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IMB Production And Profits Improve In The Third Quarter

Katie Jensen
Nov 30, 2021

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks improved marginally this past quarter, though it wasn’t enough to surpass last year’s figures.

KEY TAKEAWAYS
  • IMBs and mortgage subsidiaries averaged a net gain of $2,594 on each loan they originated in the third quarter of 2021, up from a reported gain of $2,023 per loan in the previous quarter, but was down more than half from last year’s record profit levels.
  • Average production volume was $1.17 billion per company in the third quarter, down from $1.35 billion per company in the second quarter.
  • Total production revenue increased to 396 bps in the third quarter, up from 375 bps in the second quarter.
  • The purchase share of total originations, by dollar volume, increased to 59 percent in the third quarter from 57 percent in the second quarter.

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks improved marginally this past quarter, though it wasn’t enough to surpass last year’s figures. IMBs and mortgage subsidiaries averaged a net gain of $2,594 on each loan they originated in the third quarter of 2021, up from a reported gain of $2,023 per loan in the previous quarter, but was down more than half from last year’s record profit levels. This information comes from the Mortgage Bankers Association's (MBA) newly released Quarterly Mortgage Bankers Performance Report.

"Net production profit rebounded in the third quarter of 2021 after a drop-off in the second quarter, but was down more than half from the record profit one year ago," said Marina Walsh, CMB, MBA's vice president of industry analysis. "Production revenue was the difference-maker, increasing more than 20 basis points from the second quarter. However, production revenue was still down almost 80 basis points compared to a year ago."    

The average pre-tax production profit was 89 basis points (bps) in the third quarter of 2021, up from an average net production profit of 73 bps in the second quarter, and down from 203 basis points during the same period last year. The average quarterly pre-tax production profit from the third quarter of 2008 to the most recent quarter is 56 basis points.

Average production volume was $1.17 billion per company in the third quarter, down from $1.35 billion per company in the second quarter. The volume by count per company averaged 3,889 loans in the third quarter, down from 4,615 loans in this year's second quarter.

The average loan balance for first mortgages increased to a new study high of $308,237 in the third quarter, up from $297,816 in the second quarter. Meanwhile, the average pull-through rate (loan closings to applications) decreased slightly to 75% in the third quarter, down from 76% in the second quarter.

Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 396 bps in the third quarter, up from 375 bps in the second quarter. On a per-loan basis, production revenues increased to $11,734 per loan in the third quarter, up from $10,691 per loan in the second quarter.

The purchase share of total originations, by dollar volume, increased to 59 percent in the third quarter from 57 percent in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 46 percent in this year's third quarter.

Total loan production expenses — including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations — increased to $9,140 per loan in the third quarter, up from $8,668 per loan in the second quarter.

“Per-loan production expenses continued to rise for the fifth consecutive quarter, reaching the second-highest level ever reported,” added Walsh. “Rising sales costs that are often determined based on a percentage of loan balances was one primary factor for the increase in expenses. The average loan balance for first mortgages reached another study-high in the third quarter, passing the $300,000 threshold for the first time to over $308,000.”

Productivity decreased to 3.6 loans originated per production employee per month in the third quarter from 3.7 loans per production employee per month in the second quarter. Production employees include sales, fulfillment, and production support functions.

Combining both production and servicing operations, 92% of firms posted overall profitability for the third quarter of 2021, compared to 84% in the second quarter. 
 

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