Independent mortgage bankers in the third quarter made only about half of the profit they did on loans underwritten in the second quarter, due mainly to rising production costs, according to the Mortgage Bankers Association's (MBA) Quarterly Mortgage Bankers Performance Report.
Mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $743 on each loan they originated, down from $1,528 per loan in the second quarter, according to the MBA's data.
‘Third-quarter profits were reduced by half because of several factors: per-loan production expenses that reached study-highs, declining production volume and reduced secondary marketing income,’ says Marina Walsh, associate vice president of industry analysis for the MBA. ‘Historically, mortgage bankers have struggled to control fixed costs and right-size in a declining market, and the increasing costs of compliance and quality control only exacerbate an already difficult situation.’
According to the report, the average production profit (net production income) was 38 basis points in the third quarter, compared to 75 basis points in the second quarter. The third quarter was the fourth consecutive quarter that production profits decreased.
Average production volume was $391 million per company, down from $439 million per company in the second quarter. The volume by count per company averaged 1,788 loans, down from 1,921 in the second quarter.
The purchase share of total originations, by dollar volume, increased to 67% in the third quarter of 2013, up from 52% in the second quarter, the report states. The MBA estimates that, for the mortgage industry as whole, the purchase share reached 49%, up from 34% in the second quarter.
Secondary marketing income declined to 244 basis points, compared to 263 basis points in the second quarter.
Taking a bite out of profits are the rising production costs. Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $6,368 per loan in the third quarter, up from $5,818 in the second quarter. Third-quarter production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008, the MBA reports.
Personnel expenses averaged $4,130 per loan in the third quarter, up from $3,808 per loan in the second quarter.
The ‘net cost to originate’ – including all production operating expenses and commissions minus all fee income – was $4,573 per loan in the third quarter, up from $4,207 in the second quarter. This calculation excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
Productivity was down in the third quarter, with 2.5 loans originated per production employee per month, down from 2.9 in the second quarter.
Although not mentioned in the report, the drop in productivity and profits is anticipated to result in some layoffs in 2014.
The average number of production employees per firm decreased slightly to 259 in the third quarter, from 261 in the second quarter.
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