Mortgage Profits Plunged in 2007

Mortgage industry costs rose and profits fell last year, as lenders grappled with higher loan production costs and dwindling returns from warehouse operations and secondary market sales, according to an annual cost study, produced by the Mortgage Bankers Association. Mortgage companies lost an average of $560 per loan they originated in 2007, a widening from an average loss of just $50 in 2006. Overall, loan production operating expenses increased 7% last year to $3,663 per loan. Marina Walsh, associate vice president of research and economics at the MBA, said the drop in gross production operating expense last year did not keep pace with the decline in loan volume. Ms. Walsh told MortgageWire that cost cutting and staff reductions that began in 2007 would likely be more evident in data for this year. On average, participating firms posted pre-tax net financial income of $900,000 last year, down from $6.4 million in 2006. Ms. Walsh said subsidiaries of large financial companies performed better than independent and privately held firms. "It really helps to be part of a well-capitalized bank," she said. One surprise: servicing profits rose to $109 per loan and servicing productivity improved in 2007, though not enough to offset the weak loan production environment. The study largely excludes subprime lenders.