PHH Corp., the parent company of the nation’s eighth largest mortgage banking firm, posted a $42 million loss in the third quarter after marking down the value of its servicing portfolio by $217 million.

In its earning statement, the company blamed the MSR adjustment on prepayment valuations, derivatives, and a decrease in mortgage rates.

On the production side of the business, PHH Mortgage closed $14.4 billion of residential loans, a 12% gain from 2Q12. However, the company boasted that retail fundings accounted for 87% of production with wholesale and correspondent making up the balance. A year ago retail accounted for 68% of originations.

In early August PHH announced that it would reduce its reliance on third-party lenders while maintaining some type of presence in the channel.

In its third-quarter release the company said it believes that retail consistently delivers “high quality” loans.

Overall, PHH Mortgage earned $122 million in 3Q from originations, but lost $205 million on servicing. (The company has had a history of marking up, then marking down its MSRs based on interest rate changes and other factors.)

At Sept. 30, its servicing portfolio topped $185 billion, a 4% increase from a year ago. Compared to June 30, its MSRs fell because it terminated an $8 billion subservicing agreement with Charles Schwab & Co. But it expects to gain $52 billion of subservicing rights tied to a pending transfer from HSBC Mortgage.

Through the first nine months of 2012 PHH has lost $24 million. During the same nine months in 2011 it lost $140 million.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.