PHH to Cut Back Correspondent Lending, Sell Non-Core Assets

PHH Corp. will cut back on correspondent lending, sell non-core assets and reverse its drive for market share in the mortgage business to alleviate investors' liquidity concerns, new chief executive Glen A. Messina said Tuesday.

Messina, who was abruptly handed the reins of PHH last month, told analysts on a conference call Tuesday that the Mount Laurel, N.J., company may cut correspondent lending in half, and will sell some real estate-owned properties, fleet leases and assets related to its reinsurance business. American Banker had previously reported that PHH was pulling back in correspondent lending.

The mortgage lender and fleet operator has been scrambling to reassure investors of its funding and cash positions after a failed bond offering in December prompted a downgrade by Standard & Poor's as well as the departure in early January of its former CEO Jerome Selitto.

PHH also is being investigated by the Consumer Financial Protection Bureau for alleged kickbacks in its reinsurance business.

The pullback in correspondent lending is directly related to PHH's near-term focus on hoarding cash. Messina said during the call that loans originated with minor defects take up capacity on PHH's balance sheet because they typically are not eligible for warehouse financing.

"We are focused on cash consumption rather than total volume in this channel," Messina said. "We anticipate reducing cash consumption by at least 50% relative to 2011."

PHH, the largest non-bank mortgage lender, posted a fourth-quarter profit Tuesday of $13 million, compared with $181 million a year earlier. But it swung to a $127 million loss in 2011, versus a profit of $48 million in 2010, due in part to changes in the fair value of its mortgage servicing rights. The company also had a $21 million fourth-quarter charge for foreclosure-related costs and implementation of the government's Home Affordable Refinancing Program.

Messina also said PHH is in active negotiations with Fannie Mae on proposed amendments to about $3 billion in financing arrangements. He wants to repay its 2012 and 2013 debt maturities sometime this year.

Though PHH captured 4% of the mortgage market in the fourth quarter, Messina said that going forward "setting a market share target" was not consistent with the company's near-term focus on liquidity and cash. PHH will no longer provide market share guidance, he said, nor will be "driving the business toward this goal."