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Will PHH Sell MSRs?

JAN 5, 2012 3:45pm ET
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PHH Corp., which this week ousted its CEO amid perceived liquidity concerns, may start selling some of its huge holdings of mortgage servicing rights, according to industry analysts.

“That idea is certainly out there,” said Bose George, an analyst with Keefe, Bruyette & Wood. “It's something they might consider.”

George, whose firm has an “outperform” rating on the stock, however, has no direct knowledge of the firm's MSR plans.  A company spokeswoman declined to comment.

The Laurel, N.J.-based PHH ranks seventh nationwide among MSR holders with $178 billion of contracts on its books, according to figures compiled by National Mortgage News.  In 3Q its MSR balance rose 12% compared to the year ago quarter.

PHH has posted large MSR writedowns the past two quarters because of falling rates. Bose notes that if rates rise the company can “mark up” the value of its MSRs, maybe by hundreds of millions of dollars.

In a SEC filing from December 27, PHH stated for the record that it has “sufficient liquidity,” citing $6.5 billion of committed financial facilities. But the same SEC filing also warns that Fannie Mae could yank an “early funding committed facility” it has with the nonbank.

Analysts do not believe Fannie would do such a thing, but that PHH had to disclose it because it was considered a material event.

The rumors about a liquidity problem stems from a mid-December downgrade on the company's unsecured debt after a bond offering was cut back in size to $100 million from roughly $250 million.

Sources contend that some executives at PHH believe the firm didn't need an extra $150 million anyway.

Early this week, PHH announced that Jerry Selitto had departed as CEO without saying why. He was replaced by a GE veteran, Glen A. Messina. In mid-November Selitto and Messina were given new performance compensation plans awarding them with 78,750 and 50,625 units of stock, respectively.

As press time its shares were trading at $11.25 compared to a 52-week low of $8.75 and a high of $25.55.

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