MBA: 1Q IMB Production Profits Decrease

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $223 on each loan they originated in the first quarter, a sharp drop from a reported gain of $1,099 per loan in the fourth quarter, the Mortgage Bankers Association reported Tuesday.

The MBA Quarterly Mortgage Bankers Performance Report said average pre-tax net production income fell to just 5 basis points, the lowest level since fourth quarter 2018 and well below the quarterly average of 55 basis points dating back to 2008. Lower production revenue contributed to scant profit margins, but the primary driver was cost, with total loan production expenses ballooning to a new study-high of $10,637 per loan – up more than $1,000 per loan from the fourth quarter and more than $2,500 per loan from one year ago.

“It was a challenging mortgage market environment in the first quarter of 2022, with rising mortgage rates and low housing inventory resulting in lower production volume,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “In addition to cost increases, productivity slipped for both sales and fulfillment staff “Furthermore, pull-through rates of closings to applications declined by 5 percentage points in the first quarter, affecting both revenue and cost. With the record-setting refinance volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will need to make tough decisions.”

Including all business lines (both production and servicing), 72 percent of the firms in the study posted a pre-tax net financial profit in the first quarter, MBA reported. Firms with servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing right valuations. Were it not for servicing operations, only 49 percent of the firms in the study would have posted a net financial profit in the first quarter.

Other key report findings:

• Average pre-tax production profit fell to 5 basis points in the first quarter, down from 38 bps in the fourth quarter and down from 124 basis points a year ago. Average quarterly pre-tax production profit, from third-quarter 2008 to the most recent quarter, is 55 basis points.
• Average production volume fell to $808 billion per company in the first quarter, down from $1.13 billion per company in the fourth quarter.Volume by count per company averaged 2,587 loans in the first quarter, down from 3,711 loans in the fourth quarter.
• Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 350 basis points in the first quarter, down from 353 basis points in the fourth quarter. On a per-loan basis, production revenues increased to $10,861 per loan in the first quarter, up from $10,569 per loan in the fourth quarter.
• Net secondary marketing income decreased to 270 basis points in the first quarter, down from 275 basis points in the fourth quarter. On a per-loan basis, net secondary marketing income increased to $8,429 per loan in the first quarter from $8,326 per loan in the fourth quarter.
• Purchase share of total originations, by dollar volume, increased to 63 percent in the first quarter from 60 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimated purchase share at 55 percent in the first quarter.
• Average loan balance for first mortgages increased to a study-high $324,368 in the first quarter, up from $312,306 in the fourth quarter.
• Average pull-through rate (loan closings to applications) decreased to 73 percent in the first quarter, down from 78 percent in the fourth quarter.
• Total loan production expenses–commissions, compensation, occupancy, equipment and other production expenses and corporate allocations–increased to a study-high of $10,637 per loan in the first quarter, up from $9,470 per loan in the fourth quarter. From third quarter of 2008 to last quarter, loan production expenses have averaged $6,829 per loan.
• Personnel expenses averaged $7,113 per loan in the first quarter, up from $6,438 per loan in the fourth quarter.
• Servicing net financial income for the first quarter (without annualizing) rose to $242 per loan, up from $71 per loan in the fourth quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, rose to $94 per loan in the first quarter, up from $87 per loan in the fourth quarter.
• Including all business lines (both production and servicing), 72 percent of the firms in the study posted pre-tax net financial profits in the first quarter, down from 76 percent in the fourth quarter.

The MBA Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Eighty-four percent of the 366 companies that reported production data for the first quarter of 2022 were independent mortgage companies; the remaining 16 percent were subsidiaries and other non-depository institutions.

MBA produces five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.