Independent mortgage banks and mortgage subsidiaries of chartered banks continued to lose money on every loan they originated in the fourth quarter—but the loss was far smaller.

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $200 on each loan they originated in the fourth quarter of 2018, down from a reported gain of $480 per loan in the third quarter, according to the Mortgage Bankers Association’s released Quarterly Mortgage Bankers Performance Report.

“Independent mortgage bankers continued to struggle in this very competitive mortgage market environment, with the average pre-tax net production income per loan reaching its lowest level since the inception of our report in 2008,” said Marina Walsh, vice president of industry analysis for the MBA. “Among the headwinds for mortgage bankers were lower volume, lower revenues and higher costs relative to the previous quarter.”

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And for most organizations mortgage servicing didn’t bring them closer to profitability.

That’s because “mortgage servicing right impairments resulting from December’s drop-in interest rates hurt profitability,” said Walsh. “Including all business lines (both production and servicing), only 44 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter.”

Key takeaways from the performance report are as follows:

• Average production volume was $440 million per company in the fourth quarter of 2018, down from $474 million per company in the third quarter of 2018. The volume by count per company averaged 1,799 loans in the fourth quarter, down from 1,948 loans in the third quarter. For the mortgage industry as a whole,  production volume in the fourth quarter was lower compared to the previous quarter.
• The average pre-tax production loss reached 11 basis points in the fourth quarter, down from an average net production profit of 20 basis points in the third quarter, and down 20 basis points

  [caption id="attachment_11282" align="alignleft" width="242"] Walsh: Production revenue and the loss per loan decreased in the Q4.[/caption]

  from the fourth quarter of 2017, a new low. Since the report began in 2008, production profitability was in the red in only two other quarters, the first quarter of 2014 and the first quarter of 2018.

• The purchase share of total originations, by dollar volume, decreased to 79 percent in the fourth quarter of 2018, from a  high of 82 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 74 percent last quarter.
• The average loan balance for first mortgages was $253,689 in the fourth quarter, down from $255,539 in the third quarter.
• The average pull-through rate (loan closings to applications) remained unchanged at 75 percent in the fourth quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 351 basis points in the fourth quarter, down from 358 basis points in the third quarter. On a per-loan basis, production revenues decreased to $8,411 per loan in the fourth quarter, down from $8,654 per loan in the third quarter.
• Net secondary marketing income decreased to 269 basis points in the fourth quarter, down from 280 basis points in the third quarter. On a per-loan basis, net secondary marketing income decreased to $6,466 per loan in the fourth quarter from $6,802 per loan in the third quarter.
• Total loan production expenses--commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations--increased to $8,611 per loan in the fourth quarter, up from $8,174 per loan in the third quarter. For the period of the third quarter of 2008 to last quarter, loan production expenses have averaged $6,367 per loan.
• Personnel expenses averaged $5,636 per loan in the fourth quarter, up from $5,405 per loan in the third quarter.
• Productivity decreased to 1.8 loans originated per production employee per month in the fourth quarter, down from 1.9 in the third quarter. Production employees includes sales, fulfillment and production support functions.
• Including all business lines (both production and servicing), 44 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 71 percent in the third quarter.