PHHCorp. on April 11 announced changes to certain of its private labelclient relationships.
The company announced that Merrill Lynch Home Loans indicatedits intent to move the origination of new applications for certain mortgageloan products to its internal operations, effective April 25, and significantlyreduced its volume forecast for the remainder of 2016. PHH estimates that on anannualized basis this change could represent a reduction of approximately 20%of Merrill Lynch's 2015 loan closing dollar volume or approximately 5% of PHH's2015 loan closing dollar volume. Merrill Lynch's total loan closing volumeaccounted for approximately 26% of PHH's overall volume in 2015. PHH said therecan be no assurances that the remaining Merrill Lynch origination activity withPHH will not also be subject to change during the remainder of 2016 or beyond.
Additionally, Merrill Lynch informed the company that itintends to insource its sub-servicing portfolio by the sub-servicing contractexpiration date of Dec. 31. Merrill Lynch's sub-servicing accounted forapproximately $40 billion in unpaid principal balance, or 32% of the company'ssub-servicing portfolio and 18% of its total servicing portfolio, in each caseas of Dec. 31, 2015.
Based on the uncertainties created by these events, PHH iswithdrawing its previously disclosed earnings guidance for full year 2016. Thecompany expected core earnings to be breakeven to modestly profitable for theyear. It does not intend to provide further earnings guidance pending thecompletion of its comprehensive review of strategic options.
Separately, the company also announced that , whichrepresented 20% of PHH's 2015 loan closing dollar volume, exercised itscontractual right to extend origination services with PHH through Oct. 31,2017. At the same time, Morgan Stanley informed PHH that it is assessing thearrangement for its mortgage origination services upon the expiration of itscontract with PHH on Oct. 31, 2017.
PHH and Morgan Stanley are engaged in discussions regardingways in which the two parties could continue to partner upon its expiration,although there can be no assurances that any arrangement will result betweenthe parties. Morgan Stanley also indicated its intention to maintain itssub-servicing portfolio at the company at this time.