Cost of Servicing Drops.(a report by Mortgage Bankers Association)

New York -- It may not have seemed like much of a slowdown, but a Mortgage Bankers Association study shows that the direct expense associated with loan administration declined last year as a result of fewer loan setups and payoffs.

Those improvements helped to make servicing largely a breakeven business last year, as impairment and amortization expense declined from 2003 but continued to weigh on the industry.

The weighted average direct servicing cost, which includes un-reimbursed costs associated with default management, dropped to $80 per loan from $91 in 2003.

Loan servicing productivity improved to an average of 1,188 loans serviced per employee in 2004, from 1,043 loans per servicing employee in 2003.

Reasons for the improved productivity included lower temporary labor costs (down 58%), lower permanent labor expense (down 12%), lower telephone and postal supply costs (down 21%) and improvement in un-reimbursed foreclosure and REO losses (down 32%).

The functional areas that improved the most were post-payoff processing, cashiering, escrow administration and default management. The MBA said these are all areas that benefit from fewer setups and payoffs, or from lower delinquency rates. Delinquency rates began trending down last year and have continued to edge down this year.

The MBA said the indirect costs and losses also declined last year. Indirect costs include items such as un-reimbursed interest expense and corporate allocation payments made to a parent company. Financial costs also dropped last year. MSR ...