For the second consecutive quarter, originating a mortgage has proven to be profitable, according to MBA's latest survey.
Despite a slight profit dip in the third quarter, originating a mortgage is still profitable, according to the Mortgage Bankers Association's (MBA) latest survey.
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $897 on each loan they originated in the third quarter of 2014, down slightly from a reported gain of $954 per loan in the second quarter of 2014, according to MBA's Quarterly Mortgage Bankers Performance Report. The news marks the second quarter in a row that closing a mortgage has been profitable.
“Average company production volume was up in the third quarter, which resulted in a nominal decrease in per-loan production expenses,” said Marina Walsh, MBA’s vice president of industry analysis. “At the same time, the average loan balance for first mortgages reached its highest level since inception of the Quarterly Mortgage Bankers Performance Report in 2008. Nonetheless, production profits were slightly down because of a decrease in secondary marketing income.”
During the first quarter, mortgage bankers in the survey reported a net loss of $194 on each loan they originated, significantly down from $150 in profit per loan in the fourth quarter of 2013. That decrease marked the sixth quarter in a row that production income decreased.
The average production profit was 42 basis points (bps) in the third quarter, compared to an average net production profit of 46 bps in the second quarter of 2014. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 54 bps with a median of 50 bps.
Average production volume was $437 million per company in the third quarter of 2014, up from $378 million per company in the second quarter of 2014, an increase of 16%. The volume by count per company averaged 1,901 loans in the third quarter of 2014, up from 1,676 loans in the second quarter of 2014.
The purchase share of total originations, by dollar volume, was 72% in the third quarter of 2014, compared to 74% in the second quarter of 2014. For the mortgage industry as a whole, MBA estimates the purchase share at 62% in the third quarter of 2014.
The jumbo share of total first mortgage originations continued to increase, rising to 9.4% in the third quarter, the highest level since the inception of the Performance Report. MBA’s applications data, as well as credit availability data, continues to show strong growth in jumbo production.
The average loan balance for first mortgages also grew to a high of $231,914 in the third quarter of 2014, from $225,762 in the second quarter.
Secondary marketing income was 261 basis points in the third quarter of 2014, compared to 270 basis points in the second quarter.
Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,769 per loan in the third quarter of 2014, from $6,932 in the second quarter.
Personnel expenses averaged $4,401 per loan in the third quarter of 2014, from $4,423 per loan in the second quarter.
The net cost to originate was $5,038 per loan in the third quarter of 2014, from $5,074 in the second quarter. The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
Productivity was 2.4 loans originated per production employee per month in the third quarter of 2014, up slightly from 2.3 in the second quarter.
Including all business lines, 83% of the firms in the study posted pre-tax net financial profits in the third quarter of 2014, up from 81% in the second quarter of 2014.
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $897 on each loan they originated in the third quarter of 2014, down slightly from a reported gain of $954 per loan in the second quarter of 2014, according to MBA's Quarterly Mortgage Bankers Performance Report. The news marks the second quarter in a row that closing a mortgage has been profitable.
“Average company production volume was up in the third quarter, which resulted in a nominal decrease in per-loan production expenses,” said Marina Walsh, MBA’s vice president of industry analysis. “At the same time, the average loan balance for first mortgages reached its highest level since inception of the Quarterly Mortgage Bankers Performance Report in 2008. Nonetheless, production profits were slightly down because of a decrease in secondary marketing income.”
During the first quarter, mortgage bankers in the survey reported a net loss of $194 on each loan they originated, significantly down from $150 in profit per loan in the fourth quarter of 2013. That decrease marked the sixth quarter in a row that production income decreased.
Other key findings of MBA’s Quarterly Mortgage Bankers Performance Report include:
The average production profit was 42 basis points (bps) in the third quarter, compared to an average net production profit of 46 bps in the second quarter of 2014. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 54 bps with a median of 50 bps.Average production volume was $437 million per company in the third quarter of 2014, up from $378 million per company in the second quarter of 2014, an increase of 16%. The volume by count per company averaged 1,901 loans in the third quarter of 2014, up from 1,676 loans in the second quarter of 2014.
The purchase share of total originations, by dollar volume, was 72% in the third quarter of 2014, compared to 74% in the second quarter of 2014. For the mortgage industry as a whole, MBA estimates the purchase share at 62% in the third quarter of 2014.
The jumbo share of total first mortgage originations continued to increase, rising to 9.4% in the third quarter, the highest level since the inception of the Performance Report. MBA’s applications data, as well as credit availability data, continues to show strong growth in jumbo production.
The average loan balance for first mortgages also grew to a high of $231,914 in the third quarter of 2014, from $225,762 in the second quarter.
Secondary marketing income was 261 basis points in the third quarter of 2014, compared to 270 basis points in the second quarter.
Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,769 per loan in the third quarter of 2014, from $6,932 in the second quarter.
Personnel expenses averaged $4,401 per loan in the third quarter of 2014, from $4,423 per loan in the second quarter.
The net cost to originate was $5,038 per loan in the third quarter of 2014, from $5,074 in the second quarter. The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
Productivity was 2.4 loans originated per production employee per month in the third quarter of 2014, up slightly from 2.3 in the second quarter.
Including all business lines, 83% of the firms in the study posted pre-tax net financial profits in the third quarter of 2014, up from 81% in the second quarter of 2014.
