Non-bank lender earnings drop to five-quarters low however nonetheless above common

Profits from independent mortgage lenders and banking subsidiaries fell to two-year lows in the second quarter, reflecting both margin compression and declining production, according to the Mortgage Bankers Association.

The quarterly Mortgage Bankers Performance Report reported net income for the IMBs of $ 2,023 per origination, or 73 basis points, for the second quarter of 2021, compared to $ 3,361 and 124 basis points for the first three months of the year. The number showed an even bigger decline from Q2 2020, a period of heightened economic activity in the mortgage business, when net income was $ 4,548 and 167 basis points per loan.

“Production revenues have decreased for three consecutive quarters and production costs per loan have increased for four quarters in a row. This is a strong indication that the industry is moving away from the record earnings of 2020, "said Marina Walsh, vice president of Industry Analysis for the MBA, in a press release.

However, Walsh found that despite declining earnings, earnings per loan were still above the historic quarterly average of 55 basis points, which dates back to 2008 when the survey was launched. In addition, base point gains rarely hit the three-digit numbers seen in the last four quarters.

“The competition intensified, the production volume decreased and the market began to shift towards more purchasing activities and less refinancing. The result for mortgage lenders has been a combination of lower income and higher expenses, ”Walsh said.

Average production volume was $ 1.35 billion per company compared to $ 1.44 billion in the first quarter, with total loans per lender averaging 4,615 units in the second quarter, up from 4,879 loans in the previous quarter.

The expenses that weighed on profit margins due to increased purchasing activities included commissions, remuneration, occupancy, equipment, and other costs and company allocations. In the second quarter, these rose to $ 8,668 per loan from $ 7,964 in the previous three months. Historically, these expenses averaged $ 6,660 per quarter. Staff costs made up the bulk of spending, averaging $ 5,911 per loan, up from $ 5,523 in the first quarter.

The IMB's dollar volume purchases were 57% for the quarter, down from 39% in the first quarter, while the industry's total purchases were 44% of the volume, down from 29%.

Although demand has cooled due to rising home prices and a smaller pool of homeowners looking to refinance, Freddie Mac raised his issuance outlook for the year last month, anticipating an increase in both the purchase and refinancing segments.

Contributing to the lower IMF numbers was that net operating profits also decreased, mainly due to discounts on the fair value of mortgage service rights and increased operating costs. Net financial income for the second quarter was $ 7 per loan, up from $ 154 for the first three months of 2021. But operating income for the segment, which excludes depreciation, any gain or loss in the valuation of service rights less hedging and gains, or MSR bulk sales losses were $ 71 per loan in the second quarter, compared to $ 65 per loan in the first quarter.

The MBA data is compiled from surveys of 361 independent mortgage lenders or chartered banks' housing subsidiaries. Taking both their credit production and service segments into account, 85% of companies reported net profits in the second quarter, up from 97% in the first quarter.

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