As more data from the second quarter is released, the strength of the housing and mortgage market becomes more apparent.
The Mortgage Bankers Association’s (MBA) latest report found that mortgage lenders reported second-quarter profits that were 184 percent higher than the first quarter, and the highest levels since MBA began tracking profits in 2008.
Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net gain of $4,548 on each loan they originated in the second quarter of 2020, up from a reported gain of $1,600 per loan in the first quarter.
“Fueled by a surge in borrower demand and record-low mortgage rates, mortgage production profits in the second quarter reached the highest level since the inception of MBA’s report in 2008,” MBA Vice President of Industry Analysis Marina Walsh said in a news release. “Production volume averaged over $1 billion per company, and there was an ideal combination of higher revenues and lower costs. Revenues climbed by 57 basis points from the first quarter, while expenses improved by $844 per loan. Productivity also increased, reaching levels not seen since 2012.”
Pre-tax production profits averaged 167 basis points (bps) in the quarter, nearly triple the 61 basis points registered in the first quarter. Companies averaged $1.02 billion in the second quarter across 3,631 loans.
Total production revenue – which includes fee income, net secondary marking income and warehouse spread – increased 19 percent to 429 bps in the second quarter. Revenues increased to $11,686 per loan in the second quarter, up 22 percent from the first quarter.
Refinances drove even higher in the second quarter, taking 61 percent of the share by dollar volume, up from 48 percent in the first quarter. For the mortgage industry as a whole, MBA estimated refinances had a 63 percent share in the quarter.
The average loan balance for first mortgages increased to a new study high of $282,309 in the second quarter, while the average pull-through rate was 71 percent.
Total loan production expenses – including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased 11 percent to $7,138 per loan in the second quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,548 per loan.
Productivity increased to 3.5 loans originated per production employee per month in the second quarter, up from 2.7 loans in the first quarter. Production employees includes sales, fulfillment, and production support functions.
The area where there was weakness came on the servicing side. Servicing net financial income for the second quarter (without annualizing) was at a loss of $68 per loan, compared with a loss of $171 per loan in the first quarter.
“Servicing profitability did take a hit last quarter,” Walsh stated. “Mortgage servicing right (MSR) markdowns and amortization continued, and there was a loss of servicing income from elevated default activity. Despite these servicing losses, 96 percent of firms in the report posted overall profitability for the second quarter.”
The 96 percent of profitable firms was up from 78 percent reporting profits in the first quarter.