MBA: Loan Production Profits Dip But Still Deemed "Favorable"
The Mortgage Bankers Association (MBA) said today that, while production profits were favorable during the fourth quarter of 2009, they are concerned about provision expenses weakening future profitability.
The Association released results of its Study of Independent Mortgage Bankers and Subsidiaries for the last quarter of 2009 which show that participants made an average profit of $890 on each loan they originated during the quarter. This was down from $902 in the third quarter, but a significant improvement over the $296 profit seen in the fourth quarter of 2008.
Marine Walsh, MBA's Associate Vice President of Industry Analysis said that "Production profits remained favorable in the 4th quarter because of strong servicing rights valuations and secondary marketing gains. However, provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008." READ MORE ABOUT REPURCHASE REQUESTS
A total of 285 companies responded to the MBA survey by reporting production data; 72 percent of these were independent companies. 76 percent of the responding firms posted pre-tax net financial profits during the quarter, down from 82 percent which reported profits in the third quarter. The average production volume per firm was up to $216.5 million from $189.6 million.
Refinancing as a share of total originations remained nearly constant between the third and fourth quarter, going from 44 percent to 45 percent and the number of closings relative to the number of applications (pull-through) also changed only marginally from 72 percent in the third quarter to 73 percent in the fourth.
It cost companies a net of $2,345 to originate each loan in the fourth quarter compared to $1,950 in the third quarter. This includes all production operating expenses and commissions minus all fee income but does not include secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
Production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - rose to $4,402 per loan in the fourth quarter compared to $4,376 per loan in the previous period.
Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, was almost constant at 6.26 basis points, compared to 6.67 basis points in the third quarter 2009.