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Independent Firms See Profits Plunge as Costs Soar

It was a meager third quarter for independent mortgage banks, which saw profits slashed in half as originations sank and production costs rose.


The ""Mortgage Bankers Association"":http://mba.org/ (MBA) released Wednesday its Quarterly Mortgage Bankers Performance Report, which measures stats at independent mortgage banks and mortgage subsidiaries of chartered banks. The report comes out one day after a similar release from ""Richey May"":https://themreport.com/articles/servicing-gains-offset-production-declines-in-q3-2013-12-03 that showed loan production falling in the third quarter as refinances waned.

According to MBA's figures, average production volume per company was $391 million in Q3, down nearly $48 million from the prior quarter. By count, companies averaged 1,788 loans, down from 1,921 in Q2.

Breaking the data down by loan type, MBA estimates the purchase share of total originations (by dollar volume) was 67 percent in the third quarter, up from 52 percent in [COLUMN_BREAK]

the second. For the entire mortgage industry, the group estimates purchase share was at 49 percent last quarter.

In terms of profits, independent mortgage banks earned an estimated $743 on each loan originated in Q3, down from $1,528 in Q2. In basis points, the average production profit (net production income) was 38 basis points, down from 75.

It was the fourth consecutive quarter in which production profits declined, MBA reported.

""Third-quarter profits were reduced by half because of several factors: per-loan production expenses that reached study-highs, declining production volume and reduced secondary marketing income,"" said Marina Walsh, associate VP of industry analysis for MBA.

Total loan production expenses--including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations--increased to $6,368 per loan, the highest recorded in any quarter since MBA began releasing its report in Q3 2008.

The net cost to originate--all production operating expenses and commissions minus all fee income--was $4,573, up from $4,207 in the second quarter.

All in all, the added costs and stunted production volume took a major toll at independent firms: only 74 percent posted pre-tax net financial profits in Q3, down from 92 percent in the second quarter.

""Historically, mortgage bankers have struggled to control fixed costs and right-size in a declining market, and the increasing costs of compliance and quality control only exacerbate an already difficult situation,"" Walsh said.


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