Independent mortgage bankers and subsidiaries made an average profit of $1,358 on each loan they originated in the second quarter, according to the Mortgage Bankers Association (MBA).
This profit marks an increase from the first quarter of 2009, when profits averaged $1,088 per loan, according to the MBA's most recent Quarterly Mortgage Bankers Performance Report. This report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds.
‘The refinance boom continued in the second quarter of 2009, says Marina Walsh, the MBA's associate vice president of industry analytics. ‘The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits. At the same time, purchases picked up as home buyers with good credit took advantage of low interest rates."
Walsh notes that the average borrower FICO score increased in the second quarter (721, compared to 714 in the first quarter), and average pull-through rates (i.e., the numbers of closings divided by the number of loan applications) rose to 73% in the second quarter from 67% in the first quarter.
The report also found that the average production volume for each firm studied was $280.9 million in the second quarter, compared to $213.9 million in the first quarter of the year and $125.6 million in the fourth quarter of 2008.
The average gross-dollar volume for both refinancings and purchases also increased in the second quarter 2009. The share of refinancings to total originations for this sample dropped to 62% in the second quarter, from 66% in the first quarter. This share was still significantly higher than 42% for the fourth quarter of 2008.
The second-quarter production profits for mortgage firms that were primarily in the wholesale channels showed the most dramatic improvement, the MBA says, rising 46% to 61 basis points (bps) ($1,213 per loan) from 42 bps ($803 per loan) in the first quarter.
The ‘net cost to originate,’ meanwhile, fell to $1,295 per loan, from $1,725 per loan in the first quarter. This metric 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.
The report additionally found that 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, continued to pose a challenge for the mortgage bankers in this study. Interest spread dropped from 6.6 basis points in the first quarter to 5.19 bps in the second quarter.
Net servicing income of these independent mortgage companies and subsidiaries improved to $41 per loan serviced in the second quarter of 2009, from net financial losses of $1 per loan serviced in the first quarter of 2009. Quarter-by-quarter net operating servicing income (i.e., servicing fees, net escrow earnings and ancillary income less direct and indirect expenses) showed no change, at $165 per loan.
The MBA's Quarterly Mortgage Bankers Performance Report replaces the former MBA Cost Study series. The report offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other nondepository institutions. Seventy-three percent of the 292 companies that reported production data for this report were independent companies.
SOURCE: Mortgage Bankers Association