The refinance boom of the third quarter both helped and hurt earnings at PHH Corp., Mt. Laurel, N.J. The company reported a net loss of $148 million during the period due to a $361 million write-down of mortgage servicing rights values.
During the company's third quarter conference call, president and chief executive Jerry Selitto said in the conflict between economic realities and generally accepted accounting principles, he concentrates on managing the company to core earnings and not unrealized losses mandated by GAAP.
On that level, PHH had core earnings of $64 million, helped by $95 million in profits in the mortgage production segment. The company closed $12.7 billion in new loans, two-thirds from the retail channel, up 31% over the second quarter and split nearly evenly between purchases and refinance.
The company is on target to do between $50 billion and $55 billion in 2012, but because of projected increases in overall origination volume for the industry, is unlikely to make its market share goal of 5% by the end of the year, Selitto said.
Furthermore, production is outpacing MSR run-off by 167%, he said, showing the strength of the natural hedge. However, for balance sheet purposes, PHH did take a $1 billion hedge position on its MSRs and recorded a $1 million gain.
Glen Messina, chief operating officer, revealed two more of the private label clients of the five private label clients PHH announced it has added. The two are Ameriprise, a former client which PHH has already started originating loans for again, and Morgan Stanley. It will start doing conforming loans for Morgan Stanley later this month and jumbos in January 2012. It previously announced Barclays had become a private label client.
Messina said the five companies should contribute $7 billion in volume next year, double what was expected from Charles Schwab, whose contract with PHH expires at the end of this month. There is a six month transition period with Schwab and so PHH will still be doing some originations.
