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MBA study shows refis spur increase in production profits in Q1 of '09

Sep 17, 2009

Mortgage bankers made an average profit of over $1,088 on each loan they originated in the first quarter of 2009, according to the Mortgage Bankers Association (MBA). This profit marks a marked improvement over the 4th quarter 2008 results in which average profits were $148 per loan, according to the MBA's Quarterly Mortgage Bankers Performance Report. This new report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds. "It is clear the refinance boom in the first quarter of 2009 contributed greatly to an increase in overall production volumes, allowing production operating expenses per loan to finally drop," said Marina Walsh, MBA's associate vice president of industry analysis. "The average share of refinancings to total originations for these companies jumped to 66 percent in the first quarter, from 42 percent in the previous quarter. As a result, the average production volume for each firm was $213.9 million in the first quarter of 2009 compared to $125.6 million in the fourth quarter of 2008." Among the principal findings of the MBA report are: ► 85 percent of the firms in the study posted pre-tax net financial profits in the first quarter 2009. In the fourth quarter 2008, only 53 percent of the companies posted profits. ►Mortgage banking production profits were 54.58 basis points, or $1,088 per loan. These profits show a significant improvement over the previous quarter in which profits averaged 7.10 basis points, or $148 per loan. ►The "net cost to originate" fell to $1,725 per loan in the first quarter 2009, compared to $2,324 per loan in the fourth quarter 2008. 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--dropped to $3,738 per loan in the first quarter 2009, compared to $4,810 per loan in the fourth quarter 2008. ►The average number of retail loans originated per retail sales employee rose to 10.4 loans per month in the first quarter 2009, from 5.3 loans per month in the fourth quarter 2008. ►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, continued to pose a challenge for the mortgage bankers in this study. Interest spread dropped to 6.60 basis points in the first quarter 2009, compared to 9.28 basis points in the fourth quarter 2008. ►The servicing shops of these independent mortgage companies and subsidiaries essentially broke even in the first quarter 2009 with net financial losses of $1 per loan serviced. Quarter-by-quarter net operating servicing income (servicing fees, net escrow earnings and ancillary income less direct and indirect expenses) remained at $165 per loan. The direct cost to service averaged $163 per loan. MBA's Annual Mortgage Bankers Performance Report replaces the former MBA Cost Study series. The 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-one percent of the 319 companies that reported production data for this report were independent companies. The underlying company data are derived from the quarterly Mortgage Bankers Financial Reporting "WebMB" Form. Through a joint agreement with the Mortgage Bankers Association, Fannie Mae, Freddie Mac and Ginnie Mae, the form and the definitions were recently revised. The revised form was used starting in the third quarter of 2008. For more information, visit
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