MBA: 2Q Mortgage Production Profits at Highest Level Since 2016

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,675 on each loan they originated in the second quarter, up from $285 per loan in the first quarter, the Mortgage Bankers Association reported on Thursday.

MBA Vice President of Industry Analysis Marina Walsh said production profits in the second quarter were the best MBA has seen since third quarter 2016 ($1,773 per loan), as production volume rose and expenses declined significantly. She added the drop in production expenses, by more than $1,500 per loan, was the largest quarterly decline reported since the inception of this study in 2008.

“With anticipated increases in prepayment activity, we saw hits to servicing profitability resulting from mortgage servicing right markdowns and amortization,” Walsh said. “Nonetheless, the profitability on the production side of the business generally outweighed servicing losses.”

Key findings of the MBA second quarter Quarterly Mortgage Bankers Performance Report:

–Average pre-tax production profit rose to 64 basis points in the second quarter, up from an average net production profit of 8 bps in the first quarter.

–Average production volume grew to $601 million per company in the second quarter, up from $385 million per company in the first quarter. Volume by count per company averaged 2,312 loans in the second quarter, up from 1,571 loans last quarter.

–Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 370 bps in the second quarter, down from 393 bps in the first quarter. On a per-loan basis, production revenues decreased to $9,400 per loan in the second quarter, down from a study high of $9,584 per loan in the first quarter.

–Net secondary marketing income decreased to 287 bps in the second quarter, down from 308 bps in the first quarter. On a per-loan basis, net secondary marketing income decreased to $7,411 per loan in the second quarter from $7,591 per loan in the first quarter.

–The purchase share of total originations, by dollar volume, decreased to 74 percent in the second quarter from 76 percent in the first quarter. For the mortgage industry as a whole, MBA estimates the purchase share at 71 percent last quarter.

–Average loan balance for first mortgages reached a study high of $268,520 in the second quarter, up from $257,374 in the first quarter.

–Average pull-through rate (loan closings to applications) rose to 70 percent in the second quarter, up from 69 percent in the first quarter.

–Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–decreased to $7,725 per loan in the second quarter, down from a study high of $9,299 per loan in the first quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,465 per loan.

–Personnel expenses averaged $5,186 per loan in the second quarter, down from $5,931 per loan in the first quarter.

–Productivity increased to 2.3 loans originated per production employee per month in the second quarter, up from 1.8 loans per production employee per month in the first quarter. Production employees includes sales, fulfillment and production support functions.

–Servicing net financial income for the second quarter (without annualizing) showed a loss of $74 per loan, compared to a loss of $37 per loan in the first 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, was $42 per loan in the second quarter, compared to $58 per loan in the first quarter.

–Including all business lines (both production and servicing), 85 percent of the firms in the study posted pre-tax net financial profits in the second quarter, up from 59 percent in the first 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 328 companies that reported production data for the second quarter of 2019 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 on the MBA website by visiting www.mba.org/PerformanceReport.