It was the best of times, it was the worst of times for PHH.
A little less than a month ago, PHH was riding the highest of highs, having just landed a landmark legal victory over the Consumer Financial Protection Bureau in a case that saw the structure of the CFPB declared unconstitutional.
That case stemmed from CFPB Director Richard Cordray’s $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.
PHH took the CFPB to court, and eventually won, with the court vacating the $103 million additional fine and ruling that the CFPB director must serve at the pleasure of the president, basically making the CFPB director a cabinet position.
The impact of that ruling is still being felt, as the CFPB is supposedly considering challenging the court’s ruling, but that victory stemmed a tide of bad news for PHH.
In the months before the CFPB ruling, PHH saw various partners pull business away from the company, and announced an exit from correspondent lending, citing “subpar profitability.”
The company’s announced exit from correspondent lending came just days after the company posted a net loss of $30 million in the first quarter, placing the blame on the impact of negative adjustments to the “fair value” of the company’s mortgage servicing rights portfolio.
And now, less than 30 days after celebrating its big victory over the CFPB, PHH is reporting another loss, and announcing the exit from at least one more of its business lines.
PHH announced Tuesday that it plans to exit its private-label origination business after “exhaustive consideration of the available alternatives.”
According to PHH, it is set to begin the exit from the private-label business and intends that process to be substantially complete by the first quarter of 2018
The decision to pull out of private-label originations is significant for PHH.
The company estimates that its total pre-tax losses related to the exit from PLS, including operating losses, will be between $175 million to $205 million.
PHH also said that its private label business represented 78% of its total closing volume (based on dollars) for first nine months of 2016.
And while PHH may have the CFPB off its back for now, it may have another problem with a different regulator – namely the New York Department of Financial Services.
PHH disclosed Tuesday that during the second quarter, the NYDFS proposed a consent order to “close out pending examination report findings,” which include New York findings stemming from exams from multistate coalition of mortgage banking regulators (also called MMC).
PHH said that it reached an agreement in principle with the NYDFS related to those examinations but noted that the final consent order has not yet been executed by the NYDFS.
“Although there can be no assurances, we expect final resolution to be imminent and believe in any event that it will happen in the fourth quarter of 2016,” PHH said Tuesday. “At this time, we believe that any final consent order will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. As of September 30, 2016, we included an estimate of probable losses from this consent order in connection with the NYDFS matter in the recorded liability. “
PHH also said Tuesday that it posted a net loss attributable to PHH Corporation of $27 million or $0.50 per basic share, for the third quarter.
According to PHH, that loss includes $23 million of pre tax expenses related to “notable items,” including $11 million related to an increase in reserves for legacy regulatory matters, and a $13 million pre-tax unfavorable market-related fair value adjustment to the company’s MSRs, net of derivatives related to MSRs.
PHH also said Tuesday that it entered into a definitive agreement to sell “substantially all” of the Ginnie Mae MSR portfolio and related servicing advances to Lakeview Loan Servicing, subject to approval from Ginnie Mae and “certain origination source consents.”
According to PHH, the total book value of its Ginnie Mae MSR portfolio is $120 million. The company said that it expects the proceeds of the deal, excluding transaction and other costs, to be $122 million.
“We have made substantial progress in our evaluation of strategic alternatives and have made two critical decisions. First, we are pleased to announce that we have entered into a definitive agreement to sell substantially all our GNMA MSR portfolio and related servicing advances to Lakeview for a slight premium to book value before considering customary transaction and other expenses. In addition, after exhaustive consideration of the available alternatives, we have decided to exit from the PLS origination business,” PHH President and CEO Glen Messina said.
“We are committed to achieving an orderly and well-managed exit in the quickest and most cost effective way possible while meeting our regulatory and contractual requirements,” Messina added. “We are continuing to evaluate possible additional sales of our remaining MSR portfolio and to evaluate the best course of action for our real estate and servicing platforms, which we expect to complete by the end of January 2017.”
Messina added that the company’s financial performance is affected by continued volume reduction from Merrill Lynch’s decision to pull its private label origination services away from PHH and take it back in house.
The first sign of trouble came just three months after Bank of America and PHH renewed their agreement. PHH disclosed to its investors that BofA decided to pull the origination of new applications for certain mortgages in April 2016.
At the time, the change represented about 20% of Merrill Lynch’s closing dollar volume, and about 5% of PHH’s closing dollar volume. Merrill Lynch’s closing volume accounted for about 26% of PHH’s total volume for 2015.
“Our financial performance reflects continued volume reduction from the previously announced Merrill Lynch insourcing decisions and lower revenue and higher expenses related to our owned servicing asset, offset by continued strong momentum in our portfolio recapture initiative and higher loan origination margins,” Messina said. “Our increase in legal reserves is a result of continued progress in resolving legacy regulatory matters, which has also led to a reduction in our reasonably possible losses in excess of reserves by $20 million.”