Independent Mortgage Bank Production Profits Down in Third Quarter 2017

CONTACT
Ali Ahmad
aahmad@mba.org
(202) 557- 2727

WASHINGTON, D.C. (November 30, 2017) - Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $929 on each loan they originated in the third quarter of 2017, down from a reported gain of $1,122 per loan in the second quarter of 2017, the Mortgage Bankers Association (MBA) reported today in its Quarterly Mortgage Bankers Performance Report. 

"Production profits dropped slightly in the third quarter of 2017 compared to the second quarter of 2017," said Marina Walsh, MBA's Vice President of Industry Analysis. "Despite rising average production volume, production expenses grew to $8,060 per loan - the second highest level reported since the inception of our study in the third quarter of 2008. Production revenues remained relatively flat, with a minimal uptick in per-loan production revenues resulting from higher loan balances." 

"Historically for this study, average production profits in the third quarter of the year have performed slightly below the second quarter.  But production profits were also down in relation to historical averages for the third quarter.  In the third quarter of 2017, profits were $929 per loan, compared to a third quarter average of $1,197 per loan since inception of the Performance Report in the third quarter of 2008." 

"For those mortgage bankers holding mortgage servicing rights (MSR), lower MSR valuation losses helped overall profitability," Walsh continued. 

Key findings of MBA's Quarterly Mortgage Bankers Performance Report include:  

  • Average production volume was $569 million per company in the third quarter of 2017, up from $526 million per company in the second quarter of 2017. The volume by count per company averaged 2,341 loans in the third quarter of 2017, up from 2,177 loans in the second quarter of 2017.  For the mortgage industry as a whole, MBA estimates for production volume in the third quarter of 2017 were flat compared to the previous quarter.  
  • The average pre-tax production profit was 40 basis points (bps) in the third quarter of 2017, down from an average net production profit of 46 bps in the second quarter of 2017. 
  • The purchase share of total originations, by dollar volume, was 74 percent in the third quarter of 2017, down from the study high of 76 percent in the second quarter of 2017. For the mortgage industry as a whole, MBA estimates the purchase share at 68 percent in the third quarter of 2017.  
  • The average loan balance for first mortgages reached $251,109 in the third quarter of 2017, up from $248,619 in the second quarter of 2017. 
  • The average pull-through rate (loan closings to applications) was 73 percent in the third quarter of 2017, up from 72 percent in the second quarter of 2017. 
  • Total production revenue (fee income, net secondary marking income and warehouse spread) decreased slightly to 375 basis points in the third quarter of 2017, from 377 bps in the second quarter of 2017.  However, with rising loan balances, production revenues increased to $8,990 per loan in the third quarter of 2017, from $8,896 per loan in the second quarter of 2017. 
  • Net secondary marketing income decreased to 298 basis points in the third quarter of 2017, down from 302 bps in the second quarter of 2017.  On a per-loan basis, net secondary marketing income increased to $7,181 per loan in the third quarter of 2017 from $7,160 per loan in the second quarter of 2017. 
  • Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,060 per loan in the third quarter of 2017, from $7,774 in the second quarter of 2017.  For the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $6,090 per loan. 
  • Personnel expenses averaged $5,279 per loan in the third quarter of 2017, up from $5,119 per loan in the second quarter of 2017. 
  • Productivity decreased to 2.1 loans originated per production employee per month in the third quarter of 2017, from 2.5 in the second quarter of 2017.  Production employees includes sales, fulfillment and production support functions. 
  • Net servicing financial income was $79 per loan in the third quarter of 2017, up from $27 per loan in the second quarter of 2017. 
  • Including all business lines, 77 percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2017, down from 86 percent in the second quarter of 2017.

MBA's Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. 75 percent of the 347 companies that reported production data for the third quarter of 2017 were independent mortgage companies and the remaining 25 percent were subsidiaries and other non-depository institutions. 

In addition to the third quarter report, the Annual Performance Report on 2016 data is also available. There are five performance report publications per year: four quarterly reports and one annual report. Media wishing to view a copy of either report should contact Ali Ahmad at (202) 557-2727 or aahmad@mba.org. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA's website by visiting www.mba.org/PerformanceReport.