PHH Corporation Announces First Quarter 2008 Results

PHH Corporation (NYSE: PHH) today announced results for the three months ended March 31, 2008.

Net revenues for the three months ended March 31, 2008 were $642 million, an increase of 8% from Net revenues of $596 million for the three months ended March 31, 2007.

Income before income taxes and minority interest of $44 million for the three months ended March 31, 2008 increased by $11 million, or 33%, compared to $33 million for the three months ended March 31, 2007. Income before income taxes and minority interest for the three months ended March 31, 2008 includes the receipt of a reverse termination fee from Blackstone Capital Partners V L.P., net of merger related expenses, of $42 million and a $30 million favorable impact related to adopting fair value accounting pronouncements.

Net income for the three months ended March 31, 2008 was $30 million compared to $15 million for the three months ended March 31, 2007. Basic and Diluted earnings per share for the three months ended March 31, 2008 was $0.55 compared to Basic and Diluted earnings per share of $0.28 and $0.27, respectively, for the three months ended March 31, 2007.

Mortgage Production Segment

Net revenues for the three months ended March 31, 2008 for the mortgage production segment were $126 million compared to Net revenues of $71 million for the three months ended March 31, 2007. Segment loss for the three months ended March 31, 2008 was $8 million compared to segment loss of $39 million for the three months ended March 31, 2007.

The decrease in segment loss for the three months ended March 31, 2008 in comparison to the same period in 2007 was primarily due to an increase in margins on conforming mortgage loans and the benefit of adopting new fair value accounting pronouncements, which were partially offset by a decline in the valuation of adjustable-rate, scratch and dent and jumbo mortgage loans and unfavorable hedge results related to our mortgage loans held for sale and interest rate lock commitments due to interest rate volatility.

Total closings for the three months ended March 31, 2008 increased 6% to $10.0 billion, compared to $9.4 billion for the same period in 2007. Of this increase, refinance closings rose 41% to $5.2 billion from $3.7 billion in the three months ended March 31, 2007 while purchase closings dropped 16% to $4.7 billion from $5.7 billion in the three months ended March 31, 2007. Overall origination volumes were positively impacted by an increase in refinancing activity due to lower mortgage interest rates.

Highlights for the mortgage production segment included:

• $10.0 billion of originations, a 6% increase, during the three months ended March 31, 2008 compared to the three months ended March 31, 2007
• $7.1 billion of loans closed to be sold during the three months ended March 31, 2008, approximately 90% of which were conforming
• A $15 million reduction in Total expenses during the three months ended March 31, 2008 compared to the three months ended March 31, 2007 resulting from our efforts to reduce costs
• Five new private-label client signings during the three months ended March 31, 2008, including: Comerica Bank, The Dime Savings Bank of Williamsburgh, Union Center National Bank and Bank of Sierra

Mortgage Servicing Segment

Net revenues for the three months ended March 31, 2008 for the mortgage servicing segment were $19 million compared to Net revenues of $75 million for the three months ended March 31, 2007. Segment loss was $16 million for the three months ended March 31, 2008, compared to segment profit of $55 million for the three months ended March 31, 2007.

The unfavorable change in segment (loss) profit of $71 million during the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was due primarily to a higher net loss on mortgage servicing rights (MSRs) risk management activities, decreased loan servicing income due to sales of our MSRs during 2007 and an increase in foreclosure losses and reserves associated with loans sold with recourse.

Highlights for the mortgage servicing segment included:

• Capitalized servicing rate of MSRs at 1.15% as of March 31, 2008
• Delinquency rate as a percentage of the total unpaid principal balance of the mortgage loan servicing portfolio at 2.28% as of March 31, 2008, which the Company believes compares favorably to the industry

Fleet Management Services Segment

Net revenues for the three months ended March 31, 2008 for the fleet management services segment were $448 million compared to Net revenues for the three months ended March 31, 2007 of $450 million. Segment profit for the three months ended March 31, 2008 was $24 million compared to $21 million for the three months ended March 31, 2007.

The increase of $3 million in segment profit in the first quarter of 2008 compared to the first quarter of 2007 was primarily due to a decrease in corporate overhead costs.

During the three months ended March 31, 2008 compared to the three months ended March 31, 2007, the average number of leased vehicles remained at 340,000 units, fuel card units decreased 6% from 331,000 units to 310,000 units, maintenance service cards decreased 9% from 338,000 units to 308,000 units and accident management vehicle units decreased 3% from 336,000 units to 327,000 units.

Highlights for the fleet management services segment included:

• Entered into an agreement with J.J. Keller & Associates to enhance our offerings by providing its comprehensive U.S. Department of Transportation regulatory compliance and vehicle legalization services suite to our heavy truck clients
• Expanded our offering of PHH Onboard®, our telematics powered service, to our Canadian fleet management customers resulting in a single information platform across the U.S. and Canada
• Introduced new productivity enhancements to PHH InterActive®, our industry-leading fleet management website, including increased functionality of standard reports and an enhanced news function
• Entered into a strategic relationship with the Center for Transportation Safety, a leading provider of risk management and training solutions for drivers of vehicles of all sizes

Liquidity

During the three months ended March 31, 2008, we completed the renewal of $2.9 billion of our funding arrangement for Chesapeake Funding LLC, which provides committed funding for our fleet management services segment through February 26, 2009. In addition, we executed a $500 million mortgage repurchase facility which provides incremental funding capacity for the Company’s mortgage operations through February 26, 2009.

On April 2, 2008, we issued $250 million of 4.0% convertible notes due April 15, 2012. The net proceeds from the offering were $241 million. We used $28 million of the net proceeds of the offering to pay the net cost of convertible note hedging and warrant transactions that were entered into concurrently with the notes. We also used $213 million of the proceeds to reduce the borrowings under our amended and restated competitive advance and revolving credit agreement which provides incremental funding capacity for our mortgage operations. In order to reduce the potential dilution of our common stock upon future conversion of the convertible notes, we entered into convertible note hedge and warrant transactions, which are expected to result in an effective conversion price of $27.20 per share.

Investors should consult the Company’s Form 10-Q for the quarter ended March 31, 2008 when it is filed, for more information regarding the Company’s financing activities and the convertible notes.

Management Comments and Outlook

Terry Edwards, president and chief executive officer, stated, “While we experienced higher refinance activity and overall production volumes during the first quarter of 2008, the mortgage business continued to be affected by, among other things, the widening of credit spreads and the lack of liquidity for all mortgage products, with the exception of 30-year conforming and 15-year fixed-rate products. The decline in value of adjustable-rate, scratch and dent and jumbo loans negatively impacted our mortgage production segment’s results for the first quarter of 2008 by $42 million, which was partially offset by a $30 million benefit due to the adoption of fair value accounting standards. Increased refinancing activity due to lower interest rates was partially offset by the slow down in purchase activity in the first quarter of 2008 compared to the first quarter of 2007.

“The loss in our servicing segment was attributable, in part, to our reliance on the natural business hedge rather than hedging our servicing portfolio with financial instruments. The natural business hedge refers to the beneficial impact that a sustained decline in interest rates has on borrower refinancing activity and margins. Because the natural business hedge requires a sustained period of lower interest rates, the benefit lags the initial interest rate decline.

“The fleet management services segment performed well during the first quarter; however, these results are not indicative of the expected full year 2008 results since the increased financing costs will not begin to fully impact us until the second quarter. We believe that we are gaining momentum with potential new client signings following the termination of the merger agreement with GE in January 2008.

“Although the financial services sector is expected to remain challenging for the remainder of 2008, we believe that both businesses are well positioned.”

Executive Vice President and Chief Financial Officer

Today we also announced that we will begin a search for a new executive vice president and chief financial officer to succeed Mr. Clair M. Raubenstine. Mr. Raubenstine has successfully completed the role for which he was appointed on February 23, 2006, namely, to evaluate a number of accounting issues and ultimately guide us through the restatement of our financial statements for certain periods prior to December 31, 2005, to assist us in becoming and remaining a current filer in our periodic reports filed with the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and to implement an effective system of internal control over financial reporting. Mr. Raubenstine will continue to serve as our executive vice president and chief financial officer until a successor is identified and an orderly transition is effected.

Mr. Edwards stated, “Clair applied his vast experience and boundless work ethic to accomplish the goals set by the Board. We thank him for his great contribution to the Company and for his continued commitment during this transition period.”

2008 Annual Meeting of Stockholders

Our 2008 annual meeting of stockholders has been rescheduled for Wednesday, June 11, 2008 at 10:00 a.m., eastern daylight time, in Mount Laurel, New Jersey. Stockholders should consult the Notice of the 2008 Annual Meeting and Proxy Statement which was filed with the Securities and Exchange Commission on April 29, 2008 for further information.

Conference Call

The Company will conduct a conference call for investors on Friday, May 9, 2008 at 10:00 a.m., eastern daylight time. Interested investors can access the conference call by dialing 1-877-795-3648 or 1-719-325-4783 ten minutes prior to the start time. The conference call will also be broadcast on the Company’s website at www.phh.com. A replay will be available beginning approximately two hours after the conclusion of the live call and ending at midnight on June 9, 2008 by dialing 1-888-203-1112 or 1-719-457-0820, using passcode 6492105, or by logging on to the Company’s website.

About PHH Corporation

Headquartered in Mount Laurel, New Jersey, PHH Corporation is a leading outsource provider of mortgage and vehicle fleet management services. Its subsidiary, PHH Mortgage, is one of the top ten retail originators of residential mortgages in the United States¹, and its subsidiary, PHH Arval, is a leading fleet management services provider in the United States and Canada. For additional information about the company and its subsidiaries please visit our website at www.phh.com.

¹ Inside Mortgage Finance, Copyright 2008

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements include the following: (i) our belief that our delinquency rate as a percentage of the total balance of our unpaid mortgage loan servicing portfolio compares favorably to the industry; (ii) our belief that PHH InterActive® is an industry-leading fleet management website; (iii) our belief that the Center for Transportation Safety is a leading provider of risk management and training solutions for drivers of vehicles of all sizes; (iv) our expectation as to the effective conversion price for the convertible notes; (v) our expectation that our fleet management services segment’s results will not begin to reflect the full impact of increased financing costs until the second quarter of 2008; (vi) our belief that we are gaining momentum in our fleet management services segment with potential new client signings following the termination of the merger agreement with GE in January 2008; and (vii) our belief that we are well-positioned to operate in what will likely remain a challenging year for the financial services sector. These statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should understand that these statements are not guarantees of performance or results and are preliminary in nature. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may result,” “will result,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts.

You should consider the areas of risk described under the heading “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the Securities and Exchange Commission under the Exchange Act in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law.

PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
		March 31, 2008			December 31, 2007
ASSETS
Cash and cash equivalents		$	117		$	149
Restricted cash