A Silver Lining.(mortgage industry profit margins)(Brief Article)(Industry Overview)

Last year, the mortgage industry achieved the highest profit margins from loan production ever, helped by strong refinancing volume and the efficiencies created by automated underwriting. But that may be little consolation for loan servicing managers. 2001 was a busy year for servicers as well. The challenge of managing portfolio runoff and the boarding of new loans stretched many firms thin last year. Then there were the financial results to report.

According to the most recent Peer Group Roundtable study conducted by the Mortgage Bankers Association and The Stratmor Group, lenders lost money from loan servicing last year. Big time.

Net servicing financial income, which includes amortization of servicing rights, impairment, hedging and sale of servicing rights, dropped to a loss of $17 per loan in 2001, according to the MBA/Stratmor Group analysis. That compares to net income of $106 per loan in 2000. Sharp writedowns and amortization of mortgage servicing rights were the culprits, not surprisingly, as prepayment speeds skyrocketed due to refinancing.

In fact, bad as the writedowns were for some lenders, we at MSN were surprised they were not worse industrywide. Especially since one of the study's authors told us that some of the nation's large lenders do not hedge their MSR asset at all - ...