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Rising Costs Turn Per-Loan Profits into Losses

decreasing-threeAfter a rough 2013—which saw average per-loan profits decline by nearly half year-over-year—mortgage banks are now losing money on each loan originated, the Mortgage Bankers Association (MBA) reported Tuesday.

According to the trade group, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $194 on each loan originated in the first quarter of the year, down from a scant $150 profit made per loan in Q4 2013.

Marina Walsh, MBA's VP of industry analysis, said profits took a hit from lower production volumes, which averaged $274 million per company, down more than 25 percent quarter-over-quarter.

"Purchase volume did not pick-up, while refinancing volume dropped and costs continued to rise," Walsh said. "Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome."

Among the more than 300 companies reporting data for the quarter, the purchase share of total originations (by dollar volume) remained mostly flat at 68 percent. For the industry as a whole, MBA estimates purchase share picked up to 51 percent.

With refinance numbers looking meager compared to their recent boom, market watchers have been waiting for home purchase lending to pick up the slack—a trend that has yet to develop, thanks to rising costs, low inventory, and economic challenges throwing off potential buyers.

Meanwhile, total loan production expenses, including commissions, compensation, and other costs, increased sharply to $8,025 per loan last quarter, the highest on record since the MBA started tracking performance in 2008. Production expenses were just less than $7,000 in the previous report.

Including all business lines, only a little more than half—54 percent—of firms in MBA's latest study posted pre-tax financial profits in the first quarter, down from 58 percent the prior quarter and 94 percent a year ago.

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