Higher Volume, Larger Loans Boost Mortgage Profits

by devteam August 25th, 2015 | Share

Per loan profits increasedrnin the second quarter the Mortgage Bankers Association (MBA) said today, aidedrnby purchase volume and loan size.  MBA’srnquarterly survey of independent mortgage banks and mortgage subsidiaries ofrnchartered banks showed increased production resulted in a net gain of $1,522 onrneach loan originated compared to a reported gain of $1,447 per loan in thernfirst quarter of 2015. </p

“Average company productionrnvolume was up in the second quarter, as purchase volume grew and mortgagernpipelines from the first quarter’s refinance boomlet closed,” Marina Walsh,rnMBA’s Vice President of Industry Analysis said. “The production volume increasernresulted in a nominal decrease in per-loan production expenses, which offset arndecrease in secondary marketing income.  However, by historical standards,rnproduction expenses remained elevated given that the average company productionrnvolume was at the highest level since inception of the study in 2008.”</p

That production volume was $657rnmillion per company compared to $473 million in the first quarter. Companies originatedrnan average of 2,714 loans up from a volume of 1,917 the previous quarter andrnthe average loan balance for first mortgages grew from $242,791 the priorrnquarter to a study high of $244,350.  </p

The average productionrnprofit was 67 basis points in the second quarter, compared to an average netrnproduction profit of 60 bps in the first quarter of 2015. Secondary marketingrnincome was 294 basis points down from 297 basis points in the first quarter.</p

Total loan productionrnexpenses – commissions, compensation, occupancy, equipment, and otherrnproduction expenses and corporate allocations – decreased to $6,984 per loan fromrn$7,195.  Personnel expenses all dippedrnslightly, averaging $4,632 per loan compared to $4,675 in Q1. </p

The “net cost tornoriginate” was $5,372 per loan in the second quarter of 2015, down fromrn$5,597 in the first quarter.  The “net cost to originate”rnincludes all production operating expenses and commissions, minus all feernincome, but excludes secondary marketing gains, capitalized servicing,rnservicing released premiums, and warehouse interest spread.</p

Sixty-two percent ofrnoriginations were purchase mortgages compared to 51 percent in the firstrnquarter.  MBA estimates that the purchasernshare for the mortgage industry as a whole in the second quarter was 57rnpercent. The share of jumbo first mortgages also rose, from 8.74 percent torn9.07 percent. </p

Productivity increased torn2.8 loans originated per production employee per month in the second quarter ofrn2015, up from 2.4 loans in Q1.  

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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