Mortgage bankers are starting to rebuild after the financial storm caused by TRID at the end of the fourth quarter, with profits roughly doubling at the start of this year compared to the end of last year.
Last year came to a rough close when the net gain on each loan originated by independent mortgage banks and mortgage bank subsidiaries plummeted 60% due to the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule in October.
Now, for the beginning of the 2016, the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance report stated that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $825 on each loan they originated in the first quarter of 2016.
However, profits still have a long way to go to get back to the level witnessed in the first quarter of 2015 when independent mortgage banks and mortgage subsidiaries of chartered banks recorded a net gain of $1,447 on each loan they originated.
“Production profits in the first quarter of 2016 showed modest improvement over the fourth quarter of 2015 despite declining volume and an increase in per-loan production expenses,” said Marina Walsh, MBA’s vice president of industry analysis. “Compensating for the cost increases were higher production revenues that grew by $431 per loan (16 basis points) over the fourth quarter.”
Mortgage banker profits aren’t the only area recovering from the backlash caused by TRID.
Now that it’s been more than six months since the implementation of the disclosure rule, it appears that lenders have this whole TRID thing figured out, as the time to close a loan fell to a 12-month low in March. This is a significant drop from January, when the average time to close was 50 days due to challenges from TRID.
One other key area in the report was its findings on mortgage-servicing rights. As witnessed in earnings at the start of this year, the first quarter’s historically low interest rates pulled down the performance of Nationstar Mortgage, Walter Investment, and Ocwen Financial thanks to the impact of negative adjustments to the “fair value” of each company’s mortgage servicing rights portfolio.
Walsh said, “On the servicing side of the business, a drop in mortgage interest rates resulted in mortgage servicing right (MSR) impairments and hurt profitability. Net servicing financial income dropped to a loss of $118 per loan serviced in the first quarter, from gains of $107 per loan in the fourth quarter.”
The report stated that 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, remained relatively flat at $205 per loan in the first quarter of 2016, from $207 per loan in the previous quarter.
Other key metrics in the report include:
- Average production volume was $517 million per company in the first quarter of 2016, down from $538 million per company in the fourth quarter of 2015. The volume by count per company averaged 2,196 loans in the first quarter of 2016, down from 2,265 loans in the fourth quarter of 2015.
- Total production revenue (fee income, secondary marking income and warehouse spread) increased to 378 bps in the first quarter of 2016, compared to 362 bps in the fourth quarter of 2015.
- Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,845 per loan in the first quarter of 2016, from $7,747 in the fourth quarter of 2015.
- Productivity decreased to 2 loans originated per production employee per month in the first quarter of 2016 compared to 2.4 in the fourth quarter of 2015.