Independent Mortgage Bank Production Profits Down in U.S.

---

According to the Mortgage Bankers Association's latest Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks in the U.S. reported a net gain of $237 on each loan they originated in the fourth quarter of 2017, down from a reported gain of $929 per loan in the third quarter of 2017.

"Production profits plummeted in the fourth quarter of 2017 compared to the third quarter of 2017," said Marina Walsh, MBA's Vice President of Industry Analysis. "Purchase volume was lower in the fourth quarter, in part due to normal seasonality. At the same time, there was no substantial pickup in refinancings. While cash-out refinancings grew incrementally to 16 percent of overall production volume in the fourth quarter, from 14 percent the previous quarter, rate-term refinancings continued to be less than 13 percent of overall production volume, on par with the previous two quarters."

"The end result was lower overall volume and production expenses that grew to $8,475 per loan - the second highest level reported since the inception of our study in 2008. Production revenues per loan also dropped, despite the average loan balance reaching a study-high," Walsh continued.

Key findings of MBA's Quarterly Mortgage Bankers Performance Report include:

• Average production volume was $505 million per company in the fourth quarter of 2017, down from $569 million per company in the third quarter of 2017. The volume by count per company averaged 2,059 loans in the fourth quarter of 2017, down from 2,341 loans in the third quarter of 2017. For the mortgage industry as a whole, MBA estimates for production volume in the fourth quarter of 2017 were lower compared to the previous quarter.

• The average pre-tax production profit was 9 basis points (bps) in the fourth quarter of 2017, down from an average net production profit of 40 bps in the third quarter of 2017.

• The purchase share of total originations, by dollar volume, was 71 percent in the fourth quarter of 2017, down from 74 percent in the third quarter of 2017. For the mortgage industry as a whole, MBA estimates the purchase share at 63 percent in the fourth quarter of 2017.

• The average loan balance for first mortgages reached a study high of $254,291 in the fourth quarter of 2017, up from $251,109 in the third quarter of 2017.

• The average pull-through rate (loan closings to applications) was 76 percent in the fourth quarter of 2017, up from 73 percent in the third quarter of 2017.

• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 362 basis points in the fourth quarter of 2017, from 375 bps in the third quarter of 2017. On a per-loan basis, production revenues decreased to $8,712 per loan in the fourth quarter of 2017, from $8,990 per loan in the third quarter of 2017.

• Net secondary marketing income decreased to 291 basis points in the fourth quarter of 2017, down from 298 bps in the third quarter of 2017. On a per-loan basis, net secondary marketing income decreased to $7,037 per loan in the fourth quarter of 2017 from $7,181 per loan in the third quarter of 2017.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,475 per loan in the fourth quarter of 2017, from $8,060 in the third quarter of 2017. For the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $6,153 per loan.

• Personnel expenses averaged $5,560 per loan in the fourth quarter of 2017, up from $5,279 per loan in the third quarter of 2017.

• Productivity decreased slightly to 2.0 loans originated per production employee per month in the fourth quarter of 2017, from 2.1 in the third quarter of 2017. Production employees includes sales, fulfillment and production support functions.

• Net servicing financial income was $33 per loan in the fourth quarter of 2017, down from $79 per loan in the third quarter of 2017.

• Including all business lines, 56 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2017, down from 77 percent in the third quarter of 2017.