Independents Feel The Pinch

Richey May and Co. has released its first quarter 2014 Trend Report for Independent Mortgage Bankers. According to the report, loan production among independent mortgage bankers continued to decline in the first quarter of 2014, falling 18% since the fourth quarter of 2013. Purchase volume decreased for the third consecutive quarter, dropping 13.7%. Margins increased by 28 basis points – the result of an 11-basis point decrease in origination fees, and a 39-basis point increase in secondary gains.

“Independent mortgage bankers are taking less in origination fees, but are making more from gains on sale into the secondary market,” said Kenneth Richey, managing partner of Richey May.

“This suggests that lenders are responding to the QM fee cap,” he explained, speaking of the Qualified Mortgage rules that impose a three percent limit on the amount a lender can charge in origination fees. “Rather than earning on the front end, they’re increasing margins on the secondary sale.”

Each quarter, Richey May uses Richey May Select, a benchmarking technology specifically for independent mortgage bankers, to analyze data submitted by independent mortgage bankers across the U.S., and compile a report of the quarter’s outstanding trends. The report highlights key performance indicators, such as overall volume and volume by transaction type, margins, operating costs, labor output, and more. The data used in the report includes much of the same information that its confidential lender participants provide to the GSEs each quarter via the Mortgage Bankers’ Financial Reporting Form (MBFRF).

Additional findings in the first quarter 2014 trend report include the following:

>> The principle balance of unfunded locks increased by 40.5%, rebounding to levels last observed in the 3rd quarter of 2013

>> Pre-tax profits improved by 0.25%, primarily due to increased secondary marketing gains and gains related to bulk sales of servicing rights

>> While production continued its decline, the rate of decline slowed in the first quarter of 2014

>> Non-loan originator staffing was reduced by an average of 14 employees, or 6% of all non-loan originator staff, since the third quarter of 2013

>> Per-staff productivity has declined by 1.8 units per non-loan originator staff member, and by 1.6 units per loan originator, since 2012

>> Lenders cut operating expenses by 13%, but operating expenses increased by an average of $234 per loan, the result of higher occupancy and marketing expenses, which rose by $106 and $119 per loan, respectively

Servicing revenue contributed 12 basis points to survey participants’ bottom lines during the 1st quarter of 2014, up from six basis points for the 4th quarter of 2013. The majority of servicing revenues resulted from bulk sales of servicing portfolios, which accounted for 83% of all net servicing revenues.

Despite continued rising costs, Richey May Select survey participants achieved nearly break-even pre-tax profits for the 1st quarter of 2014, showing a 25-basis point improvement over the previous quarter. Lenders generally compensated for heightened operating and personnel costs by increasing loan margins.

“Lenders are pin-pointing the most effective ways to compensate for lower production levels,” said Richey. “Servicing is playing a major role in increasing revenue, and streamlining operations and reducing personnel is one of the major ways they’re cutting costs. If an independent mortgage banker is struggling significantly and isn’t taking the same approach regarding servicing, operations and personnel, it really should look to what its peers are doing to successfully cope with today’s market conditions.”

About The Author

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Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.