While the increase isn’t as significant as last quarter’s rise, independent mortgage banks and mortgage subsidiaries of chartered banks still recorded a net gain of $1,773 on each loan they originated in the third quarter of 2016.
This is slightly up from a reported gain of $1,686 per loan in the second quarter of 2016, according to the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report.
It’s important to note, however, that the first quarter posted a meager gain of $825 per loan.
“Including all business lines, 94% of mortgage lenders in our study reported pre-tax net financial profits in the third quarter of 2016, compared to 90% in the second quarter of 2016,” said Marina Walsh, MBA’s vice president of industry analysis.
Average production volume hit $764 million per company in the third quarter of 2016, up from $654 million per company in the second quarter of 2016. The volume by count per company averaged 3,072 loans in the third quarter of 2016, up from 2,721 loans in the second quarter of 2016.
On the other side, total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,969 per loan in the third quarter of 2016, from $7,120 in the second quarter of 2016.
Walsh said this is the first time since the second quarter of 2015 that production expenses were below $7,000 per loan, at $6,969 per loan. “However, these expenses remain elevated by historical standards,” she said.
As an added note, for the period from the third quarter 2008 to the present quarter, loan production expenses have averaged $5,850 per loan.
Walsh noted that this increase in production volume and slight decrease in expenses in the third quarter kept production profits relatively stable.
“These profits would have been even higher were it not for a decline in net secondary marketing income, primarily income related to mortgage servicing rights,” Walsh continued.
The average loan balance for first mortgages reached a study-high of $247,563 in the third quarter of 2016, from the previous study-high of $245,394 in the second quarter of 2016.
Meanwhile, total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 365 basis points in the third quarter of 2016, down from 372 bps in the second quarter of 2016. On a per-loan basis production revenues decreased to $8,742 per loan in the third quarter of 2016, down from $8,807 per loan in the second quarter of 2016.
However, Walsh highlighted that loan balances helped keep production revenue per loan relatively flat despite a revenue drop in basis points from the previous quarter.