MBA: 4Q Independent Mortgage Bank Volumes Decrease, Production Profits Drop
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $575 on each loan they originated in the fourth quarter, down from $1,773 per loan in the third quarter, the Mortgage Bankers Association reported.
The Quarterly MBA Mortgage Bankers Performance Report said average production volume fell to $690 million per company in the fourth quarter, down from $764 million per company in the third quarter. Volume by count per company averaged 2,811 loans in the fourth quarter, down from 3,072 loans in the third quarter.
“Rapid increases in interest rates in the last two months of 2016 slowed mortgage activity in the fourth quarter, driving a significant decrease in loan production profits,” said MBA Vice President of Industry Analysis Marina Walsh. “Mortgage lenders reported a combination of both lower revenues and higher expenses. On the revenue side, secondary marketing income dropped as mortgage lenders wrestled with less favorable pricing and pipeline challenges. At the same time, production expenses per loan rose as fixed costs were spread over fewer loans.”
Walsh noted mortgage lenders with servicing portfolios benefited from higher net servicing financial income in the fourth quarter due to increases in the valuation of their mortgage servicing rights, driven by the same rising interest rates. “However, the reduced profitability on the production side of the business generally outweighed servicing gains,” she said.
Other key report findings:
–Average pre-tax production profit fell to 24 basis points in the fourth quarter, down from 74 bps in the third quarter. Since inception of the Performance Report in 2008, net production income has averaged 53 bps.
–Purchase share of total originations, by dollar volume, fell to 58 percent in the fourth quarter, compared to 60 percent in the third quarter. For the mortgage industry as a whole, MBA estimated the purchase share at 49 percent in the fourth quarter.
–Average loan balance for first mortgages fell to $246,473 in the fourth quarter, down from the previous study-high of $251,398 in the third quarter.
–Average pull-through rate (loan closings to applications) rose to a study-high 76.45 percent in the fourth quarter, up from 73.33 percent in the third quarter.
–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 347 basis points in the fourth quarter, down from 365 bps in the third quarter. On a per-loan basis production revenues decreased to $8,137 per loan in the fourth quarter, from $8,742 per loan in the third quarter.
–Net secondary marketing income decreased to 272 basis points in the fourth quarter, down from 291 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,433 per loan in the fourth quarter, down from $7,037 per loan in the third quarter
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–Total loan production expenses–commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–increased to $7,562 per loan in the fourth quarter, from $6,969 in the third quarter. From third quarter 2008 to the present quarter, loan production expenses have averaged $5,900 per loan.
–Personnel expenses averaged $5,001 per loan in the fourth quarter, up from $4,675 per loan in the third quarter.
–Productivity decreased to 2.7 loans originated per production employee per month in the fourth quarter, from 2.9 in the third quarter. Production employees includes sales, fulfillment and production support functions.
–Net servicing financial income improved to a year-to-date gain of $34 per loan in the fourth quarter from a year-to-date loss of $122 per loan in the third quarter.
–Including all business lines, 73 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 94 percent in the third 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-four percent of the 353 companies that reported production data for the fourth quarter were independent mortgage companies; the remaining 26 percent were subsidiaries and other non-depository institutions.
In addition to the fourth 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 the MBA website at www.mba.org/PerformanceReport.
