Paul Miller, an analyst at Friedman, Billings, Ramsey Group Inc.'s FBR Capital Markets Corp., expects "lower mortgage rates, greater … market liquidity, and the potential for greater refi activity" as a result of the government takeover of Fannie Mae and Freddie Mac.

As a result, he upgraded PHH Corp.'s stock to "outperform," from "market perform." Recent signings of private-label outsourcing clients — most recently First Horizon National Corp.'s First Tennessee Bank — should boost PHH's origination volume, Mr. Miller wrote in a research note issued Sunday. "If mortgage financing improves due to the government action to provide more liquidity to the housing market, the benefit could be even more significant."

(This month First Horizon sold its national mortgage origination and servicing business to MetLife Inc., which had been a PHH client.)

According to Mr. Miller, PHH also originates mortgages behind the scenes for Comerica Inc., UBS AG, Northern Trust Corp., BankAtlantic Bancorp Inc., Allstate Corp., Charles Schwab Corp., Popular Inc.'s Banco Popular, and Merrill Lynch & Co., the outsourcer's largest client.

JPMorgan Chase & Co. and Wells Fargo & Co. offer such outsourcing, Mr. Miller wrote. However, "for many banks and financial institutions, PHH can be considered the most attractive outsourcing partner, as PHH does not compete in other financial services products."

The risks for PHH, he wrote, include the $140 million of loans it cannot currently sell and must mark to market, as well as the $695 million of potential losses on $10.8 billion of loans the Mt. Laurel, N.J., company reinsures.

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