IMB Profits Grew 300% In 2019

By Jim Perskie

The lending business was significantly more profitable for independent mortgage banks (IMBs) in 2019.

IMBs and mortgage subsidiaries of chartered banks made an average profit of $1,470 on each loan they originated last year – up from $367 in 2018, according to a report released Friday by Mortgage Bankers Association.

The report also found:

  • Average production volume was $2.7 billion (10,411 loans) per company in 2019, up from $2 billion (8,171 loans) per company in 2018.
  • On a repeater company basis, average production volume was $2.94 billion (11,227 loans) in 2019, up from $2.14 billion (8,805 loans) in 2018. For the mortgage industry as whole, MBA estimates production volume at $2.17 trillion in 2019, up from $1.68 trillion in 2018.
  • The refinancing share of total originations (by dollar volume) increased to 34 percent in 2019 from 20 percent in 2018. For the mortgage industry as a whole, MBA estimates the refinancing share last year increased to 41 percent from 28 percent in 2018.
  • The average loan balance for first mortgages was $266,533 in 2019, up from $251,084 in 2018. This is the 10th consecutive year of rising loan balances on first mortgages.

“For many IMBs, 2019 is now a distant memory because of the mortgage market disruption caused by the ongoing COVID-19 pandemic,” said Marina Walsh, MBA’s vice president of Industry Analysis. “The many pain points right now for IMBs include liquidity constraints, volatility in the secondary markets, capacity issues from heightened refinance activity, mortgage origination obstacles due to social distancing, and escalating forbearance activity. All of these challenges could factor into the future profitability of many IMBs.”

Non-bank mortgage lenders are increasingly concerned about the effects of the coronavirus pandemic, especially if liquidity support isn’t offered by the federal government as more borrowers are unable to make payments.

The $2 trillion CARES Act comes with significant benefits for homeowners who are unable to make their mortgage payments, most notably a moratorium on foreclosures and the right to forbearance. Forbearance allows borrowers with a federally backed mortgage to put off payments for at least six months if they suffer economic hardship during the pandemic.

The law requires lenders to approve forbearance if requested by the borrower. The share of loans in forbearance climbed from 2.73 percent to 3.74 percent during the week ending April 5, according to the MBA. That’s up from 0.25 percent on March 2.

The MBA estimates that the burden on lenders could range from $75 billion to $100 billion or higher if one-quarter of borrowers take advantage of forbearance for six months or longer.

A growing number of members of Congress have called on regulators to provide liquidity support to non-bank lenders. A failure to act could trigger a mortgage crisis, advocates of the facility warn.

FHFA Director Mark Calabria told the Wall Street Journal, however, “I’ve seen zero [evidence] to suggest that there’s a systemic crisis across the nonbank servicers. If this goes on for a year, maybe. But I think the frustration here is a lot of just misrepresentation.” He dismissed their complaints as “spin.”

As Walsh notes, April 2020 is a long way from 2019. The MBA report found that 92 percent of the firms in the study posted pre-tax net financial profits in 2019, up from 69 percent in 2018. In the first half of 2019, 85 percent of reporting repeater firms posted pre-tax financial profits, compared to 93 percent in the second half of 2019.

“2019 was a much-improved mortgage market compared to the very challenging environment for the industry in 2018,” Walsh said.