Mortgage Banker Profits Improved in Q3 as Production Expenses Fell

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A reduction in production expenses resulting from increased loan volume helped boost mortgage banker profits on the third quarter.

Mortgage bankers saw a net gain of about $1,924 on each loan they originated in the third quarter, up from $1,675 in the second quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

Helping to drive the increase was better utilization of labor resulting from increased loan volume – including a boost in refinance business resulting from lower mortgage rates.

Productivity increased to 3.1 loans originated per production employee per month in the third quarter, up from 2.3 loans per production employee per month in the second quarter. Production employees includes sales, fulfillment and production support functions.

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $7,217 per loan in the third quarter, down from $7,725 per loan in the second quarter.

Personnel expenses averaged $4,871 per loan in the third quarter, down from $5,186 per loan in the second quarter.

Also helping to improve profits was an increase in the average loan balance for first mortgages, which reached a study high of $276,053, up from $268,520 in the second quarter.

“A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue.”

Mortgage servicers, however, saw their profits continue to take a hit in the third quarter, due in part to higher prepayment activity.

Servicers’ net financial income for the third quarter (without annualizing) was a loss of $62 per loan, compared to a loss of $74 per loan in the second quarter, according to the report.

Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, was $43 per loan in the third quarter, compared to $42 per loan in the second quarter, the MBA’s data shows.

“With higher prepayment activity seen from borrowers refinancing, net servicing income did take a hit for the second straight quarter,” Walsh says. 

“Overall, it was a strong summer for independent mortgage banks, with 91 percent reporting profitability,” she adds.

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