Servicing Drags Down PHH in 3Q09

A loss of $139 million in its mortgage servicing segment was the primary reason for a third-quarter net loss of $52 million at PHH Corp., Mount Laurel, N.J. The mortgage servicing loss was driven by a negative valuation adjustment on mortgage servicing rights of $186 million. Prepayments and portfolio decay were responsible for a $97 million reduction in the value of MSRs while lower rates forced the company to take an $89 million valuation adjustment. Prepayments of the MSRs' underlying mortgages went from $33 million in the third quarter of 2008 to $50 million for the most recent period. Sandra Bell, executive vice president and chief financial officer, noted, "We expect higher delinquency rates to continue to impact credit-related charges through the balance of the year and into 2010, which will likely negatively impact our mortgage servicing segment." Delinquencies at the end of the third quarter by percentage of unpaid balance were 2.28% for loans 30 days late, 0.79% for 60 days late and 1.47% for 90 days or more late. A year ago, those numbers were 2.03%, 0.55% and 0.53%, respectively. The mortgage production segment had a profit of $46 million for the quarter. PHH had origination volume of $9 billion for the period, with 50% coming from purchase loans. Jerry Selitto, PHH's new president and chief executive, said the improved results in the mortgage origination and fleet services businesses were more than cancelled out by the MSR issue. "PHH has been making steady progress in recent quarters, including the signing of a major new private-label account with $1.5 billion in annualized potential origination volume, but we are not satisfied with our financial performance - and we need to move quickly and aggressively to make PHH as competitive as possible for the long term, while staying true to our core, client-focused values," he said.