Independent mortgage banker profits near 7-year high

by Ryan Smith22 Nov 2019

Profits for independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks hit an almost seven-year high in the third quarter, according to a new report from the Mortgage Bankers Association.

IMBs and mortgage subsidiaries of chartered banks reported a net gain of $1,924 on each loan they originated in Q3, up from $1,675 in the second quarter, according to the MBA’s Quarterly Mortgage Bankers Performance Report.

“A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012 ($2,256 per loan),” said Marina Walsh, vice president of industry analysis for the MBA. “The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue. With higher prepayment activity seen from borrowers refinancing, net servicing income did not take a hit for the second straight quarter. Overall, it was a strong summer for independent mortgage banks, with 91% reporting profitability.”

The average pre-tax production profit in Q3 was 74 basis points, up from an average net production profit of 64 bps in Q2. Average production volume was $781 million per company, up from $601 million per company in Q2.

The volume by count was an average of 2,880 loans per company in the third quarter, up from 2,312 in Q2.  Total production revenue – including fee income, net secondary marketing income and warehouse spread – fell to 349 bps in Q3 from 370 bps in Q2. On a per-loan basis, production revenues decreased to $9,142 per loan in Q3 from $9,400 per loan in Q2.

Personnel expenses decreased in Q3, falling to an average of $4,871 per loan from the second quarter’s $5,186 per loan.