MBA Report: IMB 2018 Profits Dip

MBA NewsLink Staff

April 18, 2019

Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $367 on each loan they originated in 2018, down from $711 per loan in 2017, the Mortgage Bankers Association reported yesterday.

The MBA Annual Mortgage Bankers Performance Report did note lenders and servicers that held mortgage servicing rights were more likely to post profits in 2018 than those that did not.

"Despite a healthy economy in 2018, the mortgage market suffered, as rate hikes hurt refinancing volume and low housing inventories priced some potential homebuyers out of the purchase market," said Marina Walsh, MBA Vice President of Industry Analysis. "For mortgage companies, there was the perfect storm of lower production revenues combined with rising expenses, which together contributed to the lowest net production income per loan since 2008."

Walsh noted even as production revenues per loan dropped despite study-high loan balances in 2018, production expenses per loan grew to a study-high of $8,278 per loan last year.

The report said for those holding mortgage servicing rights, it was the silver lining that boosted overall profitability. Including both production and servicing operations, 69 percent of the firms posted overall pre-tax net financial profits in 2018, compared to only 47 percent of firms with net servicing income excluded.

Other key report findings:

--Average production volume was $2.0 billion (8,171 loans) per company in 2018, down from $2.13 billion (8,882 loans) per company in 2017. On a repeater company basis, average production volume was $2.07 billion (8,502 loans) in 2018, down from $2.11 billion (8,824 loans) in 2017. For the mortgage industry as whole, MBA estimated production volume at $1.64 trillion in 2018, down from $1.76 trillion in 2017.

--In basis points, average production profit (net production income) fell to 14 basis points in 2018, compared to 31 basis points in 2017. In the first half of 2018, net production income averaged 18 basis points, then dropped to 9 basis points in the second half of 2018. Since inception of the Annual Performance Report in 2008, net production income by year has averaged 49 bps ($1,020 per loan).

--The refinancing share of total originations (by dollar volume) decreased to 20 percent in 2018 from 25 percent in 2017. For the mortgage industry as a whole, MBA estimated the refinancing share last year decreased to 28 percent from 35 percent in 2017.

--Average loan balance for first mortgages reached a study-high of $251,084 in 2018, up from $245,500 in 2017, marking the 9th consecutive year of rising loan balances on first mortgages.

--Total production revenues (fee income, net secondary marking income and warehouse spread) fell to 362 basis points in 2018, down from 379 bps in 2017. On a per-loan basis, production revenues fell to $8,645 per loan in 2018, down from $8,793 per loan in 2017.

--Total loan production expenses--commissions, compensation, occupancy, equipment and other production expenses and corporate allocations--increased to $8,278 per loan in 2018, up from $8,082 in 2017.

--Personnel expenses averaged $5,524 per loan in 2018, up from $5,346 per loan in 2017.

--Productivity was 1.8 loans originated per production employee per month in 2018, down from 1.9 in 2017. 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 $203 per loan in 2018, up from $64 per loan in 2017.

--Including all business lines, 69 percent of the firms in the study posted pre-tax net financial profits in 2018, down from 80 percent in 2017. In the first half of 2018, 73 percent of reporting repeater firms posted pre-tax financial profits, compared to 55 percent in the second half 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, subsidiaries and other non-depository institutions. Of the 280 firms that reported production, 80 percent were independent mortgage companies; the remaining 20 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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