First, the Federal Reserve finds investors prefer to do business with too-big-to-fails, in favor of smaller financial institutions, leaving a higher cost of doing business for the little guys.
Now, the Mortgage Bankers Association is reporting that, per loan, mortgage-banking profits took a huge hit in the fourth quarter. What's more, loan production expenses are going through the roof. And this doesn't even include the qualified mortgage rule numbers yet.
Will the MBA first quarter 2014 report show an even bigger increase? Expect it.
It seems it's quickly becoming a market where it doesn't pay to be a mortgage banker.
Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $150 on each loan they originated in the fourth quarter of 2013, down from $743 per loan in the third quarter, the MBA reports in its latest Mortgage Bankers Performance Report.
The level of profit is at its lowest point since the MBA started counting in 2008.
The opposite is true for mortgage servicing, where MSRs are huge right now. In that space the financial situation improved on a quarterly basis.
Net servicing income per loan increased to $355 per loan in the fourth quarter from $224 per loan in the third quarter.
In basis points, the MBA reports the average servicing profit was 19 basis points in the fourth quarter of 2013, compared to 12 basis points in the third quarter.
"However, not all mortgage companies retained mortgage servicing rights or generated margins large enough to offset production losses," Marina Walsh, MBA’s Vice President of Industry Analysis. "It is perhaps not surprising that only 58% of participating companies had overall positive pre-tax profits in the quarter." That 58% profit statistic used by Walsh is down from 74% in third quarter, and 92% in second quarter.
Total loan production expenses increased to $6,959 per loan in the fourth quarter, up from $6,368 in the third quarter. Fourth quarter 2013 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.
The "net cost to originate" was $5,171 per loan in the fourth quarter, up from $4,573 in the third quarter.