Announces Conclusions from its Evaluation of
Strategic Alternatives
Highlights:
- Net loss attributable to PHH
Corporation of $133 million or $2.49 per basic share, which
includes $73 million of pre-tax expenses related to notable items,
a $55 million pre-tax unfavorable market-related fair value
adjustment to our mortgage servicing rights (MSRs), net of
derivatives related to MSRs and $41 million of pre-tax expenses
related to PLS Exit and disposal costs.
- Entered into agreements to monetize
certain MSR assets and our investment in the PHH Home Loans joint
venture for total proceeds of up to $1.07 billion(1)
before estimated transaction and other costs.
- Estimates up to $550
million(2) of excess cash based on certain
assumptions for asset sales, working capital, contingencies and
transaction, restructuring and PLS exit costs.
- Intends to operate as a smaller,
capital light business comprised of subservicing and portfolio
retention services with solid prospects for profitability and
growth.
- Ended 4Q16 with $906 million of Cash
and cash equivalents, $690 million of MSRs, approximately $1.1
billion of Total equity and Tangible book value per share of
$20.37.
- Mortgage applications and Total
closings totaled $8.1 billion and $8.9 billion in 4Q16,
respectively, representing a 21% decrease and an insignificant
increase from $10.2 billion and $8.8 billion in 4Q15, respectively.
Total loan margin increased 100 bps to 405 bps in 4Q16.
PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today
announced financial results for the quarter ended December 31,
2016. For the quarter ended December 31, 2016, the Company
reported Net loss attributable to PHH Corporation of $133 million
or $2.49 per basic share. Net loss attributable to PHH Corporation
for the quarter ended December 31, 2015, was $54 million or
$0.92 per basic share.
For the quarter ended December 31, 2016, core loss
(after-tax)* and core loss per share* were $100 million and $1.86,
respectively, which exclude a $55 million pre-tax unfavorable
market-related mortgage servicing rights ("MSR") fair value
adjustment, net of derivatives related to MSRs.
Glen A. Messina, president and CEO of PHH Corporation, said,
"After a comprehensive examination of all available strategic
options, we have decided to close or exit our least profitable
businesses, monetize a substantial amount of our assets and operate
a smaller, focused, capital-light subservicing and portfolio
retention business. These actions will allow us to minimize
restructuring costs, maximize near-term capital distributions,
preserve the value of our tax assets, and create incremental value
through the ongoing operation of the business or future strategic
actions, which we believe will maximize value for shareholders. We
believe the remaining business platforms comprised of subservicing
and portfolio retention have the potential to achieve low
double-digit to mid-teen returns on capital after the completion of
certain cost re-engineering, PLS exit, organic growth, and return
of capital actions, and the resolution of our legacy legal and
regulatory matters."
Messina also commented, "Our financial performance for the
fourth quarter reflects higher expenses related to certain outcomes
of our strategic review process, including $41 million of PLS exit
costs, a $23 million write-down of our investment in the STARS
appraisal business, and transaction and advisory expenses."
_______________
(1)
Estimated proceeds reflect the composition
of the MSR portfolio and related servicing advances as of December
31, 2016. Estimated proceeds assumes the closing of the sale of all
our MSRs and the monetization of our investment in PHH Home Loans,
each of which are subject to various conditions to closing, and
that 100% of required approvals, investor consents and origination
source consents are received for the sale of our MSRs. The final
proceeds are dependent on a number of factors, including the amount
and type of consents received, the composition of the portfolio and
related servicing advances outstanding on each sale date. There can
be no assurances whether, or when, the sale transactions will close
or that we will receive the total amount of expected proceeds.
(2)
The amount of excess cash is dependent
upon a variety of factors, including the execution of the sale of
all of our MSRs as noted above, the monetization of our investment
in PHH Home Loans, the successful completion of our PLS exit
activities, the resolution of our outstanding legal and regulatory
matters and the successful completion of other restructuring and
capital management activities in accordance with our assumptions.
There can be no assurances that the actions resulting from the
completion of our strategic review will result in the amount of
estimated excess cash.
Summary Consolidated Results
(In millions, except per share amounts)
Three Months Ended Year Ended
December 31, December 31, 2016 2015
2016 2015 GAAP Results Net revenues $ 72 $ 123
$ 622 $ 790 Loss before income taxes (206 ) (83 ) (304 ) (213 ) Net
loss attributable to PHH Corporation (133 ) (54 ) (202 ) (145 )
Basic & Diluted loss per share attributable to PHH
Corporation $ (2.49 ) $ (0.92 ) $ (3.77 ) $ (2.62 )
Weighted-average common shares outstanding — Basic & Diluted
shares 53.659 58.536 53.627 55.202 Net (decrease) increase
in Cash and cash equivalents $ (90 ) $ (76 ) $ — $ (353 )
Non-GAAP Results* Core loss (pre-tax) $ (151 ) $ (34 ) $
(223 ) $ (238 ) Core loss (after-tax) (100 ) (23 ) (147 ) (152 )
Core loss per share $ (1.86 ) $ (0.38 ) $ (2.74 ) $ (2.74 )
Adjusted cash flow $ (90 ) $ 1 $ 23 $ (33 )
Our results in each respective period included the
following:
Three Months Ended December 31, 2016
2015 Pre-Tax Post-Tax Pre-Tax
Post-Tax $ Per Share $ Per
Share Notable items: Impairment of equity method investment $
(23 ) $ (0.26 ) $ — $ — Legal and regulatory reserves (22 ) (0.27 )
— — Strategic review expenses (21 ) (0.24 ) — — Re-engineering and
growth investments (6 ) (0.07 ) (21 ) (0.22 ) Loss from MSR sales
(1 ) (0.01 ) (4 ) (0.05 ) Exit and disposal costs (PLS) $
(41 ) $ (0.47 ) $ —
—
Market-related MSR fair value adjustment, net of related
derivatives (55 ) (0.63 ) (52 ) (0.54 )
* Non-GAAP Financial Measures
Core earnings or loss (pre-tax), core earnings or loss
(after-tax), core earnings or loss per share, and adjusted cash
flow are financial measures that are not in accordance with U.S.
generally accepted accounting principles (GAAP). See the “Note
Regarding Non-GAAP Financial Measures” below for a detailed
description and reconciliation of such Non-GAAP financial measures
to their most directly comparable GAAP financial measures, as
required by Regulation G.
Mortgage Production
Segment Results
Mortgage Production segment loss in the fourth quarter of 2016
was $62 million, compared to a segment profit of $22 million in the
third quarter of 2016 and a segment loss of $21 million in the
fourth quarter of 2015. The $84 million unfavorable change in
segment results for the fourth quarter of 2016 compared to the
third quarter of 2016 was primarily due to a $72 million decrease
in Net revenues and an $18 million increase in Total expenses. The
decline in Net revenues was primarily due to an unfavorable change
to Other (loss) income driven by a $23 million impairment on our
equity investment in Speedy Title and Appraisal Review Services LLC
("STARS"), a $37 million decrease in Gain on loans held for sale,
net driven by a 43% decline in IRLCs expected to close, and a $10
million decline in Origination and other loan fees primarily driven
by a 17% decrease in closing units from our real estate channel.
The increase in Total expenses was primarily driven from Exit and
disposal costs of $33 million related to our exit of the private
label solutions ("PLS") business that was partially offset by a $6
million decline in Loan origination expenses and a $4 million
decline in Commissions from lower overall closing and application
volumes in the fourth quarter of 2016.
The $41 million unfavorable change in segment results for the
fourth quarter of 2016 compared to the fourth quarter of 2015 was
primarily due to a $30 million decrease in Net revenues and a $14
million increase in Total expenses. The decrease in Net revenues
was primarily due to an unfavorable change to Other (loss) income
from a $23 million impairment on our equity method investment in
STARS and a decrease of $11 million in Gain on loans held for sale,
net driven by a 41% decline in IRLCs expected to close that was
partially offset by a 100 basis point increase in average total
loan margins. The increase in Total Expenses was primarily driven
by the $33 million of Exit and disposal costs for the fourth
quarter of 2016 that was partially offset by a $9 million decline
in Other operating expenses primarily due to lower Corporate
overhead costs from a reduced allocation to the Mortgage Production
segment in 2016 as compared to 2015 and a $7 million decline in
Loan origination expenses from lower overall closing and
application volumes in the fourth quarter of 2016.
Statistics
Total fourth quarter 2016 mortgage closings were $8.9 billion,
down 11% from the third quarter of 2016 and consistent with the
fourth quarter of 2015. The decrease in total closings compared to
the third quarter of 2016 was primarily attributable to seasonal
declines in purchase volume. Our consistent total closings as
compared to the fourth quarter of 2015 was driven by an increase in
refinance closings from our portfolio recapture efforts that was
offset by the exit from our wholesale/correspondent lending channel
during the second quarter of 2016.
IRLCs expected to close of $688 million in the fourth quarter of
2016 decreased 43% from the third quarter of 2016 and 41% from the
fourth quarter of 2015. Total loan margin on IRLCs expected to
close for the fourth quarter of 2016 was 405 bps, a 17 bps increase
from the third quarter of 2016 and a 100 bps increase from the
fourth quarter of 2015. The increase in margins is consistent with
the decline in interest rates experienced beginning in June through
November 2016 as loan margins tend to widen in periods of declining
interest rates as industry participants attempt to balance
origination volume with operational capacity.
PLS Exit
We began executing our plan to exit the PLS business in the
fourth quarter of 2016. The PLS business represented 80% of our
total closing volume (based on dollars) for the fourth quarter of
2016. We currently believe that we will be in a position to
substantially exit the PLS business by the first quarter of 2018,
subject to certain transition support requirements, and we
currently have exit plans in place with clients representing
approximately 55% of our PLS closing volume (based on closing
dollars for the year ended December 31, 2016).
For the year ended December 31, 2016, we have incurred $41
million of exit costs (pre-tax) related to the exit of PLS, which
includes severance and retention programs, contract termination
costs and a $15 million non-cash charge for asset impairment. We
estimate we will incur approximately $75 million of additional exit
costs (pre-tax) over the next 15 months. Additionally, while we
implement the exit from this channel, we expect to incur pre-tax
operating losses of approximately $120 million for PLS, including
maintaining the support and compliance infrastructure needed to
comply with both regulatory and contractual requirements.
Mortgage Servicing
Segment Results
Mortgage Servicing segment loss in the fourth quarter of 2016
was $117 million, compared to a segment loss of $52 million and $65
million in the third quarter of 2016 and fourth quarter of 2015,
respectively. The $65 million decline in segment results for the
fourth quarter of 2016 compared to the third quarter of 2016 was
due to a $53 million unfavorable change in Net revenues and a $12
million increase in Total Expenses. The decrease in Net revenues
was primarily due to a $42 million greater loss from Market-related
fair value adjustments of our MSRs, net of related derivatives. Our
market-related fair value adjustments were primarily driven by $35
million of negative model adjustments in the fourth quarter of 2016
to reflect increased servicing costs and foreclosure losses and by
a calibration of our valuation model considering the pricing
associated with the MSR agreements executed in the fourth quarter
of 2016, as we did not observe market participant pricing that was
commensurate with the expectations associated with the sharp
increase in interest rates after the U.S. presidential election.
Additionally, we experienced a $7 million decline in Loan servicing
income from a smaller average total loan servicing portfolio. The
increase in Total expenses was primarily driven by $11 million in
greater provisions for Legal and regulatory reserves.
The $52 million unfavorable change in segment results for the
fourth quarter of 2016 compared to the fourth quarter of 2015 was
due to a $21 million decrease in Net revenues and a $31 million
increase in Total expenses. The decrease in Net revenues was
primarily due to a $14 million decline in Loan servicing income
from a smaller average capitalized loan servicing portfolio. The
increase in Total expenses was primarily driven by $22 million in
greater provisions for Legal and regulatory reserves and $8 million
of higher Repurchase and foreclosure-related charges driven by
increased expenses that will not be reimbursed pursuant to mortgage
insurance programs.
In December 2016, we entered into resolution agreements with
Fannie Mae and Freddie Mac to resolve substantially all
representation and warranty exposure related to the sale of
mortgage loans that were originated and delivered prior to
September 30, 2016 and November 30, 2016, respectively. The
resolution agreements do not cover loans with certain defects,
which include but are not limited to, loans with certain title
issues or with violations of law. The settlement amounts did not
significantly exceed our recorded reserves.
Mortgage Servicing Rights
At December 31, 2016, the book value of our MSRs was $690
million, representing an 82 bps capitalized servicing rate. The MSR
book value and capitalized servicing rate at September 30,
2016 was $645 million and 73 bps of the capitalized loan servicing
portfolio. The MSR book value at December 31, 2015 was $880
million, representing an 89 bps capitalized servicing rate. For the
fourth quarter of 2016, there was a $74 million increase from
market-related fair value adjustments and $15 million in MSR book
value that was added from loans sold that was partially offset by a
$40 million decrease related to prepayments and the receipt of
recurring cash flows and a $4 million decrease from MSR sales, as
described in more detail below.
At December 31, 2016, the unpaid principal balance (“UPB”)
of our capitalized servicing portfolio was $84.7 billion, down 4%
from September 30, 2016 and down 14% from December 31,
2015. Our capitalized servicing portfolio continues to decline due
to the recent low interest rate environment leading to high
prepayment activity that has exceeded additions from new loan
production.
In the fourth quarter of 2016, we entered into agreements to
sell substantially all of our MSRs to New Residential Investment
Corp. ("New Residential") and Lakeview Loan Servicing ("Lakeview").
The following table summarizes our MSRs committed under sale
agreements, based on the portfolio as of December 31,
2016:
December 31, 2016 UPB Fair Value
(In millions) MSR commitments: New Residential Investment
Corp. $ 69,937 $ 579 Lakeview Loan Servicing 13,369 97 Other
counterparties 158 2 Non-committed 1,193 12 Total MSRs $
84,657 $ 690
In connection with the MSR sales, we expect to transfer
approximately $300 million of Servicing advances (based on the
December 31, 2016 portfolio).
On February 2, 2017, the initial sale of GNMA MSRs to Lakeview
was completed, representing $10.3 billion unpaid principal balance,
$77 million of MSR fair value, and $11 million of Servicing
advances. We expect to receive total proceeds of $88 million from
the initial transfer.
The final proceeds received from the MSR sales is dependent on
the closing of the MSR sales, as well as portfolio composition and
servicing advances outstanding at each transfer date, the amount of
investor and origination source consents received, and transaction
costs. The sale of $440 million of MSRs and Servicing advances
currently requires consents other than GSEs.
Subservicing
At December 31, 2016, our subservicing portfolio consisted
of approximately 265,000 units, down 44% from September 30,
2016 and down 41% from December 31, 2015. Our total
subservicing units declined by approximately 211,000 units during
the fourth quarter of 2016 driven by the insourcing of Merrill
Lynch Home Loans's portfolio and HSBC Bank USA’s sale of a
population of loans that we subserviced.
Other
Segment Results
Net loss before income taxes for the fourth quarter of 2016 was
$27 million, due to Strategic review expenses of $19 million and
Exit and disposal costs related to PLS of $8 million that were not
allocated back to our reportable segments.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern
Time) on Thursday, February 16, 2017, to discuss its fourth quarter
2016 results. All interested parties are welcome to participate. An
investor presentation with an appendix of supplemental schedules
will accompany the conference call and be available by visiting the
Investor Relations page of PHH's website at www.phh.com on Thursday, February 16, 2017, prior
to the start of the conference call.
You can access the conference call by dialing (888) 656-7432 or
(913) 312-1460 and using the conference ID 7799107 approximately 10
minutes prior to the call. The conference call will also be
webcast, which can be accessed from the Investor Relations page of
PHH's website at www.phh.com under
webcasts and presentations.
A replay will be available beginning shortly after the end of
the call through March 3, 2017, by dialing (888) 203-1112 or (719)
457-0820 and using conference ID 7799107, or by visiting the
Investor Relations page of PHH's website at www.phh.com.
About PHH Corporation
Headquartered in Mount Laurel, New Jersey, PHH Corporation is a
leading provider of end-to-end mortgage solutions through its
subsidiary, PHH Mortgage. Its outsourcing model and proven
expertise, combined with a strong commitment to operational
excellence and customer service, has enabled PHH Mortgage to become
one of the largest non-bank originators and servicers of
residential mortgages in the United States. PHH Mortgage provides
mortgage solutions for the real estate market and financial
institutions, and offers home financing directly to consumers. For
additional information, please visit www.phh.com.
Forward-Looking Statements
Certain statements in this press release are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Generally, forward looking-statements are not
based on historical facts but instead represent only our current
beliefs regarding future events. All forward-looking statements
are, by their nature, subject to risks, uncertainties and other
factors that could cause actual results, performance or
achievements to differ materially from those expressed or implied
in such forward-looking statements. Investors are cautioned not to
place undue reliance on these forward-looking statements. Such
statements may be identified by words such as “expects,”
“anticipates,” “intends,” “projects,” “estimates,” “plans,” “may
increase,” “may fluctuate” and similar expressions or future or
conditional verbs such as “will,” “should,” “would,” “may” and
“could.”
You should understand that forward-looking statements are not
guarantees of performance or results and are preliminary in nature.
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 U.S. Securities and
Exchange Commission, 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 or our
businesses generally. Such periodic reports are available in the
“Investors” section of our website at http://www.phh.com and are
also available at http://www.sec.gov. 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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions,
except per share data) Three Months Ended Year
Ended December 31, December 31, 2016
2015 2016 2015 REVENUES
Origination and other loan fees $ 65 $ 64 $ 280 $ 284 Gain on loans
held for sale, net 50 61 262 298 Net loan servicing income (loss):
Loan servicing income 82 96 353 394 Change in fair value of
mortgage servicing rights 34 (64 ) (238 ) (187 ) Net derivative
(loss) gain related to mortgage servicing rights (129 ) (25 ) 10
29
Net loan servicing (loss) income
(13 ) 7 125 236 Net interest expense: Interest
income 11 9 43 44 Secured interest expense (9 ) (8 ) (33 ) (35 )
Unsecured interest expense (11 ) (11 ) (42 ) (55 ) Net interest
expense (9 ) (10 ) (32 ) (46 ) Other (loss) income (21 ) 1
(13 ) 18
Net revenues 72 123 622
790
EXPENSES Salaries and related expenses 77 72 345
323 Commissions 15 14 64 79 Loan origination expenses 12 19 64 91
Foreclosure and repossession expenses 9 10 35 51 Professional and
third-party service fees 45 45 156 171 Technology equipment and
software expenses 12 9 42 37 Occupancy and other office expenses 12
11 47 50 Depreciation and amortization 3 5 16 18 Exit and disposal
costs 41 — 41 — Other operating expenses 52 21 116
183
Total expenses 278 206 926
1,003 Loss before income taxes (206 ) (83 ) (304 )
(213 ) Income tax benefit (73 ) (32 ) (111 ) (82 )
Net loss
(133 ) (51 ) (193 ) (131 ) Less: net income attributable to
noncontrolling interest — 3 9 14
Net
loss attributable to PHH Corporation $ (133 ) $ (54 ) $ (202 )
$ (145 )
Basic and Diluted loss per share attributable to
PHH Corporation $ (2.49 ) $ (0.92 ) $ (3.77 ) $ (2.62 )
PHH CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
December 31, 2016 2015 ASSETS
Cash and cash equivalents $ 906 $ 906 Restricted cash 57 47
Mortgage loans held for sale 683 743 Accounts receivable, net 66 81
Servicing advances, net 628 691 Mortgage servicing rights 690 880
Property and equipment, net 36 47 Other assets 109 247
Total assets $ 3,175 $ 3,642
LIABILITIES Accounts payable and accrued expenses $ 193 $
251 Subservicing advance liabilities 290 314 Debt, net 1,262 1,348
Deferred taxes, net 101 182 Loan repurchase and indemnification
liability 49 62 Other liabilities 157 137
Total
liabilities 2,052 2,294 Commitments and contingencies
Total PHH Corporation stockholders’ equity 1,092
1,318 Noncontrolling interest 31 30
Total equity
1,123 1,348
Total liabilities and equity $ 3,175
$ 3,642
Segment
Results
(In millions)
FourthQuarter2015
Fourth Quarter 2016
MortgageProduction
MortgageServicing
Other
Total PHHCorporation
Total PHHCorporation
Origination and other loan fees $ 65 $ — $ — $ 65 $ 64 Gain on
loans held for sale, net 50 — — 50 61 Loan servicing income — 82 —
82 96 MSR fair value adjustments: Prepayments and receipt of
recurring cash flows — (40 ) — (40 ) (37 ) Market-related — 74 — 74
(27 ) Net derivative loss related to MSRs — (129 ) — (129 ) (25 )
Net interest expense: Interest income 8 3 — 11 9 Secured interest
expense (6 ) (3 ) — (9 ) (8 ) Unsecured interest expense — (11 ) —
(11 ) (11 ) Other (loss) income (21 ) — — (21 ) 1
Net revenues 96 (24 ) — 72 123
Salaries and related expenses 49 14 14 77 72
Commissions 15 — — 15 14 Loan origination expenses 12 — — 12 19
Foreclosure and repossession expenses — 9 — 9 10 Professional and
third-party service fees 5 8 32 45 45 Technology equipment and
software expenses 1 5 6 12 9 Occupancy and other office expenses 7
4 1 12 11 Depreciation and amortization 1 1 1 3 5 Exit and disposal
costs 33 — 8 41 — Other operating expenses: Repurchase and
foreclosure-related charges — 9 — 9 1 Legal and regulatory reserves
— 22 — 22 — Overhead Allocation - IT 15 6 (21 ) — — Overhead
Allocation - Other 11 5 (16 ) — — Other 9 10 2
21 20
Total expenses 158 93 27
278 206
Loss before income taxes (62 )
(117 ) (27 ) $ (206 ) $ (83 ) Less: net income attributable to
noncontrolling interest — — —
Segment
loss $ (62 ) $ (117 ) $ (27 )
Segment Results
(In millions)
Year EndedDecember31,
2015
Year Ended December 31, 2016
MortgageProduction
MortgageServicing
Other
Total PHHCorporation
Total PHHCorporation
Origination and other loan fees $ 280 $ — $ — $ 280 $ 284 Gain on
loans held for sale, net 262 — — 262 298 Loan servicing income —
353 — 353 394 MSR fair value adjustments: Prepayments and receipt
of recurring cash flows — (138 ) — (138 ) (169 ) Market-related —
(100 ) — (100 ) (18 ) Net derivative gain related to MSRs — 10 — 10
29 Net interest expense: Interest income 32 11 — 43 44 Secured
interest expense (22 ) (11 ) — (33 ) (35 ) Unsecured interest
expense — (42 ) — (42 ) (55 ) Other (loss) income (13 ) — —
(13 ) 18
Net revenues 539 83 —
622 790 Salaries and related expenses
216 68 61 345 323 Commissions 64 — — 64 79 Loan origination
expenses 64 — — 64 91 Foreclosure and repossession expenses — 35 —
35 51 Professional and third-party service fees 22 35 99 156 171
Technology equipment and software expenses 4 17 21 42 37 Occupancy
and other office expenses 27 17 3 47 50 Depreciation and
amortization 8 3 5 16 18 Exit and disposal costs 33 — 8 41 — Other
operating expenses: Repurchase and foreclosure-related charges — 19
— 19 6 Loss on early debt retirement — — — — 30 Legal and
regulatory reserves — 38 — 38 78 Overhead Allocation - IT 68 29 (97
) — — Overhead Allocation - Other 50 22 (72 ) — — Other 27
23 9 59 69
Total expenses 583
306 37 926 1,003
Loss before
income taxes (44 ) (223 ) (37 ) $ (304 ) $ (213 ) Less: net
income attributable to noncontrolling interest 9 — —
Segment loss $ (53 ) $ (223 ) $ (37 )
Mortgage Production Segment
($ In millions)
Three Months EndedDecember
31,
Year Ended December 31,
2016 2015 Change 2016
2015 Change
Closings:
Saleable to investors $ 2,552 $ 2,518 1 % $ 10,146 $ 13,218 (23 )%
Fee-based 6,333 6,324 — % 27,083 27,386
(1 )% Total $ 8,885 $ 8,842 — % $ 37,229 $
40,604 (8 )% Purchase $ 3,392 $ 4,326 (22 )% $ 16,140
$ 20,169 (20 )% Refinance 5,493 4,516 22 % 21,089
20,435 3 % Total $ 8,885 $ 8,842 — % $
37,229 $ 40,604 (8 )% Retail - PLS $ 7,100 $
6,900 3 % $ 29,261 $ 30,436 (4 )% Retail - Real Estate 1,785
1,634 9 % 7,383 8,752 (16 )% Total retail
8,885 8,534 4 % 36,644 39,188 (6 )% Wholesale/correspondent —
308 (100 )% 585 1,416 (59 )% Total $
8,885 $ 8,842 — % $ 37,229 $ 40,604 (8
)% Retail - PLS (units) 12,371 13,348 (7 )% 51,089 58,587
(13 )% Retail - Real Estate (units) 6,147 6,159 — %
26,075 32,428 (20 )% Total retail (units) 18,518
19,507 (5 )% 77,164 91,015 (15 )% Wholesale/correspondent (units) —
1,318 (100 )% 2,298 6,199 (63 )% Total
(units) 18,518 20,825 (11 )% 79,462 97,214
(18 )%
Applications:
Saleable to investors $ 2,695 $ 3,065 (12 )% $ 14,275 $ 18,047 (21
)% Fee-based 5,414 7,153 (24 )% 31,134 33,593
(7 )% Total $ 8,109 $ 10,218 (21 )% $ 45,409
$ 51,640 (12 )% Retail - PLS $ 6,319 $ 7,982
(21 )% $ 35,512 $ 38,672 (8 )% Retail - Real Estate 1,790
1,846 (3 )% 9,206 10,845 (15 )% Total retail
8,109 9,828 (17 )% 44,718 49,517 (10 )% Wholesale/correspondent —
390 (100 )% 691 2,123 (67 )% Total $
8,109 $ 10,218 (21 )% $ 45,409 $ 51,640
(12 )% Retail - PLS (units) 11,435 15,250 (25 )% 64,446
76,106 (15 )% Retail - Real Estate (units) 6,105 6,894
(11 )% 32,157 40,165 (20 )% Total retail
(units) 17,540 22,144 (21 )% 96,603 116,271 (17 )%
Wholesale/correspondent (units) — 1,634 (100 )% 2,649
9,181 (71 )% Total (units) 17,540 23,778
(26 )% 99,252 125,452 (21 )%
Other:
IRLCs expected to close $ 688 $ 1,174 (41 )% $ 4,373 $ 7,199 (39 )%
Total loan margin on IRLCs (in basis points) 405 305 33 % 352 310
14 % Loans sold $ 2,744 $ 2,628 4 % $ 10,548 $ 13,630 (23 )%
Mortgage Production Segment (continued)
(in millions)
Three Months EndedDecember
31,
Year Ended December 31,
2016 2015 Change 2016
2015 Change
Segment
Results:
Origination and other loan fees $ 65 $ 64 2 % $ 280 $ 284 (1 )%
Gain on loans held for sale, net 50 61 (18 )% 262 298 (12 )% Net
interest expense: Interest income 8 8 — % 32 40 (20 )% Secured
interest expense (6 ) (5 ) 20 % (22 ) (24 ) (8 )% Unsecured
interest expense — (3 ) (100 )% — (21 ) (100 )% Net
interest expense 2 — n/m 10 (5 ) (300 )% Other (loss) income (21 )
1 n/m (13 ) 9 n/m
Net revenues 96 126
(24 )% 539 586 (8 )% Salaries and
related expenses 49 49 — % 216 213 1 % Commissions 15 14 7 % 64 79
(19 )% Loan origination expenses 12 19 (37 )% 64 91 (30 )%
Professional and third-party service fees 5 9 (44 )% 22 34 (35 )%
Technology equipment and software expenses 1 — n/m 4 3 33 %
Occupancy and other office expenses 7 7 — % 27 31 (13 )%
Depreciation and amortization 1 2 (50 )% 8 11 (27 )% Exit and
disposal costs 33 — n/m 33 — n/m Other operating expenses 35
44 (20 )% 145 157 (8 )%
Total expenses
158 144 10 % 583 619 (6 )% Loss before
income taxes (62 ) (18 ) 244 % (44 ) (33 ) 33 % Less: net income
attributable to noncontrolling interest — 3 (100 )% 9
14 (36 )%
Segment loss $ (62 ) $ (21 ) 195 % $
(53 ) $ (47 ) 13 % ______________ n/m - Not Meaningful
Mortgage Servicing Segment ($
in millions) December 31,
2016 2015 Change
Total Loan
Servicing Portfolio:
Unpaid principal balance $ 174,642 $ 226,259 (23 )% Number
of loans in owned portfolio (units) 567,647 642,379 (12 )% Number
of subserviced loans (units) 264,718 450,295
(41 )% Total number of loans serviced (units) 832,365
1,092,674 (24 )%
Capitalized
Servicing Portfolio:
Unpaid principal balance $ 84,657 $ 98,990 (14 )% Capitalized
servicing rate 0.82 % 0.89 % (8 )% Capitalized servicing multiple
2.9 3.1 (6 )% Weighted-average servicing fee (in basis points) 28
29 (3 )%
Three
Months EndedDecember 31,
Year EndedDecember 31,
2016 2015 Change 2016 2015
Change
Total Loan
Servicing Portfolio:
Average Portfolio UPB $ 197,263 $ 226,791 (13 )% $ 220,458 $
225,787 (2 )%
Capitalized
Servicing Portfolio:
Average Portfolio UPB $ 86,607 $ 100,442 (14 )% $ 92,303 $ 105,343
(12 )% Payoffs and principal curtailments 5,109 4,238 21 % 19,211
19,092 1 % Sales 254 365 (30 )% 996 3,445 (71 )%
December 31, 2016 2015
Number of
Loans
Unpaid
Balance
Number of
Loans
Unpaid
Balance
Delinquency -
Total Servicing Portfolio(1)
30 days 2.23 % 1.58 % 2.22 % 1.55 % 60 days 0.60 0.41 0.44 0.30 90
or more days 0.76 0.57 0.82 0.62 Total
3.59 % 2.56 % 3.48 % 2.47 % Foreclosure/real estate owned(2) 1.80 %
1.54 % 1.74 % 1.51 % _______________
(1)
Represents portfolio delinquencies as a percentage of the
total number of loans and the total unpaid balance of the
portfolio.
(2)
As of December 31, 2016 and 2015, the total servicing portfolio
included 11,539 and 15,487 of loans in foreclosure with an unpaid
principal balance of $2.3 billion and $3.0 billion, respectively.
Mortgage Servicing Segment
(continued) ($ in millions) Three Months
EndedDecember 31, Year
EndedDecember 31,
2016 2015 Change 2016 2015
Change
Segment
Results:
Net loan servicing (loss) income $ (13 ) $ 7 n/m $ 125 $ 236 (47 )%
Net interest expense (11 ) (10 ) 10 % (42 ) (41 ) 2 % Other income
— — n/m — 3
(100 )%
Net revenues (24 ) (3 ) n/m 83
198 (58 )% Salaries and related
expenses 14 12 17 % 68 56 21 % Foreclosure and repossession
expenses 9 10 (10 )% 35 51 (31 )% Professional and third-party
service fees 8 9 (11 )% 35 28 25 % Technology equipment and
software expenses 5 4 25 % 17 16 6 % Occupancy and other office
expenses 4 3 33 % 17 16 6 % Depreciation and amortization 1 1 — % 3
2 50 % Other operating expenses 52 23
126 % 131 160 (18 )%
Total
expenses 93 62 50 % 306
329 (7 )%
Segment loss $ (117 ) $ (65 )
80 % $ (223 ) $ (131 ) 70 %
______________
n/m - Not Meaningful
Debt and Borrowing Arrangements (in
millions)
December 31, 2016 December 31, 2015
Balance Interest Rate(1)
Available Capacity(2)
Balance Committed warehouse facilities $ 556 2.9 % $
494 $ 632 Uncommitted warehouse facilities — — 1,950 — Servicing
advance facility 99 2.7 % 56 111 Term notes due in 2019 275
7.375 % n/a 275 Term notes due in 2021 340 6.375 %
n/a 340 Unsecured debt, face value 615 615 Debt
issuance costs(3) (8 ) (10 ) Unsecured debt, net
607 605 Total 1,262
1,348 ______________
(1)
Interest rate shown represents the stated interest rate of
outstanding borrowings, which may differ from the effective rate
due to the amortization of premiums, discounts and issuance costs.
Warehouse facilities and the servicing advance facility are
variable-rate. Rate shown for warehouse facilities represents the
weighted-average rate of current outstanding borrowings.
(2)
Capacity is dependent upon maintaining compliance with, or
obtaining waivers of, the terms, conditions and covenants of the
respective agreements, including asset-eligibility requirements.
(3)
Deferred issuance costs were reclassified from the prior year
presentation in Other assets to a reduction in Unsecured debt.
* NOTE REGARDING NON-GAAP FINANCIAL MEASURES
Core earnings or loss (pre-tax and after-tax), core earnings or
loss per share, and adjusted cash flow, are financial measures that
are not in accordance with GAAP. See Non-GAAP Reconciliations below
for a reconciliation of these measures to the most directly
comparable GAAP financial measures as required by Regulation G.
These Non-GAAP measures are used in managing certain aspects of
the Company’s business. For example, management’s reviews of
results incorporate Non-GAAP measures and certain of the Company’s
debt agreements contain covenants calculated using a measure
similar to the calculations of the Non-GAAP measures. The Company
has also designed certain management incentives based upon the
achievement of targets related to Non-GAAP measures. 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 Company’s underlying
operating performance which can be obscured by significant
unrealized changes in value of the Company’s mortgage servicing
rights, as well as any gain or loss on derivatives that are
intended to offset market-related fair value adjustments on the
Company’s mortgage servicing rights.
The Company believes these Non-GAAP measures provide useful
information to investors that is supplementary to our results in
accordance with GAAP; however, there are inherent limitations to
these measures and they should not be viewed as a substitute for
our results in accordance with GAAP as measurements of the
Company's financial performance.
Core earnings or loss (pre-tax and
after-tax) and core earnings or loss per share
Core earnings or loss (after-tax) and core earnings or loss per
share involves differences from Net income or loss attributable to
PHH Corporation and Basic earnings or loss per share attributable
to PHH Corporation computed in accordance with GAAP.
Core earnings or loss (pre-tax and after-tax) and core earnings
or loss per share measure the Company’s financial performance
excluding unrealized changes in fair value of the Company’s
mortgage servicing rights that are based upon projections of
expected future cash flows and prepayments as well as realized and
unrealized changes in the fair value of derivatives that are
intended to offset changes in the fair value of mortgage servicing
rights. The changes in fair value of mortgage servicing rights and
related derivatives are highly sensitive to changes in interest
rates and are dependent upon the level of current and projected
interest rates at the end of each reporting period.
Adjusted cash flow
Adjusted cash flow measures the Company’s Net increase or
decrease in cash and cash equivalents for a given period excluding
changes resulting from the issuance or repurchase of equity or the
issuance or repayment of unsecured or other debt by PHH
Corporation.
The Company believes that Adjusted cash flow is a useful measure
for investors because the measure may assist investors in
determining the amount of cash and cash equivalents generated from
business activities during a period that is available to repay
unsecured debt or distribute to holders of the Company’s equity.
Adjusted cash flow can be generated through a combination of
earnings, more efficient utilization of asset-backed funding
facilities, or an improved working capital position and can vary
significantly between periods based upon a variety of potential
factors including, but not limited to, timing related to cash
collateral postings, mortgage origination volumes and loan
margins.
NON-GAAP RECONCILIATIONS - CORE
EARNINGS
(In millions, except per share
data)
See “Note Regarding Non-GAAP Financial Measures” above in
this press release for a description of the uses and limitations of
the Non-GAAP Financial Measures.
CORE EARNINGS-
Regulation G Reconciliation Three Months
EndedDecember 31, Year
EndedDecember 31, 2016 2015
2016 2015 Loss before income taxes - as
reported $ (206 ) $ (83 ) $ (304 ) $ (213 ) Less: net income
attributable to noncontrolling interest — 3
9 14 Segment loss (206 ) (86 )
(313 ) (227 ) Market-related fair value adjustments (1) (74 ) 27
100 18 Net derivative loss (gain) related to MSRs 129
25 (10 ) (29 )
Core loss
(pre-tax) $ (151 ) $ (34
) $ (223 ) $ (238
) Net loss attributable to PHH Corporation - as
reported $ (133 ) $ (54 ) $ (202 ) $ (145 ) Market-related fair
value adjustments (1) (74 ) 27 100 18 Net derivative loss (gain)
related to MSRs 129 25 (10 )
(29 ) (78 ) (2 ) (112 ) (156 ) Income tax expense (benefit)
on Core adjustments(2) 22 21 35
(4 )
Core loss (after-tax) $
(100 ) $ (23 ) $
(147 ) $ (152 ) Core
loss (after-tax) per share $ (1.86 )
$ (0.38 ) $ (2.74 )
$ (2.74 ) CORE EARNINGS BY
SEGMENT- Regulation G Reconciliation
Mortgage
Production
Segment
Mortgage
Servicing
Segment
Other
Mortgage
Production
Segment
Mortgage
Servicing
Segment
Other Three Months Ended December 31,
2016 Year Ended December 31, 2016 Segment loss $ (62 ) $
(117 ) $ (27 ) $ (53 ) $ (223 ) $ (37 ) Market-related fair value
adjustments(1) — (74 ) — — 100 — Net derivative loss (gain) related
to MSRs — 129 — —
(10 ) — Core loss $ (62 ) $ (62 ) $ (27
) $ (53 ) $ (133 ) $ (37 )
Three Months Ended December
31, 2015 Year Ended December 31, 2015 Segment loss $ (21
) $ (65 ) $ — $ (47 ) $ (131 ) $ (49 ) Market-related fair value
adjustments(1) — 27 — — 18 — Net derivative loss (gain) related to
MSRs — 25 — —
(29 ) — Core loss $ (21 ) $ (13 ) $ —
$ (47 ) $ (142 ) $ (49 ) _____________
(1)
Represents the Change in fair value of MSRs due to changes
in market inputs and assumptions used in the valuation model.
(2)
An incremental effective tax rate of 39% was applied to arrive at
the net of taxes amounts.
(3)
Basic weighted-average shares outstanding of 53.659 million and
58.536 million for the three months ended December 31, 2016 and
2015, respectively, and 53.627 million and 55.202 million for the
year ended December 31, 2016 and 2015, respectively, were used to
calculate per share amounts.
NON-GAAP
RECONCILIATIONS - (continued)
(In millions)
See “Note Regarding Non-GAAP Financial Measures” above in
this press release for a description of the uses and limitations of
the Non-GAAP Financial Measures.
ADJUSTED CASH FLOW-
Regulation G Reconciliation Three Months
EndedDecember 31, Year
EndedDecember 31, 2016 2015
2016 2015 Net (decrease) increase in
Cash and cash equivalents - as reported $ (90 ) $ (76 ) $ — $ (353
) Adjustments: Decrease in unsecured borrowings — — — 245
Repurchase of Common stock — 77 23 77 Issuances of Common stock
— — — (2 )
Adjusted
Cash Flow $ (90 ) $ 1
$ 23 $ (33 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170215006332/en/
PHH CorporationInvestorsHugo Arias,
856-917-0108hugo.arias@phh.comorMediaDico Akseraylian,
856-917-0066dico.akseraylian@phh.com
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