Mortgage Companies Report Major Losses, 2007

The Mortgage Bankers Association released its annual cost study Tuesday, which reported that mortgage companies lost an average of $560 on every loan originated in 2007, compared to the $50 per loan lost in 2006. MBA’s 2008 Cost Study is based on 2007 data and reports on the income and expenses associated with the origination and servicing of one- to four-unit residential mortgage loans by mortgage banking companies. While loan origination and ancillary fees grew on a per-loan basis in 2007, they did not keep pace with increases in production operating expenses, which grew seven percent to $3,663 per loan. “As a result, production profits declined in 2007, a continuation of a downward trend that began in 2004,” said Marina Walsh, MBA associate vice president of research and economics. Overall, the average firm in the Cost Study sample posted pre-tax net financial income of $0.9 million in 2007, compared to a significantly higher $6.4 million in 2006 . And retail sales productivity averaged five fewer loans per loan officer in 2007, compared to 2006. Net marketing income — which includes the gain or loss on the sale of loans in the secondary market, pricing subsidies and overages, as well as capitalized servicing and servicing released premiums — averaged $1,920 per loan in 2007, down from $2,180 per loan the year before. Servicing profits per loan, however, rebounded to $109, primarily because of higher per-loan servicing fees (driven by higher loan balances) and lower net losses associated with mortgage servicing rights and hedging.  But smaller servicers continued to struggle operationally, with direct servicing costs that averaged over three times higher than the largest servicers. Signaling a continued downfall, economists with the International Monetary Fund said Tuesday they now expect mortgage-related losses substantially above the $945 billion estimated in April. In the IMF’s latest Global Financial Stability Report, officials said they now foresee losses as large as $1.4 trillion.  See full story at HW. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade. Editor’s note: To contact the reporter on this story, email [email protected].