Mortgage banks made an average profit of $1,263 on each loan they originated in the third quarter of 2011, up from $575 per loan in the second quarter of 2011 and $346 per loan in the first quarter, according to the Mortgage Bankers Association according to the Mortgage Bankers Association. That's a 377 percent increase over a six month period.
"Higher volume helped profitability as production costs were spread over a greater number of loans," said Marina Walsh, MBA's Associate Vice President of Industry Analysis. "Third quarter production expenses dropped on a per-loan basis as volume rose, although expenses remained high by historical standards when compared to other quarters with similar volume."
"At the same time, secondary marketing income rose from $4,006 per loan in the second quarter of 2011 to $4,563 per loan in the third quarter of 2011. Secondary marketing gains improved as primary-secondary spreads widened in the third quarter," she said.
In basis points, the average production profit (net production income) was 66.37 basis points in the third quarter of 2011, compared to 32.86 basis points in the second quarter of 2011. This was the most favorable quarterly result in production since the refinancing wave in the third quarter of 2010, when net profits were 71.46 basis points. Eighty-six percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2011, compared to 70 percent in the second quarter of 2011.
Average production volume was $237 million per company (or 1,114 loans per company) in the third quarter of 2011, up from $174 million per company (or 866 loans per company) in the second quarter of 2011.
The refinance share of total originations, by dollar volume was 45 percent in the third quarter of 2011, compared to 36 percent in the second quarter of 2011. Average borrower FICO scores rose to 734 in the third quarter of 2011 from 729 in the second quarter of 2011.
Total production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - dropped to $5,315 per loan in the third quarter of 2011, compared to $5,644 in the second quarter of 2011. Personnel expense decreased to $3,317 per loan in the third quarter of 2011, compared to $3,561 per loan in the second quarter of 2011.
