Per-Loan Profits Fall in Q4 as Costs Rise

Rising costs took a toll on per-loan profits in the fourth quarter of 2012, according to data from the ""Mortgage Bankers Association"":http://www.mortgagebankers.org/default.htm (MBA).

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Independent mortgage banks and mortgage subsidiaries of chartered banks earned an average profit of $2,256 on each loan originated in Q4, down quarter-over-quarter from $2,465, MBA reported. The average production profit (net production income) was 107 basis points compared with 120 basis points in the third quarter.

The decline in profits came despite a rise in production volume. According to the association, average production volume was $488 million per company in the fourth quarter, up from $450 million per company in the prior quarter.

Productivity per employee was down slightly, however, falling to 3.8 loans originated per production employee per month from 3.9 in the third quarter. Fulfillment [COLUMN_BREAK]

productivity was also down--10.2 loans originated per fulfillment employee per month compared to 10.9 in Q3.

The average volume by count per company rose to 2,132 loans from 2,010 in the third-quarter report.

""Per-loan profits decreased in the fourth quarter, primarily driven by rising costs,"" said Marina Walsh, associate VP of industry analysis with MBA. ""Historically, production costs have dropped with rising volume. In this quarter, however, despite high origination volumes, per-loan costs reached the highest levels we have seen in this study, other than during the first half of 2011, when origination volume was 60 percent lower.""

According to MBA, total loan production expenses--which include commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations--rose to $5,603 per loan in Q4, a quarterly increase of nearly $500. In addition, personnel expenses averaged $3,570 per loan in in the fourth quarter, up from $3,320 in the third quarter.

The ""net cost to originate"" in Q4 was $3,813, up from $3,353 in Q3.

Also revealed in the MBA report: The refinance share of total originations (by dollar volume) was 61 percent in Q4, up from 57 percent in Q3. For the industry as a whole, MBA estimates refinance share was 75 percent in the fourth quarter, up from 73 percent in the third quarter.

Of the 311 companies that reported production data for the fourth-quarter report, 72 percent were independent mortgage companies, according to MBA.