TheMReport

MReport September 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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M REPORT | 51 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 DATA IMBs Report Profit Losses in Q2 With IMBs reporting an overall net loss of $82 on each loan they originat- ed in Q2, one analyst notes that "the second quarter of 2022 did not yield the usual Spring seasonal pick-up in purchase activity." I ndependent mortgage banks (IMBs) and mortgage sub- sidiaries of chartered banks reported a net loss of $82 on each loan they originated in Q2 of 2022, down from a reported gain of $223 per loan in Q1 of 2022, according to the Mortgage Bank- ers Association's (MBA) newly released Quarterly Mortgage Bankers Performance Report. "The second quarter of 2022 did not yield the usual Spring sea- sonal pick-up in purchase activity, in an environment of higher mortgage rates, low housing inventory, and affordability chal- lenges," said Marina Walsh, CMB, MBA's VP of Industry Analysis. "With lower volume, lower revenues, and higher costs relative to the first quarter, the average pre-tax net production income per loan reached its lowest level since the fourth quarter of 2018." Added Walsh, "Combining both production and servic- ing operations, only 57% of the companies in our report were profitable. Pulling out a profit in these difficult conditions is no easy feat." Key findings of MBA's Q2 2022 Quarterly Mortgage Bankers Performance Report include: • The average pre-tax production loss was 5 basis points in Q2 of 2022, down from an average net production profit of 5 basis points in Q1 of 2022, and down from 73 basis points in Q2 of 2021. The only other quarters in the survey's history to record net production losses were: Q1 of 2014 (8 basis points), Q1 of 2018 (8 basis points), and Q 4 of 2018 (11 basis points). The aver- age quarterly pre-tax produc- tion profit, from Q 3 of 2008 to the most recent quarter, is 54 basis points. • Average production volume was $705 million per company in Q2, down from $808 mil- lion per company in Q1. The volume by count per company averaged 2,139 loans in Q2, down from 2,587 loans in Q1. • Total production revenue (fee income, net secondary market- ing income, and warehouse spread) decreased to 335 bps in Q2, down from 350 basis points in Q1. On a per-loan basis, production revenues decreased to $10,855 per loan in Q2, down from $10,861 per loan in Q1. • Net secondary marketing income decreased to 243 basis points in Q2, down from 270 basis points in Q1. On a per-loan basis, net secondary marketing income decreased to $7,939 per loan in Q2 from $8,429 per loan in Q1. • The purchase share of total originations, by dollar volume, increased to 81% in Q2 from 63% in Q1. For the mortgage indus- try as a whole, MBA estimates the purchase share was at 70% in Q2 of 2022. • The average loan balance for first mortgages increased to a new study high of $337,130 in Q2, up from $324,368 in Q2. • The average pull-through rate (loan closings to applications) increased to 75% in Q2, up from 73% in Q1. • Total loan production expens- es—commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—increased to a study-high of $10,937 per loan in Q2, up from $10,637 per loan in Q1 of 2022. From Q 3 of 2008 to last quarter, loan pro- duction expenses have averaged $6,902 per loan. • Personnel expenses averaged $7,371 per loan in Q2, up from $7,113 per loan in Q1. • Productivity decreased to 1.7 loans originated per produc- tion employee per month in Q2 from 1.8 loans per production employee per month in Q1. Production employees include sales, fulfillment, and produc- tion support functions. • Servicing net financial income for the second quarter (without annualizing) was at $133 per loan, down from $242 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 $97 per loan in Q2, up from $94 per loan in Q1. • Including all business lines (both production and servicing), 57% of the firms in the study posted pre-tax net financial profits in the second quarter, down from 72% in Q1.

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