MBA: IMBs Boast Strongest Fourth Quarter Profits Since 2012
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,182 on each loan they originated in the fourth quarter, the Mortgage Bankers Association reported this week.
The MBA Quarterly Mortgage Bankers Performance Report said despite falling from a reported gain of $1,924 per loan in the third quarter, IMBs had the most profitable fourth quarter since 2012. Additionally, 84 percent of production and servicing respondents in the survey were profitable, also the highest percentage for a fourth quarter since 2012.
“With loan volume at elevated levels, IMBs had a strong close to 2019,” said Marina Walsh, MBA Vice President of Industry Analysis. “Typically, the second and third quarters perform better than the first and fourth quarters, and last year was no different. A combination of higher per-loan production expenses and lower secondary marketing income affected quarterly profitability. Firms added approximately 10 percent more employees last quarter, and slowing rate locks towards the end of the year led to less secondary marketing.”
However, Walsh noted MBA continues to “closely monitor how the fallout from the spread of the coronavirus will affect the various, important business functions of IMBs.”
Key findings from the report:
–Average pre-tax production profit fell to 46 basis points in the fourth quarter, down from 74 bps in the third quarter. However, net production profit rose from the fourth quarter average of 35 basis points since the survey’s inception in 2008.
–Average production volume rose to $800 million per company in the fourth quarter, up from $781 million per company in the third quarter. Volume by count per company averaged 2,947 loans in the fourth quarter, up from 2,880 loans last quarter.
–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 337 bps in the fourth quarter, down from 349 bps in the third quarter. On a per-loan basis, production revenues decreased to $8,707 per loan in the fourth quarter, down from $9,142 per loan in the third quarter.
–Net secondary marketing income decreased to 263 bps in the fourth quarter, down from 281 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,848 per loan in the fourth quarter from $7,424 per loan in the third quarter.
–Purchase share of total originations, by dollar volume, decreased to 56 percent in the fourth quarter from 60 percent in the third quarter. For the mortgage industry as a whole, MBA estimates purchase share at 45 percent last quarter.
–Average loan balance for first mortgages decreased to $271,972 in the fourth quarter, down from a study high of $276,053 in the third quarter.
–Average pull-through rate (loan closings to applications) rose to 78 percent in the fourth quarter, up from 73 percent in the third quarter.
–Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,525 per loan in the fourth quarter, up from $7,217 per loan in the third quarter. From third quarter 2008 to last quarter, loan production expenses have averaged $6,504 per loan.
–Personnel expenses averaged $5,064 per loan in the fourth quarter, up from $4,871 per loan in the third quarter.
–Productivity decreased to 2.6 loans originated per production employee per month in the fourth quarter, down from 3.1 loans per production employee per month in the third quarter. Production employees includes sales, fulfillment and production support functions.
–Servicing net financial income for the fourth quarter (without annualizing) rose to $0 per loan, compared to a loss of $62 per loan in the third quarter. Servicing operating income, which excludes MSR 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 $44 per loan in the fourth quarter, compared to $43 per loan in the third quarter.
–Including all business lines (both production and servicing), 84 percent of firms in the study posted pre-tax net financial profits in the fourth quarter, down from 91 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. Eighty percent of the 331 companies that reported production data for the fourth 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 also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.