Independent mortgage bankers see profit per loan nearly halved in 2018
Surging loan production expenses and low revenue killed profits in 2018 for loans originated by independent mortgage bankers and subsidiaries of chartered banks, according to the Mortgage Bankers Association.
The grouping averaged a yield of $367 per origination in 2018, down from 2017's $711. The fourth quarter's net losses dragged that number down.
"Despite a healthy economy in 2018, the mortgage market suffered, as rate hikes hurt refinancing volume and low housing inventories priced some potential homebuyers out of the purchase market," Marina Walsh, the MBA's vice president of industry analysis, said in a press release.
"For mortgage companies, there was the perfect storm of lower production revenues combined with rising expenses, which together contributed to the lowest net production income per loan since 2008. Production revenues per loan dropped despite study-high loan balances in 2018. At the same time, production expenses per loan grew to a study-high of $8,278 per loan last year."
Total production revenues averaged $8,645 per loan in 2018, down from $8,793 year-over-year. Total loan production expenses — which account for commissions, compensation, occupancy, equipment, corporate allocations and other expenses — increased to $8,278 per loan in 2018, up from $8,082 in 2017.
Companies averaged $2 billion in production volume across 8,171 originations in 2018, a drop from $2.13 billion and 8,882 loans in 2017.
With tightening profits and decreased volume, it's crucial for originators to recalibrate their businesses to keep them churning. Otherwise, consolidation could come as expected.
"For those holding mortgage servicing rights, it was the silver lining that boosted overall profitability. Including both production and servicing operations, 69% of the firms posted overall pretax net financial profits in 2018, compared to only 47% of firms with net servicing income excluded," Walsh said.
Average loan balances on first mortgages grew for the ninth straight year, reaching a high of $251,084 in 2018, up from 2017's $245,500. The MBA first conducted the study in 2008.