For the second quarter in a row, PHH Corp. (PHH) posted a loss, driving the company deeper onto the negative side of the ledger for 2015.
According to PHH, the company reported a net loss attributable to PHH Corporation of $50 million or $0.84 per basic share, which includes a $44 million pre-tax provision for legal and regulatory reserves.
In the second quarter, PHH posted a net loss attributable to PHH Corporation of $62 million, or $1.20 per basic share. That loss was also driven primarily by PHH setting aside $34 million pre-tax provision for legal and regulatory reserves.
PHH is currently engaged in a court battle with the Consumer Financial Protection Bureau over a fine levied against PHH by the director of the CFPB, Richard Cordray.
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.
Cordray’s decision 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 a court ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008 to a mere $6.4 million penalty.
In August, a D.C. Circuit Court issued a stay against a $109.2 million fine after PHH said the court should review the CFPB’s order because it is “arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act” and a violation of federal law, including the Real Estate Settlement Procedures Act and the Consumer Financial Protection Act of 2010.
In its brief order, the three-judge appeals panel said it reviewed PHH and the CFPB's arguments for and against the stay of penalties for violations of RESPA. PHH had argued that complying with the agency's order would violate its due process rights and harm business irreparably.
Despite that stay, PHH still set aside $44 million more in legal and regulatory reserves.
“We have spent extensive time during the third quarter to gain additional insight into our outstanding regulatory matters and to refine the expected capital requirements associated with these regulatory matters, as well as our inorganic growth and servicing portfolio re-balancing initiatives,” Glen Messina, president and CEO of PHH Corporation, said.
As a result of that analysis, Messina said that the company’s board of directors is authorizing a massive stock buyback program.
“Our Board of Directors has extended the authorization for the Share Repurchase Program through December 31, 2016 and we expect to commence up to $100 million in open market share repurchases effective at our next available securities purchase window,” Messina said.
In its earning release, the company said that the buyback program could be as high as $250 million in open market share repurchases.
“We continue to realize the benefits of our re-engineering activities, as our core loss before notable items narrowed during the third quarter of 2015 as compared to the prior quarter,” Messina said. “Looking forward to 2016, we expect to be breakeven to modestly profitable for the full year 2016, on the same basis, assuming market and interest conditions materialize as expected and the successful execution of our strategic initiatives."
PHH said its third-quarter core loss after-tax and core loss per share, which excludes a $22 million pre-tax unfavorable market-related mortgage servicing rights fair value adjustment, net of derivative gains related to MSRs, were $36 million and $0.61, respectively.
PHH said that its mortgage production segment posted a loss of $10 million in the third quarter, compared to a segment profit of $3 million in the second quarter of 2015 and a segment loss of $28 million in the third quarter of 2014.
The $13 million unfavorable change in segment results during the third quarter of 2015 compared to the second quarter of 2015 was due to a $25 million decrease in net revenues that was partially offset by a $9 million decrease in total expenses.
Additionally, PHH said that its mortgage servicing segment reported a loss in the third quarter of 2015 of $77 million, compared to a segment loss of $46 million and $71 million in the second quarter of 2015 and third quarter of 2014, respectively.
The company said that it continued to incur higher provisions for legal and regulatory matters as our segment results include provisions of $44 million, $34 million and $20 million for the third quarter of 2015, second quarter of 2015 and third quarter of 2014, respectively.
In addition, during the third quarter of 2015, PHH recorded $22 million of unfavorable market-related fair value adjustment to its MSRs, net of related derivatives compared to favorable adjustments of $20 million in the second quarter of 2015. The $22 million unfavorable market-related fair value adjustment for the third quarter of 2015 was primarily attributable a decrease in mortgage interest rates.
“We are resolute in our commitment to executing a capital deployment framework to achieve our long-term return objectives,” Messina said.
“The current dynamics in the mortgage industry reinforce the need to meaningfully increase scale in both our production and servicing segments to achieve sustained profitability,” Messina added. “We are making the necessary investments in our business that we believe will generate shareholder value, and we look forward to continuing to respond to the challenges and opportunities that lie ahead for our business.”