The latest mortgage data is not much different from data released in recent weeks, and this raises a thorny question: How is it possible for mortgage professionals to generate profits in such an inert climate? The answer, according to industry leaders, is an old-fashioned combination of focus and planning.
According to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS), the 30-year fixed-rate mortgage (FRM) averaged 4.14 percent with an average 0.7 point for the week ending Aug. 7, up from last week when it averaged 4.12 percent. A year ago at this time, the 30-year FRM averaged 4.40 percent. The 15-year FRM this week averaged 3.27 percent with an average 0.6 point, up from last week when it averaged 3.23 percent. A year ago at this time, the 15-year FRM averaged 3.43 percent.
Furthermore, Freddie Mac reported that the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.98 percent this week with an average 0.5 point, down from last week when it averaged 3.01 percent. A year ago, the five-year ARM averaged 3.19 percent. And the one-year Treasury-indexed ARM averaged 2.35 percent this week with an average 0.5 point, down from last week when it averaged 2.38 percent. At this time last year, the one-year ARM averaged 2.62 percent.
While rates have been in a stagnant position for some time and application volume has been in a gentle seesaw for the past few weeks, it is easy to wonder whether the mortgage industry can ring up healthy profits. A report issued earlier this week by Keefe, Bruyette & Woods (KBW) found reason to be optimistic, at least among the nation’s larger mortgage originators.
“Mortgage volumes quarter to date were up meaningfully versus the first quarter of 2014,” said the KBW report. “The increases primarily reflect higher purchase volumes. Volumes were up by 22 percent quarter-over-quarter (QOQ) but down 59 percent year-over-year for the banks that we track. Given the shift in market share from banks to non-banks, we believe that industry volume in 2Q was probably up by closer to 25 percent QOQ. Industry estimates currently vary with the MBA forecasting an 18 percent increase, but Inside Mortgage Finance and the GSEs expecting larger increases. Fannie Mae is forecasting the strongest increase at 34 percent.”
Still, not everyone in the industry has been enjoying a solid bottom line. In June, the Mortgage Bankers Association (MBA) reported that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $194 on each loan they originated in the first quarter of this year, down from a reported $150 in profit per loan in the fourth quarter of 2013.
“The significant overall production volume decline in the first quarter hurt mortgage bankers,” said Marina Walsh, MBA’s VP of industry analysis, in a press statement announcing the numbers. “Purchase volume did not pick-up, while refinancing volume dropped and costs continued to rise. Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome.”
The MBA has not yet released its data for the second quarter profits per loan for independent mortgage banks and mortgage subsidiaries of chartered banks.
But can mortgage professionals enjoy profits in today’s still-shake environment?
“It certainly is possible,” said Rocke Andrews, broker/owner at Tucson-based Lending Arizona LLC and vice president of NAMB—The Association of Mortgage Professionals. “The key to that is being efficient at what you do.”
Andrews noted that while loan officers that work with teams are able to compartmentalize different parts of the origination process, those working solo need to be certain they can have a very efficient scheduling system in place and strong relations with other real estate professionals.
“To maximize effectiveness, it is important to set up relationships with the top real estate agents that will send you their business, knowing that you can close loans on time without a lot of headaches,” said Andrews.
Les R. Kramsky of the Marlboro, N.J.-headquartered Law Offices of Les R. Kramsky LLC agrees with Andrews’ views.
“In my opinion, it is possible for a mortgage professional to be very successful and to grow his business,” Kramsky said. “In my real estate law practice, I have many referrals for mortgage professional to have been successfully growing their business because they have put in the time, effort and work ethic that is required to be successful in today's mortgage industry.”
Of course, regulatory changes to the industry have made a noticeable change to profit margins. “The cost of compliance has increased dramatically,” said Alan Cicchetti, director of agency relations and executive director of the Brokers Compliance Group (BCG), based in Long Beach, N.Y. However, Cicchetti believed the savvier professionals across the industry have been able to adapt and prosper.
“There are many companies that have no difficulty whatsoever conforming to the requirements that were recently introduced,” noted Cicchetti. “I don’t see the industry going away anytime soon.”
And unique within the mortgage space are the credit unions, the non-profit depositories that have slowly gained market share over the past few years.
“They may be tax exempt, but they are not in business to lose money,” said Bob Dorsa, president of the Las Vegas-based American Credit Union Mortgage Association (ACUMA).
Dorsa added that as depositories, credit unions are able to use home loans as a way to expand their connections with their members. “The mortgage loan is the building block to long-term relationships involving other products,” he said.
Still, Dorsa acknowledged that the pressure on loan officers, whether at credit unions or elsewhere, is still strong.
“The challenge for a loan officer is to get enough deals and business to keep them in touch with their management’s production goals,” he said.