Independent mortgage banks see profit slump in Q3

by Francis Monfort04 Dec 2018

Profits at independent mortgage banks and mortgage subsidiaries of chartered banks lagged during the third quarter, with the net gain on each loan falling to $480 for third-quarter originations from $580 per loan in the second quarter, according to the Quarterly Mortgage Bankers Performance Report released by the Mortgage Bankers Association (MBA).

On a per-loan basis, production revenues increased to $8,654 per loan in the third quarter, up from $8,458 per loan in the second quarter. However, total loan production expenses increased to $8,174 per loan in the third quarter, up from $7,877 per loan in the second quarter. These expenses include commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations.

MBA also reported that personnel expenses averaged $5,405 per loan in the third quarter, up from $5,195 per loan in the second quarter.

"These are very challenging times for independent mortgage bankers, with the average pretax net production income per loan reaching its lowest level for any third quarter since inception of our report in 2008," said Marina Walsh, MBA's vice president of industry analysis. "Profitability continues to be hindered by high costs and low productivity. We expect fixed costs to remain elevated, and competitive pressures will continue to hamper production revenues in the winter months. Therefore, mortgage banker profitability will likely remain challenged."

"Mortgage servicing remains a bright spot for bankers, with relatively low delinquencies and high loan balances driving up per-loan servicing revenues. Including all business lines (both production and servicing), 71% of the firms in the study posted a pretax net financial profit in the third quarter. Without servicing, that percentage would have dropped to 52%,” she added.

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