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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
Lending

Is PHH the prime example of how to navigate today's regulated market?

Lender considers 'strategic alternative'

March 23, 2016

The recent successes by PHH Corp. despite high odds against it are surprising, especially given the failure of many others in the industry.

Jeff Blumenthal, a reporter for the Philadelphia Business Journal, published an article earlier this month on how the company will undertake a comprehensive review of all strategic options.

“In light of changing industry and regulatory dynamics impacting our business, the board and management have decided to undertake a comprehensive review of all strategic options, including capital allocation alternatives, to maximize shareholder value,” Board Chairman James O. Egan was quoted saying in the article.

Most shockingly, in response, the company’s stock rallied. The article cited that the PHH’s stock price shot up by almost 13% in late morning trading after news of the review broke.

Rob Chrisman’s report on Mortgage News Daily brought this issue and Blumenthal’s article back to light to get the story straight on new rumor that PHH had shut down the retail origination channel and engaged in widespread layoffs.

For starters, it’s not true.

From Chrisman’s report:

Dico Akseraylian, senior vice president of marketing and communication, set things straight: “Within PHH Mortgage's Real Estate business channel, we originate mortgages through PHH Home Loans, a joint venture we maintain with Realogy, and a retail platform, which is outside of the joint venture.  As we stated during our fourth quarter earnings call, PHH continues to focus on driving organic growth through PHH Home Loans; however, we have decided to cease our organic retail expansion efforts outside of the joint venture.

Akseraylian further clarified this in an email to HousingWire, “Substantially all of our production is sourced through two principal business channels – private label and real estate. Within the real estate business channel, we originate mortgages through PHH Home Loans, a joint venture we maintain with Realogy, and a retail platform, which is outside of the joint venture. Our decision to cease retail organic expansion outside of the joint venture refers to the retail portion of our real estate business channel.”

While PHH is ceasing retail organic expansion outside of its joint venture, the beginning steps it took that led to its stock rallying must have one right move compared to other companies that have exited retail lending ('BankUnited stops originating retail mortgage loans' and 'Ditech exits distributed retail lending').

And this comes after the company predicted a turnaround in 2016 despite big losses in its recent earning reports.

Then, on the other side of the spectrum and in another possible success story for the company, PHH is managing to hang on its legal battle with the Consumer Financial Protection Bureau.

Back in August, A D.C. Circuit Court issued a stay against a $109.2 million fine levied against PHH by CFPB Director Richard Cordray.

Cordray’s decision in June held that PHH violated the Real Estate Settlement Procedures Act every time it accepted a kickback payment on or before July 21, 2008 – going far beyond Administrative Law Judge Cameron Elliot’s ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008 — a mere $6.4 million penalty.

Cordray issued a final order in June that requires PHH to disgorge $109.2 million – all the reinsurance premiums it received on or before July 21, 2008.

PHH gave a quick update on this in its 10-K filed on Feb. 26, saying:

The company continues to believe that it has complied with RESPA and other laws applicable to its former mortgage reinsurance activities, and continues to vigorously defend against the CFPB’s allegations and the director’s final order through the appellate process. A hearing on the merits of the appeal is currently scheduled before the Court of Appeals on April 12, 2016. There can be no assurances as to the final outcome of any such appeal.

Few companies have stood up against the CFPB, let alone the government, with the other notable fighter being Quicken Loans’ battle with the Department of Justice

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