Despite Larger Loans and More of Them, Mortgage Profits Dip


Mortgage bankers reported a slight
in profits during the third quarter of 2014, with gains per loan
decreasing even as volume grew and the size of the loans reached the highest
level since the Mortgage Bankers Association (MBA) started keeping track.

MBA said that independent mortgage banks
and mortgage subsidiaries of chartered banks responding to its survey reported
a net gain of $897 on each loan originated during the quarter.  This was down from the $954 per loan reported
in the second quarter.  MBA said a
decrease in secondary market income offset the benefits derived from higher production
volume and bigger loans.

The average production profit was 42 basis
points (bps) compared to 46 bps in the second quarter.  MBA said that since it began publishing is Quarterly Mortgage Bankers Performance
in the third quarter of 2008 net production income has averaged 54
bps with a median of 50.

Production volume averaged $437 million,
up 16 percent from $378 million averaged per company in the previous quarter.  Companies had an average volume of 1,901
loans in the third quarter compared to 1,676 in the second.

Jumbo loans continued to increase their
share of first mortgage originations, representing 9.4 percent in the third
quarter, the highest since the inception of the Production Report.  This is
compatible with information from MBA’s Weekly Mortgage Applications Survey as
well as credit availability data showing strong growth in these larger loans.  In line with this increase, the average
balance for first mortgage originations was $231,914 compared to $225,762 in
the second quarter and the highest since at least 2008.

Purchase loans represented 72 percent of
originations, down from 74 percent in the second quarter.  MBA estimates purchase loans for the industry
as a whole had a 62 percent share.

loan production costs
which include commissions, compensation, facility costs,
equipment, and other production expenses and corporate allocations decreased
from $6,932 per loan to $6,769. 
Personnel expenses were down nominally to $4,401 from $4,423.  Net cost to originate was $5,038 per loan,
only slightly changed from $5,074 in the second quarter.  This figure is made up all production operating expenses and
commissions, minus all fee income and excludes secondary marketing gains,
capitalized servicing, servicing released premiums, and warehouse interest

Secondary marketing
was 261 basis points in the third quarter of 2014, compared to 270 basis
points in the second quarter.

Including all business
lines, 83 percent of the firms in the study posted pre-tax net financial
profits in the third quarter of 2014, up from 81 percent in the second quarter
of 2014.

There were 347 companies
that submitted production data for the report, 74 percent of which were
independent mortgage companies.  The
remaining 26 percent were subsidiaries and other non-depository institutions.

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