MBA: Independent Mortgage Bank Volumes Up, Production Profits Stable in 3Q

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,773 on each loan they originated in the third quarter, up from a reported gain of $1,686 per loan in the second quarter, the Mortgage Bankers Association reported in its Quarterly Mortgage Bankers Performance Report.

The report said including all business lines, 94 percent of mortgage lenders reported pre-tax net financial profits in the third quarter, compared to 90 percent in the second quarter.

“An increase in production volume and slight decrease in expenses in the third quarter kept production profits relatively stable,” said MBA Vice President of Industry Analysis Marina Walsh. “These profits would have been even higher were it not for a decline in net secondary marketing income, primarily income related to mortgage servicing rights.”

The report noted for the first time since second quarter 2015, production expenses fell below $7,000 per loan, to $6,969. “However, these expenses remain elevated by historical standards,” Walsh said. “Given the increase in loan count and the higher pull-through rate compared to the second quarter, we would have expected an even larger reduction in production expenses.”

The report said loan balances continued their upward march and reached another study-high of $247,563, “which helped keep production revenue per loan relatively flat despite a revenue drop in basis points from the previous quarter,” Walsh said.

Other key report findings:

–Average production volume rose to $764 million per company in the third quarter, up from $654 million per company in the second quarter. Volume by count per company averaged 3,072 loans in the third quarter, up from 2,721 loans in the second quarter.

–Average pre-tax production profit was rose slightly to 74 basis points in the third quarter, compared to an average net production profit of 73 bps in the second quarter. Production profits for the third quarter are also up from production profits of 55 bps in the third quarter of 2015. Since the inception of the Performance Report in third quarter 2008, net production income has averaged 53 bps.

–Purchase share of total originations, by dollar volume, fell to 60 percent in the third quarter, down from 66 percent in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share at 53 percent in the third quarter.

–Jumbo share of total first mortgage originations by dollar volume fell to 7.66 percent in the third quarter, compared to 8.49 percent in the second quarter.

–Average loan balance for first mortgages reached a study-high of $247,563 in the third quarter, from the previous study-high of $245,394 in the second quarter.

–Average pull-through rate (loan closings to applications) rose to 73.33 percent in the third quarter, from 71.06 percent in the second quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 365 basis points in the third quarter, from 372 bps in the second quarter. On a per-loan basis production revenues decreased to $8,742 per loan in the third quarter, down from $8,807 per loan in the second quarter.

–Net secondary marketing income decreased to 291 basis points in the third quarter, from 303 bps in the second quarter. On a per-loan basis, net secondary marketing income decreased to $7,037 per loan in the third quarter, from $7,196 per loan in the second quarter.

–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–decreased to $6,969 per loan in the third quarter, from $7,120 in the second quarter. For the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $5,850 per loan.

–Personnel expenses averaged $4,675 per loan in the third quarter, down from $4,771 per loan in the second quarter.

–Productivity increased to 2.9 loans originated per production employee per month in the third quarter, from 2.5 in the second quarter. Production employees includes sales, fulfillment and production support functions.

–Including all business lines, 94 percent of the firms in the study posted pre-tax net financial profits in the third quarter, from 90 percent in the second quarter.

MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Seventy-four percent of the 345 companies that reported production data for the third quarter were independent mortgage companies; the remaining 26 percent were subsidiaries and other non-depository institutions.

In addition to the third quarter report, the Annual Performance Report on 2015 data is also available. MBA produces five performance report publications per year: four quarterly reports and one annual report. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.