Independent Mortgage Banks Regain Loan Profits in Q2

Independent mortgage banks saw their loans turn profitable in the second quarter after suffering losses of nearly $200 per loan during the prior quarter, according to a recent Mortgage Bankers Association (MBA) report.

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $954 on each loan they originated in the second quarter this year, a significant rebound from a reported loss of $194 per loan in the first quarter of 2014, MBA reported this week in its Quarterly Mortgage Bankers Performance Survey.

The second quarter gains arrived following first quarter losses that were likely triggered by a variety of factors, including the implementation of new Dodd-Frank regulations and “extremely” low origination volumes, said Marina Walsh, MBA’s vice president of industry analysis, in a written statement.

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“Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined,” stated Walsh.

Of the total participants, 73% of the 349 companies that reported production data for the second quarter were independent mortgage companies and the remaining 27% were subsidiaries and other non-depository institutions.

In basis points (bps), the average production profit was 45.70 basis points in the second quarter compared to an average net production loss of 8.31 bps in the first quarter. Since the Performance Report’s inception in the third quarter of 2008, net production income has averaged 54.33 bps with a median of 52.05 bps.

Average production volume per company in the second quarter was $378 million, a 38% increase from the prior quarter, when average volume was $274 million per company. Additionally, the average volume by count per company averaged 1,676 loans in the quarter, up from 1,238 in the prior period.

Total loan production expenses—costs associated with commission, compensation, occupancy, equipment and other production expenses and corporate allocations—also decreased in the quarter to $6,932 per loan, down from $8,025 in the previous quarter. This marked the largest decline in costs in any single quarter since the Performance Report was created, MBA noted.

The net cost to originate was lower in the second quarter compared to the first as well at $5,074 per loan compared to $6,253. MBA defines “net cost to originate” as all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

Employees at the reporting institutions were also more productive, on average, when compared to the first quarter’s numbers. Productivity was 2.30 loans originated per production employee per month in the second quarter, up from 1.70 in the first quarter.

Including all business lines, 81% of the firms in the study posted pre-tax financial profits in the second quarter of 2014, up from just 54% in the first quarter of the year, but down from the 92% seen in the second quarter of 2013.

Written by Jason Oliva

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