Phh q1 2011 Investor Slides Supplement

8/2/2019 Phh q1 2011 Investor Slides Supplement

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Investor SupplementFirst Quarter 2011

May 4, 2011


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Page

Gain on Sale MarginsMortgage Production Sensitivities

Gain on Sale and MSR Fair Value Summar

.

4.5.

6.

Credit Risk Summary

Mortgage Servicing Portfolio Delinquencies

Unresolved Repurchase and Indemnification Requests by Status

7.

8.

9.

Foreclosure Reserve Summary

Atrium Reinsurance Summary

Components of PHH Corporation Stockholders Equity

10.

11.

12.

Mortgage Production and Servicing Economics.14.

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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. Investors are cautioned not to place undue reliance

on these forward-looking statements. You should understand that these statements are not guarantees of performance or results and arepreliminary in nature. Statements preceded by, followed by or that otherwise include the words expects, anticipates, intends, projects,estimates, plans, may increase, may result, will result, may fluctuate and similar expressions or future or conditional verbs such as will,

should, would, may and could are generally forward-looking in nature and not historical facts.

You should consider the areas of risk described under the heading Cautionary Note Regarding Forward-Looking Statements and Risk Factors inour periodic reports filed with the Securities and Exchange Commission under the Exchange Act, including our most recent Annual Report on Form10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us and our businessesgenerally. 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-lookingstatements or to report the occurrence or non-occurrence of anticipated or unanticipated events.

Basis of Presentation of Financial Data

Unless noted otherwise in this presentation, all reported financial data is being presented as of the period ended March 31, 2011.

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350

Bps (In Basis Points)

150

200

250

300

0

50

1Q10 2Q10 3Q10 4Q10 1Q11

Total Pricing Margins Reported Gain on mortgage loans

(in bps)

1Q10 2Q10 3Q10 4Q10 1Q11

Total Pricing Margins 272 275 312 282 247

Net reductions of gain on sale [1] (107) (110) (127) (145) (130)

Reported Gain on mortgage loans[2] 165 165 185 137 117

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[1]Includes economic hedge results, change in value of non-conforming loans, purchase price of acquired loans, changes in cost-to-complete, etc.[2]Calculated as gain on mortgage loans, net/ IRLCs expected to close


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2010 actual key metrics

IRLCs expected to close: $38.3 billion Gain on sale/IRLCs: 166 bps

Closing mix: 68% retail/32% correspondent

2010 segment profit: $268 million

Sensitivitiesssum ng marg ns are cons s en w eve s, sens v es are as o ows:

Incremental earnings (loss) per 10 bps of gain on sale margin: +/- $38M

Incremental earnings (loss) per $1 billion of retail IRLCs: $11-$15M

-

Notes: IRLC = Interest Rate Lock Commitment. Incremental earnings (loss) are estimates of the potential change in

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represent all potential events that could affect segment profit. As such, actual results may be materially different thanthose illustrated above.


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Three Months

Ended March 31,

2011 2010 Change % Change

In millions

Gain on loans ............................................................ $ 39 $ 94 $ (55) (59)%

Change in fair value of Scratch and Dent andcertain non-conforming mortgage loans .............. (5) (1) (4) (400)%

Economic hedge results ............................................ 25 12 13 108 %

Total change in fair value of mortgage loans andrelated derivatives ............................................... 20 11 9 82 %

Gain on mortgage loans, net ..................................... $ 59 $ 105 $ (46) (44)%

Three MonthsEnded March 31,

-----------------------------------------------------------------------------------------------------------------------------------

2011 2010 Change % Change

(In millions)Actual prepayments of the underlying

mortgage loans ........................................................... $ (44) $ (34) $ (10) (29)%

Actual receipts of recurring cash flows ........................ (13) (11) (2) (18)%

- (1) .........................

Market-related fair value adjustments(2)........................ 28 11 17 155 %Change in fair value of mortgage servicing

rights........................................................................... $ (32) $ (52) $ 20 38 %

(1) Represents the change in fair value of MSRs primarily due to changes in portfolio delinquencies and foreclosures

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(2) Represents the change in fair value of MSRs primarily due to changes in market inputs and assumptions used in the valuationmodel.


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As a reminder, we carry limited credit risk vs. industry

- Do not ortfolio loans

- Minimal exposure from subprime lending, Option ARMs or other higher risk products

- Strong high quality underwriting culture mitigates the potential for loss

re t r s ar ses n t ree pr mary ways:

- Impact of delinquencies on servicing cash flows

Involuntary prepayments reduce future servicing cash flows similar to other earlyre a ments

Changes in fair value of MSR asset based on estimates of the loss of future cashflows from rising delinquencies in the portfolio

- Increase in foreclosure-related charges from loan repurchases and indemnifications

Arise due to our rep and warranties to investors for loans we originate Quality underwriting limits these exposures

- Increase in reinsurance-related charges for our Atrium subsidiary

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Servicing Portfolio Delinquencies

6.00%

7.00%

8.00%

3.00%

4.00%

5.00%

%

ofUnits

0.00%

1.00%

2.00%

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

2

008

2

008

2

008

2

009

2

009

2

009

2

009

2

010

2

010

2

010

2

010

2

011

30 days 60 days 90 or more days Foreclosure/Real estate Owned

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Unresolved Repurchase and Indemnification Requests

($ millions of UPB)

$16 $1 $17 $9 $1 $10

InsurerRequests Total

InvestorRequests

InsurerRequests Total

As of March 31, 2011 As of December 31, 2010

InvestorRequests

Agency Invested

Claim pending(1)

32 19 51 34 22 56

88 17 105 50 9 59

$136 $37 $173 $93 $32 $125

Private Invested(1)

Total Agency requests

Appealed

Open to review(3)

Appealed(2)

14 5 19 15 7 22

Open to review(3)

10 6 16 13 2 15

Total Private requests $25 $13 $38 $29 $11 $40

Total unresolved requests $161 $50 $211 $122 $43 $165

1) Claim pending status represents loans that have completed the review process where we have agreed with the representation and warranty breachand are pending final execution.

2) Appealed status represents loans that have completed the review process where we have disagreed with the representation and warranty breach and

are pending response from the claimant. Based on claims received and appealed during the last twelve month period ending March 31, 2011 that

have been resolved, we were successful in refuting over 90% of claims appealed.

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3) Open to review status represents loans where we have not completed our review process. We appealed approximately 70% of claims received and

reviewed during the last twelve month period ending March 31, 2011.


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As of 3/31/11, Atrium had $255M in restricted cash and investments held in trust to pay claims

e o ow ng presen s a summary o e re nsurance reserve:

Three Months Ended

March 31,

2011 2010($ millions)

Balance, beginning of period ........................................................................................... $ 113 $ 108Realized reinsurance losses ............................................................................................. (16) (2)Increase in liability for reinsurance losses ....................................................................... 13 11Balance, end of period ..................................................................................................... $ 110 $ 117

Projections as of 3/31/11:

- Future premium income of $70M on loans reinsured

- Future paid losses of $179M, all from book years 2003 2009

- Cash and future remiums currentl ex ected to be more than ade uate to cover ex ected

losses

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March31,2011

($ millions)

PHHCorporationStockholdersEquity(1):CombinedMortgageServicesSegments........................................................................ $ 1,228FleetMana ementServicesSe ment............................................................................ 391Other............................................................................................................................... 6TotalPHHCorporationstockholders

equity............................................................................................................................ $ 1,625

(1) The composition of Total PHH Corporation stockholders equity by business may be useful in determining return on stockholdersequity by business; however, the reporting of equity by segment is not prescribed nor required by GAAP. As such, these amounts may

be deemed non-GAAP financial measures under Regulation G.

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Mortgage Production and Servicing

$200,000 RETAIL CONFORMING MORTGAGE [ILLUSTRATIVE ONLY]

MORTGAGE SERVICING

Servicing fee of 37 bps x $200,000$740

PHH originates mortgageMortgage is warehoused for 20 days

& sold to GSE (servicing retained)

Assumed cost to originateconforming mortgage is 150 bps

($3,000)

Gain on sale of mortgageto GSE of 80 bps

Positive float income for 20 dayswarehouse period of 10 bps

$11

Application feeof 20 bps

($140)

Net origination cost of($2,600)

$1,600

Retained interest in mortgage oncapitalized MSR of 120 bps

$2,400 (non-cash)

$400

Total Servicing Income of 30 bps$600Accounting profit from sale $4,011

Cash gain from sale $1,611

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Recurring: Annual Income from ServicingExcludes: Change in fair value of MSR (non-cash)

ne- me:Total Accounting Profit from Origination & Sales = ($2,600) + $4,011 = $1,411Cash investment for MSR = ($2,600) + $1,611 = ($989)

Profitable manufacturing of MSR cash investment of $989 for an asset worth $2,400


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Economic Activity Income Statement Line Item

PHH Originates Mortgage

Loan purchase premium

Application fee

PHH Originates Mortgage

Gain on mortgage loans, net (cash)

Mortgage fees (cash)

1

er cos s o or g na e o a expenses cas

Mortgage Warehoused and Sold to GSE Mortgage Warehoused and Sold to GSE2

Float income

Gain on sale to GSE

Retain capitalized MSR

Mortgage net finance income / expense (cash,

excluding amortization of deferred financing costs)

Gain on mortgage loans, net (cash)

Gain on mortgage loans, net (non-cash, disclosed in

Mortgage Servicing1

Servicing fee

Mortgage Servicing1

Loan servicing income (cash)

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1Excludes change in fair value of mortgage servicing rights (non-cash).

Servicing cost Total expenses (cash)

Phh q1 2011 Investor Slides Supplement

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