Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks had a strong year in 2021, although financial-performance numbers fell short of the heights seen during the prior year.
Per the annual Mortgage Bankers Performance Report from the Mortgage Bankers Association (MBA), IMBs realized an average profit of $2,339 on each loan they originated last year, down from the record $4,202 per loan posted in 2020. Measured in basis points (bps), the average production profit (or net production income) per loan was 82 bps in 2021, down from 157 bps one year earlier.
Such metrics are still far above average. Consider, for example, that since the MBA’s annual performance report for IMBs was established in 2008, net production income has averaged 60 bps per year. Other takeaways from the MBA’s figures, however, foreshadow a return to historic norms.
Average production volume per company was $4.9 billion (on 16,590 loans) — up from $4.5 billion and 16,198 loans in 2020. But due in part to increased personnel expenses for sales, fulfillment and production support functions, production expenses in 2021 rose to their highest level since the MBA began tracking IMB financial metrics in 2008. Total production expenses were at $8,664 per loan in 2021, up from $7,578 in 2020.
Meanwhile, total production revenues backtracked from 434 bps in 2020 to 382 bps in 2021. On a per-loan basis, they regressed from $11,780 in 2020 to $11,003 last year. The escalation of expenses and cooling of revenues each picked up steam in the last few months of the year, said Marina Walsh, the MBA’s vice president of industry analysis. Indeed, among companies that submitted data for both halves of 2021, the average production profit was 100 bps in the first six months of the year, a figure that declined to 62 bps in the second half.
“Performance in the second half of 2021 declined relative to the first half of the year, which is an indication of where market conditions are heading in 2022 in an environment of high expenses, rising mortgage rates and lower refinance originations,” Walsh said.
“After a truly phenomenal ride for mortgage companies, more difficult times are expected in 2022 and possibly beyond,” she added. “The widespread upward pressure on rates will diminish rate-and-term refinance volume, and housing-inventory shortages pose challenges for purchase originations. Staying profitable will require prudent cost management, as well as more reliance on servicing operations to serve as a hedge against production declines.”