Despite Higher Volumes, Mortgage Profits Fall in Q4: MBA

Independent mortgage banks and mortgage subsidiaries of chartered banks experienced a drop in profits from newly originated loans as increasing costs outweighed higher revenues, according to a report from the Mortgage Bankers Association (MBA). 

Banks made an average profit of $2,256 in each loan originated in the fourth quarter of 2012, reports MBA, down from $2,465 per loan in the third quarter.

The decrease in per-loan profits for the fourth quarter was primarily driven by rising costs, according to MBA Associate Vice President of Industry Analysis Marina Walsh. 

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While production costs have dropped with rising volume in the past, says Walsh, per-loan costs have reached the highest levels MBA has seen in the study, other than during the first half of 2011, when origination volume was 60 percent lower.

The average production volume was $488 million per company in the fourth quarter, up from $450 million in the third quarter, notes MBA data.

Additionally, the average volume by count per company rose to 2,132 loans in the fourth quarter, up from 2,010 loans from the previous quarter. 

Despite the quarterly volume increase, the net cost to originate increased as well to $3,813 per loan in the fourth quarter compared to $3,353 per loan.

The “net cost to originate,” notes MBA, 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. 

Of the 311 companies that reported production data for the fourth quarter in MBA’s report, 72% were independent mortgage companies. 

Written by Jason Oliva

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