MBA: IMB Profits Rise to Near Seven-Year High in 3Q

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,924 on each loan they originated in the third quarter, up from $1,675 per loan in the second quarter, the Mortgage Bankers Association reported this morning.

The MBA 3Q Mortgage Bankers Performance Report also reported average pre-tax production profit rose to 74 basis points in the third quarter, up from an average net production profit of 64 bps in the second quarter.

Marina Walsh

“A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012 ($2,256 per loan),” said Marina Walsh, MBA Vice President of Industry Analysis. “The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue.”

Walsh noted with higher prepayment activity seen from borrowers refinancing, net servicing income did take a hit for the second straight quarter. But “overall, it was a strong summer for independent mortgage banks, with 91 percent reporting profitability.”

Other report findings:

•           Average production volume rose to $781 million per company in the third quarter, up from $601 million in the second quarter. Volume by count per company averaged 2,880 loans in the third quarter, up from 2,312 loans last quarter.

•           Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 349 bps in the third quarter, down from 370 bps in the second quarter. On a per-loan basis, production revenues decreased to $9,142 per loan in the third quarter, down from $9,400 per loan in the second quarter.

•           Net secondary marketing income decreased to 281 bps in the third quarter, down from 287 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $7,424 per loan in the third quarter from $7,411 per loan in the second quarter.

•           Purchase share of total originations, by dollar volume, decreased to 60 percent in the third quarter from 74 percent in the second quarter. For the mortgage industry as a whole, MBA estimated purchase share at 62 percent last quarter.

•           Average loan balance for first mortgages reached a study high of $276,053 in the third quarter, up from $268,520 in the second quarter.

•           Average pull-through rate (loan closings to applications) rose to 73 percent in the third quarter, up from 70 percent in the second quarter.

•           Total loan production expenses–commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–decreased to $7,217 per loan in the third quarter, down from $7,725 per loan in the second quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,481 per loan.

•           Personnel expenses averaged $4,871 per loan in the third quarter, down from $5,186 per loan in the second quarter.

•           Productivity increased to 3.1 loans originated per production employee per month in the third quarter, up from 2.3 loans per production employee per month in the second quarter. Production employees includes sales, fulfillment and production support functions.

•           Servicing net financial income for the third quarter (without annualizing) represented a loss of $62 per loan, compared to a loss of $74 per loan in the second 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, rose to $43 per loan in the third quarter, compared to $42 per loan in the second quarter.

•           Including all business lines (both production and servicing), 91 percent of the firms in the study posted pre-tax net financial profits in the third quarter, up from 85 percent in the second 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. Eighty percent of the 338 companies that reported production data for the third quarter were independent mortgage companies; the remaining 20 percent were subsidiaries and other non-depository institutions.

MBA produces five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. The reports can be purchased from MBA by visiting www.mba.org/PerformanceReport.