The Federal Reserve Bank has tried a couple of different initiatives in the form of monetary policy to stimulate mortgage lending and make the process easier for borrowers in the wake of the real estate crash and mortgage meltdown of the early 21st century. The Fed's heart might be in the right place with regard to giving borrowers an edge, but a recent report from the Mortgage Bankers Association (MBA) shows that lenders are the ones coming out ahead.
According to the MBA report, mortgage lending activity in the third quarter of 2012 was not only brisk but also considerably gainful. Major mortgage banking firms and their subsidiaries managed to turn their origination assembly lines into $2,465 of profit per loan, $300 higher than during the previous quarter. These profits came from refinancing, purchase money applications and money earned from secondary market activities.
Statements made by Marina Walsh, Vice President of Industry Analysis for the MBA, indicate that third quarter loan production volumes enjoyed the same operation and origination costs as in the second quarter. The business of loan origination has gone up significantly since the heady days of the American housing bubble, but even with higher costs and historically-low mortgage interest rates, lenders are still booking handsome profits.
The total production operating expenses for mortgage lenders in the United States during the third quarter was $5,128 per loan, slightly higher than during the second quarter. Out of the 311 mortgage loan origination companies polled by the MBA, each had reported average funding volumes of about $450 million, a figure that is still a far cry from volumes reported eight years ago.
From the reported average origination cost of $5,128 per mortgage loan, $3,320 was distributed among the paychecks of employees involved in the origination, from the loan officer to the processors, underwriters, clerks, etc. This cost has also increased slightly from the second quarter, and it is also lower than it was before the bursting of the housing bubble.
Outlook for 2013
Despite the overall condition of the real estate and mortgage markets, lenders are enjoying respectable volumes. According to Rob Chrishman of Mortgage News Daily, banks are prepared to cut their margins if origination volumes take on a southerly direction. When this happens, competition among lenders heats up and borrowers get a temporary reprieve. Alas, this is not expected to happen for the first quarter of 2013.
Mortgage lenders are expected to enjoy the same strong profits in the final quarter of 2012 and the first three months of 2013. The Federal Reserve recently reported wide spreads between originators and the secondary market, a situation that makes both lenders and investors very happy. Borrowers will continue to support these gains, which in turn will stimulate the overall economy.