Mortgage Bankers Improved Profitability as Production Picked Up in Q2

by devteam September 15th, 2010 | Share

Independentrnmortgage bankers and bank subsidiaries saw their production volume and productionrnincome rise significantly during the second quarter of 2010 although bothrnremain substantially below the numbers seen one year earlier. </p

The residential bankers responding to thernMortgage Bankers Association (MBA) Quarterly Mortgage Bankers PerformancernReport said their average total net production volume rose to $196.6rnmillion during the quarter from $157.8 million in the first quarter.  The average volume had been $281 million inrnthe first quarter of 2010.  </p

Largelyrnbecause of an uptick in  production volume, mortgage bankers showed a profit on each loanrnclosed during the quarter of $917 compared to $606 in the first quarter andrn$1,358 in the second quarter of 2009.  Production operating expenses dropped from $5,147 per loan in Q1 torn$4,677 in Q2 but is still running well above the $3,581 posted a year earlier.</p

“The significant risernin loan origination volume during the second quarter reflects the surge inrnfirst time home buyers seeking to take advantage of the tax credit before therndeadline expired,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis.rn”Higher production operating expenses typically are associated withrnpurchase production compared to refinances. But in this case, fixed costs werernspread out over more loans and lenders experienced higher pull-through rates.rnThese factors help explain why operating expense dropped on a per-loan basis byrn$470 per loan between quarters.”</p

Explaining thernhigher profits in the first quarter of 2009, Walsh said, “A year before,rnquarterly production volume averaged $280.9 million and the refinancing sharernwas over 60 percent.  The heavy volume and refinancing share helped lowerrnper-loan operating costs to $3,414 per loan and profits soared to $1,358 perrnloan.”</p

Loanrnorigination fees averaged $415 per loan compared to $1,503 and 1,514 in Q1 andrnQ2, 2009 respectively.  Correspondent andrnBroker Fee Income was $162 ($166, $231). rnTotal loan production revenues averaged $2,066 ($2,202, $2,286.)  Net interest income was $73 per loan ($87,rn$95) and net secondary marketing income was $3,455 ($3,464, $2,447.) </p

The “net cost tornoriginate” dropped to $2,611 per loan in the second quarter of 2010, fromrn$2,945 per loan in the first quarter of 2010.  The “net cost tornoriginate” includes all production operating expenses and commissionsrnminus all fee income, but excludes secondary marketing gains, capitalized servicing,rnservicing released premiums and warehouse interest spread.  Total personnel expense droppedrnto $3,017 per loan in the second quarter of 2010, compared to $3,296 per loanrnin the first quarter of 2010.  In the second quarter of 2009, personnelrnexpenses averaged $2,283 per loan.</p

The companiesrnresponding to the survey originated an average of 982 loans during the quarterrncompared to 777 in Q1 and 1,371 in the second quarter of 2009 and saw anrnimprovement in their pull-through rate from 67.88 to 71.74 percent.  The average loan balance was $192,802, littlernchanged from the $193.721 in Q1 and $198.136 a year earlier.  The average sales employee closed 9.3 loansrneach month of the quarter, up from 7.0 the previous quarter.  A year earlier sales personnel closed arnmonthly average of 14.9 loans.</p

The purchase share of originationsrnby dollar volume for this sample of independent mortgage bankers andrnsubsidiaries rose to 65 percent in the second quarter of 2010, compared to 56rnpercent in the first quarter of 2010 and 38 percent in the second quarter ofrn2009.  70 percent of respondents werernindependent companies. </p

95.7 percent of the loansrn(by number) originated during the quarter were fixed-rate and 47 percent of allrnloans were FHA/VA/RHA fixed rate loans; 45.1 percent were conventional FRMs.  64 percent of borrowers had a FICA scorernexceeding 700 and 43.75 percent of the loans had loan-to-value ratios exceedingrn90 percent.</p

The report also containedrninformation on 161 companies categorized as loan servicers.   The average servicing portfolio containedrn47,627 loans, virtually unchanged from Q1 but down substantially from thernaverage of 77,674 reported a year earlier. rnThe firms reported direct servicing revenues of $475 per loan ($463,rn$404) and net servicing operating income of $213 per loan, up from $197 in Q1rnand $165 a year earlier.   </p

85 percent of the firms inrnthe study posted pre-tax net financial profits in the second quarter of 2010,rncompared to 75 percent in the first quarter of 2010 and 96 percent in thernsecond quarter of 2009.

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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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