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Debt & Equity

Banks back in black as mortage profits reach three-year high

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $1,675 on each loan they originated in the second quarter of 2019, up from a reported gain of $285 per loan in the first quarter of 2019, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.

MARINA WALSH

“Production profits in the second quarter of 2019 were the best MBA has seen since the third quarter of 2016 ($1,773 per loan), as production volume rose and expenses declined significantly,” said Marina Walsh, MBA’s Vice President of Industry Analysis.

“In fact, the drop in production expenses, by over $1,500 per loan, was the largest quarterly decline reported since the inception of this study in 2008.”

Added Walsh, “With anticipated increases in prepayment activity, we saw hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization. Nonetheless, the profitability on the production side of the business generally outweighed servicing losses.”

The report found that the average pre-tax production profit was 64 basis points (bps) in the second quarter, up from an average net production profit of 8 bps in the first quarter of this year.

Average production volume was $601 million per company in the second quarter, up from $385 million per company in the first quarter. The volume by count per company averaged 2,312 loans in the second quarter, up from 1,571 loans last quarter.

Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 370 bps in the second quarter, down from 393 bps in the first quarter. On a per-loan basis, production revenues decreased to $9,400 per loan in the second quarter, down from a study high of $9,584 per loan in the first quarter.

Including all business lines (both production and servicing), 85 percent of the firms in the study posted pre-tax net financial profits in the second quarter, up from 59 percent in the first quarter.

The average loan balance for first mortgages reached a study high of $268,520.

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