Mortgage bankers take an L as low volume, high costs wipe out 1Q profits

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Declining mortgage origination volume and soaring costs drove production income for independent mortgage banks and mortgage subsidiaries into negative territory during the first quarter, according to the Mortgage Bankers Association.

Nonbank mortgage lenders and mortgage subsidiaries of chartered banks posted a net production loss of $118 per loan in the first quarter of 2018, down from a net gain of $237 per loan in the fourth quarter of 2017 and net gain of $224 per loan one year ago.

This is the second time in the nearly 10-year history of the MBA's Quarterly Mortgage Bankers Performance Report that lenders lost money originating mortgages. The last time, in the first quarter of 2014, lenders posted a net production loss of $194 per loan.

"In the first quarter of 2018, falling volume drove net production profitability into the red for only the second time since the inception of our report in the third quarter of 2008," Marina Walsh, the MBA's vice president of industry analysis, said in a press release.

"While production revenues per loan actually increased in the first quarter, we also reached a study-high for total production expenses at $8,957 per loan, as volume dropped," she added.

The average pretax production loss was eight basis points in 1Q18, down from a profit of nine basis points in 4Q17.

Average production volume dropped, declining to $450 million per company from $505 million from the prior quarter. Loan volume count also fell, decreasing from an average of 2,059 loans per company to 1,866 loans quarter-over-quarter.

The purchase share of originations by dollar volume remained unchanged at 71% for independent mortgage bankers, with the MBA estimating the purchase share for the mortgage industry overall at 63% in the first quarter.

For first mortgages, the average loan balance fell to $249,041, a quarterly decline from $254,291.

Regarding loan closing to application transitions, the average pull-through rate dropped from 76% to 70% in the first quarter.

Total loan production expenses grew to $8,957 per loan, an increase from $8,475 from the prior quarter to a study high. From the third quarter of 2008 to the first quarter of 2018, loan production expenses have averaged $6,224 per loan.

For all business lines in both production and servicing, 60% of firms in the study saw pretax net financial profits in the first quarter, up from 56% in 4Q17. For independent mortgage bankers holding mortgage servicing rights, overall profitability was supported by higher per-loan servicing revenue and gains on the valuation of servicing, according to the MBA.

The MBA previously predicted net production losses for independent mortgage bankers during this year's first quarter at its Secondary Conference in New York last month.