“Pre-crisis, as a result of vibrant competition, mortgage bankers made a profit of just 0.156% ($312 on a $200,000 mortgage), as a result of substantially reduced competition (from failures and dramatically increased regulation), post-crisis mortgage bankers made a profit of 0.615% ($1,230 on a $200,000 mortgage). That’s a whopping 294% increase in profits post-crisis…

…consumers may not care about this today, because its “lost” within historically low mortgage rates. But they will when rates rise. Today’s historically high industry profit margins don’t seem right to me, given the industry is mostly just packaging loans for the government (Fannie, Freddie, FHA, and VA) and takes on no credit risk. Consumer Financial Protection Bureau where are you? I know where. Still messing around with form-over-substance rules and regulations.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Excerpt from June 2015 Mortgage Industry Newsletter:

The MBA Performance Report shows the following profit per loan (based on dollar volume of production):

2014 2013 2012 2011 2010 2009
34.1 bps 60.9 bps 107.9 bps 50.6 bps 54.3 61.3 bps

If you lack historical perspective, it would be very easy to look at these numbers and conclude that mortgage banking generally delivers around 50-60 bps profit per loan, and you’d see that it averaged 61.5 bps for 2009-2014.   That would be nice, but it’s more like the Biblical thing of seven good years followed by seven bad years.  Here are the previous and not so good years.

2008 2007 2006 2005 2004
12.8 bps 10.6 bps 22.8 bps 18.7 bps 14.5 bps

Mortgage banking profits are like the children’s rhyme, “When she was good, she was very, very good, and when she was bad, she was horrid.”  For these five years above, the average profit per loan was 15.6 bps. Horrid.

Posted on June 18, 2015, in Postings. Bookmark the permalink. Leave a comment.

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