PHH Corp., Mt. Laurel, N.J., expects to more than double its fourth quarter profit to $181 million, thanks in part, to a huge upward adjustment concerning the value of its residential mortgage servicing rights.
The nonbank lender — which ranks seventh nationwide, according to figures compiled by National Mortgage News — expects its MSR adjustment will total $287 million in 4Q. (The estimate was released Wednesday morning along with preliminary earnings.)
A spokesman for the publicly traded firm noted that it could not provide too many details because it is in a quiet period, but confirmed that rising rates caused the value of its MSRs to increase. (PHH will release final 4Q earnings in late February.)
But although rising rates helped lift the asset value of its huge MSR portfolio, it caused some problems on the production front. CEO Jerry Sellitto noted that a 40 basis point spike in rates in December led to a "sharp decline in interest rate lock commitments" and negatively impacted PHH's gain on sale margins. (Core earnings, which exclude MSR markups, fell to $17 million in 4Q, from $55 million a year ago.)
Still, mortgage closings increased 45% in the fourth quarter compared to 3Q. For the full year, PHH saw its residential production rise 30% to $49 billion.
Total mortgage servicing delinquencies also showed improvement, standing at 4.24% at the end of 2010, compared to 4.92% at the end of 2009. PHH services more than $160 billion in product.
