MBA: Production Volume, Profits Down in 2017 For Independent Mortgage Bankers

MBA NewsLink Staff

April 17, 2018

Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $711 on each loan they originated in 2017, down from $1,346 per loan in 2016, the Mortgage Bankers Association reported today in its Annual Mortgage Bankers Performance Report.

"Production profits dropped by almost half in 2017 as rate-term refinancings diminished and the overall average production volume dropped," said MBA Vice President of Industry Analysis Marina Walsh. "Production revenues per loan were up slightly for the year, as higher loan balances mitigated the effects of competitive pressures. However, production expenses grew in all categories--sales, fulfillment, production support and corporate."

Walsh noted for those mortgage bankers holding mortgage servicing rights, higher loan balances drove up per-loan servicing fees and helped overall profitability. Including both production and servicing operations, 80 percent of the firms in the study posted overall pre-tax net financial profits in 2017, from 94 percent in 2016, she said.

Other key report findings:

--Average production volume fell to $2.13 billion (8,882 loans) per company in 2017, compared to $2.68 billion (11,106 loans) per company in 2016. On a repeater company basis, average production volume fell to $2.11 billion (8,783 loans) in 2017, compared to $2.32 billion (9,625 loans) in 2016. For the mortgage industry as whole, MBA estimated production volume at $1.71 trillion in 2017, from $2.05 trillion in 2016.

--In basis points, average production profit (net production income) fell to 31 basis points in 2017, compared to 58 basis points in 2016. In the first half of 2017, net production income averaged 36 basis points, then dropped to 26 basis points in the second half. Since inception of the Annual Performance Report in 2008, net production income by year has averaged 53 bps ($1,085 per loan).

--The refinancing share of total originations, by dollar volume, decreased to 25 percent in 2017, from 38 percent in 2016. For the mortgage industry as whole, MBA estimated the refinancing share also decreased to 35 percent in 2017, from 49 percent in 2016.

--Average loan balance for first mortgages reached a study-high of $245,500 in 2017, from $244,945 in 2016. This is the eighth consecutive year of rising loan balances on first mortgages.

--Total production revenues (fee income, net secondary marking income and warehouse spread) rose to 379 basis points in 2017, compared to 366 bps in 2016. On a per-loan basis, production revenues increased to $8,793 per loan in 2017, from $8,555 per loan in 2016.

--Total loan production expenses--commissions, compensation, occupancy, equipment and other production expenses and corporate allocations--increased to $8,082 per loan in 2017, up from $7,209 in 2016.

--Personnel expenses averaged $5,346 per loan in 2017, up from $4,801 per loan in 2016.

--Productivity averaged 1.9 loans originated per production employee per month in 2016, down from 2.4 in 2016. Production employees include sales, fulfillment and production support functions.

--Net servicing financial income, which includes net servicing operational income as well as mortgage servicing right amortization and gains and losses on MSR valuations, rose to $64 per loan in 2017, from $34 per loan in 2016.

--Including all business lines, 80 percent of the firms in the study posted pre-tax net financial profits in 2017, down from 94 percent in 2016. In the first half of 2017, 82 percent of reporting repeater firms posted pre-tax financial profits, compared to 70 percent in the second half.

The MBA 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, subsidiaries and other non-depository institutions. Of the 253 firms that reported production, 74 percent were independent mortgage companies; the remaining 26 percent were subsidiaries and other non-depository institutions.

MBA produces five performance report publications per year: four quarterly reports and one annual report. To purchase or subscribe to the publications, visit www.mba.org/performancereport.

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