MortgageOrigination

Average IMB made over $5,500 in profit per loan in Q3

Despite an increase in production costs, nonbank lenders are reaping the rewards of an ultra-hot market

Independent mortgage banks (IMB) and mortgage subsidiaries of chartered banks saw an average net gain of $5,535 on each loan they originated in the third quarter of 2020, up dramatically from the $4,548 in profit-per loan they recorded just a quarter prior, according to a new report from the Mortgage Bankers Association.

“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, the trade organization’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.” 

Walsh noted that high origination volumes typically reduce production expenses, but that wasn’t the case in the third quarter. Costs actually rose. “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,” she said in a statement.

According to the MBA, the average pre-tax profit was 203 basis points (bps) in the third quarter, up from an average of 167 bps in the second quarter. The average quarterly pre-tax profit margin from Q3 2008 to Q3 2020 is 52 bps.

The average IMB generated $1.34 billion in origination volume in the third quarter, up from $1.02 billion sequentially. Total production revenue for IMBs, which includes fee income, net secondary marking income and warehouse spread, increased to 475 bps in the third quarter, up from 429 bps a quarter prior. 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.


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Here are some other pertinent statistics from the MBA’s quarterly mortgage bankers performance report:

  • 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% 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% in the third quarter, up from 71% 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 includes 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% of the firms in the study posted pre-tax net financial profits in the third quarter, up from 96% in the second quarter.  

Eighty-four percent of the 347 companies that reported production data for the third quarter of 2020 to the MBA were independent mortgage companies, and the remaining 16% were subsidiaries and other non-depository institutions.

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