Mortgage Profits Doubled in Q1

Mortgage profits soared in the first quarter of 2015 the Mortgage Bankers Association (MBA) said this week, nearly doubling the per loan net produced in the fourth quarter of 2014.  Independent mortgage banks and subsidiaries of chartered banks reported increased refinancing volume and secondary marketing gains allowed them to compensate for increased origination costs.

According to MBA's Quarterly Mortgage Bankers Performance Report, banks had a net gain of $1,447 on each loan they originated during the quarter.  In the previous period they reported a gain of $744 per loan.   

"Net production profits among independent mortgage bankers nearly doubled from the fourth quarter of 2014 and secondary marketing gains improved by 31 basis points over the fourth quarter, based largely on the increase in refinancing volume in the first quarter of 2015," said MBA Vice President of Industry Analysis Marina Walsh. "However, total production operating expenses per loan remained a challenge, rising to $7,195 per loan in the first quarter of 2015, from $7,000 per loan in the fourth quarter of 2014."

Walsh continued: "In fact, origination costs in the first quarter are elevated compared to quarters with similar production volume within the past few years."

A total of 359 companies reported production data to MBA.  Seventy-three percent were independent mortgage companies, the remainder were subsidiaries and other non-depository institutions.  Including all business lines, 88 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2015, up from 74 percent in the fourth quarter of 2014.  

Respondents reported an average production volume of $473 million in the first quarter compared to $417 million per company in the fourth quarter of 2014.  Loan volume averaged 1,917 loans, up from 1,769 the previous quarter.  

Per loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased, as Walsh pointed out, from $7,000 in the fourth quarter to $7,195. Personnel expenses averaged $4,675 per loan compared to $4,428.   

The "net cost to originate" was $5,597 per loan compared to $5,283 in the fourth quarter.  This figure 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. Secondary marketing income increased to 297 basis points from 266 basis points.

The average production profit was 60 basis points (bps) in the first quarter, compared to an average net production profit of 32 bps in the fourth quarter of 2014.