Drastic steps being taken by PHH Corp. will slash its mortgage production by more than three-quarters and reduce its servicing portfolio by nearly $15 billion.
Before income taxes, PHH suffered a $29 million loss during the three months ended Sept. 30. Losses were cut from $87 million the same quarter a year prior.
Those details, along with other financial and operational metrics, were included in the Mount Laurel, New Jersey-based firm’s third-quarter 2016 earnings report.
Losses worsened, however, from $20 million in the second-quarter 2016.
Loan originations from the period that started on July 1, 2016, and concluded on Sept. 30 came to 21,076 units for $10.017 billion.
Business slowed from 22,200 loans for $10.372 billion the prior period and from 25,383 loans closed for $10.337 billion a year prior.
For all nine months reported so far in 2016, mortgage production was 60,944 loans funded for
$28.344 billion.
Private-label services originations accounted for $7.853 billion of the latest total, while retail real estate made up $2.137 billion and wholesale-correspondent was responsible for
$0.027 billion.
Fourth-quarter 2016 originations are likely down based on interest rate lock commitments, which were reduced to $1.2 billion in the third quarter from $1.3 billion three months earlier. In addition,
loan applications fell to $12.4 billion from $12.6 billion in the second quarter.
PHH revealed that it is initiating a managed exit from its PLS business. The report stated that there were “no credible offers for our PLS origination platform.” The exit is expected to be completed by the first-quarter 2018.
The company blamed its decision on increasing regulatory demands and costs, the expense of meeting clients’ customized requirements, and expectations for a shrinking market.
The report indicated that 78 percent of year-to-date 2016 volume was generated through its PLS channel.
As a result of the PLS exit, 1,380 employees will be impacted.
PHH additionally disclosed that it has reached an agreement to sell mortgage servicing rights on 95,459 Ginnie Mae loans for $14.8 billion, which represents substantially all of its Ginnie MSRs. The $122 million sale agreement with Lakeview Loan Servicing was done at a slight premium to book value and is subject to origination consents and customary approvals, though 70 percent of the portfolio can be sold with origination source consent.
The decision to sell was “due to its sub-par profitability, high inherent complexity and limited market liquidity.”
In addition, PHH is evaluating monetization of additional MSR sales. Its capitalized servicing rate was unchanged from the second quarter at 0.73 percent.
PHH said it must find a path forward for the remaining MSRs and business platforms.
It primary mortgage servicing portfolio closed out September 2016 at 588,700 loans with an aggregate principal balance of $89.598 billion.
PHH serviced 609,976 mortgages for $93.674 billion three months earlier
and 658,051 loans for $102.945 billion a year earlier.
Another 475,877 units for $138.285 billion were subserviced as of the most-recent date.
Excluding foreclosures, delinquency of at least 30 days on its total servicing portfolio was 2.24 percent
as of the close of the third-quarter 2016. The rate worsened 3 basis points compared to mid-2016 but has improved versus 2.56 percent as of Sept. 30, 2015.
The foreclosure/real-estate-owned rate was 1.35 percent, improving from 1.37 percent a quarter earlier and 1.73 percent a year earlier.
The company said it has evaluated, and continues to evaluate, several alternatives including the sale of the entire company, the sale of individual business platforms, and business combinations to achieve greater scale. But there no actional proposals on the table for any of the alternatives.
It has also considered operating as a smaller, more focused company.
PHH said that it intends to
complete the final phase of its strategic alternatives evaluation by the end of January 2017.
