Mortgage bankers made an average profit of $4,202 on each loan they originated in 2020, up significantly from $1,470 in 2019, according to the Mortgage Bankers Association’s (MBA) Annual Mortgage Bankers Performance Report.
“2020 was a banner year for the mortgage industry, despite the COVID-19 global health crisis essentially shutting down the U.S. economy in March and forcing personnel into remote work environments,” says Marina Walsh, vice president of industry analysis for the MBA, in a statement. “A surge in housing and mortgage demand, record-low mortgage rates, and widening credit spreads translated into soaring net production profits that reached their highest levels since the inception of MBA’s annual report in 2008.”
Walsh noted that in an unusual twist, the driver of production profitability in 2020 was production revenue, led by strong secondary marketing gains. Historically, production expenses drop when volume increases, but per-loan production expenses went up in 2020, as companies offered signing bonuses, incentives, overtime, and other compensation to address capacity constraints and meet mortgage demand. Furthermore, rising loan balances meant hefty sales commissions, often earned based on a percentage of the loan amount.
“On the servicing side of the business, heavy prepayments, combined with elevated default and forbearance activity, contributed to a loss of servicing income,” Walsh says. “Valuation markdowns on mortgage servicing rights and servicing amortization resulted in heavy hits to the overall servicing bottom line, especially for those servicers that did not hedge their MSRs.”
Profits on the production side of the business generally compensated for the servicing losses. Including both production and servicing operations, 99% of the firms posted overall pre-tax net financial profits in 2020, compared to 92% of firms in 2019 and only 69% of firms in 2018.
“In early 2021, we are already seeing declines in pipeline volume – particularly refinance volume – as mortgage rates have risen in the first quarter,” Walsh says. “Also, secondary marketing income has dropped from last year’s highs, as credit spreads have tightened. Mortgage companies that can adjust quickly to changing market conditions and are able to harness still robust purchase demand are best poised for a successful 2021.”
Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to an average of $7,578 per loan in 2020, up from $7,535 in 2019.
Personnel expenses averaged $5,272, up from $5,094 per loan in 2019.