MBA: Independent Mortgage Bank 4Q Production Profits Down

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $237 on each loan they originated in the fourth quarter, down from $929 per loan in the third quarter, the Mortgage Bankers Association reported Friday.

The MBA Quarterly Mortgage Bankers Performance Report said average production volume fell to $505 million per company in the fourth quarter, down from $569 million in the third quarter. Volume by count per company averaged 2,059 loans in the fourth quarter, down from 2,341 loans in the third quarter. For the mortgage industry as a whole, MBA estimated production volume in the fourth quarter lower compared to the previous quarter.

“Production profits plummeted in the fourth quarter of 2017,” said MBA Vice President of Industry Analysis Marina Walsh. “Purchase volume was lower in the fourth quarter, in part due to normal seasonality. At the same time, there was no substantial pickup in refinancings.”

Walsh noted while cash-out refinancings grew incrementally to 16 percent of overall production volume in the fourth quarter, from 14 percent, rate-term refinancings continued to be less than 13 percent of overall production volume, on par with the previous two quarters. “The end result was lower overall volume and production expenses that grew to $8,475 per loan, the second highest level reported since the inception of our study in 2008,” she said. “Production revenues per loan also dropped, despite the average loan balance reaching a study-high.”

Other key report findings:

–Average pre-tax production profit fell to 9 basis points in the fourth quarter, down from 40 bps in the third quarter.

–The purchase share of total originations, by dollar volume, fell to 71 percent in the fourth quarter, down from 74 percent in the third quarter. For the mortgage industry as a whole, MBA estimated purchase share at 63 percent in the fourth quarter.

–Average loan balance for first mortgages reached a study high of $254,291 in the fourth quarter, up from $251,109 in the third quarter.

–Average pull-through rate (loan closings to applications) rose to 76 percent in the fourth quarter, up from 73 percent in the third quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 362 basis points in the fourth quarter, from 375 bps in the third quarter. On a per-loan basis, production revenues decreased to $8,712 per loan in the fourth quarter, from $8,990 per loan in the third quarter.

–Net secondary marketing income decreased to 291 basis points in the fourth quarter, down from 298 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $7,037 per loan in the fourth quarter from $7,181 per loan in the third quarter.

–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–increased to $8,475 per loan in the fourth quarter, from $8,060 in the third quarter. From third quarter 2008 to present, loan production expenses averaged $6,153 per loan.

–Personnel expenses averaged $5,560 per loan in the fourth quarter, up from $5,279 per loan in the third quarter.

–Productivity decreased slightly to 2.0 loans originated per production employee per month in the fourth quarter, from 2.1 in the third quarter. Production employees includes sales, fulfillment and production support functions.

–Net servicing financial income fell to $33 per loan in the fourth quarter, down from $79 per loan in the third quarter.

–Including all business lines, 56 percent of firms in the study posted pre-tax net financial profits in the fourth quarter, down from 77 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-seven percent of the 329 companies that reported production data for the fourth quarter were independent mortgage companies; the remaining 23 percent were subsidiaries and other non-depository institutions.

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: www.mba.org/PerformanceReport.