Sharp Decline in Q1 Loan Volumes Hurt Mortgage Banker's Profits

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According to the Mortgage Bankers Association's latest Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $194 on each loan they originated in the first quarter of 2014, down from a reported $150 in profit per loan in the fourth quarter of 2013.

"The significant overall production volume decline in the first quarter hurt mortgage bankers," said Marina Walsh, MBA's Vice President of Industry Analysis.  "Purchase volume did not pick-up, while refinancing volume dropped and costs continued to rise.  Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome."

Other key findings of MBA's Quarterly Mortgage Bankers Performance Report are:

• In basis points, the average production loss was 8.31 basis points in the first quarter of 2014, compared to an average net production profit of 8.72 basis points in the fourth quarter of 2013.  This marks the sixth consecutive quarter that production income has decreased.

• Average production volume was $274 million per company in the first quarter of 2014, down from $367 million per company in the fourth quarter of 2013.  The volume by count per company averaged 1,238 loans in the first quarter, down from 1,641 in the fourth quarter of 2013.

• The purchase share of total originations, by dollar volume, was relatively flat at 68 percent in the first quarter of 2014.   For the mortgage industry as a whole, MBA estimates the purchase share at 51 percent in the first quarter of 2014, from 47 percent in the fourth quarter of 2013.

• Secondary marketing income increased to 277 basis points in the first quarter, compared to 248 basis points in the fourth quarter of 2013.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,025 per loan in the first quarter, up from $6,959 in the fourth quarter of 2013.  First quarter 2014 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.

• Personnel expenses averaged $5,048 per loan in the first quarter, up from $4,385 per loan in the fourth quarter of 2013.

• The "net cost to originate" was $6,253 per loan in the first quarter, up from $5,171 per loan in the fourth quarter of 2013.  The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

• Productivity was 1.7 loans originated per production employee per month in the first quarter, down from 2 loans in the fourth quarter of 2013.

• Including all business lines, 54 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2014, down from 58 percent in fourth quarter of 2013, and 94 percent in the first quarter of 2013.