Despite increased volume and lower expenses, mortgage bankers saw a substantial decline in profit margins during the fourth quarter of 2011 according to data released this morning by the Mortgage Bankers Association (MBA). Seventy-two percent of the companies covered in MBA's Performance Report are independent bankers with the remainder the mortgage subsidiaries of chartered banks.
The Report showed that banks made an average profit of $1,093 on each loan they originated during the quarter compared to $1,263 per loan in the third quarter. 78 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2011, compared to 86 percent in the third quarter of 2011.
"The fourth quarter 2011 results were mixed for mortgage bankers," said Marina Walsh, MBA's Associate Vice President of Industry Analysis. "Mortgage volume increased in the fourth quarter, driven by heavier refinancing activity, translating into higher productivity. However, net secondary marketing income dropped to $4,355 per loan in the fourth quarter from $4,563 per loan in the third quarter, lowering overall profits."
The refinance share of total originations, by dollar volume, was 57 percent in the fourth quarter of 2011, compared to 45 percent in the third quarter of 2011.
Average production volume was $313 million per company in the fourth quarter, up from $237 million in the third quarter and average loan balances were about $5,000 higher. The average production profit or net production income was 58.49 basis points compared to 66.37 basis points in the earlier period. Secondary marketing gains decreased to 215 basis points from 229 basis points.
Per-loan expenses declined in the fourth quarter because of the larger volume of loans. Personnel expenses decreased from $3,317 per loan in the third quarter to $3,226 in the fourth while operating expenses were down to $5,118 per loan compared to $5,315. This category includes commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations.
The "net cost to originate" which includes all production operating expenses and commissions minus all fee income, declined slightly to $3,324 from $3,360. This figure does not include secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.