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MBA Study Shows First Quarter 2011 Mortgage Banker Production Profits Slide as Volume Drops

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RISMEDIA, June 24, 2011—Independent mortgage banks and subsidiaries made an average profit of $346 on each loan they originated in the first quarter of 2011, down from $1,082 per loan in the fourth quarter of 2010, according to the Mortgage Bankers Association’s (MBA) First Quarter 2011 Mortgage Bankers Performance Report released recently.

“Mortgage origination volume in the first quarter of 2011 dropped significantly from the refinance-heavy fourth quarter of 2010. As in the past, mortgage companies had difficulty managing staff levels to reflect the drop in loan volume. This caused higher per-loan production costs. Even though overall revenues went up, they did not go up fast enough to offset the higher costs,” says Marina Walsh, MBA’s Associate Vice President of Industry Analysis.

Walsh continues, “In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study.”

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

• Average production volume was $164 million per company in the first quarter of 2011, down from $286 million per company in the fourth quarter of 2010.

• The refinance share of total originations by dollar amount for this sample of independent mortgage bankers and subsidiaries was 50 percent in the first quarter of 2011, compared to 63 percent in the fourth quarter of 2010.

• Average loan balances dropped to $196,456 in the first quarter of 2011, from $208,319 in the fourth quarter of 2010.

• Measured in basis points, net secondary marketing income rose to 201 basis points in the first quarter 2011, compared to 188 basis points in the fourth quarter of 2010. But with the decreasing average loan balances, net secondary marketing income dropped to $3,827 per loan in the first quarter of 2011, from $3,870 per loan in the fourth quarter of 2010.

• Personnel expense drove the majority of the change in net production income, rising to $3,640 per loan in the first quarter of 2011, compared to $3,124 per loan in the fourth quarter of 2010.

• Total production operating expenses—commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations—rose to $5,837 per loan in the first quarter of 2011, compared to $4,930 in the fourth quarter of 2010.

• The “net cost to originate” increased to $3,540 in the first quarter of 2011, from $2,827 per loan in the fourth quarter of 2010. 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.

• 63 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2011, compared to 84 percent in the fourth quarter of 2010.

• Full-year 2010 production profits were $1,054 per loan originated. In comparison, average production profits in 2009 were $1,135 per loan originated and $305 per loan originated in 2008, based on MBA’s Annual Summary Report, which is available free to annual subscribers of MBA’s quarterly reports.

MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions.

Over 72 percent of the 312 companies that reported production data for the first quarter report were independent mortgage companies.

There are five performance report publications per year: four quarterly reports and one annual report.

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field.

For additional information, visit MBA’s Web site: www.mortgagebankers.org.

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