Independent mortgage banks are starting to feel the sting from new mortgage rules implemented by the Consumer Financial Protection Bureau last fall. A recent report indicates that profits on mortgages were down 60 percent in the fourth quarter of last year compared to the previous quarter.
During the fourth quarter of 2015, independent mortgage banks and mortgage subsidiaries of chartered banks earned a net gain of $493 on each loan they originated. That is down from a reported gain of $1,238 per loan in the prior quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report (available here).
The decrease, which represents a 60 percent decline in production profits, is due to increased costs on a per loan basis during the third quarter, likely as a result of the new TRID rules, MBA suggested. Specifically, bankers saw their total loan expenses climb to $7,747 per loan during the fourth quarter, up from $7,080 per loan in the third quarter of 2015, according to the report. The net cost to originate was also higher in the fourth quarter at $6,163 per loan compared to $5,549 in the prior quarter. These costs include all production operating expenses and commissions, minus all income from fees. Such costs reported in the fourth quarter marked the second-highest level of production expenses on a per-loan basis since the inception of MBA’s report in the third quarter of 2008.
“The increases in total production expenses per loan in the fourth quarter of 2015 cannot be explained solely by volume fluctuations,” the MBA said in a written statement.
The MBA’s report is based on a variety of performance measures in the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions, the organization said. Seventy-three percent of the 334 companies that reported production data for the fourth quarter of 2015 were independent mortgage companies and the remaining 27 percent were subsidiaries and other non-depository institutions.
Since last October’s enactment of the CFPB’s TILA-RESPA Integrated Disclosures, known as TRID, the jury has been out on the true impact of these new regulations. While some reports have indicated slower closing times by as much as 50 days, the MBA report suggests that new rules are also negatively impacting banks’ profits, and therefore their ability to serve consumers.