A recent survey from the Mortgage Bankers Association indicated that the cost of mortgage loan origination was soaring. In their report MBA stated that independent mortgage bankers and their subsidiaries reported a significant decline in their profits in the 1st quarter of 2010. The average profit made on each loan was $606, a decrease of 32% from the $890 that was earned in the 4th quarter of 2009 and a 44% decline from the $1,088 that was reported in the 1st quarter of 2009. 75% of the firms in the study posted pre-tax net financial profits in the 1st quarter 2010, compared to 76% in the 4th quarter of 2009.
Survey respondents reported a drop in the average production volume to $157.8 million from $216.5 million in the previous quarter. MBA reported that the home loan volume decline was the main driver behind the decline in profitability. As home loan volume fell, operating expenses increased to $5,147 per home loan compared to $4,402 in the 4th quarter, an increase of 17%. The “net cost to originate” rose to $2,945 per loan in the 1st quarter of 2010, from $2,345 per loan in the 4th quarter of 2009. This figure includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
Despite this challenge as originations declined in the first quarter, the independents and bank subsidiaries still produced an average of thirty two basis points of production profit, primarily resulting from higher secondary marketing gains.” MBA’s 1st Quarter 2010 Mortgage Bankers Production Survey covers 295 companies, 70 % of which are independent mortgage companies.
