Loan Gain on Sale Margins Down Slightly in 4Q12

A report from Keefe, Bruyette & Woods reviewing mortgage banking results for 4Q12 notes that while things were generally positive, concerns about the sustainability of the current environment have increased.

Gain on sales margins declined slightly from 3Q12, but remain strong because of industry capacity constraints, strong application volume and strong margins on Home Affordable Refinance Program loans.

“We expect HARP demand to remain strong well into 2013, which should help to partially offset a more meaningful decline in gain-on-sale margins on non-HARP mortgages,” the report said.

Servicing valuations during the quarter were flat to up, but on average the increase was less than five basis points. The higher valuations, KBW said, reflect higher interest rates during 4Q12.
Servicing costs remained elevated, with some servicers taking charges because of the revised settlement. However, the settlement did end the foreclosure review program. KBW noted Wells Fargo said the reviews cost it $125 million per quarter in 2012.

Representation and warranty costs remain elevated, in line with KBW’s expectations. Repurchase requests from the government-sponsored enterprises totaled $2.6 billion in 4Q12.