Keefe Bruyette & Woods analyst Bose George downgraded PennyMac Mortgage Investment Trust to "market perform" from "outperform" on the share of the company's capital held in nonperforming loans.

About 31% of PennyMac's equity is allocated to the distressed loans, which George expects to continue being a "drag" on earnings for the company. "Returns on these assets have been weak and we have limited visibility on when that will improve," the analyst wrote.

George also noted that credit spread tightening has been limited in the third quarter.

He lowered his price target for the company to $18 from $19. The analyst reduced the 2017 EPS estimate to $1.48 from $1.58 and kept the 2018 estimate unchanged at $1.60.