Mortgage Profits Rise as Refinance Activity Swells

December 15, 2010 No Comments »


Independent mortgage banks and subsidiaries made an average profit of $1,423 on each loan they originated during the third quarter, according to a study from the Mortgage Bankers Association.

That’s up from $917 per loan in the second quarter thanks to higher secondary marketing gains, which increased from $3,455 per loan in the second quarter to $4,069.

Traditionally, higher loan origination volume also brings down costs, but because of the harsher underwriting environment, the “net cost to originate” actually increased slightly.

That measure includes all production operating expenses and commission less all fee income, but excludes secondary marketing profits, capitalized servicing, servicing released premiums (their version of a mortgage broker‘s yield spread premium) and warehouse interest spread.

Average origination volume per mortgage lender rose to $237 million in the third quarter from $197 million a quarter earlier, but the average pull-through (closings divided by the number of loan apps) fell to 68 percent from 72 percent as lenders struggled to close the high volume of refinance apps received.

The refinance share of total originations increased to 57 percent in the third quarter, up from 35 percent in the second quarter and 44 percent a year ago, largely because purchase money mortgage volume dropped off post-tax credit.

Overall, 88 percent of the firms in the study saw pre-tax net financial profits in the third quarter, compared to just 85 percent in the second quarter and 82 percent in the third quarter of 2009.

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