The loss of business from a private-label client is forcing PHH Mortgage to withdraw its income forecast as it weighs its options. There was some good news, though.
Merrill Lynch Home Loans has advised PHH that it intends to move its new mortgage applications and residential loan originations for some products in-house.
Merrill Lynch is a subsidiary of Bank of America, N.A. Parent-Bank of America Corp. previously reported that it originated nearly $70 billion during all of last year.
The change takes place on April 25, according to a news release from PHH.
Merrill Lynch has also indicated to PHH that it has significantly reduced its volume forecast for the remainder of 2016.
PHH estimates that the annual reduction in business from Merrill Lynch will be equal to 5 percent of all of its volume last year, which were previously reported at more than $40 billion.
In all, Merrill Lynch was responsible for 26 percent of PHH’s 2015 production.
“There can be no assurances that the remaining Merrill Lynch origination activity with PHH will not also be subject to change during the remainder of 2016 or beyond,” PHH said.
Merrill Lynch additionally indicated that it intends to in-source its sub-servicing portfolio as of the end of this year, when the sub-servicing contract with PHH expires.
Merrill Lynch’s sub-servicing amounts to around $40 billion, nearly a third of PHH’s sub-servicing portfolio as of year-end 2015 and 18 percent of its total servicing portfolio.
Excluding sub-servicing, PHH previously disclosed a total servicing portfolio of $100 billion as of Dec.31, 2015.
The servicing portfolio at BofA stood at $565 billion as of the end of last year.
PHH President and Chief Execute Officer Glen A. Messina said in the announcement that the lender will take the necessary steps to adjust operations based on the new business levels.
“We believe these decisions reflect the broader dynamics in our industry, including higher compliance and other costs associated with a more onerous regulatory environment,” Messina said. “We remain focused on implementing the priorities we laid out for 2016 and the evaluation of all options, including capital structure and deployment alternatives, to maximize value for shareholders.”
The turn of events has prompted PHH to withdraw its previously disclosed full-year 2016 earnings guidance.
No guidance is planned until it can comprehensively review its strategic options.
But the Mount Laurel, New Jersey-based company also delivered some good news.
Morgan Stanley Private Bank, N.A., has
has exercised an option to extend origination services with PHH through Oct. 31, 2017.
Morgan Stanley accounted for 20 percent of PHH’s 2015 originations.
