The combination of weak short-term mortgage loan demand, heightened price competition, and the secularly increasing importance of scale promises continued dislocation in the mortgage banking business. To survive in this environment, industry leaders must thoroughly understand the determinants of shareholder value.

Maximizing shareholder value added - defined as the present value of the income derived from a mortgage applicant after the appropriate charge is made for the needed risk capital - requires an appreciation of the interdependence among a number of variables, including price (i.e., gross mortgage coupon), volume, loan size, the capture of escrow balances, pipeline fallout rate, prepayment propensity, delinquency likelihood, and the costs of origination and servicing.

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