MBA: 2Q IMB Profits Improve from 1Q, Down from Year Ago

Mortgage bank performance improved in the second quarter from a dismal first quarter, but fell from a year ago, the Mortgage Bankers Association reported yesterday.

The MBA Quarterly Mortgage Bankers Performance Report said independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $580 on each loan they originated in the second quarter, up from a reported loss of $118 per loan in the first quarter. However, profits fell on a year-over-year basis and fell below typical second quarter results.

MBA Vice President of Industry Analysis Marina Walsh said when measured in basis points, pre-tax net production income reached its lowest level for any second quarter since the report’s inception in 2008.

“After an exceptionally weak start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season,” Walsh said. “Mortgage originators evidently responded to first quarter losses by reducing their expenses in the second quarter, as production expenses dropped by over $1,000 per loan. However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts.”

Other key report findings:

–Average production volume rose to $531 million per company in the second quarter, up from $450 million per company in the first quarter. Volume by count per company averaged 2,180 loans in the second quarter, up from 1,866 loans in the first quarter. For the mortgage industry as a whole, MBA estimated production volume in the second quarter were higher compared to the previous quarter.

–Average pre-tax production profit rose to 21 basis points in the second quarter, up from an average net production loss of eight bps in the first quarter, but down 24 bps from second quarter 2017.

–Purchase share of total originations, by dollar volume, increased to 81 percent in the second quarter, its highest level since inception of the study in Q3 2008. For the mortgage industry as a whole, MBA estimated purchase share at 74 percent in the second quarter.

–Average loan balance for first mortgages reached a study high of $255,136 in the second quarter, up from $249,041 in the first quarter.

–Average pull-through rate (loan closings to applications) rose to 72 percent in the second quarter, up from 70 percent in the first quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 347 basis points in the second quarter, down from 370 bps in the first quarter. On a per-loan basis, production revenues decreased to $8,458 per loan in the second quarter, from $8,840 per loan in the first quarter.

–Net secondary marketing income decreased to 271 basis points in the second quarter, from 292 bps in the first quarter. On a per-loan basis, net secondary marketing income decreased to $6,650 per loan in the second quarter from $7,040 per loan in the first quarter.

–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–decreased to $7,877 per loan in the second quarter, from a study high of $8,957 per loan in the first quarter. From third quarter 2008 to the present quarter, loan production expenses have averaged $6,266 per loan.

–Personnel expenses averaged $5,195 per loan in the second quarter, down from $5,899 per loan in the first quarter.

–Productivity increased slightly to 2.1 loans originated per production employee per month in the second quarter, from 1.9 in the first quarter. Production employees includes sales, fulfillment and production support functions.

–Including all business lines (both production and servicing), 77 percent of firms in the study posted pre-tax net financial profits in the second quarter, up from 60 percent in the first quarter.

The MBA Mortgage Bankers Performance Report series offers 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 78 percent of the 343 companies that reported production data for the second quarter were independent mortgage companies; the remaining 22 percent were subsidiaries and other non-depository institutions.

In addition to the second quarter report, the Annual Performance Report on 2017 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 MBA’s website by visiting www.mba.org/PerformanceReport.