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Outlook Stable for PHH, Says Fitch Ratings

Recently, Fitch Ratings [1] assigned an RPS3 U.S. residential primary servicer rating for prime product to PHH Mortgage Corporation [2] (PHH). The rating agency also assigned a stable outlook, reflecting PHH’s experienced senior management and staff, enterprise-wide risk environment, compliance protocols and investments in its servicing technology.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating.

According to Fitch’s findings as of June 30, 2018, PHH serviced approximately 586,609 loans with an unpaid principal balance of $129 billion, of which 550,942 loans represented subservicing arrangements.

Though Fitch did not publicly rate the credit and financial strength of PHH, it said that the Fitch financial institutions group had reviewed and provided an assessment of the servicer’s financial condition. “A company's financial condition is a component of Fitch's servicer rating analysis,” the agency said in a statement.

According to Fitch, PHH, which announced its planned merger with Ocwen Financial Corp [3] in February 2018, is currently targeting closing the transaction by the third quarter of 2018. The merger includes migrating Ocwen's loan portfolio from its legacy proprietary system onto PHH's system, which utilizes Black Knight Mortgage Processing Solutions (BKMPS) and LoanSphere Mortgage Servicing Package (MSP).

“Fitch believes that the potential synergies realized with the merger, including an enhanced technology environment, best practices developed for compliance, audit and loan servicing processes, multi-layered disaster recovery, and business continuity contingencies, could prove beneficial if developed properly in the resulting single entity,” the ratings agency said while assigning a stable outlook for PHH.

In the first quarter of 2018, PHH completed its initiative of exiting capital-intensive businesses, exiting its private label services origination business to focus only on subservicing loans for others and maintaining a portfolio retention business.

Some other factors that led to PHH giving an enhanced rating to PHH included the servicer’s robust enterprise risk management hierarchy that identified, monitored, and addressed risk including proactive change management processes, quality assurance, and quality control protocols as well as a multi-dimensional testing program.

PHH utilizes a hybrid model for internal audit where oversight is retained among a small group of auditors internally and the bulk of audit work is co-sourced to a third party auditing firm.

Fitch said that it had not identified any instances of material non-compliance In both the Reg AB and USAP reports of PHH for the year ended Dec. 31, 2017.