Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks have seen an upswing in profitability since ending 2018 on a down note.
The Mortgage Bankers Association’s (MBA) latest Quarterly Mortgage Bankers Performance Report this year showed that IMBs saw a net gain of $285 on each loan they originated in the first quarter of 2019, up from a reported $200 loss per loan they saw in the fourth quarter of 2018.
MBA utilizes a variety of performance measures in compiling the report, which is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. The first-quarter report relied on with production data from 326 companies, 80 percent of which were independent mortgage companies, and the remaining 20 percent were subsidiaries and other non-depository institutions.
The report showed an average seven-basis-point uptick in pre-tax first-quarter production profits, up from an average 11-basis point loss in the fourth quarter. Meanwhile, productivity remained steady at 1.8 loans originated per production employee per month. The findings also showed that 59 percent of the firms surveyed 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,” MBA Vice President of Industry Analysis Marina Walsh said in a press release. “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.
“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,” Walsh added.
Among other findings MBA included in the report are:
- 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. On a per-loan basis, production revenues increased to a study high $9,584 per loan in the first quarter, up from $8,411 per loan in the fourth quarter.
- Net secondary marketing income increased to 308 bps in the first quarter, up from 269 bps in the fourth quarter. On a per-loan basis, net secondary marketing income increased to $7,591 per loan in the first quarter from $6,466 per loan in the fourth quarter.
- Average production volume was $385 million per company in the first quarter, down from $440 million per company in the fourth quarter of 2018. The volume by count per company averaged 1,571 loans in the first quarter, down from 1,799 loans last quarter. For the mortgage industry as a whole, MBA estimates for production volume in the first quarter was lower than last year’s fourth quarter.
- The purchase share of total originations, by dollar volume, decreased to 76 percent in the first quarter from 79 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimates the purchase share was 70 percent last quarter.
- 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, down from 75 percent 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 $9,299 per loan in the first quarter, up from $8,611 per loan in the fourth quarter. For the period of the third quarter of 2008 to last quarter, 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.
MBA reported that a large share of IMBs fell victim to a “perfect storm” of unfortunate occurrences in 2018, leading them to their lowest annual average loan profits since the financial crisis. IMBs and related entities saw an average profit of $367 on each loan they originated in 2018, down from $711 per loan in 2017, according to the report.