A new report from the Mortgage Bankers Association (MBA) shows that lenders were back in the black in the second quarter after losing money on mortgage originations at the beginning of the year.
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $954 on each loan they originated in the second quarter, up from a reported loss of $194 per loan in the first quarter of 2014, the MBA reported in its Quarterly Mortgage Bankers Performance Report.
“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,” MBA’s Vice President of Industry Analysis Marina Walsh said. “Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined.”
In basis points, the average production profit was 45.70 basis points (bps) in the second quarter compared with an average net production loss of 8.31 bps in the first quarter of the year. Since the inception of the 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, up from $274 million per company in the first quarter, an increase of 38 percent. The volume by count per company averaged 1,676 loans in the second quarter, 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, 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, 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.
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, 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, down from $5,048 per loan in the first quarter. This primarily was 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, 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.
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, but down from the 92 percent seen in the second quarter of 2013.
MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Seventy-three percent of the 349 companies that reported production data for the second quarter were independent mortgage companies, and the remaining 27 percent were subsidiaries and other non-depository institutions.