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Privately held mortgage bankers face challenges

Production and profitability rise as commissions fall

Independent mortgage bankers witnessed an increase in production, profitability and net worth during the second quarter, but commissions still continue to decline.

Overall production among independent mortgage bankers increased 11% from the first to the second quarter of 2013, according to a new survey from research firm Richey May & Co.

Profitability also rose among independent mortgage bankers with net income margins rising quarter-over-quarter.

Meanwhile, net worth for independent mortgage bankers grew, and increased roughly by 20% during the second quarter of 2013. This is a continuing trend with capital growing 34% from 2012, Richey May said in its report.

"Independent mortgage bankers face different business challenges than the big banks do, particularly when it comes to profitability and fiscal spending," said Ken Richey, managing partner of Richey May.

He added, "There are a lot of otherwise healthy companies that are suffering undetected losses and missed revenue opportunities."

The increase in net worth is a good sign that independent mortgage bankers are preparing for what is coming ahead, said Pete Mills, head of rsidential policy and member services at the Mortgage Banker's Association.

"There's some concern that Fannie Mae, Freddie Mac and Ginnie Mae are going to raise the minimum net worth requirements in the near further. As a result, more independent banks are retaining servicing and with that they're going to have carry more net worth to get approval," Mills stated.

On the reverse side, commissions continued on the decline since a four-month high in the fourth quarter of 2012, reaching 82 basis points.

Commissions averaged roughly 78 basis points in the second quarter, with four-month average commissions at approximately 80 basis points of total production.

On a similar note, Mills pointed out that privately held mortgage bankers are facing the same compliance issues as smaller companies given the uncertainty in regulatory laws. 

Nonetheless, he feels that independent mortgage bankers are well positioned to take advantage of the marketplace with its rotation back into purchase mortgages.

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