By Matt Joy, Princeton Mortgage Wholesale
$8,957. That was the per loan cost to originate a mortgage in Q1 of 2018. We haven’t seen the costs this high since 2013 – 2014 and it doesn’t appear that things are going to change any time soon. As an industry we lost $118 per loan in the first quarter and Loan Officers are reporting negative profits for the first time in a while. Soooo… what’s causing this mess?! The truth is it’s a bunch of different things, but let’s not act like we didn’t know this was coming. Production volume is down about 200 units since Q4, refinances are gone, LO commission is expensive, marketing costs are on the rise and even though everyone wants to automate the origination process… we’re not there yet… which means you have an operations team to keep happy and well fed (I didn’t even mention interest rates going up… *gasp*).
The only companies that are comfortable-ish right now… are the ones that held on to servicing. Think about the value of servicing asset as of today… if you did it right (which is very hard to do) you’re sitting on a portfolio of 3.5% - 3.75% interest rates that are producing for you (meaning borrowers are making their payments). Additionally, for those who are paying attention to the servicing portfolio transfer or sales… you can pretty much see which companies need cash to help them sustain their overhead. They’ll cash in that asset and live to fight another day, but you can’t always rely on that keeping you afloat. It’ll help for the time being… but the truth is if your model is not built for these valleys you might not make it long enough to see the peak again.
Oh… and if you were looking for some sort of magic answer to solve these problems we’re ALL facing, you’re out of luck. At the MBA Secondary Conference in NYC, Chief Economist Mike Fratantoni eluded to the fact that there isn’t really a solution available right now. Our best bet is this 2020 recession that everyone is “predicting”, but until that point prepare for a competitive landscape and originating every loan with minimal overhead.
Yikes… I just read through this and realized there isn’t one piece of positive information in here so… I’ll leave you with this. There is a 10-yr Treasury auction this afternoon that could drive rates down a bit and shed some light on the markets feelings toward the pain being felt with the European Union.
Talk to you soon!
MJ
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.
Photo by Mark Koellmann on Unsplash