U.S. Mortgage Profits Rise in Q2 to Highest Levels Since 2016

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"Production profits in the second quarter of 2019 were the best MBA has seen since the third quarter of 2016 ($1,773 per loan), as production volume rose and expenses declined significantly," said Marina Walsh, MBA's Vice President of Industry Analysis. "In fact, the drop in production expenses, by over $1,500 per loan, was the largest quarterly decline reported since the inception of this study in 2008."

Added Walsh, "With anticipated increases in prepayment activity, we saw 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."

Key findings of MBA's second quarter of 2019 Quarterly Mortgage Bankers Performance Report include:

• The average pre-tax production profit was 64 basis points (bps) in the second quarter, up from an average net production profit of 8 bps in the first quarter of this year.

• Average production volume was $601 million per company in the second quarter, up from $385 million per company in the first quarter. The volume by count per company averaged 2,312 loans in the second quarter, up from 1,571 loans last quarter.

• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 370 bps in the second quarter, down from 393 bps in the first quarter. On a per-loan basis, production revenues decreased to $9,400 per loan in the second quarter, down from a study high of $9,584 per loan in the first quarter.

• Net secondary marketing income decreased to 287 bps in the second quarter, down from 308 bps in the first quarter. On a per-loan basis, net secondary marketing income decreased to $7,411 per loan in the second quarter from $7,591 per loan in the first quarter.

• The purchase share of total originations, by dollar volume, decreased to 74 percent in the second quarter from 76 percent in the first quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 71 percent last quarter.

• The average loan balance for first mortgages reached a study high of $268,520 in the second quarter, up from $257,374 in the first quarter.

• The average pull-through rate (loan closings to applications) was 70 percent in the second quarter, up from 69 percent in the first quarter.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - decreased to $7,725 per loan in the second quarter, down from a study high of $9,299 per loan in the first quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,465 per loan.

• Personnel expenses averaged $5,186 per loan in the second quarter, down from $5,931 per loan in the first quarter.

• Productivity increased to 2.3 loans originated per production employee per month in the second quarter, up from 1.8 loans per production employee per month in the first quarter. Production employees includes sales, fulfillment and production support functions.

• Servicing net financial income for the second quarter (without annualizing) was a loss of $74 per loan, compared to a loss of $37 per loan in the first quarter. 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 $42 per loan in the second quarter, compared to $58 per loan in the first quarter.

• Including all business lines (both production and servicing), 85 percent of the firms in the study posted pre-tax net financial profits in the second quarter, up from 59 percent in the first quarter.