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The Latest SERVICING Or ig i nat ion Servicing Gains Offset Production Declines in Q3 M advisory company's analytical technology designed to provide benchmarking information taken exclusively from independent mortgage firms, a group rapidly gaining market share. Among independent companies, overall production fell 12.4 percent quarter-over-quarter, owing largely to a 42 percent decline in refinances, Richey May reported. (According to Richey, managing partner at Richey May. "Some lenders have sold portions of their servicing portfolios to compensate for decreases in production and profitability. Others are incorporating servicing as part of their business models, which can be a good option for lenders that can handle the cash flow constraints that are typical of mortgage servicing." Among other findings: Richey May observed some easing in credit standards, with the share of borrowers with FICO scores less than 700 increasing to 30 percent in Q 3. Many FDIC-insured banks saw their Q3 earnings dip because of mounting legal costs. F or the first time in more than four years, banks insured by the FDIC reported an annual loss, according to the FDIC's Quarterly Banking Profile. At $36 million, the net income of FDIC-insured banks in the third quarter is $1.5 million below earnings reported in the third quarter of 2012. The drop in earnings is "mainly attributable to a $4 billion increase in litigation expenses in one institution," said FDIC Chairman Martin J. Gruenberg during a recent press conference. "Had it not been for that, the upward trend in earnings would have continued for the industry," Gruenberg continued. Gruenberg also pointed out a secondary source of the decline: "a reduction in mortgage lending activity," which led to a decline in net operating revenue. Mortgage originations dropped 30 percent from the second quarter, and mortgage sales slipped 24 percent. The FDIC reported a $4 billion decline in quarterly noninterest income from the sale, securitization, and servicing of oneto four-family residential mortgage loans. Balances of one-to four-family residential mortgages declined 0.7 percent to $13.7 billion over the quarter. Home equity lines of credit decreased 2.1 percent to $10.9 billion. All other loan types increased over the quarter, according to the FDIC's report. Delinquent loans 90 or more days past due declined 7.7 percent at FDIC-insured banks in the third quarter, and a decline was evident across all loan categories. Among one-to-four-family residential real estate loans, delinquent loans fell 7.9 percent over the quarter. se c on da r y m a r k e t Beleaguered by Legal Fees Net operating revenue and net interest income were both down over the year in the third quarter, falling $6.1 billion and $1.3 billion, respectively. "The one significant positive contribution to third-quarter earnings came from lower loan-loss provisions," the FDIC stated in its report. Banks contributed $5.8 billion to their loan loss provisions in the third quarter, down 60.4 percent from 2012. This is the smallest loan loss provision the FDIC has reported since the third quarter of 1999, and it is also the 14th consecutive quarter of declining loan loss provisions. The FDIC also reported declines in failing and problem institutions in the third quarter. Six institutions collapsed in the third quarter, and 515 were considered "problem" banks, down from 553 in the previous quarter. "Overall, most of the positive trends we've been seeing in industry performance continued in the third quarter," Gruenberg said. The M Report a na ly t ic s ortgage loan production suffered among independent mortgage bankers throughout the third quarter, but servicing revenues are helping to ease the pain for those with portfolios, Richey May & Co. revealed in its latest quarterly trend report. The survey was put together using Richey May Select, the origination data gathered by technology provider Ellie Mae, refinance share averaged 44 percent throughout the quarter.) Loan margins also fell, dropping 42 basis points compared to Q2. Overall, net income declined 60 basis points from the second quarter, though a 0.07 percent increase in the average value of servicing portfolios helped offset losses at those with servicing interests, Richey May reported. "Servicing is definitely playing a role in offsetting the declines in origination volume," said Ken s e r v ic i ng Loan production found balance within the servicing realm. | 45