Profit margins increased for mortgage lenders in the third quarter of 2015. The Mortgage Bankers Association (MBA) said independent mortgage banks and subsidiaries of chartered banks responding to its quarterly survey reported a net gain of $1,773 on each loan they originated during the quarter, up from $1,686 in the second quarter.
"Including all business lines, 94 percent of mortgage lenders in our study reported pre-tax net financial profits in the third quarter of 2016, compared to 90 percent in the second quarter of 2016," said Marina Walsh, MBA's Vice President of Industry Analysis.
"An increase in production volume and slight decrease in expenses in the third quarter kept production profits relatively stable. These profits would have been even higher were it not for a decline in net secondary marketing income, primarily income related to mortgage servicing rights," she continued.
Walsh said that for the first time since Q2 2015 production expenses dropped below $7,000, at $6,969 per loan, although she called that high by historical standards. With both a higher loan count and pull-through rate than in the second quarter she said she would have expected an even larger reduction in those costs.
She continued, "Loan balances continued their upward march and reached another study-high of $247,563, which helped keep production revenue per loan relatively flat despite a revenue drop in basis points from the previous quarter." The previous study-high was $245,394, reached in the second quarter of 2016.
Other findings of MBA's Quarterly Mortgage Bankers Performance Report include:
- Average production volume increased from $654 million per company to $764 million in the third quarter. The volume by count averaged 3,072 loans, up from 2,721 in the second quarter.
- The average pre-tax production profit was 74 basis points (bps) in the third quarter of 2016, compared to 73 bps in the previous quarter and 55 bps in the third quarter of 2015. Since the inception of the Performance Report, in the third quarter of 2008, net production income has averaged 53 bps.
- The purchase share of total originations, by dollar volume, was 60 percent down from 66 percent a quarter earlier. For the mortgage industry as a whole, MBA estimates the third quarter purchase share at 53 percent. The jumbo share by dollar volume declined from 8.49 percent in the second quarter to 7.66 percent in the third.
- The average pull-through rate (loan closings to
applications) increased to 73.33 percent in the third quarter from 71.06
percent.
- Total production revenue (fee income, net secondary marking income and warehouse spread) declined to 365 basis points from 372 bps in the second quarter. On a per-loan basis production revenues were down to $8,742 per loan from $8,807.
- Net secondary marketing income was 291 bps compared to 303 bps the previous quarter. On a per-loan basis, net secondary marketing income decreased to $7,037 from $7,196.
- Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - were $6,969 per loan declining from $7,120. For the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $5,850 per loan.
- Personnel expenses increased to $4,675 per loan from $4,771, but productivity was also up; to 2.9 loans per production employee per month from 2.5. Production employees include sales, fulfillment and production support functions.
MBA says that 345 companies reported production data for the third quarter. Seventy-four percent were independent mortgage companies and 26 percent were subsidiaries or chartered banks and other non-depository institutions.
