Mega-Servicers Score Highest.

Byline: Ted Cornwell

Washington-Servicers participating in the annual cost study put out by the Mortgage Bankers Association turned a profit and kept costs under control last year, but increasingly the largest firms are pulling way ahead of the pack in terms of achieving operational efficiencies.

But while big companies managed to eke out productivity gains last year, an economist at the MBA says rising delinquencies and defaults will put pressure on servicing expenses going forward.

Last year, participants in the MBA's cost study earned an average of $109 in financial income per loan from servicing, almost double the amount reported in 2006. The increase reflected higher servicing fees (driven by larger loan balances) and better valuation and hedging results for mortgage servicing rights. The economic environment also meant servicers faced less portfolio "churning" as a result of refinancing.

But some of the study's real surprises came from their operational results. Direct servicing net income, which measures servicing and ancillary fees minus expenses, rose to $430 per loan in 2007, up from $406 in 2006.

Average servicing fees rose from $489 in 2006 to $511 in 2007. The average loan balance rose 7% to $152,251 in 2007.

Direct servicing expense actually fell to $81 per loan last year, down from $83 the year before. But servicing expenses remained higher than in 2004 and 2005, near the peak of the housing boom.