Refinancing Boom Boosts Lender Loan Profitability
Heightened levels of refinancing continued in April, May, andrnJune and led to an increase in per-loan profits for independent mortgage bankersrnand subsidiaries according to a study released on Monday by the MortgagernBankers Association (MBA).
Thernaverage production profits on each loan written during the second quarter ofrn2009 was $1,358 (71.29 basis points), a substantial gain over the average ofrn$1,088 (54.58 basis points) per loan during the first quarter of the year.
Therngain came as a big increase in production volume allowed lenders to spreadrntheir fixed costs over a larger number of loans, thus increasing net profitsrnaccording to a statement released by Marina Walsh, MBA's Associate VicernPresident of Industry Analysis.
The “net cost tornoriginate” fell to $1,295 per loan in the second quarter 2009 from $1,725rnper loan in the first quarter. The “net cost to originate”rnincludes all production operating expenses and commissions minus all feernincome, but excludes secondary marketing gains, capitalized servicing, servicing released premiums andrnwarehouse interest spread.
The Quarterly Mortgage BankersrnPerformance Report measures the performance of independent mortgage bankers andrnsubsidiaries of banks, thrifts, and hedge funds. The new report contains data showing that thernaverage production volume for each firm studied was $280.9 million during the secondrnquarter compared to $213.9 million in the first quarter and $125.6 million inrnthe last quarter of 2008. Of 292rnrespondents included in the study, 73 percent were independent companies.
Thernfirms' pre-tax profits also increased according to the study. 96 percent of those reporting posted pre-tax net financial profitsrnin the second quarter compared to 85 percent in the first quarter. This is a major improvement over the fourthrnquarter of 2008 when only 53 percent of the companies reported they werernprofitable.
While the percent of loans representedrnby refinancing decreased slightly from that reported in the first quarter – 62 percentrnas compared to 66 percent – the refinancing share was significantly higher thanrnthe 42 percent share at the end of last year.
Firms reported that they closed loansrnfor an average of 73 percent applications they received, up from 67 percent inrnthe first quarter.
The second quarter productionrnprofits for mortgage firms that were primarily in the wholesale channels showedrnthe most dramatic improvement, rising 46 percent to 61 basis points ($1,213 perrnloan) from 42 basis points ($803 per loan) in the first quarter 2009.
Other points of interest in thernreport included:
- Simple average borrower FICOrnscores for loan originations were 721 in the second quarter 2009, compared to 714 in the firstrnquarter 2009.
- Production operating expenses,rnincluding commissions, compensation, occupancy and equipment, and otherrnproduction expenses and corporate allocations, dropped to $3,581 per loan inrnthe second quarter 2009 compared to $3,738 per loan in the first quarterrn2009.
- The average number of retailrnloans originated per retail sales employee rose to 11.0 loans per month in thernsecond quarter 2009, from 10.4 loans per month in the first quarter 2009.
- Net warehousing income, whichrnrepresents the net interest spread between the mortgagernrate on a loan and the interest paid on a warehouse line of credit, continuedrnto pose a challenge for the mortgage bankers in this study. Interestrnspread dropped to 5.19 basis points in the second quarter 2009, compared torn6.60 basis points in the first quarter 2009 and 9.28 basis points in the fourthrnquarter 2008.
- Net servicing income of thesernindependent mortgage companies and subsidiaries improved to $41 per loanrnserviced in the second quarter 2009, from net financial losses of $1 per loanrnserviced in the first quarter 2009. Quarter-by-quarter net operating servicingrnincome (servicing fees, net escrow earnings and ancillary income less directrnand indirect expenses) showed no change at $165 per loan.
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