Independent mortgage banks and mortgage subsidiaries of chartered banks returned to profitability in the second quarter of the year, according to a new report from the Mortgage Bankers Association (MBA). For the second quarter of 2014, independent mortgage bankers reported a net gain of $954 on each loan they originated, up from a reported loss of $194 per loan in the first quarter of 2014.
Positive signs for the industry were seen on a number of metrics, with volume up, production up and loan costs down. However, purchase mortgages continued to make up a substantial and increasing proportion of total loan volume.
"The gains seen in the second quarter come after first quarter losses that were likely triggered by a variety of factors including the implementation of new Dodd-Frank regulations and extremely low origination volumes," Marina Walsh, MBA’s vice president of industry analysis, said in a statement. "Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined."
The average production profit was 45.70 basis points in the second quarter compared to an average net production loss of 8.31 basis points (bps) in the first quarter of the year. Since the inception of the MBA’s Performance Report in the third quarter of 2008, net production income has averaged 54.33 bps with a median of 52.05 bps.
Average production volume was $378 million per company in the second quarter of 2014, up from $274 million per company in the first quarter of 2014, an increase of 38 percent. The volume by count per company averaged 1,676 loans in the second quarter of 2014, up from 1,238 in the first quarter of 2014.
The purchase share of total originations, by dollar volume, increased to 74 percent in the second quarter of 2014, up from 68 percent in the first quarter. For the mortgage industry as a whole, MBA estimates the purchase share at 59 percent in the second quarter of 2014, up from 51 percent in the first quarter.
The jumbo share of total first mortgage originations continued to increase, rising to 7 percent in the second quarter, the highest level since the inception of the Performance Report. MBA’s applications data, as well as credit availability data, continues to show strong growth in jumbo production.
Secondary marketing income was 270 basis points in the second quarter of 2014, compared with 277 basis points in the first quarter.
Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – decreased to $6,932 per loan in the second quarter of 2014, from $8,025 in the first quarter. This marks the largest decline in costs in any single quarter since the Performance Report was created.
Personnel expenses averaged $4,423 per loan in the second quarter of 2014, down from $5,048 per loan in the first quarter. This was primarily driven by a reduction in per loan fulfillment, support and benefit expenses.
The "net cost to originate" was $5,074 per loan in the second quarter of 2014, down from $6,253 in the first quarter. The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
Productivity was 2.3 loans originated per production employee per month in the second quarter of 2014, up from 1.70 in the first quarter.
Including all business lines, 81 percent of the firms in the study posted pre-tax net financial profits in the second quarter of 2014, up from 54 percent in the first quarter of 2014, but down from the 92 percent seen in the second quarter of 2013.
