Independent Mortgage Banks’ Profits Fall in Fourth Quarter

John Jordan | April 2015

WASHINGTON—Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $744 on each loan they originated in the fourth quarter of 2014, down from a reported gain of $897 per loan in the third quarter of 2014, the Mortgage Bankers Association (MBA) reported on March 31 in its Quarterly Mortgage Bankers Performance Report.

“Production profits dropped slightly in the fourth quarter of 2014 compared to the third quarter of 2014. However, on a year-over-year basis, production profits were up,” said Marina Walsh, MBA’s vice president of industry analysis. “In the fourth quarter of 2014, profits were $744 per loan (32 basis points), compared to $150 per loan (nine basis points) in the fourth quarter of 2013. In addition, 74% of participating companies had overall positive pre-tax profits in the fourth quarter of 2014 compared to only 58% in the fourth quarter of 2013.”

Other key findings of MBA’s Quarterly Mortgage Bankers Performance Report include:

  • Average production volume was $417 million per company in the fourth quarter of 2014, down from $437 million per company in the third quarter of 2014, but up from $367 million per company in the fourth quarter of 2013.
  • The volume by count per company averaged 1,769 loans in the fourth quarter of 2014, down from 1,901 loans in the third quarter of 2014 but up from 1,641 loans in the fourth quarter of 2013.
  • The average production profit was 32 basis points (bps) in the fourth quarter, compared to an average net production profit of 42 bps in the third quarter of 2014 and an average of 9 bps in the fourth quarter of 2013.
  • The purchase share of total originations, by dollar volume, was 65% in the fourth quarter of 2014, compared to 72% in the third quarter of 2014.  For the mortgage industry as a whole, MBA estimated the purchase share at 54% in the fourth quarter of 2014.
  • The jumbo share of total first mortgage originations was 8.44% in the fourth quarter compared to 9.42% in the third quarter.
  • The average loan balance for first mortgages grew to a study high of $233,655 in the fourth quarter of 2014, from $231,914 in the third quarter.Secondary marketing income was 266 basis points in the fourth quarter of 2014, compared to 261 basis points in the third quarter.
  • Total loan production expenses—commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $7,000 per loan in the fourth quarter of 2014, from $6,769 in the third quarter.
  • Personnel expenses averaged $4,428 per loan in the fourth quarter of 2014, up slightly from $4,401 per loan in the third quarter.
  • The “net cost to originate” was $5,238 per loan in the fourth quarter of 2014, up from $5,038 in the third quarter.  The “net cost to originate” includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
  • Productivity was unchanged at 2.4 loans originated per production employee per month in the fourth quarter of 2014.
  • Including all business lines, 74% of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2014, down from 83% in the third quarter of 2014 but up from the 58% posted in the fourth quarter of 2013.
John Jordan
Editor, Real Estate In-Depth