"The year 2005 demonstrated the challenges that mortgage companies are still facing in 2006," said Jay Brinkmann, MBA's vice president, research and economics. "These challenges include narrowing warehouse interest spreads, lower sales productivity and higher per-loan sales and fulfillment costs. In light of these challenges on the production side of the business, servicing - or loan administration - played an increasingly important role for bottom-line profits."

The MBA's 2006 Cost Study is based on 2005 data and is the twenty eighth 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 194 mortgage banking companies who originate and service loans, and originated an estimated 49 percent of total residential volume in 2005 and serviced an estimated 50 percent of home mortgage debt outstanding. 
Study highlights include:

Overall, the average firm posted pre-tax net financial income of $26 million in 2005, relatively flat compared to 2004 but a decline from 2001-2003 levels. Declines in net production income were offset by strong servicing performance.

On a per loan basis, the net "cost to originate" was $2,049 in 2005 compared to $1,485 per loan in 2004.  Net operational costs include all origination operating costs and commissions minus all fee income.

Production personnel costs grew twenty percent in 2005 to $1,451 per loan from $1,156 per loan in 2004.

Retail sales productivity averaged 83 loans per loan officer, a nine percent decline from 2004 and a 41 percent decline from 2003 peak levels.

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, dropped to $294 per loan from $481 per loan in 2004, due to the flattening yield curve in 2005.

The largest contributor to the bottom-line was net secondary marketing income. Net secondary marketing income, which also includes capitalized servicing and servicing released premiums, averaged $2,012 per loan in 2005.

Servicing financial performance improved primarily because of lower MSR amortization and impairment, net of hedging gains/losses. Per-loan financial profits averaged $104 per loan in 2005, from $21 per loan in 2004.

The largest servicers outperformed their smaller peers both operationally and financially, with the lowest cost to service and the highest net servicing financial income.
 

The data for this report was primarily derived from the Mortgage Bankers Financial Reporting Form (or "WebMB"), a multi-agency form administered by MBA, Fannie Mae, Freddie Mac and Ginnie Mae.

If you are a member of the media and would like a copy of the report, please contact Aleis Stokes at (202) 557-2741 or astokes@mortgagebankers.org.  If you not a member of the media and would like to purchase the report, please call (800) 348-8653.

###

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 370,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.