Servicers Reap Operational Gains
The industry's biggest servicers benefited from their scale in 2006, achieving the highest direct-servicing income while maintaining the lowest cost-to-service per loan, according to an annual cost study from the Mortgage Bankers Association.
But all was not rosy in the servicing sector, according to the study. Servicing financial profits per loan declined by 44% in 2006, largely because hedging losses were not fully offset by gains in the value of mortgage servicing rights.
The industry's per-loan servicing financial profit averaged $58 in 2006, down from $104 a year earlier.
Direct-servicing net income per loan exceeded $400 for the first time, when both income and expenses are taken into account. Lenders reported net income per loan of $406 in 2006, up from $381 in 2005. The largest participants in the survey - those managing more than 50,000 loans - reported the strongest gains.
Operationally, lenders reported receiving $489 per loan in direct income from servicing last year, the highest level in recent history. That was comprised of $436 per loan in servicing fees and $54 in ancillary income. Ancillary fee income was up 64% from 2005, and the MBA said the increase may reflect higher late-fee income on early delinquencies and greater use of "speed pay" options, for which consumers often pay a fee.
Direct expense totaled $83 per loan, up from $73 per loan one year earlier. The increase was largely driven by higher staffing expenses. Once financial items such as the amortized cost of servicing rights, net gain or loss on the sale of bulk servicing rights and net gain or loss for hedging are factored in, however, the net servicing financial income was just $58 per loan last year, down from $104 a year earlier. An increase in interest expense on servicing assets and advances contributed to the lower financial profit. "Compared to the losses reported in 2001-2003, this performance was strong, albeit only about half the 2005 per-loan profit," the MBA cost study said.
Mortgage servicers clearly remained under some stress in 2006. Direct-servicing income as a percentage of the dollar volume of loans serviced was 0.345% in 2006, down slightly from 0.348% in 2005. Servicing fees as a percentage of the dollar volume of loans serviced also fell, while direct expense rose.
Lenders on average serviced 1,207 loans per employee, down from 1,330 in 2005.
Loan production did not help offset the challenges in servicing last year, as production cost increases were only partially offset by increases in secondary market gains, which are now under pressure. The gains in secondary market income reflected "favorable capitalized servicing and servicing released premiums," the MBA said.
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