"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.”

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.  

Study highlights include:

• Overall, the average firm posted pre-tax net financial income of $6.4 million in 2006, compared to $26 million in 2005.
• Retail sales productivity averaged 62 loans per loan officer in 2006, compared to 83 loans per loan officer in 2005.
• On a per loan basis, the net "cost to originate" increased to $2,476 in 2006 compared to $2,049 per loan in 2005.  The “net   cost to originate” includes all origination operating costs and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
• 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 $245 per loan from $294 per loan in 2005 and $481 per loan in 2004, due to the flat yield curve.
• Net marketing income, which includes the gain or loss on the sale of loans in the secondary market, pricing subsidies and overages, as well as capitalized servicing and servicing released premiums, averaged $2,180 per loan in 2006 compared to $2,012 per loan in 2005.
• Servicing financial profits per loan serviced declined by 44 percent, primarily because of mortgage servicing hedge losses that were only partially offset by gains in servicing valuations.  Per-loan financial profits averaged $58 per loan in 2006, down from $104 per loan in 2005.
• The largest servicers outperformed their smaller peers operationally, with the lowest cost to service and the highest direct servicing net income.  However, these servicers also had the highest hedge losses which hurt their financial bottom line.

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

If you not a member of the media and would like to purchase the report, please call (800) 348-8653.

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 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.