Study: Mortgage production profits up in second quarter

Independent mortgage bankers’ earnings per loan increased during the second quarter, according to data from a recent Mortgage Bankers Association study.

MBA’s Second Quarter 2010 Mortgage Bankers Performance Report, released Sept. 14, found that each loan originated by independent producers and subsidiaries generated an average profit of $917 during the second quarter of this year. That’s up from $606 per loan in the first quarter of the year.

The increase was driven by a rise in the average production volume to $196.6 million for each firm in the second quarter, compared to $157.8 million in the first quarter, according to an MBA news release. Production operating expenses decreased to $4,677 per loan in the second quarter, down from $5,147 per loan in the first quarter of the year.

MBA Associate Vice President of Industry Analysis Marina Walsh attributed the increase in origination volume to a surge in buyers who were taking advantage of the first-time home buyer tax credit before the April 30 deadline.

“Higher production operating expenses typically are associated with purchase production compared to refinances,” Walsh said in the release. “But in this case, fixed costs were spread out over more loans, and lenders experienced higher pull-through rates, (which helps) explain why operating expense dropped on a per-loan basis by $470 per loan between quarters.”

Average profits in the second quarter of this year were, however, significantly lower than for the same quarter in 2009.

“A year before, quarterly production volume averaged $280.9 million and the refinancing share was over 60 percent,” Walsh said. “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 the report:
• The average pull-through – the number of closings divided by the number of loan applications – was 72 percent in the second quarter of this year, compared to 68 percent in the first quarter.
• Net cost to originate dropped to $2,611 per loan in the second quarter, from $2,945 per loan in the first quarter of this year. The net cost to originate includes all production operating expenses and commissions, minus all fee income, but it 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, compared to $3,296 per loan in the first quarter of 2010. For the same period in 2009, personnel expenses averaged $2,283 per loan.
• 85 percent of the firms in the study posted pre-tax net financial profits in the second quarter, compared to 75 percent in the first quarter and 96 percent in second-quarter 2009.

The study is based on data from 312 independent mortgage companies, bank subsidiaries and nondepository institutions. Of the institutions that responded, more than 70 percent were independent mortgage companies, the release said.[[In-content Ad]]