Mortgage Bankers Improved Profitability as Production Picked Up in Q2
Independent mortgage bankers and bank subsidiaries saw their production volume and production income rise significantly during the second quarter of 2010 although both remain substantially below the numbers seen one year earlier.
The residential bankers responding to the Mortgage Bankers Association (MBA) Quarterly Mortgage Bankers Performance Report said their average total net production volume rose to $196.6 million during the quarter from $157.8 million in the first quarter. The average volume had been $281 million in the first quarter of 2010.
Largely because of an uptick in production volume, mortgage bankers showed a profit on each loan closed during the quarter of $917 compared to $606 in the first quarter and $1,358 in the second quarter of 2009. Production operating expenses dropped from $5,147 per loan in Q1 to $4,677 in Q2 but is still running well above the $3,581 posted a year earlier.
"The significant rise in loan origination volume during the second quarter reflects the surge in first time home buyers seeking to take advantage of the tax credit before the deadline expired," said Marina Walsh, MBA's Associate Vice President of Industry Analysis. "Higher production operating expenses typically are associated with purchase production compared to refinances. But in this case, fixed costs were spread out over more loans and lenders experienced higher pull-through rates. These factors help explain why operating expense dropped on a per-loan basis by $470 per loan between quarters."
Explaining the higher profits in the first quarter of 2009, Walsh said, "A year before, quarterly production volume averaged $280.9 million and the refinancing share was over 60 percent. The heavy volume and refinancing share helped lower per-loan operating costs to $3,414 per loan and profits soared to $1,358 per loan."
Loan origination fees averaged $415 per loan compared to $1,503 and 1,514 in Q1 and Q2, 2009 respectively. Correspondent and Broker Fee Income was $162 ($166, $231). Total loan production revenues averaged $2,066 ($2,202, $2,286.) Net interest income was $73 per loan ($87, $95) and net secondary marketing income was $3,455 ($3,464, $2,447.)
The "net cost to originate" dropped to $2,611 per loan in the second quarter of 2010, from $2,945 per loan in the first quarter of 2010. The "net cost to originate" includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread. Total personnel expense dropped to $3,017 per loan in the second quarter of 2010, compared to $3,296 per loan in the first quarter of 2010. In the second quarter of 2009, personnel expenses averaged $2,283 per loan.
The companies responding to the survey originated an average of 982 loans during the quarter compared to 777 in Q1 and 1,371 in the second quarter of 2009 and saw an improvement in their pull-through rate from 67.88 to 71.74 percent. The average loan balance was $192,802, little changed from the $193.721 in Q1 and $198.136 a year earlier. The average sales employee closed 9.3 loans each month of the quarter, up from 7.0 the previous quarter. A year earlier sales personnel closed a monthly average of 14.9 loans.
The purchase share of originations by dollar volume for this sample of independent mortgage bankers and subsidiaries rose to 65 percent in the second quarter of 2010, compared to 56 percent in the first quarter of 2010 and 38 percent in the second quarter of 2009. 70 percent of respondents were independent companies.
95.7 percent of the loans (by number) originated during the quarter were fixed-rate and 47 percent of all loans were FHA/VA/RHA fixed rate loans; 45.1 percent were conventional FRMs. 64 percent of borrowers had a FICO score exceeding 700 and 43.75 percent of the loans had loan-to-value ratios exceeding 90 percent.
The report also contained information on 161 companies categorized as loan servicers. The average servicing portfolio contained 47,627 loans, virtually unchanged from Q1 but down substantially from the average of 77,674 reported a year earlier. The firms reported direct servicing revenues of $475 per loan ($463, $404) and net servicing operating income of $213 per loan, up from $197 in Q1 and $165 a year earlier.
85 percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2010, compared to 75 percent in the first quarter of 2010 and 96 percent in the second quarter of 2009.