Mortgage Profits Tumble

Production profits fell to a negative $50 per loan in 2006, according to a study announced by the Mortgage Bankers Association today. The loss compares to a profit per loan of $258 in the prior year.

MBA said its findings were derived from a study of 189 mortgage banking companies who originate and service loans and were responsible for more than half of all U.S. originations last year.

The average loan originator closed 62 loans last year, way off from 83 the previous year, according to the 2007 MBA Cost Study. The average loan size for retail originators was $180,801, while average non-retail loans were $188,643. Retail loan officers earned an average of $2,440 per loan last year, which worked out to 1.35 percent.

By dollar volume, conventional fixed-rate loans accounted for 38 percent of retail fundings, 51 percent of correspondent acquisitions and 33 percent of broker originations, the data indicated.

Each mortgage closed last year cost $3,416 to originate — including $940 for secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread, the group said. While production revenues increased in 2006, they didn’t rise as much as production operating expenses — which jumped 17 percent.

Net warehousing income per loan, which was hurt by a flat yield curve, dropped to $245 per loan from $294 during 2005 and $481 in 2004, the trade group reported.

The profit decline started in 2004 and continued through last year, the report indicated.

“Despite some companies’ best efforts to boost production revenues through the origination of higher-yielding mortgage products, several factors worked against the industry as a whole — the negative yield curve which increased the cost of funds, lower sales productivity and higher per-loan sales and fulfillment costs, particularly personnel-related costs,” MBA Senior Director Marina Walsh said in the announcement.

Servicing hedge losses drove servicing profits down to $58 per loan last year from $104 in 2005, according to the data. While the largest servicers had the lowest cost to service and highest net, they also had the highest hedge losses.

The average servicer had a portfolio of 172,785 loans for $24.5 billion, the study said. More than 60 percent of loans serviced were fixed-rate conventional. Servicers employed an average of 143 people — each handling an average of 1,208 loans.

“Servicing profits in 2006 partially offset production losses, but even these profits declined from 2005 levels due to mortgage servicing hedge losses,” Walsh added.

Average pre-tax profit was $6.4 million per mortgage firm for all of last year, sinking from $26 million in 2005, MBA said.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

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