Despite Quarterly Decline, IMB Production Profits Post Record 1st Quarter

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $3,361 on each loan they originated in the first quarter, down from $3,738 per loan in the fourth quarter but still the highest first-quarter net gain in the history of the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report.

“Despite dropping slightly from the fourth quarter of 2020, net production profits reached their highest level for any first quarter since the inception of MBA’s report in 2008,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “Triple-digit basis-point profitability was seen for the fourth consecutive quarter – another record that surpasses the 2012 boom generated from Home Affordable Refinance Program.”

Walsh noted average production volume also fell from the previous quarter, but still at the highest level for any first quarter, as average loan balances continued their upward trajectory.  “Production revenues dropped again after peaking in the third quarter of 2020, and while production expenses rose slightly, the pace flattened from the previous two quarters,” she said. She also noted more substantial improvements in net servicing financial profits, thanks to a recovery in the valuation of mortgage servicing rights.

The report said combining both production and servicing operations, 97 percent of firms posted overall profitability for the first quarter. 

Key findings of the MBA Quarterly Mortgage Bankers Performance Report include:

• Average pre-tax production profit rose to124 basis points (bps) in the first quarter, down from an average net production profit of 137 bps in the fourth quarter but up from 61 basis points a year ago. The average quarterly pre-tax production profit, from third quarter 2008 to the most recent quarter, is 55 basis points.

• Average production volume fell to $1.44 billion per company in the first quarter, down from $1.47 billion per company in the fourth quarter. Volume by count per company averaged 4,879 loans in the first quarter, down from 5,049 loans in the fourth quarter.

• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 408 bps in the first quarter, down from 421 bps in the fourth quarter. On a per-loan basis, production revenues decreased to $11,325 per loan in the first quarter, down from $11,676 per loan in the fourth quarter.

• Net secondary marketing income decreased to 331 bps in the first quarter, down from 346 bps in the fourth quarter. On a per-loan basis, net secondary marketing income decreased to $9,283 per loan in the first quarter from $9,655 per loan in the fourth quarter.

• Purchase share of total originations, by dollar volume, decreased to 39 percent in the first quarter from 43 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimated purchase share at 29 percent in the first quarter.

• Average loan balance for first mortgages increased to a new study high of $288,551 in the first quarter, up from $287,131 in the fourth quarter.

• Average pull-through rate (loan closings to applications) fell to 76 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 $7,964 per loan in the first quarter, up from $7,938 per loan in the fourth quarter. From third quarter 2008 to last quarter, loan production expenses have averaged $6,621 per loan.

• Personnel expenses averaged $5,523 per loan in the first quarter, up from $5,426 per loan in the fourth quarter.

• Productivity decreased to 3.6 loans originated per production employee per month in the first quarter from 4.2 loans per production employee per month in the fourth quarter. Production employees includes sales, fulfillment and production support functions.

• Servicing net financial income for the first quarter (without annualizing) jumped to $154 per loan, compared to $5 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, increased to $65 per loan in the first quarter, up from $50 per loan in the fourth quarter.

• Including all business lines (both production and servicing), 97 percent of the firms in the study posted pre-tax net financial profits in the first quarter, up from 95 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-three percent of the 366 companies that reported production data for the first quarter were independent mortgage companies; the remaining 17 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.