Merrill Lynch Home Loans Pulls Origination, Subservicing Business From PHH

PHH Corp. on Monday announced that one of its major clients, Merrill Lynch Home Loans, a division of Bank of America, had decided to move the origination of new applications for certain mortgage loan products to its internal operations effective April 25. This, in turn, resulted in PHH significantly reducing its volume forecast for the remainder of this year.

PHH reports that on an annualized basis, this change could represent a reduction of approximately 5% of its 2015 loan closing dollar volume.

What’s more, the firm says in a release that “there can be no assurances that the remaining Merrill Lynch origination activity with PHH will not also be subject to change during the remainder of 2016 or beyond.”

Merrill Lynch also plans to insource its subservicing portfolio currently with PHH before the end of this year. As of Dec. 31, 2015, Merrill Lynch’s subservicing portfolio with PHH accounted for approximately $40 billion in unpaid principal balance. That’s 32% of its subservicing portfolio and about 18% of its total servicing portfolio, according to the release.

“While we are disappointed with these changes, we intend to take appropriate measures to adjust our operations and incorporate these developments in our review of strategic options. We believe these decisions reflect the broader dynamics in our industry, including higher compliance and other costs associated with a more onerous regulatory environment,” says Glen A. Messina, president and CEO of PHH Corp., in a statement. “We remain focused on implementing the priorities we laid out for 2016 and the evaluation of all options, including capital structure and deployment alternatives, to maximize value for shareholders.”

As a result of these developments, PHH has withdrawn its previously disclosed earnings guidance for full-year 2016 and will not provide further earnings guidance until it completes a comprehensive review of its strategic options.

Meanwhile, Morgan Stanley Private Bank, which represented 20% of PHH’s 2015 loan closing dollar volume, has renewed its contract with PHH for origination services through Oct. 31, 2017. However, according to the release, Morgan Stanley will be re-assessing its arrangement with PHH for mortgage origination services upon the expiration of its contract.

Shares of PHH Corp. plummeted on Monday on the news.


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