On Wednesday, PHH Corporation released certain key operating metrics for the fourth quarter and 2006 fiscal year. The company, which is behind on making its required filings with the SEC, said it expects to be current in all relevant filings by the middle of this year.
The company said it expects to report $20 million loss on its mortgage servicing operations during the fourth quarter of 2006, citing tightening credit spreads as the chief culprit for the loss. PHH Mortgage, a subsidiary of PHH Corporation, is one of the top ten retail originators of residential mortgages in the United States.
"During the fourth quarter of 2006, negative results from our servicing hedge reduced our overall results for our mortgage servicing segment," said PHH CEO Terry Edwards. "Specifically, in the last two months of 2006, the relationship between mortgage rates and 10-year swap rates tightened by 6 basis points.
"Should the spread relationship between swaps and mortgages revert to historical trends, we expect that our hedge position would allow us to recoup this loss in future periods."
Edwards said the company expects to cut $50 million in servicing overhead during 2007, the result of laying off staff, cutting back on IT spending and outsourcing key back office functions. â€œBased upon origination forecasts for the mortgage industry, we are targeting mortgage origination volume of $41 billion for 2007.
"We believe that [our cost-cutting] actions, combined with an expected improvement in gain on sale margins, will return our combined mortgage segments to profitability in 2007."
PHH reported origination volume of $9.6 billion during the fourth quarter, down from $11.7 million in the fourth quarter of 2005. Total originations for 2006 dropped 14.3 percent, falling to $41.2 billion from $48.1 billion in 2005.
The company's servicing portfolio remained relatively flat during 2006, finishing the year at a reported $160.2 billion, up slightly from $154.8 billion one year ago. Delinquencies fell during 2006 to 3.01 percent of outstanding loans, down from 3.14 percent at the end of 2005.
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