Independent mortgage bankers and subsidiaries made an average profit of $917 on each loan they originated in the second quarter of 2010, up from $606 per loan in the first quarter of 2010, according to the Mortgage Bankers Association (MBA)'s 2nd Quarter 2010 Mortgage Bankers Performance Report. The increase was driven by a rise in the average production volume for each firm to $196.6 million in the second quarter of 2010, compared to $157.8 million in the first quarter of 2010. As a result, production operating expenses decreased to $4,677 per loan in the second quarter of 2010, from $5,147 per loan in the first quarter of 2010.
"The significant rise in loan origination volume during the second quarter reflects the surge in first-time homebuyers seeking to take advantage of the tax credit before the deadline expired," said Marina Walsh, MBA's associate vice president of industry analysis. "Higher production operating expenses typically are associated with purchase production compared to refinances. But in this case, fixed costs were spread out over more loans and lenders experienced higher pull-through rates. These factors help explain why operating expense dropped on a per-loan basis by $470 per loan between quarters."
However, average profits in the second quarter of 2010 were significantly lower than the profits in the second quarter of 2009. Walsh said, "A year before, quarterly production volume averaged $280.9 million and the refinancing share was over 60 percent. The heavy volume and refinancing share helped lower per-loan operating costs to $3,414 per loan and profits soared to $1,358 per loan."
Among the additional key findings of MBA's Quarterly Mortgage Bankers Performance Report are:
►The purchase share of total originations ($) for this sample of independent mortgage bankers and subsidiaries rose to 65 percent in the second quarter of 2010, compared to 56 percent in the first quarter of 2010 and 38 percent in the second quarter of 2009.
►The average pull-through (the number of closings divided by the number of loan applications) was 72 percent in the second quarter of 2010, compared to 68 percent in the first quarter of 2010.
►The "net cost to originate" dropped to $2,611 per loan in the second quarter of 2010, from $2,945 per loan in the first 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.
►Total personnel expense dropped to $3,017 per loan in the second quarter of 2010, compared to $3,296 per loan in the first quarter of 2010. In the second quarter of 2009, personnel expenses averaged $2,283 per loan.
►Eighty-five percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2010, compared to 75 percent in the first quarter of 2010 and 96 percent in the second quarter of 2009.
MBA's 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.
►More than 70 percent of the 312 companies that reported production data for this report were independent mortgage companies.
For more information, visit www.mortgagebankers.org.