An increase in mortgage originations that made many lenders more operationally efficient helped boost the average net profit made on each loan closed in the second quarter to $954 – up significantly from a reported average loss of $194 per loan in the first quarter – the Mortgage Bankers Association's (MBA) Quarterly Mortgage Bankers Performance Report shows.
Of the 349 independent mortgage banks and mortgage subsidiaries of chartered banks that participate in the study, average production volume was $378 million per company in the second quarter, an increase of 38% compared to the $274 million per company in the first quarter.
These lenders originated an average of 1,676 loans in the second quarter compared to 1,238 in the first quarter.
Not only did the lenders originate more loans, a greater share of those loans were purchases, compared to refinances, which also helped boost the average profit per loan. Purchases increased to 74% of all loans in the second quarter, compared to 68% in the first quarter.Â
For the mortgage industry as a whole, the MBA estimates that purchases accounted for 59% of all loans in the second quarter – up from 51% in the first quarter.
Because labor constitutes the bulk of any lender's operational costs, the ratio of loans originated to employees is also a key factor in determining profitability. In the second quarter, productivity was 2.30 loans originated per production employee per month, compared to 1.70 in the first quarter, according to the MBA's report. The MBA says the increase in volume is what resulted in the increased efficiency, as opposed to staff cuts. In fact, many lenders reported adding staff during the second quarter, the MBA reports.
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, down significantly from $8,025 in the first quarter. This marks the largest decline in costs in any single quarter since the performance report was introduced in 2008.
Personnel expenses averaged $4,423 per loan in the second quarter, 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 MBA says.
The ‘net cost to originate’ – which 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 – was $5,074 per loan in the second quarter, down from $6,253 in the first quarter.
‘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,’ says Marina Walsh, vice president of industry analysis for the MBA, in a release. ‘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 (bps), the average production profit was 45.70 bps in the second quarter compared to an average net production loss of 8.31 bps in the first quarter.
Also helping to drive lender profits in the second quarter was an increase in the number of jumbo mortgages originated. According to the report, the share of jumbo mortgages increased to 7% of originations in the second quarter, the highest level since the report's inception.