Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks made $1,099 on each originated loan in Q4 2021, dropping from Q3’s $2,594, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.
More than three-fourths (76%) of firms analyzed made a net profit in Q4, especially firms with servicing operations. Those benefited from slower prepayments and low delinquencies which boosted their MSR valuations.
But it’s a decrease from Q3’s rate of 92%. Plus, if no firms in the study had servicing operations, only 58% would have made a net profit last quarter.
“Production margins tightened substantially in the fourth quarter of 2021. 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. Among the headwinds were lower revenues and higher production costs,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis.
She noted that the average cost to originate a mortgage is up for the sixth consecutive quarter to a record high of $9,470 per loan.
“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,” she added.
Originations have been on a rollercoaster trend down since rates began rising. Purchase applications fell 2% last week, while refinances plummeted by 14%. Layoffs are beginning at brokerages trying to weather the declines.
The average pre-tax production profit was 38 bps in Q4, down from 89 bps in Q3 and 137 bps year-over-year.
Average production volume was $1.13 billion per company, down from $1.17 billion in Q3. The volume by count per company averaged 3,711 loans, down from 3,889 loans in Q3.
Total production revenue– including fee income, net secondary marketing income, and warehouse spread– fell to 353 bps, down from 396 bps in Q3. Production revenues dropped to $10,569 per loan, down from $11,734 per loan in Q3.
The dollar-volume purchase share of total originations increased to 60% from 59% in Q3. For the industry as a whole, MBA estimated that the purchase share was 47% in Q4 of 2021.
The average loan balance for first mortgages increased to a study-high of $312,306 in Q4, up from $308,237 in Q3.
Servicing net financial income was at $71 per loan, up from $37 per loan in Q3. Servicing operating income was $87 per loan, down from $88 per loan in Q3.