Costs rack up as PHH tries to survive by shrinking
PHH Corp.'s first-quarter net loss more than doubled as the troubled mortgage company dumps its origination unit and servicing rights and rebuilds as a subservicer.
The Mount Laurel, N.J.-based company reported a $67 million net loss for the first quarter, compared with a $30 million net loss one year prior. The company lost $133 million in the fourth quarter of 2016.
PHH reported $25 million of pretax exit and disposal costs, a pretax loss of $7 million on mortgage servicing rights sales and a $2 million negative adjustment in the value of its MSRs.
During the quarter, PHH completed the sale of its private-label mortgage origination operations to LenderLive. In addition, it sold a $10.2 billion mortgage servicing rights portfolio to Lakeview Loan Servicing; an additional $1 billion of Ginnie Mae servicing rights were sold on May 2. Total proceeds from these sales are $93 million.
PHH has an agreement to sell $67 billion of MSRs to New Residential.
The origination segment lost $41 million in the first quarter compared with a $26 million loss one year prior. There was a $26 million decrease in net revenue driven by lower application and closing volumes, caused by the winding down of the private-label unit.
The private-label business originated $4.7 billion, down from $6.4 billion last year. The PHH Home Loans business did $1.2 billion of volume, down from $1.3 billion. This joint venture with Realogy is being wound down, which includes a related asset sale to Guaranteed Rate. This is being done in five portions (for each of the regional operating centers) that will commence after the New Residential MSR sale and should be completed in the fourth quarter, said COO Robert Crowl during the conference call.
PHH's servicing business lost $34 million, compared with a $21 million loss in 2016's first quarter. This includes the $7 million loss on the servicing sale, and a $29 million decline in servicing income as the portfolio shrunk.
PHH also announced it will repurchase $100 million of its common stock to reduce its excess cash. It increased its estimate of the amount of excess cash created from the revamp to $655 million from $550 million based on improved clarity regarding sources and usage including the asset sales and PLS exit, said President and CEO Glen Messina during the conference call.
The amount of cash it expects will be needed to operate the revamped PHH was reduced from $90 million to $60 million based on a lower amount of investment in that business and liquidity estimates said Crowl, who will replace Messina after the annual meeting in June.
Besides subservicing, PHH will focus its origination business on portfolio retention activities. However, with the rising interest rate environment, it will shift from concentrating on rate refinancings to cash out, product and term refi opportunities, Crowl said.
During the first quarter, PHH's portfolio retention business did $439 million in originations. The opportunity going forward involves $13.2 billion of conforming loans that it services with an interest rate over 4.75%, said Michael Bogansky, the chief financial officer. But with rising rates, "We currently do not expect our full-year portfolio retention originations to exceed 2016's volumes," he added.
Portfolio retention volume was $1.2 billion for all of 2016.