X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON, DC-The mortgage industry suffered a drop in profits last year, but those numbers may be on the rebound this year because of a refinancing boom, according to results from the latest peer group roundtables conducted by the Mortgage Bankers Association and the Stratmor Group. The MBA/Stratmor peer group survey includes a cross section of mortgage industry professionals.

In 2000, the weighted average return dropped to 15.8% from 19.1% in 1999. Overall profitability was down because of a dramatic dip in loan production volume during the first quarter of 2000, while the production end, which includes including warehousing and secondary marketing operations, showed a mild recovery during the second half of the year, but not enough to make up the difference.

Experts attributed the profit drop to a trend that started in 1998, which was a record year for the industry. To handle production then, companies added resources that were still in place the following years, when there was less production, says Marina Walsh, a financial analyst with the MBA.

“A lot of companies examined themselves and implemented new management techniques to keep costs down,” she says. “As a consequence, if they have a better handle on costs, it should produce a favorable first half (this year).”

James Cameron, a partner with the Stratmor Group, says many firms report they are managing costs more effectively now than during the 1998 production boom. He also says companies should start realizing savings from technology improvements they made in 1999 and 2000.

“These improvements, combined with larger servicing portfolios, should begin to drive down servicing costs at some point. However, with consolidation continuing, many of the mega-servicers have been in a ‘perpetual conversion’ mode, which tends to put pressure on servicing costs despite the technology improvements and scale advantages,” he says.

According to the roundtable, only “mega-lenders” posted positive profit margins last year. Pre-tax production margins dropped to 6 basis points–or .06% of the principal balance of loans produced–2000 from 25 basis points in 1999. The retail production sector was especially hard hit, with profit margins dropping to–3 basis points in 2000 from 15 basis points in 1999. That equals a pre-tax net loss of $37 per loan in 2000 compared with net income of $189 per loan in 1999.

On the servicing side, net income rose to $309 per loan in 2000 from $285 per loan in 1999. Direct costs, however, remained static, at about $65 per loan. The ratio of new loans set up to the average servicing portfolio count dropped to 14.7% in 2000 from 20.9% in 1999. The ratio of payoffs to the average servicing portfolio count dropped to 10% in 2000 from 16.3% in 1999, according to the group.

The survey is designed to give mortgage companies a chance to see how they’re doing in relation to the rest of the industry, offer information to help companies quickly respond to changes impacting the industry and analyze the factors driving their companies’ performances. The companies that participated in the most recent survey represented more than 30% of the mortgage lending market, according to the MBA.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

GlobeSt. NET LEASE Awards 2020Event

These awards honor the industry's most influential and knowledgeable real estate executives from the net lease sector.

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.