Net Cost to Originate the Average Loan Rises to $5238

Mortgage profits declined in the fourth quarter of 2014 compared to the previous quarter but soared when compared to the fourth quarter of 2013.  Independent mortgage banks and subsidiaries of chartered banks told the Mortgage Bankers Association (MBA) that their average net gain on each loan they originated during the recent period was $744 compared to $150 per loan one year earlier.  During the third quarter of 2014 the gain was $897.  Average production profit was 32 basis points in the fourth quarter, compared to an average net production profit of 42 bps in the third quarter and an average of 9 bps a year ago.

MBA's Quarterly Mortgage Bankers Performance Report also noted that a year earlier only 58 percent of companies responding to its survey reported overall pre-tax profits during the quarter.  Seventy-four percent reported such profits in the fourth quarter and 83 percent in the third quarter of 2014. 

Production volume followed the same month-over-month and year-over-year pattern.  The average of $417 million per company was down from $437 million for the quarter but up from $367 million the previous year.  Volume by count per company averaged 1,769 loans in the fourth quarter compared to 1,901 loans in the third quarter and 1,641 loans a year ago.

Purchase originations had a 65 percent share of the total, down from 72 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share at 54 percent.  The jumbo mortgage had an 8.44 percent share compared to 9.42 percent the previous quarter.  The average balance of first mortgages originated rose to an all-time high of $233,655 from $231,914 in the third quarter.

Total loan production expenses--commissions, compensation, occupancy, equipment and other production expenses and corporate allocations--increased to $7,000 per loan from $6,769 and personnel expenses were up slightly from $4,401 per loan to $4,428.

The "net cost to originate" which includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread, rose to $5,238 per loan from $5,038.  Productivity was unchanged at 2.4 loans originated per production employee per month.

Secondary marketing income rose to 266 basis points in the fourth quarter, compared to 261 basis points in the third quarter.

Seventy-three percent of the 338 companies that reported fourth quarter production data to the MBA were independent mortgage companies; the remaining 27 percent were subsidiaries and other non-depository institutions.