Mortgage Production Profits Fall in the Fourth Quarter of 2009

Although still favorable, profit margins for independent mortgage bankers and subsidiaries fell in the fourth quarter, the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) reported in its most recent Quarterly Mortgage Bankers Performance Report.

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According to the report, independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009, down from $902 per loan in the third quarter of 2009 but up from $296 in the fourth quarter of 2008.

""Production profits remained favorable in the fourth quarter because of strong servicing rights valuations and secondary marketing gains,"" said Marina Walsh, MBA's AVP of industry analysis. ""However, provision expense for

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repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008.""

MBA found that 76 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2009, down from 82 percent the previous quarter. In addition, the average production volume for each firm was $216.5 million in the fourth quarter of last year, up from $189.6 million in the third quarter of 2009.

The report also found that the share of refinancings to total originations of this sample was relatively constant at 45 percent in the fourth quarter compared to 44 percent in the third quarter. And the average pull-though -- the number of closings divided by the number of loan applications -- was nearly stable at 73 percent in the fourth quarter of 2009, up just slightly from 72 percent the quarter before.

The ""net cost to originate"" rose to $2,345 per loan in the fourth quarter of last year, a jump from $1,950 per loan in the third quarter. Production operating expenses -- commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations -- increased to $4,402 per loan in the fourth quarter of 2009 compared to $4,376 per loan in the third quarter, and net warehousing expenses were almost constant at 6.26 basis points in the fourth quarter, down from 6.67 basis points in the third quarter of last year.