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PHH Corporation (NYSE:PHH)

Q4 2011 Earnings Conference Call

February 7, 2012 10:00 AM ET

Executives

Jim Ballan – Vice President of Investor Relations.

Glenn Messina - President and Chief Executive Officer,

David Coles - Interim Executive Vice President and Chief Financial Officer

Luke Hayden - Executive Vice President of Mortgage

George Kilroy - Executive Vice President of Fleet

John Erdmann – Vice President and Controller

Analysts

Bose George – KBW

Paul Miller– FBR Investments

Henry Coffey – Stern Agee

Scott Stern - Lenders One

Ninad Sanghvi – Hudson Bay Capital

Jim Fowler – Harvest Capital

Operator

Good morning ladies and gentlemen. Welcome to the PHH corporation fourth quarter 2011 conference call. Your line will be a listen-only mode during remarks by PHH management. At the conclusion of the company’s remarks, we will begin the question and answer session at which time I will give you instructions on entering the queue to ask your questions.

Today’s call is also being webcast and recorded for replay purposes. The audio replay can be accessed either on the company’s website at www.phh.com/invest or by telephone at 719-457-0820 or 888-203-1112 using conference ID 4120134 beginning shortly after the conclusion of the call.

It will be available until February 21, 2012. This access information is also described in the Company’s earnings release and I will repeat it again at the end of our session. At this time, Jim Ballan, Vice President of Investor Relations will precede with the introductions. Please go ahead.

Jim Ballan

Good morning and welcome to the PHH Corporation’s fourth quarter 2011 earnings conference call. Please note that statements made during this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as further described in slide three of our fourth quarter 2011 supplemental schedules. Such forward-looking statements represents only our current beliefs regarding future events and are not guarantees or performance or results.

Actual results performance or achievements may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors including but not limited to the factors under the headings Cautionary Note regarding forward-looking statements and Risk Factors in our periodic reports filed with the US Securities and Exchange Commission including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q which are available in the Investors section of our website at www.phh.com and are also available at www.sec.gov . Investors are cautioned not to place undue reliance on such forward-looking statements.

We will also be discussing various non-GAAP financial measures including core earnings pre-tax, core earnings after-tax and core earnings per share, tangible book value and tangible book value per share. Please refer to our earnings release and accompanying supplemental schedules for a description of these non-GAAP financial measures as well as a reconciliation of such measures to their respective most directly comparable GAAP financial measures.

The earnings release we issued yesterday may be accessed from our website or you may request a faxed or a mail copy by calling our investor hotline at 856-917-7405. In addition supplemental schedules are posted in the Investors section of our website under webcast and presentations.

Speaking on the call today will be, Glenn Messina, President and Chief Executive Officer, and David Coles, Interim Chief Financial Officer, Luke Hayden, Executive Vice President of Mortgage and George Kilroy, Executive Vice President of Fleet are also with us today and will be available to take your questions.

First, Glenn will discuss our strategic plans and provide a brief discussion of the company’s performance in the fourth quarter, then David will review our financial results after which we will take questions.

With that, I will turn the call over to Glenn Messina.

Glenn Messina

Thank you, Jim. Good morning everyone and thank you for your continued interest in PHH. I am pleased to be speaking with you today as CEO and I look forward to working with our shareholders in my new role. I see a significant opportunity at PHH to create value for our shareholders, and in a moment I’ll lay out our key strategies to do that.

PHH has been a leader in Mortgage Outsourcing and Fleet Management Services for a decade. We have built the client base of leading institutions that view us as a trusted partner to serve their customers and employees. We have been able to leverage our client base and track record into significant tale that provides us a defensible and expandable market position.

The fundamentals of our business remains strong. We continue to grow our private-label relationships in mortgage through new client additions and increasing volume of existing clients. Our delinquencies are amongst the lowest in the industry and we generate substantial cash flows from our Mortgage Servicing business. Our Fleet business continues to deliver double-digit annual earnings growth while providing low risk returns and highly predictable cash flows.

Going forward, we are focusing on four key strategies to increase shareholder value. First, we will continue to pursue disciplined growth in our three franchise platforms, consisting of mortgage, private-label services, our mortgage relationship with – and our Fleet Management business.

Second, we will focus on driving industry-leading operational execution or operational excellence. Third, we will continue our unwavering commitment to customer service, and finally, in the near term, we look forward tight volatile liquidity, cash flow generation from both Mortgage and Fleet and deleveraging the balance sheet. We believe it’s essential to alleviate any concerns regarding our liquidity.

The sound and stable financial foundation will allow us to execute our first three strategies and pursue opportunities to maximize value from a position of strength. Going forward, we will be more prudent and disciplined in the use of our balance sheet. We are focused on monetizing financial assets that generate substandard return and are not necessary to support our business strategies.

These include, mortgage loans not funded through our foreclosure and real estate-owned assets related to our reinsurance business and fleet leases not funded through our asset-backed securitization program. In the past, we have been opportunitistic in the corresponding channel while incremental originations and correspondence create core earnings consistent with our near-term focus on liquidity.

We are focusing on cash consumption, rather than total volume in this channel. We anticipate reducing cash consumption by at least 50% relative to 2011 with margins as wide as they’ve been recently, we’ve been able to originate MSRs with minimal use of cash.

However, we have established internal metrics and trigger points to ensure we do not exceed our cash usage for this channel. In addition to these initiatives we have taken substantial and decisive actions to improve our liquidity position through our recent unsecured and convertible debt offering.

As a result, we believe we are in a strong position to retire both our 2012 and 2013 debt maturities. We will also be well positioned when we engage the lenders in our revolving credit facility later this year regarding a multi-year extension. With respect to our financial arrangements with Fannie Mae, our $1 billion committed and $2 billion uncommitted funding arrangements both remain in place. As you’ll recall, Fannie Mae had agreed not to take any action as a result of the recent S&P downgrade until last Friday at the earliest.

We remain in active discussions with Fannie Mae concerning proposed amendments to our financing arrangements. Regarding operational excellence, this is a passion of mine have developed over the course of my career and it will be a company-wide focus going forward. By operational excellence, I mean improving the speed, cost and quality of our critical business processes.

We have identified meaningful opportunities to reduce cost and improve margin by eliminating re-work that causes cycle time delays and consumes balance sheet capacity. For instance, loans originated with minor defects that are not eligible to warehouse financing, take up balance sheet capacity and require corrected actions to remedy those flaws.

Elimination of this need for rework would reduce cash consumption, reduce cost, and accelerate cash realization from those originations. Efforts like this should drive improved profitability and cash flow by making it some more efficient effective and competitive company.

These efforts also enable us to deliver improved service levels to our customers and clients. 2012 is a transition year for PHH and it will be a challenging year. Some of the actions we are taking to reposition the business combined with lower mortgage industry origination volume will have a negative impact on our 2012 earnings.

I believe our narrowed focus, our deliberate growth strategy focus on operational excellence continued focus on customer satisfaction along with our near-term focus on liquidity will result in a more profitable less volatile and better capitalized company beyond 2012. This puts us in a position of strength to pursue opportunities to maximize shareholder value.

Moving to our fourth quarter results, starting with Mortgage, both volumes and pricing margins remained at elevated levels and as the third quarter refinancing surge extended into the fourth quarter. While prepayments from our servicing portfolio were an annualized 19% for the quarter, our strong origination volume allowed us to achieve for portfolio replenishment rate of approximately 161%.

This resulted in an increase in our capitalized servicing portfolio of 9% compared to year-end 2010. The quality of our servicing portfolio continues to be strong. Total delinquency rate excluding foreclosure and real estate-owned at 3.9% was down basis points from year-end 2010.

This is approximately half the level reported for large services by the MBA. The percentage of loans in foreclosure and real estate-owed at year-end was 1.85%, down 52 basis points from year-end 2010. Foreclosure-related charges remained at an annual run rate of approximately $80 million, and we continue to successfully defend about two of every three loans put back to us.

We expect these charges and loan repurchase demands to remain at elevated levels in 2012. We have started to onboard the five new PLS clients we added in 2011 and we are already seeing strong activity from them.

As we said before, few of these clients require six to 12 months to fully ramp, but we expect these new clients collectively to contribute to the profitability of our Mortgage business in 2012. Our Mortgage Origination market share in the fourth quarter was an estimated 3.9% and we met our production targets for the year.

Going forward, we do not believe setting a market share target that’s consistent with our near-term focus on liquidity and cash flow generation. Therefore, we will no longer be providing this type of guidance nor driving the business towards this goal.

In our Fleet segment, we continue to show significant momentum as 2011 was the second year in a row with double-digit segment profit growth. Our continued emphasis on growth opportunities in non-capital intensive fee-based services continues to reap benefits and drive improvement in our ROE.

Management fees increased 10% to $45 million in the quarter as compared to $41 million in the same period last year reflecting growth in maintenance services fuel cards and accident management services. We anticipate continuing to grow service units faster at a faster rate than leased units.

Our focus on customer service and technology innovation makes Fleet a leader in its industry and we anticipate continued growth in this segment. And now, I’ll turn the call over to David.

David Coles

Thank you, Glenn. On a GAAP basis, net income attributable to PHH Corporation for the fourth quarter was $13 million or $0.22 per share. Fourth quarter core earnings after tax which adjusts for unrealized changes in fair value of our MSR and related hedges was $55 million and core earnings per share for the quarter was or $0.98.

The difference between our GAAP and core earnings in the fourth quarter was driven by the negative valuation mark on our MSR of $132 million primarily resulting from higher prepayment expectations from lower mortgage interest rates. For the full year 2011, on a GAAP basis, the net loss attributable to PHH Corporation was $127 million or $2.26 per share.

Core earnings after-tax for the full year 2011 was $182 million and core earnings per share was $3.23. Both of these figures include a $68 million gain from the STARS transaction that occurred in the first quarter. Interest rate lot commitments expected to close for the quarter which is the primary driver of revenues in the mortgage production segment were $9.7 billion, it’s sequentially down from the $11.4 billion in the third quarter, but up compared to $9.2 billion in the fourth quarter of 2010. This reflects the surge in refinancing that started during the third quarter 2011.

In the Mortgage Servicing segment, we continue to build our capitalized servicing portfolio, which increased to $147 billion in UPB at year-end 2011 up from $135 billion at the end of 2010 and $144 billion at the end of the third quarter 2011. Our Fleet Management segment remains a key contributor to our consolidated results.

Fourth quarter Fleet segment profit was $19 million, down 24% from the fourth quarter of 2010 and full year 2011 Fleet segment profit was up to $75 million up 19% from 2010.

Fleet net revenues increased 4% in the fourth quarter 2011 compared to the fourth quarter 2010, primarily as a result of growth in truck lease syndication revenue and increases in Fleet management fees.

The leased vehicle average unit count increased modestly in the quarter and for the year as our Fleet segment continues to emphasize fee income on vehicles not under lease. We anticipate the total leased vehicles will remain approximately flat in 2012.

On a consolidated basis, other operating expenses in 2011 increased by approximately $94 million over the 2010 level. This was primarily driven by an increasing cost of goods sold in our Fleet Management segment related to truck lease syndication revenue and increasing foreclosure-related costs and increased investment in the reliability and resiliency of our technology platform.

Now I’d like to provide an update on our liquidity position. Not only that we have more than sufficient liquidity to meet our 2012 debt maturities, we are confident we have the liquidity cash generation capability and balance sheet flexibility to meet our liquidity requirements through 2013.

At year-end 2011, our liquidity included $414 million in unrestricted cash, plus $509 million of availability under our committed revolving credit facility totaling $923 million. This represents an increase in liquidity of more than $400 million from September 30.

This increase in liquidity was the result of management’s focus on working capital initiatives in our Mortgage segment, approximately $70 million in financing activity in both our US and Canadian vehicle Fleet Management securitizations and reflects the $100 million add-on offering of 9.25% senior notes due 2016.

I’d also point out that under the terms of our unsecured revolver our liquidity position at year-end was and currently is in excess of the liquidity required at the end of this month in order to extend the facility to February 2013.

Subsequent to year-end, our liquidity position was further enhanced by $250 million in issuance of 6% convertible notes due 2017 issued in January. Also, since year-end we have acquired in open market purchases $48 million in face value of our 4% convertible notes due April 2012, at a weighted average price of just below par.

And now, I’ll turn it back over to Glenn.

Glenn Messina

Thanks, David. To recap, our four key strategies are, disciplined growth in our franchise platforms, industry-leading operational execution, and unwavering commitment to customer service and in the near term, an emphasis on liquidity cash flow generation and deleveraging the balance sheet.

All of these are intended to maximize shareholder value by making PHH more efficient from both an operating and financial perspective, while leveraging our scale and franchise to improve our profitability.

Before we get questions, I want to take a moment to thank all of our employees at PHH for their hard work and perseverance through what was a challenging and extremely busy year, especially in the second half of the year. We have an outstanding and I’m proud to be working with them. With that, we are ready to take questions. I’ll turn it over to you Matt

Question-and-Answer-Session

Operator

(Operator instructions) We’ll take our first question from Bose George with KBW.

Bose George – KBW

Hi, guys. Good morning.

Glenn Messina

Hey, good morning Bose.

Bose George – KBW

Good, had a couple of questions. First I just wanted to see if I’d get a little more detail on strategic actions you could take. On the correspondent side, if you take volumes down there sharply, is there a possibility that you guys need to take any charges for that? And also just wondering if you are contemplating selling any loans servicing released as part of the strategic actions as well?

Glenn Messina

In our Correspondent channel, we’ve already taken the initiative to focus the business on collection of core customers that have driven very profitable, very high quality production for us. We do have multiple originations channels in our business. So to the extent that we have to adjust our internal staffing for changes in volume levels in correspondent. The good news for us is, we continue to growing the PLS platform and we can reallocate resources over to POS.

Bose George – KBW

Okay, that’s great. So, it’s fair to say that, nothing dramatic you wouldn’t need to take meaningful charge as you could slow down and reallocate people as necessary.

Glenn Messina

Yeah, nothing material to the overall earnings of the business.

Bose George – KBW

Okay, great. And then just on the question of potentially selling loan servicing release is that part of the plan in anyway?

Glenn Messina

Bose, right now, given where market pricing levels are, we can originate MSRs at very, very attractive rates and with very minimal cash consumption. We are focused on retaining them at this point in time.

Bose George – KBW

Okay, great. And then just switching on the correspondent closing that you are going to produce, those are all loans originated for sale so as that happens, is it the fee-based closing percentage should we see that increase as a percentage of your total originations?

Glenn Messina

Yeah, that would be the math.

Bose George – KBW

Okay, great. And then just one last thing, have you guys had bidders for the MSR or even for the Fleet business, I mean, sort of bigger changes like that, since you are discussing as well?

Glenn Messina

Yeah, as it relates to the MSR, there has been a number of trade-down in the marketplace limited but albeit a few number of them but none of them have really been for the type of high quality production that we have in our portfolio. We are exploring a number of different alternatives, alternative financing sources to the MSR.

We think our focus on liquidity and cash generation will put us in a position where we really will need to be looking at MSR sales or alternative financing, in the near-term to deal with our MSR growth. As it relates to anything regard to Fleet or Mortgage, this public forum is not the place to have any discussions about anything like that. I’m focused on maximizing shareholder value. We’ve laid out our four strategies and that’s what we are going to be pursuing.

Bose George – KBW

Okay, great. Thanks, and good work on the liquidity front.

Glenn Messina

Okay, I appreciate it.

Operator

We will take our next question from Paul Miller FBR Investments.

Paul Miller– FBR Investments

Yeah, thank you very much. And guys, you want to rely in your opening remarks and I want to make sure that I caught everything and didn’t misinterpret something. Glenn, did you make a comment that the steps that you are taking might decrease profitability for 2012?

Glenn Messina

Yeah, over the near term, we are going to be focused on managing correspondent to a cash usage target rather than targeting an absolute volume number depending where margins are that could put pressure on core earnings. We are looking at selling some non-core financial assets or monetizing them.

Some of those assets may produce a loss on sale. So, in addition, industry volume, Fannie Mae is forecasting a 26% volume reduction which historically has caused margins to compress to the industry. But look, I mean this is going to be a transitional year for us and we are building more profitable, less volatile better capitalized business for 2013 and beyond.

Paul Miller– FBR Investments

And then when you, so when you are talking about lower profitability, I don’t mean that, you are talking really the core number, the $3 number on the core basis not the GAAP number.

Glenn Messina

Yeah, I’m focused on core.

Paul Miller– FBR Investments

Focused on core. And then, what about hedging the MSR? I mean I think that’s one of the biggest criticisms of PHH, is the volatility that comes from not hedging the MSR. Can you tell us what you are thinking on that is going forward?

Glenn Messina

Yeah we regularly go through our servicing portfolio and as you know at the tail end of last year, we did put some hedges in place to put ourselves for a downside rate move. We continue to evaluate the merits of hedging the portfolio, but quite frankly our near-term focus is really on addressing the 2012 and 2013 debt maturities and we’ll continue to evaluate the merits of hedging a portfolio as cost or liquidity situation permits.

Paul Miller– FBR Investments

Okay, and then the HARP 2 write-down I would think that did you guys been writing down relatively aggressively the MSR due to rates and there is always been a discussion out there is economic or accounting. So why would you have to take an additional write-down for HARP 2?

Glenn Messina

Yeah, in the fourth quarter we adjusted the prepayments fees in our model for what we think the impact of HARP 2 is going to be. We are just at the inception of the HARP 2 program. The GSE’s underwriting models and you have not really been updated yet. So we are not seeing a significant amount of activity as it relates to HRP 2. So, the MSR valuation adjustment really came from changing our expected prepayments fee just as a result of HARP 2.

Paul Miller– FBR Investments

Okay, so you have not seen – some mortgage banks went publicly about and JPMorgan being one not trying to put you on the spot saying that they are seeing a significant increase in refy activity from HARP 2, but you have really seen that yet?

Glenn Messina

No, not yet.

Paul Miller– FBR Investments

Okay, and then on the expense side, and especially in your segment analysis, looking at your overall expenses which is your last line item in segment analysis. That’s been picking up for the last four or five quarters. I think it was in mid-20s, a year ago, it now is at $39 million. Is that all recurring cost or non-recurring cost? Can you break that down a little bit for us? Should that we expect it to go down once we get through the high foreclosure or high default timeframe?

Glenn Messina

Yes, Paul, as it relates to our servicing business, there is a couple of different things happening to our servicing costs. We do expect to see increased cost related to changing and acting our service platform to follow best practice standards, particularly in the area of foreclosure and loss mitigation. In the near-term, we are seeing a heightened level of compensatory buying relating to foreclosure timelines or missing foreclosure timelines.

As we continue to focus on operational excellence and improving the quality of our operations, we would expect to see that decline and we incur about $80 million a year in foreclosure related costs and at least for the foreseeable future for 2012, we expect that’s going to be in an elevated level.

Paul Miller– FBR Investments

Okay, I guess, another foreclosure cost of $80 million hopefully that starts to go down. But I guess, I’m more on the core operating number, the core expense number of the servicing platform itself. I mean, is, I guess the 39, it’s almost $40 million. I mean, the issue was that if that keeps on going up, you have to sit and start questioning the servicing model itself and I’m just, I’m not trying to pinpoint something here. But should we start to see that to go down sometime in 2012 or 2013?

Glenn Messina

Yes, in 2012, I think your cost will continue to be elevated and it really does depend where the GSEs go and how aggressive they are with the compensatory bonds as to whether or not that number could decline in 2013.

Paul Miller– FBR Investments

Okay, all right. Thank you very much gentlemen.

Glenn Messina

Thanks, Paul. I appreciate it.

Operator

And we go next to Henry Coffey with Stern Agee.

Henry Coffey – Stern Agee

Yes, good morning everyone and let me add my congratulations. Very tough two months and I’m sure most of you have put in lots of long hours. I’ll use the number and I’ll call it $400 million. As you go through the year, there is usually a sort of a seasonal consumption of cash tied to both origination activities and hedging activities et cetera.

As you go through the year, are we going to see that normal seasonal decline in cash balances? Or with your new more liquidity-oriented strategies and the sale of non-core assets, can we think about, let’s call its $400 million of unrestricted cash as kind of a benchmark?

Glenn Messina

You know, Henry, we are going to see a couple of different movements in cash over the course of the year. You are going to see a build up over the next couple of months probably, as we continue to execute on our liquidity plans and begin to monetize assets, as we pay down our unsecured debt for 2012 and we want to address the 2013 maturities in 2012 and as well too.

You’ll see that balance ramp down and behind the scenes to your point Henry, there is always a seasonal pattern of consumption and returns in a business, especially during the spring buying season that we would expect it would continue in the business.

Henry Coffey – Stern Agee

And can you give us some sense of the difference in terms of MSR cost or however you want to quantify it between what you are paying for correspondent loans and what it costs you to originate a loan?

Glenn Messina

You know, Henry, historically we haven’t really disclosed the economics of where we stand between each one of our channels, but I think if you go to the investors supplement on, I think in page eight of the investors supplement, we do lay out what the incremental pre-tax earnings of retail is with the incremental pre-tax earnings of correspondent is and in general the inverse of that would be are cash cost our relative cash cost.

Henry Coffey – Stern Agee

Great, I’ll go through that schedule. That would be very helpful. You talked in your convertible note offering about kind of a potentially very large new partner. I was wondering if you could give us some sense of what the status of that is and then of course I have one last question.

Glenn Messina

Sure, Henry, we continue to be in discussions with this one large new partner. We believe things are progressing appropriately at this stage as well. We are looking at a number of smaller potential clients who are in discussions with. We are going to continue to focus on growing our POS business consistent with our focus growth strategy.

Henry Coffey – Stern Agee

And a way to understand the situation with Fannie, there has been no change in the status of the line, where there any specific conversations or comments from them that would either increase or decrease your comfort level? I mean, you obviously have enough liquidity with or without them but I was just wondering was there any, I mean, they hold their cards very close to the best as we all know. But I was wondering if there are any specific comments you could point to?

Glenn Messina

Sure, Henry, I think you’ve got it. The Fannie Mae alliance continues to be a development to us both the uncommitted and committed lines. We are in active discussions with them or having a productive two-way dialogue going back and forth.

Henry Coffey – Stern Agee

And how would you talked about extending the maturity of your bank line to a multi-year facility. Would that be enough to sort of trigger an S&P upgrade or since that was one of the primary things they’ve brought up or what is the thought process there?

Glenn Messina

Henry, I really can’t speculate on that.

Henry Coffey – Stern Agee

Great. Well, thank you and congratulations on putting together a solid quarter and surviving a very tough period.

Glenn Messina

Okay, thanks Henry. Appreciated.

Operator

(Operator instructions) We will go to Scott Stern with Lenders One

Scott Stern - Lenders One

Hi, thank you very much for taking my call or my question. I just have a short-term and then a longer-term question. In the short-term, Mr. Messina you mentioned the focus on your core customers and correspondent lending and I was just wondering if you could provide a little more detail around that what you expect to happen to your base of sellers in 2012? And then longer-term, do you see correspondent lending as integral to your business in 2012, 2013 and beyond albeit even if it’s at a smaller level?

Glenn Messina

We continue to participate in the correspondent channel as I had mentioned, we are focusing originating high quality profitable production to our correspondent channel consistent within the constraints of cash usage targets that we’ve set up for the correspondent channel.

Scott Stern - Lenders One

Okay, thank you and congratulations on getting through these difficult times.

Glenn Messina

And I appreciate it. Thank you, Scott.

Operator

And we will go next to Ninad Sanghvi with Hudson Bay Capital.

Ninad Sanghvi – Hudson Bay Capital

Hey, good morning guys. Can you hear me?

Glenn Messina

Yes, good morning. And how are you?

Ninad Sanghvi – Hudson Bay Capital

Good. Quick question, can you explain the delta between your last liquidity update which is provided on December 27 I believe for a cash number of 322 unrestricted for December 21, versus what you have on the balance sheet at year-end?

Glenn Messina

And I’m going to turn that over to Dave, David do you want to get the walk on that?

David Coles

Yes, as I mentioned in my script, we did generate some proceeds from financing. We have the – I think after the 21, we continued also to pull on that as we could on working capital management in the Mortgage business in terms of raising proceeds from the sale of mortgage loans held for sale and other operating activities.

I believe that the financing actions, sorry the financing action that I mentioned in the script actually occurred before we gave you the update on December 21. So that wasn’t incremental after that and we continue to have a lot of success in really cleaning up the balance sheet.

Ninad Sanghvi – Hudson Bay Capital

Got you. So when you mentioned that over the next couple months your cash position should be boosted or should we assume that similar actions will be taken over the next couple of months?

Glenn Messina

There will be similar actions, but I’m not sure that they’ll have the same dollar value effect.

David Coles

Hey, look we are focused more intensely on providing a more disciplined and focused use of our balance sheet. We are taking the necessary operational actions to reduce loan defects. So they don’t end up on our balance sheet or defective loans don’t end up on our balance sheet and we can continue to fund through our warehouse lines. And as I said we are going to be focused on continuing to monetize non-core assets in our business, non-core financial assets in our business.

Ninad Sanghvi – Hudson Bay Capital

Great, got it. And a quick follow-up on the Mortgage Servicing segment, the $13 million charge on credit related losses, I mean, I assume that that’s driven by your assumptions on delinquencies. So did that change or do your assumptions change in the fourth quarter or have you become more conservative in taking those write-offs because the year-over-year delinquency numbers improved from…

Glenn Messina

I’m going to actually turn it over to John Erdmann to take you through that.

John Erdmann

You have to be careful in looking at the raw percentages because as you add loans, you can’t improve the underlying delinquency percentages. So your underlying loans and foreclosure or delinquencies that were delinquent before and delinquent now actually did tick up a bit. But you are seeing improvement numbers overall in the portfolio as you are adding more current loans into it.

Ninad Sanghvi – Hudson Bay Capital

Got it. Okay, great, thank you guys.

Glenn Messina

Thanks, Ninad.

Operator

(Operator instructions) We’ll go to Jim Fowler with Harvest Capital.

Jim Fowler – Harvest Capital

Hi, good morning and thanks for taking the question. Jumping between a couple calls. Could you repeat Glenn, the comment that you made whatever might have been on the put-back requests and the volume that you’ve been seeing of late? Thank you.

Glenn Messina

Yeah, Jim I think, throughout the course of 2011, we saw elevated levels of repurchase requests. We still are successful in defending two out of every three one of those repurchase demands. But net, net foreclosure continues to run about $80 million during the course of 2011. We expect a heightened level of repurchase request as well as our foreclosure costs continue into 2012.

Jim Fowler – Harvest Capital

Was Fannie Mae being an importance, but not only lender to you. Is there any sort of tension or was sort of the interplay between the discussions on future repurchase request in financing from them or are those two sorts of mutually exclusive discussions between yourselves and Fannie?

Glenn Messina

We continue to value our partnership with Fannie Mae. We cooperate on a number of different fronts. We’ve historically had a good relationship with Fannie Mae. We are having a productive back and forth dialogue as regards to the renewal of our $1 billion committed credit facility. But I think the relationships continue to be appropriate.

Jim Fowler – Harvest Capital

Great, thank you very much. Good luck.

Glenn Messina

Thanks, Jim.

Operator

And gentlemen, we have no other questions at this time. I’d like to turn the call back to you for any additional or closing comments.

Glenn Messina

Great. Hey, I want to thank everybody for joining the call and for your continued interest in PHH and we look forward to speaking with you next quarter.

Operator

Thank you. This concludes the PHH Corporation fourth quarter 2011 earnings conference call. Once again ladies and gentlemen the replay will be available beginning later today at the company’s website at www.phh.com/invest or by dialing 719-457-0820 or toll free 888-203-1112 using conference ID 4120134. It will be archived until February 21, 2012. You may now disconnect.

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Source: PHH's CEO Discusses Q4 2011 Results - Earnings Call Transcript
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