Independent Mortgage Bankers Report Net Production Losses in the First Quarter of 2018

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

WASHINGTON, D.C. (June 6, 2018) - Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $118 on each loan they originated in the first quarter of 2018, down from a reported gain of $237 per loan in the fourth quarter of 2017, the Mortgage Bankers Association (MBA) reported today in its Quarterly Mortgage Bankers Performance Report.

"In the first quarter of 2018, falling volume drove net production profitability into the red for only the second time since the inception of our report in the third quarter of 2008," said Marina Walsh, MBA's Vice President of Industry Analysis. "While production revenues per loan actually increased in the first quarter, we also reached a study-high for total production expenses at $8,957 per loan, as volume dropped."

"For mortgage bankers who held mortgage servicing rights, higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability," Walsh continued.

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

  • Net production losses were $118 per loan (8 basis points) in the first quarter of 2018, not as high as the $194 per loan (also 8 basis points) seen in the first quarter of 2014, the only other quarter in the survey's history to record a net production loss.
  • Average production volume was $450 million per company in the first quarter of 2018, down from $505 million per company in the fourth quarter of 2017. The volume by count per company averaged 1,866 loans in the first quarter of 2018, down from 2,059 loans in the fourth quarter of 2017. For the mortgage industry as a whole, MBA estimates for production volume in the first quarter of 2018 were lower compared to the previous quarter. 
  • The average pre-tax production loss was 8 basis points (bps) in the first quarter of 2018, down from an average net production profit of 9 bps in the fourth quarter of 2017. 
  • The purchase share of total originations, by dollar volume, was unchanged at 71 percent in the first quarter of 2018. For the mortgage industry as a whole, MBA estimates the purchase share at 63 percent in the first quarter of 2018. 
  • The average loan balance for first mortgages was $249,041 in the first quarter of 2018, down from $254,291 in the fourth quarter of 2017. 
  • The average pull-through rate (loan closings to applications) was 70 percent in the first quarter of 2018, down from 76 percent in the fourth quarter of 2017. 
  • Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 370 basis points in the first quarter of 2018, up from 362 bps in the fourth quarter of 2017. On a per-loan basis, production revenues increased to $8,840 per loan in the first quarter of 2018, from $8,712 per loan in the fourth quarter of 2017. 
  • Net secondary marketing income increased slightly to 292 basis points in the first quarter of 2018, from 291 bps in the fourth quarter of 2017. On a per-loan basis, net secondary marketing income increased slightly to $7,040 per loan in the first quarter of 2018 from $7,037 per loan in the fourth quarter of 2017. 
  • Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to a study-high of $8,957 per loan in the first quarter of 2018, from $8,475 per loan in the fourth quarter of 2017. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,224 per loan. 
  • Personnel expenses averaged $5,899 per loan in the first quarter of 2018, up from $5,560 per loan in the fourth quarter of 2017. 
  • Productivity decreased slightly to 1.9 loans originated per production employee per month in the first quarter of 2018, from 2.0 in the fourth quarter of 2017. Production employees includes sales, fulfillment and production support functions. 
  • Including all business lines (both production and servicing), 60 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2018, from 56 percent in the fourth quarter of 2017.  For those mortgage bankers holding mortgage servicing rights (MSR), higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability. 

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. 77 percent of the 343 companies that reported production data for the first quarter of 2018 were independent mortgage companies and the remaining 23 percent were subsidiaries and other non-depository institutions. 

In addition to the first 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.