Pennymac’s Kevin Ryan: Cenlar Deal Is Not A ‘backdoor Way’ To Grow Origination

Chief strategy officer Kevin Ryan says Pennymac’s proposed acquisition of Cenlar does not follow the same rationale as recent acquisitions in the mortgage industry.

“This deal is not a backdoor way to grow our origination business,” Ryan said in an exclusive interview with HousingWire. “We set a strategic plan two years ago when we said we wanted to grow subservicing. We like that — it’s fee income, and it’s not capital intensive. We’re not acquiring any MSRs in this transaction.”

On Wednesday, Pennymac announced its intention to acquire Cenlar for $257.5 million, following months of rumors that the subservicer was for sale.

It follows Rocket Companies’ $9.4 billion deal to acquire Mr. Cooper Group, the largest servicer in the country; Bayview Asset Management’s purchase of Guild Mortgage’s parent company; and the parent of United Wholesale Mortgage (UWM)’s deal for Two Harbors Investment Corp. and RoundPoint Mortgage Servicing.

Cenlar has a subservicing platform with $740 billion in unpaid principal balance (UPB) and 2 million loans across 100 clients, generating about $460 million in revenue in 2025. But $307 billion in UPB will not transition to Pennymac because some clients — mainly UWM — are bringing their subservicing activities in house.

Pennymac tied part of the acquisition cost — $85 million in contingent consideration payable over three years — to client retention.

Cenlar is profitable, Ryan said, and it owns a 17% subservicing market share, with banks and credit unions accounting for 70% of its clients. Pennymac expects fees to account for 10% of its revenue in 2027 — and for its servicing business to become the second largest in the country, with a $1 trillion portfolio. 

Ryan spoke with HousingWire on Thursday about what the deal means for Pennymac and Cenlar.

Editor’s note: This interview was edited for clarity and length.

Flávia Furlan Nunes: What is the rationale behind the proposed deal?

Kevin Ryan: We set a strategic plan two years ago when we said we wanted to grow subservicing. We like that — it’s fee income and it’s not capital intensive. We’re not acquiring any MSRs in this transaction. This is purely fee for service, with the service being subservicing loans for MSR owners and originators on behalf of their customers.

We feel we’ve built a best-in-class servicing business in the industry, both from a workflow perspective and a servicing technology perspective. There is operating leverage as a financial matter and scale benefits as an operational matter, simply by putting more loans onto that servicing system. 

For those reasons, subservicing was the perfect business for us as we thought about expanding. At the time, we only subservice for our affiliate REIT, PMT (Pennymac Mortgage Investment Trust), which is important and large, but the two are separate public companies.

That’s not quite the same as what we’re doing here, where we’re buying a company with over 100 institutional clients. It also fits us because we are an institutional business. We have 800 correspondents and do TPO, so the bulk of our business is done via institutional relationships.

FN: From Cenlar’s perspective, to what extent did the 2021 consent order with the Office of the Comptroller of the Currency (OCC) influence the decision to sell, and what happens to the consent order once the transaction closes?

KR: For Cenlar, (it’s about having) a partner with scale — a partner that can continue to invest in technology. They’re firm believers that technology will continue to shape and improve the servicing industry. Then just having the stability of our over $4 billion in capital. They made great improvements in their business working through the consent order with the OCC, and they wanted to start to scale again. We bring them technology, capital and scale.

The consent order, they will work through that with the OCC as part of the transaction. They will hand back the banking charter, so they will no longer be a bank at the point at which we acquire the company. What ultimately happens with the consent order is a legal question. I’ll leave it to the lawyers. But we will not be acquiring the legal entity that is subject to the consent order, and the company feels very good about the progress it’s making.

FN: What exactly is Pennymac acquiring — primarily servicing contracts, client relationships and operational infrastructure?

KR: What we’re really buying are the contracts, the client relationships and the people (1,693 full-time employees), because we’re keeping their employees in order to subservice the loans that will remain. They’ll just change uniforms, but they’ll be doing the same work for us that they were doing for Cenlar — in the same buildings, with the same managers and the same clients. All of their call centers and office leases are transitioning to us. Think of it as taking one company and dropping it under another.

FN: In prior servicing M&A deals, some subservicers have lost clients — for example, Mr. Cooper’s experience with UWM, which also decided to end its contract with Cenlar. Does Pennymac anticipate similar risks, and how does it plan to mitigate potential client attrition?

KR: Some of their existing clients have been public about wanting in-house servicing.  We fully underwrote this deal assuming all of those loans do transition to in-house, versus where they finished at the end of the 2025 – not as a result of this deal. 

We spoke to a group of their clients prior to signing the deal, just to ask that direct question, and we feel very good about it. We run a correspondent business where we reassure them we’re not going to recapture their customers. This is just a fee-income deal. We’re not buying MSRs. We’re not looking to feed origination. 

I can’t really speak to why customers would have left Mr. Cooper post-Rocket deal, but I will say this deal is not a backdoor way to grow our origination business. We like the subservicing business and we believe we’re going to be very good at it in partnership with Cenlar. 

FN: Is borrower retention a key driver? How does the transaction support retention performance?

KR: For clarification: We want to retain clients as subservicing clients, where we perform all of the back-office subservicing functions. As it relates to refinances, those stay with the clients, and we would never interfere with that — it’s not our business. This deal is about growing our subservicing business and supporting our clients. We have no intention of sharing data and no intention of trying to win customers via these touchpoints.  

FN: What retention metric is tied to the $85 million in contingent consideration payable over three years?

KR: There’s additional purchase price that we pay depending on the loan count in the subservicing portfolio at different points. We are both incentivized to keep customers. They sell the company for a higher price the more loans that stick around, and we will get more accretion, benefits, revenue as the owner of the company. The earnout is structured as a win-win.

FN: More broadly, why has Pennymac shifted its strategy to include M&A?  

KR: I don’t think we’ve changed our strategy, per se. This is the first M&A deal the company has ever done. But if you think about it, two years ago we said we wanted to grow subservicing. We hired people to build that business and have had some success, but we haven’t added 100 clients — it would take years.

It’s very difficult for companies to switch subservicers; it’s a lot of work for them. What we did was a well-structured, low-risk deal in which the purchase price is tied to client retention.  This one felt like it ticked all the boxes that it would actually justify doing something via M&A, where the history of the company is clearly to grow organically. 

FN: Pennymac has taken a holistic approach — as a multichannel lender, servicer and subservicer — while some companies in the industry have also added a real estate arm. What can we expect next from the company?

KR: We are definitely multichannel. We feel we are probably the best-balanced business models in the industry when you consider origination across three channels, servicing for our own portfolio, management of the REIT and now growing subservicing for third parties.

We’re trying to build an ecosystem around mortgage banking. We’re going to think about M&As in a very disciplined, strategic way. What we’re going to do now is put our heads down and integrate this deal. We’re executors at our core. We’re not acquirers at our core.