Mortgage profits hit multiyear high as revenue wavers

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Lender profitability rose to a high not seen since 2012 in the Mortgage Bankers Association's latest quarterly report despite some variability in revenue generated per loan.

Independent mortgage banks and mortgage subsidiaries of chartered banks recorded a net gain of $1,924 per loan in the third quarter, up from $1,675 in the second quarter. Mortgage profitability hasn't been that high since the fourth quarter of 2012, a figure in marked contrast to the $480 in per-loan profit reported a year ago, when rates were higher.

"The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue," Marina Walsh, the MBA's vice president of industry analysis, said in a press release.

The average first-mortgage balance rose to a study high of $276,053 in the third quarter. Total loan production expenses were $7,217 per loan, down from $7,725 the previous quarter and $8,714 a year ago.

But total production revenue — a combination of fee income, net secondary marketing income and warehouse spread expressed as a percentage of the loan balance — dropped to 349 basis points. In comparison, total production revenue was 370 basis points in the second quarter, and 358 basis points in the third quarter of last year.

In dollars, total production revenue was lower than during the previous quarter but up compared to last year's third quarter at $9,142. In comparison, total production revenue was $9,400 in the second quarter and $8,654 in the third quarter of 2018.

The percentage of mortgage companies that generated net financial profits on a pretax basis was relatively higher in the third quarter of 2019 at 91%. The percentage of profitable participants in the MBA's study was 85% in the second quarter and 71% in the third quarter of last year.

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Originations Revenue and expenses Earnings Secondary market Mortgage Bankers Association