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Independent mortgage bank profits surge, more than double 1Q

What TRID impact?

Mortgage banker profit results in the second quarter of 2016 not only show that the industry has recovered since the financial storm caused by TRID, but’s almost like it never existed.

According to the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,686 on each loan they originated in the second quarter of 2016, drastically up from a gain of $825 per loan in the first quarter of 2016.

“Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015,” said Marina Walsh, MBA’s vice president of industry analysis.

Looking over profit from the past two years, displayed in this infographic, net income is at the highest level in two years, with the next highest quarter being the second quarter of 2015 when net income we $1,522.

While the first-quarter net income of $825 was an improvement from the fourth quarter of 2015, it still was recovering from the financial impact of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule that went into effect in October.  

Walsh also attributed the increase in profit to mortgage lenders benefiting from higher loan balances that reached a series-high of $245,394, which drove production revenue to a series-high of $8,807 per loan.

Other key metrics that improved in the second quarter include loan productivity. According to the report, productivity increased to 2.5 loans originated per production employee per month in the second quarter of 2016, up from 2 in the first quarter.

Average production volume reached $654 million per company in the second quarter of 2016, up from $517 million per company in the first quarter of 2016, while the volume by count per company averaged 2,721 loans in the second quarter of 2016, up from 2,196 loans in the first quarter of 2016.

In addition, total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – dipped to $7,120 per loan in the second quarter of 2016, down from $7,845 in the first quarter of 2016. 

The average loan balance for first mortgages reached a study-high of $245,394 in the second quarter of 2016, increasing from $237,419 in the first quarter of 2016.

At the same time, though, servicing profits took a hit.

Walsh explained, “With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right markdowns and amortization.” 

The report found that servicing net financial income for the second quarter of 2016 posted a loss of $160 per loan, compared to a loss of $118 per loan in the first quarter of 2016.

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, dropped to $192 per loan in the second quarter of 2016, compared to $205 per loan in the previous quarter.

Laurie Goodman, codirector of the Housing Finance Policy Center with the Urban Instituterecently highlighted the gigantic problem surrounding servicer compensation, especially for non-performing loans.      

The issue is quickly coming to the forefront of industry talk, which is why Goodman was speaking on the issue at a recent industry event hosted by the Urban Institute and CoreLogic.

However, Walsh is still optimistic on the state of the mortgage profit. “Nonetheless, the profitability on the production side of the business generally outweighed servicing losses,” she said. “Including all business lines, 90% of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73% in the first quarter of 2016.” 

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