Mortgage industry volumes are expected to continue their sharp decline. The Mortgage Bankers Association estimates that total originations of one-to-four-family mortgage loans in the U.S. will decline to $1.572 trillion this year from $1.750 billion during 2012. The MBA expects a much more dramatic decline in loan volume during 2014, with total originations of $1.091 billion.

Rising long-term rates may play a part in the decline in mortgage loan volume, and higher rates have already lowered gain-on-sale margins for mortgage lenders. Then again, rising rates bode well for mortgage servicing rights (MSRs) held by PMT. The carrying value of MSRs increase as rates rise, since loan refinancing becomes less likely.

Miller in a note to on Wednesday wrote that he expected revenues for PFSI and PMT to continue to increase, since "both will benefit as their originations rise, MSR assets grow, and economic recovery improves distressed asset valuation." Even with total industry volume expected to continue to decline, the analyst believes "the entities' origination market share has room to grow as the companies expand their correspondent relationship base and build out a retail origination platform."

"Rising rates are generally considered the bane of a mortgage originator's existence; however, when rising rates are also associated with a broad-based housing recovery and mild economic improvements, servicing assets such as those PFSI has been generating become more valuable," Miller wrote.

He added that "PMT is more levered to the performance of its problem loan portfolio, while PFSI is more exposed to mortgage market strength. Both sides of the coin are attractive in the current macroeconomic environment, as we estimate that originations will remain elevated for the foreseeable future and expect that consumer credit recovery is likely to continue for some time, supporting high returns at each company."

It's clear that after last year's stellar return, with the recent sharp increase in long-term rates, and the expectation that the Federal Reserve will curtail its bond purchases by the end of the year, there's plenty of market pressure on a high dividend payer like PennyMac Mortgage Investment Trust. But the REIT's earnings should see a healthy boost from the housing recovery, which will push it the value of its distressed loans. The REIT will also benefit from the MSR valuation boost from higher rates.

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