MBA: Independent Mortgage Bank Volumes Decrease, Production Profits Drop in 1st Quarter

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $224 on each loan they originated in the first quarter, down by more than half from the fourth quarter, the Mortgage Bankers Association reported.

The MBA Quarterly Mortgage Bankers Performance Report said first quarter net gains fell from a reported gain of $575 per loan in the fourth quarter.

“The drop in overall production volume in the first quarter of 2017 resulted in the highest per-loan production expenses reported since inception of our study in the third quarter of 2008,” said MBA Vice President of Industry Analysis Marina Walsh. “While higher production revenues mitigated a portion of the cost increase, production profitability nonetheless declined by more than half the previous quarter. For those mortgage bankers holding mortgage servicing rights, an increase in mortgage interest rates resulted in MSR valuation gains and helped overall profitability.”

Other key report findings:

–Average production volume fell to $455 million per company in the first quarter, down from $690 million per company in the fourth quarter. Volume by count per company averaged 1,944 loans in the first quarter, down from 2,811 loans in the fourth quarter.

–Average pre-tax production profit fell to 10 basis points in the first quarter, down from an average net production profit of 24 bps in the fourth quarter. Since inception of the Performance Report in third quarter 2008, net production income has averaged 51 bps.

–Purchase share of total originations, by dollar volume, rose to 68 percent in the first quarter, compared to 58 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimated purchase share at 59 percent in the first quarter.

–Average loan balance for first mortgages fell to $242,949 in the first quarter, down from $246,473 in the fourth quarter.

–Average pull-through rate (loan closings to applications) fell to 70 percent in the first quarter, down from the study-high of 76 percent in the fourth quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 395 basis points in the first quarter, up from 347 bps in the fourth quarter. On a per-loan basis, production revenues increased to $9,111 per loan in the first quarter, from $8,137 per loan in the fourth quarter.

–Net secondary marketing income increased to 322 basis points in the first quarter, up from 272 bps in the fourth quarter. On a per-loan basis, net secondary marketing income increased to $7,469 per loan in the first quarter, up from $6,433 per loan in the fourth quarter.

–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–increased to a study-high of $8,887 per loan in the first quarter, from $7,562 in the fourth quarter. For the period from third quarter 2008 to the present quarter, loan production expenses averaged $5,985 per loan.

–Personnel expenses averaged $5,802 per loan in the first quarter, up from $5,001 per loan in the fourth quarter.

–Productivity decreased to 1.7 loans originated per production employee per month in the first quarter, from 2.7 in the fourth quarter. Production employees includes sales, fulfillment and production support functions.

–Net servicing financial income rose to $225 per loan in the first quarter, compared to a loss of $118 per loan in the first quarter. As with the fourth quarter, mortgage companies reported overall gains in the valuation of servicing rights.

–Including all business lines, 67 percent of the firms in the study posted pre-tax net financial profits in the first quarter, down from 73 percent in the fourth quarter.

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-six percent of the 342 companies that reported production data for the first quarter were independent mortgage companies and the remaining 24 percent were subsidiaries and other non-depository institutions.

In addition to the first quarter report, the Annual Performance Report on 2016 data is also available. MBA produces five performance report publications per year: four quarterly reports and one annual report. Reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.