MBA: 3Q IMB Production Profits Increase

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $2,594 on each loan they originated in the third quarter, up from $2,023 per loan in the second quarter, according to the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report.

“Net production profit rebounded in the third quarter of 2021 after a drop-off in the second quarter, but was down more than half from the record profit one year ago,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “Production revenue was the difference-maker, increasing more than 20 basis points from the second quarter. However, production revenue was still down almost 80 basis points compared to a year ago.”  

Walsh noted per-loan production expenses continued to rise for the fifth consecutive quarter, reaching to the second-highest level ever reported. “Rising sales costs that are often determined based on a percentage of loan balances was one primary factor for the increase in expenses,” she said. “The average loan balance for first mortgages reached another study-high in the third quarter, passing the $300,000 threshold for the first time to over $308,000.”

Combining both production and servicing operations, 92 percent of firms posted overall profitability for the third quarter, compared to 84 percent in the second quarter. 

Key findings of MBA’s third quarter Quarterly Mortgage Bankers Performance Report include:

• Average pre-tax production profit rose to 89 basis points in the third quarter, up from 73 bps in the second quarter of 2021, and down from 203 basis points from a year ago. Average quarterly pre-tax production profit, from third quarter 2008 to the most recent quarter, is 56 basis points.

• Average production volume fell to $1.17 billion per company in the third quarter, down from $1.35 billion per company in the second quarter. Volume by count per company averaged 3,889 loans in the third quarter, down from 4,615 loans in the second quarter.

• Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 396 bps in the third quarter, up from 375 bps in the second quarter. On a per-loan basis, production revenues increased to $11,734 per loan in the third quarter, up from $10,691 per loan in the second quarter.

• Net secondary marketing income increased to 310 bps in the third quarter, up from 297 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $9,300 per loan in the third quarter from $8,500 per loan in the second quarter.

• Purchase share of total originations, by dollar volume, increased to 59 percent in the third quarter from 57 percent in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share at 46 percent in the third quarter.

• Average loan balance for first mortgages increased to a new study high of $308,237 in the third quarter, up from $297,816 in the second quarter.

• Average pull-through rate (loan closings to applications) decreased to 75 percent in the third quarter, down from 76 percent in the second quarter.

• Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – increased to $9,140 per loan in the third quarter, up from $8,668 per loan in the second quarter. From third quarter 2008 to last quarter, loan production expenses averaged $6,707 per loan.

• Personnel expenses averaged $6,185 per loan in the third quarter, up from $5,911 per loan in the second quarter.

• Productivity decreased to 3.6 loans originated per production employee per month in the third quarter from 3.7 loans in the second quarter. Production employees includes sales, fulfillment, and production support functions.

• Servicing net financial income for the third quarter (without annualizing) rose to $37 per loan, up from $7 per loan in the second 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 $88 per loan in the third quarter, up from $71 per loan in the second quarter.

• Including all business lines (both production and servicing), 92 percent of the firms in the study posted pre-tax net financial profits in the third quarter, up from 84 percent in the second 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 365 companies that reported production data for the third quarter were independent mortgage companies; the remaining 17 percent were subsidiaries and other non-depository institutions.

MBA produces 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.