Mortgage Originations Rise, but Profit Per-Loan Falls on Higher Costs

Mortgage companies saw their average per-loan profits fall in the fourth quarter of 2012 as increasing costs outweighed higher revenues the Mortgage Bankers Association (MBA) said on Tuesday.  Respondents to MBA's fourth quarter survey reported average per-loan profits of $2,256 compared to $2,465 in the third quarter of 2012.  Ninety-four percent of the 311 independent mortgage companies and mortgage subsidiaries of chartered banks responding to the survey posted pre-tax net financial profits in the fourth quarter of 2012, compared to 97 percent in the third quarter. Seventy-two percent of companies participating in the survey were independent mortgage companies.

"Per-loan profits decreased in the fourth quarter, primarily driven by rising costs," said MBA Associate Vice President of Industry Analysis Marina Walsh. "Historically, production costs have dropped with rising volume. In this quarter, however, despite high origination volumes, per-loan costs reached the highest levels we have seen in this study, other than during the first half of 2011, when origination volume was 60 percent lower."

Companies originated an average of 2,132 loans in the fourth quarter, an average production volume of $488 million per company.  In the third quarter the average was 2,010 loans and a volume of $450 million.   Average production profit (net production income) was 107 basis points compared to 120 basis points in Q3.

Total loan production expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - increased to $5,603 per loan in the fourth quarter, from $5,163 in the third quarter.  Personnel expenses rose from $3,320 per loan in the third quarter to an average of $3,570.  The largest increase was in fulfillment personnel expense which rose to $858 from $739 per loan.

The "net cost to originate" is computed from the total of all production operating expenses and commissions minus all fee income but does not include secondary marketing gains, capitalized servicing, servicing related premiums, and warehouse interest spread.   That net cost rose from $3,353 in the third quarter to $3,813 in the fourth.  

Secondary marketing income improved to 279 basis points in the fourth quarter, compared to 271 basis points in the third quarter.

MBA reported that refinancing represented 75 percent of originations nationwide, up from 73 percent in the third quarter, however companies responding to the survey said 61 percent of their dollar volume in the fourth quarter was from refinancing compared to 57 percent in the previous period.

Production employees had a productivity rate of 3.8 loans per month, a slight decrease from 3.9 loans in the third quarter.  Fulfillment productivity was 10.2 loans originated per fulfillment employee per month, down from 10.9 in the third quarter.