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 EndedJune 30, Six
Months EndedJune 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 EndedJune 30,
Six Months EndedJune 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 EndedJune 30, Six
Months EndedJune 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 EndedJune 30, Six
Months EndedJune 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 EndedJune 30, Six
Months EndedJune 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 EndedJune
30, Six Months EndedJune 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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version on businesswire.com: https://www.businesswire.com/news/home/20180803005366/en/
PHH CorporationInvestorsHugo Arias,
856-917-0108hugo.arias@phh.comorMediaDico Akseraylian,
856-917-0066dico.akseraylian@phh.com
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