Independent Mortgage Banker Profits Increase in Q3

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"With the surge in mortgage production volume in the third quarter, net production profits among independent mortgage bankers increased, surpassing 200 basis points for the first time since the inception of MBA's report in 2008," said Marina Walsh, CMB, MBA's Vice President of Industry Analysis. "Soaring production revenues - led by strong secondary marketing gains - drove these results and more than offset an increase in production expenses."

Added Walsh, "Production expenses usually drop with increased volume, as fixed costs are spread over more loans. But in the third quarter, costs rose despite the volume increase. One major reason for this increase was escalating personnel costs, including signing bonuses, incentives, overtime, and commissions that were pushed higher with the need and competition for workforce talent."

Combining both production and servicing operations, a study-high 99 percent of firms posted overall profitability for the third quarter, despite continued net servicing losses resulting from MSR impairment and amortization.

Key findings of MBA's third quarter of 2020 Quarterly Mortgage Bankers Performance Report include:

• The average pre-tax production profit was 203 basis points (bps) in the third quarter, up from an average net production profit of 167 bps in the second quarter of 2020. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 52 basis points.

• Average production volume was $1.34 billion per company in the third quarter, up from $1.02 billion per company in the second quarter. The volume by count per company averaged 4,732 loans in the third quarter, up from 3,631 loans last quarter.

• Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 475 bps in the third quarter, up from 429 bps in the second quarter. On a per-loan basis, production revenues increased to $12,987 per loan in the third quarter, up from $11,686 per loan in the second quarter.

• Net secondary marketing income increased to 394 bps in the third quarter, up from 341 bps in the second quarter. On a per-loan basis, net secondary marketing income increased to $10,833 per loan in the third quarter from $9,355 per loan in the second quarter.

• The purchase share of total originations, by dollar volume, increased to 46 percent in the third quarter from 39 percent in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 43 percent in this year's third quarter.

• The average loan balance for first mortgages increased to a new study high of $282,659 in the third quarter, up from $282,309 in the second quarter.

• The average pull-through rate (loan closings to applications) was 72 percent in the third quarter, up from 71 percent in the second quarter.

• Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,452 per loan in the third quarter, up from $7,138 per loan in the second quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,566 per loan.

• Personnel expenses averaged $5,124 per loan in the third quarter, up from $4,992 per loan in the second quarter.

• Productivity increased to 4.3 loans originated per production employee per month in the third quarter, up from 3.5 loans per production employee per month in the second quarter. Production employees include sales, fulfillment, and production support functions.

• Servicing net financial income for the third quarter (without annualizing) was at a loss of $30 per loan, compared to a loss of $68 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 $26 per loan in the third quarter, up from $23 per loan in the second quarter.

• Including all business lines (both production and servicing), 99 percent of the firms in the study posted pre-tax net financial profits in the third quarter, up from 96 percent in the second quarter.