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Loan Origination Profits Dropped Over 44% In 2021

Keith Griffin
Apr 11, 2022
Loan origination profits decrease
Loan origination profits will decline in 2022 predicts MBA

MBA says 2021 was still ‘stellar,’ but difficult times are ahead for 2022

KEY TAKEAWAYS
  • Average production volume was $4.9 billion (16,590 loans) per company in 2021, up from $4.5 billion (16,198 loans) per company in 2020
  • In basis points, the average production profit (net production income) was 82 basis points in 2021, compared to 157 basis points in 2020.
  • The refinancing share of total originations (by dollar volume) decreased to 46 percent in 2021 from 55 percent in 2020.

It may not seem so after recording a 44.3% drop in average loan origination profit per loan, but 2021 was a “stellar year” for independent mortgage banks and mortgage subsidiaries of chartered banks. At least that’s the opinion of the Mortgage Bankers Association.

The MBA said in its Annual Mortgage Bankers Performance Report that those surveyed made an average profit of $2,339 on each loan they originated in 2021, down from the record $4,202 per loan in 2020.

According to Marina Walsh, MBA’s vice president of industry analysis, production expenses in 2021 reached their highest level since the inception of this report in 2008, despite increasing average production volume per company. Personnel expenses for sales, fulfillment, and production support functions all increased, while production revenues took a hit — especially in the last few months of the year.

Walsh added, “2021 was another stellar year for independent mortgage bankers, with production profits well above average but down 75 basis points from the record-setting 2020. Performance in the second half of 2021 declined relative to the first half of the year, which is an indication of where market conditions are heading in 2022 in an environment of high expenses, rising mortgage rates, and lower refinance originations.”

On the servicing side of the business, valuation markups on mortgage servicing rights helped the overall bottom line. Companies moved from servicing financial losses in 2020 to servicing financial gains in 2021. Including both servicing and production operations combined, 96% of companies remained profitable in 2022.

“After a truly phenomenal ride for mortgage companies, more difficult times are expected in 2022 and possibly beyond," Walsh said. "The widespread upward pressure on rates will diminish rate-term refinance volume, and housing inventory shortages pose challenges for purchase originations. Staying profitable will require prudent cost management, as well as more reliance on servicing operations to serve as a hedge against production declines.”

Key Findings of the Report:

  • Average production volume was $4.9 billion (16,590 loans) per company in 2021, up from $4.5 billion (16,198 loans) per company in 2020. On a repeater company basis, average production volume was $5.1 billion (17,238) in 2021, up from $4.9 billion (17,592 loans) in 2020.
  • In basis points, the average production profit (net production income) was 82 basis points in 2021, compared to 157 basis points in 2020. In the first half of 2021, net production income averaged 100 basis points, then decreased to 62 basis points in the second half. Since the inception of MBA’s Annual Performance Report in 2008, net production income by year has averaged 60 basis points ($1,456 per loan).
  • For repeater companies submitting data in both the first and second half of the year, the average production profit was 100 basis points in the first half, compared to 62 basis points in the second half.
  • The refinancing share of total originations (by dollar volume) decreased to 46 percent in 2021 from 55 percent in 2020. For the entire mortgage industry, MBA estimates the refinancing share last year decreased to 57 percent from 63 percent in 2020.
  • The average loan balance for first mortgages reached a study-high of $298,324 in 2021, up from $278,725 in 2020. This is the largest single-year increase in the history of this report.
  • Total production revenues (fee income, net secondary marking income and warehouse spread) were 382 basis points in 2021, down from 434 basis points in 2020. On a per-loan basis, production revenues were $11,003 per loan in 2021, down from $11,780 per loan in 2020.
  • Total loan production expenses — commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations — increased to $8,664 per loan in 2021, up from $7,578 in 2020.  
  • Personnel expenses averaged $5,971 per loan in 2021, up from $5,272 per loan in 2020.
  • Productivity was 2.5 loans originated per production employee per month in 2021, down from 3.3 in 2020. Production employees include sales, fulfillment, and production support functions.
  • Net servicing financial income, which includes net servicing operational income, as well as mortgage servicing right (MSR) amortization and gains and losses on MSR valuations, was at a gain of $261 per loan in 2021, up from a loss of $176 per loan in 2020.
  • Including all business lines, 96% of the firms in the study posted pre-tax net financial profits in 2021, down from 99% in 2020. In the first half of 2021, 96% of reporting repeater firms posted pre-tax financial profits, compared to 91% in the second half of 2021.

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, subsidiaries and other non-depository institutions. Of the 273 firms that reported production, 84% were independent mortgage companies and the remaining 16% were subsidiaries and other non-depository institutions.

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