MBA: Loan Production Profits Dip But Still Deemed "Favorable"
The Mortgage Bankers Association (MBA) said today that, whilernproduction profits were favorable during the fourth quarter of 2009, they arernconcerned about provision expenses weakening future profitability.
The Association released results of its Study of Independent MortgagernBankers and Subsidiaries for the last quarter of 2009 which show that participantsrnmade an average profit of $890 on each loan they originated during thernquarter. This was down from $902 in thernthird quarter, but a significant improvement over the $296 profit seen in thernfourth quarter of 2008.
Marine Walsh, MBA's Associate Vice President of Industry Analysis saidrnthat “Production profits remained favorable in the 4th quarterrnbecause of strong servicing rights valuations and secondary marketingrngains. However, provision expense forrnrepurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6rnbasis points from the fourth quarter of 2008.”
A total of 285 companiesrnresponded to the MBA survey by reporting production data; 72 percent of thesernwere independent companies. 76 percentrnof the responding firms posted pre-tax net financial profits during thernquarter, down from 82 percent which reported profits in the third quarter. The average production volume per firm was uprnto $216.5 million from $189.6 million.
Refinancing as a share of total originations remained nearly constantrnbetween the third and fourth quarter, going from 44 percent to 45 percent and thernnumber of closings relative to the number of applications (pull-through) alsornchanged only marginally from 72 percent in the third quarter to 73 percent inrnthe fourth.
It costrncompanies a net of $2,345 to originate each loan in the fourth quarter comparedrnto $1,950 in the third quarter. Thisrnincludes all production operating expenses and commissions minus all fee incomernbut does not include secondary marketing gains, capitalized servicing,rnservicing released premiums, and warehouse interest spread.
Production operatingrnexpenses – commissions, compensation, occupancy and equipment, and otherrnproduction expenses and corporate allocations – rose to $4,402 per loan in thernfourth quarter compared to $4,376 per loan in the previous period.
Net warehousing income,rnwhich represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit,rnwas almost constant at 6.26 basis points, compared to 6.67 basis points in thernthird quarter 2009.
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