PHH Corporation announced that its subsidiary, PHH Mortgage Corporation and Matrix Financial Services Corporation, a subsidiary of Two Harbors Investment Corp., have entered into a flow sale agreement for the purchase and sale of mortgage servicing rights (MSRs). Under the flow sale agreement, PHH Mortgage may sell to Matrix the MSRs on 50 percent or more of PHH Mortgage's newly-originated residential mortgage loans that are eligible for sale, subject to the parties' mutual agreement on quarterly pricing for the MSRs. The flow sale agreement has an initial term of two years, subject to earlier termination in accordance with its terms, and can be extended if mutually agreed upon by both parties.
The parties have also entered into a subservicing agreement pursuant to which PHH Mortgage will act as the subservicer of the mortgage loans underlying the MSRs sold under the flow sale agreement. During the term of the subservicing agreement, PHH Mortgage will be entitled to receive subservicing income and other ancillary servicing fees related to the MSRs. Unless earlier terminated in accordance with its terms, the subservicing agreement will remain in effect so long as mortgage loans underlying the MSRs remain outstanding. Matrix may terminate the subservicing agreement without cause upon ninety days prior written notice to PHH Mortgage. If such early termination right is exercised, PHH Mortgage's subservicing fee during that ninety day period would be increased by 100 percent and Matrix would be responsible for paying customary servicing transfer costs.
Glen Messina, president and CEO of PHH Corporation, said, "We are excited to work with Two Harbors, a well-respected investor in the residential mortgage market. We are optimistic that this MSR funding relationship will contribute positively to our adjusted cash flow, while we continue to subservice the underlying loans, allowing us to maintain scale for our mortgage servicing operations. This arrangement is also a further step in our strategy to transition to a capital light, fee for service business model."