Independent Mortgage Banker Profits Decreased in Q1

Independent mortgage bankers' profits declined since the last quarter of 2020—still, the most recent numbers show a record-breaking Q1.

The Mortgage Bankers Association's (MBA) newly released Quarterly Mortgage Bankers Performance Report for this year’s first quarter shows a decrease in profits for independent mortgage banks (IMBs) as well as mortgage subsidiaries of chartered banks—said entities reported a net gain of $3,361 on each loan they originated in the first quarter of 2021, according to. That is down from a reported gain of $3,738 per loan in the fourth quarter of 2020.

"Despite dropping slightly from the fourth quarter of 2020, net production profits reached their highest level for any first quarter since the inception of MBA's report in 2008," said Marina Walsh, CMB, MBA's VP of Industry Analysis. "Triple-digit basis-point profitability was seen for the fourth consecutive quarter—another record that surpasses the 2012 boom generated from the Home Affordable Refinance Program (HARP)."

Added Walsh, "Average production volume was also down from the previous quarter, but was still at the highest level for any first quarter, as average loan balances continued their upward trajectory. Production revenues dropped again after peaking in the third quarter of 2020, and while production expenses rose slightly, the pace flattened from the previous two quarters."

There were more substantial improvements in net servicing financial profits, thanks to a recovery in the valuation of mortgage servicing rights (MSRs), Walsh said. Combining both production and servicing operations, 97% of firms posted overall profitability for Q1 2021.

For the purposes of this report, 83% of the 366 companies that reported production data for the first quarter of 2021 were independent mortgage companies, and the remaining 17% were subsidiaries and other non-depository institutions.

The following are a few takeaways from the report, which can be accessed in full at MBA.org:

• The average pre-tax production profit was 124 basis points (bps) in the first quarter of 2021, down from an average net production profit of 137 bps in the fourth quarter of 2020, but up on a year-over-year basis from 61 basis points in the first quarter of 2020. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 55 basis points.
• The average production volume was $1.44 billion per company in the first quarter, down from $1.47 billion per company in the fourth quarter. The volume by count per company averaged 4,879 loans in the first quarter, down from 5,049 loans in last year's fourth quarter.
• On a per-loan basis, production revenues decreased to $11,325 per loan in the first quarter, down from $11,676 per loan in the fourth quarter.
• The purchase share of total originations, by dollar volume, decreased to 39 percent in the first quarter from 43 percent in the fourth quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 29% in this year's first quarter.
• The average loan balance for first mortgages increased to a new study high of $288,551 in the first quarter, up from $287,131 in the fourth quarter.
• The average pull-through rate (loan closings to applications) was 76% in the first quarter, down from 78% in the fourth quarter.
• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $7,964 per loan in the first quarter, up from $7,938 per loan in the fourth quarter. From the third quarter of 2008 to the last quarter, loan production expenses have averaged $6,621 per loan.
• Productivity decreased to 3.6 loans originated per production employee per month in the first quarter from 4.2 loans per production employee per month in the fourth quarter of last year. Production employees include sales, fulfillment, and production support functions.
• Servicing net financial income for the first quarter (without annualizing) was at $154 per loan, compared to $5 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 $65 per loan in the first quarter, up from $50 per loan in the fourth quarter.
• Including all business lines (both production and servicing), 97% of the firms in the study posted pre-tax net financial profits in the first quarter, up from 95% in the fourth quarter.