Mortgage Lenders Back in Black After Earlier Losses
In the first quarter of 2018, independent mortgage banks and mortgage subsidiaries of chartered banks posted only their second period of financial losses in the ten years the Mortgage Bankers Association (MBA) has covered the issue. This week MBA was able to report better news.
The Association's Quarterly Mortgage Bankers Performance Report says respondents to its quarterly survey had a net gain of $580 on each loan they originated in the second quarter compared to a loss of $118 per loan in the prior period. The only other loss was in the first quarter of 2014, $194 per loan.
The average pre-tax production profit was 21 basis points (bps) in the second quarter of 2018, up from an average net production loss of eight bps in the first quarter of 2018, but down 24 bps from the second quarter of 2017.
"After an exceptionally weak start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season. But profits were down on a year-over-year basis and fell below typical second quarter results. When measured in basis points, pre-tax net production income reached its lowest level for any second quarter since the inception of our report in 2008," said Marina Walsh, MBA Vice President of Industry Analysis.
"Mortgage originators evidently responded to first quarter losses by reducing their expenses in the second quarter, as production expenses dropped by over $1,000 per loan. However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts," she added.
Average production volume was $531 million per company in the second quarter of 2018, based on an average production of 2,180 loans. In the first quarter the volume was $450 million per company and 1,866 loans. For the mortgage industry as a whole, MBA estimates for production volume in the second quarter of 2018 were higher compared to the previous quarter.
Total production revenue, including fee income, net secondary marking income and warehouse spread, was 347 bps in the second quarter compared to 370 bps the previous period. On a per-loan basis, production revenues decreased to $8,458 per loan from $8,840.
Net secondary marketing income was 271 bps compared to 292 in Q1. On a per-loan basis that income fell to $6,650 from $7,040 per loan in the first quarter of the year.
Loan production expenses, including commissions, compensation, occupancy, equipment, other production expenses and corporate allocations was $7,877 per loan, down from a study high of $8,957 in the first quarter of 2018. Over the history of MBA's coverage, from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,266 per loan.
Personnel expenses averaged $5,195 compared to $5,899 per loan in the first quarter and productivity increased to 2.1 loans originated per production employee per month from 1.9 in the first quarter of 2018. Production employees include sales, fulfillment and production support functions.
The purchase share of total originations, by dollar volume, increased to 81 percent in the first quarter of 2018, its highest level since the study started. For the mortgage industry as a whole, MBA estimates the purchase share at 74 percent in the second quarter of this year. The average pull-through or closing rate (loan closings to applications) was 72 percent, up from 70 percent the prior quarter.
The average size of first mortgage loans originated during the quarter was the highest in the history of the study, $255,136. This was up from $249,041 in the first quarter.
Including all business lines (both production and servicing), 77 percent of the firms in the study posted pre-tax net financial profits during the quarter, an improvement of 17 percentage points.