If there was any doubt that compliance costs are pummeling lenders' profits, the matter was officially settled on March 17. That was the day the Quarterly Mortgage Bankers Performance Report was released by the Mortgage Bankers Association (MBA) for the fourth quarter.
The report showed per-loan profits plunged to just $493 in the fourth quarter--down from $1,238 in the prior quarter. So what killed profits in last year's final quarter? Well, here's a hint: On Oct. 3 the Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure rule (TRID) took effect.
MBA noted that per-loan total production expenses in the fourth quarter reached their second-highest level in the report's history. The highest per-loan production expense number in the history of the study ($8,025) was posted in the first quarter of 2014. Yet, back then, average production volume per company was just half of what it was during 2015's final quarter.
Production-volume fluctuations create "noise," as the economists say, in the per-loan numbers for expenses. Periods of low production tend to exaggerate per-loan production expenses due to the need to maintain adequate permanent staffing and certain fixed costs whether production is booming or slow. Yet, as Marina Walsh, MBA vice president of industry analysis, pointedly said, "The increase in total loan production expenses per loan in the fourth quarter of 2015 cannot be explained solely by volume fluctuations." Walsh added, "Production profits dropped by over 60 percent in the fourth quarter of 2015 compared to the third quarter." She noted, "With the Know Before...