Servicing a ‘Bright Spot’ in Mortgage as Production Profits Fall

The average profit per mortgage originated fell to $480 in the third quarter, down from $580 in the second quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

Average production volume was $474 million per company, down from $531 million per company in the second quarter.

Lenders participating the survey originated an average of 1,948 loans per company in the third quarter, down from an average of 2,180 in the second quarter.

For the mortgage industry as a whole, MBA estimates production volume in the third quarter was slightly higher compared with the previous quarter.

“These are very challenging times for independent mortgage bankers, with the average pre-tax net production income per loan reaching its lowest level for any third quarter since inception of our report in 2008,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “Profitability continues to be hindered by high costs and low productivity. We expect fixed costs to remain elevated, and competitive pressures will continue to hamper production revenues in the winter months. Therefore, mortgage banker profitability will likely remain challenged.”

In the first quarter of this year, mortgage lenders participating in the survey saw an average net loss of $118 per loan. It was only the second time since the inception of the report in 2008 that the average profit per loan had dropped into the red.

Driving the decrease during the past several years has been rising production costs. In their third quarter, total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to an average of $8,174 per loan.

That’s up from $7,877 per loan in the second quarter.

Personnel expenses averaged $5,405 per loan in the third quarter, up from $5,195 per loan in the second quarter.

The average pre-tax production profit was 20 basis points (bps) in the third quarter, down slightly from an average net production profit of 21 bps in the second quarter, and down 21 bps from the third quarter of 2017, the MBA reports.

The average loan balance for first mortgages reached a study high of $255,539 – up from $255,136.

Meanwhile, things continue to improve on the servicing side of the business.

“Mortgage servicing remains a bright spot for bankers, with relatively low delinquencies and high loan balances driving up per-loan servicing revenues,” Walsh says. “Including all business lines (both production and servicing), 71 percent of the firms in the study posted a pre-tax net financial profit in the third quarter. Without servicing, that percentage would have dropped to 52 percent.”

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