IMBs posted strongest fourth quarter profit since 2012

The fourth quarter of 2019 was the most profitable last quarter of the year since 2012 for independent mortgage banks.

The Mortgage Bankers Association’s newly-released figures, which also cover mortgage subsidiaries of chartered banks, reveal a net gain of $1,182 on each loan they originated in the fourth quarter of 2019, down from a reported gain of $1,924 per loan in the previous three months.

Most (84%) of production and servicing respondents of the Quarterly Mortgage Bankers Performance Report said that they were profitable.

"With loan volume at elevated levels, IMBs had a strong close to 2019. Net production profit was a healthy 46 basis points, up from the fourth quarter average of 35 basis points since the survey's inception in 2008," said Marina Walsh, MBA's Vice President of Industry Analysis. "Typically, the second and third quarters perform better than the first and fourth quarters, and last year was no different. A combination of higher per-loan production expenses and lower secondary marketing income affected quarterly profitability.”

Key findings:

• The average pre-tax production profit was 46 basis points (bps) in the fourth quarter, down from an average net production profit of 74 bps in the third quarter of this year.
• Average production volume was $800 million per company in the fourth quarter, up from $781 million per company in the third quarter. The volume by count per company averaged 2,947 loans in the fourth quarter, up from 2,880 loans last quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 337 bps in the fourth quarter, down from 349 bps in the third quarter. On a per-loan basis, production revenues decreased to $8,707 per loan in the fourth quarter, down from $9,142 per loan in the third quarter.
• Net secondary marketing income decreased to 263 bps in the fourth quarter, down from 281 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,848 per loan in the fourth quarter from $7,424 per loan in the third quarter.
• The purchase share of total originations, by dollar volume, decreased to 56 percent in the fourth quarter from 60 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 45 percent last quarter.
• The average loan balance for first mortgages decreased to $271,972 in the fourth quarter, down from a study high of $276,053 in the third quarter.
• The average pull-through rate (loan closings to applications) was 78 percent in the fourth quarter, up from 73 percent in the third quarter.
• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,525 per loan in the fourth quarter, up from $7,217 per loan in the third quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,504 per loan.
• Personnel expenses averaged $5,064 per loan in the fourth quarter, up from $4,871 per loan in the third quarter.
• Productivity decreased to 2.6 loans originated per production employee per month in the fourth quarter, down from 3.1 loans per production employee per month in the third quarter. Production employees includes sales, fulfillment and production support functions.
• Servicing net financial income for the fourth quarter (without annualizing) was at $0 per loan, compared to a loss of $62 per loan in the third quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, was $44 per loan in the fourth quarter, compared to $43 per loan in the third quarter.
• Including all business lines (both production and servicing), 84 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 91 percent in the third quarter.