IMB Production Profits Decline in Second Quarter of 2021
WASHINGTON, D.C. (August 24, 2021) - CIndependent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $2,023 on each loan they originated in the second quarter of 2021, down from a reported gain of $3,361 per loan in the first quarter of 2021, according to the Mortgage Bankers Association's (MBA) newly released Quarterly Mortgage Bankers Performance Report.
"Net production profits dropped to the lowest level since the first quarter of 2019, but still remained above their historic quarterly average," said Marina Walsh, CMB, MBA's Vice President of Industry Analysis. "Competition stiffened, production volume declined, and the market began to shift towards more purchase activity and less refinances. The result for mortgage lenders was a combination of lower revenues and higher expenses."
Added Walsh, "Production revenues have declined for three straight quarters, and per-loan production expenses have increased for four straight quarters. This is a strong indication that the industry is moving away from the record-high profits of 2020."
Walsh also noted that there was a decline in servicing profitability, resulting from mortgage servicing right (MSR) markdowns and increased operating expenses. Combining both production and servicing operations, 85 percent of firms posted overall profitability for the second quarter of 2021, compared to 97 percent in the first quarter.
Key findings of MBA's second quarter of 2021 Quarterly Mortgage Bankers Performance Report include:
- The average pre-tax production profit was 73 basis points (bps) in the second quarter of 2021, down from an average net production profit of 124 bps in the first quarter of 2021, and down from 167 basis points on a year-over-year basis. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 55 basis points.
- Average production volume was $1.35 billion per company in the second quarter, down from $1.44 billion per company in the first quarter. The volume by count per company averaged 4,615 loans in the second quarter, down from 4,879 loans in the first quarter.
- Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 375 bps in the second quarter, down from 408 bps in the first quarter. On a per-loan basis, production revenues decreased to $10,691 per loan in the second quarter, down from $11,325 per loan in the first quarter.
- Net secondary marketing income decreased to 297 bps in the second quarter, down from 331 bps in the first quarter. On a per-loan basis, net secondary marketing income decreased to $8,500 per loan in the second quarter from $9,283 per loan in the first quarter.
- The purchase share of total originations, by dollar volume, increased to 57 percent in the second quarter from 39 percent in the first quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 44 percent in this year's second quarter.
- The average loan balance for first mortgages increased to a new study high of $297,816 in the second quarter, up from $288,551 in the first quarter.
- The average pull-through rate (loan closings to applications) was unchanged at 76 percent in the second quarter.
- Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,668 per loan in the second quarter, up from $7,964 per loan in the first quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,660 per loan.
- Personnel expenses averaged $5,911 per loan in the second quarter, up from $5,523 per loan in the first quarter.
- Productivity increased to 3.7 loans originated per production employee per month in the second quarter from 3.6 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 $7 per loan, down from $154 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 $71 per loan in the second quarter, up from $65 per loan in the first quarter.
- Including all business lines (both production and servicing), 85 percent of the firms in the study posted pre-tax net financial profits in the second quarter, down from 97 percent 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-three percent of the 361 companies that reported production data for the second quarter of 2021 were independent mortgage companies, and the remaining 17 percent were subsidiaries and other non-depository institutions.
There are five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. Media wishing to view a copy of either report should contact Adam DeSanctis at (202) 557-2727 or firstname.lastname@example.org. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA's website by visiting www.mba.org/PerformanceReport.