After seeing a net loss of $118 per loan originated in the first quarter, mortgage lenders cut their operating costs and reported a net gain of $580 per loan in the second quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.
Of the independent mortgage companies, bank subsidiaries and other non-depository institutions reporting their data to the MBA, the average pre-tax production profit was 21 basis points (bps), up from a loss of eight bps in the first quarter but down 24 bps from the second quarter of 2017.
“After an exceptionally weak start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “But profits were down on a year-over-year basis and fell below typical second quarter results. When measured in basis points, pre-tax net production income reached its lowest level for any second quarter since the inception of our report in 2008.”
Mortgage lenders managed to cut total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) to $7,877 per loan in the second quarter, down significantly from a study high of $8,957 per loan in the first quarter.
For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,266 per loan.
Personnel expenses averaged $5,195 per loan, down from $5,899 per loan in the first quarter, indicating the lenders found ways to further cut staffing.
“Mortgage originators evidently responded to first quarter losses by reducing their expenses in the second quarter, as production expenses dropped by over $1,000 per loan,” Walsh says. “However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts.”
Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 347 bps, down from 370 bps in the first quarter.
On a per-loan basis, production revenues decreased to $8,458 per loan, down from $8,840.
The MBA estimates that the purchase share for the entire industry in the second quarter was 74%.
The average loan balance was $255,136, up from $249,041 in the first quarter to reach a study high.
The average pull-through rate (loan closings to applications) was 72%, up from 70%.