Independent mortgage lenders eked out a profit of $184 on each loan originated in the second half of 2008, according to a study released Monday by the Mortgage Bankers Association.
This small profit was an improvement over net losses in 2006 and 2007, when fierce competition and rising expenses (tied to delinquencies and loan buybacks) forced many lenders to close their doors. No figures were available from the trade group on 2009 activity.
In 2008, neither Wall Street firms nor mortgage bankers were buying subprime loans. As credit-quality concerns arose, nonbank lenders and mortgage banking subsidiaries of banks switched to government loans — guaranteed by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service — to serve their customers. They also continued to originate loans for sale to Fannie Mae and Freddie Mac.
The government share of total residential originations — mainly FHA loans — was 45% in the second half of 2008, compared with less than 10% the previous year, according to Marina Walsh, the MBA's associate vice president of industry analysis.
"They had to completely change their business models to survive," Walsh said.
FHA loans come with a 44-basis-point servicing fee, she said, and that "really helped them in terms of gain on sale."
She stressed that the MBA's findings do not necessarily signal that mortgage banking is now a highly profitable industry. Roughly 41% of the 270 lenders in the MBA report were unprofitable for other reasons.
"It is not really a turnaround," Walsh said. "It is really a function of companies leaving the business because they couldn't afford to stay in it."
The MBA's new "performance report" incorporates new information that nonregulated mortgage companies started to report last year to Fannie Mae, Freddie Mac and the Government National Mortgage Association, known as Ginnie Mae.
The report replaces the MBA's annual cost studies and it will be issued quarterly starting in October, Walsh said. "The new report is just a better product than the cost studies and hopefully more meaningful for the independent mortgage companies."
The report provides data on origination costs, marketing income and warehouse income. It also includes servicing data from 128 companies.
Unfortunately, some figures in the new report are not comparable to the cost studies.
For example, the average pull-through rate (loan closings to applications) was only 56.6% in 2008.
"It shows lenders were really picking and choosing," Walsh said. "Underwriting standards tightened dramatically from 2007 to 2008, and that really comes across with this pull-through rate," she said. She estimated the pull-through rate would have been in the 70s the previous year. But the MBA does not have a comparable percentage for 2007.
The MBA report also shows most independent lenders and bank subsidiaries sell most of their production to aggregators, rather than directly to Fannie, Freddie and Ginnie.