MBA: Q3 Per-loan Profits Double on Increased Volume, Secondary Gains

Average per-loan profits among independent mortgage banks and subsidiaries more than doubled in the third quarter according to the Mortgage Bankers Association's (MBA) Mortgage Bankers Performance Report released on Thursday.  These institutions made an average profit of $1,263 on each loan they originated during the quarter compared to $575 per loan in the second quarter.   86 percent of the firms in MBA's study posted pre-tax net financial profits in the third quarter of 2011, compared to 70 percent in the second quarter of 2011.

The volume of loans per company also jumped to an average of $237 million or 1,114 loans per company from $174 million or 866 loans per company in the second quarter.   In addition, secondary marketing income rose from $4,006 to $4,563 per loan.  Gains improved as primary-secondary spreads widened during the quarter. 

Total production operating expenses which includes commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations dropped to $5,315 per loan compared to $5,644 in the previous period while personnel expenses decreased from $3,561 per loan to $3,317.

The "net cost to originate" fell to $3,360 in the third quarter from $3,513 in the second.  This category includes all production operation expenses and commissions minus all fee income but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread. 

"Higher volume helped profitability as production costs were spread over a greater number of loans," said Marina Walsh, MBA's Associate Vice President of Industry Analysis.  "Third quarter production expenses dropped on a per-loan basis as volume rose, although expenses remained high by historical standards when compared to other quarters with similar volume."

The average production profit in basis points was 66.37bp compared to 32.86bp in the second quarter.  The MBA said this was the most favorable quarterly result in production since the refinancing wave in the third quarter of 2010 when net profits were 71.46bp.

Refinancing rose to 45 percent of total originations measured by dollar volume from 36 percent in the previous quarter.

MBA surveyed 311 institutions about their production data.  Over 72 percent of those responding were independent mortgage companies.