Mortgage originators hit rough waters as the cost to originate a loan soared in the fourth quarter – sending profitability to its lowest point ever.

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $200 for each loan they originated in the fourth quarter of 2018, according to the Quarterly Mortgage Bankers Performance Report released Tuesday by the Mortgage Bankers Association.

This is down significantly from the gain of $480 per loan in the third quarter of 2018, the report stated, and marked an all-time low.

“Independent mortgage bankers continued to struggle in this very competitive mortgage market environment, with the average pre-tax net production income per loan reaching its lowest level since the inception of our report in 2008,” said Marina Walsh, MBA vice president of industry analysis. “Among the headwinds for mortgage bankers were lower volume, lower revenues and higher costs relative to the previous quarter.”

This is the third time in the report’s history that mortgage originators reported a loss per loan, and the second time in 2018. They reported a net loss of $118 per loan originated in the first quarter of 2018, the MBA’s report showed.

Before that, the only other quarter when lenders reported a negative profit margin was the first quarter of 2014, when lenders saw a loss of $194 per loan as mortgage originators struggled to cope with compliance costs due to the recently passed Dodd-Frank reform.

"On the servicing side of the business, mortgage servicing right impairments resulting from December’s drop in interest rates hurt profitability,” Walsh said. “Including all business lines (both production and servicing), only 44% of the firms in the study posted a pre-tax net financial profit in the fourth quarter.”

The cost to originate a loan also had a large role to play in the net loss per loan in the fourth quarter. The cost to originate increased to $8,611 per loan in the fourth quarter, up from $8,174 per loan in the third quarter.

Historically, from 2008 to 2018, loan production expenses have averaged about $6,224 per loan.

The average production volume came in at $440 million per company in the fourth quarter of 2018, down from $474 million per company in the third quarter of 2018. The volume by count averaged 1,799 loans in the fourth quarter, compared to 1,948 loans in the third quarter.

The average pre-tax production loss reached 11 basis points in the fourth quarter. This is down from an average net production profit of 20 basis points in the third quarter, and even down 20 basis points from the fourth quarter of 2017, hitting a new low since the report began tracking in 2008.

The purchase share of originations came down from its survey high to 82% in the third quarter to 79% in the fourth quarter of 2018.

Mortgage originators are also seeing lower balances as the average loan balance for first mortgages dropped to $253,689 in the fourth quarter, down from $255,539 in the third quarter of 2018.

Total production revenue dropped to 351 basis points in the fourth quarter, down from 358 basis points the quarter before. On a per-loan basis, production revenue dropped from $8,654 per loan in the third quarter to $8,411 per loan in the fourth quarter of 2018.

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