Independent Mortgage Bank Profits Double in U.S.

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According to the Mortgage Bankers Association's newly released Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks in the U.S. reported a net gain of $1,686 on each loan they originated in the second quarter of 2016, up from a reported gain of $825 per loan in the first quarter of 2016.

"Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015," said Marina Walsh, MBA's Vice President of Industry Analysis. "Mortgage lenders also benefited from higher loan balances that reached a series-high of $245,394 and drove production revenue to a series-high of $8,807 per loan."

"With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization.  Nonetheless, the profitability on the production side of the business generally outweighed servicing losses.  Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73 percent in the first quarter of 2016."

Additional key report findings include:

• Average production volume was $654 million per company in the second quarter of 2016, up from $517 million per company in the first quarter of 2016. The volume by count per company averaged 2,721 loans in the second quarter of 2016, up from 2,196 loans in the first quarter of 2016.

• The average pre-tax production profit was 73 basis points (bps) in the second quarter of 2016, compared to an average net production profit of 33 bps in the first quarter of 2016. Production profits for the second quarter of 2016 are also up from production profits of 67 bps in the second quarter of 2015. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 53 bps.

• The purchase share of total originations, by dollar volume, was 66 percent in the second quarter of 2016, up from 61 percent in the first quarter of 2016. For the mortgage industry as a whole, MBA estimates the purchase share at 54 percent in the second quarter of 2016. 

• The jumbo share of total first mortgage originations by dollar volume was down at 8.49 percent in the second quarter of 2016 compared to 9.35 percent in the first quarter of 2016. 

• The average loan balance for first mortgages reached a study-high $245,394 in the second quarter of 2016, from $237,419 in the first quarter of 2016.

• Total production revenue (fee income, secondary marking income and warehouse spread) decreased to 372 basis points in the second quarter of 2016, down from 377 bps in the first quarter of 2016.  However, with rising loan balances, per-loan production revenues increased to a study-high $8,807 per loan in the second quarter of 2016, up from $8,670 per loan in the first quarter of 2016.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - decreased to $7,120 per loan in the second quarter of 2016, from $7,845 in the first quarter of 2016. 

• Personnel expenses averaged $4,771 per loan in the second quarter of 2016, down from $5,141 per loan in the first quarter of 2016.

• Productivity increased to 2.5 loans originated per production employee per month in the second quarter of 2016, from 2.0 in the first quarter.  Production employees includes sales, fulfillment and production support functions.

• Servicing net financial income for the second quarter of 2016 was a loss of $160 per loan, compared to a loss of $118 per loan in the first quarter of 2016. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, was $192 per loan in the second quarter of 2016, compared to $205 per loan in the previous quarter.

• Including all business lines, 90 percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2016, from 73 percent in the first quarter of 2016. This marks a substantial improvement over the previous quarter, but a slight decline over the second quarter of 2015 when 92 percent of the firms in the study posted pre-tax net financial profits.

MBA's Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. 76 percent of the 345 companies that reported production data for the second quarter of 2016 were independent mortgage companies and the remaining 24 percent were subsidiaries and other non-depository institutions.