Profit margins fall for non-banks


Non-bank and mortgage subsidiaries of chartered banks reported dismal profitability numbers in the fourth quarter of 2021, when costs hit a new high and margins fell to the lowest level since the start of 2019. And the most industry watchers believe it will only get worse in the coming quarters. .

According to a report published by the Mortgage Bankers Association (MBA) Thursday.

The data, compiled from 359 non-bank lenders, shows average pre-tax production profit was just 38 basis points in the fourth quarter, down from an average net production profit of 89 basis points. in the third quarter and down 137 basis points year over year. (The average quarterly production profit before tax, from the third quarter of 2008 to the most recent quarter, is 56 basis points.)

Additionally, average production volume was $1.13 billion per company, down slightly from $1.17 billion in the third quarter. The number of volumes per company averaged 3,711 loans, down from 3,889 loans issued in the prior quarter, the MBA said.

Marina Walsh, vice president of industry analysis at the MBA, said in a statement that net non-banking profits hit a three-year low after strong profitability.

“Among the headwinds were falling revenues and rising production costs,” she said.

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She added: “As revenues tighten and volumes slow, it becomes increasingly important for companies to adjust costs as the lending landscape shifts from a term refinancing market to a purchase and withdrawal refinancing.”

The fourth quarter saw total mortgage origination revenue fall to 353 basis points from 396 basis points in the first quarter, the MBA said. Per loan, production revenue was also hit, falling to $10,569 in the fourth quarter from $11,734 in the third quarter of 2021.

Meanwhile, production spend per loan continued to increase and now stands at $9,470 per loan, compared to $9,140 in the prior quarter. Personnel expenses also increased, averaging $6,438 per loan, from $6,185 per loan in Q3, further eroding mortgage profits.

Management net financial income increased from $37 per loan in the third quarter to $71 per loan in the fourth quarter. Servicing operations benefited from slower prepayments and low delinquencies which helped boost valuations of Mortgage Servicing Rights (MSRs).

The report shows that 76% of companies posted a net financial profit before tax in the fourth quarter – but it would be 58% if only the production operation was considered.

As another indicator that the market is shifting from refis to buy, the reported buy share of total originations was 60% in the fourth quarter. The trade group estimates that the cumulative purchase share for the mortgage industry was 47%.


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