New figures from the Mortgage Bankers Association confirm just how devastating last year's first quarter was for mortgage banking companies.
Profit margins were a negative 3.8%, and return on equity was a negative 6.2%. As a result, the average company in the trade group's compilation had a loss of $380,000.
The figures are the first of a series that the group will be releasing on a regular basis. Figures for the second and third quarters of last year and for the full year will be released over the next two months. Thereafter, the compilations will be released on a current basis.
The 1994 figures are not especially surprising, as the first quarter of that year marked the onset of a slump in mortgage originations after a record 1993. But the financial impact was still noteworthy.
"This represents the first negative margin in recent memory," said Dave Lereah, chief economist for the trade group. He added that profit margins in 1992 and 1993 were 15.5% and 12.4% respectively.
Revenues from loan originations and marketing, which were heavily affected by rising mortgage rates and rapidly declining refinancings, fell sharply in the quarter. Origination revenue fell 21% and net marketing income plunged 41%, the group's report said.
But as revenues evaporated, the lenders failed to reduce expenses. Overall, expenses climbed 5.3% in the quarter over the level a year earlier. Employment costs were trimmed, but other costs climbed.
Mr. Lereah said preliminary figures for the second and third quarters appear to show improvement in profits, though erratically. "This supports our view that industry profit performance probably hit bottom during the first quarter and that mortgage companies gained some control over expenses as the year progressed," he commented.
"One encouraging sign was that amortization costs and corporate interest losses, which surged during the refi boom, actually fell on an annualized basis from 1993."
The trade group's data source is the quarterly reports required of mortgage banking companies that are seller-servicers for Ginnie Mae, Fannie Mae, or Freddie Mac.