Independent mortgage banks’ profit margins plummet during fourth quarter

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks realized a net gain of $1,099 on each originated loan during the fourth quarter of 2021, according to the Mortgage Bankers Association (MBA).

That’s down significantly from $2,594 per loan in the third quarter. Average pre-tax production profit plunged to just 38 basis points in Q4 2021, a steep decline from 89 bps one quarter prior and 137 bps in the fourth quarter of 2020.

“Production margins tightened substantially in the fourth quarter of 2021,” said Marina Walsh, the MBA’s vice president of industry analysis. “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.”

Per company, the average production volume was $1.13 billion, down from $1.17 billion in the third quarter. Companies averaged 3,711 loans in the fourth quarter, down from 3,889 loans in the third.

On a per-loan basis, production revenues on those loans decreased from $11,734 in the third quarter to $10,569 in the fourth quarter. Total production revenue fell to 353 bps, down quarterly from 396 bps.

Meanwhile, expenses have grown, with total production expenses, including commissions, compensation, occupancy, equipment and other corporate allocations, rose to $9,470 per loan. That’s up from $9,140 per loan in the third quarter to reach the highest level since the MBA began keeping track. Personnel expenses, in particular, averaged $6,438 per loan, up from $6,185 per loan one quarter prior.

“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,” Walsh said. “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, 76% of the firms participating in the MBA’s study turned a pre-tax net financial profit in the fourth quarter. This figure was improved by firms with servicing operations, which were helped by slower prepayments and lower delinquencies that helped boost mortgage servicing rights (MSR) valuations. If only production operations were taken into account, just 58% of participating firms would have seen a pre-tax net financial profit.


More Headlines