Production profits bounced back in the second quarter for independent mortgage banking companies on the back of strong origination volume and bigger loan balances. That helped pace a net gain of $1,686 per loan originated in the second quarter compared with a gain of just $825 per loan in the first quarter. Those were among the findings of the Mortgage Bankers Association's (MBA's) Quarterly Mortgage Bankers Performance Report released on Aug. 30.
Commenting on the findings, Marina Walsh, MBA vice president of industry analysis, said, "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."
She added, "Mortgage lenders also benefited from higher loan balances that reached a series high of $245,394 and drove production revenue to a series high of $8,807 per loan."
The servicing side of the business for survey participants did not fare as well, as the decline in interest rates sparked payoffs of existing loans. Walsh noted, "With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization."
The production-side boost in profits helped offset the negatives from the servicing operations for survey participants. Walsh said, "[T]he profitability on the production side of the business generally outweighed servicing losses. Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73 percent in the first quarter of 2016."
The bulk of survey participants--76 percent of the 345 reporting companies--who reported production data for the second quarter were independent mortgage companies. The remaining 24 percent were subsidiaries of banks and other...