During the past four quarters, independent mortgage banks and the mortgage subsidiaries of chartered banks registered rather disturbing data in regard to their average profit per loan and origination expenses.
According to data released by the Mortgage Bankers Association (MBA), independent mortgage banks and the mortgage subsidiaries of chartered banks made an average profit of $1,528 on each loan they originated in the second quarter of 2013, down from $1,772 per loan in the first quarter, and even further down from $2,256 per loan in the fourth quarter of 2012 and $2,465 per loan in the third quarter of 2012.
According to the MBA, the average production volume for this section of the industry was $439 million per company in the second quarter of 2013, down from $442 million per company in the first quarter, $448 million in the fourth quarter of 2012 and $450 million in last year’s third quarter. The volume by count per company averaged 1,921 loans in the second quarter, down from 1,954 in the first quarter and 2,132 in the fourth quarter of 2012—up slightly from 2,010 loans in the preceding quarter.
The securitization side of the business also witnessed shrinkage. Secondary marketing income declined to 263 basis points in the second quarter, compared to 274 basis points in the first quarter, 279 basis points in the fourth quarter of 2012 and 271 basis points in the third quarter.
On the flip side, total loan production expenses—defined by the MBA to include commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $5,818 per loan in the second quarter, from $5,779 in the first quarter. During the second half of 2012, total loan production expenses were $5,603 in the fourth quarter, up from $5,163 in the third quarter.
Also on the rise were personnel expenses per loan, which averaged $3,808 per loan in the second quarter, up from $3,785 per loan in the first quarter, $3,570 per loan in the fourth quarter of 2012 and $3,320 in the third quarter.
For the industry’s independent players, these numbers are reason for concern, if not anguish. If the past four quarters are any indication, mortgage banking has simultaneously become less profitable and more expensive. And in view of the current political and economic environment, one doesn’t need to claim psychic powers to predict there will be no radical turnaround in these depressing trends in the coming quarters.
How will this all shake out?
Consolidation has already percolated within the industry, and it would not be difficult to imagine this will boil further if operating expenses become too grand for smaller companies to handle. The fear of the new federal rules and regulations that are set to take root in January has further clouded a difficult situation—what will happen when they actually go into effect remains to be seen, though no one is anticipating a quick boost to new profits.
Phil Hall is managing editor of National Mortgage Professional Magazine. He may be reached by e-mail at [email protected]
This article originally appeared in the October 2013 edition of National Mortgage Professional Magazine.