Revenues and general and administrative expenses for the
financial services segment decreased significantly for the year
ended December 31, 1998 compared with 1997. The decreases were primarily due to the decline in loan servicing operations
related to loan servicing portfolio sales in 1997 and the first quarter of 1998. Interest expense decreased 7.4 percent for the year ended December 31, 1998, compared with 1997, primarily due to a decrease in the warehouse holding period for mortgage loans before they are sold in the secondary market. Revenues for the financial services segment decreased in 1997 compared with the same period of 1996 due to fewer mortgage loan originations and lower loan servicing revenues which were partially offset by higher gains on sales of mortgages and servicing rights. Loan servicing revenues declined as a result of a lower portfolio balance and changes in the portfolio product mix. The decline in interest expense for 1997 was directly related to the reduced warehouse borrowings required to fund lower origination volume. General and administrative expenses declined in 1997 primarily due to improved efficiencies in the mortgage origination process and cost savings related to the disposition of the Company's wholesale mortgage origination business in 1996.
Retail operations include residential mortgage origination, loan servicing, title, escrow and homeowners insurance services for retail customers. Retail operations reported pretax earnings of $7.9 million for 1998 compared with $10.1 million for 1997 and $9.5 million for 1996. The Company sold the majority of its loan servicing portfolio in the first quarter of 1998 and realized a $6.1 million pretax gain, net of expenses and liabilities related to the sale of servicing. The decline in earnings for 1998 was primarily due to lower loan servicing income, attributable to the reduction in the portfolio, partially offset by cost reductions. Future earnings from retail operations will be negatively impacted by the sale. The 1997 results from retail operations were favorably impacted by higher gains on sales of mortgages and servicing rights and lower expenses which more than offset the effect of lower loan originations and reduced loan servicing income.
Mortgage originations for 1998 increased by 16 percent from 1997 due to higher closing volume from homebuilder loan originations and higher refinancing activity. Mortgage originations decreased in 1997 by 35 percent from 1996 primarily due to the sale of the wholesale mortgage operations which was completed in May 1996 as well as lower closing volume from spot and homebuilder loan originations.
Investment operations hold certain assets, primarily mortgage-backed securities which were obtained as a result of the exercise of redemption rights on various mortgage-backed bonds previously owned by the Company's limited-purpose subsidiaries. Pretax earnings from investment operations were $3.9 million for 1998 compared with $5.5 million for 1997 and $6.3 million for 1996. The decline in 1998 was due to the lower average portfolio balance which resulted in a decline in interest income, and the fact that 1997 included $.8 million of other income related to the redemption of certain securities. Pretax earnings were down $.8 million in 1997 compared with 1996. Although the average portfolio balance was higher in 1997, investment income included only $.8 million of other income related to the redemption of certain securities in 1997 compared with $1.3 million of such income in 1996. Results for 1996 also included $1.1 million in gains from the sale of mortgage-backed securities.
