Mortgage profits drop in second quarter on lower volume

Net gains declined to $2,023 on each loan originated in Q2 compared to $3,361 the previous quarter, the MBA said.

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported less profit in the second quarter, with net gains declining to $2,023 on each loan originated compared to $3,361 in the previous quarter, according to a report published by the Mortgage Bankers Association.

The data, compiled from 361 companies, shows that the average pre-tax production profit was 73 basis points in the second quarter, down from an average net production profit of 124 bps in the first quarter and a decrease of 167 bps year-over-year.

Additionally, the average production volume came in at $1.35 billion per company, a decline from $1.44 billion in Q1. Volume count per company averaged 4,615 loans, decreasing from 4,879 loans the previous quarter, the MBA said.

Marina Walsh, vice president of industry analysis at the MBA, said that net production profits were at their lowest level since the first quarter of 2019, but still hovered above the historic quarterly average.

“Competition stiffened, production volume declined, and the market began to shift towards more purchase activity and less refinances,” Walsh said. “The result for mortgage lenders was a combination of lower revenues and higher expenses.”

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The second quarter saw total mortgage production revenue dip to 375 bps, down from 408 bps in the first quarter, the MBA said.

On a per-loan basis, production revenue also took a hit, declining to $10,691 per loan in the second quarter compared to $11,325 per loan in the first quarter of 2021. The decline in mortgage production revenues marks a third consecutive quarterly decline, Walsh remarked.

“This is a strong indication that the industry is moving away from the record-high profits of 2020,” Walsh said.

Walsh also noted that servicing profitability dropped as a result of mortgage servicing right (MSR) markdowns and increased operating expenses.

“Combining both production and servicing operations, 85 percent of firms posted overall profitability for the second quarter of 2021, compared to 97 percent in the first quarter,” she said.

As a further indicator that the market is shifting from refis to purchase, the reported purchase share of total originations increased to 57% from 39% in the first quarter. The trade group estimates that the cumulative purchase share for the mortgage industry was 44%.

Meanwhile, per-loan production expenses have continued climbing for the fourth consecutive quarter and now hover at $8,668 per loan.

Personnel expenses also rose, climbing to an average of $5,911 per loan, up from $5,523 per loan in Q1, further eating into mortgage profits.

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