PHH Phh Corp

PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today announced results for the three and nine months ended September 30, 2010. Mortgage production segment profit of $161 million offset a substantial portion of an unfavorable market-related change in the fair value of the Mortgage Servicing Rights (“MSR”) of $191 million, driving a third quarter 2010 GAAP loss before taxes of $2 million, Net loss attributable to PHH Corporation of $8 million and Loss per share of $0.14 (basic and diluted). A surge in third quarter application and interest rate lock commitments underpinned robust operating performance, reflected in third quarter 2010 core earnings (pre-tax)* of $180 million, core earnings (after-tax)* of $109 million, and core earnings per share* of $1.96.

Jerry Selitto, president and chief executive officer, commented, “Our strong performance is the result of our focus on driving shareholder value through sustainable earnings growth in each of our businesses. By increasing penetration of new and existing clients, we have profitably grown market share without compromising our high credit standards, and we have increased fee income in Fleet.

“Total mortgage closings were $12.7 billion for the quarter, up 26% over second quarter 2010, and our pipeline of interest rate lock commitments provides positive momentum going into the fourth quarter. With closings for the first nine months of the year at $30.6 billion and a robust pipeline of interest rate lock commitments, we are revising our guidance for production volume for the full year from $39 billion to approximately $45 billion.

“Although we re-prioritized our mortgage-related transformation projects to accommodate increased application volume, which delayed certain initiatives, we reported $83 million in annualized run rate savings through the third quarter and are on track to deliver $100 million in annualized run-rate savings by year-end.

“We undertook a comprehensive review of our foreclosure processes in light of problems experienced by other mortgage companies and, based on that review, we have not halted foreclosures in any states. We experienced a decrease in foreclosure provisions during the quarter as we began to see stability in repurchase trends. Based on the high credit quality of our servicing portfolio, our volume of foreclosure activity is small as compared to our largest competitors. As of September 30, 2010, we had less than 17,000 first mortgage loans in foreclosure representing less than 1.7% of the loans we service.

“Our liquidity position has been substantially strengthened over the course of the year. During the third quarter, we completed five new or amended facilities totaling $1.7 billion, to supplement the financing actions completed in the first half of 2010. Our goal of diversifying sources, extending maturities, and better matching future repayments with future cash flows is essentially complete. Our funding focus for next year will be to support the growth trajectory of our businesses.

“Given our strong operating performance this quarter, we expect full year 2010 core earnings per share in the range of $3.15 to $3.25.”

Consolidated Results

Third Quarter – 2010

• Net revenues for the third quarter of 2010 of $572 million and Net revenues for the third quarter of 2009 of $507 million included unfavorable market-related changes in fair value of the MSRs of $(191) million and $(89) million, respectively.
• GAAP (Loss) income before income taxes was $(2) million for the third quarter of 2010 compared to $(80) million for the third quarter of 2009. Net (loss) income attributable to PHH Corporation was $(8) million, or $(0.14) per basic share, and $(52) million, or $(0.94) per basic share, for the third quarters of 2010 and 2009, respectively. GAAP results in both years were primarily impacted by an unfavorable change in the fair value of the MSRs resulting from a decline in mortgage interest rates during the respective periods.
• Core earnings (pre-tax) were $180 million and $36 million for the third quarters of 2010 and 2009, respectively. Core earnings (after-tax) were $109 million, or $1.96 per share, and $19 million, or $0.36 per share, for the third quarters of 2010 and 2009, respectively.
• Improved third quarter core earnings in comparison to 2009 were impacted by significantly higher interest rate lock commitments driven by higher volumes from our private label clients and our wholesale/correspondent channel, improving Fleet leasing margins, and the realization of selected transformation initiatives. The increase in other expenses was primarily driven by the impact of higher mortgage volumes.

Consolidated Results

Nine Months – 2010

• Net revenues for the nine months ended September 30, 2010 of $1.5 billion and Net revenues for the nine months ended September 30, 2009 of $1.9 billion, included market-related changes in fair value of the MSRs of $(453) million and $15 million, respectively.
• GAAP (Loss) income before income taxes was $(198) million for the nine months ended September 30, 2010 compared to $111 million for the nine months ended September 30, 2009. Net (loss) income attributable to PHH Corporation was $(133) million, or $(2.39) per basic share, and $56 million, or $1.03 per basic share, for the nine months of 2010 and 2009, respectively. GAAP results were primarily impacted by an unfavorable market-related change in the fair value of the MSRs of $(453) million in the first nine months of 2010 versus a favorable market-related adjustment of $15 million in the first nine months of 2009.
• Core earnings (pre-tax) were $258 million and $150 million for the nine months ended September 30, 2010 and 2009, respectively. Core earnings (after-tax) were $150 million, or $2.70 per share, and $86 million, or $1.58 per share, for the nine months ended September 30, 2010 and 2009, respectively.
• Improved core earnings during 2010 in comparison to 2009 were impacted by significantly higher interest rate lock commitments driven by higher volumes from our private label clients and our wholesale/correspondent channel, improving Fleet leasing margins, and the realization of selected transformation initiatives. The increase in other expenses was primarily driven by the impact of higher mortgage volumes.

 

Segment Results – Third Quarter 2010

    Third Quarter 2010  

ThirdQuarter2009

 

Mortgage ProductionSegment

 

Mortgage Servicing Segment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other  

Total PHH

Corporation

Total PHH

Corporation

(In millions, unaudited) Net fee income $ 75 $ — $ 75 $ 38 $ — $ 113 $ 106 Fleet lease income — — — 342 — 342 363 Gain on mortgage loans 265 — 265 — — 265 115

Mortgage net finance expense

(4 )

(13

)

(17

)

— (1 )

(18

)

(16

)

Loan servicing

revenues (1)

— 109 109 — — 109 112 Net reinsurance loss —

(4

)

(4

)

— —

(4

)

(3

)

MSRs prepayments and recurring cash flows(2) —

(57

)

(57

)

— —

(57

)

(66

)

Other income   —     2     2     17   —     19     16   Core revenue* 336 37 373 397 (1 )

769

627

MSRs fair value adjustments:

 

Market-related(3) — (191 ) (191 ) — — (191 ) (89 ) Credit-related(4)   —     (6 )   (6 )   —   —     (6 )   (31 ) Net revenues   336     (160 )   176     397   (1 )   572     507   Depreciation on operating leases — — — 307 — 307 315 Fleet interest expense — — — 25 (1 ) 24 21 Foreclosure-related charges — 8 8 —

—

8

25 Other expenses   160     27     187     48   —     235     226   Total expenses   160     35     195     380   (1 )   574     587  

Income (loss) before income taxes

176

(195

)

(19

)

17

—

$

(2

)

$

(80

)

Less: income attributable to noncontrolling interest   15     —     15     —   —  

 

  Segment profit (loss) $ 161   $ (195 ) $ (34 ) $ 17 $ —   (1) Loan servicing revenues do not include Net reinsurance loss. (2) Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows. (3) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. (4)

Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

 

 

Segment Profit (Loss) and Core Earnings (Loss) *   Third Quarter 2010

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

(In millions, unaudited) Segment profit (loss) $ 161 $ (195 ) $ (34 ) $ 17 Certain MSRs fair value adjustments: Market-related (1) — 191 191 — Credit-related(2)   —   6     6     — Core earnings (pre tax)* $ 161 $ 2   $ 163   $ 17 (1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. (2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

The following summarizes the key highlights that drove our operating performance for our reportable segments during the third quarter of 2010 in comparison to the third quarter of 2009:

Mortgage Production Segment

• During the third quarter of 2010, a greater mix of refinance closings as well as an $8.8 billion (160%) increase in interest rate lock commitments expected to close
• The trend of higher margins on mortgage loans continued from the second quarter 2010 into the third quarter of 2010, although margins have begun to soften in the fourth quarter
• Increase in the mix of wholesale/correspondent closings to 32% during the third quarter of 2010 from 16% during the same period in 2009, which represents the execution of our strategy to focus on this channel in 2010 and profitably grow market share without compromising credit standards.

Mortgage Servicing Segment

• Delinquency rates began to stabilize during the third quarter of 2010, which favorably impacted the credit-related change in value of our MSRs during the third quarter of 2010 compared to the same period in 2009
• Average loan servicing portfolio increased by $8 billion (5%) as additions to the Mortgage Servicing portfolio exceeded actual prepayments
• The fair value of MSRs declined by $191 million and $89 million in the third quarter of 2010 and 2009, respectively, due to changes in market-related inputs and assumptions. The change in the fair value of MSRs was negatively impacted in both periods by declines in mortgage interest rates.
• Foreclosure costs decreased to $8 million during the third quarter 2010, from $25 million during the same period in 2009 due to the impact of timing of loan repurchases and indemnifications and the related impact on loss provisions as we began to see stabilization in those trends during the quarter

Fleet Management Services Segment

• Continued improved leasing margins and focus on transformation initiatives positively impacted our results during the third quarter of 2010 compared to the same period in 2009
• Average leased units decreased 7% as existing clients have reduced fleets due to the current economic conditions and as we continue to realize the impact of non-renewals of lease arrangements in prior years

 

Segment Results – Nine Months 2010

    Nine Months 2010  

NineMonths2009

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other  

Total PHHCorporation

Total PHHCorporation

(In millions, unaudited) Net fee income $ 193 $ — $ 193 $ 116 $ — $ 309 $ 328 Fleet lease income — — — 1,030 — 1,030 1,087   Gain on mortgage loans 509 — 509 — — 509 450 Mortgage net finance expense (13 )

(42

)

(55

)

— (2 )

(57

)

(39

)

Loan servicing

revenues (1)

— 320 320 — — 320 322   Net reinsurance loss —

(17

)

(17

)

— —

(17

)

(13

)

MSRs prepayments and recurring cash flows(2) — (148 )

(148

)

— —

(148

)

(243

)

Other income   1     3     4     48   —     52     21     Core revenues * 690 116 806 1,194 (2 )

1,998

1,913

MSRs fair value adjustments: Market-related(3) — (453 ) (453 ) — — (453 ) 15 Credit-related(4)   —     (25 )   (25 )   —   —     (25 )   (66 ) Net revenues   690     (362 )   328     1,194   (2 )   1,520     1,862   Depreciation on operating leases — — — 921 — 921 962 Fleet interest expense — — — 74 (2 ) 72 72 Foreclosure-related charges — 51 51 —

—

51

59 Other expenses   433     79     512     161   1     674     658   Total expenses   433     130     563     1,156   (1 )   1,718     1,751   Income (loss) before

income taxes

257

(492

)

(235

)

38

(1 )

$

(198

)

$

111

  Less: income attributable to noncontrolling interest   22     —     22     —   —  

 

  Segment profit (loss) $ 235   $ (492 ) $ (257 ) $ 38 $ (1 ) (1) Loan servicing revenues do not include Net reinsurance loss. (2) Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows. (3) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. (4) Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.   Segment Profit (Loss) and Core Earnings (Loss) *   Nine Months 2010

MortgageProduction Segment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other (In millions, unaudited) Segment profit (loss) $ 235 $ (492 ) $ (257 ) $ 38 $ (1 ) Certain MSRs fair value adjustments: Market-related (1) — 453 453 — — Credit-related(2)   —   25     25     —   —   Core earnings (loss) (pre tax)* $ 235 $ (14 ) $ 221   $ 38 $ (1 ) (1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. (2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

The following summarizes the key highlights that drove our operating performance for our reportable segments during the first nine months of 2010 in comparison to the first nine months of 2009:

Mortgage Production Segment

• A $9.2 billion (46%) increase in interest rate lock commitments expected to close during the nine months ended September 30, 2010
• Pricing margins on mortgage loans during the nine months ended September 30, 2010 were higher than long term historical averages and were relatively consistent with the same period in 2009; however, there was a decrease in total margin during the nine months ended September 30, 2010 due to the lower value of initial capitalized MSRs resulting from continuing reductions in mortgage interest rates
• Increase the mix of wholesale/correspondent closings to 28% during the nine months ended September 30, 2010 from 14% during the same period in 2009, which represents the execution of our strategy to focus on this channel in 2010 and profitably grow market share without compromising credit quality.

Mortgage Servicing Segment

• Delinquency rates have begun to stabilize during the third quarter of 2010, which has favorably impacted the credit-related change in value of our MSRs during the nine months ended September 30, 2010 compared to the same period in 2009
• Average loan servicing portfolio increased by $5.5 billion or 4% as additions to the Mortgage Servicing portfolio continued to exceed actual prepayments
• The fair value of our MSRs declined by $(453) million during the nine months ended September 30, 2010 compared to an increase of $15 million during the same period in 2009 due to changes in market-related inputs and assumptions and was impacted in both periods primarily by changes in mortgage interest rates
• Foreclosure costs decreased to $51 million during the nine months ended September 30, 2010, from $59 million during the same period in 2009 due to the impact of timing of loan repurchases and indemnifications and the related impact on loss provisions

Fleet Management Services Segment

• Continued improved leasing margins and our focus on transformation initiatives positively impacted results during the nine months ended September 30, 2010 compared to the same period in 2009
• Average leased units decreased 8% as existing clients have reduced fleets due to the current economic conditions and as we continued to realize the impact of non-renewal of lease arrangements in previous years

Capital and Liquidity

• As of September 30, 2010, we had $784 million of unused available capacity under our unsecured committed credit facilities as well as significant excess cash available to support working capital and other liquidity needs.
• As of September 30, 2010, we had mortgage warehouse and other asset-backed debt capacity of $2.6 billion, $2.2 billion of which was utilized.
• As of September 30, 2010, book value per share was $24.79. Book value per share is calculated by dividing total PHH Corporation stockholders’ equity by outstanding shares of common stock.

* Note Regarding Non-GAAP Financial Measures

Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share attributable to PHH Corporation, and Core revenues, are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations at the back of this release for a reconciliation of these measures to the most directly comparable GAAP financial measures.

Core Earnings and Core Revenues measure the Company’s financial performance excluding certain unrealized changes in value of Mortgage Servicing Rights that are based upon projections of future voluntary and involuntary prepayments. The unrealized changes in value of our Mortgage Servicing rights for voluntary and involuntary prepayments are reflected as market-related and credit related fair value adjustments, respectively. Core Earnings and Core Revenues may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance.

The Company believes that these Non-GAAP Financial Measures can be useful to investors because they provide a means by which investors can evaluate the Company’s underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period.

The Company also believes that any meaningful analysis of the Company’s financial performance by investors requires an understanding of the factors that drive the underlying operating performance which can be obscured by significant unrealized changes in value of our Mortgage Servicing Rights in a given period that is included in Segment (loss) profit, (Loss) income before income taxes, Net (loss) income attributable to PHH Corporation and Basic (loss) earnings per share attributable to PHH Corporation in accordance with GAAP.

Use of Core Earnings by Management

The unrealized changes in the value of Mortgage Servicing Rights are based upon numerous assumptions, which include estimated changes in future prepayments that may or may not be actually realized in the future. The market-related fair value adjustments are based upon assumptions of future interest rates, the shape of the yield curve, volatility and other factors. The credit-related fair value adjustments are based upon projected levels of delinquencies and foreclosures that are assumed to remain at current period-end levels throughout the life of the asset for purposes of modeling the expected future cash flows of the Mortgage Servicing Rights. Value lost from actual voluntary and involuntary prepayments are recorded when the underlying loans actually prepay or when foreclosure proceedings are complete, and are included in core earnings based on the current value of the Mortgage Servicing Rights.

The Company manages the business and has designed certain management incentives based upon the achievement of Core Earnings targets. In addition, the Company believes that it will likely replenish most, if not all, realized value lost from changes in value from actual prepayments through new loan originations and actively manages and monitors economic replenishment rates to measure our ability to continue to do so. Therefore, management does not believe the unrealized change in value of the Mortgage Servicing Rights is representative of the economic change in value of the business as a whole. The presentation of Core Earnings is designed to more closely align the timing of recognizing the actual value lost from prepayments in the Mortgage Servicing Segment with the associated value created through new originations in the Mortgage Production Segment.

Limitations on the Use of Core Earnings and Core Revenues

Since Core Earnings and Core Revenues measure the Company’s financial performance excluding certain unrealized changes in value of Mortgage Servicing Rights, they may not reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, Core Earnings may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment.

Core earnings involves differences from Segment (loss) profit, (Loss) income before income taxes, Net (loss) income attributable to PHH Corporation and Basic (loss) earnings per share attributable to PHH Corporation computed in accordance with GAAP. Core earnings should be considered as supplementary to, and not as a substitute for, Segment (loss) profit, (Loss) income before income taxes, Net (loss) income attributable to PHH Corporation or Basic (loss) earnings per share attributable to PHH Corporation computed in accordance with GAAP as a measure of the Company’s financial performance.

Conference Call

The Company will conduct a conference call for investors on Tuesday, November 2, 2010, at 10:00 a.m., Eastern Daylight Time. Investors will be able to access the third quarter 2010 downloadable slide presentation that will accompany management’s remarks by visiting the Investor Relations page of the Company’s website at www.phh.com prior to the conference call. Investors may also request copies via fax by calling the investor hotline at 1-856-917-7405.

Interested investors can access the conference call by dialing 1-800-533-7954 or 1-785-830-1924, using conference ID 9012324, ten minutes prior to the start time. The conference call will also be broadcast on the Company’s website at www.phh.com. A replay will be available beginning shortly after the conclusion of the live call and ending on November 17, 2010, by dialing 1-888-203-1112 or 1-719-457-0820, using conference ID 9012324, or by logging on to the Company’s website.

About PHH Corporation

Headquartered in Mount Laurel, New Jersey, PHH Corporation is a leading outsource provider of mortgage and vehicle fleet management services. Its subsidiary, PHH Mortgage, is one of the top five retail originators of residential mortgages in the United States1, and its subsidiary, PHH Arval, is a leading fleet management services provider in the United States and Canada. For additional information about the company and its subsidiaries please visit our website at www.phh.com.

1 Inside Mortgage Finance, Copyright 2010

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should understand that these statements are not guarantees of performance or results and are preliminary in nature. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may result”, “will result”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and not historical facts.

You should consider the areas of risk described under the heading “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the Securities and Exchange Commission under the Exchange Act, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, applicable stock exchange listing standards and unless otherwise required by law, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or unanticipated events.

 

PHH CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In millions, except per share data)

   

Three MonthsEnded September 30,

Nine MonthsEnded September 30,

  2010       2009     2010       2009   Revenues Mortgage fees $ 75 $ 69 $ 193 $ 216 Fleet management fees   38     37     116     112   Net fee income   113     106     309     328   Fleet lease income   342     363     1,030     1,087   Gain on mortgage loans, net   265     115     509     450   Mortgage interest income 29 20 69 70 Mortgage interest expense   (47 )   (36 )   (126 )   (109 ) Mortgage net finance expense   (18 )   (16 )   (57 )   (39 ) Loan servicing income 105 109 303 309 Change in fair value of mortgage servicing rights   (254 )   (186 )   (626 )   (294 ) Net loan servicing (loss) income   (149 )   (77 )   (323 )   15   Other income   19     16     52     21   Net revenues   572     507     1,520     1,862   Expenses Salaries and related expenses 127 114 360 357 Occupancy and other office expenses 16 16 45 43 Depreciation on operating leases 307 315 921 962 Fleet interest expense 24 21 72 72 Other depreciation and amortization 6 7 17 20 Other operating expenses   94     114     303     297   Total expenses   574     587     1,718     1,751   (Loss) income before income taxes (2 ) (80 ) (198 ) 111 (Benefit from) provision for income taxes   (9 )   (32 )   (87 )   43   Net income (loss) 7 (48 ) (111 ) 68 Less: net income attributable to noncontrolling interest   15     4     22     12   Net (loss) income attributable to PHH Corporation $ (8 ) $ (52 ) $ (133 ) $ 56   Basic (loss) earnings per share attributable to PHH Corporation $ (0.14 ) $ (0.94 ) $ (2.39 ) $ 1.03   Diluted (loss) earnings per share attributable to PHH Corporation $ (0.14 ) $ (0.94 ) $ (2.39 ) $ 1.02      

PHH CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In millions)

   

September 30,2010

December 31,2009

ASSETS Cash and cash equivalents $ 259 $ 150 Restricted cash, cash equivalents and investments 509 596 Mortgage loans held for sale 2,703 1,218 Accounts receivable, net 551 469 Net investment in fleet leases 3,524 3,610 Mortgage servicing rights 1,083 1,413 Property, plant and equipment, net 44 49 Goodwill 25 25 Other assets(1)   764   593 Total assets $ 9,462 $ 8,123   LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 557 $ 495 Debt 6,579 5,160 Deferred income taxes 606 702 Other liabilities   315   262 Total liabilities   8,057   6,619 Commitments and contingencies — — Total PHH Corporation stockholders’ equity 1,376 1,492 Noncontrolling interest   29   12 Total equity   1,405   1,504 Total liabilities and equity $ 9,462 $ 8,123 ________ (1) Other assets include intangible assets of $36 million and $38 million as of September 30, 2010 and December 31, 2009, respectively.    

PHH CORPORATION AND SUBSIDIARIESCOMBINED MORTGAGE SERVICES SEGMENTS RESULTSTHIRD QUARTER 2010 VS. THIRD QUARTER 2009(Unaudited)

 

 

 

Three Months EndedSeptember 30,

 

 

 

 

  2010     2009   Change % Change

 

(In millions)

Mortgage fees $ 75   $ 69   $ 6   9 % Gain on mortgage loans, net   265     115     150   130 % Mortgage interest income 29 20 9 45 % Mortgage interest expense   (46 )   (36 )   (10 ) (28 )% Mortgage net finance expense   (17 )   (16 )   (1 ) (6 )% Loan servicing income 105 109 (4 ) (4 )% Change in fair value of mortgage servicing rights   (254 )   (186 )   (68 ) (37 )% Net loan servicing loss   (149 )   (77 )   (72 ) (94 )% Other income   2     4     (2 ) (50 )% Net revenues   176     95     81   85 % Salaries and related expenses 104 89 15 17 % Occupancy and other office expenses 11 12 (1 ) (8 )% Other depreciation and amortization 2 4 (2 ) (50 )% Other operating expenses   78     79     (1 ) (1 )% Total expenses   195     184     11   6 % Loss before income taxes (19 ) (89 ) 70 79 % Less: net income attributable to noncontrolling interest   15     4     11   275 % Combined Mortgage Services segments loss $ (34 ) $ (93 ) $ 59   63 %    

PHH CORPORATION AND SUBSIDIARIESCOMBINED MORTGAGE SERVICES SEGMENTS RESULTSNINE MONTHS ENDED SEPTEMBER 30, 2010 VS. NINE MONTHS ENDED SEPTEMBER 30, 2009(Unaudited)

 

 

 

Nine Months EndedSeptember 30,

 

 

 

 

  2010       2009   Change % Change

 

(In millions)

Mortgage fees $ 193   $ 216   $ (23 ) (11 )% Gain on mortgage loans, net   509     450     59   13 % Mortgage interest income 70 71 (1 ) (1 )% Mortgage interest expense   (125 )   (112 )   (13 ) (12 )% Mortgage net finance expense   (55 )   (41 )   (14 ) (34 )% Loan servicing income 303 309 (6 ) (2 )% Change in fair value of mortgage servicing rights   (626 )   (294 )   (332 ) (113 )% Net loan servicing (loss) income   (323 )   15     (338 )

n/m

(1)

Other income (expense)   4     (15 )   19  

n/m

(1)

Net revenues   328     625     (297 ) (48 )% Salaries and related expenses 285 279 6 2 % Occupancy and other office expenses 32 30 2 7 % Other depreciation and amortization 8 11 (3 ) (27 )% Other operating expenses   238     223     15   7 % Total expenses   563     543     20   4 % (Loss) income before income taxes (235 ) 82 (317 )

n/m

(1)

Less: net income attributable to noncontrolling interest   22     12     10   83 % Combined Mortgage Services segments (loss) profit $ (257 ) $ 70   $ (327 )

n/m

(1)

 

________(1) n/m — Not meaningful.

   

PHH CORPORATION AND SUBSIDIARIESMORTGAGE PRODUCTION SEGMENT RESULTSTHIRD QUARTER 2010 VS. THIRD QUARTER 2009(Unaudited)

   

Three MonthsEnded September 30,

      2010       2009   Change % Change (Dollars in millions, exceptaverage loan amount) Loans closed to be sold $ 9,976 $ 6,630 $ 3,346 50 % Fee-based closings   2,702     2,383     319   13 % Total closings $ 12,678   $ 9,013   $ 3,665   41 % Purchase closings $ 5,361 $ 4,481 $ 880 20 % Refinance closings   7,317     4,532     2,785   61 % Total closings $ 12,678   $ 9,013   $ 3,665   41 % Fixed rate $ 10,134 $ 6,870 $ 3,264 48 % Adjustable rate   2,544     2,143     401   19 % Total closings $ 12,678   $ 9,013   $ 3,665   41 %   Retail closings $ 8,567 $ 7,534 $ 1,033 14 % Wholesale/correspondent closings   4,111     1,479     2,632   178 % Total closings $ 12,678   $ 9,013   $ 3,665   41 %   First mortgage closings (units) 50,695 36,500 14,195 39 % Second-lien closings (units)   2,222     2,661     (439 ) (16 )% Number of loans closed (units)   52,917     39,161     13,756   35 %   Average loan amount $ 239,585   $ 230,151   $ 9,434   4 % Loans sold $ 9,293   $ 7,428   $ 1,865   25 % Applications $ 27,166   $ 11,264   $ 15,902   141 % IRLCs expected to close $ 14,361   $ 5,514   $ 8,847   160 %  

 

Three MonthsEnded September 30,

 

 

2010 2009 Change % Change (In millions) Mortgage fees $ 75   $ 69   $ 6   9 % Gain on mortgage loans, net   265     115     150   130 % Mortgage interest income 26 17 9 53 % Mortgage interest expense   (30 )   (19 )   (11 ) (58 ) % Mortgage net finance expense (4 ) (2 ) (2 ) (100 )% Other income   —     3     (3 ) (100 )% Net revenues   336     185     151   82 % Salaries and related expenses 95 80 15 19 % Occupancy and other office expenses 9 9 — — Other depreciation and amortization 2 3 (1 ) (33 )% Other operating expenses   54     43     11   26 % Total expenses   160     135     25   19 % Income before income taxes 176 50 126 252 % Less: net income attributable to noncontrolling interest   15     4     11   275 % Segment profit $ 161   $ 46   $ 115   250 %    

PHH CORPORATION AND SUBSIDIARIESMORTGAGE PRODUCTION SEGMENT RESULTSNINE MONTHS ENDED SEPTEMBER 30, 2010 VS. NINE MONTHS ENDED SEPTEMBER 30, 2009(Unaudited)

     

Nine MonthsEnded September 30,

  2010       2009   Change % Change (Dollars in millions, exceptaverage loan amount) Loans closed to be sold $ 23,309 $ 22,917 $ 392 2 % Fee-based closings   7,251     5,955     1,296   22 % Total closings $ 30,560   $ 28,872   $ 1,688   6 % Purchase closings $ 14,954 $ 10,937 $ 4,017 37 % Refinance closings   15,606     17,935     (2,329 ) (13 )% Total closings $ 30,560   $ 28,872   $ 1,688   6 % Fixed rate $ 24,016 $ 23,809 $ 207 1 % Adjustable rate   6,544     5,063     1,481   29 % Total closings $ 30,560   $ 28,872   $ 1,688   6 %   Retail closings $ 22,096 $ 24,844 $ (2,748 ) (11 )% Wholesale/correspondent closings   8,464     4,028     4,436   110 % Total closings $ 30,560   $ 28,872   $ 1,688   6 %   First mortgage closings (units) 122,763 118,451 4,312 4 % Second-lien closings (units)   6,716     8,278     (1,562 ) (19 )% Number of loans closed (units)   129,479     126,729     2,750   2 %   Average loan amount $ 236,026   $ 227,827   $ 8,199   4 % Loans sold $ 21,952   $ 22,558   $ (606 ) (3 )% Applications $ 55,323   $ 41,807   $ 13,516   32 % IRLCs expected to close $ 29,160   $ 19,999   $ 9,161   46 %  

 

Nine MonthsEnded September 30,

 

 

  2010     2009   Change % Change (In millions) Mortgage fees $ 193   $ 216   $ (23 ) (11 )% Gain on mortgage loans, net   509     450     59   13 % Mortgage interest income 60 61 (1 ) (2 )% Mortgage interest expense   (73 )   (67 )   (6 ) (9 )% Mortgage net finance expense (13 ) (6 ) (7 ) (117 )% Other income   1     5     (4 ) (80 )% Net revenues   690     665     25   4 % Salaries and related expenses 256 251 5 2 % Occupancy and other office expenses 25 23 2 9 % Other depreciation and amortization 8 10 (2 ) (20 )% Other operating expenses   144     128     16   13 % Total expenses   433     412     21   5 % Income before income taxes 257 253 4 2 % Less: net income attributable to noncontrolling interest   22     12     10   83 % Segment profit $ 235   $ 241   $ (6 ) (2 )%        

PHH CORPORATION AND SUBSIDIARIESMORTGAGE SERVICING SEGMENT RESULTSTHIRD QUARTER 2010 VS. THIRD QUARTER 2009(Unaudited)

  Three Months Ended September 30,   2010       2009   Change % Change (In millions) Average loan servicing portfolio $ 157,479   $ 149,526   $ 7,953   5 %  

 

Three Months Ended September 30,

 

 

  2010     2009   Change % Change (In millions) Mortgage interest income $ 3 $ 3 $ — — Mortgage interest expense   (16 )   (17 )   1   6 % Mortgage net finance expense   (13 )   (14 )   1   7 % Loan servicing income 105 109 (4 ) (4 )% Change in fair value of mortgage servicing rights   (254 )   (186 )   (68 ) (37 )% Net loan servicing loss   (149 )   (77 )   (72 ) (94 )% Other income   2     1     1   100 % Net revenues   (160 )   (90 )   (70 ) (78 )% Salaries and related expenses 9 9 — — Occupancy and other office expenses 2 3 (1 ) (33 )% Other depreciation and amortization — 1 (1 ) (100 )% Other operating expenses   24     36     (12 ) (33 )% Total expenses   35     49     (14 ) (29 )% Segment loss $ (195 ) $ (139 ) $ (56 ) (40 )%    

PHH CORPORATION AND SUBSIDIARIESMORTGAGE SERVCING SEGMENT RESULTSNINE MONTHS ENDED SEPTEMBER 30, 2010 VS. NINE MONTHS ENDED SEPTMEBER 30, 2009(Unaudited)

     

Nine MonthsEnded September 30,

  2010       2009   Change % Change (In millions) Average loan servicing portfolio $ 154,762   $ 149,274   $ 5,488   4 %  

 

Nine Months Ended September 30,

 

 

  2010     2009   Change % Change (In millions) Mortgage interest income $ 10 $ 10 $ — — Mortgage interest expense   (52 )   (45 )   (7 ) (16 )% Mortgage net finance expense   (42 )   (35 )   (7 ) (20 )% Loan servicing income 303 309 (6 ) (2 )% Change in fair value of mortgage servicing rights   (626 )   (294 )   (332 ) (113 )% Net loan servicing (loss) income   (323 )   15     (338 )

n/m

(1)

Other income (expense)   3     (20 )   23  

n/m

(1)

Net revenues   (362 )   (40 )   (322 ) (805 )% Salaries and related expenses 29 28 1 4 % Occupancy and other office expenses 7 7 — — Other depreciation and amortization — 1 (1 ) (100 )% Other operating expenses   94     95     (1 ) (1 )% Total expenses   130     131     (1 ) (1 )% Segment loss $ (492 ) $ (171 ) $ (321 ) (188 )%

________(1) n/m — Not meaningful

     

PHH CORPORATION AND SUBSIDIARIESFLEET MANAGEMENT SERVICES SEGMENT RESULTSTHIRD QUARTER 2010 VS. THIRD QUARTER 2009(Unaudited)

 

Average for theThree MonthsEnded September 30,

2010   2009 Change   % Change (In thousands of units) Leased vehicles 289 310 (21 ) (7 )% Maintenance service cards 286 273 13 5 % Fuel cards 276 281 (5 ) (2 )% Accident management vehicles 290 301 (11 ) (4 )%  

 

Three MonthsEnded September 30,

 

 

2010 2009 Change % Change (In millions) Fleet management fees $ 38 $ 37 $ 1 3 % Fleet lease income 342 363 (21 ) (6 )% Other income   17   14   3   21 % Net revenues   397   414   (17 ) (4 )% Salaries and related expenses 19 21 (2 ) (10 )% Occupancy and other office expenses 5 4 1 25 % Depreciation on operating leases 307 315 (8 ) (3 )% Fleet interest expense 25 22 3 14 % Other depreciation and amortization 3 2 1 50 % Other operating expenses   21   36   (15 ) (42 )% Total expenses   380   400   (20 ) (5 )% Segment profit $ 17 $ 14 $ 3   21 %      

PHH CORPORATION AND SUBSIDIARIESFLEET MANAGEMENT SERVICES SEGMENT RESULTSNINE MONTHS ENDED SEPTEMBER 30, 2010 VS. NINE MONTHS ENDED SEPTEMBER 30, 2009(Unaudited)

 

Average for theNine MonthsEnded September 30,

2010   2009 Change   % Change (In thousands of units) Leased vehicles 292 318 (26 ) (8 )% Maintenance service cards 278 277 1 — Fuel cards 274 284 (10 ) (4 )% Accident management vehicles 289 311 (22 ) (7 )%  

 

Nine MonthsEnded September 30,

 

 

2010 2009 Change % Change (In millions) Fleet management fees $ 116 $ 112 $ 4 4 % Fleet lease income 1,030 1,087 (57 ) (5 )% Other income   48   42   6   14 % Net revenues   1,194   1,241   (47 ) (4 )% Salaries and related expenses 60 63 (3 ) (5 )% Occupancy and other office expenses 13 13 — — Depreciation on operating leases 921 962 (41 ) (4 )% Fleet interest expense 74 76 (2 ) (3 )% Other depreciation and amortization 8 8 — — Other operating expenses   80   80   —   —   Total expenses   1,156   1,202   (46 ) (4 )% Segment profit $ 38 $ 39 $ (1 ) (3 )%    

PHH CORPORATION AND SUBSIDIARIESCOMPONENTS OF MORTGAGE LOANS HELD FOR SALE(Unaudited)

 

September 30,2010

December 31,2009

First mortgages: (In millions) Conforming(1) $ 2,521 $ 1,106 Non-conforming 113 27 Construction loans   11   16 Total first mortgages   2,645   1,149 Second lien 12 24 Scratch and Dent(2) 42 43 Other   4   2 Total $ 2,703 $ 1,218 ________ (1) Represents mortgage loans that conform to the standards of Fannie Mae, Freddie Mac or Ginnie Mae.

(2)

Represents mortgage loans with origination flaws or performance issues.    

PHH CORPORATION AND SUBSIDIARIESCOMPONENTS OF GAIN ON MORTGAGE LOANS, NET(Unaudited)

     

 

Three Months Ended September 30,

 

 

  2010       2009   Change % Change (In millions) Gain on loans $ 259 $ 80 $ 179 224 %

Change in fair value of Scratch and Dent and certain non-conforming mortgage loans

(2 ) (3 ) 1 33 % Economic hedge results   8     38     (30 ) (79 )%

Total change in fair value of mortgage loans and related derivatives

  6     35     (29 ) (83 )% Gain on mortgage loans, net $ 265   $ 115   $ 150   130 %  

 

Nine Months Ended September 30,

 

 

  2010     2009   Change % Change (In millions) Gain on loans $ 493 $ 427 $ 66 15 %

Change in fair value of Scratch and Dent and certain non-conforming mortgage loans

(6 ) (17 ) 11 65 % Economic hedge results   22     40     (18 ) (45 )%

Total change in fair value of mortgage loans and related derivatives

  16     23     (7 ) (30 )% Gain on mortgage loans, net $ 509   $ 450   $ 59   13 %    

PHH CORPORATION AND SUBSIDIARIES

MORTGAGE LOAN SERVICING PORTFOLIO

(Unaudited)

 

Portfolio Activity

Nine Months EndedSeptember 30,

 

  2010       2009   (In millions) Unpaid principal balance of loans included in the total servicing portfolio: Balance, beginning of period $ 151,481 $ 149,750 Additions 27,779 25,799 Payoffs, sales and curtailments   (19,849 )   (25,815 ) Balance, end of period $ 159,411   $ 149,734    

Portfolio Composition

September 30,

 

  2010     2009   (In millions) Owned servicing portfolio $ 135,374 $ 128,846 Subserviced portfolio   24,037     20,888   Total servicing portfolio $ 159,411   $ 149,734   Fixed rate $ 111,047 $ 99,672 Adjustable rate   48,364     50,062   Total servicing portfolio $ 159,411   $ 149,734   Conventional loans $ 132,393 $ 129,915 Government loans 20,179 13,125 Home equity lines of credit   6,839     6,694   Total servicing portfolio $ 159,411   $ 149,734   Weighted-average interest rate   5.1 %   5.4 %

Portfolio Delinquency (1)

  September 30, 2010   2009

 

Number

of Loans

  Unpaid

Balance

Number

of Loans

  Unpaid

Balance

30 days 2.42 % 2.11 % 2.57 % 2.28 % 60 days 0.66 % 0.63 % 0.82 % 0.79 % 90 or more days 1.31 % 1.37 % 1.39 % 1.47 % Total delinquency 4.39 % 4.11 % 4.78 % 4.54 % Foreclosure/real estate owned/bankruptcies (2) 3.00 % 3.02 % 2.65 % 2.72 %

________

(1) Represents the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.

(2) As of September 30, 2010 and 2009, there were 18,250 and 14,787 of loans in foreclosure with unpaid principal balances of $3.3 billion and $2.6 billion, respectively.

   

PHH CORPORATION AND SUBSIDIARIESCHANGE IN FAIR VALUE OF MORTGAGE SERVICING RIGHTS(Unaudited)

     

Three MonthsEnded September 30,

  2010       2009   Change % Change (In millions) Actual prepayments of the underlying mortgage loans $ (48 ) $ (50 ) $ 2 4 % Actual receipts of recurring cash flows (9 ) (16 ) 7 44 % Credit-related fair value adjustments(1) (6 ) (31 ) 25 81 % Market-related fair value adjustments(2)   (191 )   (89 )   (102 ) (115 )% Change in fair value of mortgage servicing rights $ (254 ) $ (186 ) $ (68 ) (37 )%  

Nine MonthsEnded September 30,

      2010       2009   Change % Change (In millions) Actual prepayments of the underlying mortgage loans $ (117 ) $ (200 ) $ 83 42 % Actual receipts of recurring cash flows (31 ) (43 ) 12 28 % Credit-related fair value adjustments(1) (25 ) (66 ) 41 62 % Market-related fair value adjustments(2)   (453 )   15     (468 )

n/m

(3)

Change in fair value of mortgage servicing rights $ (626 ) $ (294 ) $ (332 ) (113 )% ________ (1) Represents the change in fair value of MSRs primarily due to changes in portfolio delinquencies and foreclosures. (2) Represents the change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. (3) n/m — Not meaningful.  

PHH CORPORATION AND SUBSIDIARIESNET INVESTMENT IN FLEET LEASES DETAIL(Unaudited)

               

 

September 30,2010

December 31, 2009   Vehicles under open-end leases 96% 95% Vehicles under closed-end leases 4% 5%   Vehicles under variable-rate leases 78% 76% Vehicles under fixed-rate leases 22% 24%  

Our Fleet Management Services segment’s historical net credit losses as a percentage of Net investment in fleet leases has averaged 2 basis points annually, and did not exceed 6 basis points annually, over the last ten fiscal years. During the nine months ended September 30, 2010, net credit losses as a percentage of Net investment in fleet leases were approximately 2 basis points for the period.

           

PHH CORPORATION AND SUBSIDIARIESAVAILABLE FUNDING UNDER ASSET-BACKED DEBTARRANGEMENTS AND UNSECURED COMMITTED CREDIT FACILITIES(Unaudited)

 

As of September 30, 2010, available funding under the Company’s asset-backed debt arrangements and unsecured committed credit facilities consisted of:

 

 

 

Capacity(1)

 

UtilizedCapacity

 

AvailableCapacity

(In millions) Asset-Backed Funding Arrangements Vehicle management(2) $ 3,586 $ 3,084 $ 502 Mortgage warehouse and other(3) 2,610 2,247 363 Unsecured Committed Credit Facilities(4) 810 26 784 ________ (1) Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. With respect to asset-backed funding arrangements, capacity may be further limited by the asset eligibility requirements under the respective agreements. (2) The Chesapeake 2009-1 Term Notes and the 2009-4 Term Notes have entered their respective amortization periods. (3) Capacity does not reflect $2.0 billion undrawn under the $3.0 billion uncommitted Fannie Mae repurchase facilities, and $129 million undrawn under other uncommitted repurchase facilities. (4) Utilized capacity reflects $16 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in the Condensed Consolidated Balance Sheet.    

PHH CORPORATION AND SUBSIDIARIESBOOK VALUE PER SHARE AND COMPONENTS OF PHH CORPORATIONSTOCKHOLDERS’ EQUITY(Unaudited)(In millions)

       

September 30,2010

December 31,2009

  Total PHH Corporation stockholders’ equity(1) $ 1,376 $ 1,492 Book value per share $ 24.79 $ 27.24 ________ (1) Outstanding shares of common stock were 55.501 million and 54.775 million as of September 30, 2010 and December 31, 2009, respectively.

 

      September 30,

2010

PHH Corporation Stockholders’ Equity(1): Combined Mortgage Services Segments $ 895 Fleet Management Services Segment 428 Other   53 Total PHH Corporation stockholders’ equity $ 1,376 ________ (1) The composition of Total PHH Corporation stockholders’ equity by business may be useful in determining return on stockholders’ equity by business; however, the reporting of equity by segment is not prescribed nor required by GAAP. As such, these amounts may be deemed non-GAAP financial measures under Regulation G. During the first quarter of 2010, our Mortgage and Fleet businesses paid dividends to PHH Corporation in order to effect a reallocation of capital between our businesses (“recapitalization”). Management evaluated several data sources, including rating agency leverage benchmarks, industry comparables and asset-backed securities market subordination levels to establish the revised equity levels in our businesses. The dividend payments impacted the balances under our intercompany funding arrangements, which are used to determine the allocation of our financing costs to our segments.    

PHH CORPORATION AND SUBSIDIARIESNON-GAAP RECONCILIATIONS(Unaudited)(In millions, except per share data)

 

See “Note Regarding Non-GAAP Financial Measures” on page 7 of this press release for a description of the uses and limitations of these Non-GAAP Financial Measures.

  Regulation G Reconciliation - Core Earnings   Three Months Ended September 30,   Nine Months Ended September 30,   2010       2009     2010       2009   Loss before income taxes – as reported $ (2 ) $ (80 ) $ (198 ) $ 111 Less: net income attributable to noncontrolling interest   15     4     22     12   (17 ) (84 ) (220 ) 99 Certain MSRs fair value adjustments: Market-related(1) 191 89 453 (15 ) Credit-related(2)   6     31     25     66   Core earnings (pre-tax) $ 180   $ 36   $ 258   $ 150     Net loss attributable to PHH Corporation – as reported $ (8 ) $ (52 ) $ (133 ) $ 56 Certain MSRs fair value adjustments: Market-related, net of taxes(1)(3) 113 53 268 (9 ) Credit-related, net of taxes(2)(3)   4     18     15     39   Core earnings (after-tax) $ 109   $ 19   $ 150   $ 86     Basic loss per share attributable to PHH Corporation – as reported $ (0.14 ) $ (0.94 ) $ (2.39 ) $ 1.03 Certain MSRs fair value adjustments: Market-related, net of taxes(1)(4) 2.03 0.97 4.82 (0.17 ) Credit-related, net of taxes(2)(4)   0.07     0.33     0.27     0.72   Core earnings per share attributable to PHH Corporation(4) $ 1.96   $ 0.36   $ 2.70   $ 1.58   ________ (1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. (2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures. (3) Incremental effective tax rate of 41% was applied to the MSRs fair value adjustments to arrive at the net of taxes amounts for the three months ended September 30, 2010 and 2009. (4) Basic weighted-average shares outstanding of 55.621 million and 54.744 million for the three months ended September 30, 2010 and 2009, respectively, and 55.404 and 54,543 for the nine months ended September 30, 2010 and 2009, respectively were used to calculate per share amounts.    

PHH CORPORATION AND SUBSIDIARIESNON-GAAP RECONCILIATIONS(Unaudited)(In millions)

 

Regulation G Segment Reconciliation – Core Earnings

  Third Quarter 2010

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

Segment profit (loss) $ 161 $ (195 ) $ (34 ) $ 17 Certain MSRs fair value adjustments: Market-related (1) — 191 191 — Credit-related(2)   —   6     6     — Core earnings $ 161 $ 2   $ 163   $ 17

(1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

Regulation G Segment Reconciliation – Core Earnings

    Nine Months 2010

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other Segment profit (loss) $ 235 $ (492 ) $ (257 ) $ 38 $ (1 ) Certain MSRs fair value adjustments: Market-related (1) — 453 453 — — Credit-related(2)   —   25     25     —   —   Core earnings (loss) $ 235 $ (14 ) $ 221   $ 38 $ (1 )

(1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

PHH CORPORATION AND SUBSIDIARIESNON-GAAP RECONCILIATIONS(Unaudited)(In millions)

 

Regulation G Segment Reconciliation – Core Earnings

    Third Quarter 2009

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other Segment profit (loss) $ 46 $ (139 ) $ (93 ) $ 14 $ (5 ) Certain MSRs fair value adjustments: Market-related (1) — 89 89 — — Credit-related(2)   —   31     31     —   —   Core earnings (loss) $ 46 $ (19 ) $ 27   $ 14 $ (5 )

(1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

Regulation G Segment Reconciliation – Core Earnings

    Nine Months 2009

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other Segment profit (loss) $ 241 $ (171) $ 70 $ 39 $ (10) Certain MSRs fair value adjustments: Market-related (1) — (15) (15) — — Credit-related(2) — 66 66 — — Core earnings (loss) $ 241 $ (120) $ 121 $ 39 $ (10)

(1) Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

   

PHH CORPORATION AND SUBSIDIARIESNON-GAAP RECONCILIATIONS(Unaudited)(In millions)

 

Regulation G Segment Reconciliation – Core Revenue

  Third Quarter 2010  

ThirdQuarter2009

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

 

Other

 

Total PHHCorporation

Total PHHCorporation

Net Revenue – as reported $ 336 $ (160 ) $ 176 $ 397 $ (1 ) $ 572 $ 507 Certain MSRs fair value adjustments: Market-related (1) — 191 191 — — 191 89 Credit-related(2)   —   6     6   —   —     6   31 Core Revenue $ 336 $ 37   $ 373 $ 397 $ (1 )

$

769

$ 627

(1) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

Regulation G Segment Reconciliation – Core Revenue

  Nine Months Ended September 30, 2010  

Nine Months2009

MortgageProductionSegment

 

MortgageServicingSegment

 

CombinedMortgageServicesSegments

 

FleetManagementServicesSegment

  Other  

Total PHHCorporation

Total PHHCorporation

Net Revenue – as reported $ 690 $ (362 ) $ 328 $ 1,194 $ (2 ) $ 1,520 $ 1,862 Certain MSRs fair value adjustments: Market-related (1) — 453 453 — — 453 (15 ) Credit-related(2)   —   25     25   —   —     25   66   Core Revenue $ 690 $ 116   $ 806 $ 1,194 $ (2 ) $ 1,998

$

1,913

 

(1) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model.

(2) Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.