Mortgage lending more profitable for independent lenders

by Steve Randall07 Jun 2019

Independent mortgage bankers (IMBs) and mortgage subsidiaries of chartered banks reported a return to profitability for loans originated in the first quarter of 2019.

A survey by the Mortgage Bankers Association has found a reported net gain of $285 for every loan originated in Q1 2019, compared to a net loss of $200 per loan in the previous quarter.

Including all business lines (both production and servicing), 59% of the firms in the study posted pre-tax net financial profits in the first quarter, up from 44% 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.

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.

"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.

Decline in overall production volume
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.

"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," said Walsh.

Other findings:

  • The average pre-tax production profit was seven basis points (bps) in the first quarter, up from an average net production loss of 11 bps in the 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 at 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% in the first quarter, down from 75% 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.
  • Productivity remained unchanged at 1.8 loans originated per production employee per month in the first quarter. Production employees includes sales, fulfillment and production support functions.

 


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