MBA: Independent Mortgage Bank Profits Up in 1Q, Down From Year Ago

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $825 on each loan they originated in the first quarter, up from $493 per loan in the fourth quarter, the Mortgage Bankers Association reported this morning.

The MBA Quarterly Mortgage Bankers Performance Report said average production volume fell to $517 million per company in the first quarter, down from $538 million in the fourth quarter. Volume by count per company averaged 2,196 loans in the first quarter, down from 2,265 loans in the fourth quarter.

“Production profits in the first quarter of 2016 showed modest improvement over the fourth quarter of 2015 despite declining volume and an increase in per-loan production expenses,” said MBA Vice President of Industry Analysis Marina Walsh. “On the servicing side of the business, a drop in mortgage interest rates resulted in mortgage servicing right impairments and hurt profitability.”

Other key report findings:
–Average pre-tax production profit rose to 33 basis points in the first quarter, compared to 22 bps in the fourth quarter. However, production profits for the first quarter fell from 60 bps a year ago. Since inception of the Performance Report in third quarter 2008, net production income has averaged 52 bps.
–Purchase share of total originations, by dollar volume, fell to 61 percent in the first quarter, down from 66 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimated the purchase share at 53 percent in the first quarter.
–Jumbo share of total first mortgage originations by dollar volume was constant at 9.35 percent in the first quarter, compared to 9.34 percent in the fourth quarter.
–Average loan balance for first mortgages was $237,419 in the first quarter, compared to $238,481 in the fourth quarter.
–Total production revenue (fee income, secondary marking income and warehouse spread) increased to 378 bps in the first quarter, compared to 362 bps in the fourth quarter.
–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–increased to $7,845 per loan in the first quarter, from $7,747 in the fourth quarter.
–Personnel expenses averaged $5,141 per loan in the first quarter, up slightly from $5,131 in the fourth quarter.
–Productivity decreased to 2.0 loans originated per production employee per month in the first quarter, compared to 2.4 in the fourth quarter.
–Servicing net financial income for the first quarter fell to a loss of $118 per loan, compared to a gain of $107 per loan in the fourth quarter. Servicing operating income, which excludes mortgage servicing rights amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, remained relatively flat at $205 per loan in the first quarter, from $207 per loan in the previous quarter.
–Including all business lines, 73 percent of the firms in the study posted pre-tax net financial profits in the first quarter, from 72 percent in the fourth quarter. This marks a slight improvement over the previous quarter, but a decline from a year ago, when 88 percent of firms in the study posted pre-tax net financial profits.

The MBA 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-three percent of the 347 companies that reported production data for the first quarter were independent mortgage companies; the remaining 27 percent were subsidiaries and other non-depository institutions.

In addition to the first 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.