Mortgage bankers improved their profit-per-loan, according to a new trade group report. While the findings reflected the exit of the least profitable firms, they also reflected more efficient use of warehouse lines and a high level of adaptability as many players quickly shifted to government originations. But an increase in refinance volume stung servicing profits.
U.S. mortgage bankers netted $184 on each loan originated during the second-half 2008, the Mortgage Bankers Association of America reported today in its Annual Mortgage Bankers Performance Report. Earnings-per-loan worked out to 8.75 basis points.
The report was based on a survey of 270 mortgage banking firms of which 75 percent were independent. In the 2007 report, just 180 firms were analyzed. Average annual originations during 2008 at the participating lenders were $500 million.
Earnings-per-loan improved from a $560 loss in 2007 — when production operating expenses increased. Still, per-loan profit was a far cry from the $1,272 generated in 2003, according to MBA data.
The improvement from 2007 to 2008 was the result of stronger growth in fees than in operating expenses. The net cost to originate — which includes origination operating expenses and commissions reduced by fee income — fell to $2,291 per loan last year.
MBA noted many unprofitable entities that exited the market in 2007 and 2008 helped boost per-loan profit. Also impacting the results were small and mid-sized organizations that were highly adaptable.
“Many independent mortgage companies and bank subsidiaries made radical changes in their product offerings in order to remain alive in 2008,” MBA industry analysis executive Marina Walsh said in the statement. “Among this group, the government share of total originations, mainly FHA loans, was 45 percent in the second half of 2008, compared to less than ten percent the year before.”
Net cost to originate excluded secondary marketing gains. It also did not include capitalized servicing, servicing released premiums and warehouse interest spread — which fell to $148 per loan in 2008 from the previous year’s $175.
MBA noted that an average of 56.6 percent of loan applications converted to closed loans.
Net marketing income — which includes gains on secondary market loan sales, pricing subsidies and overages, capitalized servicing and servicing released premiums — improved as originators shifted to government programs.
The trade group reported a decline in net warehousing income. It also indicated that mortgage bankers attempted to manage a reduction in available warehouse financing by cutting the average days loans were financed on warehouse lines to 15 in 2008 from 20 the prior year.
With servicing rights impaired by heavy refinance volume, servicers saw profit-per-loan swing to a $19 loss from a $109 profit in 2007.
Average pre-tax earnings per firm was $0.7 million last year, falling from $0.9 million in 2007 and $6.4 million in 2006. The share of profitable firms was 59 percent, and the unprofitable segment was primarily comprised of lenders with less than $10 million in assets.
MBA said sales employees closed an average of 7 loans a month last year.
An average of 740 loans were serviced per full-time servicing employee.
