Loan Profits Plummet with Declining Volume, Increased Compliance Cost

Mortgage profits took a big hit in the third quarterrnof 2013, dropping by more than half of that reported in the secondrnquarter.  The Mortgage BankersrnAssociation (MBA) said independent mortgage banks and mortgage subsidiaries ofrnchartered banks reported an average of $743 per loan profit in the third quarterrncompared to $1,528 for each loan originated in the second quarter.  The average production income fell from 75rnbasis points to 38, marking the fourth consecutive quarter that productionsrnprofits have declined.  </p

“Third-quarter profitsrnwere reduced by half because of several factors: per-loan production expensesrnthat reached study-highs, declining production volume and reduced secondaryrnmarketing income,” said Marina Walsh, MBA’s Associate Vice President ofrnIndustry Analysis.  “Historically, mortgage bankers have struggled torncontrol fixed costs and right-size in a declining market, and the increasingrncosts of compliance and quality control only exacerbate an already difficultrnsituation.”</p

Secondary marketingrnincome declined to 244 basis points in the third quarter, compared to 263 basisrnpoints in the second quarter.</p

Companies reported anrnaverage production volume of $391 million per company compared to $439 million</bin the second quarter as loan volume fell from an average of 1,921 loans to 1,788.rnAs volume decreased total loan production expenses including commissions,rncompensation, occupancy, equipment and corporate allocations increased to $6,368rnper loan from $5,818 in the second quarter.  Third quarter 2013 productionrnexpenses were the highest recorded in any quarter since the MBA's Quarterly Mortgage Bankers Performance Report beganrnin the third quarter ofrn2008.</p