Servicing Boosts Industry Profits

After several bad years, mortgage servicers finally raked it in and shored up the profits of their parent companies in 2005, according to a study by the Mortgage Bankers Association.

Servicing profits jumped from $21 per loan in 2004 to $104 last year. But it is the big servicers that really drove this jump in profitability and benefited the most from lower amortization and reduced impairment charges.

"The largest servicers outperformed their smaller peers both operationally and financially, with lowest cost to service and highest net servicing financial income," the annual MBA profitability study says.

The 20 largest shops servicing more than 100,000 loans reported net income of $108 per loan, while servicers with 6,000 to 100,000 loans reported net income of $13 per loan. Servicers with less than 2,500 loans were in the red.

"The mortgage companies that serviced fewer than 100,000 loans continued to struggle both operationally and financially in generating servicing profits that were comparable to the larger players," the study says.

Expenses tell a lot of the story. The largest servicers have per-loan expenses of $69, compared to $374 for their smallest peer group.

MBA's annual study also reported that overall profits in the mortgage industry were flat in 2005 as profitability on originations of new loans fell 61% while origination costs increased by 38%.

Profits dropped to $258 per loan in 2005 from $657 per loan in 2004, while the "net cost to originate" increased to $2,049 per loan in 2005 from $1,485 the year before.

The turnaround in servicing profits "played a crucial role in improving the bottom line," MBA said. However, servicing departments bled red ink for three years (2001-03) before turning profitable in 2004 at $21 per loan.

Recent reports by the Office of Thrift Supervision show servicing continues to enjoy a favorable environment. Thrifts posted servicing fee income of $1.1 billion during the first half of this year, compared to $694.2 million for the same period in 2005.

MBA also reported that the average salary for loan administrative personnel was $49,831 in 2005, up from $45,200 the previous year.

A recently released compensation survey by America's Community Bankers shows that the average base salary of a loan-servicing manager at a bank or thrift (with more than $3 billion in assets) was $66,300 in 2005. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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