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Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.

Performance Weakens at PHH

Q2 residential originations of 8% from Q1

Aug. 7, 2012

By staff

Earnings eroded, delinquency deteriorated and originations eased at PHH Mortgage. But year-over-year performance improved, and the mortgage servicing portfolio grew. As mortgage insurers are hit with a growing number of lawsuits and federal investigations over captive reinsurance arrangements, PHH disclosed that it terminated a mortgage reinsurance agreement at a loss.

Second-quarter mortgage loan closings came in at $12.830 billion, according to earnings data released late Tuesday by PHH Corp.

Business was down from the first quarter, when home-loan production amounted to $13.953 billion. But fundings improved from $9.747 billion in the second-quarter 2011.

Retail originations accounted for 86 percent of second-quarter volume, while the wholesale-correspondent channel generated 14 percent of new business.

The share of fee-based closings climbed to 37 percent from less than a quarter in the first quarter.

Refinance share was 61 percent, while the share of closings that were adjustable-rate mortgages was 32 percent.

Interest rate lock commitments finished June at $6.763 billion compared to $6.862 billion at the end of March. New loan applications totaled $18.7 billion during the latest period.

The Mt. Laurel, N.J.-based company's mortgage servicing portfolio was 1,100,857 loans for $192.775 billion as of the end of the second quarter. The company serviced 1,074,003 mortgages for $184.881 billion as of the end of the first quarter and 1,033,360 loans for $173.7 billion as of June 30, 2011. The growth reflected the addition of $8.4 billion in sub-servicing.

The capitalized portion of PHH's servicing portfolio was $147.894 billion as of the end of June.

Delinquency of at least 30 days, including foreclosures, was 4.64 percent as of June 30, 2012. The rate of late payments, which is based on principal balance, rose from 4.60 percent as of March 31. But the rate has relaxed from 5.35 percent at the same point in 2011.

The most recent delinquency rate included a 1.89 percent foreclosure rate, worse than 1.86 percent in the previous quarter.

An inactive mortgage reinsurance agreement was terminated, creating $16 million in pre-tax losses. Several mortgage insurance companies disclosed in their own second-quarter earnings reports that the Consumer Financial Protection Bureau has issued civil investigative demands against them over reinsurance arrangements, while mortgage insurers and mortgage lenders have been hit with a wave of lawsuits alleging violations of the Real Estate Settlement Procedures Act of 1974 as a result of captive reinsurance arrangements.

Mortgage production income before taxes was $93 million, falling from $117 million three months earlier but improving from $29 million a year earlier. The report said that wider priced-in margins helped increase the gain on loans, but a decline in economic hedge results and a planned reduction in correspondent channel originations offset the gain.

The servicing segment saw losses deteriorate to $196 million from the prior quarter's $26 million loss and the same period in the prior year's $113 million loss. An aggregate $203 million in negative changes to the fair value of mortgage servicing rights and related derivatives along with $39 million in foreclosure-related charges drove the servicing loss.

PHH Corp. had an $80 million loss before income taxes, swinging from a $124 million first-quarter profit. A year earlier, losses totaled $66 million.

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