Mortgage Banker Profits Increased In Q1, But Cost To Originate Went Up Too

Posted by Patrick Barnard on June 08, 2015 No Comments
Categories : Residential Mortgage

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net profit of $1,447 on each loan originated in the first quarter, up nearly 50% from $744 in the fourth quarter, according to the Mortgage Bankers Association's (MBA) Quarterly Mortgage Bankers Performance Report, based on data gathered from more than 350 mortgage companies.

‘Net production profits among independent mortgage bankers nearly doubled from the fourth quarter of 2014 and secondary marketing gains improved by 31 basis points, based largely on the increase in refinancing volume in the first quarter,’ explains Marina Walsh, vice president of industry analysis for the MBA, in a release. ‘However, total production operating expenses per loan remained a challenge, rising to $7,195 per loan in the first quarter, from $7,000 per loan in the fourth quarter.

‘In fact, origination costs in the first quarter are elevated compared to quarters with similar production volume within the past few years,’ Walsh adds.

Average production volume was $473 million per company in the first quarter, up from $417 million per company in the fourth quarter. The volume by count per company averaged 1,917 loans, up from 1,769 loans.

The average production profit was 60 basis points (bps) in the first quarter, compared to an average net production profit of 32 bps in the fourth quarter.

The purchase share of total originations, by dollar volume, was 51%, compared to 65% in the fourth quarter. For the mortgage industry as a whole, MBA estimates that in the first quarter the purchase share was about 44%.

The jumbo share of total first mortgage originations by volume was 8.74% in the first quarter compared to 8.44% in the fourth quarter.

The average loan balance for first mortgages grew to a high of $242,791 in the first quarter, up from $233,655.

Secondary marketing income was 297 basis points in the first quarter of 2015, up from 266 basis points in the fourth quarter.

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,195 per loan in the first quarter, up from $7,000 in the fourth quarter.

Personnel expenses averaged $4,675 per loan, up from $4,428 per loan.

The ‘net cost to originate’ – which 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 – was $5,597 per loan in the first quarter, up from $5,283 in the fourth quarter.

Productivity was unchanged at 2.4 loans originated per production employee per month.

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