1st Quarter Mortgage Profits Just Broke a 2008 Record

It wasn't a complete record setter, but mortgage bankers still established a few same quarter and other new highs as they kicked off the year with another profitable quarter. The first quarter 2021 Mortgage Bankers Performance Report from the Mortgage Bankers Association (MBA) shows a net gain of $3,361 on each loan originated by independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks. This was down from their reported profit of $3,738 per loan in the fourth quarter of last year. Combining both production and servicing operations, 97 percent of firms posted overall profitability during the quarter compared to 95 percent in Q4.

"Despite dropping slightly from the fourth quarter of 2020, net production profits reached their highest level for any first quarter since the inception of MBA's report in 2008," said Marina Walsh, CMB, MBA's Vice President of Industry Analysis. "Triple-digit basis-point profitability was seen for the fourth consecutive quarter - another record that surpasses the 2012 boom generated from the Home Affordable Refinance Program (HARP)."

She added, "Average production volume was also down from the previous quarter but was still at the highest level for any first quarter, as average loan balances continued their upward trajectory. Production revenues dropped again after peaking in the third quarter of 2020, and while production expenses rose slightly, the pace flattened from the previous two quarters."

Walsh also noted that there were more substantial improvements in net servicing financial profits, thanks to a recovery in the valuation of mortgage servicing rights (MSRs).

Total production revenue (fee income, net secondary marking income and warehouse spread) dipped from 421 basis points (bps) in the fourth quarter to 408 bps. On a per-loan basis, production revenues decreased to $11,325 per loan from $11,676 the previous quarter. Net secondary marketing income decreased to 331 bps from 346 bps and was down on a per-loan basis to $9,283 from $9,655.

Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,964 per loan from $7,938, Between the third quarter of 2008 to the first quarter of this year loan production expenses have averaged $6,621 per loan. Personnel expenses rose from an average of $5,426 per loan in the fourth quarter to $5,523.

The average pre-tax production profit was 124 bps, down from an average of 137 bps the prior quarter but more than twice the 61 bps a year earlier. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 55 basis points.

Average production volume was $1.44 billion per company compared to $1.47 billion in the prior quarter. The average volume by count was 4,879 loans verses 5,049 loans in Q4.

The purchase share of total originations, by dollar volume, decreased to 39 percent in the first quarter from 43 percent. For the mortgage industry as a whole, MBA estimates the purchase share was at 29 percent in this year's first quarter.

The average loan balance for first mortgages increased to a new study high of $288,551 in the first quarter. The balance averaged $287,131 in the last quarter of 2020.

Productivity declined to 3.6 loans originated per production employee per month from 4.2 loans. Production employees includes sales, fulfillment, and production support functions. The average closing rate (loan closings to applications) dipped to 76 percent from 78 percent.

Net financial servicing income for the first quarter (without annualizing) was at $154 per loan, compared to $5 per loan in the fourth 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 $65 per loan, up from $50 per loan the prior quarter.

Eighty-three percent of the 366 companies that reported production data for the first quarter of 2021 were independent mortgage companies, and the remaining 17 percent were subsidiaries and other non-depository institutions.