Origination News Feature Story

Mortgage Bankers Tally Their Per Loan Profit

By Brian Collins

WASHINGTON-Independent mortgage bankers eked out a profit of $184 on each loan originated in the second half of 2008, according to a new study issued by the Mortgage Bankers Association.

This small profit was an improvement over net losses in 2006 and 2007 when fierce competition and rising expenses (tied to delinquencies and loan buybacks) forced many lenders to exit the business. No figures were available from the trade group on 2009 activity. In 2008, neither Wall Street firms nor mortgage bankers were buying subprime loans in the secondary market and the private-label securities market shut down. As credit quality concerns arose, nonbank lenders and mortgage banking subsidiaries of banks switched to government loans to serve their customers. They also continued to originate loans for sale to Fannie Mae and Freddie Mac. The government share of total residential originations - mainly FHA loans - was 45% in the second half of 2008, compared to less than 10% the previous year, according to Marina Walsh, MBA associate vice president of industry analysis.

FHA loans come with a 44 basis point servicing fee, she said, and that "really helped them in terms of gain on sale."

She stressed that the trade group's findings do not necessarily signal that mortgage banking is now a highly profitable industry. Some 41% of the 270 lenders in the MBA report were unprofitable for other reasons. "It is not really a turnaround. It is really a function of companies leaving the business because they couldn't afford to stay in it," she said.

The new Mortgage Bankers Performance Report incorporates new information that nonregulated mortgage companies started to report to Fannie Mae, Freddie Mac and Ginnie Mae last year.

"It shows lenders were really picking and choosing," Ms. Walsh said. She estimated the pull-through rate would have been in the 70s the previous year. But MBA does not have a comparable percentage for 2007. "Underwriting standards tightened dramatically from 2007 to 2008 and that really comes across with this pull-through rate," she said.

The MBA report also shows that most independents and bank subsidiaries sell most of their production to aggregators and don't go to the GSEs and Ginnie directly. Two-thirds of the loans originated by lenders in the MBA report were sold to aggregators. Only 1.6% were originated for lenders' portfolios.