Mortgage Profits Hit Record Lows in Q4

Profits pocketed by independent banksrnand banks’ mortgage subsidiaries plunged in the fourth quarter of 2013 thernMortgage Bankers Association (MBA) said on Wednesday.   On arnper-loan-originated basis the average profit fell from $743 in the thirdrnquarter to only $150 in the fourth.</p

MBArnsaid, that these profits were at their lowest levels since it implemented itsrnQuarterly Mortgage Bankers Performance Report in 2008; a result of loan productionrnexpenses reaching their highest level in study history.  These loan production expenses – commissions, compensation, occupancy,rnequipment, and other production expenses and corporate allocations – increasedrnto $6,959 per loan in the fourth quarter, up from $6,368 in the third quarterrnand of course occurred in a declining mortgage market.  </p

For those companies inrnmortgage servicing, net servicing income per loan increased to $355 in thernfourth quarter from $224 in the third quarter.  In basis points (bps), thernaverage servicing profit was 19 in the fourth quarter of 2013, compared to 12 inrnthe third quarter.  Marina Walsh,rnMBA’s Vice President of Industry Analysis noted the improving situation inrnmortgage servicing but said,rn”Not all mortgage companies retained mortgage servicing rights or generatedrnmargins large enough to offset production losses.  It is perhaps notrnsurprising that only 58 percent of participating companies had overall positivernpre-tax profits in the quarter.”  </p

MBA said that the average production profits (net productionrnincome) was 9 bps in Q4 compared to 38 bps in the third quarter.  It was the fifth consecutive quarter thatrnproduction profits decreased.  Secondaryrnmarketing income increased by 4 bps in the fourth quarter, to 248 bps.  </p

Personnel expensesrnaveraged $4,385 per loan in the fourth quarter, up from $4,130 per loan in thernthird quarter.</p

The “net cost tornoriginate” was $5,171 per loan in the fourth quarter, up from $4,573 inrnthe third quarter.  This category includes all production operating expensesrnand commissions, minus all fee income, but excluding secondary marketing gains,rncapitalized servicing, servicing released premiums, and warehouse interestrnspread.</p

Average production volume was $367 million per company in thernfourth quarter of 2013, down from $391 million per company in the thirdrnquarter.  Companies originated an average of 1,641 loans in the fourthrnquarter, down from 1,788 in the third quarter.</p

Originations for home purchases represented 69 percent of the dollarrnvolume of originations, up from 67 percent in the previous quarter.  Industry-wide the purchase share is estimatedrnat 47 percent in the fourth quarter, down from 49 percent in the previousrnperiod. </p

The productivity raternwas 2.0 loans per production employee per month, a decline from 2.5 loans inrnthe third quarter.  </p

Including all businessrnlines, 58 percent of the firms in the study posted pre-tax net financialrnprofits in the fourth quarter of 2013, down from 74 percent in the third quarter,rnand 92 percent in second quarter. rnSeventy-three percent of the 299 companies that reported production datarnfor the fourth quarter report were independent mortgage companies.

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