IMBs nearly triple their net gain per loan in second quarter

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $4,548 on each loan they originated in the second quarter of 2020 – nearly tripling the average first-quarter gain of $1,600 per loan, according to a report by the Mortgage Bankers Association.

Average production volume rose from $728 million per company in the first quarter to an average of $1.02 billion per company in the second quarter.

In the first quarter production volume fell slightly, most likely due to March’s severe housing market volatility sparked by the COVID-19 pandemic. However, fueled by a surge in borrower demand and record-low mortgage rates, mortgage production profits in the second quarter reached the highest level since the report’s inception in 2008, said Marina Walsh, MBA’s vice president of industry analysis.

According to Walsh, Q2 saw an ideal combination of higher revenues coupled with lower costs. On a per-loan basis, production revenues increased to $11,686 per loan in the second quarter, up from $9,582 per loan in the first quarter, while total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased from $7,982 per loan in Q1 to $7,138 per loan in Q2, the report said.

The average pull-through rate (loan closings to applications) rose from 67% in the first quarter to 71% in the second quarter – a steady return to pre-pandemic levels when the average pull through rate sat at 78% in the fourth quarter.

With median home prices growing in 96% of metros during Q2, the average loan balance for first mortgages also increased to a new study high of $282,309 in the second quarter, up from $276,291 in the first quarter.

“Servicing profitability did take a hit last quarter. Mortgage servicing right (MSR) markdowns and amortization continued, and there was a loss of servicing income from elevated default activity. Despite these servicing losses, 96% of firms in the report posted overall profitability for the second quarter,” Walsh said.

Prior to the pandemic, servicing net financial income for the fourth quarter (without annualizing) was at $0 per loan. The first quarter experienced a sharp loss of $171 per loan, but that number fell back down to a loss of $68 per loan in the second quarter, according to the report.

Eighty-two percent of the 348 companies that reported production data for the second quarter of 2020 were independent mortgage companies, and the remaining 19% were subsidiaries and other non-depository institutions, according to the report.

On June 24, the Consumer Financial Protection Bureau released its annual report on Home Mortgage Disclosure Act data that revealed IMBs originated 54.5% of all reported loans for 2019, a significant increase from 2008, the year MBA first started reporting on IMBs, and when they accounted for just 24% of the mortgage origination share.

The post IMBs nearly triple their net gain per loan in second quarter appeared first on HousingWire.

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