Mortgage Lender Profits Increased In Q2, But Servicers Didn’t Do So Well

Mortgage lenders saw an average profit of about $1,686 per loan in the second quarter – up from a reported gain of $825 in the first quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

Helping to drive the increase was the fact that mortgage balances increased – the average balance for a first mortgage reached a study high of $245,394, up from $237,419 in the first quarter.

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $7,120 per loan, which is down from $7,845.

Personnel expenses per loan decreased, too. They averaged $4,771 per loan in the second quarter – down from $5,141 per loan in the first quarter.

In keeping with the typical seasonal pattern, loan volume increased in the second quarter. Average production volume was $654 million per company – up from $517 million per company in the first quarter. The average volume by count per company was 2,721 loans, up from 2,196 loans.

“Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015,” said Marina Walsh, vice president of industry analysis for the MBA, in a release. “Mortgage lenders also benefited from higher loan balances that reached a series high of $245,394 and drove production revenue to a series high of $8,807 per loan.”

Servicers, on the other hand, saw their profits erode further due to elevated prepayment activity and other factors. Servicing net financial income for the second quarter was a loss of $160 per loan compared with a loss of $118 per loan in the first quarter, according to the MBA. Servicing operating income, which excludes mortgage servicing rights (MSRs) amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on the bulk sale of MSRs, was $192 per loan in the second quarter compared with $205 per loan in the first quarter.

“We continued to see hits to servicing profitability resulting from mortgage servicing right markdowns and amortization,” Walsh said. “Nonetheless, the profitability on the production side of the business generally outweighed servicing losses. Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016 compared with 73 percent in the first quarter of 2016.”

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