Mortgage lender profits reach new low for Q3

Lenders reported a lower net production income in the third quarter this year, down from the previous quarter and the previous year and reaching a new low for the third quarter.

Lenders earned $480 per loan during the third quarter, down from $580 per loan in the second quarter, and even more significantly from $929 in the third quarter of 2017, according to the latest Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association.

This drop represents a new low for the third quarter, hitting the lowest point since the MBA initiated its report in 2008. However, this is still an improvement from the net loss of $118 in the first quarter of 2018.

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $118 per loan originated in the first quarter of 2018. The only other quarter when lenders reported a negative profit margin, the first quarter of 2014, saw a loss of $194 per loan as mortgage originators struggled to cope with compliance costs due to the recently passed Dodd-Frank reform.

The good news is that while lender profits are down, it did not reach the low point seen earlier this year.

Part of the reason for the lower profit margins is that the cost to originate a loan rose in the third quarter, after dropping in the second quarter. The cost per loan to originate increased to $8,174 in the third quarter, up from $7,877 in the second quarter and from $8,060 in the third quarter last year. ­­

“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,” said Marina Walsh, MBA vice president of industry analysis. 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,” Walsh said. “Therefore, mortgage banker profitability will likely remain challenged.”

Average production volume sank to $474 per company in the third quarter, down from $531 million per company in the second quarter. In terms of loans originated, the average company originated 1,948 loans in the third quarter, down from 2,180 in the second.

But the report also showed a decrease in delinquencies and high loan balances, driving up per-loan servicing revenues.

“Including all business lines, both production and servicing, 71% of the firms in the study posted a pre-tax net financial profit in the third quarter,” Walsh said. “Without servicing, that percentage would have dropped to 52%.”

Article source: https://www.housingwire.com/articles/47606-mortgage-lender-profits-reach-new-low-for-q3

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