Independent mortgage banks (IMBs) are finally seeing light at the end of the tunnel after two grueling, profitless years in the mortgage industry.
IMBs and mortgage subsidiaries of chartered banks on average reported a pre-tax net profit of $693 on each loan they originated in the second quarter of 2024, an increase from a loss of $645 per loan in the previous quarter, according to the Mortgage Bankers Association (MBA).
“With a pickup in quarterly volume, productivity and closings-to-applications pull-through, production costs dropped by about $1,800 per loan. These developments contributed to better net results, even as production revenues decreased from the previous quarter,” said Marina Walsh, MBA’s vice president of industry analysis.
Almost 80% of mortgage companies in the sample posted overall profits, including both production and servicing business lines. Of the 345 companies that reported production data, 82% were IMBs and the remaining 18% were subsidiaries and other non-depository institutions.
Total production revenue – including fee income, net secondary marketing income and warehouse spread – decreased to 347 basis points (bps) in the second quarter, down from 371 bps in the first quarter. On a per-loan basis, production revenues decreased to $11,499 per loan in the second quarter, down from $11,947 per loan in the previous quarter.
Total loan production expenses – including commissions, compensation, occupancy, equipment and other corporate allocations – dropped to 330 bps quarter over quarter from 395 bps. Loan production expenses decreased to $10,806 per loan in the second quarter, down from $12,593 in the previous quarter but up from the average loan production expense of $7,389 per quarter from Q2 2008 to Q2 2024.
Servicing operating income – which excludes mortgage servicing rights (MSR) amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs – was $88 per loan in Q2, down from $93 in the first quarter.
The sale of MSRs does not directly impact earnings as a revenue stream, but the conversion of MSRs into cash via sales deals bolsters a lender’s cash flow and overall liquidity.
The MBA expects mortgage origination volume for one- to four-family homes to post $429billion in Q2 2024, up from $411 billion in Q1 2024, according to its latest forecast.
The trade group also projected the 30-year fixed mortgage rate to average around 6.5% in Q2 2024 before falling to 5.9% in the next quarter.
