A mortgage spin-off company planned by real estate giant Cendant Corp. will seek business outside of the Cendant family while also pushing to expand mortgage business through corporate-owned and franchise real estate brokerage channels, according to Securities and Exchange Commission documents filed Wednesday.
A major player in the real estate, travel, vehicle services and hospitality industries, Cendant is spinning off PHH, a wholly owned subsidiary, to become an independent, publicly traded company focusing on mortgage services and fleet operations. PHH is expected to launch as a publicly traded company on the New York Stock Exchange on Feb. 1.
Cendant will form a mortgage venture with PHH called PHH Home Loans LLC, according to the SEC filing, and PHH Home Loans will originate and sell mortgage loans that are primarily sourced through Cendant’s owned residential real estate brokerage and corporate relocation businesses.
NRT, the nation’s largest residential real estate brokerage in the nation, is a Cendant subsidiary with about 990 offices and more than 58,000 sales associates. NRT oversees a number of corporate-owned brands, including Coldwell Banker, ERA, Sotheby’s and The Corcoran Group. Cendant also is affiliated with about 7,500 franchise offices in the United States, and franchise brands include Century 21, Coldwell Banker, Coldwell Banker Commercial and ERA. Cendant Mobility, another Cendant subsidiary, encompasses corporate relocation business.
Cendant “will continue to be the exclusive recommended provider of mortgages for NRT and Cendant Mobility, as we are today,” the company reported this week in an SEC filing. Cendant will hold a 49.9 percent interest in the new mortgage venture. About 29 percent of all loans originated by Cendant’s mortgage services segment in the first nine months of 2004 were derived from the company’s corporate-owned real estate brokerage and relocation operations, the company also reported.
PHH Home Loans will become the exclusive recommended provider of mortgage loans by the Cendant real estate services division to independent sales associates and customers of Cendant’s real estate and relocation business, and to all U.S.-based Cendant employees, according to a pending agreement.
Cendant’s mortgage operations will be renamed PHH Mortgage Corp., and PHH Mortgage will seek to increase its mortgage loan capture rates at Cendant-owned and affiliated real estate brokerages while “entering into new mortgage origination relationships across all channels,” according to the SEC filing. This includes a planned extension of mortgage services to non-Cendant real estate brokers.
“We believe the mortgage services industry will become increasingly competitive in the current rising interest rate environment. We intend to take advantage of this environment by leveraging our existing mortgage services platform to enter into new outsourcing relationships as more companies determine that it is no longer economically feasible to continue to compete in the industry,” according to the SEC filing.
Company officials also noted, “We anticipate that the spin-off will increase our ability to establish mortgage services arrangements with independent brokers unaffiliated with Cendant. Such arrangements have, to date, largely been excluded as a result of Cendant’s ownership of us. We intend to focus on this additional opportunity subsequent to the completion of the spin-off.”
About 40 percent of Cendant’s mortgage loan originations for the first nine months of 2004 were channeled through its corporate-owned and franchise real estate brokerages, and Cendant’s mortgage division originated about $41.6 billion worth of loans in the first nine months of 2004.
Additionally, the SEC filing states that Cendant currently provides mortgages for about 17 percent of the transactions in which Cendant-owned real estate brokerages represent the home buyer and about 4 percent of the transactions in which Cendant’s franchise brokerages represent the home buyer.
Cendant also announced the executive team for PHH following the spin-off. Terence W. Edwards, who has served as president and CEO of Cendant Mortgage since February 1996, will serve as president and CEO for PHH.
Joseph E. Suter, who has served as vice president and senior vice president of secondary marketing for Cendant’s mortgage business since 1993, will serve as president and CEO of PHH Mortgage; and Mark R. Danahy, who has served as senior vice president and chief financial officer of Cendant Mortgage since April 2001, will serve as senior vice president and chief financial officer for PHH Mortgage.
Edwards received a base salary of $583,704, according to the SEC filing, while Suter received $272,110 and Danahy received $282,698.
PHH’s mortgage business is the sixth largest retail originator of residential mortgage loans in the United States. And PHH’s fleet management business, operating as PHH Arval, is the nation’s second-largest provider of outsourced commercial fleet management services. The two businesses had combined revenues in excess of $2 billion for the twelve months ended Sept. 30, 2004. Following the spin-off, PHH will be headquartered in Mount Laurel, N.J.
Prior to announcing its plans to spin-off its mortgage and fleet business, Cendant officials had announced plans to sell the mortgage business. After announcing in July that the company was in discussions with a potential buyer, Cendant officials in August said that these talks fell through and the company was still seeking to sell its mortgage business.
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