N@N

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the following U.S. residential mortgage servicer ratings for PHH Mortgage Corporation (PHH Mortgage) as follows:

--Primary servicer rating for Prime product at 'RPS2+'; Outlook Negative;

--Primary servicer rating for Alt-A product at 'RPS2+'; Outlook Negative;

--Primary specialty sub-servicer rating at 'RPS2+'; Outlook Negative;

--Primary servicer rating for Home Equity (HELOC) product at 'RPS2+'; Outlook Negative.

The rating actions reflect PHH Mortgage's expanded governance and compliance processes, enhanced vendor management controls, and its proven third-party servicing platform. During the period under review, the servicer hired an enterprise risk manager, implemented enhanced management tools to strengthen its foreclosure process, and expanded its audit and quality control reporting to senior management. PHH Mortgage has an established private label platform with over 30 years history of growth garnered through strategic partnership arrangements. In addition, the servicer has a highly integrated and robust technology platform with multiple channel customer access.

The Negative Outlook is attributable to the servicer's 2011 REG AB report, which indicated that certain foreclosure proceedings were not concluded in accordance with the published FNMA foreclosure timelines. While this has been a finding for several servicers, PHH Mortgage's average percentage of completed foreclosures that exceeded the guidelines is highest among Fitch-rated servicers. The servicer is now focused on compliance and utilizing new tools to track and manage this process and Fitch believes that this issue should be materially addressed. Also, Fitch downgraded the parent company, PHH Corporation (PHH) to 'BB'/Negative Outlook from 'BB+'/Ratings Watch Negative on May 30, 2012 on ongoing concerns regarding its liquidity. A company's financial condition is a component of Fitch's servicer ratings. Additional information on PHH Corp. is available at '[ www.fitchratings.com ]'.

PHH Mortgage will be acquiring 315,000 sub-serviced loans from HSBC which will increase its portfolio size by 35%. The transaction is expected to be completed in the first quarter of 2013 and includes PHH Mortgage managing HSBC's servicing platform and opening an additional location in Buffalo, NY. Fitch believes that the company's overall future performance will be materially impacted by the growth in portfolio but is best measured over time based on the changes the servicer began implementing since May 2011.

Finally, the ratings also reflect Fitch's overall concerns for the U.S. residential servicing industry. These include the ability to maintain high performance standards while addressing the rising cost of servicing and changes to industry practices, which is likely to be mandated by regulators and other parties.

PHH Mortgage is headquartered in Mt. Laurel, NJ and has an origination office in Jacksonville, FL. As of July 31, 2012, the company primary serviced 876,203 loans totaling $144.7 billion and subserviced 230,200 loans for $49 billion for a combined portfolio of 1,106,223 mortgage loans totaling $193.7 billion. This is further broken down as Prime - 64,823 loans totaling $34.6 billion; Alt-A - 26,690 loans totaling $9.1 billion; HELOC - 121,403 loans totaling $7.9 billion, and 789,052 Agency loans totaling $122.5 billion.

The Outlook for U.S. Residential Mortgage Servicer ratings sector remains Negative. On Nov. 4, 2010, Fitch assigned a Negative Outlook for the entire U.S. Residential Mortgage Servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2011, which is available on the Fitch Ratings website at '[ www.fitchratings.com ]'.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2011).

Applicable Criteria and Related Research:

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.