Why US Lenders and Banks Are Reaping Mortgage Profits


What explains the increase in profits for mortgage  companies? First, it is more expensive to originate a mortgage-refinance today than in the past.
Guarantee fees: Fannie Mae (FNMA) and Freddie Mac (FMCC) have boosted their guarantee fees that they charge to lenders. These have gone up by around one-quarter of one percentage point over the past year.
Loan put-backs: Fannie and Freddie have also become much more aggressive about putting back defaulted loans to lenders when they find underwriting flaws. Banks have faced billions of dollars in losses, and they have tightened up their standards and are collecting mountains of paperwork every borrower file that they underwrite. This means it takes longer to process loans.
Mortgage servicing values: The cost of mortgage servicing, or collecting payments and handling delinquent mortgages, has gone up.
Hedging lending costs: Because it takes longer to originate loans, banks are having to pay for longer rate locks, which may boost the cost of loans.
Mortgage production costs: Licensing of loan officers, higher fixed costs in paying those loan officers, and other production expenses have gone up. It is more expensive to find, train, and pay loan officers and to bring in borrowers than in the past. Read the original WSJ article.


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