Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $1,182 on each loan they originated in the fourth quarter of 2019, down from a reported gain of $1,924 per loan in the third quarter of 2019, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.
MBA’s report found that despite a quarterly decline in net production profits, IMBs had the most profitable fourth quarter since 2012. Additionally, 84 percent of the production and servicing respondents in the survey were profitable – also the highest percentage for a fourth quarter since 2012.
“With loan volume at elevated levels, IMBs had a strong close to 2019. Net production profit was a healthy 46 basis points, up from the fourth quarter average of 35 basis points since the survey’s inception in 2008,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “Typically, the second and third quarters perform better than the first and fourth quarters, and last year was no different. A combination of higher per-loan production expenses and lower secondary marketing income affected quarterly profitability. Firms added approximately 10 percent more employees last quarter, and slowing rate locks towards the end of the year led to less secondary marketing.”
Added Walsh, “We continue to closely monitor how the fallout from the spread of the coronavirus will affect the various, important business functions of IMBs.”
Key findings of MBA’s fourth quarter of 2019 Quarterly Mortgage Bankers Performance Report include:
- The average pre-tax production profit was 46 basis points (bps) in the fourth quarter, down from an average net production profit of 74 bps in the third quarter of this year.
- Average production volume was $800 million per company in the fourth quarter, up from $781 million per company in the third quarter. The volume by count per company averaged 2,947 loans in the fourth quarter, up from 2,880 loans last quarter.
- Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 337 bps in the fourth quarter, down from 349 bps in the third quarter. On a per-loan basis, production revenues decreased to $8,707 per loan in the fourth quarter, down from $9,142 per loan in the third quarter.
- Net secondary marketing income decreased to 263 bps in the fourth quarter, down from 281 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,848 per loan in the fourth quarter from $7,424 per loan in the third quarter.
- The purchase share of total originations, by dollar volume, decreased to 56 percent in the fourth quarter from 60 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 45 percent last quarter.
- The average loan balance for first mortgages decreased to $271,972 in the fourth quarter, down from a study high of $276,053 in the third quarter.
- The average pull-through rate (loan closings to applications) was 78 percent in the fourth quarter, up from 73 percent in the third quarter.
- Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,525 per loan in the fourth quarter, up from $7,217 per loan in the third quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,504 per loan.
- Personnel expenses averaged $5,064 per loan in the fourth quarter, up from $4,871 per loan in the third quarter.
- Productivity decreased to 2.6 loans originated per production employee per month in the fourth quarter, down from 3.1 loans per production employee per month in the third quarter. Production employees includes sales, fulfillment and production support functions.
- Servicing net financial income for the fourth quarter (without annualizing) was at $0 per loan, compared to a loss of $62 per loan in the third quarter. 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, was $44 per loan in the fourth quarter, compared to $43 per loan in the third quarter.
- Including all business lines (both production and servicing), 84 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 91 percent in the third quarter.
MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Eighty percent of the 331 companies that reported production data for the fourth quarter of 2019 were independent mortgage companies, and the remaining 20 percent were subsidiaries and other non-depository institutions.
There are five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. Media wishing to view a copy of either report should contact Adam DeSanctis at (202) 557-2727 or email@example.com. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.