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PENNYMAC MORTGAGE INVESTMENT TRUST Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion and analysis of financial condition and results of
operations should be read with the consolidated financial statements and the
related notes of PennyMac Mortgage Investment Trust ("PMT") included within this
Quarterly Report on Form 10-Q (this "Report").

Statements contained in this Report 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 Report and our other filings with the United States Securities
and Exchange Commission ("SEC"). The forward-looking statements contained in
this Report are made as of the date hereof and we assume no obligation to update
or supplement any forward-looking statements.

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 Report to the words "we," "us," "our" and the "Company" refer
to PMT and its affiliates.

Our Company

We are a specialty finance company that invests primarily in mortgage-related
assets. Our objective is to provide attractive risk-adjusted returns to our
investors over the long-term, primarily through dividends and secondarily
through capital appreciation. Our investment focus is on the mortgage-related
assets that we create through our correspondent production activities, including
mortgage servicing rights ("MSRs"), subordinate mortgage-backed securities
("MBS"), and credit risk transfer ("CRT") arrangements, which include CRT
Agreements and CRT strips that absorb credit losses on certain of the loans we
sold. We also invest in Agency MBS and senior non-Agency MBS. We have also
historically invested in distressed mortgage assets (distressed loans and real
estate acquired in settlement of loans ("REO")), which we have substantially
liquidated.

We are externally managed by PNMAC Capital Management, LLC ("PCM"), an
investment adviser that specializes in and focuses on U.S. mortgage assets. Our
loans and MSRs are serviced by PennyMac Loan Services, LLC ("PLS"). PCM and PLS
are both indirect controlled subsidiaries of PennyMac Financial Services, Inc.
("PFSI"), a publicly-traded mortgage banking and investment management company.

During the six months ended June 30, 2022, we purchased newly originated prime
credit quality residential loans with fair values totaling $44.6 billion as
compared to $101.6 billion for the six months ended June 30, 2021, in our
correspondent production business. To the extent that we purchase loans that are
insured by the U.S. Department of Housing and Urban Development through the
Federal Housing Administration, or insured or guaranteed by the U.S. Department
of Veterans Affairs or U.S. Department of Agriculture, we and PLS have agreed
that PLS will fulfill and purchase such loans, as PLS is a Government National
Mortgage Association ("Ginnie Mae") approved issuer and we are not. This
arrangement has enabled us to compete with other correspondent aggregators that
purchase both government and conventional loans. We receive a sourcing fee from
PLS based on the unpaid principal balance ("UPB") of each loan that we sell to
PLS under such arrangement, and earn interest income on the loan for the period
we hold it before the sale to PLS. During the six months ended June 30, 2022, we
received sourcing fees totaling $2.4 million, relating to $23.4 billion in UPB
of loans that we sold to PLS.

We operate our business in four segments: Correspondent production, Interest rate sensitive strategies, Credit sensitive strategies and our Corporate operations as described below.

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Our Investment Activities

Correspondent Production

Our correspondent production activities involve the acquisition and sale of newly originated prime credit quality residential loans. Correspondent production serves as the source of our investments in MSRs, private label non-Agency securitizations, and, through 2020, CRT arrangements. Our correspondent production and resulting investment activity are summarized below:

                                            Quarter ended June 30,           Six months ended June 30,
                                             2022             2021             2022              2021
                                                                  (in 

thousands)

Sales of loans acquired for sale:
To nonaffiliates                         $ 10,226,643     $ 30,181,949     $  22,212,604     $ 63,500,106
To PennyMac Financial Services, Inc.       10,822,122       17,054,083      

23,982,890 35,474,697

                                         $ 21,048,765     $ 47,236,032     $  46,195,494     $ 98,974,803
Net gains on loans acquired for sale     $      7,671     $     27,726     $      11,624     $     80,738
Investment activities resulting from
correspondent

production:

Receipt of MSRs as proceeds from sales
of loans                                 $    170,658     $    412,938     $     365,254     $    820,634
Retention of interest in
securitization of loans
  secured by investment properties,
net of
  associated asset-backed financing                 -                -            23,485                -
Total investments resulting from
correspondent
  production activities                  $    170,658     $    412,938     

$388,739 $820,634

Interest Rate Sensitive Investments

Our interest rate sensitive investments include:

• Mortgage servicing rights. During the quarter and six months ended June 30,

2022, we received approximately $170.7 million and $365.3 million,

respectively, of MSRs as proceeds from sales of loans acquired for sale. We

held approximately $3.7 billion of MSRs at fair value at June 30, 2022.

REIT-eligible Agency and senior mortgage-backed or mortgage-related

securities. We purchased approximately $2.6 billion of Agency fixed-rate

pass-through securities and non-Agency senior MBS during the six months

ended June 30, 2022. We held Agency fixed-rate pass-through securities and

       non-Agency senior MBS with fair values totaling approximately $3.7 billion
       at June 30, 2022.


Credit Sensitive Investments

CRT Arrangements

During the quarter and six months ended June 30, 2022, we recognized investment
losses of approximately $40.0 million and $75.4 million, respectively, relating
to our holdings of CRT securities. We held net CRT-related investments
(comprised of deposits securing CRT arrangements, CRT derivatives, CRT strips
and Interest-only security payable) totaling approximately $1.3 billion at
June 30, 2022.

Subordinated Mortgage-Backed Securities

Beginning in the quarter ended June 30, 2021, the Company purchased or retained
approximately $94.6 million of subordinate MBS backed by loans secured by
investment properties sourced from the Company's conventional correspondent
production activities. The subordinate MBS provide us with a higher yield than
senior securities. However, we retain credit risk in the subordinate MBS since
they are the first securities to absorb credit losses relating to the underlying
loans.

We purchased approximately $125.7 million of subordinate credit-linked
securities during the six months ended June 30, 2022. We held the subordinate
credit-linked securities with fair values totaling approximately $116.6 million
at June 30, 2022.

As the result of the Company's consolidation of the variable interest entities
that issued the subordinate MBS described in Note 6 - Variable Interest Entities
- Subordinate Mortgage-Backed Securities to the consolidated financial
statements included in this Report, we include loans underlying these and
similar transactions with UPBs totaling approximately $1.9 billion on our
consolidated balance sheet as of June 30, 2022.

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Taxation

We believe that we qualify to be taxed as a REIT and as such will not be subject
to federal income tax on that portion of our income that is distributed to
shareholders as long as we meet applicable REIT asset, income and share
ownership tests. If we fail to qualify as a REIT, and do not qualify for certain
statutory relief provisions, our profits will be subject to income taxes and we
may be precluded from qualifying as a REIT for the four tax years following the
year we lose our REIT qualification.

A portion of our activities, including our correspondent production business, is
conducted in our taxable REIT subsidiary ("TRS"), which is subject to corporate
federal and state income taxes. Accordingly, we make a provision for income
taxes with respect to the operations of our TRS. We expect that the effective
rate for the provision for income taxes may be volatile in future periods. Our
goal is to manage the business to take full advantage of the tax benefits
afforded to us as a REIT.

We evaluate our deferred tax assets quarterly to determine if valuation
allowances are required based on the consideration of all available positive and
negative evidence using a "more-likely-than-not" standard with respect to
whether deferred tax assets will be realized. Our evaluation considers, among
other factors, taxable loss carryback availability, expectations of sufficient
future taxable income, trends in earnings, existence of taxable income in recent
years, the future reversal of temporary differences, and available tax planning
strategies that could be implemented, if required. The ultimate realization of
our deferred tax assets depends primarily on our ability to generate future
taxable income during the periods in which the related deferred tax assets
become deductible.

Non-Cash Investment Income

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

The amounts of non-cash investment (loss) income items included in net investment income are as follows:

                                          Quarter ended June 30,           Six months ended June 30,
                                           2022             2021             2022               2021
                                                            (dollars in thousands)
Net (losses) gains on investments and
financings:
Mortgage-backed securities              $  (182,498 )    $   29,252     $     (369,023 )     $  (41,865 )
Loans:
Held in variable interest entities         (122,469 )          (664 )         (219,033 )         (3,009 )
Distressed                                       67              74                451              158
ESS                                               -               -                  -            1,651
CRT arrangements                            (67,590 )        38,030           (142,177 )        135,961
Asset-backed financings at fair value       116,667           1,582            205,841            2,483
                                           (255,823 )        68,274           (523,941 )         95,379
Net gains on loans acquired for sale
(1)                                         180,635         540,593            284,978          721,380
Net loan servicing fees-MSR valuation
adjustments (2)                              20,103        (332,787 )       

367,657 (31,759 )

                                        $   (55,085 )    $  276,080     $      128,694       $  785,000
Net investment income                   $    21,500      $  121,566     $      103,339       $  322,963
Non-cash items as a percentage of net
investment
  Income                                       (256 %)          227 %              125 %            243 %


(1) Amount represents MSRs received, liability for representations and warranties

incurred in loan sales transactions and changes in fair value of loans, IRLCs

and hedging derivatives held at period end.

(2) Includes fair value changes related to MSR derivative hedging instruments.

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We receive or pay cash relating to:

• Our investment in mortgage-backed securities through monthly principal and

interest payments from the issuer of such securities or from the sale of

the investment?


     •  Loan investments when the investments are paid down, paid off or sold,
        when payments of principal and interest occur on such loans or when the
        property acquired in settlement of the loan has been sold;

• ESS investments through a portion of the monthly interest payments

        collected on the loans in the ESS reference pool or from the sale of
        investments;

• CRT arrangements through a portion of both the interest payments collected

on loans in the CRT arrangements’ reference pools and the release to us of

        the deposits securing the arrangements as principal on such loans is
        repaid;

• Hedging instruments when we receive or make margin deposits as is fair

value of respective instrument changes, when the instruments mature or

when we effectively cancel the transactions through offsetting trades?

• Our liability for representations and warranties when we repurchase loans

or settle loss claims from investors? and

• MSRs in the form of loan servicing fees and placement fees on the deposits

we manage on behalf of the borrowers and investors in the loans we

service.

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