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What Drove Mortgage Industry Gains in the Third Quarter?

The latest Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association (MBA) for this year’s third quarter shows an increase in profits for independent mortgage banks (IMBs) as well as mortgage subsidiaries of chartered banks.

IMBs and mortgage subsidiaries of chartered banks had a net gain of $5,535 on each loan they originated in Q3 this year. This is an increase from the $4,548 gain per loan that MBA reported for the second quarter of 2020.

In a press release, Marina Walsh, CMB, MBA’s VP of Industry Analysis, stated: "With the surge in mortgage production volume in the third quarter, net production profits among independent mortgage bankers increased, surpassing 200 basis points for the first time since the inception of MBA's report in 2008.”

"Soaring production revenues - led by strong secondary marketing gains - drove these results and more than offset an increase in production expenses,” Walsh added.

MBA reports that 99% of firms experienced overall profitability for the third quarter. This occured in spite of net servicing losses that resulted from MSR impairment and amortization.

"Production expenses usually drop with increased volume, as fixed costs are spread over more loans. But in the third quarter, costs rose despite the volume increase,” Walsh said. “One major reason for this increase was escalating personnel costs, including signing bonuses, incentives, overtime, and commissions that were pushed higher with the need and competition for workforce talent."

One of the key findings from MBA's latest report was that the average pre-tax production profit was 203 basis points in Q3. This is an increase from an average net production profit of 167 basis points in the second quarter of this year. From the third quarter of 2008 to the most recent quarter, there was an average quarterly pre-tax production profit of 52 basis points.

The average production volume was $1.34 billion per company in the third quarter, an uptick from $1.02 billion per company in the previous quarter. The volume by count per company averaged 4,732 loans in Q3. This shows an increase from 3,631 loans in the second quarter.

Total production revenue increased to 475 basis points, which shows an increase from 429 basis points in Q2 of this year. Production revenues rose to $12,987 per loan in Q3, compared to $11,686 per loan in the previous quarter.

Net secondary marketing income increased to 394 basis points, which is an increase from 341 basis points in the second quarter. The net secondary marketing income rose to $10,833 per loan in Q3 from $9,355 per loan in Q2.

The purchase share of total originations, by dollar volume, increased to 46% in the third quarter from 39% in the previous quarter. MBA estimates the purchase share was at 43% in 2020’s third quarter for the mortgage industry as a whole. 

MBA’s full Quarterly Mortgage Bankers Performance Report is available on its website. 

About Author: Cristin Espinosa

Cristin Espinosa is a reporter for DS News and MReport. She graduated from Southern Methodist University where she worked as an editor and later as a digital media producer for The Daily Campus. She has a broadcast background as well, serving as a producer for SMU-TV. She wrote for the food section during her fellowship at The Dallas Morning News and has also contributed to Advocate Magazine and The Dallas Observer.
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