Mortgage bank profits increased substantially in the first quarter of the year compared to the last quarter of 2015 the Mortgage Bankers Association (MBA) reported on Tuesday.  Independent mortgage banks and mortgage subsidiaries of chartered banks gained a net of $825 on each loan they originated during the quarter compared to $493 per loan in the previous period.   

MBA's Vice President of Industry Analysis Marina Walsh, commenting in the association's Quarterly Mortgage Bankers Performance Report noted that production profits improved modestly compared to the fourth quarter of 2015 "despite declining volume and an increase in per-loan production expenses,"

Walsh said, "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."  First quarter production profits were also well below the 52 bps which has been the average since the inception of the Performance Report in Q3 2008.

Companies responding to MBA's survey reported an average production volume of $517 million, down from $538 million in the fourth quarter, and a drop in average originations from 2,265 loans to 2,196 loans in the opening quarter of this year. 

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 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.  

Personnel expenses averaged $5,141 per loan, up slightly from $5,131 per loan a quarter earlier.  Productivity decreased to 2.0 loans originated per production employee per month from 2.4 in Q4.

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

The average size of a first mortgage loan originated during the quarter declined slightly from the previous quarter's $238,481 to $237,419.  The jumbo share of originations by dollar volume was virtually unchanged from quarter to quarter at about 9.35 percent. 

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, declined by $2 per loan to $205.  Walsh noted that the loss in net servicing income resulted from a drop in mortgage interest rates which caused mortgage servicing right (MSR) impairments and hurt profitability.

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

Independent mortgage companies made up 73 percent of the 347 companies that reported production data for MBA's Performance Report.  The remaining 27 percent were subsidiaries and other non-depository institutions.