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the latest or ig i nat ion ORIGINATION Profits Plunge at Independent Firms as Costs Soar S e c on da r y M a r k e t a na ly t ic s se r v ic i ng Production volume wasn't enough to offset increased expenses. I Private Insurance Policies Increase in October Mortgage insurers report more policies issued, but dollar volume slackens. P rivate mortgage insurers reported issuing more policies in October than in the month prior—but dollar volume decreased over the month, according to monthly numbers released by Mortgage Insurance Companies of America (MICA). Member companies represented in the trade group's statistics reported issuing 38,908 insurance certificates for borrowers seeking to buy or refinance a home in October. While that number is about 1,400 above the number of policies issued this past September (37,501), it still sits lower than most other months of 2013 and is nearly 4,000 less than October 2012. At the same time, dollar volume on insurance written throughout the month totaled 40 | The M Report $8.7 billion, the lowest amount since May 2012. In all, primary insurance in force was about $418.4 billion as of October 31, MICA reported. Applications, meanwhile, inched up by nearly 1,600 to 40,716—again, one of the lowest levels of this year, though the increase may indicate a slight pickup in activity ahead. News was also better on the default front. Reporting companies saw 18,517 cures (up from 17,048) and 19,730 defaults (down from 20,609) in October, bringing the cure-to-default ratio up more than 11 percentage points from September to 93.9 percent. Companies represented in the report include Radian Guaranty, Mortgage Guaranty Insurance Corporation, and Genworth Mortgage Insurance Corporation. t was a meager third quarter for independent mortgage banks, which saw profits slashed in half as originations sank and production costs rose. The Mortgage Bankers Association (MBA) released recently its Quarterly Mortgage Bankers Performance Report, which measures stats at independent mortgage banks and mortgage subsidiaries of chartered banks. The report came out one day after a similar release from Richey May that showed loan production falling in the third quarter as refinances waned. According to MBA's figures, average production volume per company was $391 million in Q 3, down nearly $48 million from the prior quarter. By count, companies averaged 1,788 loans, down from 1,921 in Q2. Breaking the data down by loan type, MBA estimates the purchase share of total originations (by dollar volume) was 67 percent in the third quarter, up from 52 percent in the second. For the entire mortgage industry, the group estimates purchase share was at 49 percent in the third quarter. In terms of profits, independent mortgage banks earned an estimated $743 on each loan originated in Q 3, down from $1,528 in Q2. In basis points, the average production profit (net production income) was 38 basis points, down from 75. It was the fourth consecutive quarter in which production profits declined, MBA reported. "Third-quarter profits were reduced by half because of several factors: per-loan production expenses that reached study highs, declining production volume, and reduced secondary marketing income," said Marina Walsh, associate VP of industry analysis for MBA. Total loan production expenses—including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $6,368 per loan, the highest recorded in any quarter since MBA began releasing its report in Q 3 2008. The net cost to originate—all production operating expenses and commissions minus all fee income—was $4,573, up from $4,207 in the second quarter. All in all, the added costs and stunted production volume took a major toll at independent firms: Only 74 percent posted pre-tax net financial profits in Q 3, down from 92 percent in the second quarter. "Historically, mortgage bankers have struggled to control fixed costs and right-size in a declining market, and the increasing costs of compliance and quality control only exacerbate an already difficult situation," Walsh said. All in all, the added costs and stunted production volume took a major toll at independent firms.