PHH Corp. (PHH) said Friday that losses in its mortgage production business narrowed during the first quarter to $8 million, compared to a $39 million loss one year earlier -- a smidgen of good news for a battered industry. Unfortunately, the company's servicing operations swung strongly into the red, posting a $16 million loss for the quarter relative to a $55 million net gain one year ago. Nonetheless, the company -- which also manages a large vehicle fleet management business -- reported net income of $30 million, or $0.55/share, compared to $15 million, or $0.27/share, in the year-ago period. Loan production gains, loan servicing losses Mortgage production increased at the Mt. Laurel, New Jersey-based company in the first quarter, rising to an even $10.0 billion, up 6 percent from year-ago levels; PHH said that it closed $7.1 billion of loans to be sold during the quarter, 90 percent of which were conforming. PHH, which operates one of the larger private-label origination platforms, said that five news clients had signed up in Q1 as well, including Comerica Bank. More than half of the company's closings during the quarter were refinances, as purchase activity remained weak; The company booked $5.2 billion in loans closed during the first quarter, up 41 percent from year-ago volume. Relatively stronger results in origination activity were offset by losses in servicing activity, however, which lost $16 million during the quarter, after posting a $55 million profit in the first quarter of 2007. The $71 million swing was largely the result of hedging losses, the company said. Terry Edwards, president and CEO at PHH, said that the company had relied "on the natural business hedge rather than hedging our servicing portfolio with financial instruments." (In plain English, this means that the company bet -- wrongly -- that interest rates would post a persistent downward trend in the first quarter; rates instead went on their wildest ride in decades). PHH's servicing portfolio remained flat overall, but the company saw a temporary bump in subservicing volume due to the sale of mortgage servicing rights; PHH subserviced $29.5 billion at the end of the first quarter, it said, $18.6 billion of which was being subserviced until MSR transfers were complete to third-party purchasers. The vast majority of loans serviced at PHH are fixed-rate, traditional mortgages -- and it shows in the overall delinquency trends, which have only modestly increased since last year. PHH said that 2.58 percent of loans were delinquent at the end of March, compared to 2.39 percent one year earlier. It's worth noting, however, that $4.3 billion of PHH's $161.2 billion servicing portfolio is comprised of home equity lines of credit. Disclosure: The author held no positions in PHH when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.