PHH Corp., Mt. Laurel, N.J., could write up the value of its mortgage servicing rights by between $125 million and $175 million for the fourth quarter 2010, an earnings preview report from FBR Capital Markets predicts.
On a per share basis, that equates to between $1.35 and $1.89. PHH has said in the past that every 10 basis point increase in mortgage interest rates drives appreciation in its MSRs of approximately $40 million.
This writeup in MSRs signals long-term embedded value in the mortgage servicing business, the report said and because of that, FBR has increased its price target for PHH's common stock up from $26 to $28.
For the period, FBR is predicting operating earnings per share of $0.52 (unchanged from its prior prediction), down from $1.77 for the third quarter, driven by lower origination volumes and lower gain-on-sale margins. This is offset, the report said, by benefits from PHH's cost savings initiatives.
