Mortgage Production Profits Reach Record Highs

Mortgage Production Profits Reach Record Highs

September 2, 2020
array of hundred dollar bills for record mortgage profits
Pandemics aside, it’s a good time to be a loan originator. Net gains per loans reach their highest levels since the Mortgage Bankers Association started tracking the profits back in 2008. All but 4% of companies reported earning a profit for the quarter.
 
Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $4,548 on each loan they originated in the second quarter of 2020, up from a reported gain of $1,600 per loan in the first quarter of 2020, according to the Mortgage Bankers Association’s newly released Quarterly Mortgage Bankers Performance Report.
 
“Fueled by a surge in borrower demand and record-low mortgage rates, mortgage production profits in the second quarter reached the highest level since the inception of MBA’s report in 2008,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “Production volume averaged over $1 billion per company, and there was an ideal combination of higher revenues and lower costs. Revenues climbed by 57 basis points from the first quarter, while expenses improved by $844 per loan. Productivity also increased, reaching levels not seen since 2012.”
 
Added Walsh, “Servicing profitability did take a hit last quarter. Mortgage servicing right markdowns and amortization continued, and there was a loss of servicing income from elevated default activity. Despite these servicing losses, 96% of firms in the report posted overall profitability for the second quarter.”
 
Key findings of the quarterly report include:
  • The average pre-tax production profit was 167 basis points (bps) in the second quarter, up from an average net production profit of 61 bps in the first quarter of 2020.
  • Average production volume was $1.02 billion per company in the second quarter, up from $728 million per company in the first quarter. The volume by count per company averaged 3,631 loans in the second quarter, up from 2,654 loans last quarter.
  • Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 429 bps in the second quarter, up from 362 bps in the first quarter. On a per-loan basis, production revenues increased to $11,686 per loan in the second quarter, up from $9,582 per loan in the first quarter.
  • Net secondary marketing income increased to 341 bps in the second quarter, up from 283 bps in the first quarter. On a per-loan basis, net secondary marketing income increased to $9,355 per loan last quarter from $7,548 per loan in the first quarter.
  • The purchase share of total originations, by dollar volume, decreased to 39% in the second quarter from 52% in the first quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 37% in this year’s second quarter.
  • The average loan balance for first mortgages increased to a new study high of $282,309 in the second quarter, up from $276,291 in the first quarter.
  • The average pull-through rate (loan closings to applications) was 71% in the second quarter, up from 67% in the first quarter.
  • Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $7,138 per loan in the second quarter, down from $7,982 per loan in the first quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,548 per loan.
  • Personnel expenses averaged $4,992 per loan in the second quarter, down from $5,345 per loan in the first quarter.
  • Productivity increased to 3.5 loans originated per production employee per month in the second quarter, up from 2.7 loans per production employee per month in the first quarter. Production employees includes sales, fulfillment, and production support functions.
  • Servicing net financial income for the second quarter (without annualizing) was at a loss of $68 per loan, compared to a loss of $171 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 $23 per loan in the second quarter, down from $52 per loan in the first quarter.
  • Including all business lines (both production and servicing), 96% of the firms in the study posted pre-tax net financial profits in the second quarter, up from 78% in the first quarter.
 
MBA's Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Eighty-two percent of the 348 companies that reported production data for the second quarter of 2020 were independent mortgage companies, and the remaining 19 percent were subsidiaries and other non-depository institutions.
 
Originations, Trends

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