Mortgage Industry Profitability Fell in 2000

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RISMEDIA-NRRE August 2001

Industry News

Mortgage Industry Profitability Fell in 2000

Mortgage industry profitability declined in 2000 due to a drop in loan production profits, according to figures from the latest Peer Group Roundtables conducted by the Mortgage Bankers Association of America (MBA) and The STRATMOR Group. MBA is the national association representing the real estate finance industry.

Servicing returns and profits were roughly flat from 1999 to 2000. In terms of total mortgage industry profitability, the weighted average return on required equity declined to 15.8% in 2000 from 19.1% in 1999.

The decline in overall profitability was attributed to the dramatic decrease in loan production volume during the first quarter of 2000.

On the production side?including warehousing and secondary marketing operations?there was a mild recovery during the second half of the year. However, it was not enough for most lenders to generate profits for the full year; only the mega-lenders posted positive profit margins.

Pre-tax weighted average production margins dropped to 6 basis points?0.06% of the principal balance of loans produced?in 2000 from 25 basis points in 1999.

The weighted average profit margins for retail production dropped to -3 basis points in 2000 from 15 basis points in 1999. This translates into a pre-tax net loss of $37 per loan in 2000 compared with netincome of $189 per loan in 1999.