Industry News

Mortgage banking profits sink

Survey finds higher origination costs in 2004

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Overall pre-tax production margins for mortgage banking companies declined by 40 percent during the first half of 2004, according to figures from the latest peer group survey and roundtables conducted by the Mortgage Bankers Association and the STRATMOR Group. While the Peer Group Study results were lower than the record-breaking profit levels in 2003, most companies in the study were solidly profitable. Average pre-tax production margins fell to 54 basis points during the first six months of 2004, down from an all-time high of 90 basis points in 2003 (i.e., 0.9 percent of the principal balance of loans produced). Driving this decline was lower origination volume, which in turn resulted in higher origination costs. The average firm in the study experienced origination declines of 20 percent, primarily in rate/term refinances. As fewer loans were produced, average production and support expenses increased to 154 bps in 2004 from 132 bps in 2003. At the same time, pricing pressures ...