MBA: Independent Mortgage Bankers Report Net Production Losses in the First Quarter

MBA NewsLink Staff

June 12, 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, the Mortgage Bankers Association said.

The MBA Quarterly Mortgage Bankers Performance Report said the net loss compared to a gain of $247 in the fourth quarter. The report also noted a record high for total production expenses, as well as increases in personnel expenses and a decrease in productivity.

"Falling volume drove net production profitability into the red for only the second time since inception of our report in the third quarter of 2008," said MBA Vice President of Industry Analysis Marina Walsh. "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."

Key findings of the report:

--Net production losses were $118 per loan (8 basis points) in the first quarter. The only other time MBA reported net production losses was first quarter 2014, at $194 per loan (also 8 basis points).

--Average production volume fell to $450 million per company in the first quarter, down from $505 million per company in the fourth quarter. Volume by count per company averaged 1,866 loans in the first quarter, down from 2,059 loans in the fourth quarter. For the mortgage industry as a whole, MBA estimated production volume in the first quarter were lower compared to the previous quarter.

--Average pre-tax production loss was 8 basis points in the first quarter, down from 9 bps in the fourth quarter.

--Purchase share of total originations, by dollar volume, was unchanged at 71 percent in the first quarter. For the mortgage industry as a whole, MBA estimated purchase share at 63 percent in the first quarter.

--Average loan balance for first mortgages was $249,041 in the first quarter, down from $254,291 in the fourth quarter.

--Average pull-through rate (loan closings to applications) fell to 70 percent in the first quarter, down from 76 percent in the fourth quarter.

--Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 370 basis points in the first quarter, up from 362 bps in the fourth quarter. On a per-loan basis, production revenues increased to $8,840 per loan in the first quarter, from $8,712 per loan in the fourth quarter.

--Net secondary marketing income increased slightly to 292 basis points in the first quarter, from 291 bps in the fourth quarter. On a per-loan basis, net secondary marketing income increased slightly to $7,040 per loan in the first quarter from $7,037 per loan in the fourth quarter.

--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, from $8,475 per loan in the fourth quarter. Between third quarter 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, up from $5,560 per loan in the fourth quarter.

--Productivity decreased slightly to 1.9 loans originated per production employee per month in the first quarter, from 2.0 in the fourth quarter. Production employees includes sales, fulfillment and production support functions.

--Including all business lines (both production and servicing), 60 percent of firms in the study posted pre-tax net financial profits in the first quarter, from 56 percent in the fourth quarter. For those mortgage bankers holding mortgage servicing rights, higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability.

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, bank subsidiaries and other non-depository institutions. For this report, 77 percent of the 343 companies that reported production data for the first quarter were independent mortgage companies; 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. MBA produces five performance report publications per year: four quarterly reports and one annual report. 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.

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