Heightened levels of refinancing continued in April, May, and
June and led to an increase in per-loan profits for independent mortgage bankers
and subsidiaries according to a study released on Monday by the Mortgage
Bankers Association (MBA).
The
average production profits on each loan written during the second quarter of
2009 was $1,358 (71.29 basis points), a substantial gain over the average of
$1,088 (54.58 basis points) per loan during the first quarter of the year.
The
gain came as a big increase in production volume allowed lenders to spread
their fixed costs over a larger number of loans, thus increasing net profits
according to a statement released by Marina Walsh, MBA's Associate Vice
President of Industry Analysis.
The "net cost to
originate" fell to $1,295 per loan in the second quarter 2009 from $1,725
per loan in the first quarter. The "net cost to originate"
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.
The Quarterly Mortgage Bankers
Performance Report measures the performance of independent mortgage bankers and
subsidiaries of banks, thrifts, and hedge funds. The new report contains data showing that the
average production volume for each firm studied was $280.9 million during the second
quarter compared to $213.9 million in the first quarter and $125.6 million in
the last quarter of 2008. Of 292
respondents included in the study, 73 percent were independent companies.
The
firms' pre-tax profits also increased according to the study. 96 percent of those reporting posted pre-tax net financial profits
in the second quarter compared to 85 percent in the first quarter. This is a major improvement over the fourth
quarter of 2008 when only 53 percent of the companies reported they were
profitable.
While the percent of loans represented
by refinancing decreased slightly from that reported in the first quarter - 62 percent
as compared to 66 percent - the refinancing share was significantly higher than
the 42 percent share at the end of last year.
Firms reported that they closed loans
for an average of 73 percent applications they received, up from 67 percent in
the first quarter.
The second quarter production
profits for mortgage firms that were primarily in the wholesale channels showed
the most dramatic improvement, rising 46 percent to 61 basis points ($1,213 per
loan) from 42 basis points ($803 per loan) in the first quarter 2009.
Other points of interest in the
report included:
-
Simple average borrower FICO
scores for loan originations were 721 in the second quarter 2009, compared to 714 in the first
quarter 2009.
-
Production operating expenses,
including commissions, compensation, occupancy and equipment, and other
production expenses and corporate allocations, dropped to $3,581 per loan in
the second quarter 2009 compared to $3,738 per loan in the first quarter
2009.
-
The average number of retail
loans originated per retail sales employee rose to 11.0 loans per month in the
second quarter 2009, from 10.4 loans per month in the first quarter 2009.
-
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, continued
to pose a challenge for the mortgage bankers in this study. Interest
spread dropped to 5.19 basis points in the second quarter 2009, compared to
6.60 basis points in the first quarter 2009 and 9.28 basis points in the fourth
quarter 2008.
-
Net servicing income of these
independent mortgage companies and subsidiaries improved to $41 per loan
serviced in the second quarter 2009, from net financial losses of $1 per loan
serviced in the first quarter 2009. Quarter-by-quarter net operating servicing
income (servicing fees, net escrow earnings and ancillary income less direct
and indirect expenses) showed no change at $165 per loan.