Profits rose for the mortgage industry in 2002, reported the Mortgage Bankers Association of America (MBA).
According to the latest annual Cost Study report by the MBA, the average firm’s pretax net income rose to $40.4 million last year, nearly doubling the $23.2 million reported for 2001. The total was configured from a sample of 193 mortgage companies surveyed.
An MBA spokeswoman said the average net income is the highest the Cost Study has recorded yet, although the companies in the sample are not always the same and the survey form used to conduct the study has changed.
“Average company profitability surged largely due to favorable warehousing interest spreads and secondary market gains,” said the MBA. Net warehousing income at $522 per loan, rose from $456 per loan in 2001, as short-term borrowing rates dropped. A combination of net secondary marketing income, capitalized servicing and servicing release premiums accounted the largest contribution to profits at $1,609 per loan.
The study, which analyzed income and costs associated with origination, warehousing, marketing, and servicing of one-to four-unit residential mortgage loans in 2002, found that aggregate purchase originations were at the highest point ever due to the year’s low interest rates and the refinancing boom which began in 2001. The spokeswoman said purchase originations totaled $1.0 trillion.
The surveyed companies originated an estimated 67% of last year’s total residential industry volume, and serviced 63% of all residential loans outstanding, said the MBA.
According to the study, the average net cost to originate a loan — average production loss — was $1,000 per loan in 2002, while the previous year it was $991.
But, although the year’s high refinancing volume helped profits rise, it also caused the loan servicing margin to drop due to unprecedented prepayment activity and high turnover in servicing portfolios, said MBA. Write-downs in mortgage servicing right values and the amortization of servicing rights significantly hurt profitability. Net servicing income averaged a loss of $107 per loan. Altogether, MSR amortization and impairments net of hedging gains resulted in losses of $430 per loan, compared to $351 the previous year.
The study also found servicing expenses rose due to increased compensations for the temporary and overtime labor that was needed to attend the high volume of loans in the average servicing portfolio. But, while expenses rose, servicing productivity dropped about 12% in 2002. The number of loans serviced per servicing employee was 1,068, compared to 1,214 in 2001.
