The wholly owned subsidiaries of Two Harbors Investment Corp (NYSE:TWO) and PHH Corporation (NYSE:PHH) signed a flow sale agreement to buy and sell mortgage servicing rights (MSRs).
Under the flow sale agreement, PHH Corporation (NYSE:PHH)’s subsidiary, PHH Mortgage Corporation can sell its MSRs 50% or more of its newly-originated residential mortgage loans to Matrix Financial Services Corporation, the subsidiary of Two Harbors Investment Corp (NYSE:TWO).
The MSRs should be eligible for sale and will be subject to the mutual agreement on quarterly pricing. The initial term of the flow sale agreement is two years. Both parties have the option to terminate the deal early in accordance with the terms or may agree to extend it.
PHH Mortgage agreed to serve as sub-servicer
In addition, both parties inked a sub-servicing deal wherein PHH Mortgage agreed to serve as sub-servicer of the mortgage loans underlying the MSRs sold under the flow sale agreement. It will receive sub-servicing income and other ancillary servicing fee related to the MSRs.
The sub-servicing deal will be effective as long as the mortgage loans underlying the MSRs remain outstanding. Matrix has the right to terminate the agreement without cause but it needs to provide a notice 90 days prior to the date of termination.
Under the terms of the sub-servicing agreement, the sub-servicing fee for PHH Mortgage will be increased by 100% during the ninety day period. Matrix will pay the customary servicing transfer costs.
In a statement, Thomas Siering, president and chief executive officer of Two Harbors Investment Corp (NYSE:TWO) said, “This agreement represents significant progress related to our MSR investment initiative.” According to Siering, the company will discuss the flow sale agreement during its third quarter earnings conference call on November 6.
On the other hand, Glen Messina, president and chief executive officer of PHH Corporation (NYSE:PHH) expressed optimism that its MSR funding relationship will contribute positive adjusted cash flow as the company continue to sub-service underlying loans. He is also confident that the deal will allow the company to maintain scale for its mortgage operations.
“We are excited to work with Two Harbors, a well-respected investor in the residential mortgage market. This arrangement is also a further step in our strategy to transition to a capital light, fee for service business model,” said Messina.
Two Harbors is a real estate investment trust
Two Harbors Investment Corp (NYSE:TWO) is a real estate investment trust investing in residential securities, residential mortgage loans, mortgage servicing rights and other financial assets while PHH Corporation (NYSE:PHH) provides business process management services for mortgage and fleet industries.