PHH Corp.’s second-quarter origination volume and servicing revenue, when adjusted for an extraordinary item and higher rates, came in within some expectations; but its overall earnings were lower than expected, according to a Sterne Agee analyst report Thursday that rated PHH a “buy.”
The company recorded net income attributable to PHH of $90 million, or $1.58 per basic share, compared to $52 million, or 90 cents per basic share, in 1Q 2013 and a net loss of $57 million, or $1 per share, in 2Q 2012.
“Core EPS of 7 cents were below expectations due to higher overhead,” the analysts’ report said.
Shortly after noon Thursday, its stock was down a little over 1% on the day and the Dow overall was up about 0.75%.
Non-GAAP figures for the second quarter of 2013 show core loss (after tax) and core loss per share for the quarter ended June 30 were $2 million and $0.03, respectively.
The 2Q 2013 results include a $21 million pretax loss (24 cents per basic share after tax) from the termination of an inactive mortgage reinsurance agreement.
PHH’s mortgage production segment profit in the second quarter of this year was $44 million, down 44% from $78 million in
Mortgage servicing segment profit in the second quarter of 2013 was $81 million, which included a favorable $155 million market-related fair value adjustment to PHH’s mortgage servicing rights, primarily from an increase in mortgage rates, which was offset slightly by $1 million in hedge losses.
“Loan servicing income includes losses associated with the termination of reinsurance agreements of $21 million and $16 million in the second quarters of 2013 and 2012, respectively,” the company noted. Servicing income in 1Q 2013 was $18 million, and in 2Q 2012 servicing took a loss of $196 million.
“Origination volumes and servicing revenues (adjusting for the $21 million insurance item) were essentially in line with our estimates and the bulk of the quarter's shortfall can be tied to higher amortization of the company's MSR and higher than expected overhead,” Sterne Agree analysts said. “This last item will have to be addressed more aggressively to generate an attractive core ROE in the future, in our view.”
“Our financial performance reflected the impact of a rising interest rate environment, which drove an increase in the value of our mortgage servicing rights and negatively impacted our mortgage origination volume,” said Glen A. Messina, president and CEO of PHH Corp., in the PHH earnings release.
“We are taking the necessary actions to reposition our mortgage businesses for the current interest rate and regulatory environment. We are scaling expenses to be consistent with lower expected mortgage production volumes, while maintaining our commitment to high customer service levels and accommodating the demands of the rapidly changing regulatory environment,” he said. “In part due to recent regulatory changes, we also are seeking to amend certain private label contracts to address the fundamental changes in the industry and ensure our programs are meeting our mutual objectives.”
Repurchase and foreclosure-related charges during the second quarter of 2013 decreased to $11 million from $39 million in the second quarter of 2012 and $15 million in the first quarter of 2013.
These charges “were reflective of the continued decrease in repurchase requests as the agencies have continued to focus on reviewing loans from pre-2009 origination years,” according to the company.
