Mortgage Banker Profits Drop as Production Slows and Origination Costs Balloon

Independent mortgage bankers andrnsubsidiaries saw a sharp drop in their profits in the first quarter of 2010rnaccording to data released today by the Mortgage Bankers Associationrn(MBA).  </p

The average profit made on eachrnloan was $606, a decrease of 32 percent from the $890 that was earned in thernfourth quarter of 2009 and a 44 percent decline from the $1,088 that was reported in the firstrnquarter of 2009.  75 percent of the firms inrnthe study posted pre-tax net financial profits in the first quarter 2010,rncompared to 76 percent in the fourth quarter of 2009.</p

Surveyrnrespondents reported a drop in the average production volume torn$157.8 million from $216.5 million in the previous quarter.  MBA reported that the volume decrease was thernmain driver behind the decline in profitability.   As volume dropped, production operatingrnexpenses rose to $5,147 per loan compared to $4,402 in the fourth quarter, anrnincrease of 17 percent.</p

The “net cost tornoriginate” rose to $2,945 per loan in the first quarter of 2010, fromrn$2,345 per loan in the fourth quarter of 2009.  This figure includes allrnproduction operating expenses and commissions minus all fee income, butrnexcludes secondaryrnmarketing gains, capitalized servicing, servicing released premiums andrnwarehouse interest spread.</p

Personnel expensesrnincreased from $2,756 per loan to $3,296 in the first quarter.  Marina Walsh, MBA'srnAssociate Vice President of Industry Analysis commented, “It isrnextremely difficult for mortgage companies to effectively manage staffingrnlevels.  Either companies are stretching to meet the incredible demand, orrnthey are carrying excess capacity which drives up per-loan personnel expense. Despite this challenge as originations declined in thernfirst quarter, the independents and bank subsidiaries still produced an averagernof thirty two basis points of production profit, primarily resulting fromrnhigher secondary marketing gains.”  </p

Those secondary marketing gainsrn(excluding origination fees) averaged a net $3,464 per loan in the firstrnquarter of 2010, compared to $3,110 in the fourth quarter of 2009.</p

MBA reported that both individual employeernretail sales and the average pull-through rate, the ratio of closings tornapplications, declined during the quarter. rnProductivity per sales employee was an average of five loans to monthrncompared to seven loans in the fourth quarter. rnDuring the 4th Quarter, companies closed an average of 73 percent of thernloans for which they took applications, in the most recent quarter they closedrn66 percent. </p

MBA's 1^st Quarter 2010rnMortgage Bankers Production Survey covers 295 companies, 70 percent of whichrnare independent mortgage companies.

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