While servicing income was down, independent
mortgage banks (IMBs) and mortgage subsidiaries of chartered banks had a very
profitable second quarter. They reported an average net gain of $4,548 on each
loan they originated, up from a reported gain of $1,600 per loan in the first
quarter of 2020, according to the Mortgage Bankers Association’s (MBA) newly
released Quarterly Mortgage Bankers Performance Report.
“Fueled by a surge in borrower
demand and record-low mortgage rates, mortgage production profits in the second
quarter reached the highest level since the inception of MBA’s report in
2008,” said Marina Walsh, MBA’s Vice President of Industry Analysis.
“Production volume averaged over $1 billion per company, and there was an
ideal combination of higher revenues and lower costs. Revenues climbed by 57
basis points (bps) from the first quarter, while expenses improved by $844 per
loan. Productivity also increased, reaching levels not seen since 2012.”
Added Walsh, “Servicing
profitability did take a hit last quarter. Mortgage servicing right (MSR)
markdowns and amortization continued, and there was a loss of servicing income
from elevated default activity. Despite these servicing losses, 96 percent of
firms in the report posted overall profitability for the second quarter.”
Non-annualized net income from servicing
was a loss of $68 per loan, compared to a loss of $171 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 $23 per loan in the second quarter,
down from $52 per loan in the first quarter.
Total production revenue (including fee
income, net secondary marking income and warehouse spread) increased to 429 bps
from 362 bps in the first quarter. Production revenues increased to $11,686 per
loan from $9,582 per loan. Net secondary marketing income accounted for 341 bps
of production revenue or $9355 per loan compared to 283 bps and $7,548 in the
Average production volume was $1.02
billion per company, up from $728 million per company the prior period. The average
loan count per company increased to 3,631 loans from 2,654 loans in the first
quarter. Productivity increased to 3.5 loans originated per production employee
per month, up from 2.7 loans per month in the prior period. Production
employees includes sales, fulfillment, and production support functions.
Total loan production expenses -
commissions, compensation, occupancy, equipment, and other production expenses
and corporate allocations – decreased to $7,138 per loan from $7,982 per loan
in the first quarter. From the third quarter of 2008 to last quarter, loan
production expenses have averaged $6,548 per loan. Personnel expenses averaged
$4,992 compared to $5,345 per loan in Q1.
The average pre-tax production
profit was 167 bps in the second quarter, up from an average net production
profit of 61 bps in the first quarter of 2020.
Including all business lines (both
production and servicing), 96 percent of the firms in the study posted pre-tax
net financial profits in the second quarter, up from 78 percent in the first
Purchase mortgages had a 39 percent share
of total originations by dollar volume, down from 52 percent in the first
quarter. For the mortgage industry as a whole, MBA estimates the purchase share
was at 37 percent during the second quarter. The average pull-through rate
(loan closings to applications) was 71 percent, an increase of 4 percentage
The average loan balance for first
mortgages increased to a new study high of $282,309. The balance averaged $276,291
in the first quarter.
MBA’s Mortgage Bankers
Performance Report is derived from a survey covering 348 mortgage
originating companies. Eighty-two percent of the respondents were independent
mortgage companies, and the remaining 19 percent were subsidiaries and
other non-depository institutions.