PHH Will Lose More Business from Merrill Lynch

Merrill Lynch will be taking more of its mortgage originations business in house and away from PHH Corp.

PHH disclosed this in its second quarter results, when it announced a $12 million net loss in the second quarter, which is an improvement over the $62 million loss for the same period last year.

However, the company's financials could face a bigger hit going forward as Merrill Lynch, a Bank of America subsidiary which previously announced it was taking back some of its originations as well as the servicing function from PHH.

"When combined with Merrill Lynch's previously disclosed insourcing decisions, we may now be faced with a total volume reduction of approximately 60% of Merrill Lynch's dollar closing volumes based on 2015 originations.

"During the second quarter Merrill Lynch application units were down by approximately 30% compared to the same quarter last year. Merrill Lynch has forecasted cumulative volume reductions, is expected to have a negative impact to pretax earnings of approximately $13 million for the second half of 2016, and $44 million annualized before any mitigating actions such as cost reductions or volume enhancement initiatives," said PHH President and CEO Glenn Messina during a conference call.

PHH made $13 million on the origination business in the second quarter, up from $3 million one year ago. It originated $10.4 billion, a decrease of 14% from the second quarter of 2015, which led to a $12 million decrease in net origination revenue. However total expenses in the segment declined by $19 million.

The servicing business lost $33 million, which was an improvement over the $46 million loss recorded in the second quarter of 2015.

As for the strategic alternatives review, PHH has made "significant progress," but the company would not provide any other comments, Messina said during the call.