Mortgage Bankers Made $890 Profit per Loan in Q-4, 2009

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According to the Mortgage Bankers Association (MBA), independent mortgage bankers made an average profit of $890 on each loan they originated in the fourth quarter of 2009, down from $902 per loan in the third quarter of 2009, but up from $296 in the fourth quarter of 2008.

"Production profits remained favorable in the 4th quarter because of strong servicing rights valuations and secondary marketing gains," said Marina Walsh, MBA's Associate Vice President of Industry Analysis.  "However, provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008."

Among the principal findings of MBA's Quarterly Mortgage Bankers Performance Report are:

• 76 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter 2009, compared to 82 percent in the third quarter 2009.

• The average production volume for each firm was $216.5 million in the fourth quarter 2009, compared to $189.6 million in the third quarter 2009.

• The share of refinancings to total originations for this sample was relatively constant at 45 percent in the fourth quarter 2009, compared to 44 percent in the third quarter 2009.

• The average pull-through (the number of closings divided by the number of loan applications) was relatively constant at 73 percent in the fourth quarter 2009 from 72 percent in the third quarter 2009.

• The "net cost to originate" rose to $2,345 per loan in the fourth quarter 2009, from $1,950 per loan in the third quarter 2009.  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.

• Production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - rose to $4,402 per loan in the fourth quarter 2009 compared to $4,376 per loan in the third quarter 2009.

• Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, was almost constant at 6.26 basis points in the fourth quarter 2009, compared to 6.67 basis points in the third quarter 2009.

MBA's Quarterly Mortgage Bankers Performance Report 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. Seventy-two percent of the 285 companies that reported production data for this report were independent companies.

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