PHH Corp., Mt. Laurel, N.J., could write up the value of its mortgage servicing rights by between $125 million and $175 million for 4Q10, an earnings preview report from FBR Capital Markets predicted.

On a per share basis, that equates to between $1.35 and $1.89. PHH has said in the past that every 10 basis point increase in mortgage interest rates drives appreciation in its MSRs of approximately $40 million.

This writeup in MSRs signals long-term embedded value in the mortgage servicing business, the report said and because of that, FBR has increased its price target for PHH's common stock up from $26 to $28.

For the period, FBR is predicting operating earnings per share of $0.52 (unchanged from its prior prediction), down from $1.77 for the third quarter, driven by lower origination volumes and lower gain-on-sale margins. This is offset, the report said, by benefits from PHH's cost savings initiatives.

In other servicing news, bidders are starting to show an interest in the $59 billion servicing portfolio being shopped around by HSBC Bank, according to advisors familiar with the deal.

At this point no names have surfaced and it's still unclear whether the bank's servicing platform in Depew, N.Y. is being offered as well. To date, the bank has declined to discuss the matter.

Back in the fall, HSBC said it was considering its "strategic options" regarding the mortgage business, a code phrase for a sale.

The British-based bank lost billions of dollars by investing in subprime giant Household Finance last decade and has been quietly winding down that business over the past three years.

Investment bankers say HSBC is offering the MSR portfolio through its investment banking group in Chicago. "HSBC is pretty tight lipped about the whole thing," said one Washington-based advisor. "They're open to selling all or part of the thing."

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