The cost of closing mortgages is officially ridiculous
...it just got worse
After drastically tumbling in the fourth quarter of 2013, the first quarter of 2014 not only got worse for banker profits but also traveled into negative territory, according to the Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association.
Independent mortgage banks and mortgage subsidiaries of chartered banks posted a net loss of $194 on each loan they originated in the first quarter of 2014, significantly down from $150 in profit per loan in the fourth quarter of 2013.
This is the sixth consecutive quarter that production income has decreased.
“The significant overall production volume decline in the first quarter hurt mortgage bankers,” said Marina Walsh, MBA’s vice president of industry analysis. This falls in line with other comments made today from mega-mortgage lender Wells Fargo [WFC]. The chief financial officer said at an investor conference this morning the new rules from the Consumer Financial Protection Bureau are constraining production capabilities and preventing less credit-worthy borrowers from obtaining a mortgage.
“Purchase volume did not pick up, while refinancing volume dropped and costs continued to rise. Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome,” Walsh added.
But one of the biggest culprits of the dramatic decline: total loan production expenses, which hit the highest recorded amount in any other quarter since the report was created in the third quarter of 2013.
Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – took a giant leap up and increased to $8,025 per loan in the first quarter, up from $6,959 in the fourth quarter of 2013 and $6,368 in the third quarter of 2013.
In addition, average production volume was $274 million per company in the first quarter of 2014, down from $367 million per company in the fourth quarter of 2013.
The volume by count per company averaged 1,238 loans in the first quarter, dropping from 1,641 in the fourth quarter of 2013.
The "net cost to originate" grew to $6,253 per loan in the first quarter, up from $5,171 per loan in the fourth quarter of 2013. The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
But the one piece that stands out -- secondary marketing income increased to 277 basis points in the first quarter, compared to 248 basis points in the fourth quarter of 2013.