Lenders are still making a pile of money on every loan they originate, but that pile is slightly smaller than it used to be. According to a report from the Mortgage Bankers Association (MBA), the average profit on a loan is down nearly $200, “primarily [due to] rising costs”. Fortunately, while historically rising costs have led to fewer loan originations, at least thus far loan origination volumes have continued to climb. Loan costs include commissions, compensation, occupancy and equipment, production expenses, and corporate allocations. Ultimately, the net cost to originate a loan in Q4 2012 was $3,813, compared to $3,353 in Q3 2012.
Although many lenders turned a profit in 2012, the biggest winners were Fannie Mae and Freddie Mac. In fact, only Wells Fargo and JPMorgan Chase exceeded the government-controlled GSEs in terms of profitability last year, and most analysts predict that Fannie Mae could beat both lenders this year. “This should change the dialogue of what we want to do with the companies,” said Inside Mortgage Finance publisher Guy Cecala, voicing the opinion of many analysts and policymakers who believe that the GSEs’ new profitability indicates that it might be time for the government to back out of housing. In 2012, thanks to Fannie and Freddie, the government backed 86 percent of all mortgages compared to less than half (47 percent) in 2000. Supporters of rolling back government involvement say that this high level of loan originations is crowding out private capital in the lending market and diverting loan-origination profits to the federal government.
By Carole VanSickle