Profits Down for Independent Mortgage Bankers

Profits were down nearly $2,000 year-over-year in 2021 for independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks on each loan originated, as found by the Mortgage Bankers Association (MBA) in its Annual Mortgage Bankers Performance Report.

“2021 was another stellar year for independent mortgage bankers, with production profits well above average but down 75 basis points from the record-setting 2020,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “Performance in the second half of 2021 declined relative to the first half of the year, which is an indication of where market conditions are heading in 2022 in an environment of high expenses, rising mortgage rates, and lower refinance originations.”

The Report found that IMBs made an average profit of $2,339 on each loan originated in 2021, down from a record of $4,202 per loan in 2020.

According to Walsh, production expenses in 2021 reached their highest level since the inception of this report in 2008, despite increasing average production volume per company. Personnel expenses for sales, fulfillment and production support functions all increased, while production revenues took a hit as 2021 came to a close.

“After a truly phenomenal ride for mortgage companies, more difficult times are expected in 2022 and possibly beyond,” said Walsh. “The widespread upward pressure on rates will diminish rate-term refinance volume, and housing inventory shortages pose challenges for purchase originations. Staying profitable will require prudent cost management, as well as more reliance on servicing operations to serve as a hedge against production declines.”

Overall, average production volume hit $4.9 billion (16,590 loans) per company in 2021, up from $4.5 billion (16,198 loans) per company in 2020. On a repeater company basis, average production volume was $5.1 billion (17,238) in 2021, up from $4.9 billion (17,592 loans) in 2020.

And while the recent rise in rates has pushed refis downward, in 2021, the refi share of total originations (by dollar volume) decreased to 46% from 55% in 2020. For the entire mortgage industry, MBA estimates the refinancing share last year decreased to 57% from 63% in 2020.

On the operations side, total loan production expenses, including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations, increased to $8,664 per loan in 2021, up from $7,578 in 2020. Personnel expenses averaged $5,971 per loan in 2021, up approximately $700 from $5,272 per loan in 2020.

On the servicing side, valuation mark-ups on mortgage servicing rights (MSRs) helped overall bottom line, as companies moved from servicing losses in 2020 to gains in 2021. Including both servicing and production operations combined, 96% of companies remained profitable in 2022. Net servicing financial income, which includes net servicing operational income, as well as MSR amortization and gains and losses on MSR valuations, was at a gain of $261 per loan in 2021, up from a loss of $176 per loan in 2020.