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Rising Loan-Production Costs Topped Off Lenders' 2013 Woes: MBA

MAY 22, 2014 6:05pm ET

It is no secret to mortgage bankers that 2013 was a downhill year as loan production and profitability declined with each passing quarter. 

Yet the first half was definitely better than the second half of 2013 when refinancings fell dramatically and loan production expenses shot up, according to a new report by the Mortgage Bankers Association

In the first half, 95% of small mortgage banking firms were profitable. In the second half, only 69% of surveyed lenders posted pretax financial profits.

The MBA report shows that the average profit per newly originated loan was $1,660 in the first half of the year, but fell to $517 in the second half.

To make things worse, mortgage banking firms posted an average profit of just $150 per loan in the fourth quarter—the lowest since the MBA started doing these quarterly reports in 2008.

"While secondary marketing gains remained relatively strong throughout the year, per-loan production expenses escalated in the second half of 2013," says Marina Walsh, the MBA's vice president of industry analysis.

The 242 independent mortgage banks and mortgage subsidiaries of depository institutions in MBA's survey reported that loan production expenses averaged $5,743 per loan in the first half of 2013 and then rose to $6,539 in the second half.

Surprisingly, the mortgage banking firms surveyed by the MBA avoided a significant drop in loan volume. They originated on average $1.75 billion in (7,857) loans in 2013 compared to $1.72 billion in loans (7,669) in 2012. Purchase mortgage volume rose to 57% of the total in 2013 from 44% in the prior year.

The MBA also points out that mortgage servicing was much more profitable in 2013. Net servicing income per loan increased to $257 per loan from $27 in the 2012. That reflects lowers prepayments due to the slowdown in refinancings.

Looking at 2013 as a whole, 242 independent mortgage banks and mortgage subsidiaries of depository institutions that report performance data to MBA made an average profit of $1,242 per loan compared to $2,199 per in 2012.

Related:

Higher Costs Made Originating Loans a Losing Venture in 1Q: MBA

Small Independent Lenders Suffer a Sharp Drop in Profits