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The most recent report from the Mortgage Bankers Association painted a gloomy picture. Indications are that independent mortgage bankers are making far less money and that the understaffed lenders cannot keep up with the surplus of loan modification applications.
The end result is that work is not being completed in a timely manner and that the mortgage business, which relies upon volume to generate its profits, is in distress. Mortgage bankers are learning what every other American business is facing. Costs are rising and volume is diminishing. It is a viscous cycle and certainly one that the mortgage bankers have not faced in several years.
The Bankers Association report specified that, “the average production volume for each firm fell to $157.8 million in the first quarter 2010, compared to $216.5 million in the fourth quarter of 2009. In addition, production operating expenses rose from $5,147 per loan in the first quarter 2010, compared to $4,402 per loan in the fourth quarter of 2209.”
The Mortgage Bankers Association said that production profits dropped from $606 per loan in the first quarter 2010 from $890 per loan in the fourth quarter 2009 and from $1,088 in the first quarter of 2009. The lack of demand has caused most of the lenders to cut staffs and with the Obama Administration’s insistence on complete transparency throughout the lending process, each application costs more to process.
Mortgage Bankers are walking a fine line. Refinance departments are understaffed and new mortgage departments are overstaffed. There simply is not enough new mortgage demand to keep everyone busy and profitable.
Ever since the expiration of the homebuyer tax credits, the number of mortgage originations has been steadily falling. Many of the lenders describe the current market as a “double dip” for the housing market recession.
Everywhere they look, the industry has changed. There are now new appraisal practices, more stringent underwriting guidelines and more documentation in the mortgage application business than ever before.
The percentage of successfully closed new mortgage applications in the first quarter 2010 fell to 68% from 73% in the fourth quarter 2009. The good news for investors is that qualified purchasers have a distinct advantage in the new real estate market. An offer accompanied by a pre-qualified letter has great negotiating power today.
