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Mortgage-loan margins improve in Q2

Nonbank mortgage-loan profitability rebounded somewhat in the second quarter, following an unusually weak first quarter in which companies suffered an average loss of $118 per loan.

Nonbanks reported an average net gain of $580 per loan over the quarter, the Mortgage Bankers Association (MBA) reported. 

profits“After an exceptionally weak start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season," said Marina Walsh, MBA vice president of industry analysis. 

The quarter could hardly be called strong, however. Last year in the second quarter, the net profit was $1,122 per loan. This year's second-quarter profit also ran below the average for the typical April-June period.  

In terms of basis points, the average per-loan profit was 21 basis points in the second quarter of this year, down from 24 basis points in the second quarter of 2017. The average profit in a second quarter is 48.4 basis points. 

"When measured in basis points, pre-tax net production income reached its lowest level for any second quarter since the inception of our report in 2008,” Walsh said.

As refinance volume has dwindled, mortgage companies have cut costs, and that showed up in this quarter's numbers. Production expenses declined to $7,877 per loan, falling from a study high of $8,957 per loan in the first quarter, MBA said. Origination costs were still significantly higher than the average production expense of $6,266 over the past 10 years.

“Mortgage originators evidently responded to first-quarter losses by reducing their expenses in the second quarter, as production expenses dropped by over $1,000 per loan," Walsh said. "However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts."   


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