IMBs Report Profit Losses in Q2

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $82 on each loan they originated in Q2 of 2022, down from a reported gain of $223 per loan in Q1 of 2022, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.

“The second quarter of 2022 did not yield the usual Spring seasonal pick-up in purchase activity, in an environment of higher mortgage rates, low housing inventory, and affordability challenges,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “With lower volume, lower revenues, and higher costs relative to the first quarter, the average pre-tax net production income per loan reached its lowest level since the fourth quarter of 2018.”

Added Walsh, “Combining both production and servicing operations, only 57% of the companies in our report were profitable. Pulling out a profit in these difficult conditions is no easy feat.”

Key findings of MBA’s Q2 2022 Quarterly Mortgage Bankers Performance Report include:

• The average pre-tax production loss was 5 bps in Q2 of 2022, down from an average net production profit of 5 bps in Q1 of 2022, and down from 73 basis points in Q2 of 2021. The only other quarters in the survey's history to record net production losses were: Q1 of 2014 (8 basis points); Q1 of 2018 (8 basis points), and Q4 of 2018 (11 basis points). The average quarterly pre-tax production profit, from Q3 of 2008 to the most recent quarter, is 54 basis points.
• Average production volume was $705 million per company in Q2, down from $808 million per company in Q1. The volume by count per company averaged 2,139 loans in Q2, down from 2,587 loans in Q1.
• Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 335 bps in Q2, down from 350 bps in Q1. On a per-loan basis, production revenues decreased to $10,855 per loan in Q2, down from $10,861 per loan in Q1.
• Net secondary marketing income decreased to 243 bps in Q2, down from 270 bps in Q1. On a per-loan basis, net secondary marketing income decreased to $7,939 per loan in Q2 from $8,429 per loan in Q1.
• The purchase share of total originations, by dollar volume, increased to 81% in Q2 from 63% in Q1. For the mortgage industry as a whole, MBA estimates the purchase share was at 70% in Q2 of 2022.
• The average loan balance for first mortgages increased to a new study high of $337,130 in Q2, up from $324,368 in Q2.
• The average pull-through rate (loan closings to applications) increased to 75% in Q2, up from 73% in Q1.
• Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to a study-high of $10,937 per loan in Q2, up from $10,637 per loan in Q1 of 2022. From Q3 of 2008 to last quarter, loan production expenses have averaged $6,902 per loan.
• Personnel expenses averaged $7,371 per loan in Q2, up from $7,113 per loan in Q1.
• Productivity decreased to 1.7 loans originated per production employee per month in Q2 from 1.8 loans per production employee per month in Q1. Production employees includes sales, fulfillment, and production support functions.
• Servicing net financial income for the second quarter (without annualizing) was at $133 per loan, down from $242 per loan in the first 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 $97 per loan in Q2, up from $94 per loan in Q1.
• Including all business lines (both production and servicing), 57% of the firms in the study posted pre-tax net financial profits in the second quarter, down from 72% in Q1.

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