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Lenders are making more money on mortgages than they have since 2012

Profit per mortgage origination rises to almost $2,000 per loan

It’s looking like 2019 is going to end up being a really good year for the mortgage business in more ways than one.

Not only is the business on track for the highest origination volume in at least three years thanks to low interest rates, but lenders are also now making more money per loan than they’ve made in almost seven years.

A new report from the Mortgage Bankers Association shows that independent mortgage banks and mortgage subsidiaries of chartered banks saw a profit of $1,924 on each mortgage they originated in the third quarter of 2019.

That’s up from a reported gain per loan of $1,675 in the second quarter and way up from where it was in the fourth quarter of last year, when lenders were losing $200 on each loan.

Now, lenders are making almost $2,000 per loan.

According to the MBA’s new Quarterly Mortgage Bankers Performance Report, lender profits haven’t been this high since the fourth quarter of 2012.

What’s driving the increase in profits? According to the MBA, increased mortgage volume (especially refinances) and lower origination costs are contributing to the rise in profitability.

“A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012 ($2,256 per loan),” said Marina Walsh, MBA’s vice president of industry analysis. “The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue.”

According to the MBA’s report, the average loan production volume per company at the 338 companies that took part in the survey was $781 million in the third quarter, up from $601 million per company in the second quarter.

In terms of the number of loans originated, each company averaged 2,880 loans in the third quarter, up from 2,312 loans in the second quarter.

So total loan volume is up, and production costs are down.

According to the report, the total loan production expenses (which includes commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) fell to $7,217 per loan in the third quarter, down from $7,725 per loan in the second quarter.

Production per employee was on the rise too, with an average of 3.1 loans originated per production employee per month in the third quarter, up from 2.3 loans per production employee per month in the second quarter. The MBA defines production employees as those with sales, fulfillment and production support functions.

And as other reports have shown, the increase in loan volume is coming from refinances.

According to the MBA report, the refinance share of total originations, by dollar volume, rose to 40% of all originations at the surveyed companies. That’s up from just 26% in the second quarter.

Beyond that, the MBA report also shows that the average loan balance for first mortgages reached a study high of $276,053 in the third quarter, up from $268,520 in the second quarter.

Add all that up and one can see that it’s a pretty good time to be in the mortgage business right now.

3d rendering of a row of luxury townhouses along a street

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