Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $223 on each loan they originated in Q1 of 2022 –down from a reported gain of $1,099 per loan in Q4 of 2021– according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.
“It was a challenging mortgage market environment in the first quarter of 2022, with rising mortgage rates and low housing inventory resulting in lower production volume. The average pre-tax net production income was only 5 basis points, which is the lowest since the fourth quarter of 2018 and well below the quarterly average of 55 basis points dating back to 2008,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “While lower production revenue contributed to scant profit margins, the primary driver was cost, with total loan production expenses ballooning to a new study-high of $10,637 per loan – up more than $1,000 per loan from fourth-quarter 2021 and more than $2,500 per loan from one year ago.”
Including all business lines —both production and servicing— 72% of the firms in the study posted a pre-tax net financial profit in Q1 of 2022. Those firms with servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing right (MSR) valuations.
“In addition to cost increases, productivity slipped for both sales and fulfillment staff,” said Walsh. “Furthermore, pull-through rates of closings to applications declined by 5 percentage points in the first quarter, affecting both revenue and cost. With the record-setting refinance volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will need to make tough decisions.
Key findings of MBA’s First-Quarter 2022 Quarterly Mortgage Bankers Performance Report:
- The average pre-tax production profit was 5 basis points (bps) in Q1 of 2022, down from an average net production profit of 38 bps in Q4 of 2021, and down from 124 basis points on a year-over-year basis. The average quarterly pre-tax production profit, from Q3 of 2008 to the most recent quarter, is 55 basis points.
- Average production volume was $808 billion per company in Q1, down from $1.13 billion per company in Q4 of 2021. The volume by count per company averaged 2,587 loans in Q1, down from 3,711 loans in last year’s Q4.
- Total production revenue —fee income, net secondary marketing income and warehouse spread— decreased to 350 bps in Q1, down from 353 bps in Q4. On a per-loan basis, production revenues increased to $10,861 per loan in Q1, up from $10,569 per loan in the fourth quarter.
- Net secondary marketing income decreased to 270 bps in Q1, down from 275 bps in Q4. On a per-loan basis, net secondary marketing income increased to $8,429 per loan in Q1 from $8,326 per loan in Q4.
- The purchase share of total originations, by dollar volume, increased to 63% in Q1 from 60% in Q4. For the mortgage industry as a whole, MBA estimates the purchase share was at 55% in Q1 of 2022.
- The average loan balance for first mortgages increased to a new study high of $324,368 in Q1, up from $312,306 in Q4.
- The average pull-through rate (loan closings to applications) decreased to 73% in Q1, down from 78% in Q4.
- Total loan production expenses –commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations– increased to a study-high of $10,637 per loan in Q1, up from $9,470 per loan in Q4 of 2021. From Q3 of 2008 to last quarter, loan production expenses have averaged $6,829 per loan.
- Personnel expenses averaged $7,113 per loan in Q1, up from $6,438 per loan in Q4.
- Productivity decreased to 1.8 loans originated per production employee per month in Q1 from 2.4 loans per production employee per month in Q4 Production employees includes sales, fulfillment, and production support functions.
- Servicing net financial income for Q1 was at $242 per loan, up from $71 per loan in Q4. 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 $94 per loan in Q1, up from $87 per loan in Q4.
- Including all business lines —both production and servicing— 72% of the firms in the study posted pre-tax net financial profits in Q1, down from 76% in Q4.
To read the full report, click here.