TheMReport — News and strategies for the evolving mortgage marketplace.
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42 | M R EP O RT 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 IMB Profits Decrease in Q1 The closings-to-application ratio declined by five percentage points in Q1, affecting both revenue and cost, while rising mortgage rates and low housing supply resulted in lower production volume. I ndependent mortgage banks (IMBs) and mortgage sub- sidiaries of chartered banks reported a net gain of $223 on each loan they originated in Q1 of 2022—down from a reported gain of $1,099 per loan in Q 4 of 2021— according to the Mortgage Bank- ers Association's (MBA) newly released Quarterly Mortgage Bankers Performance Report. "It was a challenging mortgage market environment in the first quarter of 2022, with rising mort- gage rates and low housing inven- tory resulting in lower production volume. The average pre-tax net production income was only 5 basis points, which is the lowest since the fourth quarter of 2018 and well below the quarterly average of 55 basis points dating back to 2008," said Marina Walsh, CMB, MBA's VP of Industry Analysis. "While lower produc- tion revenue contributed to scant profit margins, the primary driver was cost, with total loan produc- tion expenses ballooning to a new study-high of $10,637 per loan—up more than $1,000 per loan from fourth-quarter 2021 and more than $2,500 per loan from one year ago." Including all business lines— both production and servic- ing—72% of the firms in the study posted a pre-tax net financial profit in Q1 of 2022. Those firms with servicing operations ben- efited from slower prepayments and low delinquencies that helped boost mortgage servicing right (MSR) valuations. "In addition to cost increases, productivity slipped for both sales and fulfillment staff," Walsh said. "Furthermore, pull-through rates of closings to applications declined by 5 percentage points in the first quarter, affecting both revenue and cost. With the record-setting refinance volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will need to make tough decisions." Key findings of MBA's First- Quarter 2022 Quarterly Mortgage Bankers Performance Report: • The average pre-tax production profit was 5 basis points (bps) in Q1 of 2022, down from an average net production profit of 38 bps in Q 4 of 2021, and down from 124 basis points on a year- over-year basis. The average quarterly pre-tax production profit, from Q 3 of 2008 to the most recent quarter, is 55 basis points. • Average production volume was $808 billion per company in Q1, down from $1.13 billion per company in Q 4 of 2021. The volume by count per company averaged 2,587 loans in Q1, down from 3,711 loans in last year's Q 4. • Total production revenue—fee income, net secondary market- ing income, and warehouse spread—decreased to 350 bps in Q1, down from 353 bps in Q 4. On a per-loan basis, production revenues increased to $10,861 per loan in Q1, up from $10,569 per loan in the fourth quarter. • Net secondary marketing income decreased to 270 bps in Q1, down from 275 bps in Q 4. On a per-loan basis, net second- ary marketing income increased to $8,429 per loan in Q1 from $8,326 per loan in Q 4. • The purchase share of total originations, by dollar volume, increased to 63% in Q1 from 60% in Q 4. For the mortgage industry as a whole, MBA es- timates the purchase share was at 55% in Q1 of 2022. • The average loan balance for first mortgages increased to a new study high of $324,368 in Q1, up from $312,306 in Q 4. • The average pull-through rate (loan closings to applications) decreased to 73% in Q1, down from 78% in Q 4. • Total loan production expens- es—commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to a study-high of $10,637 per loan in Q1, up from $9,470 per loan in Q 4 of 2021. From Q 3 2008 to last quarter, loan pro- duction expenses have averaged $6,829 per loan. • Personnel expenses averaged $7,113 per loan in Q1, up from $6,438 per loan in Q 4. • Productivity decreased to 1.8 loans originated per produc- tion employee per month in Q1 from 2.4 loans per production employee per month in Q 4 Production employees includes sales, fulfillment, and produc- tion support functions. • Servicing net financial income for Q1 was at $242 per loan, up from $71 per loan in Q 4. Servicing operating income, which excludes MSR amortiza- tion, gains/loss in the valuation of servicing rights net of hedg- ing gains/losses and gains/losses on the bulk sale of MSRs, was $94 per loan in Q1, up from $87 per loan in Q 4. • Including all business lines— both production and servic- ing—72% of the firms in the study posted pre-tax net finan- cial profits in Q1, down from 76% in Q 4.