Mortgage Bank Profits Back in Black

Mortgage banks substantially improvedrntheir bottom line numbers in the second quarter after posting a loss on everyrnloan written during the first quarter of the year.  The Mortgage Bankers Association (MBA) said Independent mortgage banks and mortgagernsubsidiaries of chartered banks reported a net gain of $954 on each loan they originatedrnin the second quarter, up from a reported loss of $194 per loan the quarterrnbefore. </p

“The gains seen in the second quarter come after first quarterrnlosses that were likely triggered by a variety of  factors including thernimplementation of new Dodd-Frank regulations and extremely low originationrnvolumes,” said Marina Walsh, MBA’s Vice President of Industry Analysis. rn”Some loan closings may have been pushed into the second quarter, resulting inrnan increase in profitability as per-loan production costs declined.”</p

Those total loanrnproduction expenses – commissions, compensation, occupancy, equipment, andrnother production expenses and corporate allocations – decreased to $6,932 perrnloan in the second quarter of 2014, from $8,025 in the first quarter.  Thern$1,093 reduction was the largest in any single quarter since the inception ofrnthe MBA’s Quarterly Mortgage Bankers Performance Report in the first quarter ofrn2008. </p

The current Performance Report says that the averagernproduction profit was 45.70 basis points in compared to an average netrnproduction loss of 8.31 basis points (bps) in the first quarter of thernyear. Despite the increase the second quarter, net production income isrnwell below the average of 54.33 bps and the median of 52.05 bps published byrnthe MBA’s report across its publication history. </p

Production volume averaged $378 million per company in Q2 comparedrnto $274 million in Q1, an increase of 38 percent.  The average volume byrncount rose to 1,676 loans from 1,238. </p

Purchase mortgagesrnrepresented 74 percent of the dollar volume of all mortgages originated in thernquarter compared to 68 percent the previous period.  MBA estimates that the purchase share for thernmortgage industry as a whole was 59 percent in the second quarter, up from 51rnpercent in the first. </p

The jumbo share of totalrnfirst mortgage originations continued to increase, rising to 7 percent in thernsecond quarter, the highest level in the Report’s history.  MBA’S Weekly Mortgage Applications Survey andrnits monthly credit availability data confirm a strong growth in jumbornorigination volume.  </p

Secondary marketingrnincome was 270 basis points in the second quarter, 7 bps lower than in thernfirst quarter. </p

Personnel expensesrnaveraged $4,423 per loan in the second quarter of 2014, down from $5,048 perrnloan in the first quarter.  This was primarily driven by a reduction inrnper loan fulfillment, support and benefit expenses.  Productivity was 2.30rnloans originated per production employee per month in the second quarter ofrn2014, up from 1.70 in the first quarter.</p

The “net cost tornoriginate” was $5,074 per loan, down from $6,253 in the firstrnquarter.  The “net cost to originate” includes all productionrnoperating expenses and commissions, minus all fee income, but excluding secondaryrnmarketing gains, capitalized servicing, servicing released premiums, andrnwarehouse interest spread.</p

Including all businessrnlines, 81 percent of the firms in the study posted pre-tax net financialrnprofits in the second quarter, up from the 54 percent which did so the previousrnquarter, but down from the 92 percent seen in the second quarter of 2013.</p

Seventy-three percent ofrnthe 349 companies that reported production data for the second quarterrnProduction Report were independent mortgage companies and the remaining 27rnpercent were subsidiaries and other non-depository institutions.

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