UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File No. 1-7797

PHH Corporation
(Exact name of Registrant as specified in its charter)

(973) 428-9700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed in Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90 days:    Yes  [X]         No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Rule 12b-2 of the Exchange Act):    Yes [   ]         No  [X]

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.

PHH Corporation and Subsidiaries

Table of Contents

FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

	l		terrorist attacks, such as the September 11, 2001 terrorist attacks on New York City and Washington, D.C., other attacks, acts of war or measures taken by governments in response thereto may negatively affect our financial results and could also result in a disruption in our business;
	l		the effect of economic or political conditions or any outbreak or escalation of hostilities on the economy on a national, regional or international basis and the impact thereof on our businesses;
	l		the effects of a decline in the volume or value of U.S. existing home sales, due to adverse economic changes or otherwise, on our mortgage services and relocation services businesses;
	l		the effects of changes in current interest rates, particularly on our mortgage services business and on our financing costs;
	l		the ability of Cendant Corporation, our parent company, to distribute our common stock to its shareholders in a tax-free spin-off as further described in this report, and, if successful, the effects of the spin-off; our ability to enter into ongoing relationships with Cendant to continue to derive benefits from cross-selling mortgage services to customers of Cendant’s real estate franchise, relocation and settlement services businesses; and our ability to replace services that Cendant will provide to us on a transitional basis;
	l		our ability to effectuate the distribution to Cendant Corporation of our relocation and fuel card businesses;
	l		our ability to develop and implement operational, technological and financial systems to manage growing operations and to achieve enhanced earnings or effect cost savings;
	l		competition in our existing and potential future lines of business and the financial resources of, and products available to, competitors;
	l		failure to reduce quickly overhead and infrastructure costs in response to a reduction in revenue;
	l		our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster;
	l		our ability to integrate and operate successfully an acquired business and risks associated with such business;
	l		our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the limitations imposed by our financing arrangements and to maintain our credit ratings;
	l		in relation to our management and mortgage programs, (i) the deterioration in the performance of the underlying assets of such programs and (ii) our inability to access the secondary market for mortgage loans or certain of our securitization facilities and to act as servicer thereto, which could occur in the event that our credit ratings are downgraded below investment grade and, in certain circumstances, where we fail to meet certain financial ratios; and
	l		changes in laws and regulations, including changes in accounting standards, mortgage and real estate related regulations, state, federal and international tax laws and privacy policy regulation.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder
of PHH Corporation
Parsippany, New Jersey

We have reviewed the accompanying consolidated condensed balance sheet of PHH Corporation and subsidiaries (the “Company”), a wholly-owned subsidiary of Cendant Corporation, as of September 30, 2004, and the related consolidated condensed statements of income for the three-month and nine-month periods ended September 30, 2004 and 2003 and the related consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2003, and the related consolidated statements of income, stockholder’s equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2004, we expressed an unqualified opinion (which included an explanatory paragraph with respect to the adoption of the fair value method of accounting for stock-based compensation and the adoption of the consolidation provisions for variable interest entities in 2003, the non-amortization provisions for goodwill and other indefinite-lived intangible assets in 2002, and the modification of the accounting treatment relating to securitization transactions and the accounting for derivative instruments and hedging activities in 2001, as discussed in Note 2 to the consolidated financial statements) on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 29, 2004

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PHH Corporation and Subsidiaries

See Notes to Consolidated Condensed Financial Statements.

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PHH Corporation and Subsidiaries

See Notes to Consolidated Condensed Financial Statements.

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PHH Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)

See Notes to Consolidated Condensed Financial Statements.

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PHH Corporation and Subsidiaries

1.		Summary of Significant Accounting Policies
		Basis of Presentation
		PHH Corporation is a provider of mortgage, relocation and fleet management services operating in the following business segments:

	l		Mortgage Services—provides home buyers with mortgage lending services.
	l		Relocation Services—facilitates employee relocations.
	l		Fleet Management Services—provides commercial fleet management and fuel card services.

The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of PHH Corporation and its subsidiaries (“PHH”), as well as entities in which PHH directly or indirectly has a controlling financial interest (collectively, the “Company”). The Company is a wholly-owned subsidiary of Cendant Corporation (“Cendant”). Pursuant to certain covenant requirements in the indenture under which the Company has issued debt, the Company continues to operate and maintain its status as a separate public reporting entity. In presenting the Consolidated Condensed Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These financial statements should be read in conjunction with the Company’s 2003 Annual Report on Form 10-K filed on March 1, 2004.

The Company’s Consolidated Condensed Financial Statements present separately the financial data of the Company’s management and mortgage programs. These programs are distinct from the Company’s other activities since the assets are generally funded through the issuance of debt that is collateralized by such assets. Specifically, assets under management and mortgage programs are funded through either borrowings under asset-backed funding arrangements or unsecured borrowings. Such borrowings are classified as debt under management and mortgage programs. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of the Company’s management and mortgage programs. The Company believes it is appropriate to segregate the financial data of its management and mortgage programs because, ultimately, the source of repayment of such debt is the realization of such assets.

Change in Accounting Policy

2.

Acquisitions

First Fleet Corporation. On February 27, 2004, the Company acquired First Fleet Corporation (“First Fleet”), a national provider of fleet management services to companies that maintain private truck fleets, for approximately $30 million in cash. This acquisition resulted in goodwill (based on the preliminary allocation of the purchase price) of $18 million, none of which is expected to be deductible for tax purposes. Such goodwill was assigned to the Company’s Fleet Management Services segment.

Other. During 2004, the Company acquired a mortgage services company for approximately $5 million in cash, which resulted in goodwill (based on the preliminary allocation of the purchase price) of $5 million, which was assigned to the Company’s Mortgage Services segment.

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3.

Mortgage Activities

The activity in the Company’s residential mortgage loan servicing portfolio consisted of:

Approximately $6.6 billion (approximately 5%) of loans within the Company’s servicing portfolio as of September 30, 2004 were sold with recourse. The majority of the loans sold with recourse (approximately $6.0 billion of the $6.6 billion) represents sales under a program where the Company retains the credit risk for a limited period of time and only for a specific default event. The retained credit risk represents the unpaid principal balance of the mortgage loans. For these loans, the Company records an allowance for estimated losses, which is determined based upon the Company’s history of actual loss experience under the program. Such allowance and the related activity is not significant to the Company’s results of operations or financial position.

The activity in the Company’s capitalized mortgage servicing rights (“MSR”) asset consisted of:

The MSR asset is subject to substantial interest rate risk as the mortgage notes underlying the asset permit the borrowers to prepay the loans. Therefore, the value of the MSR asset tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). The Company primarily uses a combination of derivative instruments to offset expected changes in fair value of its MSR asset that could affect reported earnings. Beginning in 2004, the Company designated the full change in fair value of its MSR asset as the hedged risk and, as a result, discontinued hedge accounting treatment until such time that the documentation required to support the assessment of hedge effectiveness on a full fair value basis could be completed. During the nine months ended September 30, 2004 all of the derivatives associated with the MSR asset were designated as freestanding derivatives.

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The net activity in the Company’s derivatives related to mortgage servicing rights consisted of:

The net impact to the Company’s Consolidated Condensed Statements of Income resulting from changes in the fair value of the Company’s MSR asset and the related derivatives was as follows:

Based upon the composition of the portfolio as of September 30, 2004 (and other assumptions regarding interest rates and prepayment speeds), the Company expects MSR amortization expense for the remainder of 2004 and the five succeeding fiscal years to approximate $90 million, $320 million, $270 million, $230 million, $190 million and $160 million, respectively. As of September 30, 2004, the MSR portfolio had a weighted average life of approximately 5.1 years.

4.

Vehicle Leasing Activities

The components of the Company’s vehicle-related assets under management and mortgage programs are as follows:

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The components of vehicle depreciation and interest, net are summarized below:

5.

Debt Under Management and Mortgage Programs and Borrowing Arrangements

Debt under management and mortgage programs consisted of:

The following table provides the contractual maturities for debt under management and mortgage programs at September 30, 2004 (except for notes issued under the Company’s vehicle management program, where the underlying indentures require payment based on cash inflows relating to the corresponding assets under management and mortgage programs and for which estimates of repayments have been used):

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As of September 30, 2004, available funding under the Company’s asset-backed debt programs and committed credit facilities related to the Company’s management and mortgage programs consisted of:

As of September 30, 2004, the Company also had $874 million of availability for public debt issuances under a shelf registration statement.

At September 30, 2004, the Company was in compliance with all financial covenants of its material debt instruments and credit facilities related to management and mortgage programs.

6.

Commitments and Contingencies

The June 1999 disposition of the Company’s fleet businesses was structured as a tax-free reorganization and, accordingly, no tax provision was recorded on a majority of the gain. However, pursuant to an interpretive ruling, the Internal Revenue Service (“IRS”) has subsequently taken the position that similarly structured transactions do not qualify as tax-free reorganizations under the Internal Revenue Code Section 368(a)(1)(A). If upon final determination, the transaction is not considered a tax-free reorganization, the Company may have to record a tax charge of up to $270 million, depending upon certain factors. Any cash payments that would be made in connection with this charge are not expected to be significant, as the Company would use its net operating losses as an offset to the charge. Notwithstanding the IRS interpretive ruling and the inherent difficulties in predicting a final outcome, the Company believes that based upon the facts and analysis of the tax law, it is more likely than not that its position would be sustained upon litigation of the matter.

The Company is also involved in claims and legal proceedings related to contract disputes and other commercial, employment and tax matters. Based on currently available information, the Company does not believe such matters will have a material adverse effect on its results of operations, financial position or cash flows. However, litigation is inherently unpredictable and, although the Company believes that it has valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on the Company’s results of operations or cash flows in a particular reporting period.

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7.

Comprehensive Income

The components of comprehensive income are summarized as follows:

The after-tax components of accumulated other comprehensive loss are as follows:

All components of accumulated other comprehensive loss are net of tax except for currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries.

8.

Stock-Based Compensation

On January 1, 2003, Cendant began applying the fair value method of accounting provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and, therefore, began allocating compensation expense for employee stock awards to the Company. Accordingly, the Company recorded pre-tax stock-based compensation expense of $2 million and $4 million during the three and nine months ended September 30, 2004, respectively, and $1 million and $2 million during the three and nine months ended September 30, 2003, respectively. Such compensation expense relates principally to restricted stock units granted to employees. As of September 30, 2004, the number of outstanding restricted stock units granted to the Company’s employees was approximately 3 million, with a weighted average grant price of $20.60.

The following table illustrates the effect on net income as if the fair value based method had been applied to all employee stock awards granted by Cendant to the Company’s employees (including those granted prior to January 1, 2003 for which the Company has not recorded compensation expense):

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9.

Related Party Transactions

Cendant
In the ordinary course of business, the Company is allocated certain expenses from Cendant for corporate-related functions including executive management, finance, human resources, information technology, legal and facility related expenses. Cendant allocates corporate expenses to subsidiaries conducting ongoing operations based on a percentage of the subsidiaries’ forecasted revenues. Such expenses amounted to $8 million for both the three months ended September 30, 2004 and 2003 and $24 million and $25 million for the nine months ended September 30, 2004 and 2003, respectively. At September 30, 2004 and December 31, 2003, the Company had outstanding balances of $32 million and $19 million, respectively, payable to Cendant, representing the accumulation of corporate allocations and amounts paid by Cendant on behalf of the Company. Amounts payable to Cendant are included in accounts payable and other accrued liabilities in the Company’s Consolidated Condensed Balance Sheets.

During both the nine months ended September 30, 2004 and 2003, the Company paid cash dividends of $105 million to Cendant.

NRT Incorporated
NRT Incorporated (“NRT”), a real estate brokerage firm, is a wholly-owned subsidiary of Cendant not within the Company’s ownership structure. The Company receives real estate referral and related fees from NRT in connection with referring its relocation clients to NRT for brokerage services. Reflected within the Company’s Consolidated Condensed Statements of Income for the three months ended September 30, 2004 and 2003 are $16 million and $14 million, respectively, of real estate referral and related fees charged to NRT by the Company. For the nine months ended September 30, 2004 and 2003, the Company recorded real estate referral and related fees of $37 million and $32 million, respectively. These fees are customary as they are paid to the Company by all real estate brokerages (both affiliates and non-affiliates) who receive referrals from the Company’s relocation business.

10.

Segment Information

Management evaluates the operating results of each of its reportable segments based upon revenue and “EBITDA,” which is defined as net income before non-program related depreciation and amortization and income taxes. In the fourth quarter of 2003, the Company began to measure the performance of its mortgage and relocation services businesses separate and apart from one another. Therefore, the information presented below for 2003 has been revised to present the Company’s mortgage and relocation services businesses as separate segments. The Company’s presentation of EBITDA may not be comparable to similarly-titled measures used by other companies. Presented below are the revenue and EBITDA for each of the Company’s reportable segments and the reconciliation of EBITDA to income before income taxes.

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11.

Subsequent Event

Potential Spin-off of Mortgage and Fleet Leasing Operations
On October 12, 2004, the Company announced Cendant’s intention to distribute its mortgage and fleet operations to Cendant shareholders. The transaction is anticipated to be structured as a tax-free distribution of the common stock of PHH Corporation. The Company’s relocation and fuel card businesses will remain a part of Cendant. The Company’s mortgage business anticipates that it will enter into a joint venture with Cendant designed to preserve the cross-selling opportunities with Cendant’s residential real estate, relocation and settlement services businesses. The Company also anticipates changes to its charter and bylaws, corporate officers and directors, and entering into various agreements with Cendant for transitional services.

As a result of the contemplated transaction, the Company will be required to evaluate the carrying value of its net assets for impairment. Depending on a variety of factors, including the market value established for PHH Corporation when it begins trading as a separate public entity, the Company may be required to adjust the book value of certain long-lived assets, including goodwill. Any adjustments to these values would be recorded as non-cash adjustments.

The dividend distribution to Cendant shareholders of the common stock of PHH Corporation, and the establishment of the record date related thereto, remain subject to the formal declaration of such dividend by Cendant’s board of directors. The transaction is expected to be consummated in the first quarter of 2005, although there can be no assurance that the transaction will be completed.

* * * *

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Item 2.

Management’s Narrative Analysis of the Results of Operations and Liquidity and Capital Resources

The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2003 Annual Report on Form 10-K filed with the Commission on March 1, 2004. Unless otherwise noted, all dollar amounts are in millions.

We are a provider of mortgage, relocation and fleet management services and a wholly-owned subsidiary of Cendant Corporation. Our Mortgage Services segment provides home buyers with mortgage lending services; our Relocation Services segment facilitates employee relocations; and our Fleet Management Services segment provides commercial fleet management and fuel card services.

In October 2004, we announced Cendant’s intention to spin-off our mortgage and fleet leasing businesses in a tax-free distribution to Cendant shareholders. See Note 11 to our Consolidated Condensed Financial Statements for a more detailed discussion of this anticipated transaction.

RESULTS OF OPERATIONS

Discussed below are the results of operations for each of our reportable segments. Management evaluates the operating results of each of our reportable segments based upon revenue and “EBITDA,” which is defined as net income before non-program related depreciation and amortization and income taxes. In the fourth quarter of 2003, we began to measure the performance of our mortgage and relocation services businesses separate and apart from one another. Therefore, the information presented below for 2003 has been revised to present our mortgage and relocation services businesses as separate segments. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

Three Months Ended September 30, 2004 vs. Three Months Ended September 30, 2003

Mortgage Services
Revenues and EBITDA decreased $100 million (36%) and $54 million (65%), respectively, in third quarter 2004 compared with third quarter 2003, primarily due to an expected decline in refinancing activity. The unfavorable impact on revenues from lower refinancing volumes was partially offset by increased revenues from mortgage servicing activities. Refinancing activity is sensitive to interest rate changes relative to borrowers’ current interest rates, and typically increases when interest rates fall and decreases when interest rates rise. Although interest rates were lower during the third quarter 2004 than in prior periods of 2004, refinancing activity still declined compared with third quarter 2003. This was attributable to the interest rate environment in 2003 and the significant refinancing activity that resulted from it. Accordingly, many borrowers had refinanced their mortgages prior to third quarter 2004 at rates that were at or below current quarter levels. This factor, along with increased competitive pricing pressures due to lower industry volumes, caused revenue from mortgage loan production to decrease. Typically, as refinancing activity declines, borrower prepayments also decline, which generally results in an increase in the value of the mortgage servicing rights (“MSR”) asset, all other factors being equal.

Revenues from mortgage loan production declined $306 million (71%) in third quarter 2004 compared with third quarter 2003, substantially due to the quarter-over-quarter reduction in refinancing levels discussed above, as well as lower margins on loan

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sales. Our production revenue in any given quarter is driven by a mix of mortgage loans closed and mortgage loans sold. The following chart presents an analysis of production revenues from originated mortgage loans held for sale (which is generated at the time of sale) and fee-based mortgage originations (which is generated at the time of closing):

Partially offsetting the decrease in production revenue was an increase of $206 million in net revenues generated from servicing mortgage loans. This increase reflects (i) a $183 million reduction in amortization expense and provision for impairment related to our MSR asset, net of derivative results, which is primarily attributable to the lower prepayment rates experienced in third quarter 2004 compared with third quarter 2003, (ii) a $10 million (9%) increase in gross recurring servicing fees (fees received for servicing existing loans in the portfolio) driven by a 12% quarter-over-quarter increase in the average servicing portfolio, which rose to $140.2 billion in third quarter 2004 and (iii) a $13 million increase in other servicing revenue.

Operating expenses within this segment declined $46 million in third quarter 2004 due to the decline in mortgage loan production discussed above.

Relocation Services
Revenues and EBITDA increased $9 million (8%) and $4 million (9%), respectively, in third quarter 2004 compared with third quarter 2003, primarily resulting from higher referral fees, which were driven by an 8% increase in the volume of relocation referrals and an 18% increase in the average fee per referral, as home values have increased quarter-over-quarter.

Fleet Management Services
Revenues and EBITDA increased $75 million (20%) and $15 million (56%), respectively, in third quarter 2004 compared with third quarter 2003 primarily as a result of our acquisition of First Fleet Corporation, a national provider of fleet management services to companies that maintain private truck fleets, in first quarter 2004. The operating results of First Fleet were included from the acquisition date forward and contributed incremental revenues and EBITDA of $51 million and $2 million, respectively, in third quarter 2004. Apart from this acquisition, revenue from our fleet management operations increased $17 million primarily due to an increase in vehicle depreciation expense, which is billed to clients and therefore has no impact on EBITDA. Additionally, our fuel card subsidiary recognized incremental revenues of $6 million in third quarter 2004 compared with third quarter 2003. This growth was driven by a combination of new customers, increased usage of the fleet fuel card product and increased fuel prices. EBITDA also reflects a reduction in operating and administrative expenses primarily due to the favorable resolution of preference claims relating to clients in bankruptcy.

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Nine Months Ended September 30, 2004 vs. Nine Months Ended September 30, 2003

Mortgage Services
Revenues and EBITDA decreased $265 million (33%) and $163 million (65%), respectively, in the nine months ended September 30, 2004 compared with the same period in 2003, primarily due to an expected decline in refinancing activity. The unfavorable impact on revenues from lower refinancing volumes was partially offset by increased revenues from mortgage servicing activities. Refinancing activity is sensitive to interest rate changes relative to borrowers’ current interest rates, and typically increases when interest rates fall and decreases when interest rates rise. The nine months ended September 30, 2003 was marked by historically high refinancing activity, which has decreased the propensity for borrowers to refinance during the corresponding period in 2004. This factor, along with increased competitive pricing pressures due to lower industry volumes, caused revenue from mortgage loan production to decrease. Typically, as refinancing activity declines, borrower prepayments also decline, which generally results in an increase in the value of the mortgage servicing rights (“MSR”) asset, all other factors being equal.

Revenues from mortgage loan production declined $597 million (56%) in the nine months ended September 30, 2004 compared with the same period in 2003, substantially due to the period-over-period reduction in refinancing levels discussed above, as well as lower margins on loan sales. Our production revenue in any given period is driven by a mix of mortgage loans closed and mortgage loans sold. The following chart presents an analysis of production revenues from originated mortgage loans held for sale (which is generated at the time of sale) and fee-based mortgage originations (which is generated at the time of closing):

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Partially offsetting the decrease in production revenue was an increase of $332 million in net revenues generated from servicing mortgage loans. This increase reflects (i) a $269 million reduction in amortization expense and provision for impairment related to our MSR asset, net of derivative results, which is primarily attributable to the lower prepayment rates experienced in 2004 compared with 2003, (ii) a $36 million (11%) increase in gross recurring servicing fees (fees received for servicing existing loans in the portfolio) driven by a 13% period-over-period increase in the average servicing portfolio, which rose to $136.5 billion in the nine months ended September 30, 2004 and (iii) a $27 million increase in other servicing revenue.

Operating expenses within this segment declined $102 million in the nine months ended September 30, 2004 due to the decline in refinancing volumes discussed above.

Relocation Services
Revenues and EBITDA increased $10 million (3%) and $5 million (5%), respectively, in the nine months ended September 30, 2004 compared with the same period in 2003, primarily resulting from higher referral fees, which were driven by a 7% increase in the volume of relocation referrals and an 18% increase in the average fee per referral, as home values have increased period-over-period.

Fleet Management Services
Revenues and EBITDA increased $141 million (12%) and $24 million (28%), respectively, in the nine months ended September 30, 2004 compared with the same period in 2003, partially as a result of our acquisition of First Fleet, the operating results of which were included from the acquisition date forward. First Fleet contributed $95 million and $2 million of revenues and EBITDA, respectively, during the nine months ended September 30, 2004. Apart from this acquisition, revenue from our fleet management operations increased $25 million, primarily due to an increase in vehicle depreciation expense, which is billed to clients and therefore has no impact on EBITDA. Additionally, our fuel card subsidiary recognized incremental revenues of $21 million in the nine months ended September 30, 2004 compared with the same period in 2003. This growth was driven by a combination of new customers, increased usage of the fleet fuel card product and increased fuel prices.

LIQUIDITY AND CAPITAL RESOURCES

We present separately the financial data of our management and mortgage programs. These programs are distinct from our other activities as the assets are generally funded through the issuance of debt that is collateralized by such assets. Specifically, assets under management and mortgage programs are funded through either borrowings under asset-backed funding arrangements or unsecured borrowings. Such borrowings are classified as debt under management and mortgage programs. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our management and mortgage programs. We believe it is appropriate to segregate the financial data of our management and mortgage programs because, ultimately, the source of repayment of such debt is the realization of such assets.

Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below.

Cash Flows
At September 30, 2004, we had $325 million of cash on hand, an increase of $219 million from $106 million at December 31, 2003. The following table summarizes such increase:

During the nine months ended September 30, 2004, we generated approximately $1.2 billion more cash from operating activities compared with the corresponding period in 2003. This change principally reflects the activities of our mortgage program, which generated an incremental $1.4 billion of cash during the nine months ended September 30, 2004, primarily resulting from timing differences between the receipt of cash from the sale of previously originated mortgage loans and the

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origination of new mortgage loans. Cash flows related to our management and mortgage programs may fluctuate significantly from period to period due to the timing of the underlying management and mortgage program transactions (i.e., timing of mortgage loan origination versus sale).

Cash used in investing activities remained relatively flat period-over-period at approximately $1.2 billion. Our mortgage services business utilized $298 million less cash primarily associated with its MSR asset and related risk management activities. This increase was substantially offset by the use of $262 million more cash by our fleet leasing business to acquire vehicles. Capital expenditures, which were relatively consistent period-over-period, are expected to be in the range of $50 million to $60 million for 2004.

During the nine months ended September 30, 2004, we used $474 million of cash for financing activities compared with generating $703 million during the corresponding period in 2003. Such change principally reflects the activities of our management and mortgage programs, which resulted in the utilization of an incremental $1.2 billion of cash to support program activities. See “Liquidity and Capital Resources—Financial Obligations” for a detailed discussion of financing activities during the nine months ended September 30, 2004.

Financial Obligations
The following table summarizes the components of our debt under management and mortgage programs:

The following table provides the contractual maturities for debt under management and mortgage programs at September 30, 2004 (except for notes issued under our vehicle management program, where the underlying indentures require payment based on cash inflows relating to the corresponding assets under management and mortgage programs and for which estimates of repayments have been used):

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Available Funding Arrangements and Committed Credit Facilities
At September 30, 2004, we had approximately $3.7 billion of available funding arrangements and credit facilities, consisting of: