The financial situation for mortgage lenders brightened considerably in the first quarter of this year, although profitability is way down from post-recession peaks. The Mortgage Bankers Association (MBA) said the average gain on each loan originated by the independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks responding to its survey was $285. In the fourth quarter of 2018 each loan originated resulted in a $200 loss and across the entire year the average per-loan profit was $367. Including all business lines (both production and servicing), 59 percent of the firms in the study posted pre-tax net financial profits in the first quarter, up from 44 percent in the fourth quarter.
"Independent mortgage bankers experienced improvements in the first three months of the year. This was a welcoming sign following a very difficult end of 2018, in which profitability reached its lowest level since our survey's inception in 2008," said Marina Walsh, MBA's Vice President of Industry Analysis. "Mortgage application volume picked up strongly towards the end of the first quarter as rates dropped, increasing the pipeline of loans for the second quarter. Given the drop in rates, lenders also enjoyed a boost in secondary marketing gains."
Added Walsh, "While we still saw a decline in overall production volume in the first quarter, revenues per loan rose to a study high, mitigating the increase in per-loan production expenses, also at a study high."
Average production volume was $385 million per company in the first quarter, declining from $440 million the previous quarter. Companies averaged 1,571 loan originations, down 1,799 loans in the fourth quarter. MBA says it believes that production volume in the first quarter was lower than last year's fourth quarter for the industry as a whole.
Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 393 bps in the first quarter, up from 351 bps in the fourth quarter and achieved a study high of $9,584 per loan. In Quarter Four the per-loan revenue was $8,411. The average pre-tax production profit was seven basis points (bps) in the first quarter compared to an average loss of 11 bps in the prior period.
Net secondary marketing income increased to 308 bps or $7,591 per loan. In the fourth quarter the respective numbers were 269 bps and $6,466 per loan.
Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to a study high of $9,299 per loan in the first quarter from $8,611 per loan. Over the period MBA has collected the data, starting in the third quarter of 2008, loan production expenses have averaged $6,435 per loan.
Personnel expenses averaged $5,931 per loan in the first quarter, up from $5,636 per loan in the fourth quarter. Productivity remained unchanged at 1.8 loans originated per production employee per month. Production employees include sales, fulfillment and production support functions.
The purchase share of originations dropped 3 percentage points from the fourth quarter to 76 percent. This was higher than the purchase share for the industry as a whole which MBA estimates at 70 percent.
The average loan balance for first mortgages reached a study high of $257,374 in the first quarter, up from $253,689 in the fourth quarter. The average pull-through rate (loan closings to applications) was 69 percent in the first quarter compared to 75 percent in the fourth quarter.
MBA says 326 companies contributed data to its Quarterly Mortgage Bankers Performance Report. Eighty percent were independent mortgage companies and the remainder were subsidiaries and other non-depository institutions.
