PennyMac (PMT) is entering into a loan repo facility with Bank of America (BAC) to help fund newly originated mortgages.
The $550 million facility sells the mortgages to BofA, for PennyMac to potentially later repurchase, in a deal fully guaranteed by PennyMac.
PennyMac purchased the loans from correspondent lenders and were pledged for sale and/or securitization, according to documents filed with the SEC.
The principal amount paid by Bank of America for each eligible mortgage loan is based upon a percentage of the lesser of the market value, unpaid principal balance, purchase price or takeout price of such mortgage loan, the document states.
When PennyMac repurchases the mortgages it is required to repay BofA the principal plus accrued interest, as well as a “commitment fee,” and other servicing costs.
In the event market conditions deteriorate the loans’ value substantially, BofA will require PennyMac to transfer cash or additional eligible mortgage loans to cover the losses.
As a result, there are certain capital covenants PennyMac will need to maintain, the details of which may be found in the SEC filing.
