Despite Larger Loans and More of Them, Mortgage Profits Dip

Mortgage bankers reported a slightrndecrease in profits during the third quarter of 2014, with gains per loanrndecreasing even as volume grew and the size of the loans reached the highestrnlevel since the Mortgage Bankers Association (MBA) started keeping track.</p

MBA said that independent mortgage banksrnand mortgage subsidiaries of chartered banks responding to its survey reportedrna net gain of $897 on each loan originated during the quarter.  This was down from the $954 per loan reportedrnin the second quarter.  MBA said arndecrease in secondary market income offset the benefits derived from higher productionrnvolume and bigger loans. </p

The average production profit was 42 basisrnpoints (bps) compared to 46 bps in the second quarter.  MBA said that since it began publishing is Quarterly Mortgage Bankers PerformancernReport in the third quarter of 2008 net production income has averaged 54rnbps with a median of 50.</p

Production volume averaged $437 million,rnup 16 percent from $378 million averaged per company in the previous quarter.  Companies had an average volume of 1,901rnloans in the third quarter compared to 1,676 in the second. </p

Jumbo loans continued to increase theirrnshare of first mortgage originations, representing 9.4 percent in the thirdrnquarter, the highest since the inception of the Production Report.  This isrncompatible with information from MBA’s Weekly Mortgage Applications Survey asrnwell as credit availability data showing strong growth in these larger loans.  In line with this increase, the averagernbalance for first mortgage originations was $231,914 compared to $225,762 inrnthe second quarter and the highest since at least 2008.</p

Purchase loans represented 72 percent ofrnoriginations, down from 74 percent in the second quarter.  MBA estimates purchase loans for the industryrnas a whole had a 62 percent share. </p

Totalrnloan production costs which include commissions, compensation, facility costs,rnequipment, and other production expenses and corporate allocations decreasedrnfrom $6,932 per loan to $6,769. rnPersonnel expenses were down nominally to $4,401 from $4,423.  Net cost to originate was $5,038 per loan,rnonly slightly changed from $5,074 in the second quarter.  This figure is made up all production operating expenses andrncommissions, minus all fee income and excludes secondary marketing gains,rncapitalized servicing, servicing released premiums, and warehouse interestrnspread.</p

Secondary marketingrnincome was 261 basis points in the third quarter of 2014, compared to 270 basisrnpoints in the second quarter.</p

Including all businessrnlines, 83 percent of the firms in the study posted pre-tax net financialrnprofits in the third quarter of 2014, up from 81 percent in the second quarterrnof 2014.</p

There were 347 companiesrnthat submitted production data for the report, 74 percent of which werernindependent mortgage companies.  Thernremaining 26 percent were subsidiaries and other non-depository institutions.rn 

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