The boost in production profits came primarily from a decrease in production expenses, which dropped to $10,716 per loan in Q3, down from $10,806 in Q2. This decrease helped offset declining revenues, which fell to $11,417 per loan from $11,499 in the previous quarter.
While production operations showed signs of resilience, the servicing side of the business faced headwinds. Higher prepayment rates led to mortgage servicing right (MSR) impairments, dragging servicing net financial income down to a loss of $25 per loan in Q3, compared to a $69 gain in Q2. However, servicing operating income, excluding MSR-related factors, rose slightly to $93 per loan, up from $88 in the previous quarter.
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Loan production volume increased in Q3, averaging $542 million per company, up from $492 million in Q2. The average loan count rose to 1,642 loans per company, compared to 1,503 in the prior quarter. Purchase loans continued to dominate, accounting for 84% of total originations by dollar volume, while the average loan balance for first mortgages climbed to $361,518, up from $356,993 in Q2.
Despite the modest gains, fewer firms reported profitability in Q3 compared to Q2. About 71% of IMBs reported pre-tax financial profits across production and servicing operations, down from 78% in the previous quarter. The long-term average pre-tax production profit of 42 bps remains well above Q3’s 18 bps, according to MBA’s report.