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Lenders Feel Pain of Falling Production

Mortgage News

Mortgage origination firms saw income evaporate as production plummeted. Some bright spots, however, included increased per-loan origination fees, higher secondary marketing income and improved warehouse income. Government share, meanwhile, was higher.

The average mortgage banker closed 793 loans for $164 million during the first quarter, tumbling from 1,296 loans for $286 million three months earlier, the Mortgage Bankers Association reported Wednesday. MBA collected the underlying data from 312 companies through a joint agreement with Fannie Mae, Freddie Mac and Ginnie Mae.

Business was better, however, than the first-quarter 2010 when the average was 777 loans for $158 million.

The 43 percent decline from the fourth quarter was steeper than the 34 percent recorded by MortgageDaily.com during the first quarter for the biggest 20 or so lenders — suggesting that smaller firms were hit worse by the end of the latest refinance wave.

Approximately 71 percent of applications converted to closings, worse than 74 percent in the previous report. But the rate was better than 68 percent 12 months earlier.

Government originations represented about 37 percent of first-quarter production, while conforming share was 57 percent and jumbo mortgages accounted for 4 percent. Conforming share was down from 61 percent in the previous quarter but about the same as a year prior.

Adjustable-rate mortgages represented 6.67 percent of the latest totals. ARM share rose from 4.64 percent and was 4.41 percent in the first quarter of last year.

Mortgage brokers and correspondents generated 18 percent of the latest activity, the same as the prior period but down from 20 percent from a year earlier.

Jumbo share came in at 4 percent.

The number of loans closed per employee worked out to 2.25 in the latest report, fewer than 3.79 in the fourth-quarter 2010.

“As in the past, mortgage companies had difficulty managing staff levels to reflect the drop in loan volume,” MBA Associate Vice President of Industry Analysis Marina Walsh said in a statement. “In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study.”

FICO scores averaged 733 in the most recent report, lower than the fourth quarter’s 737 but better than 723 a year prior.

Average headcount at loan origination firms was 165, fewer than 172 employees per company in the fourth-quarter 2010. A year earlier, there was an average of 158 production employees at each firm.

Net production income plummeted to 20 basis points from 54 BPS three months earlier and 32 BPS a year earlier.

The net reflected 3 BPS in interest income, up from around 2 BPS in the prior period. Secondary marketing income climbed to 201 BPS from 188 BPS.

The overall deterioration in the quarter-over-quarter metrics came despite that loan originations fees per unit rose to $1,569 from $1,443 in the fourth quarter. Correspondent and broker-fee income fell to $138 a loan from $143.

After factoring in interest expense, lenders earned $59 a loan from warehousing, more than the prior quarter’s $39 but lower than $87 earned in the first-quarter 2010. Loans spent an average of 16 days on warehouse lines, not much different than the prior periods.

Total loan production revenues per loan were $2,297, up from the fourth quarter’s $2,102. The total was $2,202 per loan in the first quarter of last year.

Mortgage bankers spent $5,471 to originate each closed loan, more than the $4,664 in costs during the previous quarter and the $4,898 in a year prior.

Included in the direct loan production expenses were $3,640 in human resource costs.

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