IMB Production Profit Declines In Q4 2021

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $1,099 on each loan they originated in the fourth quarter of 2021, down from a reported gain of $2,594 per loan in the third quarter of 2021, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.

“Production margins tightened substantially in the fourth quarter of 2021. After a two-year run of above-average profitability, pre-tax net production income per loan reached its lowest level since the first quarter of 2019,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “Among the headwinds were lower revenues and higher production costs.”

Added Walsh, “The average cost to originate a mortgage has now risen for six quarters in a row, reaching a study-high of almost $9,500 per loan by the end of 2021. With revenue tightening and volume slowing, it is becoming increasingly important for companies to adjust costs as the lending landscape moves from a rate-term refinancing market to a purchase and cash-out refinancing market.”

Including all business lines (both production and servicing), 76 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter. Those firms with servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing right (MSR) valuations. Were it not for servicing operations, only 58 percent of the firms in the study would have posted a net financial profit in the fourth quarter.

Key findings of MBA’s fourth quarter of 2021 Quarterly Mortgage Bankers Performance Report include:

  • The average pre-tax production profit was 38 basis points (bps) in the fourth quarter of 2021, down from an average net production profit of 89 bps in the third quarter of 2021, and down from 137 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 56 basis points.
  • Average production volume was $1.13 billion per company in the fourth quarter, down from $1.17 billion per company in the third quarter. The volume by count per company averaged 3,711 loans in the fourth quarter, down from 3,889 loans in the third quarter of 2021.
  • Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 353 bps in the fourth quarter, down from 396 bps in the third quarter. On a per-loan basis, production revenues decreased to $10,569 per loan in the fourth quarter, down from $11,734 per loan in the third quarter.
  • Net secondary marketing income decreased to 275 bps in the fourth quarter, down from 310 bps in the third quarter. On a per-loan basis, net secondary marketing income decreased to $8,326 per loan in the fourth quarter from $9,300 per loan in the third quarter.
  • The purchase share of total originations, by dollar volume, increased to 60 percent in the fourth quarter from 59 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 47 percent in the fourth quarter of 2021.
  • The average loan balance for first mortgages increased to a new study high of $312,306 in the fourth quarter, up from $308,237 in the third quarter.
  • The average pull-through rate (loan closings to applications) increased to 78 percent in the fourth quarter, up from 75 percent in the third quarter.
  • Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to a study-high of $9,470 per loan in the fourth quarter, up from $9,140 per loan in the third quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,758 per loan.
  • Personnel expenses averaged $6,438 per loan in the fourth quarter, up from $6,185 per loan in the third quarter.
  • Productivity decreased to 2.4 loans originated per production employee per month in the fourth quarter from 3.6 loans per production employee per month in the third quarter. Production employees includes sales, fulfillment, and production support functions.
  • Servicing net financial income for the fourth quarter (without annualizing) was at $71 per loan, up from $37 per loan in the third 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 $87 per loan in the fourth quarter, down from $88 per loan in the third quarter.
  • Including all business lines (both production and servicing), 76 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 92 percent in the third quarter.