MBA Report: Mortgage Bankers Less Profitable in Third Quarter

Mortgage bankers saw their profit margins narrow during the third quarter of 2009 according to data released today by the Mortgage Bankers Association (MBA).

Independent mortgage bankers and subsidiaries saw their profits drop from an average of 71.29 basis points or $1,358 per loan in the second quarter to 50.03 basis points or $902 in the third.  The average production volume for each firm responding to the survey slipped to $189.6 million from $280.9 million in the second quarter.  This decline in volume led to a higher cost for each loan written.

This information is contained in MBA's Quarterly Mortgage Bankers Performance Report which covers independent mortgage companies, bank subsidiaries, and other non-depository institutions.  Nearly ¾ of the 306 companies that provided data for the report were independent mortgage banks.

The study also found that production operating expenses which include commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations, rose to $4,376 per loan in the third quarter of 2009 compared to $3,581 per loan in the second quarter.   As a result, the "net cost to originate" which includes production operating expenses and commissions minus all fee income rose to $1,950 per loan from $1,295 in the second quarter.  This figure does not include secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.  

Marina Walsh, MBA Associate Vice President of Industry Analysis said, "Production profits were still healthy in the third quarter of 2009, although not at the same level that we saw in the second quarter. For lenders in our study, average production volume dropped 33 percent in the third quarter 2009, along with a drop in the refinancing share of total originations. The overall decline in production volume combined with a heavier purchase share resulted in higher per-loan production expenses, which pulled down production profits." 

 82 percent of the companies that responded to the survey posted pre-tax net financial profit during the quarter compared to 96 percent reporting such profit in Q2.

Refinancing represented 44 percent of the total originations in the sample, down from 62 percent in the previous quarter.  That figure is still substantially higher than the 32 percent market share held by refinancing in the third quarter one year ago.  

The percentage of mortgage closings in relation to the volume of loan applications - the average pull-through - was virtually unchanged between the second quarter rate of 72 percent and the most recent period's 73 percent.

Firms in the retail channel saw closings per sales employee per month dropping to an average of 6.7 closings in the third quarter, from 11.0 closings in the second quarter.