Report: Mortgage Production Profits Negative in 2006

Mortgage banking production profits fell to negative $50 per loan in 2006 from a positive $258 per loan in 2005, according to the Mortgage Bankers Association’s annual cost study, released today. While production revenues increased on a per-loan basis, this increase did not keep pace with the increase in production operating expenses which grew by 17 percent to $3,416 per loan in 2006.

“Production profits began to slip in 2004, and we see a continuation of this trend in 2006,” said Marina Walsh, a senior director in MBA’s research and economics department.

“Despite some companies’ best efforts to boost production revenues through the origination of higher-yielding mortgage products, several factors worked against the industry as a whole — the negative yield curve which increased the cost of funds, lower sales productivity and higher per-loan sales and fulfillment costs, particularly personnel-related costs. Servicing profits in 2006 partially offset production losses, but even these profits declined from 2005 levels due to mortgage servicing hedge losses.â€?

MBA’s 2007 Cost Study is based on 2006 data and is the twenty ninth in an annual series of reports on the income and expenses associated with the origination and servicing of one- to four-unit residential mortgage loans by mortgage banking companies. The study is based on a sample of 189 mortgage banking companies who originate and service loans, and originated an estimated 54 percent of total residential volume in 2006 and serviced an estimated 48 percent of home mortgage debt outstanding.

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