While mortgage profits were slightly down and costs were marginally higher in the third quarter, levels were still strong compared to last year, and the changes in production were not too volatile, the Mortgage Bankers Association latest quarterly mortgage bankers performance report found.
Independent mortgage banks and mortgage subsidiaries of chartered banks posted a net gain of $1,238 on each loan they originated in the third quarter of 2015, down from a reported gain of $1,522 per loan in the second quarter of 2015.
“Production profits dropped slightly in the third quarter of 2015 compared to the second quarter of 2015. However, on a year-over-year basis, production profits were up,” said Marina Walsh, MBA’s vice president of Industry Analysis.
To put in it perspective, Walsh added, “In the third quarter of 2015, profits were $1,238 per loan, compared to $897 per loan in the third quarter of 2014. The average production volume in the third quarter of 2015 was significantly higher at $614 million per company, compared to $437 million per company in the third quarter of 2014. At the same time, the share of purchase production to total production by dollar volume was similar at 70% and 72% respectively."
The second quarter report brought welcomed news to the market. After years of mortgage production cost slowly inching its way up into the stratosphere, loan production expenses dropped.
It’s important to note that at the time, Walsh said, “By historical standards, production expenses remained elevated given that the average company production volume was at the highest level since inception of the study in 2008.”
In the third quarter, total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,080 per loan in the third quarter of 2015, from $6,984 in the second quarter of 2015.
Additionally, the "net cost to originate" was $5,549 per loan in the third quarter of 2015, up from $5,372 in the second quarter.
The "net cost to originate" includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
However, over the past few years, the cost to originate a mortgage has started to change due to all the new compliance rules.
Back in October, Walsh explained to HousingWire that it’s not easy to quantify how much the new compliance rules are impacting the industry, but there are some variable that can help gauge the changes.
Ultimately, Walsh said, “It’s become more expensive to be a originator. There has to be a reason. Either you’re processing, underwriting and closing costs are going up or your sales costs are going up.”
Other noteworthy findings include:
Average production volume reached $614 million per company in the third quarter of 2015, down from the study-high $657 million per company in the second quarter of 2015. The volume by count per company averaged 2,609 loans in the third quarter of 2015, down from the study-high 2,714 loans in the second quarter of 2015. Despite this decrease, the third quarter average production volume in both dollar and count was the second highest reported since inception of the Performance Report in the third quarter of 2008.
The purchase share of total originations, by dollar volume, was 70 percent in the third quarter of 2015, up from 62 percent in the second quarter of 2015. For the mortgage industry as a whole, MBA estimates the purchase share at 63 percent in the third quarter of 2015.
The average loan balance for first mortgages decreased to $241,942 in the third quarter of 2015, from $244,350 in the second quarter.
Productivity decreased to 2.5 loans originated per production employee per month in the third quarter of 2015 compared to 2.8 in the second quarter.