U.S. Independent Mortgage Banks Loan Volumes, Profits Dive in 2017

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According to the Mortgage Bankers Association's Annual Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks in the U.S. made an average profit of $711 on each loan they originated in 2017, down from $1,346 per loan in 2016.

"Production profits dropped by almost half in 2017 as rate-term refinancings diminished and the overall average production volume dropped," said Marina Walsh, MBA's Vice President of Industry Analysis.

"Production revenues per loan were up slightly for the year, as higher loan balances mitigated the effects of competitive pressures.  However, production expenses grew in all categories- sales, fulfillment, production support and corporate allocations - reaching a study-high $8,082 per loan for the Annual Performance Report."

"For those mortgage bankers holding mortgage servicing rights (MSR), higher loan balances drove up per-loan servicing fees and helped overall profitability. Including both production and servicing operations, 80 percent of the firms in the study posted overall pre-tax net financial profits in 2017, down from 94 percent in 2016," Walsh continued.

Among the other key findings of MBA's Annual Mortgage Bankers Performance Report are:

• Average production volume was $2.13 billion (8,882 loans) per company in 2017, compared to $2.68 billion (11,106 loans) per company in 2016.  On a repeater company basis, average production volume was $2.11 billion (8,783 loans) in 2017, compared to $2.32 billion (9,625 loans) in 2016.  For the mortgage industry as whole, MBA estimates production volume at $1.71 trillion in 2017, from $2.05 trillion in 2016.

• In basis points, the average production profit (net production income) was 31 basis points in 2017, compared to 58 basis points in 2016.  In the first half of 2017, net production income averaged 36 basis points, then dropped to 26 basis points in the second half of 2017.  Since the inception of the Annual Performance Report in 2008, net production income by year has averaged 53 bps ($1,085 per loan).

• The refinancing share of total originations, by dollar volume, decreased to 25 percent in 2017, from 38 percent in 2016.  For the mortgage industry as whole, MBA estimates the refinancing share also decreased to 35 percent in 2017, from 49 percent in 2016.

• The average loan balance for first mortgages reached a study-high of $245,500 in 2017, from $244,945 in 2016. This is the 8th consecutive year of rising loan balances on first mortgages.

• Total production revenues (fee income, net secondary marking income and warehouse spread) were 379 basis points in 2017, compared to 366 bps in 2016.  On a per-loan basis, production revenues were $8,793 per loan in 2017, up from $8,555 per loan in 2016.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,082 per loan in 2017, up from $7,209 in 2016.

• Personnel expenses averaged $5,346 per loan in 2017, up from $4,801 per loan in 2016.

• Productivity was 1.9 loans originated per production employee per month in 2016, down from 2.4 in 2016.  Production employees include sales, fulfillment and production support functions.

• Net servicing financial income, which includes net servicing operational income as well as mortgage servicing right (MSR) amortization and gains and losses on MSR valuations, was $64 per loan in 2017, from $34 per loan in 2016.

• Including all business lines, 80 percent of the firms in the study posted pre-tax net financial profits in 2017, down from 94 percent in 2016.  In the first half of 2017, 82 percent of reporting repeater firms posted pre-tax financial profits, compared to 70 percent in the second half of 2017.