"Production profits were still healthy in the third quarter of 2009, although not at the same level that we saw in the second quarter," said Marina Walsh, MBA's Associate Vice President of Industry Analysis.  "For lenders in our study, average production volume dropped 33 percent in the third quarter 2009, along with a drop in the refinancing share of total originations. The overall decline in production volume combined with a heavier purchase share resulted in higher per-loan production expenses, which pulled down production profits." 

Among the principal findings of the MBA report are:

• 82 percent of the firms in the study posted pre-tax net financial profits in the third quarter 2009.  In the second quarter 2009, 96 percent of the companies posted profits. 

• The average production volume for each firm was $189.6 million in the third quarter 2009, compared to $280.9 million in the second quarter 2009.

• The share of refinancings to total originations for this sample dropped to 44 percent in the third quarter 2009, from 62 percent in the second quarter 2009. This share was still higher than the 32 percent for the third quarter 2008.

• Average pull-through (the number of closings divided by the number of loan applications) was relatively constant at 72 percent in the third quarter 2009 from 73 percent in the second quarter 2009.

• Mortgage banking production profits were 50.03 basis points, or $902 per loan.  These profits declined over the previous quarter when profits averaged 71.29 basis points, or $1,358 per loan. 

• The "net cost to originate" rose to $1,950 per loan in the third quarter 2009, from $1,295 per loan in the second quarter 2009.  The "net cost to originate" includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

• Production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - rose to $4,376 per loan in the third quarter 2009 compared to $3,581 per loan in the second quarter 2009. 

• For firms specifically in the retail channel, closings per sales employee per month averaged 6.7 closings in the third quarter, from 11.0 closings in the second quarter.  Net production income dropped to 54 basis points in the third quarter from 73 basis points in the second quarter.

• Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, rose slightly to 6.67 basis points in the third quarter 2009, compared to 5.19 basis points in the second quarter of 2009.

• Net servicing income of these independent mortgage companies and subsidiaries was unchanged at $41 per loan serviced in the third quarter 2009. 

MBA's Quarterly Mortgage Bankers Performance Report replaces the former MBA Cost Study series.  The report offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Seventy-three percent of the 306 companies that reported production data for this report were independent mortgage banking companies.

The underlying company data are derived from the quarterly Mortgage Bankers Financial Reporting "WebMB" Form. Through a joint agreement with the Mortgage Bankers Association, Fannie Mae, Freddie Mac and Ginnie Mae, the form and the definitions were recently revised. The revised form was used starting in the third quarter of 2008.

There are five MBA performance report publications per year: four quarterly reports and one annual report. 

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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 2,200 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.