Independent mortgage bankers and subsidiaries made an average profit of $917 on each loan they originated in the second quarter – up from $606 per loan in the first quarter, according to the Mortgage Bankers Association's (MBA) 2nd Quarter 2010 Mortgage Bankers Performance Report.
The increase was driven by a rise in the average production volume for each firm to $196.6 million in the second quarter, compared to $157.8 million in the first quarter. As a result, production operating expenses decreased to $4,677 per loan in the second quarter from $5,147 per loan in the first quarter.
The second-quarter rise in volume reflects the rush of first-time home buyers seeking to take advantage of the tax credit before its deadline expired, says Marina Walsh, the MBA's associate vice president of industry analysis.
"Higher production operating expenses typically are associated with purchase production compared to refinances,’ Walsh says. ‘But in this case, fixed costs were spread out over more loans, and lenders experienced higher pull-through rates. These factors help explain why operating expense dropped on a per-loan basis by $470 per loan between quarters."
However, average profits in the second quarter of 2010 were significantly lower than the profits in the second quarter of 2009.
"A year before, quarterly production volume averaged $280.9 million, and the refinancing share was over 60 percent,’ Walsh explains. ‘The heavy volume and refinancing share helped lower per-loan operating costs to $3,414 per loan, and profits soared to $1,358 per loan."
The average pull-through (i.e., the number of closings divided by the number of loan applications) was 72% in the second quarter of this year, compared to 68% in the first quarter.
The purchase share of total originations for this sample of independent mortgage bankers and subsidiaries rose to 65% in the second quarter of 2010, compared to 56% in the first quarter of 2010 and 38% in the second quarter of 2009.
The net cost to originate -Â which includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing-released premiums and warehouse interest spread – dropped to $2,611 per loan in the second quarter from $2,945 per loan in the first quarter.
Total personnel expense also dropped compared to the first quarter, falling from $3,296 per loan to $3,017 per loan. In the second quarter of 2009, personnel expenses averaged $2,283 per loan.
Eighty-five percent of the 312 firms in the study posted pre-tax net financial profits in the second quarter of 2010, compared to 75% in the first quarter of 2010 and 96% in the second quarter of 2009.
Over 70% of the companies that reported production data for the MBA's report were independent mortgage companies.
SOURCE: Mortgage Bankers Association