Mortgage Bankers Saw Average Profit Per Loan Increase in Q1

Despite the economic impact of the COVID-19 crisis, which started in March, mortgage bankers reported a net gain of $1,600 on each loan they originated in the first quarter, up from a reported gain of $1,182 per loan in the fourth quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

For the 336 lenders that participated in the survey, average pre-tax production profit was 61 basis points (bps) in the first quarter, up from an average net production profit of 46 bps in the fourth quarter.

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,982 per loan in the first quarter, up from $7,525 per loan in the fourth quarter.

Personnel expenses averaged $5,345 per loan, up from $5,064.

The average loan balance for a first mortgage increased to a new study high of $276,291, up from $271,972.

“Mortgage production profits were strong in the first three months of 2020 – despite a decline in production volume from the fourth quarter and March’s severe market volatility sparked by the COVID-19 pandemic,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “As credit spreads widened, revenues grew by 25 basis points from the fourth quarter, offsetting a reported increase in expenses.”

Walsh notes that on the servicing side of the business, the likelihood of higher prepayments and pandemic-related delinquency activity resulted in mortgage servicing right (MSR) impairments and less profitability in the first quarter.

Net servicing financial income dropped to a loss of $171 per loan serviced, down from a break-even observed in the fourth quarter.

“Overall, it was a solid showing for independent mortgage banks – particularly for a first quarter – with 78 percent reporting profitability across production and servicing operations, compared to 84 percent in the fourth quarter,” Walsh says.