IMBs Suffer Production Profit Decrease

According to the MBA’s newly released Quarterly Mortgage Bankers Performance Report, independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $1,099 on each loan they originated in Q4 of 2021, down from a reported gain of $2,594 per loan in Q3.

"Production margins tightened substantially in the fourth quarter of 2021. After a two-year run of above-average profitability, pre-tax net production income per loan reached its lowest level since the first quarter of 2019," said Marina Walsh, CMB, MBA's VP of Industry Analysis. "Among the headwinds were lower revenues and higher production costs. The average cost to originate a mortgage has now risen for six quarters in a row, reaching a study-high of almost $9,500 per loan by the end of 2021.”

Walsh added that with tightening revenue and volume slowing, it’s imperative for companies to adjust costs as lending landscapes moves from a “rate-term refinancing market” to a “purchase and cash-out refinancing market".

Including all business lines, both production and servicing, 76% of the firms in the study posted a pre-tax net financial profit in Q4, down from 92% in Q3. Firms with servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing right (MSR) valuations. Without servicing operations, only 58% of the firms in the study would have posted a net financial profit in Q4.

Key findings of MBA's Q4 of 2021 Quarterly Mortgage Bankers Performance Report include:

• The average pre-tax production profit was 38 basis points (bps) in Q4 of 2021, down from an average net production profit of 89 bps in Q3 of 2021, and down from 137 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 56 basis points.
• Average production volume was $1.13 billion per company in Q4, down from $1.17 billion per company in the third quarter. The volume by count per company averaged 3,711 loans in Q4, down from 3,889 loans in Q3 of 2021.
• Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 353 bps in Q4, down from 396 bps in Q3. On a per-loan basis, production revenues decreased to $10,569 per loan in Q4, down from $11,734 per loan in Q3.
• Net secondary marketing income decreased to 275 bps in Q4, down from 310 bps in Q3. On a per-loan basis, net secondary marketing income decreased to $8,326 per loan in Q4 from $9,300 per loan in Q3.
• The purchase share of total originations, by dollar volume, increased 60% in Q4 from 59% in Q3. Regarding the mortgage industry, MBA estimates the purchase share was at 47% Q4 of 2021.
• The average loan balance for first mortgages increased to a new study high of $312,306 in Q4, up from $308,237 in Q3.
• The average pull-through rate (loan closings to applications) increased to 78% in Q4, up from 75% in Q3.
• Personnel expenses averaged $6,438 per loan in Q4, up from $6,185 per loan in Q3.
• Productivity decreased to 2.4 loans originated per production employee per month in Q4 from 3.6 loans per production employee per month in Q3. Production employees includes sales, fulfillment, and production support functions.
• Servicing net financial income for the fourth quarter without annualizing was at $71 per loan, up from $37 per loan in Q3. 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 $87 per loan in Q4, down from $88 per loan in Q3.
• Total loan production expenses — commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations — increased to a study-high of $9,470 per loan in the Q4, up from $9,140 per loan in Q3. From Q3 of 2008 to last quarter, loan production expenses have averaged $6,758 per loan.

All Quarterly Mortgage Bankers Performance Reports are available here.