Shrinking refinance volume and lackluster purchase volume caused the net profit per loan to fall to $237 in the fourth quarter of 2017, down from $929 in the third quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.
The report is based on data voluntarily reported by independent mortgage lenders.
Also driving down net profit in the fourth quarter was an increase in loan production expenses, including commissions, compensation, occupancy, equipment and other expenses. The average total cost to originate a mortgage (all loan types) in the fourth quarter was $8,475, up from $8,060 in the third quarter, according to the report.
Personnel expenses averaged $5,560 per loan, up from $5,279 per loan in the third quarter.
The average loan balance was $254,29, up from $251,109 in the third quarter to reach a study high.
The average pull-through rate (loan closings to applications) was 76%, up from 73%.
“Production profits plummeted in the fourth quarter of 2017 compared to the third quarter of 2017,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “Purchase volume was lower in the fourth quarter, in part due to normal seasonality. At the same time, there was no substantial pickup in refinancings. While cash-out refinancings grew incrementally to 16 percent of overall production volume in the fourth quarter, from 14 percent the previous quarter, rate-term refinancings continued to be less than 13 percent of overall production volume, on par with the previous two quarters.
“The end result was lower overall volume and production expenses that grew to $8,475 per loan – the second highest level reported since the inception of our study in 2008,” Walsh adds. “Production revenues per loan also dropped, despite the average loan balance reaching a study-high.”
The MBA estimates that purchase volume in the fourth quarter was roughly 63%, nationwide – however, for the total of mortgage lenders reporting data for the study, it was roughly 71%.