The third quarter of this year was a bonanza for the nation’s independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks, according to new data from the Mortgage Bankers Association (MBA).
During the third quarter, the IMBs and mortgage subsidiaries generated a net gain of $1,924 on each loan they originated, up from a reported gain of $1,675 per loan in the second quarter. Marina Walsh, MBA’s vice president of industry analysis, observed: “A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012–$2,256 per loan. The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue.”
The MBA noted the average pre-tax production profit was 74 basis points (bps) in the third quarter, up from an average net production profit of 64 bps in the second quarter. The average production volume was $781 million per company in the third quarter, up from $601 million per company in the second quarter. The volume by count per company averaged 2,880 loans in the third quarter, up from 2,312 loans last quarter.
The average loan balance for first mortgages reached a new peak at $276,053 in the third quarter, up from $268,520 in the second quarter. However, the purchase share of total originations, by dollar volume, decreased to 60 percent in the third quarter from 74 percent in the second quarter.
Total loan production expenses–which include commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–decreased to $7,217 per loan in the third quarter, down from $7,725 per loan in the second quarter.
Total production revenue–which includes fee income, net secondary marking income and warehouse spread–decreased to 349 bps in the third quarter, down from 370 bps in the second quarter. On a per-loan basis, production revenues decreased to $9,142 per loan in the third quarter, down from $9,400 per loan in the second quarter. Also on the decline was net secondary marketing income, down to 281 bps in the third quarter from down from 287 bps in the second quarter.
But on a per-loan basis, net secondary marketing income increased to $7,424 per loan in the third quarter from $7,411 per loan in the second quarter.
“With higher prepayment activity seen from borrowers refinancing, net servicing income did take a hit for the second straight quarter,” said Walsh. “Overall, it was a strong summer for independent mortgage banks, with 91 percent reporting profitability."