Profit margins are plunging for nonbanks

Costs increased again in Q4 2021, while margins were at the lowest level in two years

Nonbanks and mortgage subsidiaries of chartered banks reported grim profitability figures in the fourth quarter of 2021, when costs reached a new high and margins fell to the lowest level since early 2019. And most industry observers think it will only get worse in the next few quarters. 

Net gains in Q4 declined to $1,099 on each loan originated, compared to $2,594 in the previous quarter, according to a report published by the Mortgage Bankers Association (MBA) on Thursday.

The data, compiled from 359 nonbank lenders, shows that the average pre-tax production profit was just 38 basis points in the fourth quarter, down from an average net production profit of 89 bps in the third quarter and a decrease from 137 bps on a year-over-year basis. (The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 56 basis points.)

Additionally, the average production volume came in at $1.13 billion per company, a small decline from $1.17 billion in Q3. Volume count per company averaged 3,711 loans, a drop from the 3,889 loans made the previous quarter, the MBA said.

Marina Walsh, vice president of industry analysis at the MBA, said in a statement that net production profits for nonbanks reached their three-year low following a strong run of profitability.

“Among the headwinds, were lower revenues and higher production costs,” she said.

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She added: “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.”

The fourth quarter saw total mortgage production revenue dip to 353 bps, down from 396 bps in the first quarter, the MBA said. On a per-loan basis, production revenue also took a hit, declining to $10,569 in the fourth quarter compared to $11,734 in the third quarter of 2021.

Meanwhile, per-loan production expenses have continued climbing and now hover at $9,470 per loan, compared to $9,140 in the prior quarter. Personnel expenses also rose, climbing to an average of $6,438 per loan, up from $6,185 per loan in Q3, further eating into mortgage profits.

Servicing net financial income went from $37 per loan in the third quarter to $71 per loan in the fourth quarter. Servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing rights (MSR) valuations.

The report shows that, 76% of the firms posted a pre-tax net financial profit in the fourth quarter – but it would be 58% if considered only the production operation.

As a further indicator that the market is shifting from refis to purchase, the reported purchase share of total originations was at 60% in the fourth quarter. The trade group estimates that the cumulative purchase share for the mortgage industry was 47%.


  1. Interesting that profits are lower per loan. I dont see how when mortgage rates could have been lower that the margin spreads were paid out in signing bonuses for hiring support staff and recruiting originators. Why couldnt the retained earnings have been spread over a further period to make up for what was the inevitable or higher rates? Would that have reduced per loan fee of the present? Probably not as units are decreasing anyway. I like the information on the article, but there is a bit of sensationalism that comes with it.

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