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Annual Mortgage Bank Profits Fall by Nearly Half

April 17, 2018

Less than a month after reporting some bad news about mortgage production and profits in the fourth quarter of 2017 the Mortgage Bankers Association (MBA) is back with a roundup of those measures for the entire year.  The news didn't get any better.


MBA said that per-loan profits for 2017 were $711, only slightly more than half the $1,346 in profits reported in 2016. The full year average for 2016 topped that of any single quarter in 2017. 


"Production profits dropped by almost half in 2017 as rate-term refinancings diminished and the overall average production volume dropped," said Marina Walsh, MBA's Vice President of Industry Analysis.


The year started out with a net gain of only $224 in the first quarter but recovered in the second quarter to $1,122 as a reprieve from rising rates boosted refinancing volume.  Profits averaged $929 per loan in quarter three. 

"Production revenues per loan were up slightly for the year, as higher loan balances mitigated the effects of competitive pressures.  However, production expenses grew in all categories- sales, fulfillment, production support and corporate allocations - reaching a study-high $8,082 per loan for the Annual Performance Report," Walsh said.


Average production volume in 2017 was $2.13 billion or 8,882 loans per company compared to $2.68 billion or 11,106 loans the previous year.   For those companies reporting to MBA in both years, average production volume was $2.11 billion or 8,783 loans in 2017 and $2.32 billion or 9,625 loans in 2016.  For the mortgage industry as whole, MBA estimates production volume at $1.71 trillion in 2017, down from $2.05 trillion in 2016. 


Production profits averaged 31 basis points (bps) for the year, down from 58 bps in 2016.  Since the inception of the Annual Performance Report in 2008, net production income by year has averaged 53 bps ($1,085 per loan). 


Refinancing had a 25 percent share of the total dollar volume of originations during the year, 13 percentage points less than a year before.  MBA estimates the refinancing share industry-wide was down as well, from 49 percent to 35 percent. 


The average loan balance for first mortgages reached a study-high of $245,500 in 2017, from $244,945 in 2016. This is the 8th consecutive year of rising loan balances on first mortgages. 


Total production revenues (fee income, net secondary marking income and warehouse spread) were 379 bps in 2017, compared to 366 bps in 2016.  Production revenues were $8,793 in 2017, up from $8,555 and production expenses were $8,082 and $7,209 per loan respectively. 

Personnel expenses averaged $5,346 per loan in 2017, compared to $4,801 the prior year.   Productivity fell to 1.9 loans originated per production employee from 2.4 in 2016.  Production employees include sales, fulfillment and production support functions. 


Net servicing financial income, which includes net servicing operational income as well as mortgage servicing right (MSR) amortization and gains and losses on MSR valuations, was $64 per loan in 2017, a substantial increase from $34 per loan in 2016. 


Walsh continued, "For those mortgage bankers holding mortgage servicing rights (MSR), higher loan balances drove up per-loan servicing fees and helped overall profitability. Including both production and servicing operations, 80 percent of the firms in the study posted overall pre-tax net financial profits in 2017, down from 94 percent in 2016." 


Of the 253 firms that provided information for MBA's Mortgage Bankers Performance Report, 74 were independent mortgage companies and remaining 26 percent were subsidiaries and other non-depository institutions.

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