U.S. Mortgage Banker Profits Slide as Volume Drops in Q-1

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According to the Mortgage Bankers Association's (MBA) First Quarter 2011 Mortgage Bankers Performance Report released this week, independent mortgage banks and subsidiaries made an average profit of $346 on each loan they originated in the first quarter of 2011, down from $1,082 per loan in the fourth quarter of 2010.

"Mortgage origination volume in the first quarter of 2011 dropped significantly from the refinance-heavy fourth quarter of 2010. As in the past, mortgage companies had difficulty managing staff levels to reflect the drop in loan volume. This caused higher per-loan production costs. Even though overall revenues went up, they did not go up fast enough to offset the higher costs," said Marina Walsh, MBA's Associate Vice President of Industry Analysis.

Walsh continued, "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."

MBA's Quarterly Mortgage Bankers Performance Report Key Findings:

• Average production volume was $164 million per company in the first   quarter of 2011, down from $286 million per company in the fourth quarter of   2010.  

• The refinance share of total originations by dollar amount for this   sample of independent mortgage bankers and subsidiaries was 50 percent in the   first quarter of 2011, compared to 63 percent in the fourth quarter of 2010. 

• Average loan balances dropped to $196,456 in the first quarter of   2011, from $208,319 in the fourth quarter of 2010. 

• Measured in basis points, net secondary marketing income rose to   201 basis points in the first quarter 2011, compared to 188 basis points in   the fourth quarter of 2010. But with the decreasing average loan balances, net   secondary marketing income dropped to $3,827 per loan in the first quarter of   2011, from $3,870 per loan in the fourth quarter of 2010.

• Personnel expense drove the majority of the change in net   production income, rising to $3,640 per loan in the first quarter of 2011,   compared to $3,124 per loan in the fourth quarter of 2010.

• Total   production operating expenses - commissions, compensation, occupancy and   equipment, and other production expenses and corporate allocations - rose to   $5,837 per loan in the first quarter of   2011, compared   to $4,930 in the fourth quarter of 2010.

• The "net cost to originate" increased to $3,540 in the first   quarter of 2011, from $2,827 per loan in the fourth quarter of 2010. The "net   cost to originate" 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.

• 63 percent of the firms in the study posted pre-tax net financial   profits in the first quarter of 2011, compared to 84 percent in the fourth   quarter of 2010.

• Full-year 2010 production profits were $1,054 per loan originated.   In comparison, average production profits in 2009 were $1,135 per loan   originated and $305 per loan originated in 2008, based on MBA's Annual Summary   Report, which is available free to annual subscribers of MBA's quarterly   reports.

MBA's Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions.

Over 72 percent of the 312 companies that reported production data for the first quarter report were independent mortgage companies.

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