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Lending

Closing a mortgage finally makes money

Breaks 6 quarters of straight losses

diamond in coal

Originating a mortgage is finally profitable again.

After mortgage banker costs skyrocketed the past 6 quarters, well out of the realm of profitability, the latest Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association reports the landscape shifted from losing money to making money, as costs came more under control.  

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a significant gain in profit, surging to a net gain of $954 on each loan they originated in the second quarter from a reported loss of $194 per loan in the first quarter.

“The gains seen in the second quarter come after first quarter losses that were likely triggered by a variety of factors including the implementation of new Dodd-Frank regulations and extremely low origination volumes,” said Marina Walsh, MBA’s vice president of industry analysis. 

“Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined,” Walsh added.

This is the first increase in production after six straight quarters of decrease.

Total loan production expenses were a major driver behind the increase in net gain, making up for all the quarters that it was main factor behind the decline.

Total loan production expenses, which include commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations, fell to $6,932 per loan, from $8,025 in the first quarter. 

This is the largest decline in costs in any single quarter since the Performance Report was created.

Average production volume jumped to $378 million per company, up from $274 million per company in the first quarter, a 38% increase. 

The volume by count per company averaged 1,676 loans in the second quarter of 2014, up from 1,238 in the first quarter of 2014.

In addition, the "net cost to originate" dipped to $5,074 per loan, down from $6,253 in the first quarter.  The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

One area that stands out is the jumbo share of total first mortgage originations, which continued to increase, rising to 7% in the second quarter, the highest level since the inception of the Performance Report. 

MBA’s applications data, as well as credit availability data, continues to show strong growth in jumbo production.

But this comes as no surprise when looking at recent mortgage reports. The July Mortgage Credit Availability Index, a report from the Mortgage Bankers Association, posted that a rise in the number of jumbo adjustable-rate mortgage programs as primarily driving credit availability. 

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