Independent Mortgage Bankers in U.S. Report Net Production Losses in Q1

According to the Mortgage Bankers Association's latest Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered U.S. banks reported a net loss of $118 on each loan they originated in the first quarter of 2018, down from a reported gain of $237 per loan in the fourth quarter of 2017.

"In the first quarter of 2018, falling volume drove net production profitability into the red for only the second time since the inception of our report in the third quarter of 2008," said Marina Walsh, MBA's Vice President of Industry Analysis. "While production revenues per loan actually increased in the first quarter, we also reached a study-high for total production expenses at $8,957 per loan, as volume dropped."

"For mortgage bankers who held mortgage servicing rights, higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability," Walsh continued.

"Low inventories of properties for sale across the country have been encouraging investors to renovate their existing assets, increase their net operating income and maximize their value," said Leslie Smith, managing director, Commercial Direct.

"At Commercial Direct we are seeing these investor scenarios everyday where cash out is being used as a long term reinvestment to boost property cash flow with the ultimate goal of sale in a 5 to 7 year time frame. Borrowers are seeking nonbank lender to access more cash out and less restrictive use of funds in a refinance transaction than would be possible in traditional bank financing. We have definitely observed an increase in in lower balance loan requests in 2018. In order to meet market demand for smaller loan amounts, we recently lowered our minimum balance requirements for small balance commercial loans. This modification allows us  to capture a greater market share and more effectively serve our borrowers," added Smith.

Key findings of MBA's 2018 Quarterly Mortgage Bankers Performance Report include:

• Net production losses were $118 per loan (8 basis points) in the first quarter of 2018, not as high as the $194 per loan (also 8 basis points) seen in the first quarter of 2014, the only other quarter in the survey's history to record a net production loss.

• Average production volume was $450 million per company in the first quarter of 2018, down from $505 million per company in the fourth quarter of 2017. The volume by count per company averaged 1,866 loans in the first quarter of 2018, down from 2,059 loans in the fourth quarter of 2017. For the mortgage industry as a whole, MBA estimates for production volume in the first quarter of 2018 were lower compared to the previous quarter.

• The average pre-tax production loss was 8 basis points (bps) in the first quarter of 2018, down from an average net production profit of 9 bps in the fourth quarter of 2017.

• The purchase share of total originations, by dollar volume, was unchanged at 71 percent in the first quarter of 2018. For the mortgage industry as a whole, MBA estimates the purchase share at 63 percent in the first quarter of 2018.

• The average loan balance for first mortgages was $249,041 in the first quarter of 2018, down from $254,291 in the fourth quarter of 2017.

• The average pull-through rate (loan closings to applications) was 70 percent in the first quarter of 2018, down from 76 percent in the fourth quarter of 2017.

• Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 370 basis points in the first quarter of 2018, up from 362 bps in the fourth quarter of 2017. On a per-loan basis, production revenues increased to $8,840 per loan in the first quarter of 2018, from $8,712 per loan in the fourth quarter of 2017.

• Net secondary marketing income increased slightly to 292 basis points in the first quarter of 2018, from 291 bps in the fourth quarter of 2017. On a per-loan basis, net secondary marketing income increased slightly to $7,040 per loan in the first quarter of 2018 from $7,037 per loan in the fourth quarter of 2017.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to a study-high of $8,957 per loan in the first quarter of 2018, from $8,475 per loan in the fourth quarter of 2017. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,224 per loan.

• Personnel expenses averaged $5,899 per loan in the first quarter of 2018, up from $5,560 per loan in the fourth quarter of 2017.

• Productivity decreased slightly to 1.9 loans originated per production employee per month in the first quarter of 2018, from 2.0 in the fourth quarter of 2017. Production employees includes sales, fulfillment and production support functions.

• Including all business lines (both production and servicing), 60 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2018, from 56 percent in the fourth quarter of 2017.  For those mortgage bankers holding mortgage servicing rights (MSR), higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability.