Lower revenues and higher expenses had a hand in the results
Independent mortgage banks and mortgage subsidiaries of chartered banks reported hefty declines in their profit in the second quarter of 2021.
The average profit for each loan slumped from $3,361 in the previous quarter to $2,023, according to new figures from the Mortgage Bankers Association. The net production profits plummeted from 124 basis points (bps) to 72 basis points quarter over quarter – the lowest since Q1 2019.
"Competition stiffened, production volume declined, and the market began to shift towards more purchase activity, and less refinances," said Marina Walsh, vice president of industry analysis at MBA. "The result for mortgage lenders was a combination of lower revenues and higher expenses."
Production revenues fell for the third consecutive quarter, down from 408 bps to 375 bps. On a per-loan basis, production revenues were down from $11,325 for each loan to $10,691 per loan. Meanwhile, total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) rose from $7,964 per loan in Q1 to $8,668 per loan in Q2.
Walsh said that this "is a strong indication that the industry is moving away from the record-high profits of 2020."
She added that servicing profitability also plunged from $154 per loan to just $7 per loan during the quarter due to mortgage servicing right (MSR) markdowns and increased operating expenses. Combining production and servicing operations, 85% of firms posted overall profitability for Q2, compared to 97% in Q1.
The average production volume was $1.35 billion per company in the second quarter, down from $1.44 billion per company in the first quarter. The average volume by count per company also declined, down from 4,879 loans to 4,615 loans quarter over quarter.