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Nonbank loan profits jumped in 2016

Despite rising production costs and increased regulation, nonbank lenders made more money in 2016 on the average mortgage than in 2015.

The per-loan profit in 2016 averaged $1,346, up 13.2 percent from a $1,189 per-loan profit in 2015, the Mortgage Bankers Association (MBA) reported. 

profitGenerally speaking, 2016 was a good year for the mortgage industry. Low interest rates kept refinancing in play through most of last year, and the home-purchase market continued to pick up.

Home values have risen solidly throughout much of the country, leaving more homeowners with equity to cash-out. It is also a home sellers’ market, with stiff competition for tight inventories that has pushed up prices. All of this has contributed to higher volumes and loan balances, according to analysts. 

“We had a good year," said Stanley Middleman, chief executive officer of the national lender Freedom Mortgage, in a recent interview with Scotsman Guide News.  "A lot of mortgage companies made a lot of money.” 

Most companies made money last year, MBA said.

“Including both production and servicing operations, 94 percent of the firms in the study posted overall pre-tax net financial profits in 2016, up from 92 percent 2015,” said Marina Walsh, MBA’s vice president of industry analysis.

Loan volumes rose in 2016 over the 2015 level, the trade group said. The average loan balance also rose to an MBA-survey high, reaching $244,945 for first mortgages.

“This translated into higher revenues that reached a study-high $8,555 per loan in 2016,” Walsh said. Expenses also rose, however, to a study-high of $7,209 per loan. A total of 280 nonbank lenders reported loan-production data as part of the MBA's annual survey.

Dimmer outlook ahead

Market conditions began to deteriorate somewhat toward the end of last year, with a rapid post-election rise in interest rates, however. Loan profits dropped significantly to close out the year. The net gain per loan averaged $575 in the fourth quarter, down from $1,773 in the previous quarter, MBA reported previously.

According to Fannie Mae’s most recent survey of company executives, lenders expect profits to drop in 2017 as refinancing activity falls off.

“Lenders cite competition from other lenders and a market shift from refinance to purchase — both of which reached survey highs — as the top reasons for the weak profit margin outlook,” Fannie’s Chief Economist Doug Duncan said in a recent report. 

Freedom's Middleman said that he expects 2017 to be more challenging for mortgage companies, and particularly for lenders without significant liquidity or capital.  As for the coming year, he said volumes should tail off somewhat as refinancing recedes; however, the improving economy, with jobs and increased home buying, was a cause for optimism. He said Freedom’s substantial servicing portfolio should help offset some of the anticipated decline in refinancing revenue. 

“We expect to have a great year from a profitability standpoint,” Middleman said.   

On a quarter-over-quarter basis, lenders’ profits expectations rose marginally from the fourth quarter, but lenders were significantly more pessimistic than a year earlier, Fannie reported.

Companies also saw a significant change in valuation of mortgage servicing rights as interest rates rose.

“Most servicers reported net servicing financial losses in the first half of the year, followed by recoveries by the end of the year,” Walsh said. 


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