 31,
	2013			2012
	(in thousands)
Furniture, fixtures, equipment and building improvements	$	13,128		$	6,494
Less: Accumulated depreciation and amortization		(3,291	)		(1,429	)
	$	9,837		$	5,065

        Depreciation and amortization expense totaled $1.8 million, $846,000 and $337,000 for the years ended December 31, 2013, 2012 and 2011, respectively, of which $1.4 million, $590,000 and $324,000, respectively, were allocated to PMT as called for in its management agreement.

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Regulatory Net Worth and Agency Capital Requirements (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fannie Mae - PLS
Regulatory Net Worth and Agency Capital Requirements
Net worth	$ 409,552	$ 172,843
Required	83,148	35,947
Freddie Mac - PLS
Regulatory Net Worth and Agency Capital Requirements
Net worth	409,860	173,273
Required	3,001	2,556
Ginnie Mae - Issuer - PLS
Regulatory Net Worth and Agency Capital Requirements
Net worth	388,125	152,782
Required	102,619	23,886
Ginnie Mae - Issuer's parent - PennyMac
Regulatory Net Worth and Agency Capital Requirements
Net worth	598,198	227,560
Required	112,881	26,275
HUD - PLS
Regulatory Net Worth and Agency Capital Requirements
Net worth	388,125	152,782
Required	$ 2,500	$ 1,000