Mortgage Profits Hit Record Lows in Q4

Profits pocketed by independent banks and banks' mortgage subsidiaries plunged in the fourth quarter of 2013 the Mortgage Bankers Association (MBA) said on Wednesday.   On a per-loan-originated basis the average profit fell from $743 in the third quarter to only $150 in the fourth.

MBA said, that these profits were at their lowest levels since it implemented its Quarterly Mortgage Bankers Performance Report in 2008; a result of loan production expenses reaching their highest level in study history.  These loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $6,959 per loan in the fourth quarter, up from $6,368 in the third quarter and of course occurred in a declining mortgage market. 

For those companies in mortgage servicing, net servicing income per loan increased to $355 in the fourth quarter from $224 in the third quarter.  In basis points (bps), the average servicing profit was 19 in the fourth quarter of 2013, compared to 12 in the third quarter.  Marina Walsh, MBA's Vice President of Industry Analysis noted the improving situation in mortgage servicing but said, "Not all mortgage companies retained mortgage servicing rights or generated margins large enough to offset production losses.  It is perhaps not surprising that only 58 percent of participating companies had overall positive pre-tax profits in the quarter." 

MBA said that the average production profits (net production income) was 9 bps in Q4 compared to 38 bps in the third quarter.  It was the fifth consecutive quarter that production profits decreased.  Secondary marketing income increased by 4 bps in the fourth quarter, to 248 bps. 

Personnel expenses averaged $4,385 per loan in the fourth quarter, up from $4,130 per loan in the third quarter.

The "net cost to originate" was $5,171 per loan in the fourth quarter, up from $4,573 in the third quarter.  This category includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

Average production volume was $367 million per company in the fourth quarter of 2013, down from $391 million per company in the third quarter.  Companies originated an average of 1,641 loans in the fourth quarter, down from 1,788 in the third quarter.

Originations for home purchases represented 69 percent of the dollar volume of originations, up from 67 percent in the previous quarter.  Industry-wide the purchase share is estimated at 47 percent in the fourth quarter, down from 49 percent in the previous period.

The productivity rate was 2.0 loans per production employee per month, a decline from 2.5 loans in the third quarter. 

Including all business lines, 58 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2013, down from 74 percent in the third quarter, and 92 percent in second quarter.  Seventy-three percent of the 299 companies that reported production data for the fourth quarter report were independent mortgage companies.