2001 production margins exceed last REFI boom.

Position:Business Alert - Brief Article - Statistical Data Included

MORTGAGE INDUSTRY PRODUCTION MARGINS during the 2001 refinancing wave exceeded levels reached during the last refinancing boom in 1998, according to figures from the latest Peer Group Roundtables (PGR) conducted by MBA and The STRATMOR Group. On the production side, fully loaded pretax weighted average production margins rose to 70 basis points in 2001 (i.e., 0.70 percent of the principal balance of loans produced) from 6 basis points in 2000. The 2001 production margin was 19 basis points higher than the average margin of 51 basis points earned during the 1998 refinancing year.

The improving production margins across refinancing cycles can be attributed to several factors, according to MBA. Industrywide, mortgage originations totaled $2.03 trillion in 2001, compared with $1.51 trillion in 1998. At the same time, the refinancing share of originations grew to 57 percent in 2001, compared with 50 percent in 1998. Second, federal rate cuts for short-term borrowing improved net interest spread income on warehoused loans. Third, based on the PGR data, company staffing increases were minimized, increasing only 9 percent over 2000 levels despite increased production.

On a year-over-year basis, the weighted average profit margins for retail production channel showed the most dramatic change. The average retail profit margin rose to 80 basis points in 2001, from -3 basis points in 2000 and 60 basis points in 1998. This translates into pretax net income of $1,212 per loan compared with a net loss of $37 per loan in 2000 and a net gain of...

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