Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $118 on each loan they originated in the first quarter of 2018, down from a reported gain of $237 per loan in the fourth quarter of 2017, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.
“In the first quarter of 2018, falling volume drove net production profitability into the red for only the second time since the inception of our report in the third quarter of 2008,” Marina Walsh, MBA’s vice president of industry analysis, said in a news release. “While production revenues per loan actually increased in the first quarter, we also reached a study-high for total production expenses at $8,957 per loan, as volume dropped. For mortgage bankers who held mortgage servicing rights, higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability.”
The report also found that the net production losses were $118 per loan (8 basis points) in the first quarter were not as high as the $194 per loan reported in the first quarter of 2014. That is the only other quarter in the survey’s history to record a net production loss.
Another highlight of the report was that average production volume was $450 million per company in the first quarter, down from $505 million per company in the fourth quarter of 2017. The volume by count per company averaged 1,866 loans in the first quarter of 2018, down from 2,059 loans in the fourth quarter of 2017. For the mortgage industry as a whole, MBA estimates for production volume in the first quarter of 2018 were lower compared to the previous quarter.
In addition, the average pre-tax production loss was 8 basis points (bps) in the first quarter, down from an average net production profit of 9 bps in the fourth quarter of 2017.
Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – increased to a study-high of $8,957 per loan in the first quarter of 2018, from $8,475 per loan in the fourth quarter of 2017. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,224 per loan, according to the MBA.
Personnel expenses averaged $5,899 per loan in the first quarter of 2018, up from $5,560 per loan in the fourth quarter of 2017, the study indicated.
But the news wasn’t all bad.
Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 370 basis points in the first quarter of 2018, up from 362 bps in the fourth quarter of 2017. On a per-loan basis, production revenues increased to $8,840 per loan in the first quarter of 2018, from $8,712 per loan in the fourth quarter of 2017.
The report also showed net secondary marketing income increased slightly to 292 basis points in the first quarter of 2018, from 291 bps in the fourth quarter of 2017. On a per-loan basis, net secondary marketing income increased slightly to $7,040 per loan in the first quarter of 2018 from $7,037 per loan in the fourth quarter of 2017.
Meanwhile, the purchase share of total originations, by dollar volume, was unchanged at 71 percent in the first quarter of this year. For the mortgage industry as a whole, MBA estimates the purchase share at 63 percent in the first quarter of 2018.
Including all business lines (both production and servicing), 60 percent of the firms in the study posted pre-take net financial profits in the first quarter of 2018, from 56 percent in the fourth quarter of 2017. For those mortgage bankers holding mortgage servicing rights (MSR), higher per-loan servicing revenues and gains on the valuation of servicing helped overall profitability, according to the study.