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Q4 2016 Loan Production Profits Decline

Phil Hall
Mar 21, 2017
Independent mortgage banks and the mortgage subsidiaries of chartered banks reported a net gain of $575 on each loan they originated during the fourth quarter of 2016

Independent mortgage banks and the mortgage subsidiaries of chartered banks reported a net gain of $575 on each loan they originated during the fourth quarter of 2016, according to new data from the Mortgage Bankers Association (MBA). This is a marked decline from the reported gain of $1,773 per loan in the third quarter of 2016.
 
Among the key findings of MBA’s latest Quarterly Mortgage Bankers Performance Report was the decline in average production volume during the fourth quarter—$690 million per company, down from $764 million per company in the third quarter—and an average pre-tax production profit was 24 basis points (bps), down from an average net production profit of 74 bps in the third quarter. The purchase share of total originations, by dollar volume, was 58 percent in the fourth quarter, slightly below the 60 percent level in the third quarter, while the average loan balance for first mortgages was $246,473 in the fourth quarter, down from the previous study-high of $251,398 in the third quarter.
 
However, the average pull-through rate (loan closings to applications) was a study-high 76.45 percent in the fourth quarter, up from 73.33 percent in the third quarter of 2016. Also increasing was the net servicing financial income, which showed a year-to-date gain of $34 per loan in the fourth quarter, up from a year-to-date loss of $122 per loan in the third quarter. But an unwelcome rise came with personnel expenses, which averaged $5,001 per loan in the fourth quarter, up from $4,675 per loan in the third quarter.
 
“Rapid increases in interest rates in the last two months of 2016 slowed mortgage activity in the fourth quarter, driving a significant decrease in loan production profits,” said MBA Vice President of Industry Analysis Marina Walsh. “Mortgage lenders reported a combination of both lower revenues and higher expenses. On the revenue side, secondary marketing income dropped as mortgage lenders wrestled with less favorable pricing and pipeline challenges.”
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