PHH Benefits from Profitable Origination Business

PHH Corp., Mount Laurel, N.J., had fourth-quarter net income of $58 million and full-year net income of $34 million, as the mortgage origination business provided a pretax profit of $99 million for the quarter and $416 million for the year.

Mortgage servicing remains unprofitable for PHH, with losses of $35 million and $462 million, respectively, for those periods. PHH’s other business, fleet management, was also profitable.

On a year-over-year basis fourth-quarter profits improved in mortgage originations as a result of significantly wider total loan margins and growth in fees due to higher origination volume. This was partially offset by a decline in the number of interest rate lock commitments expected to close.

PHH closed $14.4 billion in 4Q12, of which 87% was retail and 13% wholesale and correspondent. It said this split reflects its strategy to grow retail and narrow its focus in third-party originations to only buy from sellers who it believes consistently deliver high quality loans.

The fourth-quarter mortgage servicing loss was due to a $56 million net decrease in the book value of its mortgage servicing rights plus $37 million in repurchase and foreclosure-related charges. There were $75 million of prepayments in 4Q12.

PHH’s total servicing portfolio as of Dec. 31 was $184 billion, with the capitalized servicing portfolio at $140 billion. The capitalized portfolio shrunk 5% from the same day in 2011 as PHH was unable to fully offset prepayments with new loan production.

However, the company noted it expects to add $50 billion of subservicing to its total portfolio from a private-label origination agreement it has with HSBC.

Although repurchase and foreclosure-related charges declined slightly from 3Q12 to $37 million, PHH says investor repurchase requests are expected to stay at an elevated level throughout 2013.