Second quarter loan originations pull profits for mortgage banks

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With spring homebuying in bloom, the second quarter brought profits to independent mortgage bankers after going negative for the second time ever, according to the Mortgage Bankers Association.

Nonbank mortgage lenders and mortgage subsidiaries of chartered banks posted a net production gain of $580 per loan in the second quarter of 2018, a major jump from the first quarter's net loss of $118 per loan and the net gain of $112 per loan from one year ago.

"After an exceptionally weak start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season. But profits fell below typical second quarter results," Marina Walsh, the MBA's vice president of industry analysis, said in a press release.

"When measured in basis points, pre-tax net production income reached its lowest level for any second quarter since the inception of our report in 2008," she added.

The average pretax production profit was 21 basis points in 2Q18, up from a loss of eight basis points last quarter but down 24 basis points year-over-year.

Average production volume escalated to $531 million per company from $450 million in the prior quarter. Loan volume count also rose, increasing to an average of 2,180 loans per company from 2,059 quarter-over-quarter.

The purchase share of originations by dollar volume grew to 81% from 71% for independent mortgage bankers, reaching the highest level since the study started in the third quarter of 2008. The MBA estimated the purchase share for the overall mortgage industry at 74% in the second quarter.

For first mortgages, the average loan balance also hit its high point, increasing to $255,136, a quarterly incline from $249,041.

The average pull-through rate of loan closings to application transitions stepped up to 72% from 70% in the first quarter.
Total loan production expenses fell to $7,877 per loan after hitting the study's apex of $8,957 last quarter. From the study's inception, loan production expenses averaged $6,266 per loan.

"Mortgage originators evidently responded to first quarter losses by reducing their expenses in the second quarter, as production expenses dropped by over $1,000 per loan. However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts," Walsh said.

For all production and servicing business lines, 77% of firms in the study saw pretax net financial profits, up from 60% in 2018's opening frame.

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Revenue and expenses Originations Nonbank Purchase MSR Mortgage Bankers Association