MBA: Loan Profitability Drops Nearly $750 Per Loan Over Last Quarter – NMP Skip to main content

MBA: Loan Profitability Drops Nearly $750 Per Loan Over Last Quarter

NationalMortgageProfessional.com
Jun 23, 2011

Independent mortgage banks and subsidiaries made an average profit of $346 on each loan they originated in the first quarter of 2011, down from $1,082 per loan in the fourth quarter of 2010, according to the Mortgage Bankers Association's (MBA) First Quarter 2011 Mortgage Bankers Performance Report. Among the other key findings of MBA's Quarterly Mortgage Bankers Performance Report are: ►Total production operating expenses—commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations—rose to $5,837 per loan in the first quarter of 2011, compared to $4,930 in the fourth quarter of 2010. ►Average production volume was $164 million per company in the first quarter of 2011, down from $286 million per company in the fourth quarter of 2010. ►The refinance share of total originations by dollar amount for this sample of independent mortgage bankers and subsidiaries was 50 percent in the first quarter of 2011, compared to 63 percent in the fourth quarter of 2010. ►Average loan balances dropped to $196,456 in the first quarter of 2011, from $208,319 in the fourth quarter of 2010. ►Measured in basis points, net secondary marketing income rose to 201 basis points in the first quarter 2011, compared to 188 basis points in the fourth quarter of 2010. But with the decreasing average loan balances, net secondary marketing income dropped to $3,827 per loan in the first quarter of 2011, from $3,870 per loan in the fourth quarter of 2010.  ►Personnel expense drove the majority of the change in net production income, rising to $3,640 per loan in the first quarter of 2011, compared to $3,124 per loan in the fourth quarter of 2010. ►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" 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. ►Sixthy-three percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2011, compared to 84 percent in the fourth quarter of 2010. ►Full-year 2010 production profits were $1,054 per loan originated. In comparison, average production profits in 2009 were $1,135 per loan originated and $305 per loan originated in 2008, based on MBA's Annual Summary Report, which is available free to annual subscribers of MBA's quarterly reports. "Mortgage origination volume in the first quarter of 2011 dropped significantly from the refinance-heavy fourth quarter of 2010. 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," said Marina Walsh, associate VP of industry analysis for the Mortgage Bankers Association (MBA). "In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study."
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