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M R EP O RT | 39 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Independent Mortgage Bankers' Quarterly Profits Dip Analysts say stiffer competition, lower production volume, and a shift in purchase/refi activity led to lower revenues and higher expenses. I ndependent mortgage bank- ers' profits declined since the first quarter of the year but remain above average, the latest numbers show. Independent mortgage banks, along with mortgage subsidiar- ies of chartered banks, reported a net gain of $2,023 on each loan they originated in Q2 2021, down from a reported gain of $3,361 per loan in the first quarter of the year, according to the Quarterly Mortgage Bankers Performance Report published by Mortgage Bankers Association (MBA). That makes for the lowest net produc- tion profits since the first quarter of 2019, but the totals remained above their historic quarterly average, said Marina Walsh, CMB, MBA's VP of Industry Analysis. "Competition stiffened, produc- tion volume declined, and the market began to shift toward more purchase activity and less refinanc- es. The result for mortgage lenders was a combination of lower rev- enues and higher expenses." Added Walsh, "Production revenues have declined for three straight quarters, and per-loan production expenses have in- creased for four straight quarters. This is a strong indication that the industry is moving away from the record-high profits of 2020." Walsh also noted a decline in servicing profitability, resulting from mortgage servicing rights (MSR) markdowns and increased operating expenses. Combining both production and servicing operations, 85% of firms posted overall profitability for the second quarter of 2021, compared to 97% in the first quarter. Further key findings from the report included (from MBA summary): » The average pre-tax production profit was 73 basis points (bps) in Q2 of 2021, down from an average net production profit of 124 bps in the first quarter of 2021, and down from 167 basis points on a year-over-year basis. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 55 basis points. » Average production volume was $1.35 billion per company in Q2, down from $1.44 bil- lion per company in Q1. The volume by count per company averaged 4,615 loans in Q2, down from 4,879 loans in Q1. » Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 375 bps in the second quarter, down from 408 bps in Q1. On a per-loan basis, production revenues decreased to $10,691 per loan in the second quarter, down from $11,325 per loan in Q1. » Net secondary marketing income decreased to 297 bps in the second quarter, down from 331 bps in the first quarter. On a per-loan basis, net secondary marketing income decreased to $8,500 per loan in the second quarter from $9,283 per loan in the first quarter. » The purchase share of total originations, by dollar volume, increased to 57% in the second quarter from 39% in the first quarter. For the mortgage indus- try as a whole, MBA estimates the purchase share was at 44% in this year's Q2. » The average loan balance for first mortgages increased to a new study high of $297,816 in the second quarter, up from $288,551 in the first quarter. » The average pull-through rate (loan closings to applications) was unchanged at 76% in the second quarter. » Total loan production expenses— commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to $8,668 per loan in the second quarter, up from $7,964 per loan in the first quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,660 per loan. » Personnel expenses averaged $5,911 per loan in the second quarter, up from $5,523 per loan in the first quarter. » Productivity increased to 3.7 loans originated per produc- tion employee per month in the second quarter from 3.6 loans per production employee per month in the first quarter. Production employees includes sales, fulfillment, and produc- tion support functions. » Servicing net financial income for the second quarter (without annualizing) was at $7 per loan, down from $154 per loan in the first quarter. Servicing operating income, which excludes 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 $71 per loan in the second quarter, up from $65 per loan in the first quarter. » Including all business lines (both production and servicing), 85% of the firms in the study posted pre-tax net financial profits in the second quarter, down from 97% in the first quarter. The entire performance report is available at MBA.org/performan- cereport. "Production revenues have declined for three straight quarters, and per-loan production expenses have increased for four straight quarters. This is a strong indication that the industry is moving away from the record- high profits of 2020."