MBA Reports Lender Profitability Worse in Third Quarter

by devteam December 17th, 2009 | Share

Mortgage bankers saw their profit margins narrow during thernthird quarter of 2009 according to data released today by the Mortgage BankersrnAssociation (MBA).

Independent mortgage bankers and subsidiaries saw theirrnprofits drop from an average of 71.29 basis points or $1,358 per loan in thernsecond quarter to 50.03 basis points or $902 in the third.  The average production volume for each firmrnresponding to the survey slipped to $189.6 million from $280.9 million in thernsecond quarter.  This decline in volumernled to a higher cost for each loan written.

This information is contained in MBA's Quarterly MortgagernBankers Performance Report which covers independent mortgage companies, bankrnsubsidiaries, and other non-depository institutions.  Nearly ¾ of the 306 companies that providedrndata for the report were independent mortgage banks.

Thernstudy also found that production operating expenses which include commissions,rncompensation, occupancy and equipment, and other production expenses andrncorporate allocations, rose to $4,376 per loan in the third quarter of 2009rncompared to $3,581 per loan in the second quarter.   As a result, the “netrncost to originate” which includes production operating expenses andrncommissions minus all fee income rose to $1,950 per loan from $1,295 in thernsecond quarter.  This figure does notrninclude secondary marketing gains, capitalized servicing, servicing releasedrnpremiums, and warehouse interest spread.  

Marina Walsh, MBA Associate Vice President of IndustryrnAnalysis said, “Production profits were still healthy in the thirdrnquarter of 2009, although not at the same level that we saw in the secondrnquarter. For lenders in our study, average production volume dropped 33 percentrnin the third quarter 2009, along with a drop in the refinancing share of totalrnoriginations. The overall decline in production volume combined with a heavierrnpurchase share resulted in higher per-loan production expenses, which pulledrndown production profits.” 

 82 percent ofrnthe companies that responded to the survey posted pre-tax net financial profitrnduring the quarter compared to 96 percent reporting such profit in Q2.

Refinancing represented 44 percent of the total originationsrnin the sample, down from 62 percent in the previous quarter.  That figure is still substantially higher thanrnthe 32 percent market share held by refinancing in the third quarter one yearrnago.  

The percentage of mortgage closings in relation to thernvolume of loan applications – the average pull-through – was virtuallyrnunchanged between the second quarter rate of 72 percent and the most recentrnperiod's 73 percent.

Firms in the retailrnchannel saw closings per sales employee per month dropping to an average of 6.7rnclosings in the third quarter, from 11.0 closings in the second quarter. 

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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