According to the Mortgage Bankers Association's (MBA) annual cost study, mortgage banking production profits fell to -$50 per loan in 2006 from +$258 per loan in 2005. While production revenues increased on a per-loan basis, this increase did not keep pace with the increase in production operating expenses, which grew by 17% to $3,416 per loan in 2006.
"Production profits began to slip in 2004, and we see a continuation of this trend in 2006," says Marina Walsh, a senior director in the MBA's research and economics department.
"Despite some companies' best efforts to boost production revenues through the origination of higher-yielding mortgage products, several factors worked against the industry as a whole – the negative yield curve (which increased the cost of funds), lower sales productivity and higher per-loan sales and fulfillment costs (particularly personnel-related costs)," she adds.
Overall, the average firm posted pre-tax net financial income of $6.4 million in 2006, compared to $26 million in 2005, the study says. Retail sales productivity averaged 62 loans per loan officer in 2006, compared to 83 loans per loan officer in 2005.
On a per loan basis, the net cost to originate increased to $2,476 in 2006 compared to $2,049 per loan in 2005. The net cost to originate includes all origination operating costs and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread, the MBA notes.
Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest rate paid on a warehouse line of credit, dropped to $245 per loan from $294 per loan in 2005 and $481 per loan in 2004, due to the flat yield curve.
Also, net marketing income, which includes the gain or loss on the sale of loans in the secondary market, pricing subsidies and overages, as well as capitalized servicing and servicing released premiums, averaged $2,180 per loan in 2006 compared to $2,012 per loan in 2005, according to the study.