Independent Mortgage Bank Profits Down 60 Percent in U.S.

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According to the Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report. Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $493 on each loan they originated in the fourth quarter of 2015, down from a reported gain of $1,238 per loan in the third quarter of 2015.

"Production profits dropped by over sixty percent in the fourth quarter of 2015 compared to the third quarter," said Marina Walsh, MBA's Vice President of Industry Analysis. "With the Know Before You Owe (TRID) rule going into effect last October 3rdand declining production volume compared to the third quarter of 2015, mortgage bankers saw their total loan production expenses climb to $7,747 per loan, from $7,080 per loan in the third quarter."

Walsh added, "The fourth quarter marked the second highest level of production expenses per loan since the inception of our report in the third quarter of 2008. However, the average production volume per company was nearly double the first quarter of 2014, when production expenses reached a study-high of $8,025 per loan. The increase in total production expenses per loan in the fourth quarter of 2015 cannot be explained solely by volume fluctuations."

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

• Average production volume was $538 million per company in the fourth quarter of 2015, down from $614 million per company in the third quarter of 2015.  In the first quarter of 2014 when per-loan production expenses were at a study-high, the average production volume was $274 million per company.  Since the inception of the Performance Report in the third quarter of 2008, production volume per company has averaged $332 million.

• The volume by count per company averaged 2,265 loans in the fourth quarter of 2015, down from 2,609 loans in the third quarter of 2015. In the first quarter of 2014 when per-loan production expenses were at a study-high, the average volume by count was 1,238 loans per company.  Since the inception of the Performance Report in the third quarter of 2008, the quarterly production count has averaged 1,491 loans.

• The average pre-tax production profit was 22 basis points (bps) in the fourth quarter, compared to an average net production profit of 55 bps in the third 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 fourth quarter of 2015, down from 70 percent in the third quarter of 2015.  For the mortgage industry as a whole, MBA estimates the purchase share at 53 percent in the fourth quarter of 2015. 

• The jumbo share of total first mortgage originations by dollar volume was 9.34 percent in the fourth quarter compared to 9.09 percent in the third quarter. 

• The average loan balance for first mortgages increased to $238,481 in the fourth quarter of 2015, from $238,246 in the third quarter.

• Total production revenue (fee income, secondary marking income and warehouse spread) remained flat at 362 basis points in the fourth quarter of 2015, compared to the third quarter. 

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,747 per loan in the fourth quarter of 2015, from $7,080 in the third quarter of 2015. 

• Personnel expenses averaged $5,131 per loan in the fourth quarter of 2015, up from $4,674 per loan in the third quarter. 

• The "net cost to originate" was $6,163 per loan in the fourth quarter of 2015, up from $5,549 in the third quarter.  The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

• Productivity decreased to 2.4 loans originated per production employee per month in the fourth quarter of 2015 compared to 2.5 in the third quarter.

• Including all business lines, 72 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2015, down from 86 percent in the third quarter of 2015.