Purchase volume and overall loan production volume falls 18%; margins increase by 28 basis points
-Net origination fees decrease but secondary marketing gains increase; margin activity appears to be the result of QM fee caps-
ENGLEWOOD, CO (June 26, 2014) -- Richey May & 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, the industry’s only 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.”
Richey May quarterly trend reports are provided free of charge to all Richey May Select subscribers. Richey May Select benchmarking technology provides quick, easy access to current peer-to-peer benchmarking information on various aspects of their financial, production, employment, warehousing and servicing operations. Unlike static benchmarking reports, with Richey May Select, all information is current and available roughly six weeks after the end of each quarter.
Richey May also issues an annual salary report. Independent mortgage bankers interested in providing confidential information used in Richey May Select’s analysis may contact Trevor Reinhart at RMSelect@RicheyMay.com.
About Richey, May & Co, LLP
Richey, May & Co is a CPA, business advisory and award-winning technology firm specializing in the mortgage industry. The company’s offerings include audit, tax and business consulting services, as well as peer-to-peer benchmarking technology for small to mid-size independent mortgage bankers. Richey May’s clients include mortgage bankers in over 30 states, and range from small local originators to national lenders with annual loan production volumes in excess of $10 billion. In addition to its personalized advisory services and Richey May Select peer-to-peer benchmarking technology, Richey May has become known for its annual salary report of independent mortgage bankers, a survey based on the confidential responses of privately held mortgage banking firms. Richey May and its technology co-creator were awarded the 2013 Synergy Award by Mortgage Technology magazine. Richey May was founded in 1985 and is based in Englewood, Colorado. For more information on Richey May, please visit www.RicheyMay.com. For more information on Richey May Select, please visit www.RicheyMaySelect.com.