Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $480 on each loan they originated in the third quarter of 2018, down from a reported gain of $580 per loan in the second quarter, according to the Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association.

“These are very challenging times for independent mortgage bankers, with the average pre-tax net production income per loan reaching its lowest level for any third quarter since inception of our report in 2008,” said Marina Walsh, vice president of industry analysis for the MBA. “Profitability continues to be hindered by high costs and low productivity. We expect fixed costs to remain elevated, and competitive pressures will continue to hamper production revenues in the winter months. Therefore, mortgage banker profitability will likely remain challenged.”

Key findings of the report include the following:

• Average production volume was $474 million per company in the third quarter of 2018, down from $531 million per company in the second quarter of 2018. The volume by count per company averaged 1,948 loans in the third quarter, a decrease from 2,180 loans in the second quarter. For the mortgage industry as a whole, however, MBA estimates production volume in the third quarter was slightly higher compared to the previous quarter.
• The average pre-tax production profit was 20 basis points in the third quarter, down slightly from an average net production profit of 21 bps in the second quarter, and down 21 bps from the third quarter of 2017.
• The purchase share of total originations, by dollar volume, increased to 82 percent in the third quarter, its highest level since inception of the study in the third quarter of 2008. For the mortgage industry as a whole, MBA estimates the purchase share at 76 percent in the third quarter.
• The average loan balance for first mortgages reached a study high of $255,539 in the third quarter, up from $255,136 in the second quarter.
• The average pull-through rate (loan closings to applications) was 75 percent in the third quarter, up from 72 percent in the second quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 358 basis points in the third quarter, up from 347 bps in the second quarter.
• On a per-loan basis, production revenues increased to $8,654 per loan in the third quarter, up from $8,458 per loan in the second quarter.
• Net secondary marketing income increased to 280 basis points in the third quarter, up from 271 bps in the second quarter.
• On a per-loan basis, net secondary marketing income increased to $6,802 per loan in the third quarter from $6,650 per loan in the second quarter of 2018.
• Total loan production expenses, such as commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations, increased to $8,174 per loan in the third quarter, up from $7,877 per loan in the second quarter. For the period from the third quarter of 2008 to the present quarter, loan production expenses have averaged $6,312 per loan.
• Personnel expenses averaged $5,405 per loan in the third quarter, up from $5,195 per loan in the second quarter.
• Productivity decreased slightly to 1.9 loans originated per production employee per month in the third quarter, down from 2.1 in the second quarter. Production employees includes sales, fulfillment and production support functions.
• Including all business lines (both production and servicing), 71 percent of the firms in the study posted pre-tax net financial profits in the third quarter, down from 77 percent in the second quarter.

"Mortgage servicing remains a bright spot for bankers, with relatively low delinquencies and high loan balances driving up per-loan servicing revenues,” said Walsh. “Including all business lines (both production and servicing), 71 percent of the firms in the study posted a pre-tax net financial profit in the third quarter. Without servicing, that percentage would have dropped to 52 percent.”