Mortgage banking production profits fell to $657 per loan in 2004 from $1,272 per loan in 2003 according to the Mortgage Bankers Association’s annual cost study released Tuesday. As volume declined in 2004, per-loan operational costs increased and were only partially offset by increases in secondary marketing income, including servicing values. 

“The year 2004 marked a departure from the recent years of unprecedented mortgage activity and profitability,” said Douglas Duncan, MBA’s chief economist and senior vice president of research and business development.

“Narrowing warehouse interest spreads, increased pricing pressures, and higher sales and fulfillment costs on a per-loan basis posed challenges for mortgage bankers. But at the same time, we did see recoveries in the area of servicing – after three years of worsening losses, servicing operations posted a profit in 2004 on a per-loan basis,” he said.

The MBA study analyzes major developments and trends in income, expenses, productivity and profitability in the single-family lending operation, based on historical data from 2000-2004. The study is based on data from 225 companies representing an estimated 47 percent of total residential industry volume in 2004.

Highlights of the annual study include:

  • Overall, the average mortgage company posted pre-tax net financial income of $23 million in 2004, a decline from the previous three years. With less mortgage activity, net loan production income dropped, while servicing finance income improved. 

  • On a per loan basis, the net operational “cost to originate” was $1,485 per loan in 2004, double the net cost to originate a loan in 2003. Net operational costs include all origination costs and commissions minus all fee income.

  • Of peer groups stratified by origination volume in dollars, the peer group with the largest volume (more than $5 billion per year) had the lowest net “cost to originate” at $1,468 per loan. The peer group with the lowest volume (less than $125 million per year) had the highest net “cost to originate” at $1,827 per loan.

  • Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest rate paid on a warehouse line of credit, averaged $481 per loan in 2004, from $516 per loan in 2003.

  • The largest contributor to the bottom line was net secondary marketing income. Net secondary marketing income, which includes capitalized servicing, averaged $1,661 per loan in 2004.

  • Servicing financial performance improved primarily because of lower MSR amortization and impairment, net of hedging gains/losses. Per-loan financial profits averaged $21 per loan in 2004, compared to net losses of $166 per loan in 2003.

  • The largest servicers continued to outperform their smaller peers operationally, but also took larger amortization and impairment hits.

The MBA 2005 Cost Study is available for purchase by calling 1-800-348-8653, or by visiting under “Market and Research Data.”


Send tips or a Letter to the Editor to or call (510) 658-9252, ext. 133.

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