MBA Releases Annual Cost Study

October 13, 2005

Washington, D.C. - Mortgage banking production profits fell to $657 per loan in 2004 from $1,272 per loan in 2003 according to the Mortgage Bankers Association’s (MBA) annual cost study. As volume declined in 2004, per-loan operational costs increased and were only partially offset by increases in secondary marketing income, including servicing values.

The MBA’s 2005 Cost Study is based on 2004 data and is the twenty seventh in an annual series of reports on the income and expenses associated with the origination and servicing of one- to four-unit residential mortgage loans by mortgage banking companies. It is based on income statement data from 225 companies representing an estimated 47 percent of total residential industry volume in 2004.

“The year 2004 marked a departure from the recent years of unprecedented mortgage activity and profitability,” said Douglas G. Duncan, MBA chief economist and senior vice president of research and business development. “Narrowing warehouse interest spreads, increased pricing pressures, and higher sales and fulfillment costs on a per-loan basis posed challenges for mortgage bankers. But at the same time, we did see recoveries in the area of servicing - after three years of worsening losses, servicing operations posted a profit in 2004 on a per-loan basis.”

Study Highlights include:

  • Overall, the average firm posted pre-tax net financial income of $23 million in 2004, a decline from the previous three years. With less mortgage activity, net loan production income dropped, while servicing finance income improved.
  • On a per loan basis, the net operational “cost to originate” was $1,485 per loan in 2004, double the net cost to originate a loan in 2003. Net operational costs include all origination costs and commissions minus all fee income. 
  •  Of peer groups stratified by origination volume in $, the peer group with the largest volume (more than $5 billion per year) had the lowest net “cost to originate” at $1,468 per loan. The peer group with the lowest volume (less than $125 million per year) had the highest net “cost to originate” at $1,827 per loan.
  • Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest rate paid on a warehouse line of credit, averaged $481 per loan in 2004, from $516 per loan in 2003.
  • The largest contributor to the bottom line was net secondary marketing income. Net secondary marketing income, which includes capitalized servicing, averaged $1,661 per loan in 2004.
  • Servicing financial performance improved primarily because of lower MSR amortization and impairment, net of hedging gains/losses. Per-loan financial profits averaged $21 per loan in 2004, compared to net losses of $166 per loan in 2003.
  • The largest servicers continued to outperform their smaller peers operationally, but also took larger amortization and impairment hits.


The MBA study offers, in per-loan terms, a compilation of performance measures on the mortgage banking industry. This study analyzes the major developments and trends in income, expenses, productivity, and profitability in the single-family lending operation, based on historical data from 2000-2004.

The MBA 2005 Cost Study is available for purchase by calling 1-800-348-8653. Alternatively, visit the MBA Web Store at http://store.mortgagebankers.org under “Market and Research Data.”

Source: MBA


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