Production Profits Increase In Third Quarter Of 2021
Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported 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 second quarter of 2021, according to 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.”
Added Walsh, “Per-loan production expenses continued to rise for the fifth consecutive quarter, reaching the second-highest level ever reported. 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.”
Combining both production and servicing operations, 92 percent of firms posted overall profitability for the third quarter of 2021, compared to 84 percent in the second quarter.
Key findings of MBA’s third quarter of 2021 Quarterly Mortgage Bankers Performance Report include:
- 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 of 2021, and down from 203 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 $1.17 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.
- 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.
- Net secondary marketing income increased to 310 bps in the third quarter, up from 297 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $9,300 per loan in the third quarter from $8,500 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.
- 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.
- The average pull-through rate (loan closings to applications) decreased to 75 percent in the third quarter, down from 76 percent in the second quarter.
- Total loan production expenses – 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. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,707 per loan.
- Personnel expenses averaged $6,185 per loan in the third quarter, up from $5,911 per loan in the second quarter.
- 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 includes sales, fulfillment, and production support functions.
- Servicing net financial income for the third quarter (without annualizing) was at $37 per loan, up from $7 per loan in the second 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 $88 per loan in the third quarter, up from $71 per loan in the second quarter.
- Including all business lines (both production and servicing), 92 percent of the firms in the study posted pre-tax net financial profits in the third quarter, up from 84 percent in the second quarter.
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