November 2016 - End of the Road?

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TH E M R EP O RT | 43 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T DEPARTMENT ORIGINATION LOCAL EDITION THE LATEST ORIGINATION LOCAL EDITION Bank of America Cuts Ties with PHH ENDING THE PARTNERSHIP COULD COST PHH $45 MILLION IN 2017 ALONE. NORTH CAROLINA // Bank of America is terminating its private label mortgage origination services agreement with nonbank lender PHH Mortgage Corporation, a wholly-owned subsidiary of New Jersey-based PHH Corporation, according to an 8-K filing by PHH with the Securities and Exchange Commission. Bank of America sent writ - ten notice to PHH on September 27, 2016, that it was exercising its right to terminate without cause the agreement pursuant to which PHH Mortgage provides the services on behalf of Bank of America subsidiary Merrill Lynch, according to the filing. The loss of Merrill Lynch originations could mean $45 mil - lion less in revenue for PHH for Fiscal Year 2017. The filing states that based on PHH's estimate of Merrill Lynch's loan closing volume for 2016, PHH expects Merrill Lynch originations to con - tribute approximately $45 million in pre-tax earnings for FY2016. The termination of the agree- ment is effective as of March 31, 2017, according to the filing. Bank of America has the contractual right to request termination and transition assistance for up to 12 months after that date. Bank of America spokesperson Terry Francisco said he believed the bank's Merrill Lynch clients would be best served by insourc - ing all consumer lending sup- port through the bank's internal resources. "We are confident that our originations and servicing support capabilities will provide an excel - lent experience for our valued Merrill Lynch clients," Francisco said in an email to MReport. PHH did not immediately re - spond to a request for comment. The announcement of the termination of the agreement was the second time that Bank of America has pulled part of its Merrill Lynch business from PHH this year. In April, the bank made the decision to handle internally the origination of certain mort- gage loan products. At the time, PHH Corporation President and CEO Glen Messina issued a statement saying, "We believe these decisions reflect the broader dynamics in our industry, includ- ing higher compliance, and other costs associated with a more oner- ous regulatory environment." Wells Fargo Q3 Earnings Calm in the Midst of the Storm THE BANK REPORTED A $5.6 BILLION NET INCOME AS A NEW CEO AND VICE CHAIR TAKE THE HELM. CALIFORNIA // It has been a tumultuous period for Wells Fargo, with a recent leadership change following the sudden retirement of Chairman and CEO John Stumpf, and the bank's opening of 2 million unauthorized accounts. Wells Fargo's President and COO Tim Sloan was elected the new CEO by the bank's Board of Directors. Stephen Sanger, the Board's Lead Director, was chosen to serve as the Board's non-exec - utive Chairman, and independent director Elizabeth Duke was selected to serve as Vice Chair. It remains to be seen how these leadership changes will affect Wells Fargo's earnings for the fourth quarter, but the bank reported solid earnings for Q 3. In the third quarter, Wells Fargo posted a net income of $5.6 bil- lion, and diluted earnings per share of $1.03, down slightly from $5.8 billion and $1.05 in Q 3 2015. Mortgage banking income fared well in Q 3 for Wells Fargo. Mortgage banking noninter- est income was $1.7 billion, an increase of about a quarter billion from the previous quarter. The driver of the increase was net gains on mortgage loan origina- tion/sales activities. Residential mortgage loan originations totaled $70 billion in Q 3, up by $7 billion from Q2's total of $63 billion. The production margin on residen- tial held-for-sale mortgage loan originations increased from 1.66 percent in Q2 up to 1.81 percent in Q 3. "Wells Fargo reported solid re- sults for the third quarter, reflect- ing the benefits of our diversified business model, our strong bal- ance sheet, and improved credit performance," Chief Financial Officer John Shrewsberry said. "Revenue increased linked quar- ter on higher net interest income, driven by growth in earning assets, and increased investment in our securities portfolio, as well as solid mortgage banking results. While expenses increased from second quarter, credit results improved from the prior pe- riod led by strong performance in consumer real estate, and improvements in our oil and gas portfolio. Capital remained strong, and our net payout ratio was 61 percent in the quarter, as we returned $3.2 billion to shareholders through common stock dividends and net share repurchases. We will continue to monitor impacts from the recent sales practice settlements to our business activity levels." The third quarter for Wells Fargo included a $185 million penalty from regulators on September 8 over the opening of unauthorized accounts. The ensuing controversy rocked the U.S. financial industry and forced Stumpf to retire after 34 years with the bank. The bank's focus for the near term will be on rebuilding its reputation, according to the new CEO. "I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners," President and CEO Tim Sloan said. "We know that it will take time, and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members. We will work tirelessly to build a stronger and better Wells Fargo for generations to come." "I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners." —Tim Sloan, President and CEO, Wells Fargo

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