Mortgage Banking Profits Hit Hard in 2nd Half of 2013

Mortgage banks had what the Mortgage Bankers Association (MBA) termed "respectable" production profits in 2013, even though they were dramatically lower than in 2012 and declined precipitously from the first half of 2013 to the second. MBA's Annual Mortgage Bankers Performance Report said that banks responding to its survey posted average per loan profits of $1,252 in 2013 compared to $2,199 per loan originated in 2012.  Of the 242 firms that reported production, 73 percent were independent mortgage companies; the remaining 27 percent were subsidiaries of chartered banks and other non-depository institutions.

"Full-year 2013 net production profits were respectable," said Marina Walsh, MBA's Vice President of Industry Analysis.  "In fact, they were the second highest recorded since inception of the Performance Report in 2008.  However, net production profits in the second half of 2013 were substantially lower than those in the first half of 2013.  While secondary marketing gains remained relatively strong throughout the year, per-loan production expenses escalated in the second half of 2013."

Average production profit (net production income) was 61 basis points in 2013, compared to 108 basis points in 2012.  However that production income averaged 80 basis points in the first half of the year then dropped to 27 basis points in the second half.

Including all business lines, 91 percent of the firms in the study posted pre-tax net financial profits in 2013, down from 97 percent in 2012.  In the first half of 2013 95 percent of reporting firms posted pre-tax financial profits, compared to 69 percent in the second half of 2013.

Commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations increased to $5,948 per loan in 2013 compared to $5,137 in 2012.  In the first half of 2013, total production expenses averaged $5,743 per loan, then rose to $6,539 per loan in the second half of 2013.  Personnel expenses averaged $3,910 per loan in 2013, up from $3,285 per loan in 2012.

The "net cost to originate" which includes all production operating expenses and commission minus all fee income was $4,298 per loan in 2013, up from $3,323 in 2012.  Net cost to originate excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

Average production volume was $1.75 billion (7,857 loans) per company in 2013, compared to $1.72 billion (7,699 loans) per company in 2012.  For those companies who responded to both 2012 and 2013 MBA surveys the average production volume was flat at $1.81 billion (8,083 loans in 2013 and 8,098 loans in 2012).  Each production employee originated 2.6 loans per month during the year compared to 3.7 loans in 2012.