Mortgage Banker Profits Decline Sharply in 2011

Independent mortgage banks and subsidiaries saw profits decline significantly in the first quarter of 2011, likely due to increased refinance activity in the fourth quarter of 2010, says a Mortgage Bankers Association study released this week.

The average profit per loan in the first quarter fell 68% to $346, according to the study, a sharp downturn from $1,082, the average profit 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,” said Marina Walsh, MBA’s associate vice president of industry analysis. “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.”

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Walsh attributed to compensation plan changes and investor expectations as additional factors that drove loan production expenses upward to their highest recorded levels during the quarter.

The study also noted that average production volume was $164 million per company in the first quarter of 2011, down from $286 million per company in the preceding quarter.

Refinances during the first quarter comprised 50% of total originations by dollar amount, compared with 63% in Q4 2010, the study noted.

MBA noted 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” 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.

Written by Elizabeth Ecker

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