Independent Mortgage Bank Profits Up from Previous Quarter in U.S.

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Net annual profits down Year-over-Year

Based on the Mortgage Bankers Association new Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $825 on each loan they originated in the first quarter of 2016, up from a reported gain of $493 per loan in the fourth quarter of 2015.

"Production profits in the first quarter of 2016 showed modest improvement over the fourth quarter of 2015 despite declining volume and an increase in per-loan production expenses," said Marina Walsh, MBA's Vice President of Industry Analysis. "Compensating for the cost increases were higher production revenues that grew by $431 per loan (16 basis points) over the fourth quarter. However, on a year-over-year basis, production profits were still down. In the first quarter of 2016, profits were $825 per loan (33 basis points), compared to $1,447 per loan (60 basis points) in the first quarter of 2015."

Walsh added, "On the servicing side of the business, a drop in mortgage interest rates resulted in mortgage servicing right (MSR) impairments and hurt profitability. Net servicing financial income dropped to a loss of $118 per loan serviced in the first quarter, from gains of $107 per loan in the fourth quarter."

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

• Average production volume was $517 million per company in the first quarter of 2016, down from $538 million per company in the fourth quarter of 2015. The volume by count per company averaged 2,196 loans in the first quarter of 2016, down from 2,265 loans in the fourth quarter of 2015.

• The average pre-tax production profit was 33 basis points (bps) in the first quarter of 2016, compared to an average net production profit of 22 bps in the fourth quarter of 2015. However, production profits for the first quarter of 2016 are down from production profits of 60 bps in the first quarter of 2015. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 52 bps.

• The purchase share of total originations, by dollar volume, was 61 percent in the first quarter of 2016, down from 66 percent in the fourth quarter of 2015.  For the mortgage industry as a whole, MBA estimates the purchase share at 53 percent in the first quarter of 2016. 

• The jumbo share of total first mortgage originations by dollar volume was constant at 9.35 percent in the first quarter of 2016 compared to 9.34 percent in the fourth quarter of 2015. 

• The average loan balance for first mortgages was $237,419 in the first quarter of 2016, compared to $238,481 in the fourth quarter of 2015.

• Total production revenue (fee income, secondary marking income and warehouse spread) increased to 378 bps in the first quarter of 2016, compared to 362 bps in the fourth quarter of 2015. 

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,845 per loan in the first quarter of 2016, from $7,747 in the fourth quarter of 2015. 

• Personnel expenses averaged $5,141 per loan in the first quarter of 2016, up slightly from $5,131 per loan in the fourth quarter of 2015. 

• Productivity decreased to 2.0 loans originated per production employee per month in the first quarter of 2016 compared to 2.4 in the fourth quarter of 2015.

• Servicing net financial income for the first quarter of 2016 was a loss of $118 per loan, compared to a gain of $107 per loan in the fourth quarter of 2015. 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, remained relatively flat at $205 per loan in the first quarter of 2016, from $207 per loan in the previous quarter.

• Including all business lines, 73 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2016, from 72 percent in the fourth quarter of 2015. This marks a slight improvement over the previous quarter, but a decline over the first quarter of 2015 when 88 percent of the firms in the study posted pre-tax net financial profits.