PHH exits correspondent lending as rest of industry steps in

'Due to its subpar profitability'

PHH Corporation announced in its first-quarter earnings that it decided to exit the wholesale/correspondent lending channel, a move that differs from a recent development in the industry toward correspondent lending.

PHH said in its 10-Q filing with the Securities and Exchange Commission for the quarterly period ended March 31, 2016, “Based on our strategic evaluation thus far, we have also decided to exit the Wholesale/correspondent lending channel which represented 3% of our total closings both for the three months ended March 31, 2016 and for the year ended Dec. 31, 2015.”

The company said the decision is due to its subpar profitability and its intentions to reduce its investment in mortgage-servicing rights portfolio.

The first quarter’s historically low interest rates pulled down the performance of PHH Corporation because of the impact of negative adjustments to the “fair value” of its mortgage servicing rights portfolio.

PHH posted a net loss attributable to PHH Corporation of $30 million, or $0.56 per basic share, in the first quarter.

That loss includes $18 million of pre-tax notable items and a $10 million pre-tax unfavorable market-related fair value adjustment to the company’s mortgage servicing rights, net of derivatives related to MSRs.

As a result, PHH said in its 10-Q, “Given the persistent low interest rate environment, the uncertain outlook for servicing cost inflation, and our high cost of capital, we are exploring all alternatives to substantially reduce our investment in mortgage servicing rights and related debt.”

It also stated, “We will not be pursuing our previously communicated acquisition strategy at this time, and we are re-evaluating our prior scale objectives of $80 billion in mortgage production and $300 billion in mortgage servicing.”

Glen Messina, president and CEO of PHH Corporation, commented on the news and said, “We have decided to suspend our inorganic growth initiatives as we reassess our previously communicated scale objectives.”

In late March, PHH decided to cease some of its retail expansion efforts. Dico Akseraylian, senior vice president of marketing and communication, explained that within PHH Mortgage's Real Estate business channel, it originates mortgages through PHH Home Loans, a joint venture it maintains with Realogy, and a retail platform, which is outside of the joint venture.  PHH decided to cease it organic retail expansion efforts outside of the joint venture.

On the other side of the spectrum, other companies in the industry are eyeing correspondent lending to grow their business.

Ditech Financial announced in January that it is expanding its correspondent lending division services to a larger number of correspondent clients by focusing on non-delegated lending thanks to strong growth in the space over the last 18 months.

This heightened focus on the correspondent lending space comes after an announcement from the company that it exited the distributed retail lending channel.

Stonegate Mortgage also announced it was pulling away from its distributed retail lending division, realigning to what its core was when the lender first started. Instead, Stonegate focuses on where the majority of its production comes from, its third-party origination, which deals with its wholesale and correspondent clients.  

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