Independent mortgage bankers and subsidiaries saw a sharp drop in their profits in the first quarter of 2010 according to data released today by the Mortgage Bankers Association (MBA). 

The average profit made on each loan was $606, a decrease of 32 percent from the $890 that was earned in the fourth quarter of 2009 and a 44 percent decline from the $1,088 that was reported in the first quarter of 2009.  75 percent of the firms in the study posted pre-tax net financial profits in the first quarter 2010, compared to 76 percent in the fourth quarter of 2009.

Survey respondents reported a drop in the average production volume to $157.8 million from $216.5 million in the previous quarter.  MBA reported that the volume decrease was the main driver behind the decline in profitability.   As volume dropped, production operating expenses rose to $5,147 per loan compared to $4,402 in the fourth quarter, an increase of 17 percent.

The "net cost to originate" rose to $2,945 per loan in the first quarter of 2010, from $2,345 per loan in the fourth quarter of 2009.  This figure 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.

Personnel expenses increased from $2,756 per loan to $3,296 in the first quarter.  Marina Walsh, MBA's Associate Vice President of Industry Analysis commented, "It is extremely difficult for mortgage companies to effectively manage staffing levels.  Either companies are stretching to meet the incredible demand, or they are carrying excess capacity which drives up per-loan personnel expense. Despite this challenge as originations declined in the first quarter, the independents and bank subsidiaries still produced an average of thirty two basis points of production profit, primarily resulting from higher secondary marketing gains." 

Those secondary marketing gains (excluding origination fees) averaged a net $3,464 per loan in the first quarter of 2010, compared to $3,110 in the fourth quarter of 2009.

MBA reported that both individual employee retail sales and the average pull-through rate, the ratio of closings to applications, declined during the quarter.  Productivity per sales employee was an average of five loans to month compared to seven loans in the fourth quarter.  During the 4th Quarter, companies closed an average of 73 percent of the loans for which they took applications, in the most recent quarter they closed 66 percent.

MBA's 1st Quarter 2010 Mortgage Bankers Production Survey covers 295 companies, 70 percent of which are independent mortgage companies.