A Bit of Trouble in PHH Earnings?

Even though PHH Corp.'s new CEO says his "transformation initiative" is working, the mortgage banker suffered an earnings decline and lower profit margins in the first quarter. The company had "core earnings" of $13 million in 1Q10 compared to $52 million for the same period in 2009. The performance was driven by a reduction in the mortgage profit margin to 118 basis points from 193 basis points. But CEO and president Jerry Selitto promised investors that PHH has seen the worst of the margin contraction and is confident margins will remain where they are for the rest of the year. The CEO also trumpeted the fact that while mortgage originations at PHH Mortgage fell 12% during the quarter (compared to 1Q09), many top originators suffered 1Q production declines of 30%. He noted that a new private-label client of PHH Mortgage, KeyBank, is adding $1.5 billion of production volume on an annualized basis. PHH's mortgage production unit posted a profit of $25 million, but its servicing division lost $13 million.