MBA: IMBs Report Strong First Quarter

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,600 on each loan they originated in the first quarter, up from $1,182 per loan in the fourth quarter, according to the Mortgage Bankers Association’s newly released Quarterly Mortgage Bankers Performance Report.

“Mortgage production profits were strong in the first three months of 2020 – despite a decline in production volume from the fourth quarter and March’s severe market volatility sparked by the COVID-19 pandemic,” said Marina Walsh, MBA Vice President of Industry Analysis. “As credit spreads widened, revenues grew by 25 basis points from the fourth quarter, offsetting a reported increase in expenses.”

According to Walsh, on the servicing side of the business, the likelihood of higher prepayments and pandemic-related delinquency activity resulted in mortgage servicing rights impairments and less profitability. Net servicing financial income dropped to a loss of $171 per loan serviced in the first quarter, from a break-even observed in the fourth quarter.

“Overall, it was a solid showing for independent mortgage banks – particularly for a first quarter – with 78 percent reporting profitability across production and servicing operations, compared to 84 percent in the fourth quarter,” Walsh said.

Key report findings:

• Average pre-tax production profit rose to 61 basis points in the first quarter, up from 46 bps in the fourth quarter.
• Average production volume was $728 million per company in the first quarter, down from $800 million per company in the fourth quarter.The volume by count per company averaged 2,654 loans in the first quarter, down from 2,947 loans last quarter.
• Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 362 bps in the first quarter, up from 337 bps in the fourth quarter. On a per-loan basis, production revenues increased to $9,582 per loan in the first quarter, up from $8,707 per loan in the fourth quarter.
• Net secondary marketing income increased to 283 bps in the first quarter, up from 263 bps in the fourth quarter. On a per-loan basis, net secondary marketing income increased to $7,548 per loan in the first quarter from $6,848 per loan in the fourth quarter.
• The purchase share of total originations, by dollar volume, decreased to 52 percent in the first quarter from 56 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 46 percent in this year’s first quarter.
• The average loan balance for first mortgages increased to a new study high of $276,291 in the first quarter, up from $271,972 in the fourth quarter.
• The average pull-through rate (loan closings to applications) fell to 67 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 $7,982 per loan in the first quarter, up from $7,525 per loan in the fourth quarter. From third quarter 2008 to last quarter, loan production expenses have averaged $6,535 per loan.
• Personnel expenses averaged $5,345 per loan in the first quarter, up from $5,064 per loan in the fourth quarter.
• Productivity increased to 2.7 loans originated per production employee per month in the first quarter, up from 2.6 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) fell to a loss of $171 per loan, compared to $0 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, was $52 per loan in the first quarter, compared to $44 per loan in the fourth quarter.
• Including all business lines (both production and servicing), 78 percent of firms in the study posted pre-tax net financial profits in the first quarter, down from 84 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-one percent of the 336 companies that reported production data for the first quarter were independent mortgage companies; the remaining 19 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 the MBA website at www.mba.org/PerformanceReport.