Majority of mortgage lenders likely turned a profit in Q3

The positive trend lines that saw nearly 80% of mortgage lenders turn a profit in the second quarter likely continued through the third quarter, according to Marina Walsh, the Mortgage Bankers Association‘s vice president of industry analysis.

Though the survey on industry performance report for the third quarter has not yet been published, Walsh told the crowd at MBA Annual in Denver on Sunday night that industry production and the expense management moves enacted in Q2 remained consistent in the third quarter.

Roughly 350 independent mortgage banks and subsidiaries of depository banks participate in the quarterly survey. Overall, the average IMB in Q2 2024 made a pre-tax net profit of $693 per loan, with total production revenue at 347 bps and total loan expenses falling to 330 bps.

“Revenue’s holding up OK. Certainly we’re not at 450 [basis points] like we were during the pandemic, but 350 is trending a bit. So again, revenues plus expenses, we’re heading there in the third quarter, I think we’re going to be spending somewhere similar to what we were spending in the second quarter,” she said.

Citing the Q2 figures, Walsh said that of the 350 mortgage lenders, companies in the 50th percentile and 75th percentile for net production income were profitable.

“That is good sign. That means the majority of the folks here are able to generate a profit. And keep in mind, this is a profit before we talk about servicing.”

Walsh said that according to HMDA data, the cost to originate for depository banks was $17,071 per loan in 2023. The cost for an IMB to originate was $13,251 per loan.

“It comes down to expense. It’s a matter of containing those costs, so we have to look at the various pieces here,” she said.

Sales expenses were higher on a percentage basis for IMBs at 55%, but their corporate administration (14%) and production support (8%) costs were lower. Sales costs for banks were 43% but corporate administration was much higher at 23% and production support was 12%.

Critically, pull-through rates on refis fell significantly in 2023, Walsh said. “We saw a drop below 50%. I think for our full sample, it was around 45%, and it dropped down about seven percentage for purchases.”