MBA: 3Q Independent Mortgage Bank Production Profits Down

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $929 on each loan they originated in the third quarter, down from $1,122 per loan in the second quarter, the Mortgage Bankers Association reported Thursday.

The MBA Quarterly Mortgage Bankers Performance Report also said average production volume was $569 million per company in the third quarter, up from $526 million per company in the second quarter.

MBA Vice President of Industry Analysis Marina Walsh said the drop in third quarter profits came at the expense of higher loan production expenses.

“Despite rising average production volume, production expenses grew to $8,060 per loan–the second highest level reported since the inception of our study in the third quarter of 2008,” Walsh said. “Production revenues remained relatively flat, with a minimal uptick in per-loan production revenues resulting from higher loan balances.”

Walsh noted historically for this study, average production profits in the third quarter of the year have performed slightly below the second quarter. “But production profits were also down in relation to historical averages for the third quarter,” she said.

“For those mortgage bankers holding mortgage servicing rights, lower MSR valuation losses helped overall profitability,” Walsh said.

Other key findings:

–Loan volume by count per company averaged 2,341 loans in the third quarter, up from 2,177 loans in the second quarter. For the mortgage industry as a whole, MBA estimated production volume in the third quarter as flat compared to the previous quarter.

–Average pre-tax production profit fell to 40 basis points in the third quarter, down from an 46 bps in the second quarter.

–Purchase share of total originations, by dollar volume, fell to 74 percent in the third quarter, down from the study high of 76 percent in the second quarter. For the mortgage industry as a whole, MBA estimated purchase share at 68 percent in the third quarter.

–Average loan balances for first mortgages reached $251,109 in the third quarter, up from $248,619 in the second quarter.

–Average pull-through rate (loan closings to applications) rose to 73 percent in the third quarter, up from 72 percent in the second quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased slightly to 375 basis points in the third quarter, from 377 bps in the second quarter. However, with rising loan balances, production revenues increased to $8,990 per loan in the third quarter, from $8,896 per loan in the second quarter.

–Net secondary marketing income decreased to 298 basis points in the third quarter, down from 302 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $7,181 per loan in the third quarter from $7,160 per loan in the second quarter.

–Total loan production expenses, including commissions, compensation, occupancy, equipment and other production expenses and corporate allocations, increased to $8,060 per loan in the third quarter, from $7,774 in the second quarter. For the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $6,090 per loan.

–Personnel expenses averaged $5,279 per loan in the third quarter, up from $5,119 per loan in the second quarter.

–Productivity decreased to 2.1 loans originated per production employee per month in the third quarter, from 2.5 in the second quarter. Production employees includes sales, fulfillment and production support functions.

–Net servicing financial income rose to $79 per loan in the third quarter, up from $27 per loan in the second quarter.

–Including all business lines, 77 percent of firms in the study posted pre-tax net financial profits in the third quarter, down from 86 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. MBA said 75 percent of the 347 companies that reported production data for the third quarter were independent mortgage companies; the remaining 25 percent were subsidiaries and other non-depository institutions.

In addition to the third 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. The reports can be purchased by phone at (202) 557-2879 or online at www.mba.org/PerformanceReport.