Independent lenders made an average profit of $1,470 on each loan in 2019, up from $367 per loan in 2018.

Independent residential lenders and subsidiaries of chartered banks made an average profit of $1,470 on each loan they originated in 2019, up from $367 per loan in 2018, the Mortgage Bankers Association reported in its Annual Mortgage Bankers Performance Report. “2019 was a much-improved residential finance market compared to the very challenging environment for the industry in 2018,” said Marina Walsh, MBA Vice President of Industry Analysis. “After an unfavorable first quarter, independents saw significant improvement in profitability starting in the second quarter, driven by a jump in refinancing activity from the steady decline in rates on home loans. As volume escalated, production costs dropped from 2018 levels by $743 per loan.” Walsh noted for companies holding servicing rights, one downside was that prepayment activity triggered heavy MSR amortization and write-downs. “These write-downs were particularly painful for servicers that did not hedge their MSRs,” she said. Walsh said profits on the production side of the business generally compensated for servicing losses. Including both production and servicing operations, 92 percent of the firms posted pre-tax net financial profits in 2019, compared to only 69 percent of firms in 2018. “For many IMBs, 2019 is now a distant memory because of the market disruption caused by the ongoing COVID-19 pandemic,” Walsh said. “The many pain points right now for IMBs include liquidity constraints, volatility in the secondary markets, capacity issues from heightened refinance activity, origination obstacles due to social distancing, and escalating forbearance activity. All of these challenges could factor into the future profitability of many IMBs.”

Source: MBA