Mortgage Bankers Saw Q4 Profits Sink into the Red

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Mortgage bankers saw an average net loss of $200 on each loan they originated in the fourth quarter, down from a reported gain of $480 per loan in the third quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

Prior to this, the average profit per loan had fallen into the red only two times since the inception of the report in 2008: the first quarter of 2018, when mortgage bankers saw a net loss of $118 on each loan originated, and the first quarter of 2014.

Of the 343 companies that reported production data for the fourth quarter, about 80% were independent mortgage companies while the remaining 20% were subsidiaries and other non-depository institutions.

Average production volume was $440 million per company, down from $474 million per company in the third quarter, the MBA reports.

The volume by count per company averaged 1,799 loans in the fourth quarter, down from 1,948 loans in the third quarter.

For the mortgage industry as a whole, the MBA estimates for production volume in the fourth quarter was lower compared to the previous quarter.

“Independent mortgage bankers continued to struggle in this very competitive mortgage market environment, with the average pre-tax net production income per loan reaching its lowest level since the inception of our report in 2008,” explains Marina Walsh, vice president of industry analysis for the MBA, in a statement. “Among the headwinds for mortgage bankers were lower volume, lower revenues and higher costs relative to the previous quarter.”

On the servicing side of the business, MSR impairments resulting from December’s drop in interest rates hurt profitability, Walsh says.

“Including all business lines – both production and servicing – only 44 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter,” Walsh adds.

The average pre-tax production loss reached 11 basis points (bps) in the fourth quarter, down from an average net production profit of 20 bps in the third quarter, and down 20 bps from the fourth quarter of 2017 – a new low since the report began in 2008.

Production costs increased to $8,611 per loan in the fourth quarter, up from $8,174 per loan in the third quarter.

Personnel expenses averaged $5,636 per loan, up from $5,405 in the third quarter.

Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 351 basis points in the fourth quarter, down from 358 bps in the third quarter. On a per-loan basis, production revenues decreased to $8,411 per loan in the fourth quarter, down from $8,654 per loan in the third quarter.

Net secondary marketing income decreased to 269 basis points in the fourth quarter, down from 280 bps in the third quarter.

On a per-loan basis, net secondary marketing income decreased to $6,466 per loan in the fourth quarter from $6,802 per loan in the third quarter.

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