MBA: IMB 4Q Production Profits Fall to 3-Year Low
MBA NewsLink Staff
Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,099 on each loan they originated in the fourth quarter, its lowest level in three years, the Mortgage Bankers Association reported Tuesday.
The MBA Quarterly Mortgage Bankers Performance Report said despite 76 percent of firms reporting a pre-tax net financial profit in the fourth quarter, the $1,099 net gain per loan fell sharply from a reported gain of $2,594 per loan in the third quarter.
“Production margins tightened substantially in the fourth quarter,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “After a two-year run of above-average profitability, pre-tax net production income per loan reached its lowest level since the first quarter of 2019.”
Walsh noted lenders and servicers faced twin headwinds: lower revenues and higher production costs. “The average cost to originate a mortgage has now risen for six quarters in a row, reaching a study-high of almost $9,500 per loan by the end of 2021,” she said. “With revenue tightening and volume slowing, it is becoming increasingly important for companies to adjust costs as the lending landscape moves from a rate-term refinancing market to a purchase and cash-out refinancing market.”
The survey said including all business lines (both production and servicing), 76 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter. Those 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 58 percent of the firms in the study would have posted a net financial profit in the fourth quarter.
Other key report findings:
• Average pre-tax production profit fell to 38 basis points in the fourth quarter, down from an average net production profit of 89 bps in the third quarter and down from 137 basis points year-over-year. The average quarterly pre-tax production profit, from third quarter 2008 to the most recent quarter, is 56 basis points.
• Average production volume fell to $1.13 billion per company in the fourth quarter, down from $1.17 billion per company in the third quarter. Volume by count per company averaged 3,711 loans in the fourth quarter, down from 3,889 loans in the third quarter of 2021.
• Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 353 bps in the fourth quarter, down from 396 bps in the third quarter. On a per-loan basis, production revenues decreased to $10,569 per loan in the fourth quarter, down from $11,734 per loan in the third quarter.
• Net secondary marketing income decreased to 275 bps in the fourth quarter, down from 310 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $8,326 per loan in the fourth quarter from $9,300 per loan in the third quarter.
• Purchase share of total originations, by dollar volume, increased to 60 percent in the fourth quarter from 59 percent in the third quarter. For the mortgage industry as a whole, MBA estimates purchase share at 47 percent in the fourth quarter.
• Average loan balance for first mortgages increased to a new study high of $312,306 in the fourth quarter, up from $308,237 in the third quarter.
• Average pull-through rate (loan closings to applications) increased to 78 percent in the fourth quarter, up from 75 percent in the third quarter.
• Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – increased to a study-high of $9,470 per loan in the fourth quarter, up from $9,140 per loan in the third quarter. From third quarter of 2008 to last quarter, loan production expenses averaged $6,758 per loan.
• Personnel expenses averaged $6,438 per loan in the fourth quarter, up from $6,185 per loan in the third quarter.
• Productivity decreased to 2.4 loans originated per production employee per month in the fourth quarter from 3.6 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) rose to $71 per loan, up from $37 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, fell to $87 per loan in the fourth quarter, down from $88 per loan in the third quarter.
• Including all business lines (both production and servicing), 76 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 92 percent in the third 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 359 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. Reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.
