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40 | TH E M R EP O RT SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Origination Declines Not Overcome by Servicing Gains A new report shows reduced profitability on the production side outweighed servicing gains. I ndependent mortgage banks and mortgage subsidiaries of chartered banks reported a drop in net gains in each loan they originated in Q 3 2017, according to the MBA's Quarterly Mortgage Bankers Performance Report. Of the 347 companies report- ing, 75 percent reporting were independent mortgage companies and the remaining 25 percent were subsidiaries and other non- depository institutions. The results show that indepen - dent mortgage banks reported a net gain of $929 in Q 3 2017—rep- resenting a decrease from a gain of $1,122 per loan in the Q2 2017. In addition, this is a drop from the study's Q 3 average of $1,197 per loan. "Historically for this study, average production profits in the third quarter of the year have performed slightly below the sec - ond quarter," said Marina Walsh, MBA's VP of Industry Analysis. "But production profits were also down in relation to historical averages for the third quarter." Walsh added, "Despite rising average production volume, pro - duction expenses grew to $8,060 per loan—the second highest level reported since the inception of our study in the third quarter of 2008." Meanwhile, production rev - enues remained relatively flat, with a minimal uptick in per-loan production revenues resulting from higher loan balances. "For those mortgage bankers holding mortgage servicing rights (MSR), lower MSR valuation losses helped overall profitability," Walsh continued. As for production volume, the average was $569 million per company in Q 3 of 2017, up from $526 million per company in Q2 of 2017. Meanwhile, the volume count per company averaged 2,341 loans in the Q 3 of 2017, an increase from 2,177 loans in the Q2 of 2017. By dollar volume, the purchase share of total originations was 74 percent in the Q 3 2017, down from the study high of 76 percent in the Q2 of 2017. For the mort - gage industry as a whole, the re- port estimates the purchase share at 68 percent in the Q 3 of 2017. Net secondary marketing income decreased to 298 basis points in the Q 3 of 2017, down from 302 basis points in the Q2 of 2017. On a per-loan basis, net secondary marketing income was $7,181 per loan in the Q 3 2017—an increase from $7,160 per loan in the Q2 2017. Other key findings of the re - port included the average pre-tax production profit was 40 basis points (bps) in the Q 3 of 2017, down from an average net pro - duction profit of 46 bps in the Q2 of 2017. The average loan balance for first mortgages reached $251,109 in the Q 3 of 2017, up from $248,619 in the Q2 of 2017. In addition, the average pull- through rate (loan closings to applications) was 73 percent in the Q 3 of 2017, up from 72 percent in the Q2 of 2017. Personnel expenses averaged $5,279 per loan in the Q 3 of 2017, up from $5,119 per loan in the Q2 of 2017. Productivity de - creased to 2.1 loans originated per production employee per month in the Q 3 of 2017, from 2.5 in the Q2 of 2017. And net servicing financial income was $79 per loan in the Q 3 of 2017, up from $27 per loan in the Q2 of 2017. The State of Home Equity More than a quarter-million mortgaged homes regained equity in the third quarter, putting a big dent in the number of properties underwater. A ccording to the Q 3 2017 home equity analysis report issued by CoreLogic, 260,000 mortgaged properties regained equity between Q2 and Q 3, and U.S. homeowner equity improved by nearly $1 trillion. Those num - bers represent a nearly 12 percent uptick in equity value among mortgage owners nationally. "Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years," said Dr. Frank Nothaft, Chief Economist for CoreLogic. "This increase is primarily a reflection of rising home prices, which drives up home values, leading to an increase in home equity positions and sup - porting consumer spending." The total number of mortgaged homes in negative equity also decreased since Q2. Underwater homes dropped 9 percent to 2.5 million, according to the report. That's just about 5 percent of all mortgaged properties. Negative equity peaked at 26 percent of mortgaged residential properties in Q 4 2009. Year-over-year, U.S. homeown - ers gained an average of $14,888 in home equity. Western states led the increase, while no state experienced a decrease, the report found. Washington homeowners gained the most equity—an aver - age of approximately $40,000 since last year. California came a close second, with homeowners gain- ing an average of approximately $37,000 in home equity since this time in 2016. Year over year, nega- tive equity decreased 22 percent. Frank Martell, President and CEO of CoreLogic, said that while homeowner equity is rising nationally, there are wide dispari - ties by geography "Hot markets like San Francisco, Seattle and Denver boast very high levels of increased home equity," Martell said. "However, some markets are lagging behind due to weaker economies or lingering ef - fects from the Great Recession." Those markets, Martell said in- clude large metros, such as Miami, Las Vegas and Chicago, but also many small- and medium- sized markets such as Scranton, Pennsylvania, and Akron, Ohio. "Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years." — Dr. Frank Nothaft, Chief Economist, CoreLogic