Reports from the Mortgage Bankers Association (MBA) and Ellie Mae this week provided a snapshot of just where the mortgage origination market is these days as the industry heads into prime homebuying seasons.
Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $1,093 on each loan they originated in the fourth quarter of 2011, down from $1,263 per loan in the third quarter of 2011, according to the MBA’s Fourth Quarter 2011 Mortgage Bankers Performance Report.
“The fourth quarter 2011 results were mixed for mortgage bankers,” said Marina Walsh, MBA’s associate vice president of industry analysis. “Mortgage volume increased in the fourth quarter, driven by heavier refinancing activity, translating into higher productivity. However, net secondary marketing income dropped to $4,355 per loan in the fourth quarter from $4,563 per loan in the third quarter, lowering overall profits.”
Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:
• In basis points, the average production profit (net production income) was 58.49 basis points in the fourth quarter of 2011, compared to 66.37 basis points in the third quarter of 2011.
• Average production volume was $313 million per company in the fourth quarter of 2011, up from $237 million per company in the third quarter of 2011, with average loan balances increasing by about $5,000.
• The refinance share of total originations, by dollar volume, was 57 percent in the fourth quarter of 2011, compared to 45 percent in the third quarter of 2011.
• Measured in basis points, secondary marketing gains decreased to 215 basis points in the fourth quarter of 2011, compared to 229 basis points in the third quarter of 2011.
• Personnel expense decreased to $3,226 per loan in the fourth quarter of 2011, compared to $3,317 per loan in the third quarter of 2011, due in part to the larger number of loans.
• Total production operating expenses — commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations — dropped to $5,118 per loan in the fourth quarter of 2011, compared to $5,315 in the third quarter of 2011.
• The “net cost to originate” was $3,324 in the fourth quarter of 2011, from $3,360 per loan in the third quarter of 2011. 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.
• Seventy-eight percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2011, compared to 86 percent in the third quarter of 2011.
Ellie Mae released a new monthly report on the state of the origination market. The report draws its data and insights from a robust sampling of the significant volume of loan applications — more than 20 percent of all originations in the U.S. — that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network.
To get a meaningful view of lender “pull-through,” Ellie Mae reviewed loan applications initiated within the previous 90 days to calculate a closing rate and found that nearly 48 percent of all applications closed. There was a higher percentage of purchase mortgages closing (60 percent) than refinances (42 percent).
“In February, it appears that lenders continued to be very cautious in terms of credit quality, downpayments and valuations,” said Jonathan Corr, chief operating officer of Ellie Mae. ”The average credit score on closed loans was 750 last month, up from 740 six months ago; meanwhile, the average loan-to-value ratio was 76 percent, a decrease of 3 percent from August’s average.
Monthly Origination Overview for February 2012
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Month Ended
February 2012
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Month Ended
November 2011
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Month Ended
August
2011
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Closed Loans
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|
|
|
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Purpose
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|
|
|
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Refinance
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67 percent
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64 percent
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61 percent
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Purchase
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33 percent
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36 percent
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39 percent
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Type
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|
|
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FHA
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25 percent
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25 percent
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29 percent
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Conventional
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67 percent
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67 percent
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62 percent
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Days to Close
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|
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All
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44
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46
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40
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Refinance
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43
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42
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37
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Purchase
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44
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46
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43
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ARM percent
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4.3 percent
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5.3 percent
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8.3 percent
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15 Year percent
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19.6 percent
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19.7 percent
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18.3 percent
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30 Year – Note Rate
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4.095
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4.258
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4.639
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Profiles of Closed and Denied Loans for February 2012
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Closed First-Lien Loans (All Types)
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Denied Loans
(All Types)
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FICO Score (FICO)
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750
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699
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Loan-to-Value (LTV)
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76
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83
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Debt-to-Income (DTI)
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23/34
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28/44
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“Last month, if your FICO score was below 720 or you had a downpayment or equity of less than 25 percent, there was a good chance that your refinance application for a conventional loan was denied or you were offered a significantly less attractive interest rate,” Corr said. “The average DTI ratio for such a denial in February was 27/43.
“The timeline from application to closing for the average loan was 44 days in February and 43 for a refinance, a 10 percent and 16 percent increase, respectively, over where the industry was six months ago,” Corr added. “This tracks with the increase in demand that we saw at year end.”