2009 Highly Profitable Year for Mortgage Banking Firms

Small mortgage companies benefited from higher loan production in 2009 and posted healthy profits for the year, according to a Mortgage Bankers Association report. The annual report shows that 216 independent mortgage banks and subsidiaries of banks and thrifts on average originated $933 million loans in 2009, compared to $500 million in the prior year. These mortgage banking firms on average posted $4.9 million in pre-tax profits, compared to $700,000 in 2008. "Production profits increased in 2009 over 2008 as higher origination volumes, particularly in refinancing, reduced per-loan production expenses," said Marina Walsh, MBA's associate vice president of industry analysis. During 2009, MBA economists noticed the difference in profitability between the 41 bank subsidiaries and the independent mortgage companies widened. Historically, bank subs have lower overhead and compensation expenses, while independents generally had higher revenues. But now the independents' net production income is lower than their bank and thrift peers. Profits for the bank mortgage subsidiaries averaged 79.5 basis points per loan, compared to 54.9 bp for independents. "It was also clear bank and thrift subsidiaries had an advantage over independent mortgage companies because of lower loan officer compensation per loan and higher net interest spread due to lower warehouse funding costs and the ability to keep loans in warehouse longer," Walsh said.