For Originators in Q1, Breaking Even was a Win

The Mortgage Bankers Association is reporting a net per-loan loss was suffered by those independent mortgage banks and mortgage subsidiaries of chartered banks which participated in its first quarter performance survey.  Banks reported that the $150 profit per loan they netted in the fourth quarter of 2013 turned into a net loss of $194 in the first quarter of 2014.

"The significant overall production volume decline in the first quarter hurt mortgage bankers," said Marina Walsh, MBA's Vice President of Industry Analysis.  "Purchase volume did not pick-up, while refinancing volume dropped and costs continued to rise.  Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome."

MBA's Quarterly Mortgage Bankers Performance Report showed average production loss during the quarter was 8.31 basis points compared to a production profit of 8.72 basis points the previous quarter.  This was the sixth consecutive quarter of declining production income.

Companies had an average production volume of $274 million on an average loan volume of 1,248.  This is a significant downturn from the $367 million from 1,641 loans that were the averages in the fourth quarter of 2013.  

MBA said that 331 companies reported production data for the first quarter.  Seventy-five percent were independent mortgage companies and the remaining 25 percent were subsidiaries and other non-depository institutions. 

The purchase share of total originations, by dollar volume, was relatively flat at 68 percent in the first quarter of 2014.   For the mortgage industry as a whole, MBA estimates the purchase share at 51 percent in the first quarter of 2014, from 47 percent in the fourth quarter of 2013.

Total loan production expenses including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations, increased to $8,025 per loan in the first quarter from $6,959.  These expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.  Personnel expenses averaged $5,048 per loan in the first quarter compared to $4,385 in the fourth quarter.

The "net cost to originate" was $6,253 per loan. This 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. This line item averaged $5,171 per loan in the fourth quarter of 2013.  Secondary marketing income increased to 277 basis points in the first quarter, compared to 248 basis points in the fourth quarter of 2013.

Companies originated 1.7 loans per production employee per month in the first quarter, down from 2 loans in the fourth quarter of 2013.

Including all business lines, 54 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2014, down from 58 percent in fourth quarter of 2013, and 94 percent in the first quarter of 2013.