Nonbank 3Q mortgage origination profits rise, but so do expenses

Higher production revenue led to a rebound in independent mortgage banker origination profitability in the third quarter, but expenses reached their second- highest level since the Mortgage Bankers Association started recording this data.

Independent mortgage bankers had a net gain of $2,594 per loan in the third quarter, or 89 basis points, up from $2,023 (73 bps) in the second quarter. This is well below the record $5,535, or 203 bps, earned in the third quarter of 2020.

Total loan production expenses, which consist of commissions, compensation, occupancy, equipment, along with other production costs and corporate allocations, increased to $9,140 per loan in the third quarter, compared with $8,668 per loan in the second quarter.

"Rising sales costs that are often determined based on a percentage of loan balances was one primary factor for the increase in expenses," Marina Walsh, the MBA's vice president of industry analysis, said in a press release. "The average loan balance for first mortgages reached another study-high in the third quarter, passing the $300,000 threshold for the first time to over $308,000."

Loan officer commissions are a percentage of the loan balance; a third quarter report from SimpleNexus LBA Ware found the average compensation for a purchase loan was 108 basis points, unchanged from the prior three months.

Personnel expenses averaged $6,185 per loan in the third quarter, the MBA found. This compares with $5,911 per loan in the second quarter and $7,452 in the third quarter last year.

Meanwhile, total production revenue, including fee income, net secondary marking income and warehouse spread, increased to 396 bps in the third quarter, up from 375 bps in the second quarter but down from 475 bps. On a per-loan basis, production revenues increased to $11,734 per loan in the third quarter, up from $10,691 on a quarter-to-quarter basis; one year ago it was $12,987.

Average production volume was $1.17 billion per company in the third quarter, down from $1.35 billion in the second quarter, as the unit count fell to an average of 3,889 loans from 4,615 loans over the same time frame.

At the same time, independent mortgage bankers reported net servicing financial income in the third quarter of $37 per loan, up from $7 in the second quarter and a loss of $30 in the third quarter of 2020.

Including both production and servicing, 92% of the firms in the study posted pretax net financial profits in the third quarter, up from 84% in the second quarter; one year earlier, however, 99% of these independent mortgage bankers and mortgage subsidiaries of banks were profitable.