IMB first-quarter profit decline

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Independent Mortgage Banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $223 on every loan they originated in the first quarter of 2022 – down from a reported gain of $1,099 a year earlier. ready in the fourth quarter of 2021 – according to the Mortgage Bankers Association (MBA) Recently released Quarterly Mortgage Banker Performance Report.

“It was a challenging environment for the mortgage market in the first quarter of 2022, with rising mortgage rates and low housing inventory leading to lower production volume. Average pre-tax net production income was just $5 basis points, which is the lowest since the fourth quarter of 2018 and well below the quarterly average of 55 basis points dating back to 2008,” said Marina Walsh, CMB, vice president of MBA industry Analysis: “While lower production revenue contributed to weak profit margins, the main driver was cost, with total loan production expenses hitting a new record high of $10,637 per loan – up from over $1,000 per loan from Q4 2021 and over $2,500 per loan from a year ago.

Including all business sectors – both manufacturing and services – 72% of companies in the study posted net financial profit before tax in the first quarter of 2022. Companies with service operations benefited from slower prepayments and low delinquencies which helped improve mortgage servicing (MSR).

“In addition to cost increases, productivity has dropped for both sales and fulfillment staff,” Walsh said. “Furthermore, application close success rates declined by 5 percentage points in the first quarter, affecting both revenue and costs. With the record refinancing volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will have to make difficult decisions.

Key findings from MBA’s Q1 2022 Quarterly Mortgage Banker Performance Report:

  • Average pretax production profit was 5 basis points (bps) in the first quarter of 2022, down from an average net production profit of 38 basis points in the fourth quarter of 2021, and down from 124 basis points on an annual basis. The average quarterly production profit before tax, from the third quarter of 2008 to the most recent quarter, is 55 basis points.
  • Average production volume was $808 billion per company in the first quarter, compared to $1.13 billion per company in the fourth quarter of 2021. Number volume per company averaged 2,587 loans in the first quarter, compared to 3,711 loans in the fourth quarter of last year.
  • Total production revenue – commission revenue, net secondary marketing revenue and warehouse spread – fell to 350 basis points in the first quarter from 353 basis points in the fourth quarter. On a per-loan basis, production revenue increased to $10,861 per loan in the first quarter from $10,569 per loan in the fourth quarter.
  • Secondary marketing net income decreased to 270 basis points in the first quarter from 275 basis points in the fourth quarter. On a per loan basis, secondary marketing net revenue increased to $8,429 per loan in the first quarter from $8,326 per loan in the fourth quarter.
  • The share of purchases in total originations, in dollar volume, increased from 60% in Q4 to 63% in Q1. For the mortgage industry as a whole, MBA estimates the purchase share was 55% in the first quarter of 2022.
  • The average first mortgage balance hit a new high of $324,368 in the first quarter, from $312,306 in the fourth quarter.
  • The average success rate (application loan closes) decreased to 73% in the first quarter from 78% in the fourth quarter.
  • Total loan production expenses — commissions, compensation, occupancy, equipment and other production expenses and corporate allowances — rose to a high of $10,637 per loan in the first quarter, from $9,470 per loan in the fourth quarter of 2021. From the third quarter of 2008 to the last quarter, loan production expenses averaged $6,829 per loan.
  • Personnel expenses averaged $7,113 per loan in the first quarter, compared to $6,438 per loan in the fourth quarter.
  • Productivity declined from 2.4 loans per production employee per month in Q1 to 1.8 loans issued per production employee per month in Q4. Production employees include sales, fulfillment and production support functions.
  • Management net finance income for the first quarter was $242 per loan, compared to $71 per loan in the fourth quarter. Management operating income, which excludes amortization of MSRs, gains/losses in the valuation of management rights net of hedging gains/losses and gains/losses on bulk sale of MSRs, was $94 per loan in the first quarter, compared to $87 per loan in the fourth quarter.
  • All business sectors combined (production and services), 72% of the companies in the study posted net financial profits before tax in the first quarter, compared to 76% in the fourth quarter.

To read the full report, Click here.

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