Mortgage originators’ profits remained strong in the fourth
quarter of 2020, although they were down considerably from the previous period.
The Mortgage Bankers Association’s (MBA’s) Mortgage Bankers Performance
says that independent mortgage banks (IMBs) and mortgage
subsidiaries of chartered banks reported a net gain of $3,738 on each loan they
originated during the quarter. In Q3 their reported profits were $5,535 per

The average pre-tax production
profit was 137 basis points
(bps) on an average loan size of $287,131 (a record
high) compared to the third quarter profit of 
203 basis points on an average origination balance of $282,659. In the
fourth quarter of 2019 the pre-tax profit was 46 basis points. MBA puts the average
pre-tax profit, from the third quarter of 2008 to the most recent quarter, at
53 basis points.

Total production revenue (fee
income, net secondary marketing income and warehouse spread) decreased to 421
bps or $11,676 per loan, from 475 bps in the third quarter or $12,987 per loan.
Net secondary marketing income decreased to 346 bps or $9,655 per loan from 394
bps or $10,883 per loan.

Total loan production expenses -
commissions, compensation, occupancy, equipment, and other production expenses
and corporate allocations – increased to $7,938 per loan in the fourth quarter,
from $7,452 in the third quarter. Personnel expenses grew to an average of $5,426
per loan from $5,124 per loan the previous quarter. From the third quarter of
2008 to last quarter, loan production expenses have averaged $6,594 per loan.

“Driven by strong borrower demand and a study-high in
average loan balances, production volume for independent mortgage companies reached
unprecedented heights
, averaging close to $1.5 billion per company in the
fourth quarter of 2020. Net production profits were at their third-highest
levels, surpassed only by last year’s second and third quarter,” said Marina
Walsh, MBA’s Vice President of Industry Analysis.

Added Walsh, “While production profits were still incredibly
strong in the fourth quarter, secondary marketing gains declined, resulting in
an overall drop in production revenue
. Also, production expenses increased for
the second straight quarter, despite higher volume that historically reduces
per-loan costs. Expenses rose by almost $500 per loan from the previous
quarter, as personnel costs increased across sales, fulfillment, production
support, and corporate overhead.”

Net financial income from servicing in
the fourth quarter (not annualized) was $5 per loan, compared to a loss of $30
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 $50 per loan in the
fourth quarter, up from $26 per loan in the third quarter.

Average production volume per
company totaled $1.47 billion in the fourth quarter, compared to $1.34 billion
the prior period. This was an average of 5,049 loans originated, up from 4,732
loans quarter-over-quarter. Per production employee productivity was 4.2 loans
per month, down from 4.3 per month in the third quarter. Production employees
include sales, fulfillment, and production support functions. The average
pull-through rate (loan closings to applications) rose from 72 percent in Q3 to
78 percent.

The purchase share of total
originations, by dollar volume, decreased to 43 percent from 46 percent in the
third quarter. MBA estimates the purchase share industry wide was 36 percent.

Eighty-three percent of the 366
companies that reported production data for the fourth quarter report were
independent mortgage companies, and the remaining 17 percent were subsidiaries
and other non-depository institutions. Including all business lines (both
production and servicing), 95 percent of the firms in the study posted pre-tax
net financial profits in the fourth quarter, down from 99 percent in the third

By Jann Swanson , dated 2021-03-24 08:50:35

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Courtesy of Mortgage News Daily

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