MBA: IMB Production Profits Remain Strong in Fourth Quarter

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $3,738 on each loan they originated in the fourth quarter down from a reported gain of $5,535 per loan in the third quarter, according to the Mortgage Bankers Association’s latest Quarterly Mortgage Bankers Performance Report.

“Driven by strong borrower demand and a study-high in average loan balances, production volume for independent mortgage companies reached unprecedented heights, averaging close to $1.5 billion per company in the fourth quarter of 2020. Net production profits were at their third-highest levels, surpassed only by last year’s second and third quarter,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis.

Walsh said while production profits were still “incredibly strong” in the fourth quarter, secondary marketing gains declined, resulting in an overall drop in production revenue. “Production expenses increased for the second straight quarter, despite higher volume that historically reduces per-loan costs,” she said, noting expenses rose by nearly $500 per loan from the previous quarter, as personnel costs increased across sales, fulfillment, production support and corporate overhead.”

The report said combining both production and servicing operations, 95 percent of firms posted overall profitability for the fourth quarter. 

Other key report findings:

• Average pre-tax production profit fell to 137 basis points (bps) in the fourth quarter, down from an average net production profit of 203 bps in the third quarter, but up on a year-over-year basis from 46 basis points. Average quarterly pre-tax production profit, from third quarter 2008 to the most recent quarter is 53 basis points.
• Average production volume rose to $1.47 billion per company in the fourth quarter, up from $1.34 billion per company in the third quarter. Volume by count per company averaged 5,049 loans in the fourth quarter, up from 4,732 loans in last year’s third quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 421 bps in the fourth quarter, down from 475 bps in the third quarter. On a per-loan basis, production revenues decreased to $11,676 per loan in the fourth quarter, down from $12,987 per loan in the third quarter.
• Net secondary marketing income decreased to 346 bps in the fourth quarter, down from 394 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $9,655 per loan in the fourth quarter from $10,883 per loan in the third quarter.
• Purchase share of total originations, by dollar volume, decreased to 43 percent in the fourth quarter from 46 percent in the third quarter. For the mortgage industry as a whole, MBA estimates purchase share at 36 percent in in the fourth quarter.
• Average loan balance for first mortgages increased to a new study high of $287,131 in the fourth quarter, up from $282,659 in the third quarter.
• Average pull-through rate (loan closings to applications) rose to 78 percent in the fourth quarter, up from 72 percent in the third quarter.
• Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – increased to $7,938 per loan in the fourth quarter, up from $7,452 per loan in the third quarter. From third quarter 2008 to last quarter, loan production expenses averaged $6,594 per loan.
• Personnel expenses averaged $5,426 per loan in the fourth quarter, up from $5,124 per loan in the third quarter.
• Productivity decreased to 4.2 loans originated per production employee per month in the fourth quarter from 4.3 loans per production employee per month in the third quarter. Production employees includes sales, fulfillment and production support functions.
• Servicing net financial income for the fourth quarter (without annualizing) was at $5 per loan, compared to a loss of $30 per loan in the third 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, was $50 per loan in the fourth quarter, up from $26 per loan in the third quarter.
• Including all business lines (both production and servicing), 95 percent of firms in the study posted pre-tax net financial profits in the fourth quarter, down from 99 percent in the third quarter.  

MBA’s 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 fourth 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.