Independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009, down from $902 per loan in the third quarter of 2009, but up from $296 in the fourth quarter of 2008, according to the Mortgage Bankers Association (MBA).
‘Production profits remained favorable in the fourth quarter because of strong servicing rights valuations and secondary marketing gains,’ says Marina Walsh, the MBA's associate vice president of industry analysis.Â ‘However, provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over six basis points (bps) from the fourth quarter of 2008.’
Seventy-six percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2009 – down from 82% in the third quarter. The average production volume for each firm also dropped, falling to $216.5 million in the fourth quarter from $189.6 million in the third quarter.
The share of refinancings to total originations for this sample, as well as the average pull-through (the number of closings divided by the number of loan applications) remained relatively constant when compared to third-quarter numbers. The refi share stood at 45% in the fourth quarter of 2009 (down from 44% in the third quarter), while the pull-through rate was 73% in the fourth quarter (down from 72% in the third quarter).
The ‘net cost to originate’ rose to $2,345 per loan in the fourth quarter of 2009, from $1,950 per loan in the third quarter 2009. This cost 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.
Production operating expenses – i.e, commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations – rose to $4,402 per loan in the fourth quarter. That figure was $4,376 per loan in the third quarter, the MBA reports.
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 bps, in the fourth quarter, compared to 6.67 bps in the third quarter.
SOURCE: Mortgage Bankers Association