Independent mortgage banks (IMB) hit a seven-year high in profits in Q3 2019, according to the Mortgage Bankers Association (MBA). in Q3, IMBs and mortgage subsidiaries of chartered banks reported a net gain of $1,924 on each loan they originated up from a reported gain of $1,675 per loan in Q2 2019.
"A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012 ($2,256 per loan)," said Marina Walsh, MBA's VP of Industry Analysis. "The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue."
The purchase share of total originations, by dollar volume, decreased to 60% in the third quarter from 74% in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 62% last quarter.
Servicing net financial income for Q3 was a loss of $62 per loan, compared to a loss of $74 per loan in Q2. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, was $43 per loan in the third quarter, compared to $42 per loan in the second quarter.
Additionally, total loan production expenses decreased to $7,217 per loan in Q3, down from $7,725 per loan in Q2. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,481 per loan.
“With higher prepayment activity seen from borrowers refinancing, net servicing income did take a hit for the second straight quarter. Overall, it was a strong summer for independent mortgage banks, with 91 percent reporting profitability,” Walsh added.