Mortgage banks experienced shrinking profit margins on loan originations during the first quarter, as production costs soared and refinancing activity declined. The average loan production volume per company hit $164 million for the first three months of 2011, down from $286 million in the fourth quarter. Meanwhile the net cost to originate a loan grew to $3,540 from $2,827 the previous quarter, according to the Mortgage Bankers Association. Independent mortgage banks pulled in average profits of $346 per loan on originations last quarter, compared to an average profit of $1,082 per loan in the fourth quarter. “As in the past, mortgage companies had difficulty managing staff levels to reflect the drop in loan volume,” said Marina Walsh, associate vice president of analysis for the MBA. “This caused higher per-loan production costs. Even though overall revenues went up, they did not go up fast enough to offset the higher costs.” Personnel expenses rose to $3,640 per loan, up from $3,124 per loan in the fourth quarter. The mortgage banks also felt the pangs of changing investor expectations and new compensation plans, both of which buoyed the cost of production. In addition, the average value on new home loans during the first quarter fell to $196,456 from $208,319 during the final three months of 2010. Write to: Kerri Panchuk.