Fitch Downgrades PHH Mortgage Corporation's U.S. RMBS Servicer Ratings

NEW YORK--()--Fitch Ratings has downgraded the following ratings for PHH Mortgage Corporation (PHH Mortgage). The ratings have been removed from Rating Watch Negative and assigned a Negative Outlook:

--U.S. Residential primary servicer rating for prime product to 'RPS2' from 'RPS2+';

--U.S. Residential primary servicer rating for Alt-A product to 'RPS2' from 'RPS2+;

--U.S. Residential primary servicer rating for specialty sub-servicer product to 'RPS2' from 'RPS2+';

--U.S. Residential primary servicer rating for HELOC product to 'RPS2' from 'RPS2+'.

These actions are based on the proposed platform changes after its parent, PHH Corporation's sale of Fleet Management Services and the increased credit risk profile of PHH Mortgage operating as a monoline mortgage servicing and origination business.

The rating action also takes into consideration PHH Mortgage's changing corporate governance and oversight functions. For the period under review, the servicer had outsourced its internal audit functions. While many larger mortgage servicers have not outsourced this function, Fitch recognizes that PHH Mortgage has selected a recognized national auditing firm for this activity.

The servicer also expanded its servicing operational control group to 20 full time equivalent positions from four and includes quality control testers who were originally part of the business units, but now operate independently. The change reflects the servicer's ongoing efforts to enhance its overall enterprise risk management structure and achieve its internal audit and corporate governance and oversight objectives. Fitch believes that the transition will enhance the servicer's ability to remediate its internal audit controls and reporting capabilities but will require some seasoning to determine its effectiveness.

During the period under review, PHH Mortgage's 2013 REG AB Report, similar to the 2012 Report, indicated that certain foreclosure proceedings were not concluded in accordance with the published Federal National Mortgage Association (FNMA) foreclosure timelines. Several other Fitch-rated servicers have also reported similar instances of non-compliance with their foreclosure timelines. Fitch believes PHH Mortgage's ongoing efforts to institute changes in its quality control testing and reporting structure should address this concern.

Furthermore, in Fitch's view, PHH Mortgage's evolving corporate strategy faces various levels of execution risk associated with the renegotiation of its existing private-label service contracts and potential investments in both organic and inorganic growth opportunities.

The Negative Outlook action also takes into consideration Fitch's rating of PHH Corporation of 'BB-' Outlook Negative in July 2014. Fitch believes financial condition is an important indication of a servicer's ability to meet its obligations and to fund its operations. This action indicates that there is a heightened probability of a rating change and the likely direction of such a change.

PHH Mortgage is headquartered in Mt. Laurel, NJ with an additional servicing office in Amherst, NY. As of Sept. 30, 2014, the company serviced 1,164,384 loans totaling $226 billion, which includes 9901,458 Agency loans totaling $139 billion, 408,294 subserviced loans for $108 billion, 115,170 Prime loans totaling $66.9 billion; 10,706 Alt-A loans totaling $2.6 billion and 65,585 HELOC loans totaling $4.4 billion.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria -- Effective January 31, 2011 to January 30, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=932836

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Contacts

Fitch Ratings
Primary Analyst
Michael Laidlaw, +1-212-908-0251
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Michael Laidlaw, +1-212-908-0251
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com