In addition to putting a dent in quarterly mortgage banking production, falling refinance activity boosted the cost to originate by half. But mortgage banking firms were able to squeeze out a little more profit on warehoused loans.
Average per-loan production profits fell to $902 in the third quarter from the second quarter’s $1,358 per loan, the Mortgage Bankers Association reported today. The latest production profits worked out to 50.03 basis points.
Despite the deterioration, MBA executive Marina Walsh called the level of profits “healthy.” She explained that the decline was tied to a decline in the refinance share to 44 percent from the second quarter’s 62 percent.
The report was based on data submitted by 306 mortgage banking firms. Almost three-quarters of the firms were independent mortgage banking companies, while the rest were subsidiaries of banks, thrifts and hedge funds.
Profits were impacted by an increase in net cost to originate, which rose to $1,950 per loan compared to just $1,295 three months earlier. The net cost to originate includes all production operating expenses and commissions less fee income. It excludes, however, gains and income earned after the loan closing.
Production operating expenses rose to $4,376 per loan in the third quarter from $3,581. This category includes commissions, compensation, occupancy and equipment and other production expenses and corporate allocations.
MBA said lenders earned 6.67 basis points on the spread between warehouse line-of-credit costs and interest collected on warehoused loans, better than the second quarter’s 5.19 BPS.
Net servicing income was $41 per loan, unchanged from the second quarter.
The share of profitable firms fell to 82 percent in the latest period from the second quarter’s 96 percent.
The average firm originated $190 million in the third quarter, down from $281 million. Retail loan originators closed an average of 6.7 loans per month in the third quarter, worse than 11.0 in the previous period.
Mortgage bankers closed 72 percent of loan applications taken during the third quarter, off a hair from the prior period.
