Mortgage bankers' production profits skyrocket as expenses plummet

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Independent mortgage bankers reported their highest average profit per loan originated in almost three years, benefiting from a large drop in production expenses, the Mortgage Bankers Association said.

The average net gain of $1,675 per loan during the second quarter dwarfed the $285 per loan in the first quarter and $580 per loan one year prior.

"Production profits in the second quarter of 2019 were the best MBA has seen since the third quarter of 2016 ($1,773 per loan), as production volume rose and expenses declined significantly," Marina Walsh, the MBA's vice president of industry analysis, said in a press release. "In fact, the drop in production expenses, by over $1,500 per loan, was the largest quarterly decline reported since the inception of this study in 2008."

Mortgage bankers' pretax production profit was 64 basis points in the second quarter, up from an average net production profit of 8 bps in the first quarter and 21 bps for the second quarter of 2018.

Even so, their total production revenue — fee income, net secondary marking income and warehouse spread — decreased to 370 bps in the second quarter, down from 393 bps in the first quarter. On a per-loan basis, production revenue decreased to $9,400 per loan in the second quarter, down from a study high of $9,584 per loan in the first quarter.

Net secondary marketing income decreased to 287 bps in the second quarter, down from 308 bps in the first quarter. On a dollar basis it fell to $7,411 per loan in the second quarter from $7,591 per loan in the first quarter.

But the total production expenses also fell to an average of $7,725 per loan, down from the MBA's study high of $9,299 per loan in the first quarter.

Average production volume was $601 million per company, compared with $385 million in the first quarter. Average loan count was 2,312 units, up from 1,571 in the same time frame.

The news was not as good on the servicing side.

In the second quarter of 2018, these were $531 million and 2,180 loans, respectively.

"With anticipated increases in prepayment activity, we saw hits to servicing profitability resulting from mortgage servicing rights markdowns and amortization," Walsh said. "Nonetheless, the profitability on the production side of the business generally outweighed servicing losses."

Servicing net financial income for the second quarter (without annualizing) averaged a loss of $74 per loan, compared to a loss of $37 per loan in the first quarter.

Servicing operating income, which excludes MSR amortization, along with any gains or loss in the valuation of servicing rights net of hedging and gains or losses on the bulk sale of MSRs, was $42 per loan in the second quarter, compared to $58 per loan in the first quarter.

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