Independent Mortgage Banker Profits Fell in the Third Quarter of 2013

falling profits canstockphoto0440366Mortgage Bankers Association (December 4, 2013) — Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $743 on each loan they originated in the third quarter of 2013, down from $1,528 per loan in the second quarter, the Mortgage Bankers Association (MBA) reported today in its Quarterly Mortgage Bankers Performance Report.

“Third-quarter profits were reduced by half because of several factors: per-loan production expenses that reached study-highs, declining production volume and reduced secondary marketing income,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis.  “Historically, mortgage bankers have struggled to control fixed costs and right-size in a declining market, and the increasing costs of compliance and quality control only exacerbate an already difficult situation.”

Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:

  • In basis points, the average production profit (net production income) was 38 basis points in the third quarter of 2013, compared to 75 basis points in the second quarter.  This marks the fourth consecutive quarter that production profits have decreased.
  • Average production volume was $391 million per company in the third quarter of 2013, down from $439 million per company in the second quarter.  The volume by count per company averaged 1,788 loans in the third quarter, down from 1,921 in the second quarter.
  • The purchase share of total originations, by dollar volume, increased to 67 percent in the third quarter of 2013, up from 52 percent in the second quarter.  For the mortgage industry as whole, MBA estimates the purchase share at 49 percent in the third quarter of 2013, up from 34 percent in the second quarter.
  • Secondary marketing income declined to 244 basis points in the third quarter, compared to 263 basis points in the second quarter.
  • Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $6,368 per loan in the third quarter, up from $5,818 in the second quarter.  Third quarter 2013 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.
  • Personnel expenses averaged $4,130 per loan in the third quarter, up from $3,808 per loan in the second quarter.
  • The “net cost to originate” was $4,573 per loan in the third quarter, up from $4,207 in the second quarter.  The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.
  • The average number of production employees per firm decreased slightly to 259 employees in the third quarter, from 261 employees in the second quarter.  On a repeater company basis, the average number of production employees per firm dropped to 259 employees in the third quarter, from 269 employees in the second quarter.
  • Productivity was 2.5 loans originated per production employee per month in the third quarter, down from 2.9 in the second quarter.
  • 74 percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2013, down from 92 percent in second quarter.

MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions.  74 percent of the 324 companies that reported production data for the third quarter report were independent mortgage companies.

There are five performance report publications per year: four quarterly reports and one annual report.  For media inquiries, contact Shawn Ryan at (202) 557-2727 or sryan@mba.org.  To purchase or subscribe to the publications, call (202) 557-2879.  The reports can also be purchased on MBA’s website by clicking here.