Financial concerns continued for independent mortgage banks and mortgage subsidiaries of chartered banks as they reported, on average, declining profit margins in the third quarter. The Mortgage Bankers Association's (MBA's) newly released Quarterly Mortgage Bankers Performance Report shows that the 342 banks that responded to its third quarter survey reported a net gain of $480 on each loan they originated compared to $580 in the second quarter.
"These are very challenging times for independent mortgage bankers, with the average pre-tax net production income per loan reaching its lowest level for any third quarter since inception of our report in 2008," said Marina Walsh, MBA's Vice President of Industry Analysis. "Profitability continues to be hindered by high costs and low productivity. We expect fixed costs to remain elevated, and competitive pressures will continue to hamper production revenues in the winter months. Therefore, mortgage banker profitability will likely remain challenged."
Added Walsh, "Mortgage servicing remains a bright spot for bankers, with relatively low delinquencies and high loan balances driving up per-loan servicing revenues. Including all business lines (both production and servicing), 71 percent of the firms in the study posted a pre-tax net financial profit in the third quarter. Without servicing, that percentage would have dropped to 52 percent."
The profitability problems are tied, in part, to declining loan originations. The volume by count per company declined from 2,180 loans in Q2 to 1,948 loans and the dollar volume from $531 million to $474 million. However, for the mortgage industry as a whole, MBA estimates that production volume was up slightly from the previous quarter.
The average pre-tax production profit was 20 basis points (bps) in the third quarter, down slightly from an average net production profit of 21 bps in both the second quarter of 2018 and the third quarter of 2017.
Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 358 bps in the third quarter, up from 347 bps in the second quarter. On a per-loan basis, production revenues increased to $8,654 per loan, up from $8,458 per loan in the second quarter. Net secondary marketing income increased rose from 271 bps in the second quarter to 280 bps or from $6,650 per loan to $6,802.
Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - were $8,174 per loan compared to $7,877 in the previous quarter. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,312 per loan.
Personnel expenses averaged $5,405 per loan in the third quarter compared to $5,195 in the second quarter. Per capita loan originations by production employees including sales, fulfillment and production support, decreased slightly to 1.9 from 2.1 a quarter earlier.
Including all business lines (both production and servicing), 71 percent of the firms in the study posted pre-tax net financial profits in the third quarter, down from 77 percent in the second quarter.
Purchase loans accounted for 82 percent of total originations by dollar volume. MBA estimates this is higher than the purchase share industry-wide which it estimates at 76 percent. Lenders successfully originated 75 percent of loans for which applications were begun. The pull-through rate in the second quarter was 72 percent.
The average loan balance for first mortgages reached a survey high of $255,539 in the third quarter. The average was $255,136 in the second quarter.
Eighty percent of the companies that responded to MBA's third quarter survey were independent mortgage companies. The remainder were subsidiaries and other non-depository institutions.