While origination costs increased again in the third quarter, independent mortgage banks and subsidiaries saw a substantial increase in per-loan profits during the same period.
The Mortgage Bankers Association's 3rd Quarter 2010 Mortgage Bankers Performance report states that bankers saw profits increase from $917 per loan in the second quarter to an average of $1,423 in the third quarter. Better profits were generated by increased secondary marketing gains (gain on sale) which rose to $4,069 per loan compared to $3,455 a quarter earlier.
Low interest rate-driven refinancing brought the volume of loans up to an average of $237 million per month from $197 million in the second quarter, but this higher volume did not translate, as it usually does, to a lower cost to originate each loan. According to Marina Walsh, MBA's Associate Vice President of Industry Analysis, stricter lending standards increased direct loan production expenses to $4,539 from $4,438 per loan.
307 companies responded to the survey, 215 of which were in the residential production business. The average number of loans originated by each of the respondents was 1,090 during the quarter, 57 percent of which were for refinancing. In the previous quarter respondents originated an average of 982 loans, 35 percent of which were refinancings. The average size of a loan increased from $196,596 in the second quarter to $237,385 in the third. One year earlier the average number of loans was 962 with a 44 percent share for refinancing and the average loan size was $189,573.
Revenues from origination fees, and other origination-related income averaged $2,082 per loan, up $16 from Q2 but down from $2,426 one year earlier. Personnel expenses rose slightly to $3,034 per loan in the third quarter of 2010, compared to $3,017 in the second quarter of 2010. In the third quarter 2009, personnel expenses averaged $2,770 per loan. Net cost to originate which excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread increased to $2,720 per loan from $2,611 in the second quarter.
The average pull-through (the number of closings divided by the number of loan applications) was down to 68 percent from 72 percent in the second quarter of 2010, as lenders struggled to close the higher volume of refinance applications received.
Productivity improved slightly, with sales employees generating 10.4 closings per month compared to 9.3 in both the second quarter and one year earlier. Companies employed an average of 79 sales employees and 156 FTE employees.
88 percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2010, compared to 85 percent in the second quarter of 2010 and 82 percent in the third quarter of 2009.
Over 70 percent of the 307 companies that reported production data for this report were independent mortgage companies.
One hundred sixty-one of the responding companies were involved in loan servicing. The average portfolio serviced was 45,796 loans compared to 47,627 in the second quarter and 80,862 a year earlier. The dollar value of the average portfolio was $7.038 billion, down from $7.088 billion in Quarter Two and $10.3744 billion in the third quarter of 2009. Net servicing income per loan was $216 compared to $213 in Quarter Two and $183 in the third quarter of 2009.