PHH is selling its remaining residential mortgage servicing portfolio to the real estate investment trust New Residential.
The $72 billion portfolio includes a mix of private-label mortgages and mortgages insured by Fannie Mae and Freddie Mac. It excludes Ginnie Mae-insured mortgages that PHH services, which PHH previously disclosed it is selling to Lakeview Loan Servicing for $120 million.
New Residential agreed to pay PHH, based in Mount Laurel, N.J., a total of $912 million; $612 million of that is for the servicing rights and $300 million is for the rights to receive money that PHH has advanced to holders of bonds backed by delinquent mortgages.
Rising interest rates have boosted the value of mortgage servicing rights because of expectations that fewer borrowers will refinance, leaving loans outstanding for longer.
PHH has agreed to stay on as a subservicer of the 480,000 underlying loans for three years. Additional terms of the subservicing arrangement were not disclosed.
The company also said that it had realized and unrealized losses of $135 million related to a hedge associated with the mortgage servicing rights.
The deal is expected to close in the second quarter of 2017 and requires approval from shareholders, the government-sponsored enterprises that insure the loans, and the GSEs’ regulators. If PHH accepts a competing offer, it would pay a termination fee of 3.5% of the purchase price, according to analysts at Compass Point Research Trading.
PHH is one of the biggest originators and servicers of residential mortgages in the United States, but several of its largest business partners have recently terminated their relationships with the company. In October, Bank of America said it had pulled the remainder of its mortgage servicing business with PHH; that followed HSBC’s announcement in August that it had sold a significant portion of its mortgage servicing rights to a purchaser who did not intend to retain PHH as subservicer. And in April, Merrill Lynch, a subsidiary of Bank of America, announced its intention not to renew its subservicing contract with PHH upon its expiration on Dec. 31, 2016.
PHH expects to use proceeds from the transaction to repay its senior unsecured notes and borrowings under a servicing advance facility and to pay taxes.
The transaction enables the company to “efficiently monetize its remaining owned MSR portfolio at the highest available price while maintaining the flexibility to maximize the value of our subservicing platform,” PHH CEO Glen Messina said in a press release.
PHH continues to evaluate strategic options for its remaining businesses, a process that should be completed by the end of January, Messina said.