IN LIGHT OF MELTDOWN, Most Lenders Losing Money on Average Transaction, Shedding Staff - But Many Still Barely Profitable!
OVER 100,000 MORTGAGE JOBS LOST LAST YEAR, BUT AVERAGE LENDER HAS POSITIVE NET INCOME - MORTGAGE BANKERS ASSOCIATION SURVEY!
One might assume, with inventories of homes for sale still at historically-high levels here in Chicago and elsewhere across the U.S., with prices in many Metro Areas sliding, and with mortgage lending requirements increasingly stringent month after month, that most lenders are losing money on their mortgage lending operations.
Indeed, according to a survey recently completed by the Mortgage Bankers Association, the average mortgage company lost $560 on every loan they originated in 2007. Compare that figure to robust 2003, when the average loan closed generated $1,272 in profit.
Surprisingly, the average mortgage lender is still in the black!
Of 180 mortgage lenders just surveyed by the ABA, their average pre-tax net income was just over $1 Million. Back in 2006, at the height of the housing boom in most markets, the average mortgage company earned $6.4 Million pre-tax. (Keep in mind the mortgage lending community is not only comprised of banks. A substantial share of loans were originated by thousands of independent "Mortgage Brokers" over the last decade.)
Marginal profitability might have been maintained through considerable cost cutting, mainly through the elimination of an estimated 100,000 jobs across the industry in 2007. The mortgage industry continues to trim jobs this year as well - an estimated 9,000 additional jobs were eliminated during the Third Quarter, 2008 alone.
How will lenders be impacted by the $700 Billion Financial Rescue Package just enacted? Will removing bad debt from the books of lenders, through government acquisition of shaky mortgage debt, encourage renewed lending to homeowners, and industry growth?
It's possible, of course - but that might take a while! And, of course, supply and demand factors in the housing market itself will have to balance out first.
See Mary Umberger's column in today's Chicago Tribune Real Estate Section for more info.
DEAN MOSS & DEAN'S TEAM CHICAGO
