Despite Larger Loans and More of Them, Mortgage Profits Dip

Mortgage bankers reported a slight decrease in profits during the third quarter of 2014, with gains per loan decreasing even as volume grew and the size of the loans reached the highest level since the Mortgage Bankers Association (MBA) started keeping track.

MBA said that independent mortgage banks and mortgage subsidiaries of chartered banks responding to its survey reported a net gain of $897 on each loan originated during the quarter.  This was down from the $954 per loan reported in the second quarter.  MBA said a decrease in secondary market income offset the benefits derived from higher production volume and bigger loans.

The average production profit was 42 basis points (bps) compared to 46 bps in the second quarter.  MBA said that since it began publishing is Quarterly Mortgage Bankers Performance Report in the third quarter of 2008 net production income has averaged 54 bps with a median of 50.

Production volume averaged $437 million, up 16 percent from $378 million averaged per company in the previous quarter.  Companies had an average volume of 1,901 loans in the third quarter compared to 1,676 in the second.

Jumbo loans continued to increase their share of first mortgage originations, representing 9.4 percent in the third quarter, the highest since the inception of the Production Report.  This is compatible with information from MBA's Weekly Mortgage Applications Survey as well as credit availability data showing strong growth in these larger loans.  In line with this increase, the average balance for first mortgage originations was $231,914 compared to $225,762 in the second quarter and the highest since at least 2008.

Purchase loans represented 72 percent of originations, down from 74 percent in the second quarter.  MBA estimates purchase loans for the industry as a whole had a 62 percent share.

Total loan production costs which include commissions, compensation, facility costs, equipment, and other production expenses and corporate allocations decreased from $6,932 per loan to $6,769.  Personnel expenses were down nominally to $4,401 from $4,423.  Net cost to originate was $5,038 per loan, only slightly changed from $5,074 in the second quarter.  This figure is made up all production operating expenses and commissions, minus all fee income and excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

Secondary marketing income was 261 basis points in the third quarter of 2014, compared to 270 basis points in the second quarter.

Including all business lines, 83 percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2014, up from 81 percent in the second quarter of 2014.

There were 347 companies that submitted production data for the report, 74 percent of which were independent mortgage companies.  The remaining 26 percent were subsidiaries and other non-depository institutions.