Breaking Even a ‘Reasonable Outcome,’ As Mortgage Profits Fall

Independent mortgage banks and mortgage subsidiaries of chartered banks experienced a loss in profits for the first quarter of 2014, reporting a net loss of $194 on each loan they originated in 2014, according to a Mortgage Bankers Association (MBA) report. The report tracks only forward mortgage data in its compilation, not reverse. 

The MBA’s Quarterly Mortgage Bankers Performance Report shows the loss is down from a reported $150 in profit per loan in the fourth quarter of 2013, a result of plateaued purchase volume, a decline in refinance volume and an increase in costs, Marina Walsh, MBA’s Vice President of Industry Analysis, stated in a written release. 

“Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome,” Walsh said in the release. 

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The performance report also showed that production income has decreased for the sixth consecutive quarter. The average production loss was 8.31 basis points in the first quarter of this year, compared to an average net production profit of 8.72 basis points in the fourth quarter of 2013. 

Average production volume fell from $367 million per company in the fourth quarter of 2013 to $274 million per company in the first quarter of 2014, while the purchase share of total originations, by dollar volume, was relatively flat at 68% in the first quarter of 2014. For the mortgage industry as a whole, MBA estimates the purchases share at 51% in the first quarter of 2014 from 47% in the fourth quarter of 2013.

Up 29 basis points, secondary marketing income increased 277 points in the first quarter from 248 points in the fourth quarter of 2013. 

Costs continued to rise even as some profits didn’t: Production expenses of the first quarter of 2014 were the highest recorded in any quarter since the MBA’s performance report was created in the third quarter of 2008. Total loan production expenses — including commissions, compensation, occupancy, equipment and other production expenses and corporate allocations — increased to $8,025 per loan in the first quarter, up from $6,959 in the fourth quarter of 2013.

Personnel expenses increased $663 per loan as expenses averaged $5,048 per loan in the first quarter, up from $4,385 per loan in the fourth quarter of 2013.  

In addition, the “net cost to originate” was $6,253 per loan in the first quarter, up from $5,171 per loan in the fourth quarter of 2013. This includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

Productivity also decreased as the performance report shows each production employee originated 1.7 loans per month in the first quarter, compared to two loans in the fourth quarter of 2013. 

Overall, 54% of the firms in the study posted pre-tax net financial profits in the first quarter of 2014, a decrease from 58% in the fourth quarter of 2013 and 94% in the first quarter of 2013. 

Written by Emily Study

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  • This article is a great example of why unclear regulations such as the qualified mortgage rule has slowed down forward lending. Single product lenders are becoming a recipe for large mergers and explain why we continue to see these companies fall to the waise side regardless of there business expansion. Reverse mortgage business needs to co-exist with forward lenders, the ability to provide diverse products enable lenders to offer market needs and will change the reasonable outcome of breaking even, to a profitable and long term business model. Having a $100 Million dollar warehouse lines also help” 🙂 There are very few companies that understand these market needs, it feels good to be with one of the companies “that get it”.

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