Market Overview

PHH Corporation Announces Second Quarter 2018 Results

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Provides Update on Proposed Merger with Ocwen Financial Corporation

Highlights:

  • Net loss attributable to PHH Corporation of $35 million, or $1.07
    per basic share. Net loss from continuing operations was $37
    million or $1.11 per basic share, which includes $4 million of
    unfavorable pre-tax notable items.
  • Ended the second quarter of 2018 with cash and cash equivalents of
    $453 million and total PHH Corporation stockholders' equity of $489
    million.
  • Our stockholders approved the proposed merger with Ocwen on June
    11, 2018.
  • Continued to make progress in obtaining the requisite approvals for
    the proposed merger with Ocwen from governmental agencies and state
    regulatory and licensing entities, and we are currently targeting
    closing the transaction in the third quarter of 2018.
  • Our Total Servicing Portfolio was comprised of 586,609 loans
    serviced representing $129.0 billion of unpaid principal balance,
    including 550,942 loans in our subservicing portfolio.

PHH Corporation (NYSE:PHH) ("PHH" or the "Company") today announced
financial results for the quarter ended June 30, 2018 and provided an
update on the proposed merger with Ocwen Financial Corporation. For the
quarter ended June 30, 2018, the Company reported Net loss attributable
to PHH Corporation of $35 million or $1.07 per basic share. Net loss
from continuing operations was $37 million or $1.11 per basic share.

   
Summary Consolidated Results        
(In millions, except share and per share data)    
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Total net revenues $ 35 $ 31 $ 85 $ 71
Loss from continuing operations before income taxes (36 ) (75 ) (62 ) (152 )
Loss from continuing operations, net of tax (37 ) (42 ) (63 ) (95 )
Net loss attributable to PHH Corporation (35 ) (46 ) (65 ) (113 )
 
Basic and Diluted earnings (loss) per share:
From continuing operations $ (1.11 ) $ (0.78 ) $ (1.92 ) $ (1.77 )
From discontinued operations 0.04   (0.08 ) (0.08 ) (0.34 )
Total attributable to PHH Corporation $ (1.07 ) $ (0.86 ) $ (2.00 ) $ (2.11 )
 
Weighted-average common shares outstanding — basic & diluted 32.669 53.342 32.657 53.511
 

Notable items and Exit and disposal costs attributable to the continuing
operations of PHH included the following:

 
Three Months Ended June 30,
2018   2017
Pre-Tax   Post-Tax Pre-Tax   Post-Tax
$ Per Share $ Per Share
Notable items:
Legal and regulatory reserves $ (2 ) $ (0.08 ) $ (13 ) $ (0.14 )
Severance (1 ) (0.03 )
Merger and strategic review expenses (1 ) (0.02 ) (6 ) (0.07 )
Loss from MSR sales and related costs (5 ) (0.05 )
 
Exit and disposal costs $ $ $ (4 ) $ (0.05 )
 

Update on the Proposed Merger with Ocwen Financial Corporation

On February 27, 2018, the Company entered into a definitive Agreement
and Plan of Merger with Ocwen Financial Corporation ("Ocwen"), and POMS
Corp ("MergerSub") pursuant to which all of PHH's outstanding common
stock will be acquired by Ocwen in a merger of MergerSub with and into
PHH with PHH as the surviving entity (the "Merger") in an all cash
transaction valued at approximately $360 million, or $11.00 per share on
a fully-diluted basis. The Company's stockholders approved the proposed
merger on June 11, 2018. The Merger remains subject to, in addition to
various other customary closing conditions, state licensing, and other
governmental and regulatory approvals and PHH maintaining cash and
adjusted net worth above certain thresholds. The Company continues to
make progress toward meeting the remaining key closing conditions as
follows:

  • The Company ended the second quarter of 2018 with stockholders' equity
    of $489 million. Ocwen may terminate the merger agreement if the
    Company's adjusted net worth, as calculated under the merger
    agreement, is more than $47.5 million below a prescribed amount, which
    prescribed amount was $434 million as of June 30, 2018 and ranges from
    $425 million to $393 million between July and December 2018. As of
    June 30, 2018, the adjustments made to PHH Corporation stockholders'
    equity to arrive at the adjusted net worth under the merger agreement
    were immaterial.
  • The Company ended the second quarter 2018 with cash and cash
    equivalents of $453 million. Ocwen may terminate the merger agreement
    if available cash on hand falls below a prescribed amount, which
    prescribed amount was $338 million as of June 30, 2018, and ranges
    from $329 million to $293 million between July and December 2018. As
    of June 30, 2018, the adjustments made to cash and cash equivalents to
    arrive at available cash on hand were immaterial.
  • Continued to make progress in obtaining the requisite approvals for
    the proposed merger with Ocwen from governmental agencies and state
    regulatory and licensing entities, and we are currently targeting
    closing the transaction in the third quarter of 2018.

About PHH Corporation

PHH Corporation (NYSE:PHH), through its subsidiary, PHH Mortgage, is
one of the largest subservicers of residential mortgages in the United
States. PHH Mortgage provides servicing and portfolio retention
solutions to investors of MSRs, financial and wealth management
institutions, regional and community banks, and credit unions.
Headquartered in Mount Laurel, New Jersey, the Company has been
providing mortgage lending and servicing solutions since 1984 and is
dedicated to responsible and ethical practices while delivering an
exceptional customer experience. 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.

Special Note Regarding Forward-Looking Statements

In addition to the Cautionary Note Regarding Forward-Looking Statements
above, with respect to the proposed Merger, factors that may cause
actual results to differ from expected results include, among others:
the occurrence of any event, change or other circumstances that could
give rise to the termination of the agreements with Ocwen; the risk that
the necessary regulatory approvals for the merger may not be obtained or
may be obtained subject to conditions that are not anticipated; the risk
that PHH's cash and/or net worth may decline below the threshold levels
specified in the merger agreement; risks that Ocwen may not have
sufficient funds to consummate the merger; risks that PHH's business may
suffer as a result of uncertainties surrounding the proposed
transaction; litigation or other legal proceedings relating to the
proposed transaction; unexpected costs, charges or expenses resulting
from the proposed transaction; risks related to the disruption of
management time from ongoing business operations due to the proposed
transaction; the effect of the announcement of the proposed transactions
and the PHH's plans, including impact on PHH's relationships with
customers, regulators, lenders and employees; other risks to the
consummation of the transaction, including the risk that the
transactions will not be consummated within the expected time period or
at all; unfavorable economic conditions in the markets PHH serves;
changes in laws or regulations; and other risks and uncertainties
described under the heading "Cautionary Note Regarding Forward-Looking
Statements" and "Risk Factors" in the Company's periodic reports filed
with the SEC, including the Company's 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 the Company or the
Company's businesses generally.

   
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
June 30, December 31,
2018 2017
ASSETS
Cash and cash equivalents $ 453 $ 509
Restricted cash 41 33
Mortgage loans held for sale 55 103
Accounts receivable, net 58 73
Servicing advances, net (1) 302 356
Mortgage servicing rights (1) 483 476
Property and equipment, net 18 22
Other assets 28 25
Assets related to discontinued operations (2) 4   214  
Total assets $ 1,442   $ 1,811  
 
LIABILITIES
Accounts payable and accrued expenses $ 67 $ 98
Subservicing advance liabilities 194 232
Mortgage servicing rights secured liability 437 419
Mortgage warehouse and advance facilities 59 117
Unsecured debt, net 118 118
Loan repurchase and indemnification liability 27 29
Other liabilities 42 46
Liabilities related to discontinued operations (2) 9   199  
Total liabilities 953   1,258  
 
Total PHH Corporation stockholders' equity 489   553  
Total liabilities and equity $ 1,442   $ 1,811  
_______________
(1)  

MSR and Advances Sale Commitments. As of June 30, 2018, we
had commitments to sell MSRs, representing $5.3 billion of unpaid
principal balance, for $30 million in MSR fair value.
Additionally, we had commitments to transfer approximately $94
million in Servicing advances to the counterparties of these
agreements.

 
(2)

Discontinued Operations. Represents the assets and
liabilities directly attributable to the PLS business and Real
Estate channel. The decline from December 31, 2017 represents the
completion of substantially all of the run-off activities of these
operations, including the acquisition of Realogy's 49.9% ownership
interests in PHH Home Loans for a total of $19 million in cash.

   
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
REVENUES
Loan servicing income, net $ 40 $ 28 $ 83 $ 61
Gain on loans held for sale, net 5 9 10 21
Origination and other loan fees 1 2 1
Net interest expense (11 ) (6 ) (25 ) (14 )
Other income     15   2  
Total net revenues 35   31   85   71  
 
EXPENSES
Salaries and related expenses 28 36 60 72
Foreclosure and repossession expenses 3 5 6 12
Professional and third-party service fees 16 22 34 53
Technology equipment and software expenses 7 7 14 14
Occupancy and other office expenses 6 6 12 11
Depreciation and amortization 2 3 5 7
Exit and disposal costs 4 13
Other operating expenses 9   23   16   41  
Total expenses 71   106   147   223  
Loss from continuing operations before income taxes (36 ) (75 ) (62 ) (152 )
Income tax expense (benefit) 1   (33 ) 1   (57 )
Loss from continuing operations, net of tax (37 ) (42 ) (63 ) (95 )
Income (loss) from discontinued operations, net of tax 2   (8 ) (2 ) (26 )
Net loss (35 ) (50 ) (65 ) (121 )
Less: net loss attributable to noncontrolling interest from
discontinued operations
  (4 )   (8 )
Net loss attributable to PHH Corporation $ (35 ) $ (46 ) $ (65 ) $ (113 )
Comprehensive loss attributable to PHH Corporation $ (35 ) $ (46 ) $ (65 ) $ (113 )
 
Basic and Diluted earnings (loss) per share:
From continuing operations $ (1.11 ) $ (0.78 ) $ (1.92 ) $ (1.77 )
From discontinued operations 0.04   (0.08 ) (0.08 ) (0.34 )
Total attributable to PHH Corporation $ (1.07 ) $ (0.86 ) $ (2.00 ) $ (2.11 )
 

Discontinued Operations

We determined that substantially all of the run-off activities of the
Private Label Services ("PLS") business and Real Estate channel were
completed during the three months ended March 31, 2018. Accordingly, the
results of the PLS business and Real Estate channel have been presented
as discontinued operations in the Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss), and excluded from continuing
operations and segment results for all periods presented. Certain
corporate overhead costs that were previously allocated to the PLS
business and Real Estate channel for segment reporting purposes did not
qualify for classification within discontinued operations, and have been
included in continuing operations.

Reportable segments presented in continuing operations now include
Mortgage Servicing, which acts as a subservicer for clients that own the
underlying mortgage servicing rights and performs servicing activities
for owned mortgage servicing rights, and Mortgage Production,
which provides portfolio origination retention services to subservicing
clients and sells the related mortgage loans in the secondary market.

Mortgage Servicing

Mortgage Servicing segment loss during the second quarter of 2018 was
$21 million, as compared to a loss of $43 million in the second quarter
of 2017.

During the second quarter of 2018, Total net revenues increased by $8
million, or 38%, as compared to the same period in 2017 primarily driven
by a $9 million decrease in unsecured debt interest expense related to
the capital actions taken in 2017 to reduce our unsecured debt levels.
Other changes in our owned servicing revenue largely offset one another,
including those related to the change in mix of our total loan servicing
portfolio to primarily subserviced loans which reduced the interest rate
exposure and related volatility in revenues driven by MSR fair value
changes, but also lowered our contractual servicing fees since we
receive a smaller fee per loan from our subservicing clients as compared
to the servicing fee of our capitalized servicing rights.

During the second quarter of 2018, Total expenses decreased by $14
million or 22%, as compared to the same period in 2017. The provision
for legal and regulatory matters decreased by $11 million primarily
driven by our previously announced settlements with the FHA and FHFA
related to our legacy servicing practices during 2017. Repurchase and
foreclosure-related charges decreased by $3 million primarily due to
losses incurred during the second quarter of 2017 related to government
insurance programs and other legacy claims. Foreclosure and repossession
expenses decreased by $2 million primarily due to lower foreclosure
activity and improved delinquencies that were partially the result of
the sales of delinquent government loans that occurred throughout 2017.

Corporate overhead allocation increased by $4 million, which was
impacted by the PLS business and Real Estate channel exits. During the
second quarter of 2017, $15 million of indirect costs not allocated to
discontinued operations were stranded within the Other reporting unit,
whereas, for 2018, 100% of those costs are included in the allocations
to our segments.

At June 30, 2018, our subservicing portfolio consisted of approximately
551,000 units, up 57% from June 30, 2017, reflecting the addition of
subserviced loans from 2017 sales of MSRs to New Residential. During the
first half of 2018, the Company was notified by certain subservicing
clients that they expect to transfer approximately 140,000 subservicing
units, or 22% of our unit count at December 31, 2017, off of our
platform in multiple transfers beginning in May 2018. Approximately
65,000 of these units are subject to a portfolio defense agreement and
will no longer be solicitable units upon transfer to a new servicer.
During the three months ended June 30, 2018, the Company completed the
transfer of approximately 45,000 of these units, substantially all of
which were subject to a portfolio defense agreement, and the remaining
units are expected to be transferred off of our platform during the
second half of 2018.

   
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
(In millions)

Segment Results:

Loan servicing income, net $ 40 $ 28 $ 83 $ 61
Net interest expense (11 ) (7 ) (25 ) (15 )
Other income     15   2  
Total net revenues 29   21   73   48  
 
Salaries and related expenses 14 15 29 32
Foreclosure and repossession expenses 3 5 6 12
Professional and third-party service fees 7 8 13 15
Technology equipment and software expenses 4 4 7 7
Occupancy and other office expenses 4 3 8 6
Depreciation and amortization 1 1
Exit and disposal costs 2
Other operating expenses 18   29   36   50  
Total expenses 50   64   100   125  
Segment loss $ (21 ) $ (43 ) $ (27 ) $ (77 )
 
June 30,
2018   2017
($ In millions)

Total Loan Servicing Portfolio:

Conventional loans $ 119,429 $ 147,043
Government loans 8,310 11,001
Home equity lines of credit 1,285   1,719  
Total Unpaid Principal Balance $ 129,024 $ 159,763
 
Number of loans in owned portfolio (units) 35,667 379,231
Number of subserviced loans (units) (1) 550,942   351,109  
Total number of loans serviced (units) 586,609 730,340
 
Weighted-average interest rate 3.9 % 3.8 %
 

Total Portfolio Delinquency:

% of UPB - 30 days or more past due 2.27 % 1.98 %
% of UPB - Foreclosure, REO and Bankruptcy 1.46 % 1.61 %
Units - 30 days or more past due 3.23 % 2.83 %
Units - Foreclosure, REO and Bankruptcy 1.97 % 2.12 %
 

Total Capitalized Servicing Portfolio:

Unpaid Principal Balance of capitalized MSRs owned $ 7,121 $ 53,933
Unpaid Principal Balance of capitalized MSRs in secured borrowing
arrangement (1)
45,770   13,084  
Total Unpaid Principal Balance of capitalized servicing portfolio $ 52,891 $ 67,017
 
Capitalized servicing rate 0.91 % 0.83 %
Capitalized servicing multiple 3.4 3.0
Weighted-average servicing fee (in basis points) 27 27
   
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
(In millions)

Total Loan Servicing Portfolio:

Average Portfolio UPB $ 138,199 $ 161,645 $ 142,032 $ 165,652
 

Owned Capitalized Servicing Portfolio:
(1)

Average Portfolio UPB $ 7,485 $ 66,351 $ 7,871 $ 72,316
Payoffs and principal curtailments 397 3,190 744 6,649
Sales 473 2,200 1,598 12,516
_______________
(1)   Reflects the shift in our servicing portfolio to subserviced loans
which began in the second quarter of 2017 as we sold MSRs to New
Residential and continued functioning as subservicer. The MSRs sold
to New Residential have been accounted for as a secured borrowing
arrangement.
 

Mortgage Production

For all periods presented below, Mortgage Production includes only the
continuing operations of the Portfolio Retention business, and the
historical results of the PLS business and Real Estate channel have been
reclassified to discontinued operations.

Mortgage Production segment loss during the second quarter of 2018 was
$14 million, as compared to a loss of $7 million in the second quarter
of 2017.

During the second quarter of 2018, Total net revenues decreased by $4
million, or 40%, as compared to the same period in 2017 due to lower
volumes of loan closings and IRLCs. The volume decrease related to IRLCs
expected to close was primarily attributable to lower relative interest
rates, which drove lower demand for refinance loans and a decline in
loan margins.

During the second quarter of 2018, Total expenses increased by $3
million, or 18%, as compared to the same period in 2017 primarily due to
a $5 million increase in Corporate overhead allocation that was
partially offset by lower expenses associated with operating a smaller
business with lower volumes and increased operational efficiencies. The
increase in the Corporate overhead allocation was impacted by the PLS
business and Real Estate channel exits. During the second quarter of
2017, $15 million of indirect costs not allocated to discontinued
operations were stranded within the Other reporting unit, whereas, for
2018, 100% of those costs are included in the allocations to our
segments.

   
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
(In millions)

Segment Results:

Origination and other loan fees $ 1 $ $ 2 $ 1
Gain on loans held for sale, net 5 9 10 21
Net interest income   1     1  
Total net revenues 6   10   12   23  
 
Salaries and related expenses 6 7 14 15
Professional and third-party service fees 1 2 3 4
Occupancy and other office expenses 1 2 3 4
Depreciation and amortization 1 1 1 3
Other operating expenses 11   5   21   12  
Total expenses 20   17   42   38  
Segment loss $ (14 ) $ (7 ) $ (30 ) $ (15 )
           
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
($ In millions)

Closings:

Refinance $ 132 $ 136 $ 328 $ 566
Purchase 16   18   28   27
Total Unpaid Principal Balance $ 148 $ 154 $ 356 $ 593
 
Number of loans funded (units) 831 895 1,927 3,295
 

Locked Volume:

IRLCs expected to close $ 131 $ 176 $ 283 $ 389

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