Independent mortgage bankers and subsidiaries made an average profit of $902 on each loan they originated in the third quarter of 2009, according to the Mortgage Bankers Association (MBA).
This profit marks a decrease from the second quarter of 2009, when profits averaged $1,358 per loan, according to the MBA's most recent Quarterly Mortgage Bankers Performance Report, which measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds.
The average production volume for each firm during the third quarter was $189.6 million, compared to $280.9 million in the second quarter. Eighty-two percent of the firms posted pre-tax net profits, down from 96% of the companies that posted profits in the second quarter.
‘Production profits were still healthy in the third quarter of 2009, although not at the same level that we saw in the second quarter,’ says Marina Walsh, MBA's associate vice president of industry analysis. ‘For lenders in our study, average production volume dropped 33 percent in the third quarter of 2009, along with a drop in the refinancing share of total originations. The overall decline in production volume, combined with a heavier purchase share, resulted in higher per-loan production expenses, which pulled down production profits.’
The share of refinancings to total originations dropped from 62% in the second quarter to 44% in the third quarter. In the third quarter of 2008, the share stood at 32%.
Average pull-through (the number of closings divided by the number of loan applications) was relatively constant at 72% in the third quarter (compared to 73% in the second quarter), and net servicing income of the firms and their subsidiaries was unchanged, at $41 per loan serviced.
The ‘net cost to originate" – which includes production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing-released premiums and warehouse interest spread – rose to $1,950 per loan in the third quarter, from $1,295 per loan in the second quarter ofÂ 2009.
Production operating expenses – commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations – rose quarter over quarter from $3,581 per loan to $4,376 per loan, the MBA reports.
For firms specifically in the retail channel, closings per sales employee per month averaged 6.7 closings in the third quarter, down from 11 closings in the second quarter. Net production income dropped to 54 basis points (bps) in the third quarter from 73 bps in the second quarter.
Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, rose slightly to 6.67 bps in the third quarter of 2009, compared to 5.19 bps in the second quarter of 2009.
MBA's Quarterly Mortgage Bankers Performance Report replaces the former MBA Cost Study series. Seventy-three percent of the 306 companies that reported production data for this report were independent mortgage banking companies.
SOURCE: Mortgage Bankers Association