PHH's transformation continues to take a toll on the bottom line

PHH Corp.'s net loss grew in the third quarter as the company took a hit from the costs of its transformation to being a subservicer and portfolio retention originator.

The Mount Laurel, N.J.-based company lost $55 million in the third quarter, driven by $39 million of pretax losses related to mortgage servicing rights sales and early debt retirement. These were only partially offset by $14 million in net proceeds received during the quarter from the PHH Home Loans asset sale to Guaranteed Rate.

"Our business development activities have confirmed market demand for our subservicing and portfolio retention product offerings and we have built a pipeline of business development opportunities," President and CEO Robert Crowl said in a press release.

"We believe we are well-positioned to capture market opportunities due to the quality of our servicing and portfolio retention platforms, robust compliance framework and available capacity. We are still in the early stages of these organic growth initiatives and the success of our business development effort will be critical to achieving our business and financial objectives."

Exit and disposal costs added another $8 million of pretax losses. There was also a $3 million negative adjustment to the fair market value of its MSRs.

PHH lost $46 million in the second quarter. It lost $27 million during the third quarter of 2016, following Merrill Lynch's decision to stop using PHH for private-label originations and servicing that became the catalyst for the transformation into PHH 2.0.

Its mortgage production segment lost $18 million in the third quarter, down from a $22 million profit one year earlier. The results reflected lower origination volume because of the exit from private-label business as well as the sale of two of five PHH Home Loan locations to Guaranteed Rate during the quarter.

Originations fell to $4.9 billion from $10 billion one year prior.

PHH's servicing business lost $37 million, an improvement over a $52 million loss for the third quarter of 2016. During the past year, PHH sold its Ginnie Mae MSRs to Lakeview Loan Servicing and its conforming MSRs to New Residential Investment Corp; it now subservices the portfolio sold to New Residential.

The subservicing portfolio grew to 648,000 loans, up 36% from one year ago.

PHH performs the servicing function on loans with $151.5 billion in unpaid principal balance, compared with $227.9 billion as of Sept. 30, 2016. While the number of subserviced loans increased, the owned portfolio fell to 45,677 from 588,700.