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46 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT Mortgage Banks, subsidiaries report losses Increased operating expenses may be to blame. i ndependent mortgage banks and mortgage subsidiaries saw a loss in the fourth quarter of 2014, according to the Mortgage Bankers Association (MBA). They reported a net gain of $744 on each loan they originated in the fourth quarter, down from a reported gain of $897 per loan in the third quarter of 2014, the MBA reported in its Quarterly Mortgage Bankers Performance Report. "Production profits dropped slightly in the fourth quarter of 2014 compared to the third quarter of 2014. However, on a year-over-year basis, production profits were up," said Marina Walsh, MBA's vice president of industry analysis. "In the fourth quarter of 2014, profits were $744 per loan (32 basis points), com- pared to $150 per loan (9 basis points) in the fourth quarter of 2013. In addition, 74 percent of participating companies had overall positive pre-tax profits in the fourth quarter of 2014, compared to only 58 percent in the fourth quarter of 2013." Average production volume was $417 million per company in the fourth quarter of 2014, down from $437 million per company in the third quarter of 2014, but up from $367 million per company in the fourth quarter of 2013. The volume-by-count per company averaged 1,769 loans in the fourth quarter of 2014, down from 1,901 loans in the third quarter of 2014, but up from 1,641 loans in the fourth quarter of 2013. The purchase share of total originations, by dollar volume, was 65 percent in the fourth quarter of 2014, compared to 72 percent in the third quarter of 2014. For the mortgage industry as a whole, MBA estimates the purchase share at 54 percent in the fourth quarter of 2014. The jumbo share of total first mortgage originations was 8.44 percent in the fourth quarter, compared to 9.42 percent in the third quarter. The average loan balance for first mortgages grew to a study high of $233,655 in the fourth quarter of 2014, up from $231,914 in the third quarter. Secondary marketing income was 266 basis points in the fourth quarter of 2014, compared to 261 basis points in the third quarter. Total loan production expenses— commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $7,000 per loan in the fourth quarter of 2014, from $6,769 in the third quarter. Personnel expenses averaged $4,428 per loan in the fourth quarter of 2014, up slightly from $4,401 per loan in the third quarter. Richey May & Co. also released its mortgage indus- try trend report for the fourth quarter in 2014. According to the report, the fourth quarter of 2014 was representative of the year as a whole, with "decent produc- tion and good margins, but minimal pre-tax profits." During Q 4, total production increased 3.9 percent over Q 3, gross loan margins were up by 4.3 basis points (bps) and pre-tax profits shrank by 28.4 bps. Purchase volume decreased by a modest 6 percent over the previous quarter and refinance volume increased to 28.4 percent of overall volume due to declining interest rates. Per-loan operating expenses increased during the fourth quarter after declining over the first three quarters of the year, averaging $1,873 per loan for the full year of 2014. This caused a dip in profits, noted Kenneth Richey, managing partner of Richey May. "With production volume and margins both up during the fourth quarter, the increase in operating expenses on a per- loan basis is less an indication of overcapacity and more a result of lenders making needed investments in technology and infrastructure," Richey observed. "Many are increasing their footprints in their markets and expanding to other areas, hiring personnel and recruiting branches. This is an important trend to watch in 2015," he said. "Expenditures like these typically precede any increase in production by at least a quarter."