Oct. 29 (Bloomberg) -- PHH Corp., the mortgage and auto- leasing company trying to rebound from three years of losses, expects to increase loans through its partnership with Realogy Corp. and renew a contract with Bank of America Corp.’s Merrill Lynch unit, new Chief Executive Officer Jerome Selitto said.

PHH, the fourth-largest U.S. originator of mortgages directly to consumers, can win a greater share of Realogy customers because more than 130 lenders have failed since 2007 and remaining rivals keep changing underwriting rules, Selitto said in an interview Oct. 27. Merrill Lynch contributed 21 percent of 2008 originations at PHH and was sold in January to Bank of America, which has its own mortgage unit.

Selitto is seeking to bolster a turnaround at PHH, which was profitable in the first half after $282 million of losses from 2006 through 2008. Headwinds include the Mortgage Bankers Association forecast of a 21 percent drop in total lending next year as refinancing wanes. PHH may be aided by the trade group’s projection of a 12 percent jump in home-purchase loans, and chaos in what remains of the mortgage industry.

“The traditional relationship between a real-estate broker and a loan officer has been disrupted,” said Selitto, 68, who was named CEO of the Mount Laurel, New Jersey-based company on Oct. 26. “The most important thing for a real-estate broker in serving their client is making sure they can get the loan and can close on the property. This is probably the most opportune time for us to leverage” the Realogy partnership.

PHH Stake

PHH gets home-loan referrals in a joint venture from agents tied to Realogy, the largest U.S. realty brokerage and owner of Coldwell Banker, ERA and Corcoran Group brands. PHH holds a 51 percent stake in the venture with Parsippany, New Jersey-based Realogy and finances about 19 percent of home purchases by customers of Realogy-owned realty offices, Selitto said. PHH plans a marketing push to target borrowing by those customers and those of Realogy franchisees, he said.

Selitto also said PHH expects to renew a contract with New York-based Merrill Lynch, the biggest customer of its mortgage- outsourcing business, through 2015. Merrill, which Bank of America bought in January, has been a client for nine years. The contract calls for an automatic five-year renewal in 2010 so long as certain “quantifiable” hurdles, such as volumes, are surpassed, Bose George, an analyst in New York at KBW Inc. wrote in a report last month.

Bank of America has its own mortgage unit, which includes the operations of Countrywide Financial Corp. acquired in July, 2008. Selitto said Merrill’s brokers “are really strong supporters of the PHH relationship.”

Mortgage Paperwork

Merrill is among almost 50 mortgage-outsourcing clients of PHH that use the firm to provide customers with home loans under their own brands; PHH typically handles the approvals process, billing, collections and record-keeping. Customers include Charles Schwab Corp., UBS AG and First Horizon National Corp. The company is “about to sign another major institution,” Selitto said.

PHH originated almost $20 billion of mortgages in the first half of 2009 including $17.2 billion in its so-called retail channel, ranking 10th in terms of total volume as other lenders made more loans through brokers and correspondents, according to newsletter Inside Mortgage Finance. About 38 percent of the total stemmed from Realogy affiliates, according to an August securities filing.

Mark Panus, a spokesman for Realogy, and Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.

Outsourcing Clients

Last November, Pennant Capital Management LLC, PHH’s largest shareholder, said the company was in “peril” because of alleged mismanagement. This year, PHH’s board lost a bid to block Pennant from appointing two directors. CEO Terence Edwards then stepped down in June.

Selitto was an executive vice president at mortgage- software firm Ellie Mae. Previously, he founded an online home- equity lender bought by private-equity firm Lightyear Capital LLC in 2003, and earlier a mortgage insurer that merged to become Radian Group Inc.

PHH’s former parent, Cendant Corp., spun the company off in 2005, granting PHH a stake in its real-estate unit, which was later renamed Realogy. Apollo Management LP bought Realogy in 2007.

Profit at PHH plunged as the housing crunch took hold in 2006, with losses swelling to $254 million last year. A plan to sell the company to General Electric Co. and Blackstone Group LP announced in March 2007 collapsed the following January after Blackstone’s banks backed out.

The stock, which sold for more than $31 in 2007, slid to $4.67 last November during the worst of the financial crisis. It traded for $16.36 at 12:14 p.m. in New York Stock Exchange composite trading, a gain of 29 percent for the year.

PHH may report a third-quarter loss of 22 cents a share next month as it writes down loan-servicing contracts to reflect lower interest rates, according to KBW’s George, who has an “outperform” rating on the shares.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net;

Last Updated: October 29, 2009 12:34 EDT