Independents’ Profits on Purchase Mortgages Soar 66 Percent

Independent mortgage banks and subsidiaries made an average profit of $575 on each loan they originated in the second quarter of 2011, up from $346 per loan in the first quarter of 2011, according to the Mortgage Bankers Association’s Second Quarter 2011 Mortgage Bankers Performance Report released today.

That’s a 66 percent increase for independents in just one quarter.

“Contrary to overall MBA industry data in which estimated production volume declined, the average firm in our study of independents and subsidiaries experienced volume growth. The firms in our study were able to more quickly adjust to a purchase-focused mortgage market environment after a significantly refi-heavy fourth quarter of 2010,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis.

Walsh continued, “At the same time, secondary marketing gains improved as spreads between ten-year Treasuries and 30-year mortgage rates began to widen towards the end of the second quarter.”

Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:

• Average production volume was $174 million per company in the second quarter of 2011, up from $164 million per company in the first quarter of 2011. The MBA estimate for overall quarterly industry origination volume was $290 billion in the second quarter of 2011, down from $302 billion in the first quarter of 2011.
• The refinance share of total originations, by dollar volume, for this sample of independent mortgage banks and subsidiaries was 36 percent in the second quarter of 2011, compared to 50 percent in the first quarter of 2011. The MBA estimate for overall industry refinancing share was 62 percent in the second quarter of 2011, down from 65 percent in the first quarter of 2011.
• The government share of total originations, by dollar volume, for this sample of independent mortgage banks and subsidiaries was 41 percent in the second quarter of 2011, compared to 37 percent in the first quarter of 2011. Average borrower FICO scores dropped to 729 in the second quarter of 2011 from 733 in the first quarter of 2011 and 737 in the fourth quarter of 2010.
• Average loan balances remained relatively constant at $197,039 in the second quarter of 2011, from $196,456 in the first quarter of 2011. However, on a repeater-company basis, average loan balances dropped to $195,347 in the second quarter from $198,590 in the first quarter.
• Measured in basis points, secondary marketing gains increased to 210 basis points in the second quarter of 2011, compared to 201 basis points in the first quarter of 2011. Secondary marketing gains rose to $4,006 per loan in the second quarter of 2011, from $3,827 per loan in the first quarter of 2011.

• Personnel expense slightly decreased to $3,561 per loan in the second quarter of 2011, compared to $3,640 per loan in the first quarter of 2011.
• Total production operating expenses - commissions, compensation, occupancy and equipment and other production expenses and corporate allocations - dropped to $5,644 per loan in the second quarter of 2011, compared to $5,837 per loan in the first quarter of 2011.”
• The “net cost to originate” slightly decreased to $3,513 per loan in the second quarter of 2011, from $3,540 per loan in the first quarter of 2011. 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.
• 70 percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2011, compared to 63 percent in the first quarter of 2011.

Over 71 percent of the 310 companies that reported production data for the second quarter report were independent mortgage companies.