MBA: Rapidly Rising Rates Took A Bite Out Of Mortgage Profits In Q4

Posted by Patrick Barnard on March 21, 2017 No Comments
Categories : Residential Mortgage

Due mainly to rapidly rising interest rates, it got a little less profitable to be a mortgage lender during the fourth quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

The net gain on each loan originated during the fourth quarter was $575, down from $1,773 in the third quarter, according to the MBA’s voluntary survey of independent mortgage banks and mortgage subsidiaries of chartered banks.

“Rapid increases in interest rates in the last two months of 2016 slowed mortgage activity in the fourth quarter, driving a significant decrease in loan production profits,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “Mortgage lenders reported a combination of both lower revenues and higher expenses. On the revenue side, secondary marketing income dropped as mortgage lenders wrestled with less favorable pricing and pipeline challenges. At the same time, production expenses per loan rose as fixed costs were spread over fewer loans,”

“Those mortgage lenders with servicing portfolios benefited from higher net servicing financial income in the fourth quarter due to increases in the valuation of their mortgage servicing rights, driven by the same rising interest rates,” Walsh adds. “However, the reduced profitability on the production side of the business generally outweighed servicing gains.”

Average production volume was $690 million per company in the fourth quarter – down from $764 million in the third quarter, according to the report. Each company averaged 2,811 loans, down from 3,072 loans in the third quarter.

The average pre-tax production profit was 24 basis points – down from 74 bps in the previous quarter.

The average loan balance for first mortgages was $246,473, down from the previous study high of $251,398 in the third quarter.

The average pull-through rate (loan closings to applications) was a study high of 76.45%, up from 73.33%.

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