Second Quarter IMB Profits Up over First Quarter, Down Year-over-Year

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

WASHINGTON, D.C. (August 28, 2018) - Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $580 on each loan they originated in the second quarter of 2018, up from a reported loss of $118 per loan in the first quarter of 2018, the Mortgage Bankers Association (MBA) reported today in its Quarterly Mortgage Bankers Performance Report.

"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," Walsh added.

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

  • Average production volume was $531 million per company in the second quarter of 2018, up from $450 million per company in the first quarter of 2018. The volume by count per company averaged 2,180 loans in the second quarter of 2018, up from 1,866 loans in the first quarter of 2018.  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.
  • 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.
  • The purchase share of total originations, by dollar volume, increased to 81 percent in the first quarter of 2018, its highest level since inception of the study in Q3 of 2008.  For the mortgage industry as a whole, MBA estimates the purchase share at 74 percent in the second quarter of 2018.
  • The average loan balance for first mortgages reached a study high of $255,136 in the second quarter of 2018, up from $249,041 in the first quarter of 2018.  
  • The average pull-through rate (loan closings to applications) was 72 percent in the second quarter of 2018, up from 70 percent in the first quarter of 2018.
  • Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 347 basis points in the second quarter of 2018, down from 370 bps in the first quarter of 2018. On a per-loan basis, production revenues decreased to $8,458 per loan in the second quarter of 2018, from $8,840 per loan in the first quarter of 2018.
  • Net secondary marketing income decreased to 271 basis points in the second quarter of 2018, from 292 bps in the first quarter of 2018. On a per-loan basis, net secondary marketing income decreased to $6,650 per loan in the second quarter of 2018 from $7,040 per loan in the first quarter of 2018.
  • Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - decreased to $7,877 per loan in the second quarter of 2018, from a study high of $8,957 per loan in the first quarter of 2018. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,266 per loan.
  • Personnel expenses averaged $5,195 per loan in the second quarter of 2018, down from $5,899 per loan in the first quarter of 2018.
  • Productivity increased slightly to 2.1 loans originated per production employee per month in the second quarter of 2018, from 1.9 in the first quarter of 2018. Production employees includes sales, fulfillment and production support functions.
  • Including all business lines (both production and servicing), 77 percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2018, up from 60 percent in the first quarter of 2018.  

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. 78 percent of the 343 companies that reported production data for the second quarter of 2018 were independent mortgage companies and the remaining 22 percent were subsidiaries and other non-depository institutions.

In addition to the second quarter report, the Annual Performance Report on 2017 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.