MortgageOrigination

Profits for nonbanks shrink 44% in 2021

Net gains in 2021 declined to $2,339 on each loan originated, compared to a record $4,202 in the previous year

Nonbanks and mortgage subsidiaries of chartered banks saw a big dip in profitability in 2021 amid rising interest rates, lower refinance originations, and higher expenses. In 2022 and beyond, industry observers believe it will only get worse. 

Net gains in 2021 declined to $2,339 on each loan originated, compared to a record $4,202 in the previous year, according to a report published by the Mortgage Bankers Association (MBA) on Monday. The data, compiled from 273 firms, shows that 96% of the firms posted a pre-tax net financial profit last year, down from 99% in the previous year.

The average production profit went from 157 basis points in 2020, a record high, to 82 basis points in 2021. From 2008 through 2021, the average annual production profit was 60 basis points, or $1,456 per loan.

Marina Walsh, vice president of industry analysis at the MBA, said in a statement that 2021 was another stellar year, with production profits well above average, however down 75 bps from the record-setting 2020. “Performance in the second half of 2021 declined relative to the first half of the year, which is an indication of where market conditions are heading in 2022.”

The report shows that average production volume came in at $4.9 billion per company last year, an increase from $4.5 billion in 2020. Volume count per company averaged 16,590 loans, up from the 16,198 loans made the previous year. 

The average loan balance for first mortgages reached a study-high $298,324 in 2021, compared to $278,725 in 2020, the largest single-year increase since the report started in 2008.


3 questions lenders should ask before implementing non-QM

With refinance volumes anticipated to decrease by 62% this year and many originators experiencing layoffs, lenders are looking for a way to diversify their offerings with non-QM products and gain new business in order to maintain profits.

Presented by: Acra Lending

The total mortgage production revenue dipped to 382 bps, down from 434 bps in 2020, the MBA said. On a per-loan basis, production revenue also took a hit, declining to $11,003 in 2021 compared to $11,780 in 2020.

Meanwhile, per-loan production expenses have continued climbing and now hover at $8,664 per loan, compared to $7,578 in the prior year. This is the highest level since the inception of the report in 2008, according to Walsh.

Personnel expenses for sales, fulfillment and production support functions also rose, climbing to an average of $5,971 per loan, up from $5,272 per loan in 2020, further eating into mortgage profits. Productivity was 2.5 loans per employee per month in 2021, compared to 3.3 loans in the previous year.

Servicing net financial income went from a loss of $176 per loan in 2020 to a gain of $261 per loan in 2021. Servicing operations benefited from slower prepayments and low delinquencies that helped boost mortgage servicing rights (MSR) valuations.

As a further indicator that the market is shifting from refis to purchase, the reported purchase share of total originations was at 46% in 2021, down from 55% in 2020. The trade group estimates that the cumulative purchase share for the mortgage industry went from 63% to 57% in the same period.

In 2022 and beyond, Walsh said more difficult times are expected amid  upward pressure on rates, which will diminish rate-term refinance volume. Also, housing inventory shortages pose challenges for purchase originations. 

“Staying profitable will require prudent cost management, as well as more reliance on servicing operations to serve as a hedge against production declines.”

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please