PHH Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mortgage banker and corporate vehicle fleet manager PHH (NYS: PHH) fell as much as 32.7% on enormous volume before bouncing back about halfway.

So what: Just two days after putting PHH's credit rating on its negative watchlist, Standard & Poor's dropped the BB+ rating to BB- -- two whole steps down. S&P worries that a $423 million debt payment due in March 2013 may be out of reach.

Now what: Among the suggested fixes for PHH's liquidity problems, S&P suggests selling off attractive mortgage service contracts or running a dilutive stock offering. The debt rating was already in junk territory before this downgrade -- it's just even junkier now. My suggestion to mortgage-hungry investors is to look at stronger banking stocks such as four-star CAPS stocks US Bancorp (NYS: USB) or Bank of Hawaii (NYS: BOH) . This free report tells you exactly why that's a great idea.

Interested in more info about PHH? Click here to add it to My Watchlist.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Bank of Hawaii. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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