A San Jose house that sold this month. Record low mortgage rates are generating… (Paul Sakuma / Associated…)
Independent mortgage bankers and the home-loan arms of major banks are making the highest profit in years on loans they make and then sell, thanks to rock-bottom interest rates.
The record-low rates have been a recent boon to borrowers, who have enjoyed 30-year fixed-rate loans starting with a "3" for the first time.
But the rates could be still lower if lenders cut their profit margins, according to data released Friday by the Mortgage Bankers Assn.
Instead, bankers have been making extra money by keeping the rates higher than necessary, which makes them more profitable when they are sold to Fannie Mae, Freddie Mac or other buyers in the secondary markets, the Mortgage Bankers Assn. figures show.
The lenders made an average profit of $1,654 on each loan they originated in the first quarter of 2012, up 51% from $1,093 per loan a year earlier.
Secondary-market income rose from an average $3,827 per loan in the first quarter of 2011 to $5,011 in the latest quarter, a gain of 31%. The average gain on the sale of a loan was the highest since the trade group began tracking mortgage banker production profits in 2008.
One factor in the bonanza is big banks charging higher than market rates when they refinance their customers using the government's Home Affordable Refinance Program. HARP lowers the risks for banks despite the fact that the borrowers owe more than their homes are worth.
Nomura Securities analyst Brian Foran said in a recent report that the banks are typically making an extra 2% of the HARP loan amount — an additional $7,000 on a $350,000 loan, for example.
The gains in profit have come despite rising costs for personnel, commissions, office space and equipment in the mortgage industry, the trade group said.
Mortgage rates match record lows
Mortgage-aid revisions pay off big -- for lenders
Low rates make 15-year loans work for many borrowers