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Loans and Profits Dip for Independent Lenders

Rising interest rates resulted in reducing the number of loans processed as well as profits for independent mortgage banks and mortgage subsidiaries of chartered banks in Q4 of 2016. This information was revealed in the Quarterly Mortgage Bankers Performance Report released today by the Mortgage Bankers Association [1].

Of the 353 companies reporting, 74 percent reporting were independent mortgage companies and the remaining 26 percent were subsidiaries and other non-depository institutions.

The report revealed that independent banks reported a net gain of $575 on each loan they originated in the fourth quarter of 2016 compared to a net gain of $1,773 per loan in Q3 of 2016.

“Rapid increases in interest rates in the last two months of 2016 slowed mortgage activity in the fourth quarter, driving a significant decrease in loan production profits,” said MBA VP of Industry Analysis Marina Walsh.

On the revenue side, secondary marketing income dropped as mortgage lenders wrestled with less favorable pricing and pipeline challenges. At the same time, production expenses per loan rose as fixed costs were spread over fewer loans.  

The report also revealed that mortgage lenders with servicing portfolios benefited from higher net servicing financial income in the fourth quarter due to increases in the valuation of their mortgage servicing rights, driven by the same rising interest rates. “However, the reduced profitability on the production side of the business generally outweighed servicing gains,” Walsh said.

Key findings of MBA’s Quarterly Mortgage Bankers Performance Report include:

Including all business lines, 73 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2016, down from 94 percent in Q3 of 2016.