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Q3 Independent Mortgage Bank Production Profits Down

Phil Hall
Nov 30, 2017
Mortgage lenders are forecasting a negative profit margin outlook for the next three months, according to Fannie Mae's Fourth Quarter Mortgage Lender Sentiment Survey

The third quarter was a somewhat less profitable period for independent mortgage banks and mortgage subsidiaries of chartered banks, according to new data from the Mortgage Bankers Association (MBA).
The trade group’s latest Quarterly Mortgage Bankers Performance report found this sector of the lending market saw a net gain of $929 on each loan they originated in the third quarter, down from a reported gain of $1,122 per loan in the second quarter. The average pre-tax production profit was 40 basis points (bps) in the third quarter, down from an average net production profit of 46 bps in the second quarter of 2017.
However, the average production volume was $569 million per company in the third quarter, an increase from $526 million per company in the second quarter, while the volume by count per company averaged 2,341 loans in the third quarter, up from 2,177 loans in the second quarter. For the mortgage industry as a whole, MBA estimated production volume in the third quarter was flat in comparison to the previous quarter. 
Furthermore, the MBA reported that total production revenue—encompassing fee income, net secondary marking income and warehouse spread—dropped slightly to 375 basis points in the third quarter from 377 bps in the second quarter, but production revenues increased to $8,990 per loan in the third quarter from $8,896 per loan in the second quarter. Net secondary marketing income decreased to 298 bps in the third quarter, down from 302 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $7,181 per loan in the third quarter from $7,160 per loan in the second quarter.
“Production profits dropped slightly in the third quarter of 2017 compared to the second quarter of 2017,” said MBA Vice President of Industry Analysis Marina Walsh. “Despite rising average production volume, production expenses grew to $8,060 per loan—the second highest level reported since the inception of our study in the third quarter of 2008. Production revenues remained relatively flat, with a minimal uptick in per-loan production revenues resulting from higher loan balances.” 

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